Free markets: the ups, the downsby Patrick J. ByrneNews Weekly
, June 13, 1998
“The totality of our experience has made us great believers in the dynamism of the free market, and in the unparalleled power of capitalism to promote economic growth ... But we also believe that both history and current experience demonstrate that left to its own devices, laissez-faire capitalism is extremely vulnerable to instability and perfectly capable of producing recessions or worse. There is, moreover, much evidence that capitalism can easily descend to a level where the system, in the words of Russell Baker, serves mainly to ‘comfort the comfortable and afflict the afflicted’.
“A well-ordered system, therefore, depends on striking a series of appropriate balances: between market and state regulation, between capital and work, and between creditors and debtors. Our analytical — and political position — is extremely easy to describe. We occupy the extreme middle of the road. If we lived in an era or were citizens of a country, say India or Greece, that still places too much faith in government, we would be rabid supporters of free market reforms. But the problem in the leading industrialised nations of the world is exactly the opposite ...
“We believe that the victory of the free market ideology in the Cold War has upset the kind of balance between the market and the state that promoted unparalleled prosperity in the three decades that followed the end of World War II ... the balance can — and must — be restored.”
— “Business Week” analysts William Wolman and Anne Colamosca in the introduction to “The Judas Economy: The Triumph of Capital and the Betrayal of Work” (1997)
The standard of living presently enjoyed in Western societies can be attributed to the rise of the market economy. Additionally, by observing some of its fundamental tenets, many developing nations are now moving rapidly down the path to prosperity.
That the free market is not an unalloyed good has been demonstrated regularly over the past two centuries. Its tendency to wild fluctuations and a polarisation of wealth has led to government regulation and much popular scepticism. The command economies that characterised the communist nations have long been discredited, but throughout the West, the idea that the state has a role to play in helping the market to avoid its negative tendencies remains widely held.
After the war, international agreements were set in place to stabilise capitalism, yet governments were left the responsibility of managing their own economies to achieve economic growth, full employment and an adequate supply of credit at reasonable rates. This laid the foundation for the stability and prosperity that characterised the post-war period throughout the Western world.
Then in the early 1970s, the United States began unilaterally to unravel the agreements that had held this regulated form of capitalism in place. This, together with the oil price shock saw economic growth slow and inflation rise sharply.
Margaret Thatcher in Britain, Ronald Reagan in the United States and the Hawke Government in Australia reacted to this stagnation by embracing “economic rationalism”. In the Anglo-Saxon world, the 1980s and 1990s were decades of deregulation, privatisation and globalisation of financial markets. Whatever benefits that have been achieved are now overshadowed by the re-emergence of the old problems of unrestrained capitalism and a consequent disenchantment in the electorate.