Good Societies Are About More Than Free Markets (fwd)

[Robert Weissman <rob@essential.org>]

The International Herald Tribune Paris, Tuesday, September 8, 1998

Good Societies Are About More Than Free Markets

	By Robert Kuttner, The Washington Post

 WASHINGTON - The swooning U.S. stock market, the East Asian collapse and
the Russian implosion have a common genesis: All are casualties of the
great illusion of our era - the utopian worship of free markets. 
	Half a century ago, the democracies of the West - chastened by two
world wars and a depression, by the brutalities of pure capitalism and the
menace of communism - concluded that a market economy needed to be tamed
and domesticated, to coexist with a decent, stable and just society. But
the stagnation of the 1970s, the resurgence of organized business as a
political force and finally the collapse of communism revived an almost
lunatic credulity in pure markets and a messianic urge to spread them
worldwide. 
	Consider the East Asian crisis. For the most part, East Asia has
productive workers and firms, households with high rates of savings,
prudent government budgets. Some countries did suffer from
business-government cronyism. But what wrecked these economies was their
sudden exposure to international speculative forces. Financial speculators
first overinvested in their currencies, stocks and businesses, and then
abruptly pulled the plug.
	This sudden vulnerability reflected ultra-free-market norms
imposed by the United States and its protégés at the International
Monetary Fund.  Obviously, the real value of an economy does not fluctuate
by 80 percent in a few months. What fluctuate are the guesses of foreign
speculators. But in an exposed economy, these become self-fulfilling
prophecies. 
	The U.S. stock market is a casualty of the same market worship.
Just weeks ago, prestigious commentators still were proclaiming a
fundamentally ''new economy'' of permanent prosperity. Supposedly, the
combination of deregulation, globalization, low inflation and technology
meant that stocks had nowhere to go but up. 
	In truth, the stock market got dangerously overvalued because
markets often misvalue things. Markets misvalue human labor, education and
universal health care; they misvalue clean air and water. And
occasionally, euphorias break out, and markets misvalue stocks.
	What has saved the stock market from even steeper collapse is that
nemesis of financial market purists, the good old capital gains tax.
Investors are riding out the down market rather than paying a tax on what
is left of their gains. 
	The same free market fundamentalists who considered globalization
an unmitigated plus now offer this contradictory reassurance: The
contagion won't seriously damage us because America is still relatively
isolated compared with the poor suckers who took our advice and are now
more globally exposed than we are. 
	Alas, America is no island. Calamity in Asia, Russia and Latin
America, partly the fruit of U.S. ideological exports, cannot help but
affect the United States and Europe. The most dangerous of all these
events is the collapse in Russia. 
	It recalls the West's failure to help Germany recover after World
War I, resulting in World War II. 
	The United States spent $9 trillion to win the Cold War. Once
communism collapsed, it concluded that market forces would do the rest.
Western aid to Russia peaked at just $2 billion a year, a tiny fraction of
postwar Marshall aid to Europe. 
	There was a historic moment, in the early 1990s, when a ''grand
bargain'' with the emerging post-Soviet Russia was on offer. With serious
aid, the West could have helped true reformers build an effective
democratic state and a modern mixed economy. Instead the Russians got
laissez-faire gangster capitalism. Today, weirdly, the most effective
opposition is the Communist Party. 
	Economic reconstruction after World War II accepted the necessity
of a mixed economy. In that era, the United States and the IMF recognized
that emergent economies could not be the prisoners of private speculative
capital. The postwar system regulated private money flows and stabilized
currencies to allow nations to develop. Today's IMF perversely demands
exposure to speculators as a precondition of assistance.
	Increasingly, countries like Russia and Malaysia are imposing
unilateral controls on capital. But instead of being part of a coherent
system of stabilization and development that includes necessary buffers,
these moves are isolationist and destabilizing. Until the economic
priesthood of the West revises its ultra-market view of free financial
flows, more such moves will follow. 
	What we need is a program of stabilization and reconstruction in
the spirit of the post-World War II years, with limits on speculative
money flows, and more development aid. Sometimes it takes a crisis to
change official thinking. Let us hope that conventional wisdom shifts
before crisis turns to catastrophe.