Stratfor on free schmarket

Wojtek Sokolowski sokol at jhu.edu
Tue Jun 13 09:29:59 PDT 2000


An interesting piece from Stratfor challenging the "wisdom" of mainstream economic theory. It argues that what matters is not rat-choice utility maximization but institutional path dependencies.

Yet another illustration that economics is not science but metaphysics - a form of legitimating mythology which tells that we live in the best possible world, regardless of what people's experience may tell. Every state oligarchy needs such mythology to preempt or neutralize any experiential/empirical challenge to its hegemony. In the Middle Ages it was Catholic theology, in the x-Soviet empire - Marxism-Leninism, and in the US empire its is economics. Or quoting John Kenneth Galbraith - economists are in the business of providing needed conclusions to those in the position of paying for them.

wojtek


>Date: Sun, 04 Jun 2000 21:52:57 -0500 (CDT)
>From: alert at stratfor.com
>Subject: U.S./Russia/China: The Clinton Foreign Policy Legacy
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>
>Stratfor.com's Global Intelligence Update - 5 June 2000
>__________________________________________
>If it's in the news, it's too late.
>http://www.stratfor.com
>_________________________________________
>More on Stratfor.com:
>
>Summit Agenda Ignores Russian Concerns
>
>On June 3, U.S. President Bill Clinton arrived in Moscow for his
>first summit with new Russian President Vladimir Putin. Rather than
>a summit between equals, the meeting will be one of a confident and
>largely disinterested U.S. leader and a Russian president facing
>dire choices.
>http://www.stratfor.com/CIS/commentary/0006030035.htm
>_________________________________________
>
>Retrieving the Irretrievable: The Clinton Foreign Policy Legacy
>
>Summary
>
>In the final months of his presidency, President Clinton has
>launched vigorous efforts to establish his foreign policy legacy,
>primarily in China and Russia. The president has battled for an
>inherited foreign policy - one that insists that free markets and
>democracy are mutually reinforcing concepts that in turn can bring
>former adversaries into an American-engineered economic and
>political system. After a decade, this view has been proven
>empirically false. And yet this president continues to pursue it -
>just as his successor likely will.
>
>Analysis
>
>Two recent events have caused us to consider President Clinton's
>foreign policy legacy. In the waning days of his presidency,
>Clinton has faced massive challenges in foreign policy. In both
>China and Russia we have seen substantial political shifts and
>reversals over the past year; neither has been to the advantage of
>the United States. There can be little question but that relations
>with both have deteriorated dramatically since 1995.
>
>The president has spent the last two weeks trying to salvage
>relations with both countries. The summit with Russian President
>Vladimir Putin and the desperate struggle to get permanent
>normalized trade status for China through the House of
>Representatives have been different strands of a single fabric.
>Clinton's foreign policy has aimed at containing both Chinese and
>Russian aspirations within the context of the global trade regime
>that the United States has presided over since the end of the Cold
>War.
>
>This foreign policy is not original; it evolved directly and
>naturally from George Bush's response to the collapse of communism.
>Behind that was the worldview contained in Ronald Reagan's
>conservatism. This is a critical point: the policy pursued by the
>United States following the Cold War has not been some random or
>idiosyncratic response.
>________________________________________________________________
>Would you like to see full text?
>http://www.stratfor.com/SERVICES/giu2000/060500.ASP
>___________________________________________________________________
>
>Rather, American foreign policy has been based on a perspective
>that has run deep in American thinking and has transcended
>ideology. This perspective has consisted of four parts:
>
>1. The free market is universally attractive because it inevitably
>yields greater economic benefits. Except for tyrannical regimes
>whose power might be threatened by the free markets, nations tend
>to gravitate toward the free market.
>
>2. Even inherently tyrannical regimes will tend to adopt the free
>market in order to maintain a position within the international
>system. When encouraged with investment and trade, these regimes
>will liberalize and increase democratic tendencies.
>
>3. In a corollary assumption, societies that are democratized will
>tend to defend both market reforms and human rights. Democracy,
>market reforms and human rights are mutually reinforcing concepts.
>
>4. Countries that are democratic and have free markets will not be
>political and military competitors with other democratic, market-
>oriented countries because the risks outweigh the benefits.
>
>In this view, the primary interest of the United States is to
>facilitate the growth of the free market in both Russia and China.
>If the free market grows, political liberalization and
>democratization would follow. In due course, domestic political
>forces would arise that have a vested interest in defending the
>free market and democracy. These forces would be natural allies of
>the United States. As they grow more powerful, the threat of
>national conflict between them and the United States would decline.
>Therefore, maintaining economic engagement with both countries was
>the foundation of U.S. foreign policy.
>
>This policy has substantially benefited economic interests in the
>United States. Indeed, as we saw during the recent debate over
>China, momentum for economic engagement came less from ideologues
>than from corporations. This is, of course, as it should be. A
>robust foreign policy requires both principle and interest. The
>fact that American interests profited from the policy does not
>repudiate it - but neither does it validate it.
>_______________________________________________________________
>For more on China, see:
>http://www.stratfor.com/asia/countries/china/default.htm
>
>For more on Russia, see:
>http://www.stratfor.com/cis/countries/Russia/default.htm
>__________________________________________________________________
>
>A great debate could be waged on the connection between capitalism
>and democracy. In fact, one has gone on for the past 150 years.
>While it may be true in the long run that one reinforces the other,
>it is clear that in the short run this theory has now been proved
>false in both Russia and China.
>
>The case is clearest in Russia where the free market has proven an
>economic calamity of unparalleled proportions. In fairness, a free
>market requires a legal system that defends property rights, a
>condition that has never existed in Russia. The democratic system
>has been discredited by the economic system. Former President Boris
>Yeltsin's economic reforms created an oligarchy of unearned wealth
>and his political reforms were seen as part of a system of
>corruption. The net result: the basic premise of U.S. foreign
>policy in Russia has been proven false and the rest of the
>assumptions have unraveled.
>
>The case is similar, though more complex, in China. China did
>indeed introduce market reforms. Market reforms did generate a
>strong democratic movement favoring human rights; the movement was
>crushed at Tiananmen Square 11 years ago while the market reforms
>remained.
>
>The assumption that the free market will yield political
>liberalization was falsified, almost from the start. Economic
>growth continued through the 1990s. But it was an economic growth
>that diverted the benefits of the market economy to a different set
>of oligarchs, those in the party and in the military. Then the
>meager economic benefits were smashed when the region's economic
>crisis hit China's economy, which has never recovered.
>
>The fundamental assumptions of American policy have been proven
>false in both countries. Neither regime is what Washington had
>hoped for. Neither economy is developing market-oriented democracy.
>
>The final test is one that both countries are failing: In various
>ways, Beijing and Moscow are challenging U.S. interests in the
>political and military arena, and both will intensify that
>challenge.
>
>In immediate retrospect, the president's struggles on these fronts
>- including the summit with Putin - are desperate attempts to
>retrieve the irretrievable. Though begun before the current
>administration, these policies have now reached bankruptcy. What
>two administrations have now missed, or ignored, is that:
>
>1. Creating a market economy out of tyranny is extraordinarily
>difficult. If it can be done at all, it will take generations.
>Economic theory can be conceived in terms of generations. Political
>reality cannot.
>
>2. The introduction of market reforms does not necessarily reform
>regimes. It frequently corrupts them. It is possible to confuse
>corruption with reform, which is what happened in China in the
>1990s. A resilient regime can recover from corruption by
>circumscribing market reforms. In so doing, the regime becomes more
>- not less - repressive.
>
>3. If economic reforms don't succeed and don't create political
>reforms, economic downturns intensify nationalist feeling and
>increase pressure to compensate for economic failures with poltico-
>military successes. Now the consequences of failed market reforms
>will be equal to the effects of productive market reforms.
>
>In other words, assumptions that began in the 1990s have proven
>false a decade later and can create the exact opposite effect than
>was expected.
>
>There is good reason that U.S. defense planners are thinking about
>Chinese blockades of Taiwan and of Russian pressure along the
>periphery. It is also understandable why Clinton believes that
>engagement on an economic level would alleviate these problems.
>
>But it is impossible to engage with Russia economically because it
>cannot possibly introduce a market system. Yeltsin could not do it
>by law. Putin cannot do it by fiat. Appointing regional czars
>cannot create property rights. It can only change the
>beneficiaries. Similarly, it is impossible to reform China through
>economics. A decade after market reforms yielded the first
>benefits, the assumption that this will turn into political reform
>has proven empirically false.
>
>There has been a fundamental assumption at work here, shared by
>economists as diverse as Karl Marx and Milton Friedman: that
>capital has no country. This means that money moves where profits
>go and borders lose meaning. That is the premise of Clinton's
>foreign policy. The problem is not that the premise is false, but
>that it is true only under very specialized circumstances: where
>there are free markets, where the markets work, where the regime
>subordinates itself to profit.
>
>The problem here is that the president and his advisors have
>continued to act as if the theory were true, long after empirical
>evidence proved it was false. Too many academics and too many
>businessmen have wanted to believe. The facts are otherwise. Russia
>and China will not integrate into the American free trade regime
>except where these regimes directly benefit, given their
>circumstances.
>
>Rather than seducing Russia and China, the United States has
>seduced itself. Clinton has spent the last weeks trying to pump
>life into an illusion. It is his good fortune that he will make it
>to the end of his term without seeing the full consequences of this
>miscalculation. But the presumptive Republican and Democratic
>nominees share in the illusion every bit as much as their
>predecessors.
>
>And this will be the central problem facing U.S. foreign policy:
>Why would what failed in the past succeed in the future?
>Overthrowing a failed orthodoxy is never easy or painless. It is
>not clear how great the pain will have to be.
>__________________________________________________________________
>For more Weekly Analyses, see:
>http://www.stratfor.com/SERVICES/GIU/archives.ASP
>___________________________________________________________________
>
>(c) 2000 WNI, Inc.
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