Tuesday, March 24, 2009

At last! Someone in the media "gets" it!

And I'm delighted to see it's someone as respected as Niall Ferguson.

Suppose that a government can have any two of the following things, but not all three: globalisation, in the sense of openness to international flows of goods, services, capital and labour; social stability; and a small state. Or, to put it differently, conservatives can pick any two from an open economy, a stable society and political power – but not all three.

Ferguson points out - as I've been saying - that globalisation always leads eventually to a major collapse of the economic system. He claims it is every 50 years - personally I believe it is much quicker than that. Globalisation in its current form has only been happening for the last 15-20 years and that was the case before the previous global depression and the one before that (and both previous periods of globalisation were preceded by the emergence of a new communications technology that allowed for globalisation). But I'm not going to argue the specifics with Ferguson - the point is that he confirms my own thinking that globalisation ALWAYS ends in a major economic crisis. But I'm a nobody and Ferguson is a respected economic historian - so I'm just glad that my view is not completely off the wall.

Ferguson also goes on to confirm my own belief that globalisation is often seen as an instrument of conservatism, where as I believe that it is actually an instrument of socialism. After all, what is globalisation if not a redistributive system for wealth? Wealth flows out of the established economies to the developing economies as manufacturing and industry is relocated to those countries where labour is cheap and plentiful. The established economies maintain an appearance of affluence by resorting to huge amounts of credit and the credit bubble begins. Eventually this credit bubble gets too big, the whole thing goes "pop" and depression strikes.

As Ferguson also points out, when the major economic crisis does strike, socialists immediately turn to their preferred Keynesian economic model based on big government and regulation to stem the collapse of globalisation - and it always fails. So globalisation is not conservative.

I'd even argue that it is not "capitalist" even though it has the appearance of it. Ferguson points out that globalisation creates market "distortions" which are the very antithesis of capitalism. Capitalism will only work successfully if the market in which it operates is either totally free or totally even.

This is why it works so well within a national context where a government can assure an even playing field for all competitors, prevent anyone gaining an unfair advantage through lower labour costs or lighter regulation and protect against the emergence of monopolies. As soon as you take capitalism out of the national context you lose those capabilities - the markets are distorted and, eventually, the system fails as the markets try to "even" themselves out.

Given that we've never had a "free market" in the modern era (the last 1000 years or so) that means that either workers in Indonesia, for example, gain the same rights, pay levels and protection that we in the west do - or vice versa. Do you really want to earn a dollar an hour for a 60 hour week?

OK, OK - having said all that and despite the fact that I'm delighted that someone as respected as Ferguson both agrees with me and has come out and said it, the truth is that Ferguson argues that rather than give up on globalisation we should sacrifice social stability. I understand what he is saying, but I would argue that it is actually the worst option.

You see, Ferguson suggests that social change is relatively pain free - and it can be if framed within a national context and perpetuated through social mobility (as he suggests), but with globalisation you don't have that national context and, once again, you don't have the capacity as a nation to manage it. All the social mobility is taking place elsewhere - in China and India - but this impacts here through unrestricted immigration, job losses, fractured communities and, as Ferguson notes, social instability. The eventual result of that - as it was in the thirties - is social instability on a global scale and that leads, eventually, to global conflict.

Ferguson is right that you can have any two from globalisation, social stability and a small state - but he is wrong to suggest that social stability is the one we have to sacrifice. Actually, I don't even totally agree that you can have globalisation and a small state because the global regulatory burden will impose conditions on national government - just as our membership of the EU has contributed to the state growth by imposing directives which require implementation at national level.

Globalisation is not conservative because it leads to social instability and a big state. It is not capitalist because it distorts markets and creates monopolies. It is not democratic as it leads to corporatism and takes power away from the electorate. Apart from all that, it is downright dangerous as it leads to economic meltdown and global conflict.

I don't want it and I have no idea why anyone does.

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