Markets and the global economy

The neo-liberal vision of a global market

Neo-liberal aspirations for the eclipse of state power are nowhere more apparent than in their vision of a global market. This vision can be traced back to Hayek’s early writings in the 1930s, in which he explicitly rejected Neo-liberal aspirations for the eclipse of state power are nowhere more apparent than in their vision of a global market. This vision can be traced back to Hayek’s early writings in the 1930s, in which he explicitly rejected

the concept of a national economy, linking it to the rise of aggressive nationalism and collectivism. Reflecting on the experience of the early twentieth century, he proclaimed that ‘the existence of many sovereign

national states will for ever remain a serious danger to peace’. 58 In his essay ‘The principles of a liberal social order’, Hayek appeared to envision a form of globalism. The spontaneous order of the market, he predicted, ‘will

progressively grow beyond the organisations of the nation state and empire, and produce at least the beginning of a world society without and often against political authority’. 59 Here Hayek was looking back to the nineteenth-century tradition of British liberalism. The rules of such a global order, he argued, can be traced back to this period of competing visions of the world; the liberal vision of cosmopolitanism, free trade and peace and the conflicting aristocratic one of imperialism, militarism and domination. Hayek endorsed what was in the nineteenth century a radical and progres- sive liberal view of Britain and the world. He envisioned a world without borders, in which the authority of national governments is undercut by alternative ‘international’ systems of rule such as the Gold Standard. 60

Hayek was more explicit in his vision of Europe. In a letter to The Spectator in 1939, he appeared to endorse a European system of mutual cooperation based along the lines of the European Union. Indeed, reflecting on the rise of Nazism in Germany, he was convinced that some sort of ‘federation’ of democracies in Central Europe ‘is the only way of securing lasting peace and economic improvement in that part of the world’. 61 Hayek made it clear that Britain would have to take the lead in such a scheme, to offer security to France and help curtail German hegemony. This ‘new order of Europe’ based on political and economic cooperation, Hayek maintained, would have to be led by the ‘strong’, since it would ‘require restrictions of national sovereignty that a real rule of law in inter-

national affairs implies’. 62 Towards the end of the Second World War in 1944, Hayek wrote that a European Federation could gradually be extended beyond the nations of Western Europe. Such a large regional bloc could achieve a level of cooperation with the British Empire and the United States which ‘would not be possible on a world scale’. 63

Later in 1980, Milton Friedman set out his ideal of a global market economy. Friedman, in his Free to Choose, identified Hong Kong as a microcosm of the global economy. Hong Kong, he wrote, is ‘limited government in practice’. Its economy has ‘no tariffs or other restraints on international trade’, ‘no government direction of economic activity, no minimum wage laws and no fixing of prices’. ‘The residents’, he continued, Later in 1980, Milton Friedman set out his ideal of a global market economy. Friedman, in his Free to Choose, identified Hong Kong as a microcosm of the global economy. Hong Kong, he wrote, is ‘limited government in practice’. Its economy has ‘no tariffs or other restraints on international trade’, ‘no government direction of economic activity, no minimum wage laws and no fixing of prices’. ‘The residents’, he continued,

‘are free to buy from whom they want, to sell to whom they want, to invest however they want, to hire whom they want, and to work for whom they

want’. 64 Like nineteenth-century Britain, Hong Kong in the late twentieth century, he contended, is an example of the economic success brought about by free trade and limited government policy. Friedman transferred Hong Kong’s neo-liberal model of a free and competitive economy to the international arena. He claimed that,

[i]n a free trade world’, as in a free economy in any one country, transactions take place among private entities – individuals, business enterprises, charitable organisations. All the parties to that transaction agree on the terms at which any transaction takes place on. The transaction will not place take place unless all parties believe they will benefit from it. As a result, the interests of the various parties are harmonised. Co-operation, not conflict is the rule. 65

Thus international free trade, he writes, ‘would not only promote our material welfare, it would also foster peace and harmony between nations and spur domestic competition’. 66

The neo-liberal vision of a global market order raises many problematic issues about enforcing and governing such an order. At the heart of the dilemma is the question of what role, if any, should be played by the states in the global economy. The neo-liberal belief in a global market and the struggle for global competitiveness appears to limit severely the ability of nation–states to choose their own economic destiny. Neo-liberal discourse on the global market is an anti-political one. National governments are no longer autonomous, decision-making bodies; the world which is evolving is one where global solutions will flow to where they are needed, without the intervention of states. They present an image of a global economy in

a borderless world, with the free movement of capital and corporations across national borders. 67

However, even if the neo-liberal vision of a global market separate from state is realised, neo-liberalism’s own understanding of such a system still necessitates an important role for the state. The spontaneous order of the global economy envisioned by neo-liberals cannot be obtained by dis- mantling the modern state. It is impossible to imagine the neo-liberal ideal of an elite of altruistic individuals, capable of policing and sustaining the

global economy without assistance from central governments. 68 The global market is dependent on a form of order apart from that provided by the market itself. Like national markets, global markets do not work unaided. In neo-liberal discourse, the state will continue to perform its tra- ditional duties in the global economy, of enforcing law and order and global economy without assistance from central governments. 68 The global market is dependent on a form of order apart from that provided by the market itself. Like national markets, global markets do not work unaided. In neo-liberal discourse, the state will continue to perform its tra- ditional duties in the global economy, of enforcing law and order and

maintaining property rights and a sound currency. Moreover, in modern national economies the state has been restructured to accommodate new functions, institutions and wider participation in global economic governance. The unfolding and contrasting systems of economic governance in the contemporary world means that, far from being undermined, the state will continue to play a central role not just at the national level, but also at the sub-national and regional level, for instance in the European Union, where markets and state agencies exist side-by-side. 69

International financial institutions

Another major source of contention for neo-liberals is the role played by international financial institutions in the global economy. In contemporary literature, especially that of a Marxist persuasion, a prevalent inter- pretation of international financial institutions such the World Trade Organization (WTO), the International Monetary Fund (IMF) and the World Bank is a neo-liberal one, of pro-market institutions promoting the further liberalisation of world trade in developed economies, at the exclu- sion of poorer countries. Indeed, many on the Left see these so-called ‘neo-

liberal’ institutions as the enemy of Third World development. 70 Other opponents view them as an instrument of ideological warfare. For instance, John Gray in his False Dawn comments that ‘the role of the WTO is to project free markets into the economic life of every society’. 71 To label these institutions as simply ‘neo-liberal’, however, is to misinter- pret what the term ‘neo-liberal’ stands for. While international financial agencies are clearly influenced by neo-liberal free-market thinking, like all Marxists, the majority of neo-liberals are opposed to their policy actions, but for very different reasons. Most fundamentally, neo-liberals see a schism existing between the rhetoric of institutions like the IMF and the World Bank, and what they actually do in practice. Neo-liberals do not oppose the free-market line advocated by these institutions; what they object to is the actions of the institutions themselves. In their actions they institute the kind of top-down economic planning that is anathema to neo-liberals. In the post-war period, global financial institutions like the WTO, World Bank and the IMF, through the Bretton Woods system, acted as inter-governmental organisations of international economic reg- ulation and stabilisation. Since this period neo-liberals like Brink Lindsey claim that they have changed for the worse. They argue that they have been transformed from temporary global stabilisers and rebuilders into liberal’ institutions as the enemy of Third World development. 70 Other opponents view them as an instrument of ideological warfare. For instance, John Gray in his False Dawn comments that ‘the role of the WTO is to project free markets into the economic life of every society’. 71 To label these institutions as simply ‘neo-liberal’, however, is to misinter- pret what the term ‘neo-liberal’ stands for. While international financial agencies are clearly influenced by neo-liberal free-market thinking, like all Marxists, the majority of neo-liberals are opposed to their policy actions, but for very different reasons. Most fundamentally, neo-liberals see a schism existing between the rhetoric of institutions like the IMF and the World Bank, and what they actually do in practice. Neo-liberals do not oppose the free-market line advocated by these institutions; what they object to is the actions of the institutions themselves. In their actions they institute the kind of top-down economic planning that is anathema to neo-liberals. In the post-war period, global financial institutions like the WTO, World Bank and the IMF, through the Bretton Woods system, acted as inter-governmental organisations of international economic reg- ulation and stabilisation. Since this period neo-liberals like Brink Lindsey claim that they have changed for the worse. They argue that they have been transformed from temporary global stabilisers and rebuilders into

permanent crusaders against global poverty and inequality. The IMF, in particular, has become associated with the imposition of international political authority on developing countries. The IMF’s generous bailouts, neo-liberals complain, give the governments of developing countries no incentive for reform and prolongs economic backwardness, leaving countries worse off than before. 72

It is important to note, however, that neo-liberals like Hayek readily accepted the need for a rule-driven approach to international trade – the hallmark of organisations like the WTO. Indeed, Hayek saw a complex and powerful symbiosis between the rules essential for the effective work- ings of market economies and the rules which constrain arbitrary state power. What he opposed is the policies of institutions that move beyond their rule-enforcing capacity and seek to intervene directly in global economic forces, creating the kind of market distortions that it is their prin- cipal task to prevent. 73

Markets and the global economy