Pessimism from the Guardian

Larry Elliott, Economics Editor of The Guardian, Thursday August 18, 2005 writes in “Edwardian summer: welcome to the second age of globalisation, and the labour practices of Victorian mill owners’:

“History does not always repeat itself. It may be different this time, with the second age of globalisation avoiding the pitfalls of the first. There are those who point out, rightly, that modern industrial capitalism has proved mightily resilient these past 250 years, and that a sign of the enduring strength of the system has been the way it has apparently shrugged off everything - a stock market crash, 9/11, rising oil prices - that has been thrown at it in the half decade since the millennium. Even so, there are at least three reasons for concern. First, we have been here before. In terms of political economy, the first era of globalisation mirrored our own. There was a belief in unfettered capital flows, in free trade and in the power of the market. It was a time of massive income inequality and unprecedented migration. Eventually, though, there was a backlash, manifested in a struggle between free traders and protectionists, and in rising labour militancy.”

In what I suppose is a typical apocalyptic tone from Larry Elliot (he does write for the Guardian after all) we really get a miniscule listing of economic problems to frighten us into panic. A graduate in history from Cambridge (what are they teaching there – certainly not a sense of balance from weighing the evidence against the scale of the alleged problem?) he thinks 250 years of capitalism is fairly tested for its resilience by a ‘stock market crash’ (these have happened on similar and larger scales to the most recent episode many times before – not even 1929 did lasting damage); by the ubiquitous ‘9/11’ – please, let’s keep our perspective here – two large buildings were destroyed and cost 3,000 lives; meanwhile tens of thousands, sometimes hundreds of thousands, die in earthquakes and other ‘natural’ disasters, without destroying the world’s economy; and now, pause for trumpets, we have a rise in oil prices to $65 a barrel and rising still. It would have to rise to twice that to equal the great OPEC hike of the 70s, and that did not destroy the world economy either.

The last ‘age of globalisation’ was accompanied by ‘a struggle between free traders and protectionists’ and the entire history of commerce in the modern era always has been accompanied by the ‘titanic’ struggle between these two polar opposites. Adam Smith joined battle in the 18th century against what he called ‘mercantile political economy’, a battle that went on throughout the 19th and 20th centuries; so its continuation into the 21st (and probably the 2nd too), should not surprise anyone.

For those interested, the clearest expression of mercantile political economy, outside “Wealth of Nations” is found in Frederich List’s “The National System of Political Economy” (1841), except that List promoted mercantile policies, allied to State power, while Smith opposed them. Reading the history of economic thought calms the nerves of those who come at it as if mercantile versus free trade is new phenomenon. It is not new and would not ‘frighten the French’, as my mother-in-law used to describe anything (not much)that shocked her.

Larry Elliot continues:

“Second, the world is traditionally at its most fragile at times when the global balance of power is in flux. By the end of the 19th century, Britain's role as the hegemonic power was being challenged by the rise of the United States, Germany and Japan while the Ottoman and Hapsburg empires were clearly in rapid decline. Looking ahead from 2005, it is clear that over the next two or three decades, both China and India - which together account for almost half the world's population - will flex their muscles.”

His first sentence is very true, as I was discussing here earlier this month in respect of a discussion that took in Organski and Kugler’s thesis (‘The War Ledger’, 1980, University of Chicago Press). It is his last sentence that caught my attention; good old panic mongering of the kind fuelling the protectionist drum beats (still distant) in the USA.

Note the vague threat: “both China and India - which together account for almost half the world's population - will flex their muscles.” Yes? But what precisely will they do? Invade America? Each other? Or who? And to what ends?

They are now in a trap of their own making. Being nuclear powers they have become entangled in the same stalemate we had in the Cold War. Unable to exercise their military power against a nuclear power they have to find a way of living with other nuclear powers. The alternative is too fraught to contemplate.

I expect they will become more independent in their pronouncements at the United Nations, but they have done that for years to no effect. Remember the ‘non-aligned’ movement, which was always an inconvenience, but nothing more, during the Cold War to the NATO countries? So what then is the threat from them of the next ‘two or three decades’.

Larry Elliot does not say. We are left to fill in the worst scenario that our mood of panic induces. I do not intend to lose any sleep over it, and neither should you.