You Nuo

Bury the free market religion

By You Nuo and Zhang Zhouxiang (China Daily)
Updated: 2010-08-26 09:23

Almost two years into its worst financial crisis since the Great Depression, where is global capitalism heading? "A lot of people have asked me what I think about it," says Noam Chomsky. "Frankly, I don't have an answer." But one crisis will follow another if the existing economic system, in which predatory financial institutions gobble up more than 40 percent of the total profits, is not dismantled.

Chomsky is all of 82 years; a linguist, philosopher, cognitive scientist, political activist and prolific writer rolled into one. He was in Beijing to deliver a lecture on "Contour of world order: Changes and continuities" at Peking University, after which he shared his views on global issues with China Daily.

The economic crisis needs time to subside, and the search for its remedies could be overshadowed by two other crises threatening the world: nuclear proliferation and climate change. It is not possible for just a few intellectuals to tide over the crises, says the author of the famous essay, "The Responsibility of Intellectuals". It needs the involvement of the greater body of the world population.

Known for his research in and radical criticism of capitalism, Chomsky says the collapse of the Bretton Woods system was the beginning of a change that led to the financialization of the economy. Large financial institutions were allowed to make profit greedily and create bubbles all over the world.

The change gave birth to "free market religion", or the belief in neo-liberal "market efficiency". This blind faith swept across the Western world, and made governments lose control of their economies. The result: "the regulatory system that had been established in the US in the 1930s, which was quite successful, was slowly dismantled under ideological pressure". That was the beginning of financial institutions' control over the economy.

The institutions have created a whole range of exotic financial instruments, and the resulting predatory behavior of speculators has created "crisis after crisis."

As part of that process, manufacturing industries flowed out of the US and into Asia - Japan, then China. It boosted the Asian economies, but it also meant loss of jobs in the US. And speculative capital filled the gap created by the real economy, reducing job opportunities.

But despite all this people's belief in "market efficiency" has not changed. The old mode of development has hit a dead end, yet there is little hope of a new post-crisis economy being built.

China's situation is different from America's, for it still has many poor people waiting to share the fruits of its economic growth. But that does not mean it should embrace the market religion, for this unsustainable mode of development can neither create more jobs nor distribute wealth more equitably.

For that, the financial system needs a regulatory framework , Chomsky says. It is not possible to build a Bretton Woods-style regulatory framework today because the world is different from what it was in 1945.

But "at least", he says, "we must find something to regulate financial power and discredit such destructive ideas as the market religion." And "we should not behave in a manner that's rational in profit-making but irrational in larger context".

While the economic crisis may be a lasting challenge, two other crises, if not treated with a greater sense of urgency, could make the discussion on the global economy "beside the point," he warns. Westerners generally interpret the nuclear proliferation problem as Iran's nuclear programs. But "the nuclear threat has been with us ever since 1945." And it is the responsibility of all countries to work out an effective restrictive guideline on the use of nuclear weapons.

Fighting climate change, he says, is more difficult because countries are not working together. At the Copenhagen climate conference in December, "the question was asked, but little was done". There cannot be an effective solution, at least in the US, unless the dominant "free-market religion" and related social institutions are changed. "And the same would hold true in all countries."

As the logic of the prevailing economic theory demands, corporate managers eye only short-term profits and strive to grab greater shares of the market, disregarding all other things, or externalities, including the long- and short-term damage caused to the environment. To make things worse, no one in power cares about the externalities, because that is the institutional necessity of an unregulated market and the system to follow. "If you do not, you will be thrown out and be replaced by someone that will," Chomsky says.

This kind of mentality has created (and is still creating) huge problems in many countries and indeed for the very sustainability of the global economy and the human race.

The US, he says, is a typical example of "social engineering" by large corporations since the 1940s to maximize the country's waste, rather than conserve and replace fossil fuels. For proof, you just have to recall the "great American street car scandal" in Los Angeles in the mid-20th century, in which some big auto and oil companies joined hands to kill the electric-powered streetcar system and replace it with gas-guzzling vehicles.

Does he see any change and hope at all? Chomsky shakes his head and says large corporations still have tight control over social resources, something that even "kings and emperors" did not have. Vested interests still hinder change and social progress.

And change can only come through public pressure to dismantle the failed but yet to be discredited ideology. Today, people in the US are angry partly because of the continuing impact of the economic crisis. There is so much hatred and such a sharp decline in trust today that Chomsky describes it as dangerous and even compares it with the Weimar Republic in Germany between the two World Wars.

But he says somewhere down the road of the present crisis, "we are going to have some version of the existing system, which would be modified". Long-term change cannot come in a day; "significant efforts" have to be made to depart from the present devastating path.