John Gray - False Dawn: The Delusions of Global Capitalism

Gatsby believed in the green light, the orgastic future that year by year recedes before us. It eluded us then, but thats no matter tomorrow we will run faster, stretch our arms farther And one fine morning

So we beat on, boats against the current, borne back ceaselessly into the past.

F. S COTT F ITZGERALD

In the era of the free market, now fast slipping from memory, the past hardly existed. Only the present had any reality, and it was being constantly refashioned and made new. New industries, new careers, new lives were continuously created, then discarded, according to market imperatives. Grandiose doctrines sprang up to support the belief that the free-market capitalism that had been adopted in a handful of countries would prevail over every other economic system.

The long boom, the weightless economy, the great moderation, the new paradigm and the flat world these and other wild fancies were recycled as established truths by politicians and journalists, economists and bankers, academics and supposedly hard-headed business future was dismissed as apocalyptic.

Of course it was the idea that global economic collapse could no longer happen that was truly apocalyptic. History does not stop. It continues, as evolving technologies interact with the unalterable human animal and old conflicts are given new twists. Governments may be better informed than they have ever been, but they are not any wiser and if politicians and their advisers believed the boom could go on for ever it was because they had lost any sense of history. Capitalism may be the most productive economic system that has so far developed but it has always been highly volatile. The idea that once released from government regulation the market would be self-stabilizing can only be explained in the context of the absurdly unrealistic world-view that prevailed in the twenty years after the collapse of communism.

Lasting over seven decades, during all of which it maintained its power chiefly by fear, the Soviet state passed out of existence, without significant violence, in two or three years. The sudden collapse of a regime that seemed unshakeable should have been taken as a warning that stability was not a realistic prospect in the years that would follow, and far from ushering in an era of peace the fall of communism was the prelude to an age of revolution. The downfall of American finance-capitalism is a similarly world-changing event. The US is not going to implode, and cease to exist, in the way the former Soviet Union did. A long, Argentina-style decline is the most likely upshot of the current crisis, but the US has been a far more powerful force in world affairs than Argentina ever was. As a result, the breakdown of the model of capitalism which the US incessantly urged on other countries, and even on occasion applied itself, looks set to reshape the global order in deep and lasting ways.

In the first edition of this book, published in March 1998, I wrote: Todays regime of global laissez-faire will be briefer even than the belle poque of 1870 to 1914, which ended in the trenches of the Great War( p. 7). Not much more than a decade ago this seemed outlandish, but there have since been many signs that global capitalism was heading for a fall. The Russian government defaulted on its debts, and a highly leveraged hedge fund, Long Term Capital Management, collapsed at the end of the nineties. The global financial system was saved, but only by the head of the American Federal Reserve Alan Greenspan forcing down interest rates to a level that triggered multiple bubbles. As a result the US itself became a massively leveraged hedge fund dependent for its solvency on continuing inflows of capital from foreign investors.

Now that Americas bubble economy has burst, the global market is being reconfigured. America was ready to embrace globalization only so long as it seemed the process would reproduce American capitalism. When financial crisis hit in 2007 the reaction of US policy-makers was predictable, and the US began to limit its exposure to globalized markets. When the Obama administration introduced buy-and-hire American policies in 2009 it was in line with a long tradition of American protectionism. The SmootHawley Act of 1930 raised tariffs on goods imported into the US, and by triggering tit-for-tat measures in other countries deepened the Great Depression. There is nothing yet to suggest an inevitable descent into war between great powers of the kind that happened in the 1930s, but now as then a worldwide economic dislocation will be followed by a long period of geopolitical upheaval.

As the global crisis unfolds there will be no miraculous alteration in human behaviour. People will turn to governments for security from the storm, while governments as always will be concerned chiefly with their own survival. Bank bail-outs have preserved the financial system from disintegration, while monetary expansion may have slowed the contraction in economic activity. But the growth produced during the bubble was unsustainable, and the attempt to restart it will be self-defeating. The eventual result will be inflation, and the reemergence of the resources scarcities that were visible before the crash, while governments will be further destabilized. The resulting situation will not mechanically replicate any that has existed in the past. The present crisis has some genuinely novel features, and it is at this point that it becomes more than a rerun of history.