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Globalism and the Liberal Model (January 31, 2002)
[Book Review] "Against the Dead Hand: The Uncertain Struggle for Global Capitalism," Brink Lindsey (Wiley)
"In 1913 ... 'merchandise trade as a percentage of gross output totaled an estimated 11.9 percent for the industrialized countries,' a level unmatched until the 1970's. Capital flowed across borders, while transportation costs plummeted. Newly developing nations entered the world marketplace. ... That trend toward economic integration was halted ... when world leaders ... began to misapply the lessons of big business. If large commercial enterprises could advance by planning and control, they reasoned, national economies could be run the same way, with more efficient and humane results than the "chaos" and competition of the marketplace. ... this 'industrial counterrevolution' took many forms ... The result was a turn from economic openness toward closed national markets, the better to enable political planning and control. Today's globalization is occurring ... because political leaders no longer believe that state-directed economic decision making is the path to prosperity. ... Contrary to both globalization triumphalists and globalization critics ... sees the process as a result of bottom-up change at the national level. ... A result of this change in perceptions is ... a struggle: Adam Smith's invisible hand against ...the 'dead hand' of central planning."
[Bad examples: Korea, Argentina]
"In South Korea, for instance, "banks were seen as a social tool to help the chaebol," the big conglomerates. Outside financiers didn't question the conglomerates' investment decisions. ... those no-questions-asked investments destroyed wealth instead of creating it. And single-country financial systems intensified risks. A country's savers had all their assets in its banks' undiversified baskets."
" ... removing government controls isn't enough. Good institutions, particularly a trustworthy judicial system, are essential. ... In Argentina, for example, the government ... liberalized the economy but did nothing to restore the independence of the judiciary. ... 'the [Argentenian] legal system is absolutely vital for our region's economic development, but the politicians are blind to it.' Deals collapse every day ... because investors aren't willing to take the risks of an insecure legal environment."
"'There is at present only one viable vision of economic development: the liberal model of markets and competition. It is neither widely loved nor widely understood, but it is all there is ... And so when existing institutions break down so badly that changes become unavoidable, leaders in search of a template for constructive action now turn to the liberal model by default. In this way the dead hand yields, bit by bit, to the invisible hand of the market.'" ... [more]
4:13:49 PM 
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