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By Fareed Zakaria
The New York Times

False Dawn The Delusions of Global Capitalism By John Gray.
(262 pp. New York: The New Press. )

If I had to write a bumper sticker to describe the climate of today's world , it would read: "Globalization'Love It or Leave It." John Gray once loved it'he was a Thatcherite in the 1980's'but now he has left it, and how! His new book argues'actually, thunders'that the global economic system is immoral, inequitable, unworkable and unstable. (I think I've got it all.) In "False Dawn," Gray takes on an immensely important subject, ranges widely and vibrantly and makes some telling criticisms. He recognizes that the movement toward free markets, goods and ideas is not a naturally occurring process but rather a political project that rests on American power. His solution is quite simple: Good riddance. He hopes for the return of distinct national variations on capitalism, most of them with high levels of state intervention. His passion is heartfelt, but in the end it overwhelms all else in this book.

Gray, a professor of European thought at the London School of Economics and the author of an intelligent study of Isaiah Berlin, charges that the policies advocated by the United States, the International Monetary Fund and most economists -- free trade, liberalization, deregulation -- are wreaking havoc on societies around the globe. They are destroying the welfare state in Continental Europe and East Asia, traditional communities in the developing world and the family everywhere. But they will not succeed because the effects of these reforms will "trigger political countermovements that challenge the very ground rules of the global free market." Globalization, then, is a dangerous fantasy. Dangerous because of its effects; a fantasy because it will not achieve its goal.

Instead, Gray advocates an acceptance of the varieties of capitalism, most of them much more statist than in the United States and Britain. The goal of the liberalizers, he asserts, is to return the world to something close to the first age of globalization'from about 1870 to 1914'when laissez-faire truly reigned. He believes that this romantic view of the belle epoque generalizes from the experience of one country, Britain, and to a lesser extent, the United States. In fact, he argues, British-American development was unique. In all other cases, capitalism was an intensely state-driven project, and those models are the ones the world should follow. And even in Britain and the United States, the state was massively involved, through the enclosure laws in Britain and high tariffs and railroad subsidies in America. And by the way, the 19th-century free market destroyed the social fabric in much of Europe. (This is what lawyers call arguing in the alternate: "I wasn't present that night. And if I was, I didn't break the window.")

Gray has created an elaborate straw man against whom he argues with great relish. In fact, none of the policy recommendations in vogue today could conceivably return Europe to anything like 19th-century laissez-faire. Despite all the oft-mentioned regulation, tariffs and subsidies, the 19th-century state's role in the economy'even on the Continent'was tiny. The simplest and best measure of this is state spending as a share of the gross domestic product. In 1870 it ranged from 4 percent in America to 13 percent in France. Today the figures are 33 percent and 53 percent respectively; they actually rose slightly in the libertarian 1990's.

Most free-market reforms discussed in the West are modest attempts to pare back some of the expanding regulations, taxes and entitlements that accumulated in the 1970's and 1980's. (In 1960, after the New Deal, after social markets were established, public spending in Western countries was still only 30 percent of G.D.P.) The most radical free-market reforms being touted by various right-of-center parties would shave a few percentage points off state spending. Gray can relax; the era of big government is here to stay.

Gray also gets the developing world wrong. East Asia grew mainly through laissez-faire, not state direction. Unlike most third world countries, East Asians opened themselves to foreign investment and allowed vigorous internal competition in almost every sector. The state's role in these economies is smaller even than in America, about 25 percent of G.D.P. (because they have few middle class entitlements and welfare programs.) East Asia's statism, exaggerated by anecdotal analysis, is actually limited and often not very helpful. Japanese growth, for example, owed more to those sectors in which brutal competition prevailed'cars, consumer electronics'than those the government favored. (Remember high-definition television?) If East Asia is the model, then countries like India, Egypt and even Brazil still have a lot of liberalization left to do. Also, many of the reforms being "imposed" on East Asian societies by the I.M.F. will actually enhance governmental power, mainly through increased regulation of the financial sector. Globalization can sometimes strengthen the state.

The villain of "False Dawn" is America, about which Gray writes with undisguised scorn. "Free markets have contributed to social breakdown on a scale unknown in any other developed country. . . . Levels of inequality in the United States resemble those of Latin American countries more than those of any European society," he writes, and says later, "The middle classes are rediscovering the conditions of assetless economic insecurity that afflicted the 19th century proletariat." Some of his charges are telling; he points repeatedly to America's large prison population, which he dramatically refers to as the result of "a policy of mass incarceration," a formulation that brings to mind'as I'm sure it's supposed to 'peasants being rounded up by the thousands. Others are simply false; American levels of inequality are actually much closer to European than Latin levels. (The World Bank provides these figures.) Gray also seems to have missed the rise of middle-class capitalism. Over 50 percent of Americans have investments in the stock market, which has quadrupled in value in the last decade.

What troubles Gray most about America is that the rest of the world will become like it. He proposes a version of Gresham's Law; under globalization, "bad capitalism tends to drive out good." Forced to compete with American laissez-faire, other countries will eventually copy it. In fact, this exaggerates the power of global markets. Of course they limit a state's ability to endlessly spend money foolishly, and they do tend to demand some overall efficiency. But every country can achieve efficiency in its own way. America provides lavish subsidies for home ownership; Germany gives its workers generous benefits; France spends extravagantly on culture. All are inefficient from a purely economic point of view, but my guess is that all will survive the ravages of global markets. Indeed, most European societies have already done what Gray hopes for. They seem to have decided not to roll back their welfare states but rather reform them gradually, accepting the lower growth rates such a process entails. Nineteenth-century globalization did not turn every country into Britain; 21st-century globalization will not make every society like America.

Gray exaggerates the power of global capitalism in another sense. The reforms being implemented by all Western countries are not simply the result of globalization or the bewitching power of Thatcherism. The neoliberal policies of the 1990's are a rational response to the stagflation, low growth and overregulation of the 1970's, just as the Keynesian policies of the 1950's, adopted by all Western governments, were a response to the domestic realities of the 1930's and 1940's'mass unemployment and social chaos. The demographics alone are compelling. Welfare states built on ratios of several workers to one retiree will have to be scaled back as the number of retirees grows in the coming decades. By 2030, Germany's pensions, if they are not trimmed, will take up almost 17 percent of the budget; the figure for 1995 is 11 percent.

Gray's most sweeping charge is that global capitalism is flawed because it is a utopian idea, a product of Enlightenment visions of a perfect society. He sees great similarities in this sense between capitalism and Communism: "They embody the same rationalist hubris and cultural imperialism that have marked the central traditions of Enlightenment thinking." Gray's last book, "Enlightenment's Wake," was a wholesale attack on the Enlightenment itself, whose emphasis on reason, science and progress, he claimed, had "desolated traditional cultures everywhere and visited devastation of their natural environments." But Gray doesn't seem to recognize that his own vision of a good society is imbued with Enlightenment rationalism.

The modern bureaucratic-administrative state, wisely regulating the economy, meeting material needs and promoting social cohesion, is as much an Enlightenment idea'some might say a utopian idea'as the free market or Communism. The trouble with the Enlightenment is that you can't get away from it. The real fantasy in this book is of those wonderful traditional societies that flourished before modernity and the free market wrecked them. The reality in those communities for most people was'and is'medieval levels of poverty, disease and starvation. That is why in every third world country peasants flee their settled patterns of life by the busloads, hoping to find jobs in factory towns and cities. Capitalism has provided the only durable path out of misery for ordinary people, first in the West and now around the globe. Of course the movement out of centuries-old poverty is highly dislocating, but the response can hardly be therefore to stop it.

There are moments of wisdom in this book. Gray reminds us of what Daniel Bell called "the cultural contradictions of capitalism"'the fact that the dynamic force of market economics erodes social cohesion, traditional culture and the institutions that give human beings a sense of security. But the serious discussion in most societies today is about how to tame capitalism enough so that people have some safety and dignity and yet not so much that it denies them material progress and opportunity. In this Gray is little help, because he seems unaware that for the vast majority of the world, the greatest danger of globalization is not that it will succeed but that it will fail.


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