The Bear's Lair, by Martin Hutchinson
Springtime for StalinFebruary 26, 2007
SourceMartin Hutchinson is the author of "Great Conservatives" (Academica Press, 2005) -- details can be found on the Web site www.greatconservatives.com
The high tide of globalization, free trade and capitalism, which had seemed so irresistible in the 1990s, appears to be receding, even as the world economy continues to expand. In country after country, new economic experiments are being tried which have the effect of increasing the state’s control over economic matters. Not just a general swing to the center-left in world politics, this is in some respects a springtime for Stalin, and a proof that his dream of controlling all economic activity through a juggernaut state is by no means dead.
The normal electoral “swing of the pendulum” between two closely matched political philosophies is not something to worry about. In 1992 George H.W. Bush gave way to Bill Clinton, who in 2000 gave way to George W. Bush. We now know that 1992 did not presage a sharp move towards socialism; the Clinton health care plan never got off the ground. Similarly the 2000 election did not signal a return to free market capitalism; while Bush cut taxes initially he did nothing to rein in the growth of government spending, which quickly rebounded from its 2000 low point and continued to grow.
Similarly in Britain the 1997 transfer from economic management by John Major and Kenneth Clarke to economic management by Tony Blair and Gordon Brown did not signal a return to 1970s socialism. Indeed Brown’s first act in office, freeing the Bank of England from Treasury control, was an act of libertarian rather than leftist ideological intent.
Nevertheless, even in Britain and the United States, the drift towards statism over the last 20 years is considerable. Gordon Brown has increased British public spending to its highest ever level as a percentage of Gross Domestic Product, even though the economy has been generally rosy. London home ownership, too, has been priced out of the grasp of the middle classes, and concentrated among wealthy, often dubious foreigners, who by a quirk of the tax system don’t have to pay Britain’s ruinous taxes.
State controlled health care, once anathema in the United States, is quickly becoming a reality, with Massachusetts and California leading the way, even though it is clear that the cost of such programs will be far higher than projected. Federal meddling in the provision of education has hugely increased as a result of the No Child Left Behind Act, which has had the perverse result of dumbing down previously satisfactory state testing systems. A Republican administration, with the 2003 prescription drugs legislation, has introduced the largest new entitlement program since Medicare in 1965.
Support for freer trade in the United States has more or less collapsed. The President seems most unlikely to get his extension to fast-track negotiating authority, the Colombia and Peru free trade agreements appear moribund, and the mirage of re-starting the Doha round of trade talks has failed to materialize. This reflects the reality that support for international free trade has dropped sharply in the U.S. Even in Britain, the advocates of openness are on the defensive. Not surprising; one of the greatest successes of the left has been the effective dismantling of immigration controls in both Britain and the U.S., which has resulted in an immigrant flood far beyond previous experience, beyond also the capacity of the domestic economy to absorb without major downward pressure on wage rates. Overall, there has been a substantial erosion of voter self-confidence, and an increasing desire for government intervention to correct the unpleasant results of the market mechanism.
The prospects for the future are statist in both countries also. The Democrats, shorn of their moderate Bill-Clintonist leanings, are leading in the run-up to 2008, and there is no fully conservative Republican candidate to oppose them with any significant chance of winning. In Britain, an electoral race between David Cameron and Gordon Brown in 2009 will be the most left-wing choice offered to the British electorate since the statist Edward Heath squared off against Harold Wilson in October 1974 – and at least in 1974 the third-party Liberals under Jeremy Thorpe had fairly free-market instincts. While no individual election in either country has moved the apparent political spectrum significantly towards greater state control, the cumulative effect of 20 years of leftwards ratchet has been to reverse most of the free market gains of the 1980s.
However, domestic politics in Britain and the U.S. are not the only areas in which the shade of Stalin must be quietly pleased. He would particularly like his new friends in Latin America, who combine his approach to economics and some of his policing methods with a careless insouciance that is all their own. For Ecuador’s president Rafael Correa to threaten default on international debt is standard operating procedure these days in Latin America, following Argentina’s inspiring example in 2002-05. However to call in Argentine consultants, who advised him not to default yet because he wasn’t indebted enough – better borrow some more money first – is a level of chutzpah worthy of a better cause. Needless to say, serial defaults by Latin American countries, probably followed by a default by Russia – serial violator of property rights that it is – is likely to kill the international bond markets. Of course, it was Vladimir Ilich Lenin – unquestionably a role model to Vladimir Vladimirovich Putin – who said “The capitalists will sell us the rope with which we will hang them.” Given sufficient up-front management fees, Wall Street undoubtedly would.
Putin’s not going back to full Communism, but he doesn’t play by capitalism’s rules either. Locking up your most successful entrepreneur for 9 years in Siberia and then threatening to extend his prison term to 27 years may sound like an Enron prosecution, but unlike in the United States there aren’t a lot of other good entrepreneurs coming along to take Mikhail Khodorkovsky’s place. Instead, foreign investors have been forced out of the oil and gas industry, which is now a Kremlin-run fiefdom, turning off the spigots to its customers whenever Putin fells it appropriate. That will work fine while oil and gas prices remain high, but one day they will fall, and it will then be obvious that Russia has become the energy supplier of last resort, regarded as a somewhat less reliable business partner than Nigeria. Again, Stalin would approve; output is maintained and power has been concentrated at the center.
China is held out as a beacon of capitalist hope for the world, a sign that free market methods can penetrate even a nominally Communist country and raise the living standards of its inhabitants. However, in the long run China is nothing of the kind. With at least $1 trillion of bad loans in its banking system, and a stock market driven to frenzy by the speculative juices of its domestic savers, China is a runaway train running at full speed towards a very nasty cliff. Once the banking system runs out of domestic deposits -- assuming Wall Street cannot be persuaded to carry on investing sufficient new capital to bail it out – the entire system will suffer a massive liquidity crunch. At that point, no doubt Argentine consultants will be called in, which could get very expensive indeed for the world’s capital markets. The Chinese government will suffer massive loss of face, which it will only recover by investing the country’s entire $1 trillion of foreign reserves in an armaments program.
India too looks like a capitalist country, until you realize that it is being run by a Five Year Plan, just as Stalin would have wanted. The new Five Year Plan postulates economic growth of 9% over the next five years, and has many exciting ways in which government can spend the revenues that this 9% growth will generate. If the growth fails to materialize, and the revenues aren’t generated, government will maintain its planned spending and increase its dominance of the economy – the fall-back answer to everything. At least India’s unlikely to choose global warfare if things go wrong, which is a blessing.
Thailand last September rebelled against the free-market and rural-oriented policies of elected prime minister Thaksin Shinawatra and staged a military coup. Since then the military government has shown itself thoroughly unversed in the nuances of the free market, imposing exchange controls for a day before reversing itself and now threatening to seize the telephone company Shin Corporation from Singapore’s Temasek Holdings, simply because it had previously been owned by Thaksin. Putin, if not Stalin, would approve of the new Thai government’s approach to foreign investment.
Japan’s a counterexample – it is actually reducing its government deficit and even modestly reducing government’s share of output. Naturally, Western economists are denouncing the Japanese government for this, forecasting that the country will fall back into recession due to lack of Keynesian stimulus. If current prime minister Shinzo Abe lasts, Japan may provide a modest force against the Stalinist trend, but his opinion poll numbers are already slipping.
It’s not clear why this Stalinist springtime is burgeoning so rapidly, when all had thought history dead and the world destined for a bright future of moderate globalized capitalism. My guess is that, as with so many disasters, the fault is in the monetary system, and that interest rates worldwide, too low for too long, have concentrated wealth in the hands of speculators while leaving non-speculators disgruntled and ready to listen to economically crazed solutions to their problems. As I have written before, tight money rewards savers and long term thinkers, and discourages the speculative and the fly-by-night; loose money does the opposite.
Whatever the cause, the rebirth of statist, economically damaging policies is yet another reason why the long term future appears to belong to the Bears.