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Book Review
Globalisation dynamics
C. T. KURIEN
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Firsthand account of the basic philosophy that guided a powerful player in the global economy
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THE AGE OF TURBULENCE — Adventures in a New World: Alan Greenspan; Allen Lane, Penguin Books India Pvt. Ltd., 11, Community Centre, Panchsheel Park, New Delhi-110017. Rs. 695.
Alan Greenspan, as readers may know, was till mid-2006 the Chairman of the United States Federal Reserve System (“the Fed”), one of the highest official positions in that country which he had occupied for almost two decades. The Fed is a statutory body which enjoys almost complete independence to attend to its mission of “putting in place the monetary conditions needed for maximum sustainable long-term growth and employment” (as Greenspan states). W
hile it, thus, operates in the monetary sphere and through the banking system, what it essentially regulates is credit, and hence its operations, mainly the control it exercises over the interest rate, spreads over the entire economy, and thereby politics too. Nor is its influence confined to the U.S. The manner in which other countries watch movements in the U.S. official interest rate shows what an impact the Fed can have on the rest of the world as well.
Alan Greenspan, as the head of the Fed was, thus, one of the most powerful players in the global economy during the past couple of decades which he aptly describes as an “age of turbulence”. The book is an account of the basic philosophy that guided him and the way he worked it out to deal with concrete instances primarily in his own country.
Defender of capitalism
Greenspan describes himself as a “renowned defender of capitalism” and an ardent admirer of Ronald Reagan and Margaret Thatcher. He admits too that fairly early in life he was influenced by Ayn Rand and her “objectivism” which championed laissez faire capitalism as the ideal form of social organisation. Within the economic tradition what he finds most attractive is Adam Smith’s treatment of the invisible hand and the working of the free market. The collapse of the Soviet Union and its communist allies, the spread of property rights and markets in China, the transformation of the Labour Party in the U.K. under Tony Blair and more so under Gordon Brown, India’s rejection of bureaucratic planning and decision to rely more and more on the market — all these are indications to him of the inevitable acceptance of capitalism globally. He concedes, though, that the intellectual battle for free market capitalism and globalisation is far from won.
In relation to the U.S. economy the book deals with a wide range of issues and instances — the October 1987 collapse of the stock market, the periodic ups and downs of the economy, the “irrational exuberance” of the late 1990s, the dot-com boom and bust, social security and Medicare, corporate governance, outsourcing and global competition, the persisting trade deficit, and many more. The book also has quick surveys of other economies, Europe and Latin America, Russia, China, Japan, India and the tigers of East Asia. It is not possible in this review to comment on the specifics of these discussions. But since the basic themes of globalisation and the steady spread of capitalism are common to all of them, comments will be restricted to them.
It is not surprising that the patriotic American views globalisation also from the perspective of his country. The thrust of the argument is that in the short run there may be uncertainty and some disruptions. But as globalisation makes cross-border ownership of property more natural, economic relationships will turn out to be between economic units, basically households and firms everywhere, irrespective of national boundaries. Hence if markets, competition, and capitalism are good for individual national economies, they have to be good for the global economy too.
That, certainly, is one way of thinking of the future. But it overlooks the fact that within national economies there are non-market arrangements (such as the U.S. government and the Fed) to supervise and regulate economic units. The scenario presented above can be achieved only if there is a corresponding global authority to deal with economic units, including national economies as long as they have at least currencies of their own.
Intervention
In turn, that raises the question of automatic functioning of capitalism that underlies the oft-repeated statement that markets work best when they are not interfered with. One of the incidents that Greenspan discusses is the manner in which public authorities including the Fed itself, the central bankers of G7 and the government of the U.S. thought it necessary and wise to intervene when one of the economic units they were all watching and admiring, a hedge fund named Long-Term Capital Management (LTMC), suddenly showed signs of collapse. The details are not important. But the crucial question is, “Why?” This was not the only instance of public intervention in “private” economic affairs in recent U.S. experience either. More generally, why is the calibration of the interest rate — one of the crucial prices in modern economies — by an external non-market agency so critical for the normal or desired functioning of the economy? Enthusiasts of market and capitalism do not pay attention to this question. They take such interventions as very much a part of the system. There are other things that they ask for so that markets can work effectively and, capitalism and globalisation can succeed. Here is one of Greenspan’s statements in the context of his discussion on education. “Some students can achieve a given level of education far more easily, and therefore at a far less cost, than others. Yet there is danger to a democratic society in leaving some children out of sync with its institutions. Such neglect contributes to exaggerated income concentrations, and could conceivably be far more costly to the sustaining of capitalism and globalisation in the long run. The value judgements involved in making such choices reach beyond the imperatives of the market place.” (emphasis added)
Competition
Equally significant is the failure to note the problems that the dynamics of capitalism poses to its working. Greenspan affirms frequently that creative destruction is the underlying principle of capitalism and free competition is required for the efficient working of the market. He admits also that creative destruction leads to the emergence of increasing concentration of incomes and wealth. If so, doesn’t the normal working of capitalism itself generate conditions that give undue economic advantage to the strong and make it not possible to have fair competition? Does it take much effort to see that in the international arena, surely, economic strength is normally reinforced by political and military clout as well? If there is any doubt on these matters, recall that Thomas Friedman, another ardent supporter of competition, capitalism, globalisation and all that announced to the world not long ago that “the hidden hand of the market will never work without a hidden fist” and that in today’s world, that hidden fist “is called the US Army, Navy and Marine Corps.”
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