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No purely free market
By Ni Tao |
August 19, 2011, Friday
|
Print Edition
Print Edition
Q: The financial crisis has exposed the flaws of neo-liberal economics. Many have renounced their blind faith in the market and realized the need of government intervention. Does it spell the end of laissez-faire free markets?
A: There's a lot of mythology about the free enterprise system. There is no purely free enterprise system in the world today. The US is not a pure private enterprise system with no government intervention.
Fifty to sixty percent of American Gross National Product is government spending, including military expenditure, spending on welfare, Medicaid, higher education at the federal level, local level, city level. There are a huge number of government employments in the US.
The structure of the American economy, which most Americans don't understand, is already a mixed economy, with a large amount of government intervention and state involvement. And it's true of Europe too, of course.
Modern capitalist economies cannot function without government. It's a pure myth to think that we live in a totally free market economy anywhere in the capitalist world.
Basically what's happened in Britain and America, which are thought to be the bulwarks of free market enterprise capitalism, is not that we've gone back to free enterprise under Ronald Reagan and Margaret Thatcher, when we had a lot of government spending. That's what we've always had.
In Britain and America finance is now playing a much more critical role. That's crucial and something that's changed. But the government still plays a critical role.
Just think of how important government is in saving the banks "too big to fail." Who saves them? It's not the private sector that saved them. It is government and taxpayers. I'm told here in China that most of the very big corporations in China are state corporations. Which is true. And most of the big corporations in the West are private, which is true.
Private firms in the West require the state to get people to pay taxes. They require the state to provide national security. They require the state to buy them out when they need it. They require the state to pay for the education of people who become employees.
Anglo-American myth
So the idea of free enterprise is a mythology. It'a an Anglo-American ideology that was built on Reagonomics and Thatcherism. And people have come to believe it.
So the state plays a role in all economies, including advanced economies, and it still plays a big role in China. And I think it tells us something about the future of the modern capitalist economy.
If we don't want the crisis the West is going through to get worse, there's bound to be more government intervention.
I understand there are potential problems. You'll have higher deficit spending and add to the debts. And the market comes in and tells you that you got too much deficit.
There is a constant tension between those who realize that the domestic economy needs more government spending and the market, which is basically financial, says "Sorry, your deficit is too high."
That's a struggle going on at the moment between those who have a vision for the future of the market economy where state and government will have to get increasingly involved, even more so than ever, and the market, largely finance, whose essential aim is money-making.
There is no single pure model of a market economy in the same way as there is no pure model of a planned economy.
Q: Have you read the book by Martin Jacques, "When China Rules the World?" Do you agree with him that China's development will follow a different path from the West, since they have distinct civilizations?
A: I know Martin Jacques well personally. I work with him at LSE's IDEAS center, he's a friend of mine.
I cheered him at the meeting at LSE where he spoke about his book. I think it is a very good book with a very bad title.
As for the question about civilization, I don't know what is a civilization, to be honest with you. China has wonderful ancient history spanning 5,000 years, with Confucianism and many dynasties. China was more advanced than Europe for three or four thousand years.
Every country has a different culture and China surely has its own specific culture.
But we are part of the same family. We are not exactly the same but there is a strong family resemblance. We use the Internet and travel around the world. There's not much fundamentally different between my Chinese and American students.
I kind of find the notion of civilizational state a very big generalization and can't grasp what it actually looks like. There's not homogeneity but heterogeneity in the world.
Thank goodness China isn't like America, American isn't like Britain or France. This does seem to me a process I'm not sure is leading to the creation of a distinct, utterly different civilizational state.
The other problem I have with the civilization notion is this. Nearly 20 years ago, a famous American political scientist Samuel Huntington wrote an article called "The Clash of Civilizations."
I worry if we start thinking in terms of separate civilizations, perhaps we'll start thinking of clash. I don't think that's healthy. Once you start to separate countries into unique civilizations, the possibility is greater of perceptions of others not being like you, being inferior to you and presenting a threat to your civilization.
So that's what also worries me about this notion of civilization. It seems to me there may be some inherent tendency within conceptions of civilizations for them to potentially clash if they define themselves as civilizations.
That said, I congratulate Martin on the success of his book, but I neither like the title nor the notion that China is a civilizational state.
A: There's a lot of mythology about the free enterprise system. There is no purely free enterprise system in the world today. The US is not a pure private enterprise system with no government intervention.
Fifty to sixty percent of American Gross National Product is government spending, including military expenditure, spending on welfare, Medicaid, higher education at the federal level, local level, city level. There are a huge number of government employments in the US.
The structure of the American economy, which most Americans don't understand, is already a mixed economy, with a large amount of government intervention and state involvement. And it's true of Europe too, of course.
Modern capitalist economies cannot function without government. It's a pure myth to think that we live in a totally free market economy anywhere in the capitalist world.
Basically what's happened in Britain and America, which are thought to be the bulwarks of free market enterprise capitalism, is not that we've gone back to free enterprise under Ronald Reagan and Margaret Thatcher, when we had a lot of government spending. That's what we've always had.
In Britain and America finance is now playing a much more critical role. That's crucial and something that's changed. But the government still plays a critical role.
Just think of how important government is in saving the banks "too big to fail." Who saves them? It's not the private sector that saved them. It is government and taxpayers. I'm told here in China that most of the very big corporations in China are state corporations. Which is true. And most of the big corporations in the West are private, which is true.
Private firms in the West require the state to get people to pay taxes. They require the state to provide national security. They require the state to buy them out when they need it. They require the state to pay for the education of people who become employees.
Anglo-American myth
So the idea of free enterprise is a mythology. It'a an Anglo-American ideology that was built on Reagonomics and Thatcherism. And people have come to believe it.
So the state plays a role in all economies, including advanced economies, and it still plays a big role in China. And I think it tells us something about the future of the modern capitalist economy.
If we don't want the crisis the West is going through to get worse, there's bound to be more government intervention.
I understand there are potential problems. You'll have higher deficit spending and add to the debts. And the market comes in and tells you that you got too much deficit.
There is a constant tension between those who realize that the domestic economy needs more government spending and the market, which is basically financial, says "Sorry, your deficit is too high."
That's a struggle going on at the moment between those who have a vision for the future of the market economy where state and government will have to get increasingly involved, even more so than ever, and the market, largely finance, whose essential aim is money-making.
There is no single pure model of a market economy in the same way as there is no pure model of a planned economy.
Q: Have you read the book by Martin Jacques, "When China Rules the World?" Do you agree with him that China's development will follow a different path from the West, since they have distinct civilizations?
A: I know Martin Jacques well personally. I work with him at LSE's IDEAS center, he's a friend of mine.
I cheered him at the meeting at LSE where he spoke about his book. I think it is a very good book with a very bad title.
As for the question about civilization, I don't know what is a civilization, to be honest with you. China has wonderful ancient history spanning 5,000 years, with Confucianism and many dynasties. China was more advanced than Europe for three or four thousand years.
Every country has a different culture and China surely has its own specific culture.
But we are part of the same family. We are not exactly the same but there is a strong family resemblance. We use the Internet and travel around the world. There's not much fundamentally different between my Chinese and American students.
I kind of find the notion of civilizational state a very big generalization and can't grasp what it actually looks like. There's not homogeneity but heterogeneity in the world.
Thank goodness China isn't like America, American isn't like Britain or France. This does seem to me a process I'm not sure is leading to the creation of a distinct, utterly different civilizational state.
The other problem I have with the civilization notion is this. Nearly 20 years ago, a famous American political scientist Samuel Huntington wrote an article called "The Clash of Civilizations."
I worry if we start thinking in terms of separate civilizations, perhaps we'll start thinking of clash. I don't think that's healthy. Once you start to separate countries into unique civilizations, the possibility is greater of perceptions of others not being like you, being inferior to you and presenting a threat to your civilization.
So that's what also worries me about this notion of civilization. It seems to me there may be some inherent tendency within conceptions of civilizations for them to potentially clash if they define themselves as civilizations.
That said, I congratulate Martin on the success of his book, but I neither like the title nor the notion that China is a civilizational state.
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