In his celebrated 1984 Brookings paper “I don’t think we are in Kansas anymore”, Cuba-born economist Carlos Diaz-Alejandro chose in his title and analogies to place the 1980s international debt crisis in the Land of Oz. As Jeff Sachs pointed out then in his comment, few people realize that the original Wizard of Oz by L. Frank Baum is itself partly an economic parable in which the Wicked Witch of the East represents Eastern capitalists who dehumanize kindly laborers. And the word OZ was probably constructed by a one-letter transposition of NY, home of those predatory capitalist who played hardball (years before the Brady Plan) with the highly indebted Latin American governments.
At the start of his paper, Diaz-Alejandro announced that his “paper will argue that what could have been a serious but manageable recession has turned into a major development crisis unprecedented since the early 1930s mainly because of the breakdown of international financial markets and an abrupt change in conditions and rules for international ending. The nonlinear interactions between this unusual and persistent external shock and risky or faulty domestic policies led to a crisis of severe depth and length, one that neither shocks nor bad policy alone could have generated. Large capital outflows, in most cases encouraged by unconditional currency convertibility, provided a particularly explosive environment for the interaction of external shocks and imperfect policies”.
Sounds vaguely familiar, no?
Today, we find ourselves in deep illusionment with market capitalism, so deep that I get increasingly worried about the “economic consequences of peace”, of attempts to fix the beast by do-it-yourself economists (or, rather, non economists).
Take Klaus Schwab, the founder of the Davos World Economic Forum (WEF), the arch venue of capitalists and billionnaires who pay big sums to enjoy the
Alpine scenery and snow network benefits that the gathering of 2,500+ influential people can bring. (TheDavos WEF was never a place, by contrast, to learn about new ideas or from little known thought leaders; that aspect – intellectual exchange to produce ‘actionable’ concepts – has just been pure decoration, in my judgement). Schwab ahead of the annual meeting: “Capitalism in its current form no longer fits the world around us”.
What is it? Capitalism? In its current form?
Is France capitalist, with a public spending more than half of GDP? Are the United States, a country where contestability and equal access to, say, education, is severely compromised? The high-growth emerging giants in China and India which are graduating from decades of heavy state intervention? Is it perhaps technology that obviates the need for large-scale employment in sectors other than servisec? Please define, Herr Schwab! What are the alternatives? Communism? Libertarian capitalism? Ordo liberalism? Die Soziale Marktwirtschaft?
In any case, rising evidence of wealth and income inequality in the statistics, partly the result of a long period of Lewis labour markets in China and India that starts to close, the high dose of state intervention in these high-growth countries, their competitive manufacturing industries: all those trends activate polcymakers, especially those with elections coming up.
To be sure, today’s problems are severe (and have been made more severe than necessary by people who open this year’s WEF and some of those who attend it). But are these problems inherent to today’s form of market capitalism? Or can they be fixed by monetary and fiscal measures suggested by the Keynesians? What are the alternative economic-model paradigms?
One thing is sure: Don’t expect any insights from Davos. What you will get are tons of familiar buzz words (as ill-defined as ‘capitalism-in-its-current-form’): Inclusive growth; social cohesion; newish, greenish, skill sources of growth; ‘industrial’ policies to enhance ‘competitiveness’ and ‘innovation’; less private finance and more state capitalism? The list of questions may suffice to alert to the many risks and traps on the way of the little Kansas girl to the fantasy world.