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NY Times, June 29 2016
In ‘Brexit’ and Trump, a Populist Farewell to Laissez-Faire Capitalism
by Eduardo Porter
Prime Minister Margaret Thatcher and President Ronald Reagan in 1984.
Their belief in unfettered markets, which guided policy for a
generation, is under fire. Credit Agence France-Presse — Getty Images
Donald J. Trump and Boris Johnson: Is this how the era ushered in by
Ronald Reagan and Margaret Thatcher finally ends?
It once looked as though the financial crisis of 2008 might even bring
about the end of laissez-faire economics. “The idea of an all-powerful
market which is always right is finished,” declared Nicolas Sarkozy,
then the president of France. And Peer Steinbrück, Germany’s finance
minister at the time, predicted that “the U.S. will lose its status as
the superpower of the world financial system.”
Even Alan Greenspan, the former Fed chairman, once known as the
“maestro” of capitalism, declared himself “in a state of shocked
disbelief” at the collapse wrought by the unfettered markets he had
championed throughout his life. “I’ve found a flaw,” he said. “I’ve been
very distressed by that fact.”
But I suspect few would have guessed that the economic order built on
Reagan’s and Thatcher’s common faith in unfettered global markets (and
largely accepted by their more liberal successors Bill Clinton and Tony
Blair) would be brought down by right-wing populists riding the anger of
a working class that has been cast aside in the globalized economy that
the two leaders trumpeted 40 years ago.
Britons’ vote last week to exit the European Union was not simply about
their idiosyncratic distaste for all things European — an aversion
shared by Thatcher, who saw Brussels as the kind of meddlesome big
government she loathed. Brussels was merely a stand-in for something
deeper: the very globalization that Thatcher as Britain’s prime minister
so enthusiastically promoted.
The so-called Brexit vote was driven by an inchoate sense among older
white workers with modest education that they have been passed over,
condemned by forces beyond their control to an uncertain job for little
pay in a world where their livelihoods are challenged not just by cheap
Asian workers halfway around the world, but closer to home by waves of
immigrants of different faiths and skin tones.
It is the same frustration that has buoyed proto-fascist political
parties across Europe. It is the same anger fueling the candidacy of Mr.
Trump in the United States.
Across Europe — in struggling Spain and affluent Sweden, even in
Europe’s champion competitor, Germany — more citizens would like to see
powers returned from Brussels to their national governments than would
like to see more powers go the other way, according to a poll conducted
last spring by the Pew Research Center.
Older people throughout the European Union express nearly as much
dissatisfaction as those in Britain’s aging industrial heartland who
defied the will of the young and voted to leave by a wide margin. Even
at the very center of the European project, only 31 percent of the
French 50 years old and up have a favorable view of the European Union.
Their frustration is turning traditional ideological labels on their
heads. Mr. Trump, a bombastic businessman who’s never held office, and
Mr. Johnson, the former journalist turned mayor of London, might not put
it this way, since they continue to cling to a conservative mantle. But
they are riding a revolt of the working class against a 40-year-long
project of the political right and its corporate backers that has
dominated policy making in the English-speaking world for a generation.
As the conservative magazine National Review gleefully noted, the big
“Leave” victories came “deep in the Labour heartland.”
So where does capitalism go now? What can replace a consensus built by a
charismatic American president and a bull-in-a-china-shop British prime
minister in favor of small governments and unrestrained markets around
the world?
The British political scientist Andrew Gamble at the University of
Cambridge has argued that Western capitalism has experienced two
transformational crises since the end of the 19th century. The first,
brought about by the Depression of the 1930s, ended an era in which
governments bowed to the gospel of the gold standard and were expected
to butt out of the battles between labor and capital, letting markets
function on their own, whatever the consequences.
In his 2010 book, “Capitalism 4.0,” the London-based economic
commentator Anatole Kaletsky refers to a document in the archive of the
British Treasury that shows the reaction of the permanent secretary to a
proposal by the great economist John Maynard Keynes to use government
spending to spur Britain’s economy. It has three words: “Extravagance,
Inflation, Bankruptcy.”
Mr. Keynes’s views ultimately prevailed, though, providing the basis for
a new post-World War II orthodoxy favoring active government
intervention in the economy and a robust welfare state. But that era
ended when skyrocketing oil prices and economic mismanagement in the
1970s brought about a combination of inflation and unemployment that
fatally undermined people’s trust in the state.
Even the former president of France François Mitterrand — a Socialist
who nationalized the banking system, increased government employment and
raised public-sector pay after being elected in 1981 — was forced into a
U-turn. In 1983, he froze the budget and brought about “la rigueur”: the
austerity.
The Keynesian era ended when Thatcher and Reagan rode onto the scene
with a version of capitalism based on tax cuts, privatization and
deregulation that helped revive their engines of growth but led the
workers of the world to the deeply frustrating, increasingly unequal
economy of today.
There are potentially constructive approaches to set the world economy
on a more promising path. For starters, what about taking advantage of
rock-bottom interest rates to tap the world’s excess funds to build and
repair a fraying public infrastructure? That would employ legions of
blue-collar workers and help increase economic growth, which has been
only inching ahead across much of the industrialized world.
After the Brexit vote, Lawrence Summers, former Treasury secretary under
President Clinton and one of President Obama’s top economic advisers at
the nadir of the Great Recession, laid out an argument for what he
called “responsible nationalism,” which focused squarely on the
interests of domestic workers.
Instead of negotiating more agreements to ease business across borders,
governments would focus on deals to improve labor and environmental
standards internationally. They might cut deals to prevent cross-border
tax evasion.
There is, however, little evidence that the world’s leaders will go down
that path. Despite the case for economic stimulus, austerity still rules
across much of the West. In Europe, most governments have imposed
stringent budget cuts — ensuring that all but the strongest economies
would stall. In the United States, political polarization has brought
fiscal policy — spending and taxes — to a standstill.
The cost of inaction could be enormous. Mr. Johnson’s campaign to reject
British membership of the European Union is already producing political
and economic shock waves around the world. Mr. Trump — whose solutions
include punishing China with high tariffs and building a wall with
Mexico — is trying to ride workers’ angst into the most powerful job in
the world.
There are less catastrophic ways to put an end to an era.
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