Robert Buddan

Capitalism and the free market enjoyed a period of triumphalism after the fall of communism and the Soviet bloc at the end of the East-West Cold War during 1989/91. Well-known American scholar, Francis Fukuyama, said that the history of ideology, as we had known it, had come to an end and, in the battle for supremacy, liberal ideology (democracy and capitalism) had won.

Fukuyama, to be fair, did believe that capitalism would undergo periodic crises and democracy might even undergo reversals. However, there were no alternatives to them. Fukuyama also believed that the liberal project could become social democratic. At least that was one possibility. Fukuyama seemed to believe that the European Union, not the United States, came closest to the future of his preferred brand of liberalism - an organisation of states that have limited their sovereignty for the sake of welfare, peace, and democracy - rather than a system of power struggles between states based on war, exploitation and hierarchy.

THREE CRISES

This triumphant liberalism is now in crisis. There are really three dimensions of the crisis before us. One is Alan Greenspan's confession. The former chairman of the Federal Reserve (the American central bank) said that he was mistaken to have believed that market forces were self-correcting. Prudence, he thought, would have restrained economic institutions in their own self-interest. The problems, he had noticed, would not have become so global, deep-seated and harmful. He believed this because of the role of self-interest that the godfather of capitalism, Adam Smith, had placed so much faith in.

Greenspan should not have been so naive. Markets were kept in check by government regulation so that limitless criminal greed did not destroy the system. He should have known that fraud was always happening. In fact, the FBI says that it doesn't have the number of agents it needs to investigate the great number of frauds that are suspected to be behind many business failures, because agents had been redeployed in the fight against terrorism.

Now there is doubt about whether the market can ever be trusted to act in an enlightened and restrained manner. The free market is now in a free fall because those who manage capital, whether it is cash, certificate or card in which people place their confidence and trust, have let down the people. Greenspan and his fellow regulators have contributed to this crisis of confidence in the market.

SECOND CRISIS

The second crisis is the one in the news every day, the economic recession. It is the crisis of failing institutions, those that have gone bankrupt, and taken the savings, deposits, and shares of ordinary citizens whose pensions, family funds, and personal accounts have gone down with them. This is the crisis that has angered people who cannot get loans and whose taxes are being used to bail out the rich, aided and abetted by political representatives who are allowing this to happen.

A big hole of trillions of dollars has opened up in the economies right across the developed world. Liberalism's victory over communism is pretty hollow. After promising so much it has unleashed powerful, greedy and egotistical managers of capital upon us who have used unethical and reckless means of going about doing business.

GROWING INEQUALITY

There is a third aspect of this crisis that is not so well known. The Organisation of Economic Co-operation and Development has just released a report on inequality in the 30 or so richest capitalist countries in the world. The report was based on a study conducted over 20 years (1985-2005) and found that inequality had increased in three-quarters of these countries during this period; that in many the inequality did not just increase between rich and poor but between rich and middle class as well; that intergenerational social mobility was lowest in those countries that were most unequal; that employment and good wages were the most important factors contributing to greater relative equality in countries like Sweden and Denmark; that education is very important for getting jobs and good wages and thereby for social mobility; that market-based inequality would have been greater had the state not intervened to protect the vulnerable, like the aged; that young people and single-parent households suffered the greatest inequality; and that the increased inequality in these rich countries has made the poor, jobless and least well paid most vulnerable to the economic recession now descending on North America and Europe.

Liberalism looked good after the fall of communism. The developed countries looked in good and enviable shape when contrasted to the developing countries as well.

Now we find that the model of liberalism being practised in most of these countries was not a socially responsible model. The unconstrained greed of the rich and the naive deregulation of the market have cost the capitalist economy dearly in terms of the trust and confidence ordinary people have when putting their life savings in economic institutions. It has caused the more reflective free market proselytisers to doubt their judgment and to wonder whether any such thing as enlightened self-interest really exists. As the crisis bottoms out, the economic cost and the social malaise will become greater and a new kind of economic thinking will have to refloat the economy. It will have to be a more socially responsible economic system.

Already Oxford University economist, Anthony Atkinson, has said that trickle-down economics is dead. He says more people will be asking, if governments can bail out the rich by acting as a lender of last resort to them, why can't they bail out the poor by acting as an employer of last resort? Governments should use the tremendous capital they have at their disposal to invest in education, job retraining, and public and private projects to spur socially responsible initiatives. Liberalism must find ways to be more socially responsible in markets and politics.

HISTORICAL PROBLEM

This is even more important for developing countries like Jamaica. Inequality is a historical problem for Jamaica and it is getting worse. Unemployment increased from 9.4 per cent to 11 per cent between October last year and April this year, with some 75,000 persons losing their jobs this year.

Prices for food have increased by 35 per cent and the overall cost of living has gone up by 25 per cent in the past year. The IDB says our poverty rate could jump from 14 per cent to 26 per cent. All of this spells growing inequality in Jamaica. That will mean even lower rates of social mobility for Jamaicans.

Many families will not be able to give their children a university education or even keep their children in school. If they can't do so, this could lead to more crime. Do these statistics have anything to do with the fact that 57 babies had been killed by the end of September, or that there is a 30 per cent rise in the murder of women?

The crisis of liberalism requires us to return to the debate about how we grow the economy and achieve more equal outcomes for all. We should not continue to repeat the mistakes of the developed countries. We do not merely suffer from the fallout of the global recession. We contribute to our own inequality.

Robert Buddan lectures in the Department of Government, UWI, Mona. Email: Robert.Buddan@uwimona.edu.jm or columns@gleanerjm.com.