[Paleopsych] TLS: (John Gray) Robert Skidelsky: What's wrong with global capitalism?

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Robert Skidelsky: What's wrong with global capitalism?
The Times Literary Supplement, 98.3.27
http://the-tls.co.uk/archive/story.aspx?story_id=2093931&window_type=print

    FALSE DAWN. Delusions of global capitalism. John Gray. 240pp. Granta
    Books. £17.99. - 1 86207 023 7

    While reading John Gray's False Dawn, a diatribe against global
    capitalism, I had to keep reminding myself that I was reviewing a
    book, not a person. Gray's intellectual gyrations have become
    legendary. I am told he was a socialist in the 1970s. He was a
    Thatcherite in the 1980s. (The Iron Lady once said to me: "What ever
    happened to John Gray? He used to be one of us.") Then he adopted the
    fashionable communitarianism. Judging from his latest book, he is what
    Marx would have called a "Reactionist" - with hope extinguished, but
    with a lively apprehension of disaster. He plays each role with
    passion and panache. But with so much here today, gone tomorrow, it is
    hard to know how seriously to take his arguments.

    These are very much hit-and-miss. Half-way through reading False Dawn,
    an economist friend of mine exclaimed in exasperation "This is the
    worst book I have ever read. In almost every sentence there is a
    mistake, every statement is questionable." I would put it more
    generously. For one thing, Gray can write. His prose crackles with
    analytic energy. There are intermittent flashes of good sense. He says
    things about the varieties of capitalist forms, and the requirements
    for a civilized life, which are wise and true. He understands
    perfectly well that our future may be neither paradisaical nor
    hellish, but something in between. Then all of a sudden he goes off
    the rails, leaving the reader with a violent feeling of resistance to
    his exaggerations, distortions, and his whole intellectual
    personality.

    This is a great pity, because Gray is writing about a centrally
    important subject. It has become almost a cliche to say that
    globalization is reconnecting the last decade of the twentieth century
    to the first decade, putting paid to the pathological and even benign
    forms of statism which dominated the intervening years. As The
    Economist quipped: "Communism was a long detour from capitalism to
    capitalism." The question is whether the new globalism, based on
    markets, will auto-destruct like the old globalism did.

    A brief summary of Gray's thesis would go like this. Since the 1980s,
    there has been a determined attempt by something called the
    "Washington consensus" to impose free-market liberalism on the world.
    The collapse of Communism created the illusion that America had "won"
    the ideological war. It was an illusion, according to Gray, because
    laissez-faire economics can no more be realized than can Communism.
    They are twin stems of what he calls the "Western Enlightenment
    project" - the belief that the world can be reshaped according to the
    dictates of reason. Both are failed or failing utopias. Just as
    Communism failed to realize the brotherhood of man, global capitalism
    will fail to bring about universal harmony. It does not spawn a
    "single" global economy but a congeries of rival, resentful, rancorous
    national capitalisms which will become locked in a life-and-death
    struggle. Today's regime of global markets, Gray tells us, will be
    briefer than even the belle epoque of 1870 to 1914, since a regulatory
    framework for the world's diverse economies "figures on no historical
    or political agenda". He writes, "We stand on the brink of a tragic
    epoch, in which anarchic market forces and shrinking natural resources
    drag sovereign states into ever more dangerous rivalries. A deepening
    international anarchy is the human prospect." One cannot get much
    gloomier than that. In the attempt to interpret the post-Communist
    world, Gray plays Jeremiah to Fukuyama's Pangloss.

    Before discussing the nature and substance of Dr Gray's argument, let
    me say a word about its auspices. Gray stands in a long line of
    critics of capitalism. He does not add anything to Karl Marx's superb
    passages on capitalism in the Communist Manifesto, published 150 years
    ago. "The bourgeoisie", Marx wrote, cannot exist without constantly
    revolutionizing the instruments of production, and thereby the
    relations of production, and with them the whole relations of society.
    Uninterrupted disturbance of all social conditions, everlasting
    uncertainty and agitation distinguish the bourgeois era from all other
    ones. All fixed, fast-frozen relations, with their train of ancient
    and venerable prejudices and opinions, are swept away, all new formed
    ones become antiquated before they can ossify. All that is solid melts
    into air, all that is holy is profaned . . . .

    This powerful caricature captures a likeness which we can all
    recognize, namely the insatiable restlessness of capitalist
    civilization. And Marx was equally prescient about its globalizing
    propensities: "The need of a constantly expanding market for its
    products chases the bourgeoisie over the whole surface of the globe."

    A more direct borrowing is from The Great Transformation (1944) by
    Karl Polanyi. Gray follows Polanyi in distinguishing between markets
    "embedded" in social relations, which Polanyi saw as "natural" to
    human society, and the attempt to create a "free" market system which
    pulverizes all social relations. It is the latter which is utopian and
    has to be "created by state coercion". Curiously, Gray omits the
    essence of Polanyi's distinction between "social" and "free" markets.
    "Social" markets are confined to goods, whereas the free-market system
    incorporates the factors of production. It was the attempt to subject
    land, labour and capital to the logic of buying and selling which, for
    Polanyi, constituted the core of the nineteenth-century liberal
    project; and the resistance to this attempt which eventually produced
    the social-democratic welfare state. As John Gray tells it,
    dismantling society's defences against free markets is at the heart of
    the contemporary "neo-liberal" project.

    Both Marx and Polanyi were optimists. But the consolation of optimism
    is no longer possible for Gray. Capitalism does not pauperize the
    worker as Marx thought it would, but constantly enlarges the numbers
    of the affluent; more and more people and countries move up the income
    ladder. So Marx's own terminus, the revolution, is cut off. Gray
    reworks the Marxist categories in describing the delayering,
    down-sizing effects of the new information technology: "The result is
    a re-proletarianization of much of the industrial working class and
    the de-bourgeoisification of what remains of the former middle
    classes." But his is not a revolutionary scenario. It is capitalism,
    not Communism, which abolishes classes. Since all global markets make
    social democracy unviable, we are left with a world of disoriented
    masses, ready to be mobilized under the banner of xenophobic
    nationalism. The historical model for this sort of relapse is fascism.

    The most obvious thing about this kind of argument is its excessively
    abstract character. I once chaired a debate between Gray and the
    Harvard economist Jeffrey Sachs, at which Gray accused Sachs (and his
    kind) of ignoring the historical particularities of different
    societies. But what struck me (and others) was that Gray was right up
    in the air, whereas Sachs actually knew a great deal about the
    different societies whose governments he had been advising. Like many
    whose reverence for history and culture is essentially Olympian,
    Gray's knowledge of the historical and cultural terrain is very
    sketchy. For example, he implies that it was the stresses and strains
    of capitalist civilization which brought about the destruction of the
    first globalist "project" in 1914, without bothering to consider
    whether autocratic rule in Germany, Austro-Hungary and Russia might
    have had something to do with it. Those who argued that trade would
    have a pacifying effect never neglected the importance of responsible
    government. Today's world is much more democratic than that of 1914,
    and I know of no case of democracies going to war with each other.

    Gray's account of the dislocating effects of capitalist civilization
    is also highly overwrought. The market system brings great benefits to
    most of its participants, but it is an inherently difficult
    discipline, which goes against deep-seated tribal instincts. The
    possibility of anti-market movements is therefore always there. But
    Gray fails to make a distinction, crucial to any sensible discussion
    of this matter, between stress and instability. Indeed, he conflates
    the two all the way through. Most people are fairly adaptable, and a
    sizeable minority welcome challenges. They are also very adept in
    preserving old forms of life in new conditions. What is lethal for a
    market-based order is violent instability, because this severs the
    connection between effort and reward. Keynes understood this better
    than anyone, and it is an insight we need to regain - for example, in
    our international monetary arrangements. The fluctuations of the
    dollar, the yen and the yuan certainly contributed to East Asia's
    financial crises. But a general rant does nothing for clear thinking.

    Gray discusses the impact of free-market economics in various parts of
    the world. His general conclusion is that they have produced, or
    contributed to, social breakdown and rising inequality wherever they
    have been tried. It is far from clear whether he attributes these
    consequences to globalization per se, to new technologies, or to the
    "intellectual fashion" for free markets, and what the relationship
    between these three things might be.

    On the one hand, we are told that globalization has created competing
    capitalisms subject to a kind of Gresham's Law, with the bad driving
    out the good. The paradigmatic "bad" economy is the United States.
    Gray's hatred of American capitalism is visceral; free markets there
    are apparently responsible for the policy of "mass incarceration" - a
    phrase repeated many times with evident relish. At any rate, having
    reproletarianized its own people through down-sizing, delayering and
    other heinous practices, "American free markets work to undercut both
    European and Asian social market economies", which are burdened with
    social costs. What is it about America that drives everyone else down?
    Gray argues that, "in the contest between free market economies and
    social market systems, free markets are often superior in
    productivity". He talks about American productivity "steadily rising".
    Yet on the previous page he writes, "US employment has grown as fast
    as it has partly because US productivity (he means "growth of
    productivity") has been low - around half that of most European
    countries". Elsewhere Gray claims that "the root cause of falling
    wages and rising unemployment is the worldwide spread of the new
    technology". He then states correctly that "wage rates in any economy
    are determined by its domestic labour market, not by wage rates in
    other countries". It is not possible to reconcile these various
    assertions. If Gray were thinking clearly or honestly about these
    things, he would be forced to admit that globalization has not had
    much effect on patterns of domestic income distribution. Nor has it
    been "global markets . . . which make social democracy unviable".
    Globalization has nothing whatsoever to do with the crisis of the
    welfare state. Rather, this crisis reflects "tax resistance", an
    increased unwillingness to pay for social programmes by the average
    taxpayer. Nowhere in this book is the important phenomenon of "tax
    resistance" treated properly.

    Gray's most serious mistake is to attribute to free-market policies
    the pains and dislocations involved in admittedly often botched
    attempts to escape from previously controlled economies experiencing
    crisis or breakdown. This vitiates a large part of his discussion of
    the effects of free-market capitalism in Russia, New Zealand and
    Mexico. His account of post-Communist Russia, while factually
    accurate, is almost worthless as interpretation, because he makes no
    allowances for the extent to which the system had ceased to function
    under Gorbachev.

    He states that a major shift in New Zealand's policy "may have been
    unavoidable", but makes no mention of the stagnant and debt-ridden
    state of the New Zealand economy when the reforms began fourteen years
    earlier. The adjustment costs - worsened by poor sequencing of reforms
    - were a by-product of liberalizing an economy which had become one of
    the most over-regulated and inefficient in the Western world. Contrary
    to Gray's assertion that "income inequalities increased in New Zealand
    more than in any other western countries", the increase in income
    inequality which occurred with rising unemployment has, in fact, been
    arrested since the labour market was freed up in 1991 and unemployment
    started falling.

    Similarly, the calamities which have befallen Mexican society are not
    the consequence of the so-called "neo-liberal" project, but the
    product of many years of state intervention in, and massive regulation
    of, the Mexican economy, a "project" that was no longer sustainable by
    1982. In particular, the number and type of state-owned industries
    reached ridiculous proportions by the end of Lopez Portillo's regime.
    Gray attributes the revolt of Chiapas to neo-liberalism. In fact, the
    misery of this region was a direct consequence of decades, if not
    centuries, of arbitrary government intervention.

    It is not the individual mistakes or questionable interpretations
    which are depressing but the cumulative effect of the whole. Hayek was
    once asked why he didn't review Keynes's General Theory. There was no
    point, he replied. "By the time I would have finished my review, he
    would have changed his mind." In fact, Keynes did not change his mind.
    But I hope John Gray will change his. He has a great contribution to
    make - if only he can steer a steadier course.

    Lord Skidelsky is Professor of Political Economy at the University of
    Warwick and the author of The World After Communism: A polemic for our
    times, 1995.