The New Financial Order: Dirigisme, De Rigueur

By progressively abandoning the ideas of free enterprise and free markets over the course of the last hundred years, the United States has eventually given the Europeans what they had been hoping to get for a long time: the admission from the Americans themselves that capitalism cannot work (on its own).

This is perhaps the most worrisome development of the current financial crisis. Europeans such as Ivan Pongracic and I have a different (emotional) understanding of the situation than most Americans around us who have never really lived in a world where the state not only regulates and taxes but also owns (some of) the means of production and can impose a diktat on people’s lives.

In this regard, what is happening in Europe is very concerning. Even right-wingers such as Angela Merkel and Nicolas Sarkozy (although one shouldn't be surprised) have awakened in the last few weeks as crusaders for a new type of capitalism: one that has a more human face, one that does not suffer from crisis, one that is more controlled. Unless the US reacts to this development (and it is hard to see how this would be the case), there will be no one left on this planet to oppose the establishment of a new financial order based on wrong and corrupt ideas about capitalism. The tsunami wave of the new financial order à la Sarkozy will be so high that will cover the entire world.

Richard Ebeling explains this very well in a post today (The French have a Plan: Introduce more Socialism, but Call it Capitalism). Ebeling gets it. He is among the few Americans whom I know who deeply understand the long-term impact of current American policies on world affairs. Europeans are now rejoicing, there is a climate of fear, capitalism needs to be redefined, and there are plenty of candidates to do the job. The idea of the EU as a free trade zone died in 1992 but was really buried in 2008. The EU (meaning mostly France, Germany, and the UK) now wants to export its ideas to the rest of the planet by setting up the new international institutions that will oversee the world economy and its banks. Monsieur Colbert is not dead, he is still alive and well. Let's hope Adam Smith now lives in Asia.

Comments

[Bogdan Enache]

Allow me just a few corrections : the idea of a free trade European Union died in the very beginning when Adenateur, the German chanceler gave in - against the political line of Ludwig Erhardt and the advice of Wilhelm Roepke - to Schuman and accepted a Union build around supranational regulatory and redistributive agencies, The Coal Steal Community in 1950 and the Atomic Energy Community. The Treaty of Rome, which creates the European Economic Community, is also a compromise of the ordoliberal position in favour of the French government which obtains, in exchange of a gradual elimination of tariffs and inter-European trade barriers, the Common Agricultural Policy and a few other "common policies" of the same nature. (And keep in mind that the ordoliberal capitalism was not laissez faire) Now, the Single Market Act of the 1980s which completed the creation of a real single market in the EU as it was planned in the Rome Treaty, was based on standardisation, as Jaques Delors, the president of the Commission back then wanted, instead of mutual product recognition, as the Thatcher government wanted. This had the effect of creating an ever increasing EU bureaucracy in Brussels whose job is to "harmonise", through regulation, all sorts of trade and non-trade standards in the EU. Then, when the Eastern European countries joined the EU, they were forced to absorbed the cost of all this regulation and welfare so as to correspond to this very broad "acquis communautaire". But even so, only a year ago some of them were accused of fiscal dumping, unfair competition, exploitative work condition etcaetera.

[Vedran]

This seems pretty scary in theory but in reality, they won't be able to pull it off. Europe wants to more or less create a huge international entity which will bailout Europe's failures. The only problem is that China and the Middle East, the last regions holding reserves to act in such a role, have absolutely no reason to join up. At worst, I think we'll see a stronger redefined IMF. There seems to be a general consensus around the world for that. But the other regulations being thrown round by Sarkozy and Brown aren't going to work.

[Bogdan Enache]

Errata: chancellor (Konrad) Adenauer and Jacques Delors.

[liberty]

Wonworld?

[Nick]

The thing about Sarkozy is that he was elected on a (watered down) Thatcherite reformist platform but has since abandoned all talk of changing France to be more like the UK and USA. He now seems to be all about protectionism and socialism. But as you say, it is not surprising.

Also, the UK has rediscovered Keynes. The papers are full of articles saying that "we are all Keynesians now". Oh dear, oh dear.

[Methinks]

How will competition from Asia effect this neosocialism?

[Willie]

It's an emotional attachment that leads us westerners to think that the west will always be the home of liberty.

There's no reason why Asia, Eastern Europe, or Africa can't rise to the challenge of being the new home of liberty over the next 100 years.

Why not? India, Hong Kong, Singapore, Croatia, Estonia and some others are a lot freer in many respects than a lot of the West.

Africa is a bit further behind, but look at some of the smaller states there - Botswana. They're making big progress in pursuing a course of liberalization and lifting millions out of poverty in the process. I have a personal bet that Djibouti will be the next African state to liberalize and rise out of poverty.

Besides, adding a few more chains to the productive in the west won't do too much harm. We simply won't be as prosperous as we would have been.

So long as the bastards don't smash free trade too much and drag us all into war, we'll be fine.

Just get up and move countries. We're so mobile today - if one hoard of voters destroys too many of our freedoms, we can get up and move on to the next country. I've already escaped the west for better circumstances in the east.

[Frederic Sautet]

Mobility is indeed the last defense against government deleterious policies. It is true that Sarkozy will have a hard time pulling off his views for a future financial order, but there are more supporters of the idea now than before.
EU bureaucrats are thinking of having Ireland vote again on the Lisbon Treaty (you know what they do in Brussels, they ask them to vote until the population gives the right answer). France is exploiting the economic downturn to demand EU competition rules to be relaxed so that it can subsidize its own industries more.
This crisis could bolster the bad side of the EU even more and give them pretense to share these views with the rest of the world. The EU is already such a monster of regulated trade, social policies, labor market regulations, etc that it doesn't take much to make EU bureaucrats and politicians feel more zealous than they are now. If Ireland and the new Eastern countries can't resist, any crisis is good for the "politics of nostalgia" (when Europe was a gathering of highly protectionist economies).
Read Charlemagne on the EU last week: http://www.economist.com/world/europe/displaystory.cfm?story_id=12429431