Thanks for the Memories Milton Friedman

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Melissa Chua's picture

Thanks for the Memories Milton Friedman

Economics and politics are so intrinsically linked that there is no way to discount one when considering the other. When people to go the ballot box at the end of an electoral cycle to choose their leaders for the next term, the utmost consideration on most people’s minds would be to elect a party that can best look after the welfare of the people. Many of these elected parties obtain their legitimacy from bringing about economic success to the country. Hence it should come as no surprise that in the event of a global economic crisis, national politics would not be overlooked as parties that have brought much economic suffering to the people would be taken to task.

History has shown that major shake-ups of political systems often coincided with economic downturns. The classic liberal economic model was the dominant model in the Anglo-American countries from 1900 to 1930; however upon hitting an economic slump during the Great Depression, the pro-statist governments took charge and created welfare states (Kotz, 2002). When inertia slowed the nationalized economies’ growth in the 1970s, the governments of the day fell as the voting populace elected neo-liberal governments, lead by Ronald Reagan and Margaret Thatcher, that began their rampage of privatizing State Owned Enterprises (SOEs) (Wooldridge, 2012).

That brings us to 2012; the world today is still trying to recover from the 2008 financial crisis. This unresolved crisis has once again cast doubts over the suitability of the way in which the world is governed. The Occupy Movement points to capitalism as the source of contemporary financial woes. Capitalism, unfortunately, goes hand-in-hand with a liberal political system that advocates the free market (Mazower, 2012). With that expectation, capitalism is due to meet its maker and the governments of the countries languishing in the EuroZone debt have not been spared the axe. Lancaster (2012) suggests that the reason why many governments have escaped relatively unharmed thus far is because recessions have not overlapped the peak election seasons. However that blissful period has passed and the upcoming elections throughout Europe would mean that these centre-right governments will be held accountable for the way they chose to manage their economies (Lancaster, 2012).

The recent happenings around Europe do not bode well for the status quo (Lancaster, 2012). While the government of the United Kingdom (UK) has survived the recent elections but they did not escape completely unscathed. A compromise had to be made by forming a “strange Conservative-Liberal coalition” (Falzon, 2012). Otherwise since last year, nine governments: France, Greece, Ireland, Spain, Portugal, Cyprus, Italy, Slovakia, and Slovenia have witnessed political change (Lancaster, 2012). Of great importance is how the electorate in France and Greece ousted the dominant parties and chose to look to the left for their nations’ leaders (Lancaster, 2012). In addition, the Netherlands and Romania have seen the fall of their governments (Lancaster, 2012). The rapid fall of European Union (EU) governments in quick succession reveals the people’s massive resentment for the previous governments’ austerity measures set in motion in an attempt to keep the EuroZone debt crisis at bay.

The blame of the most recent financial crisis has been pinned on “inadequately regulated financial activity” (Miliband, 2012). This credit crunch is created by regulations that place high emphasis on short-term returns through rewards like the creation of wealth, whereas productive behavior has been discouraged (Miliband, 2012). This short-term outlook of capitalism permitted by neo-liberal governments has conditioned the markets to function in an unsustainable manner and the Gini coefficient for respective countries to rise.

In times of great economic uncertainty, it is natural that people expect change and that change could include a larger presence of the state in the markets. At the same time, the Europeans are people who pride themselves on being the bearers of democracy – part of the civilized world that allows its people to govern themselves through the power of the ballot box. After enduring fascism and Nazism, when the iron curtain was finally lifted, these are the very same people who would be extremely reluctant to return to the dark days without democracy (Mazower, 2012). Hence it seems highly unlikely that even though the recent elections have indicated a shift from the center-right to the left, the EU would revert back to the state of socialism. What the Economist (2012) proposed as a cure to the ills of our existing system, and at the same time does not compromise the people’s political rights, is the use of state capitalism.

State capitalism touted as the “better, more responsible and productive form of capitalism”, requires more intervention and planning from the state to help companies make decisions to create long term value (Miliband, 2012). Since electoral success is often linked with economic growth it would make sense for governments to want to be more involved in the management of their countries’ economies. To ease the worries on many people’s minds, this model “bears little resemblance to the disastrous spate of nationalizations in Britain and elsewhere half a century ago” (Economist, 2012).  On the other hand, naysayers of this model often critiqued state capitalism for impeding the business process with bureaucratic red tape (Miliband, 2012). Miliband (2012) argues that a completely free market does not exist; in fact governments have always been dictating the parameters of economic transactions. The implementation of state capitalism should not be a radical shift from the neo-liberal model, but just an execution of the right rules (Miliband, 2012).

In contrast with the Anglo-American model of economic Darwinism, state capitalism is the prevalent economic school of thought in Asia. In fact, the world’s fastest growing economies: China, India and Brazil swear by the effectiveness of state capitalism (Rothkopf, 2012). The waning economic prowess of the West has prompted its people to look to the East for inspiration. As the shine on the neo-liberal economic model fades, it would be dire for the government of the West to overlook the benefits one can potentially reap by making the shift from taking a laid back approach by focusing solely on short-term capitalism to taking a more proactive stance in deciding the direction of the country’s economy.

Perhaps Francis Fukuyama should revise his statement about the triumph of democratic capitalism and how that signals the end of history, the major contemporary political events suggest that right now “the state is trumping the market” (Wooldridge, 2012). State capitalism is not a perfect system either: its unwanted side effects include cronyism and corruption that is rife in Asia (Economist, 2012). However the main take away from this turn of events is that global economic crisis has significant repercussions on national politics and politicians who wish to remain in power should be open to alternative economic approaches. The real Darwinism will happen when politicians are unable to realize the opportunities and trappings this economic downturn presents, because if they are unable to adapt quickly enough, the electorates will take them to task and ensure that they are replaced.

References: 
  1. Economist. (2012, January 21). The Rise of State Capitalism. Retrieved from Economist: http://www.economist.com/node/21543160
  2. Falzon, M. (2012, May 13). Europe’s Changing Political Landscape. Retrieved from Times of Malta: http://www.timesofmalta.com/articles/view/20120513/opinion/Europe-s-chan...
  3. Kotz, D. M. (2002). Globalization and Neoliberalism. Rethinking Marxism, 12(2), 64-79.
  4. Lancaster, T. D. (2012, May 7). European Economic Crisis Leads to Political Change. Retrieved from Emory News Center: http://news.emory.edu/stories/2012/05/tipsheet_european_economic_crisis/...
  5. Mazower, M. (2012, May 25). Europe Raises Spectre of an Ungovernable World. Retrieved from Financial Times: http://www.ft.com/intl/cms/s/0/2bb23294-a4bf-11e1-9a94-00144feabdc0.html...
  6. Miliband, E. (2012, January 18). Our Toxic Blend of Capitalism and Short-Termism. Retrieved from Financial Times: http://www.ft.com/intl/cms/s/0/c599d23c-41fe-11e1-9506-00144feab49a.html...
  7. Rothkopf, D. (2012, January 31). Free-Market Evangelists Face a Lonely Fate. Retrieved from Financial Times: http://www.ft.com/intl/cms/s/0/09aa8e5a-4919-11e1-954a-00144feabdc0.html...
  8. Wooldridge, A. (2012, January 21). The Visible Hand. Retrieved from Economist: http://www.economist.com/node/21542931