World turns its back on Cameronomics

Written by: Jeremy Cliffe on 6 April, 2012
Filed under Economy, Foreign Affairs

Things used to be so simple. It was the 1990s: the Cold War was over, capitalism had won; its victory synonymous with the onward march of globalisation. The end of history was declared. The Bretton Woods institutions – the IMF, the World Bank – had emerged as the champions of the monetarist consensus.

The recipe, preached from Moscow to Manila, from Bangalore to Buenos Aires, was simple and unerring: bear down on the money supply, shore up property rights, cast off the ‘commanding heights’ of the economy and let the market do the rest.

Fast forward to 2012 and the story is different. We talk not of a convergence on capitalism but of a divergence of capitalisms. ‘Globalisation’ no longer implies the relentless rise of a militant free-market variety of that ideology. Each of the biggest stories of the intervening years – the rise of China, the financial crisis, the acceleration of technological change – stubbornly refuses to corroborate the old faith in ‘hands off’ government.

The recent IPPR paper on the ‘third wave’ of globalisation notes: ‘A government that actively supports a coherent set of supply-side and developmental policies in an institution-building growth strategy – even one which contains “protectionist” elements, such as transition period for market opening – are more likely to achieve economic growth than those that simply pursue extreme trade liberalisation.’

The current race to lead the World Bank exemplifies the shift. In 1999 the bank pushed out its chief economist, Joseph Stiglitz, who two years later would go on to win the Nobel Prize in Economics for his study of inefficiencies in unfettered markets. It is claimed that his criticisms of the bank’s ‘cookie cutter’ prescription for developing countries – privatisation, capital market liberalisation, an emphasis on indiscriminate GDP growth – had displeased Clinton’s treasury secretary, Larry Summers. Today, however, it is not Summers who looks set to become World Bank president (despite previous suggestions that he was a shoe-in), but Dr Jim Yong Kim, a physician and health campaigner whose record places him solidly with Stiglitz on the big issues.

Dr Kim is an outspoken critic of neoliberalism, favours rebalancing World Bank voting power towards the developing world and founded a movement to lower the prices of antiretroviral drugs in the third world. He has the ‘100% support‘ of the vocal development economist Jeffrey Sachs, who withdrew his own ‘change’ platform on Kim’s announcement as President Obama’s nominee for the post. Stiglitz, too, calls him ‘a good candidate’.

>What does this mean for Britain? It reminds us that we need to be alert to the shift that has taken place over the past twenty years. Today’s task is to adapt Britain’s political economy to what David Rothkopf calls ‘a battle between differing forms of capitalism, in which the distinction between each is in the relative roles and responsibilities of public and private actors’. It is, he adds, ‘something more complex’ than the old binary world.

The complexity, it seems, is lost on Britain’s current government. Each of Cameron and Osborne’s big economic decisions – much criticised by, among others, Stiglitz – offer us not a brighter 2015 but a brighter 1995. Globalisation, they insist, demands flatter taxes, sweeping deregulation and governments that ‘get out of the way’. But as Peter Mandelson writes in the Foreword to the IPPR paper, ‘The power of national governments to shape outcomes from globalisation remains strong, if they and their voters choose to use it.’

Cameron is caught between ideology and realpolitik on Dr Kim’s appointment. The Conservatives have bet the house on the success of a retro economic agenda whose central tenets – deregulation, trickle-down and near-blind faith in the invisible hand – are Thatcher/Major redux.

Ideological considerations therefore suggest that Cameron should oppose the appointment of someone who rejects the premise of his chosen economic strategy. But the constraints of realpolitik show that he cannot afford to squander the diplomatic capital accrued on his recent visit to the US by opposing Obama’s nominee for the World Bank. The rise of neoliberalism in the 1980s depended to a large extent on the transatlantic ideological axis built by Reagan and Thatcher. The breakdown of that axis is another clear sign that neoliberalism is losing the battle of ideas at a global level.

Jeremy Cliffe is a Labour commentator and contributing editor to Shifting Grounds. He tweets from @jeremycliffe.