Daniel W. Drezner
Are we in the middle of a norm shift?
At the risk of contradicting myself, I’m not sure whether the current crisis in markets means that we’re in the middle of a fundamental shift in how we think about the role of the state in the economy. Henry Farrell blogs that the past week’s events have reversed two really big trends in the global ...
At the risk of contradicting myself, I’m not sure whether the current crisis in markets means that we’re in the middle of a fundamental shift in how we think about the role of the state in the economy. Henry Farrell blogs that the past week’s events have reversed two really big trends in the global political economy:
The last three decades have seen two important shifts among advanced industrialized economies. The first is the move away from state ownership of large chunks of the economy, and the replacement of hands-on government control with a variety of regulatory instruments. This has happened across all countries in the industrialized world – there are few developed states which still directly own substantial parts of their economy. The second is more specific and recent – the tendency to replace ‘heavy-handed’ forms of regulation with ‘regulation with a light touch’ and self-regulation. This has been most marked in Anglo-American economies, but other countries (in continental Europe and elsewhere) have faced persistent ideological pressures to move in this direction. This is a large chunk of the so-called ‘reform’ agenda that the Economist magazine, the OECD and other such bodies keep pushing. Both of these shifts are largely ideological – that is, they gained much of their impetus from changes in the shared ideas which constitute policy-makers’ shared collective wisdom about how to deal with the economy. The second shift (the reform agenda) is now a busted flush. Its proponents are in disarray…. But what is utterly startling to me is that the first bit – the claim that the state shouldn’t be directly involved in running the economy – is under serious threat too. I genuinely hadn’t expected this to happen. As the NYT notes, countries like France are using US actions as a way to justify state involvement in picking and supporting national champions.
It’s not just France. Russia has planned aggressive state actions to intervene in financial markets. So has China. The Gulf economies are now feeling domestic pressure to use their sovereign wealth funds to prop up their own equity markets. Is this the beginning of a norm shift in the global economy? It’s tempting to say yes, but I have my doubts. The last time the United States intervened on this scale in its own financial sector was the S&L bailout — and despite that intervention, financial globalization took off. The last time we’ve seen cordinated global interventions like this was the Asian financial crisis of a decade ago — and that intevention reinforced rather than retarded the privilege of private actors in the marketplace. In other words, massive interventions can take place without undecutting the ideological consensus that private actors should control the commading heights of the economy. Finally, there’s the odd fact that despite the financial chaos of the past year, in relative terms the United States is still doing surprisingly well. U.S. equity markets are actually outperforming the world, and as the crisis has deepened the dollar has strengthened. Over the past fifty years, this has been America’s saving grace — in past crises that were thought to end U.S. hegemony, it’s the U.S. that suffers the fewest costs. This does not mean that history will repeat itself — but it’s something to bear in mind as the crisis moves foreward.