The Long Goodbye: The dream of central control dies hard
Lindsey, Brink
"The Long Goodbye" THE DREAM OF CENTRAL CONTROL DIES HARD BY BRINK LINDSEY Near Gorky Park, on the banks of the Moskva River, lies the Graveyard of Fallen Monuments. It is located on the grounds...
...It transcended the conventional left-right political spectrum: Both progressives who welcomed the social transformations wrought by industrialization and the conservatives who feared them were united in their calls for a larger state with expanded powers...
...The transition, as a consequence, has been wrenching and often brutally painful.And the transition is far from complete.The world economy is littered still with the wreckage of discredited systems...
...They have lost the mantle of the future and have become the shrill, bitter voices of reaction...
...The privatization movement of the past couple of decades, although truly impressive, has been broader than it has been deep...
...The now-crumbling institutions of the collectivist era still have their defenders, but they are on the defensive.The weight of opinion is against them when they argue that theirs is the true path to material abundance...
...A dangerous mix of regulatory restrictions and special subsidies renders banks chronically vulnerable to meltdowns of mass insolvency...
...On this item, as well as the previous one, the Economic Freedom of the World report grades countries on a 0 to 10 rating scale...
...a score of 2 is given when "numerous SOEs operated in many sectors, including retail sales...
...For all the media attention they have received and all their Internet-based organizational savvy, their quest to reawaken the grand utopian passions of the past is virtually hopeless...
...Could such things happen again...
...Driving around the huge, hulking works, past dingy and decrepit worker housing and out to the old iron ore deposit, your eyes and throat quickly begin burning from exposure to the fouled air...
...Under these conditions, most economic activity is confined to what the late economist Mancur Olson called "spontaneous" or "selfenforcing" markets—markets based on personal relationships or face-to-face contact...
...Contrary to the conventional wisdom, the present era of globalization does not represent the unchecked ascendancy of market forces...
...of a warm July afternoon, the graveyard hosted a thin crowd of visitors...
...Walk outside, turn left and you enter the graveyard...
...In 19 of those countries real interest rates were frequently or persistently negative...
...Begun in 1929, Magnitogorsk was modeled after U.S...
...Countless organizational innovations were devised to manage successfully the high-volume, high-speed flows of inputs and goods through the proliferating new production and distribution systems...
...and the various statist leaders of the Third World held out the prospect of industrialization and modernization and accelerated development...
...India's informal sector is only an especially egregious example of a global phenomenon...
...and the overhaul of financial institutions to make the allocation of capital more responsive to market returns...
...In Malaysia and Thailand, for instance, countries with no shortage of banking system woes, bank loans to the private sector exceed 100 percent of GDP...
...Other reform ideas now receive serious attention, but remain bitterly controversial—including privatization of Social Security, educational voucher or tax credit programs and defunding of the IMF, to name a few...
...As domestic demand for steel collapsed during the 1990s, Magnitogorsk had to turn to foreign markets to survive...
...Scattered over a few acres are the toppled icons of the Soviet faith.The star of the collection is the towering statue of Felix Dzerzhinsky, founder of the Soviet secret police, which stood in Lubyanka Square in front of KGB headquarters until it was hauled down after the failed coup of 1991...
...There, economic life is so grossly dysfunctional that one of the great advances of the Industrial Revolution—the mass production of automobiles—has been reversed...
...third, lamy, author of the bestselling Looking Back- the waste by periodical gluts and crises, ward: 2004-1887.The book tells the story of with the consequent interruptions of industry...
...It is a desperately poor country, to be sure, but in this particular respect the poverty is a matter of explicit policy.Vehicle prices are grossly inflated by punishingly high taxes: Total duties on used cars, for instance, are 180 percent...
...In November 2001, a deputy in the state Duma was stripped of his legislative immunity and charged with skimming off a personal fortune during the mill's privatization a decade ago...
...The demand for particular jobs is matched to the available one Julian West, who falls into a hypnotic trance in 1887 and lies in a state of suspended animation until a chance discovery leads to his reawakening in 2000...
...Meanwhile, recent years have witnessed the flare-up of radical anti-market sentiment in the rich countries of the industrialized world—in the form of the anti-globalization protest movement...
...The past, though dead, still haunts...
...Most obviously, government ownership of commercial enterprises is still widespread...
...Finally, governments repress the financial sector through compulsory allocations of credit to particular sectors—whether through lending by state-owned banks, controls on private banks or credit subsidies...
...Even here, many relatively straightforward proposals for market-based reforms continue to be marginalized as "extreme" and "out of the mainstream"—for example, the substitution of taxes and tradable permits for command-and-control environmental regulations, the replacement of Medicare with private health insurance vouchers, the repeal of compulsory labor union membership, the phase-out of federal deposit insurance for banks and the elimination of the antidumping law, which penalizes imports that are deemed too inexpensive...
...I decided to go to Russia to work, study and to lend a hand in the construction of a society which seemed to be at least one step ahead of the American" Scott worked for the next five years in the giant new steel mill at Magnitogorsk—one of the great symbols of the Soviets' break-neck industrialization drive...
...The mill has struggled to make its way in the new, postcommunist world...
...By contrast, in East Asia, where financial repression was pursued much less vigorously, the banking industry is much larger and better developed...
...Among the economic distortions caused by today's prevailing rule of lawlessness, few are more severe than one I saw in rural northern India...
...Today, the romance of blast furnaces and five-year plans is long dead...
...Western Europe's enervating welfare state and labor policies result in the chronic under-employment of its people—a profligate waste of human talent that squanders most severely the abilities of people at the beginning and end of their working lives...
...There is little coherence in the protesters' many agendas, but their common bond is a thirst for something higher than mere materialism and a belief that it can be found in political action...
...by comparison, the corresponding figure was 35 percent in India...
...Throughout the city, 45-year-old veterans and 21-year-old inductees, accompanied by friends and,family, head to industrial army offices for the formal ceremonies...
...Rather, every citizen the dining hall, laundry and distribution center cast i of the country, regardless of age or occupabold, sharp shadows...
...Surely other, similar tales remain to be told...
...It died in the United States and Western Europe during the stagflation of the 1970s...
...countries garner a score of 2 "when price controls applied to a significant number of products in both agriculture and manufacturing...
...The report found that as of 1997, nine countries scored a 0, 15 countries received a 2 and 30 countries earned a 4. Those 54 countries contain 39 percent of the world's population...
...Mass distribution and marketing spun sprawling, intricate webs that connected producers and customers...
...It died in China when Deng Xiaoping declared: "It doesn't matter if the cat is black or white, so long as it catches mice...
...The previous waste by mistaken undertakings...
...stays dry and comfortable...
...they no longer offer a plausibly workable vision of the future to guide the reform or overhaul of current policies and institutions.And so anti-market forces today are consigned to clinging to the past: not proposing their own changes, but merely opposing and resisting liberal change.They are still formidable, but they are sterile...
...In Brazil, as well as Costa Rica, Honduras, Panama and Venezuela, 40 percent or more of total employment is informal...
...Out in the suburbs, smaller celebrations can be found in nearly every public square...
...Centralization would no longer undergird or supplement competition, but would supplant it...
...Service in the army is compulsory for all able-bodied men and women between the ages of 21 and 45 (although doctors, teachers and artists serve outside the army...
...More important than the size of financial markets is how open and liquid they are...
...the Nazis put the jobless back to work...
...It was a disastrous course of action...
...Magnitogorsk's awkward straddle of its Stalinist past and the globalized present typifies the predicament of postcommunist and developing economies...
...For some countries, they are a recur-rent plague:Thirteen of those listed suffered multiple breakdowns of their banking systems during the period in question...
...Built, though, to be far away from potential invaders, it is equally remote from potential customers:The nearest port is 1,200 miles away, so transportation costs are a major problem...
...And yet Lenin still lies in his tomb...
...the bottom score of 0 means that "the economy was dominated by SOEs...
...Especially damaging is the tandem of inflationary monetary policies and interest rate controls, which frequently results in negative real (that is, inflation-adjusted) interest rates and thus causes savers to shun the banking system...
...In particular, the industrial sectors of those economies remain grotesquely distorted by the legacy of command and control...
...And in countries where banking crises have occurred, crushing burdens of unresolved bad loans can paralyze financial institutions and the larger economies that depend on them for years at a stretch...
...In this way the dead hand yields, bit by bit, to the invisible hand of the market...
...Production techniques became vastly more complicated as mechanization developed and spread...
...It reordered society in drastically simplified fashion, substituting crude, top-down command structures for the coordinated and mutually adjusting creativity, know-how and on-the-spot judgments of millions of human beings...
...And so when existing institutions break down so badly that changes become unavoidable, leaders in search of a template for constructive action now turn to the liberal model by default...
...But the rolling worldwide disenchantment with centralized control has not left market forces with a clear field on which to operate far from it.The move toward more liberal policies has occurred amidst the ruins of the old order and so has had to contend with grossly deformed conditions...
...As the late afternoon sun breaks momentarily through the clouds, the modest beauty of this simple patriotic ritual hits home...
...Here their confusion was fundamental...
...Once again, as it was before 1913 when Henry Ford invented the assembly line, people are making cars by hand...
...My own experience testifies to the lack of transparency at Magnitogorsk:The firm's management refused to talk to my brotherin-law—then the Moscow correspondent for Cox newspapers—and me on the ground that we might be "spies...
...But the mocking spirit of the place wrestles with a deep and heavy sense of gloom...
...When you stand on the west bank of the Ural River, at the foot of a colossal statue of two brawny, sword-wielding socialist heroes, the immense sprawl of the mill on the other side of the river extends across your entire field of vision...
...by late afternoon the wind has swirled them into a monochrome smear of brown...
...They are not officially registered, they have no license plates andthey are supposedly subject to seizure by the highway patrol whenever they are found...
...Once again, the same caveat applies: Many of the world's most illiberal regimes were not included in the analysis...
...It is neither widely loved nor widely understood, but it is all there is...
...The same report shows that 40 countries accounting for 35 percent of the world's population still maintained significant regulation of interest rates during the period 1995-97...
...there is, however, no distinct/re square's central fountain shimmer and sparkle...
...The Industrial Counterrevolution swept up reformers and revolutionaries, the religious and the anticlerical, social activists and big businessmen, workers and capitalists...
...From the facts that centralization had a growing role within the market order (in the form of large business enterprises) and that centralization was needed to assemble the institutional framework of the market order (as well as supplement that order by promoting particular non-commercial public values), collectivists leaped to the utterly unwarranted conclusion that centralization should, in whole or in part, supplant the market order itself...
...According to the mechanic we spoke with, one shop can turn out four or five finished vehicles a month...
...The mechanics buy minivan spare parts wheels, axles, transmissions, gear boxes and steering—from markets in Delhi...
...Outside of the United States and United Kingdom, decentralized access to capital through bond and equity markets remains pitifully underdeveloped in most countries—not only because of direct regulatory inhibitions, but also because of inadequate legal protection of investors...
...Consultants at McKinsey studied 10 major Russian industries in 1999 and found that their average labor productivity was a shockingly low 18 percent of U.S...
...An older man, holding Aside from its beneficent social consethe hand of his young grandson, explains that a long quences—namelyy, the elimination of povertime ago people carried personal rain screens called ty, class conflict, lawyers, politicians and virumbrellas, which then dripped water on everyone tually all crime—the nationalization of around therm...
...Other forms of heavy-handed government control remain widespread as well...
...And with a price tag of only around $1,000, it is an unbeatable bargain...
...In the hushed stillness and lengthening shadows, the cruel gazes of the fallen leaders still cast a pall—still chill the soul with their inhuman, all-too-human arrogance...
...According to a recent World Bank analysis, 34 countries on five continents experienced major banking crises over the past two decades: Argentina, Bolivia, Brazil, Canada, Chile, Colombia, Denmark, Ecuador, Egypt, El Salvador, Finland, Ghana, Hong Kong, India, Indonesia, Italy, Japan, Korea, Madagascar, Malaysia, Mexico, Nigeria, Norway, Peru, Philippines, Sri Lanka, Sweden, Tanzania, Thailand, Turkey United States, Uruguay, Venezuela and Zimbabwe...
...The reds, yellows and supply by adjustments in the daily working oranges of the peaking autumn, oliage ignite to their hours (more arduous, less attractive jobs have full, fleeting perfection, while the splashing arcs of shorter hours...
...Known alternately as a ` jugaad," a "maruta" or a "boogi," the vehicle offers basic, bare-bones transportation for Indian farmers...
...Keynesian fine-tuning...
...In the Graveyard of Fallen Monuments, the soaring ambitions and ruthless power of the Soviet era have been reduced to kitsch...
...This hundred-year historical episode, though composed of diverse and widely varying elements, possesses enough coherence to merit a name...
...the mixed economy of social democracy...
...Decentralized experimentation by private entrepreneurs, guided by the feedback of profit and loss, had created a wealth-creating capacity of unprecedented fecundity...
...Privatization alone, however, is no guarantee that real market-oriented restructuring will occur.The experience of Russia is sad testimony to that fact...
...That failure must be acknowledged as one of the bitter legacies of the collectivist era...
...Do you think there's a lesson to this economic life has ushered in a general story...
...In place of domes and pinnacles of downtown, visible through pecuniary incentives, workers are motivated a break in tine trees, take on a golden gloat to do their best, not by higher wages, but by As afternoon turns to evening, people begin to the social status that attends higher rank and head home and a gentle rain starts to fzll.The side- other awards and prizes presented in recogwalk covering un¢iuds automatically and everyone nition of special merit and achievement...
...And so it is throughout all of Moscow The smirk of disillusionment is everywhere in evidence.You can buy McLenin T-shirts in the Arbat, or Prime Nostalgia cigarettes in any train station (your choice of Lenin or Stalin on the pack...
...In short, industrialization entailed a dramatic elaboration of the division of labor, the result of which was to expand the horizons of achievable prosperity beyond all prior imaginings...
...the developmental states of the Third World...
...The dead hand's malignant influence is not confined to the remote locales of the postcommunist and developing worlds.Wealthy and sophisticated Japan now enters its second decade of stagnation because of monetary mismanagement and the refusal to allow failed businesses to die...
...It is located on the grounds of the New Tretyakov Gallery—a lifeless, white hulk of a building that houses the premier collection of paintings from the school of Soviet Socialist Realism...
...THRONG GOO BYE i THE DREAM OF CENTRAL CONTROL DIES HARD BY BRINK LINDSEY Near Gorky Park, on the banks of the Moskva River, lies the Graveyard of Fallen Monuments...
...The death of that misbegotten dream, more than any other single factor, has been responsible for the process conveniently summarized by the catchword "globalization" After all, there was really no possibility of any-thing like a truly global economy as long as large parts of the globe explicitly renounced participation in a worldwide division of labor...
...And the fountainhead of many times before, "inn the age of individualism this plenty is the vastly superior produceverybody had to fend for himself, but now in the tivity of central planning as compared to modern age we all take care of each other:" private enterprise...
...Consequently, the partisans of the Indus-trial Counterrevolution led a campaign to unloose centralization from its proper limits and make it, rather than competition, the basic template for economic life...
...Technically, boogis are illegal under India's Motor Vehicles Act...
...Meanwhile, in Southeast Asia, over 70 percent of workers in heavily rural Thai-land and Indonesia operate in the informal sector...
...Something seemed to be wrong with America," he wrote in his memoirs...
...The production of boogis is part of India's enormous "informal sector"—unsanctioned economic activity that is nonetheless tolerated by the authorities.The informal sector dominates India's economic life...
...They no longer represent a living and vital interpretation of modernity...
...The one I suggest is the Industrial Counterrevolution...
...the great Stalinist Gothic towers loom on the skyline...
...At the same time, many are subject to incessant extortion by corrupt officials, few have any access to the courts for legal redress and virtually none are eligible for bank loans or any other type of formal financing...
...With capital markets stunted, banks generally play the leading role in allocating capital—a role that remains heavily politicized, with uniformly dolorous consequences...
...The omy is organized as one great industrial army, veteran's breast pocket is adorned not only with his at the pinnacle of which the president of the United States serves as general-in-chief...
...That dream has now expired in universal failure...
...First, as a mat-ter of historical development, the movements grouped together under this common heading were both inspired by and reacting against the economic and social transformations effected by industrialization...
...At the root of so many problems in developing and transition economies is the failure of governments to provide reliable security for property and contract rights...
...The guests of honor include one neighborhood man who decision-making by big business...
...the burgeoning Populist movement absorbed much of Bellamy's vision.Years later, Progressive icons John Dewey and Charles Beard, independently rating the most influential books since 1885, both put Looking Backward in second place, trailing only Karl Marx's Das Kapital...
...in Brazil, the corresponding figure was 28.5 percent...
...The liberalization of international trans-actions is only one aspect of a larger pattern of reform.As faith in government controls has dissipated, markets have been given wider play, not only in shaping economic relations between nations, but in shaping them with-in nations as well.The willingness to subject domestic economic actors to foreign competition has gone hand in hand with the willingness to embrace competition at home...
...In the United States and Europe, the centralizing impulse first began to register during the 1870s, just as modern technological society was bursting onto the scene...
...Its tragic effect, consequently, was toretard the spreading division of intellectual labor that the new economy encouraged...
...Take, for example, price controls, perhaps the most blatant form of government interference with the transmission of market signals...
...And relative size is only the most obvious yardstick of comparison...
...the Galbraithean new industrial state...
...It died in the Soviet Empire with the collapse of the Berlin Wall.And it died in East Asia with the bursting of the Japanese bubble and the financial crisis of 1997-98...
...market forces today as the "dead hand" of the past...
...was mustered out today and two young women Under the new system, the national econfronr down the block who were just inducted...
...and the totalitarian states, whether communist, fascist or Nazi...
...This article is adapted from his book Against the Dead Hand:The Uncertain Struggle for Global Capitalism (John Wiley & Sons, 2002...
...Bellamy's book made such an impact because it crystallized and dramatized a powerful new idea that, in one form or another, was taking hold of the world and remaking it in its image...
...It died in Latin America during the debt crisis and lost decade of the 1980s...
...But those markets, however resilient and durable, cannot produce the division of labor upon which affluence depends...
...Hence my characterization of the antiLenin, half completed, at the Uzbek State Monument Works...
...they are simultaneously doing too much and too little...
...When I visited it in 1999, toward the end A former Soviet general's grave stone at Moscow's Novodevichy Cemetery...
...fourth, the waste from idle capital and labor, at all times...
...That idea, reduced to its bare essence, was that the economic revolution of industrialization both enabled and required a revolution in social organization—namely, the eclipse, whether partial or total, of markets and competition by centralized, top-down control...
...In a continuum from bad to worse from corrupt officials and inadequate courts, to laws so misguided that many or most people are chased into the informal sec-tor, to the arbitrary confiscations of kleptocratic misrule, to the chaos of Hobbesian anarchy—the poorer countries are all plagued by the insufficient protection of property and contract rights...
...Are the present expressions of radical discontent the first stirrings of a new cataclysm...
...The grip of the failed past is palpable in the former world capital of the Communist revolution, but it can be felt to a greater or lesser extent in every corner of the planet...
...The Industrial Counterrevolution was protean and in its many guises captured minds of almost every persuasion...
...Little groups walked quietly along its concrete paths, in and out of small groves of trees...
...And note that this roll call of misery understates significantly the extent of the suffering: It excludes all the former members of the Communist bloc, most of whose banking systems are severely distressed...
...In short, it didn't deliver the goods...
...in Argentina, 16 percent...
...I was deployed on the iron and steel front...
...The mill has been officially privatized, but its ownership structure and finances remain murky...
...Nationalization elimiThis strange Boston is obviously not the nates the "four great wastes" that were one of contemporary reality...
...Countries that have no price controls or marketing boards earn a perfect score of 10...
...I. Friday's just outside Red Square...
...48 THE AMERICAN SPECTATOR • MARCH/APRIL 2002 The dead hand of the past continues to hold sway, not just over the production of goods and services, but over the allocation of capital as well...
...In Mexico, where a recent banking crisis has aggravated an already poor situation, bank lending to the private sector had dropped to 17.8 percent of GDP in 1998, down from 28.9 percent in 1993...
...In the old days," Yelena Sherbakova, a retired mill worker, told me during my visit there, "the snow used to be black when it fell...
...Stroll the museum's uncrowded exhibits and you will see such forgotten masterpieces as Yefim Cheptsov's "Meeting of the Village Communist Cell," Arkady Platsov's "Tractor Drivers' Supper" and Pyotor Kotov's "Building the Kuznetsk Metal Works Blast Furnace...
...From Soviets: Pictures from the End of the USSR, by Shepard Sherbell, published by Yale University Press...
...in Pakistan, a miserable 10 percent...
...The existence of large informal sectors is only one symptom of a broader institution-al failure...
...Yet continuing control by Soviet-era managers, combined with a "soft budget constraint" in the form of massive government subsidies, has robbed privatization of its anticipated benefits...
...There are a few bright spots: In Hong Kong, Singapore, Taiwan and Chile, for example, equity markets are relatively large and liquid...
...Gone are the roiling labor troubles, the business crash-es and the dark forebodings of social collapse...
...And so Bismarck offered to lift up the workers...
...in later-developing countries, the ideologies of centralization almost invariably supplied the matrix for modernization...
...Banking crises are a plague that afflicts rich and poor countries alike...
...But Magnitogorsk is still there, still making steel.The vision of a socialist workers' paradise has been abandoned, but the dead hand of its continuing influence still holds Magnitogorsk in its grip...
...a large statue of Marx glowers in Revolutionary Square...
...Leaving Delhi still murky with wood and dung smoke from the previous night's home fires, we headed south down the Delhi-Agra highway and weaved our way through a chaos of cars, trucks, buses, motorcycles, three-wheeled "Vikrams," tractors, ox-carts and camel carts...
...The anti-globalization protesters fancy themselves the vanguard of some new political movement, but they are really just the straggling rearguard of an old and failed one...
...But over the past couple of decades, barriers to the free movement of goods, services and Brink Lindsey is a senior fellow at the Cato Institute and director of its Center for Trade Policy Studies...
...you can gaze out at the Kremlin wall over a burger and potato skins from the T.G...
...It is instead a endemic to the old market system:"first, the city of unfulfilled prophecy...
...And all too often, it combined the centralization of economic decision-making with a tyrannical centralization ofpolitical power...
...Most stock markets around the world are dominated by insiders and experience relatively little turnover...
...The name "Industrial Counterrevolution" is fitting on two levels...
...I even saw a man walking alongside the road with a bear on a leash—a traveling entertainer who worked his way from village to village...
...the resurrection of labor markets...
...couples sat on park benches in the overgrown, unmowed grass.There was a refreshment stand in one corner, near the museum...
...A bewildering variety of new industries and occupations arose...
...The hypertrophy of centralization tortured the logic of industrialization and deranged economic development...
...the business-led associative state...
...In recent years a number of the original, filthy open hearths have been replaced with more modern, cleaner furnaces...
...Another key element of financial repression is the requirement that banks maintain large reserves with the central bank.These interest-free loans to the government tie up resources that otherwise could be financing private productive activity...
...And yet things used to be much worse...
...everybody else, the other 91 per-cent, works informally...
...The pay-off came in World War II, when half the tanks of the Soviet Red Army were made from Magnitogorsk steel...
...With admirable ingenuity and initiative, rural Indians have decided to take matters into their own hands: They are now building their own automobiles...
...But the law is roundly ignored...
...I n 1932, in the depths of the Great Depression, 20-year-old John Scott dropped out of the University ofWisconsin and headed off to the Soviet Union...
...Hundreds of"Bellamy clubs" sprang up around the country...
...commitment to a monetary policy of price stability...
...In its embrace of unrestrained scientific inquiry, representative democracy, cultural dynamism and entrepreneurial innovation, liberalism enshrined open-ended discovery as a fundamental organizing principle of social life: The Industrial Counterrevolution pushed in precisely the opposite direction...
...For Soviet-style communism was but an extreme manifestation of a much broader vision that animated much of the history of the 20th century: the dream of centralized, top-down control over the course of economic development...
...Meanwhile, economic slowdowns in export markets and protectionism in the European Union and the United States have posed further obstacles...
...canned gin and tonic was their drink of choice...
...Economists have turned against financial repression, but its political temptations are abiding.According to the 2000 Economic Freedom of the hh'orld report, state-owned banks remain widespread: In 40 countries containing 57 percent of the world's population, state-owned banks held a clear majority of total deposits during 1997-98...
...the grandfather asks...
...Although now largely forgotten, Edward Bellamy's vision of a future collectivist utopia caused a sensation in its day...
...To find this strange anachronism, I set out with a colleague and a driver one morning to brave India's infamous rural roads...
...West is reborn in a world reborn—where total centralization of economic decision-making in the hands of the state has create 46 THE AMERICAN SPECTATOR • MARCH/APRIL 2002 phenomenon unrivaled in the United States since UncleT rmrs Cabin...
...they get their engines, made to power water pumps, from Agra...
...Trade and investment liberalization are thus of a piece with a broad array of market-oriented policies: in particular, the privatization of state-owned industries...
...Gone are the scourges of hunger and want...
...And the market system was but the economic expression of a bold new form of social order: the liberal order that institutionalized experimentation in science, politics and culture as well as economics...
...My colleague told me that this highway was actually a showpiece by Indian standards—at least it had a median strip...
...There is at present only one viable vision of economic development: the liberal model of markets and competition...
...The Soviet Union, the country into whose service John Scott enlisted, has ceased to exist...
...A few people sat at umbrella tables...
...In Argentina, for example, bank lending to the private sector amounted to a mere 23.7 percent of GDP in 1998...
...Rather, we live today in the midst of an ongoing and uncertain struggle between the revitalization of markets and the dead hand of the collectivist past...
...The difference between now and then is a century's worth of bitter, disillusioning experience...
...A traveling carnival of 50 THE AMERICAN SPECTATOR • MARCH/APRIL 2002 street theater and vandalism opened in Seattle in November 1999 and has since made stops in Washington, D. C., London, Prague, Quebec, Gothenberg, Genoa, NewYork and elsewhere...
...Call it the invisible hand versus the dead hand...
...Moscow itself is one large Grave-yard of Fallen Monuments...
...Mussolini made the trains run on time...
...Fortunately, the answer is almost certainly "no...
...A century ago, utopian longings similar to those of today's protesters helped to launch the great historical cataclysm I have called the Industrial Counterrevolution...
...We found boogi manufacturers in the remote village of Toda Bhim in eastern Rajasthan.There were no assembly lines, no factories at all just three small mechanic's garages spaced out along the semi-paved road that runs through the village...
...And it shouldbe noted that some of the world's most regimented economies—including Cuba, North Korea, Vietnam, Cambodia, Laos, Libya, Iraq,Yugoslavia and a number of the former Soviet republics—were not even included in the survey for lack of reliable data...
...Published in 1888, Looking Backward quickly sold hundreds of thousands of copies—a publishing while the city's sprawling, wooded parks are scenes of picnics and concerts and speeches and rallies...
...Despite appalling conditions, it arose from the remote Ural steppe in just a few short years a testament to the audacity and brutal determination of a new social order...
...It has no roof, the 10 to 14 horsepower engine must be hand-cranked and maxes out around 15 miles per hour and the driver sits on a wooden bench...
...Money was spent like water, men froze, hungered and suffered," Scott recounted,"but the construction work went on with a disregard for individuals and a mass hero-ism seldom paralleled in history...
...Statues and busts of Lenin can be found aplenty, and there is even a red marble statue of Stalin—his face partially shattered, staring impassively over a gruesome jumble of stone heads penned in concrete-and-barbed-wire cages...
...This radical change has occurred, not through violent revolution, but as a natural outgrowth of the consolidation of economic capital have teetered and fallen and companies, investors and consumers have rushed to fill the breach...
...the reform of punitive tax systems...
...tion between jobs as to wages and, indeed, no Framing the square', the stately columned f cades of system of wages at all...
...As a result, a larger share of world economic activity is now exposed to foreign participation and competition than at any other time in human history...
...Yes," the little boy prosperity unimaginable in the bygone "age replies quickly, as if he has heard similar questions of individualism...
...The grim fact is that banking systems are more or less dysfunctional virtually everywhere in the world...
...Governments are not merely doing too much...
...and they pick up steel for the chassis and wood for the framing from Jaipur.They cut and fit the framing and weld the chassis themselves and then assemble the rest...
...and the metro escalators plunge into weird phantasmagorias of socialist triumphalism...
...Magnitogorsk today is an assault on the senses...
...What we call globalization today is in large part really just the process of recovery from that awful collapse...
...Even in urban areas, roughly half of Thai workers are informal...
...The 2000 Economic Freedom of the World report found that as of 1996-97, 24 countries out of 123 surveyed earned the lowest possible score of 0, another 23 countries received a score of 2 and 27 countries earned a 4.Thus, in a total of 74 countries, accounting for 67 percent of the world's population, state-owned enterprises continue to play a leading role in economic life...
...In particular—and of particular relevance for understanding globalization today—it undermined and ultimately destroyed the booming global economy that arose in the wake of the Industrial Revolution...
...second, the vignette attempts to capture the Boston waste from the competition and mutual imagined over a century ago by Edward Bel- hostility of those engaged in industry...
...he struggle between the dead hand and the invisible hand cannot be reduced to a conflict between government per se and markets...
...The political forms that bore its imprint were many and varied: the welfare and regulatory state...
...elimination of price and entry controls that sustained domestic monopolies and oligopolies...
...In addition to the mechanics in Toda Bhim who actually make the cars, we spoke with a dealer in the nearby town of Mahwa and sever-al satisfied customers and none reported any problems with the police.We even saw boogis puttering along the main Delhi-Agra highway, 60 miles from the capital city...
...they're also stunted by what economists call "financial repression"—a cocktail of policies whose combined effect is to discourage financial intermediation...
...In Latin America, for example, the sprawling favelas of Brazil are perhaps the most familiar face of a pervasive shadow economy...
...MARCH/APRIL 2002 • THE AMERICAN SPECTATOR 51...
...The popular appeal of the various failed alternatives to the liberal path of markets and competition rested crucially on the presumption that collectivism was "progressive," that it was "the wave of the future" specifically, that it would give the masses a better life...
...Apart from these happy exceptions, though, now that the "emerging markets" craze of the early 1990s has fizzled unceremoniously, it is clear that most of the world's stock markets are turbid, stagnant backwaters.Too often, they are just another racket for insiders to maintain their control, not the liberating tool for democratizing finance that they could and should be...
...The Industrial Revolution represented a quantum leap in the complexity of economic life...
...Although American, Japanese and Korean auto companies now assemble vehicles in India, their products are well out of financial reach for most Indians...
...Belching out of the smokestacks in the morning are plumes of orange, black and blue-gray smoke...
...And here in the United States, where pro-market opinion is on firmer footing than just about anywhere else, the habits of top-down control die hard...
...in Korea, 25 percent...
...This dramatic increase in complexity was an outgrowth of market competition...
...On this particular criterion, a country is assigned a maximum score of 10 when only a few SOEs remain.At the other end of the spectrum, a score of 4 indicates "a substantial number of SOEs operated in many sectors, including manufacturing...
...In Magnitogorsk I was precipitated into a battle," Scott wrote...
...Only around 30 million people or 9 percent of the labor force, work in the official,"organized" economy...
...in Bolivia and Paraguay the figure tops 50 per-cent, while roughly 65 percent of Guatemalans work outside the organized economy...
...levels.They concluded that some 25 percent of Russia's Soviet-era industrial assets are obsolete and should be scrapped...
...The catastrophic breakdown of nation-al banking industries is a dismal common-place under current conditions...
...the Bolsheviks promised land and bread for the peasants...
...And off in the distance, the great tion, receives the same income...
...As we ventured onto smaller roads I quickly understood what he meant.With traffic on the two-lane MARCH/APRIL 2002 • THE AMERICAN SPECTATOR 49 roads undulating back and forth across both lanes to pass slow-moving tractors and camels or avoid potholes the size of bomb craters, dodging the oncoming traffic was like a video game come to life...
...In the United States, total equity market capitalization equaled 114 percent of GDP in 1996...
...In all their varied attempts at social engineering, the leaders of the Industrial Counterrevolution simply assumed that centralized control was a panacea...
...the private sector now accounts for roughly 90 percent of industrial production...
...Banking systems aren't just crisis-prone...
...All along the way vehicles were over-flowing with passengers—people sitting on top of a jeep-like "Mahindra," or standing on the floorboard of a van with the back door swinging open or crammed into the back of a truck or camel cart.With a billion people, India has only around 40 million motor vehicles—two-, three- and four-wheeled combined...
...The transition to truly market-based industry is far from complete...
...J t is October 15, 2000, and Boston, like other American cities, is abuzz with the annual Muster Day festivities...
...And second, in analytical terms, the common intellectual thread that runs through all of these movements—namely, the rejection or demotion of market competition in favor of top-down control—represents a direct assault on the principles of social order that gave rise to industrialization and that are truest to its full promise...
...Even for countries that have made serious attempts to open up their financial systems, the legacy of the past continues to frustrate economic progress...
...On the illiberal side of the scale, countries receive a rating of 4 "when price controls were levied on energy, agriculture and many other stable products that are widely purchased by households...
...MARCH/APRIL 2002 • THE AMERICAN SPECTATOR 45 ed an earthly paradise...
...the two inductees proudly sport their simple iron badges of third-grade mirk...
...But in the past couple of decades, collectivism's failure to live up to its promises finally became undeniable...
...Between 1992 and 1996, Russia sold off or gave away over 100,000 state-owned enter-prises...
...everywhere that wreckage constrains the present and obscures the future...
...you can sit in a karaoke bar on Tverskaya and listen to young people singing revolutionary anthems as a comedy routine...
...It is a breathtaking statistic: 91 percent of Indian workers operate off the books and outside the 1aw.Those 91 percent don't have the proper permits and licenses, most don't pay taxes and few show up at all in the official economic statistics...
...In Latin America, the depth of the financial sector remainsbadly underdeveloped...
...Mean-while, thousands throng the broad, tree-lined avenues of downtown to view the great parade,gold industrial insignia, but also with all the medals and ribbons earned during his years of service...
...in Thailand, 28 percent...
...In one typical get-together, sever-al families have gathered in their neighborhood green for games and a cookout...
...They are a dead end or at best a holding pattern...
...Consider the findings of the Economic Freedom of the World project, a rigorous and thoughtful attempt to track and quantify global trends in economic policy.The role of state-owned enterprises, or SOEs, is one of the criteria by which the project evaluates countries' over-all fidelity to market-economy principles...
...and the lowest score of 0 means that "there was widespread use of price controls through-out various sectors of the economy...
...But the rear compartment—a ply-wood bed with wood-panel sides—has plenty of room for passengers or cargo...
...in Brazil, 29 per-cent...
...The intellectual and political movements spawned by this idea emerged in the last quarter of the 19th century and utterly dominated the first three-quarters of the 20th...
...Steel's Gary works, the MARCH/APRIL 2002 • THE AMERICAN SPECTATOR 47 largest and most advanced steel mill in the world...
Vol. 35 • March 2002 • No. 2
