An ideological tipping point ?
All economic models are closely related to the prevalent political conditions. Ideologies can therefore be changed drastically in a given period.
For example in 1979-81, after a decade of distress and confusion that was characterised by the relinquishment of the stable Bretton Woods exchange rates, the oil crises of 1974 and 1978 and post-war industrial model shifting, we saw how political polarity inversions occurred.
In the United States and the United Kingdom, Ronald Reagan and Margaret Thatcher imposed a market economy model that toppled over capitalist profitability towards shareholders, to the detriment of the employees.
After years of capital loss caused by inflation, these liberal years were those of annuitant profitability protection and of the fight against monetary erosion.
On the other side of the globe and some years before Gorbatchev’s Glasnost, Deng Xiaoping also paved the way for market economy. The Iron Curtain had not yet fallen down, but was already becoming to get rusty. Mitterrand, on the other hand, introduced France in socialist logic, yet the experience fizzled short after two years.
The common denominator of these ideological break-ups was the choice for capital as the dominant factor of production compared to labour. This explains why the monetary standard was protected at the detriment of productivity gain redistribution. Thus, at the moment of entering service economy, capitalist forces profited from manufacturing industry abandonment.
Besides, in Belgium - apart from some political judgement errors - nothing really happened. We limited ourselves to increasing public debt, with a strategic plan limited to extending the outdated welfare state model. In 1993, this public debt must have reached nearly 140% of the GNP.
And how will our world, or rather our economies, look like in ten years’ time?
No one who can answer this question.
I believe the years 2008-13 are the start of an immense socio-political reversal.
In this respect, the bank crisis will turn out to be nothing but a distressing adventure, from which we are progressively learning the right lessons.
Indeed, we are starting to realize that the Welfare state (a heritage of the sixties and seventies) is no longer sustainable and that our countries are not capable to adapt to a more flexible economic model. This is an observation shared by most economists, both left- and right-wing.
From this angle, the euro might have been a mistake, or rather an unfortunate political decision, as this single currency reinforces economic paralysis and makes our economies depend on an intangible monetary parameter that henceforward reveals the true situation of the European economies. This is why unemployment rates are so different in Northern and Southern European countries.
Obviously, this was not the intention of the Euro, which was supposed to be a positive and ambitious project. Yet, this is today’s reality.
Within ten years, will we be closer to a market economy model or to state ownership?
For a long time, I thought that the end of the Welfare state would flow from a market crash of which the scope can be compared to the one of 1979-81.
However, I may have made a judgement error.
At the risk of having been misguided by my intuition, I believe that we might be seeing a more pronounced state-controlled generation, linked to the need to maintain social order via public debt reimbursement and the abandoning of a social subsidy model which has become unsustainable.
Yet, why are we to imagine that the end of the Welfare State might result in increased state ownership rather than in market economy confrontation?
Because over the last 5 years, our economies have not shown any political bounce back ability and the acquired benefit protection reflex has (temporarily?) defeated the creativity of a young generation which is overburdened by unemployment and an unbearable legacy of public debt.
What is more, the Euro (comparable to a more rigid gold standard system…without gold) could be the first sign of this shift towards state ownership, as it no longer corresponds to a uniform economic reality and is the consequence of a political, non-economic decision.
Isn’t this the best illustration that Europe has chosen monetary authority concentration, which inevitably leads to bank systems partially being put under more rigid state control?
From this angle, in the upcoming years we might see the factor or production “labour” impose its currency depreciation demands upon the factor of production “labour”, in the form of inflation and state deficits. In that sense, Greece might just be a precursor.
Will the intuition on growing monetary state-control be confirmed?
I am convinced of the superiority of a market economy model founded on risk taking and entrepreneurship and therefore do not share this opinion.
I remain convinced that free trade and individual liberty are a superior model, at the very least in the long term.
But who knows? Although the expectations on increasing state-control are premature and provisionally, a more pronounced and temporary state-control is not to be excluded.
Obviously, these intuitions will be refuted by unexpected episodes, of which the impact is always underestimated, just as it is impossible to predict the path of a butterfly in the long run.
Moreover, a crisis appears more than once, in different forms, changing and unstable by nature.
