The future's not ours to see

One of my pet themes is the importance of culture in economics.

Free trade is very good for those countries with high levels of education, technical skills, infrastructure etc. All these things being relative of course. You also need an government that doesn't hinder, entrepreneurial ethic among some and a work ethic among many. Britain in Victorian times had all of these and so was naturally keen on free trade.

Now we don't have the education system (with the implication for future technical skills), the government or the work ethic. Having a free market won't solve at least two out of three of those. After all, if it was possible to simply move into new areas easily, they'd have been able to make cars that people wanted to buy. Cars are as hi-tech an item as any these days, so if we can't make those what's suddenly going to make us turn out memory sticks or holographic videos ?

Conversely, with the right culture, technology and education, you can be successful with some pretty unfree markets. Japan 1960-1985 was protectionist and institutionally corrupt, but raised its game over that period from cheap plastic toys to the best cars, cameras and electronics in the world.

At Brussles Journal, Marc Huybrechts gets the crystal ball out :

It is often argued that authoritarian/totalitarian regimes inevitably breed high levels of favoritism and unaccountability, and therefore prove to be inferior economically and militarily in the long run. It is also claimed (or, rather, hoped) that authoritarian capitalist regimes will tend to democratize after passing a certain threshold of development. In a recent article in the July/August issue of the magazine Foreign Affairs, entitled The Return of Authoritarian Great Powers, the Israeli academic Azar Gat examined these and other claims. He notes that higher levels of social discipline can offset the inefficiencies of favoritism and of unaccountability, and that a transition to democracy by today’s authoritarian capitalist powers is not inevitable. Indeed, some of the differences between now and much of the past century are striking. For instance, the previous totalitarian capitalist great powers, Germany and Japan, were crushed in war and threatened by soviet power, and subsequently lent themselves to major restructuring and democratization. Also, many smaller countries that chose capitalism (and to some extent also ‘democracy’) over communism, did so in part because of the absence of a serious rival economic and political model and also because of Western liberal hegemony on the world stage. Today’s geopolitical situation is quite different. China and Russia represent a return of economically successful authoritarian capitalist powers, but they are much larger (and thus potentially much stronger) than the defeated authoritarian capitalist great powers of the previous century. The risk is real that a powerful authoritarian capitalist order is emerging in the world that “allies political elites, industrialists and the military” (writes Gat). Such an order is likely to be ‘nationalistic’ in a negative sense, i.e. in the sense that it will not favor liberal democracy and individual freedom.

I see exactly what he means. Those who wittered on about the US 'military/industrial complex may not have seen nothing yet. And that doesn't necessarily mean their economies will fail. We have pretty free markets, a ruined culture and education system, and our economy seems to me to be running on empty. As Elliott and Atkinson put it :

Hardly noticed in last Thursday's excitement was the release of the latest set of trade figures from the Office for National Statistics. These showed that in March, the UK imported £7bn more goods than it exported - more than 6% of GDP. This figure alone gives the lie to the notion that Britain under Labour has cracked the age-old problem of inflation, since a trade deficit is merely disguised inflation, evidence of excess demand that can only be met through imports.

It's not difficult to see why the UK is running a trade level of this size: consumption has been rising fast while manufacturing output has flat-lined. Unlike Germany, Japan, Sweden - or even the US, which has a huge trade deficit itself - Britain is no longer an industrial nation. Is this worrying? Well, it scares the life out of me, but not it seems the government. The fantasy here is that we can cope with living beyond our means at a national level through the profits generated by the City and by building up Britain's "knowledge economy". A £7bn trade deficit suggests we have some way to go; hardly surprising since the fastest growing job in the 1990s was hairdressing and the UK now has as big a slice of its population working as servants as it did in 1860.

Sorry about the pessimism. It was Ecclesiastes at Mass again tonight.