Greenspan reasoning is from a time that fine tuning an economy would put it back in its track. 12 years ago I already doscovered that it didn't work any more. AG has to retire.
THE GENTLEMEN’S CLUB
For a quarter of a century, the Bretton Woods system imposed some order on the world economy through the International Monetary Fund, the World Bank, and the GATT. The postwar Keynesian system was committed to full employment, high public spending, managed exchange rates and international credit agencies whose initial aim was to promote and sustain high trade and welfare. More developed countries (MDCs) prospered under Keynesian economic policies. Under the postwar Keynesian economic system tiny countries devoided of natural resources, with lousy weather and small internal market achieved a high living standard and amassed a large part of world’s manufacturing output. The majority of the other countries didn’t share this boom.
In one sense, this should not be surprising. It has already been indicated that the postwar international settlement at Bretton Woods included the victors rather than the vanquished of the postwar settlement. Similarly, it excluded the then mainly colonial countries of the Third World which had no initial voice in the postwar global economic settlement.
“...further, is strongly arguable that institutions such as the IMF tend to serve the interest of top countries, MNCs and banks rather than the governments, institutions or peoples of the global economy which they were designed to serve. Holland Stuart, Global Economy, London, George Weidenfeld and Nicholson Ltd., 1987.
But a liberal economic order becomes increasingly difficult to sustain as each nation finds it more onerous to achieve simultaneously the multiple objectives of internal balance (a tolerable level of unemployment and inflation), external balance (avoidance of imbalance in international payments), and trade liberalization ( a reduction in trade restrictions). When conflicts within a nation intensify, so too do the tensions and conflicts among nations.
The consensual social democracies were born out of the Keynesian gentlemen agreement. Germany’s industrial progress is attributed to the spirit of cooperation between management and labor a policy of consensus and responsible behavior. rather than confrontation marks the relation between the two “social partners”. Sweden’s full-fledged model worked successfully and it did so through the “historical compromise” between capital and labor which accepted the peaceful coexistence of a thriving private sector and strong responsible unions.
BACKLASH AGAINST CONSENSUS
The collapse of the Bretton Woods agreement —on the early seventies— made impossible to maintain a the postwar commitment to full employment, high public spending, managed exchange rates and tolerable inflation. The consensual social democratic which grew with the Bretton Woods isn’t possible to be maintained any longer and the system is crumbling.
The G7, which in the last years have acted more like a currency cartel isn’t that solid it used to be. America has weakened its standing within the alliance due, in part, because of not addressing fiscal problems. President Bush has admitted that the U.S. can no longer impose unity on the fractious allies. “We’re not urging everyone to march in lockstep”. And “We are dealing in an entirely different era” But perhaps Margareth Thatcher best characterized the precedings when she said: “We are in fact together, but taking a different view.” Businessweek International, Jul. 23, 1990.
The end of the consensus among MDCs is followed by the end of the harmony between the two social partners, capital and labor in these countries. “The aversion to industry and commerce, temporarily forgotten (even by the left) in the period of economic recovery after the war is now again widespread. The concept of ‘harmony’ , which in the post-war euphoria caused European trade unions’ leaders to put peaceful industrial relations before income redistribution has been abandoned...” Duller, H.J., Development Technology, London, Routledge & Kegan Paul, 1971.
“Canadians are deeply unhappy with the way their country is run and are deserting the major parties for regional or single issue groups...Discontent has been fuelled by a sharp deterioration in economic conditions in recent months.” Financial Times, October 30, 1990.
“Sweden’s famous economic model— the envy of the world for more than half a century—is dead...Sweden’s political system is fragmenting. The ruling social democrats govern without a parliamentary majority and the opposition remains divided, more by personalities than policy...Governing Sweden is much more difficult than it used to be. Idem.
A disorderly world economy will most probably lead to turmoil. Right wing parties are getting popular as European countries face economic troubles. The Republikaner in Germany, National Front in France, Italian Social Movement in Italy. Even Sweden has got its right wing party recently. “Denmark has the ludicrous left-right alliance. Its ultra right party made an alliance with the ultra left. This leap from left to right is happening with the Republikaner party in Germany as well. One third of the party’s current voters voted for the liberals SPD. In last year’s European elections the national Front received 11.7% of the vote, the Italian MSI 5%.” Europe’s Extremes , American Enterprise, Jul./Ago, 1990. p.42/43. All these parties are fuelled by a common anti-immigration sentiment which is linked to issues such as unemployment, high taxes and housing.
Blue collars in industrialized countries have to be kept satisfied or they will behave in the same fashion of Argentinian, Mexican or Brazilians. Sweden’s political system is fragmenting. The ruling social democrats govern without a parliamentary majority and the opposition remains divided, more by personalities than policy. Assassination of Olaf Palme is already one indication of latent revolt. Recent attempts against life of German politicians Oscar Lafontaine and interior Minister Schäuble in Germany and Quebec trying to breakout of Canada are other evidences of developed countries’ end of the consensual social democratic system.
Perhaps we are seeing the end of an era. The British refusal of the poll tax dropped Thatcher’s government. German cost of reunification is proving bigger than planned. This is the end of the small developed country. Those economic power houses have run out of the steam. |
