As the "New Economy" Crashes, to What Degree Will Mainstream Economists Change Their Stripes?

Back in March 2008, before the financial crisis had reached historic proportions, concerned observers of the global economy had already begun reaching for metaphors of ill health. An article that appeared in Der Spiegel, Europe’s most influential newsweekly, worried that the United States’ declining fortunes had already harmed the European economy, and that worse was to come: “It’s like the beginning stage of the flu, when the patient still appears healthy and strong,” the article explained. “But the virus is already replicating in the body, and the patient is beginning to feel the effects of joint pain and crippling fatigue.” The final result could be “a collapse of the global financial system.”

The world economy is now well beyond the early stages of a cold. But Der Spiegel’s analysis could today be applied to the battle of ideas—its diagnosis an apt assessment of the intellectual underpinnings of corporate globalization. These days, the doctrine of market fundamentalism still has enough defenders for a few to perceive a healthy disposition. Yet its ample defectors and ever-more vocal detractors will make most people suspect that its constitution is seriously compromised.

One can witness an evolving debate about globalization both in public discussion and in several of the books about the global economy published in 2008. These bolster the sense that once-dominant economic neoliberalism may never recover the strength it recently possessed. Two such works are Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang and Common Wealth: Economics for a Crowded Planet by Jeffrey Sachs. Although they differ significantly in their outlooks, both indicate an intellectual climate in which it is preferable to be perceived as a critic of the runaway market economy, rather than a champion of it.

Kicking Away the Ladder

Bad Samaritans is the more radical of the two books, yet the type of neo-Keynesian propositions it lays out are increasingly becoming the norm in economic debates. Chang, an economist at the University of Cambridge, opens with a bit of personal and economic history. “Korea, one of the poorest places in the world, was the sorry country I was born into on October 7, 1963,” he writes. “Today I am a citizen of one of the wealthier, if not wealthiest, countries in the world.... During my lifetime, per capita income in Korea has grown something like 14 times, in purchasing power terms.” Noting that it took the United States a century and a half to realize a similar advance, he writes, “The material progress I have seen in my 40-odd years is as though I had started life... as an American grandfather born while Abraham Lincoln was president.”

The account of Korea’s economic history long preferred by the international financial institutions in Washington, DC held that the country sparked its miraculous growth by embracing the free market: keeping tight control of inflation, limiting the role of the state, lowering trade barriers, and inviting foreign investment. Advocates of corporate globalization, in short, hold up the country as a model of neoliberal economics. They then preach that countries wanting to replicate its success should hew to the International Monetary Fund’s “free trade” dictates.

Yet the truth of Korea’s success hardly fits the pattern they would like it to. “What Korea actually did during [the past four] decades,” Chang explains, “was to nurture certain new industries, selected by the government in consultation with the private sector, through tariff protection, subsidies and other forms of government support.” Blatantly violating the policies regularly prescribed for poor nations, the state also owned all the country’s banks, kept tight control over the flow of foreign currency in the country, and ran its own businesses in key areas where it felt the private sector had invested insufficiently. The country’s leaders moved toward more open trade only when its industries were well prepared to compete internationally.