[R-G] [BillTottenWeblog] This free-market farce proves the state is crucial

[Bill Totten]

by Ulrich Beck

Guardian (April 10 2008)


The Play. Act one: Chernobyl. Act two: the threat of climate change. Act
three: 9/11. Now the curtain is rising on Act four: Global Financial
Crises. For a backdrop, see yesterday's headlines: IMF slashes world
growth forecast; Credit crisis could cost $1 trillion. Dramatis personae
are the Hardcore Neoliberals, who in the face of the danger have
overnight converted from the market faith to the state faith. Now
they're praying, begging, pleading for the mercy of the state
interventions and multi-billion pound handouts of tax payers' money -
the sort of thing they condemned for as long as the profits were pouring
in. What a priceless convert's comedy is being performed on the world
stage. If only it weren't tinged with the bitter taste of reality.

Here's John Lipsky, a senior official and economist of the International
Monetary Fund and longstanding market fundamentalist, who in a dramatic
appeal is suddenly urging the governments of the fund's member states to
sign up to the antithesis of everything he has previously preached:
prevent a world economic crash with massive rescue spending. When even
John Lipsky is urging politicians to "think the unthinkable", the
gravity of the crisis is plain.

The spectre of the "unthinkable", which is now being raised everywhere,
is of course supposed to awaken memories of the world economic crises of
the last century - and save the banks from disaster. Next Joseph
Ackermann of Deutsche Bank appears and admits that he, too, no longer
believes in the self-healing powers of the markets. Before you know it,
there he is retracting his retraction and insisting that he has no
doubts about the stability of the financial system. That sounds
reassuring. Or does it? If the respected banker were being frank then he
would have to concede two things. First, that the history of the present
crisis is a history of market failure, and second, that perplexity, or
indeed sheer ignorance, dominates on all sides.

The market has failed, because the incalculable risks of mortgages and
other loans were deliberately concealed in the expectation that the
distribution and concealment of the risks would minimise them. Now,
however, it is evident that this minimisation strategy has turned into
its opposite: a maximisation and dissemination strategy of incalculable
risks. Suddenly the risk virus is everywhere, at least in anticipation.
It's clear that things can't go on without the state's guiding hand. At
the same time, it is unclear whether things will be any better with the
injection of billions of pounds, euros or dollars of taxpayers' money.

Of course, economic risks and crises are as old as the markets
themselves. And as the Great Crash of 1929 testifies, financial collapse
can bring down political systems - for example the Weimar Republic in
Germany. It is all the more surprising then, that since the 1970s the
financial institutions of the Bretton-Woods system, established after
the second world war, which were intended as global-political responses
to global economic risks, have been systematically dismantled and
replaced by a succession of ad hoc solutions. Thus we face a kind of
paradox: while markets have never been more liberalised and global, the
global institutions that monitor their activities have been forced to
accept drastic reductions in power. This new, unlimited nature of
markets means we cannot exclude the possibility of a world financial
crisis on the scale of 1929.

Unlike environmental and technological risks, whose physical
consequences initially become socially relevant "from outside",
financial risks also directly affect a social structure. Hence financial
risks can be more easily "individualised" and "nationalised", giving
rise to major differences in perceptions of risks. In other words, even
when there are catastrophic breakdowns, it is individuals, usually the
weakest, who suffer, in their millions. Accordingly global financial
risks - not least when it comes to the perception of causes - are
attributed as national risks to individual countries or regions.

As the "Asian crisis", the "Russian crisis", the "Argentinean crisis" -
and now the first signs of the "American crisis" - demonstrate, it is
the middle classes who are worst hit. Waves of bankruptcies and job
losses shake the respective regions. Yet almost invariably, western
investors and commentators view the crises exclusively from the
perspective of the threat posed to financial markets. Global financial
risks, like global ecological crises, cannot be confined to the economic
subsystem. They mutate into social upheavals triggering political
threats and breakdowns. In the case of the Asian crisis, such a chain
reaction destabilised states and simultaneously led to outbreaks of
violence against minorities, who were cast as scapegoats.

What would have seemed inconceivable only a few years ago is now
emerging as a real possibility; even advocates of a global free market
now detect that, after the collapse of communism, only one opponent of
the free market remains, namely the unbridled free market itself. The
market has shrugged off any responsibility for democracy and society in
the exclusive pursuit of short-term profit maximisation.

There are surprising parallels between the Chernobyl reactor disaster,
the Asian financial crisis and the threat of the collapse of the
international financial system today. The traditional methods of
management and control are proving unreliable and ineffective in the
face of global risks. The millions of unemployed and poor cannot be
financially compensated; it makes no sense to insure against the
consequences of global recession. At the same time the social and
political explosive force of global market risks is becoming palpable.
Governments are overthrown, civil wars become a threat. As the public
begins to recognise the risks, the question of responsibility is
increasingly raised. This dynamic leads to a reversal of neoliberal
policy - not the economisation of politics, but the politicisation of
the economy. Not even the most liberal national economy functions
without macroeconomic coordinates. It's with a certain degree of
bewilderment that one asks oneself: how could anyone in his right mind
assume that the world economy is any different?
_____

Ulrich Beck is professor of sociology at Munich’s Ludwig-Maximilian
University and the London School of Economics, and author of Power in
the Global Age (Polity, 2006).


The global financial system is in a fix. How did we get here, how bad
could it get, and how can the worst be avoided? All week commentators
are assessing the damage on Comment is free. Read more on the global
financial plight here:
http://commentisfree.guardian.co.uk/category/economies_in_crisis

http://commentisfree.guardian.co.uk/ulrich_beck/2008/04/world_risk_society_the.html


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