Juan Linz wrote that political time was like cloud timeâ€”it moved at a different pace than chronological time, yet had a discernable rhythm of its own. I would like to reverse the metaphor to note that when it comes to political and economic cycles in liberal democracies, it is political time that is more chronological, whereas economic time is more akin to cloud time.
Â Under conditions of liberal democracy, political time is codified, demarcated and predictable. Elections are held at regular intervals, parliaments sit for a given amount of days in a calendar year; government departments issue annual reports and respond to inquiries in prescribed (if not timely) fashion, bills are introduced in specified ways within specific timeframes, etc. Even political debates take on a predictable rhythm, with arguments over finances occurring around the time of government budget announcements (in New Zealand that is usually in May), and partisan and personal attacks occurring during periods of relative policy stability. Come summer, most things political more or less stop for the holidays, then resume in the Fall.
Economic time, however, is another matter. Capitalist economies are obviously cyclical, but the cycles are twofold and not coincident with political time. First, there is the â€œboom and bustâ€ cycle in which markets expand and contract in pursuit of (re) equilibrated growth. This is the cumulus cloud time of economic cycles. That is, the short cycle dimension of capitalist economics, marked by sudden shifts in direction driven by the warming or cooling of market preferences. In parallel, there is a long cycle in which capitalist economies shift between market-driven or state-managed forms. This is the cirrus cloud dimension of economic time. The sclerosis, stagnation or failure of one economic form, such as the market failures now evident, leads to the shift to the other. Thus, the Great Depression spelled the end of laissez faire market economics and the advent of welfare statism, which after the resolution of World War 2 led to nearly forty years of prosperity in the liberal democratic world. In turn, by the 1980s the era of state-centered economics had come to an end, saddled as it was by rent-seeking behaviours, clientalism and systemic inefficiencies produced by bureaucratic distortions of the productive process. What emerged in response was neoliberal market economics. This era was driven by deregulation, trade opening and monetarist macroeconomic prescriptions that were premised on the beliefâ€”subsequently proven to be unfoundedâ€”that finance capital would be the most accurate determiner of global productive investment.
Two decades later, the era of neoliberal economics has concluded in ignoble fashion. Note that this market-oriented cycle lasted half as long as the previous state-centered cycle, which in turn was shorter than the original period of laissez faire. This shortened lifespan is due to the combination of market-driven globalization of production coupled with exponential advances in telecommunications and transportation. Phrased differently, it would seem that the economic cirrus clouds have sped up at a time when the negative cumulus layer has deepened, all while political time remains constant. Therein lies the rub.
It is generally held that market failures lead political shifts to the Left so as to facilitate the move to state-centered macroeconomic policy. Conversely, state-centered failures are said to lead to shifts to the political Right so as to facilitate the adoption of market-oriented strategies. In the 1930s and 1980s this rule generally held true for advanced democracies. But since economic and political time are not coincident, it is by no means a universal truth that such will occur at every moment of cyclical transition. The current moment is a case in point.
In the US the rule seems to have been upheld, as is true for several European countries. But in France, New Zealand, Japan and Italy, among others, Right-oriented governments are confronted with market failure and the need to provide political space for an economic transition. The political cycle in these countries does not allow for their immediate replacement with Left-oriented governments. There is a lack of synchronicity between political clock and economic cloud time in these countries. This places the ideological beliefs and policy prescriptions of such Right governments under pressure, since in principle they are averse to increasing the role of the state in macroeconomic affairs. Yet the magnitude of the current market failure is such that the role of the State, at least as a macroeconomic regulator, needs to be considered. This consideration needs to happen quickly, since the temporal horizons on finding solutions is near immediate given the speed at which the global recessionary pressure wave is advancing. Put another way, Â the cumulus and cirrus aspects of economic time have come together in a perfect storm of economic necessity that Right governments find particularly difficult to address, much less resolve without betraying their foundational principles. To do so is to tacitly admit that there are inherent flaws in market logics that require State intervention in order to be overcome (in the reverse of the betrayal of foundational principles and tacit admission of State-capitalist failures by so-called “Third Way” Labour parties).
Thus the dilemma for Mr. Keyâ€™s government: how to reconcile clock and cloud time in a small island democracy at the outer edge of an economic storm front? From what has been seen so far, it appears that he has opted to shift to the Left, but as of yet without categorically stating that he is doing so. With ACT in the government coalition, that makes for interesting theater in the months ahead. Or to conclude with yet more metaphor abuse: could there also be internal storm clouds on NACTIONALâ€™s horizon?
Why do you conclude the demise of liberal economics? A careful analysis of our current situation does not naturally lead to this conclusion.
How will more regulation “fix” capitalism, when regulation already existed, and it turns out the regulators were just incompetent/
How will more state intervention help when a lot of the reason for the property bubbles in the US was caused by state intervention (Freddie/Fannie with a guarantee… community re-investment act). Compare that to NZ with less interventionism in property and we don’t have nearly the bust.
The thing I have found most fascinating about our current economic crisis is that it has revealed many people’s true nature. For years, left-wing commentators such as Matt McCarten had published columns indicating an uneasy embrace of capitalism. Us on the right didn’t believe them. Now their columns are full of rhetoric pro-claiming the end of capitalism.
Nothing could be further from the truth. Capitalism isn’t dead. Capitalism will emerge stronger than before.
Firstly, I’ve yet to see any prominent left-wing pundits argue that “capitalism is dead”, so i’m not sure why you chose to negate what no-one has said.
Secondly – markets operate in cycles. Even the most right-wing of economists acknowledge this. Confidence comes and goes – and sometimes the state needs to act to restore confidence/provide stability, so the market doesn’t go lower than it needs to. That’s what we’re seeing here – a total lack of confidence in the market, and the need for the state to step in to give investors and consumers confidence to invest and spend again. It’s not rocket science, and people like you who oppose this are simply economic vandals.
OK, here you go. From Matt’s column in the herald:
I don’t think anyone claims the government has NO role to play to counter the business cycle (I certainly didn’t), but a massive intervention that lumps us with long-term debt? No thanks.
Key is a pragmatic politician rather than an ideologue. This is in stark stark stark contrast to the previous administration and it’s a trait that needs to be emulated more often regardless of current economic circumstances. If only voters were astute enough to recognise this, our nation would become as economically successful as Singapore and have an international reputation like Switzerland.
Key doesn’t seem to give two hoots about whether a policy comes from left nor right. He’s a conservative by instinct as many politicians with commercial backgrounds are. However he hasn’t been seeped in politics for long enough to pick up any strong ideological bent.
Perhaps this is why Labour are finding him challenging. They were expecting perhaps a conservative version of Helen and now they haven’t got it, they’re all confused. What a shame.
reid: I agree that Key (so far) has demonstrated a non-ideological, pragmatic approach to policy making. That may serve him well as the recession bites hard, although with some luck NZ might avoid the worst of it (due mostly to externalities and relative fiscal prudence on the part of the 5th Labour government). But I do think that it will put him at odds with ACT, which to my mind is a good thing as it will spell the end of the partnership and (hopefully) put paid to the continued value given to ACTs economic prescriptions.
I think that your view of Singaporean success is somewhat rosy, given my observation of the political-economic dynamic at play in SG. But I will note that the SG government has a hand in about 75% of all economic activity in the country and provides a huge welfare net to its citizens (especially in health and housing), so it is definitely NOT a market-driven economy. Instead, the hand of the state is quite visible in all aspects of socioeconomic engineering.
Kelsey: the deal is this: 1) you read the post; 2) you comprehend the post; 3) you make an informed comment about the post; 4) you receive an informed response. If you do not follow steps 1 and 2 it is difficult for you to appear engage in 3, much less get to step 4.
Way to go ad-hominem, thanks. I read it, posted an observation, but don’t see an informed response yet. What’s so hard about that?
No Kelsey, it is not ad hominem because I say nothing about you. I just reminded you of the basic protocols involved. Should you care to adhere to them, I welcome your considered response to the post.
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Kelsey quoted, as evidence that left-wingers are saying capitalism is now dead:
This is not saying that capitalism is dead, but that a particular form of capitalism is dead – the neoliberal, unrestrained, free-market version. There are other versions of capitalism.
And I would also add that I think the Clark government was not totally ideologically driven. They continued to perpetuate a lot of neoliberal policies, and compromised on various policies.
Kelsey: I second Carol’s comment above. I interpret McCarten’s comment to mean that capitalism itself isn’t dead, but that greed and robber baronetcy are.
Reid: Those who defend Singapore’s economic model would do well to consider this famous gem from its founding mentor Lee Kuan Yew: “If Singapore is a nanny state, then I am proud to have fostered one.” And Sim Wong Hoo, the founder of Creative Labs, has famously dissed the Singaporean system as a “No U-Turn Syndrome“.
And Switzerland’s crown jewel, UBS, has been dragged kicking and screaming into an investigation into money laundering and tax evasion. To add insult to injury, it’s gone cap in hand to Berne.
Gnomes of Zurich face their time of reckoning
Secret Swiss bank tactics revealed in UBS tax case
Tiny tax havens singled out for naming and shaming
It’s one of the most economically successful economies per head of population in the world. Brunei is better, but it has oil. Sing has no oil and few natural resources, being built on a swamp. That’s what I was saying about Sing. I don’t like their political approach, but I do like their economic approach.
Yes and the recent moves to compromise the Swiss Banking Secrecy Laws are much more serious. Not sure what your point is however. I was talking about the Swiss nation’s reputation, not the situation of one of the Swiss-based banks that’s dabbled too much in derivatives.
Even if you care to argue that Swiss reputation is equal to Swiss banking, I think that’s a very long bow.
Given that their political approach is fundamental to their economic approach, what precisely do you mean to say here?
I don’t like the fact they have a police state but you don’t need to have a police state to run a successful economy.
Are you saying the two are inextricably linked?
How about taking a Ron Paul like approach?
I’m saying that Singapore wholly fails as an argument for economic success unless you condone the police state, so if you choose to use it as an example of such, you’re implying that a police state is a-ok, just as long as it results in prosperity.
And Ron Paul’s ideas are no better, just a different kind of extremism.
Lew and reid: SG is ruled by a soft-authoritarian developmentalist regime. It is not a police state (any more). What is most germane to my argument above is that SG is miles away from being a free market economy, not only in its provision of welfare services and other public goods, but in its direct involvement in production (as I said before, the SG state has its fingers in 75% of all economic activity in the country, to include significant stock interests and a boardroom presence in major foreign MNCs operating in-country). The Government Investment Corporation (GIS) is a major conduit for involvement, but semi-private holding companies like Temasak Holdings also play a major role (and have overt government Party connections). The point being, the combination of government intervention and fiscal prudence on the part of state managers (especially in state-run banks like DBS) has considerably mitigated the negative effects of the US led financial meltdown. Plus, the PAP government has mandated that firms should not engage layoffs as a first resort and private banks must repay some of the high risk financial products that they sold to consumers under false pretenses (as in the sales mantra “high yield and low risk”–AS IF!). That is something the National government can only dream about.
Pablo, yes, I used the term as an echo of reid – the purpose was more to point out the non sequitur of `Singapore is economically successful and is therefore a good model for NZ’ than anything else.