Everybody from financial speculator George Soros to radical economist Will Hutton is now warning against the dangers posed by 'market fundamentalism', and arguing the need for more regulation, especially in the financial markets. Yet the 'market fundamentalists' are rarely identified by name. Why not? Probably because, outside the wacky free market fringe, such people no longer exist. While, as Hutton concedes, 'we are all, one way or another, capitalists now', nobody is prepared publicly to champion the unfettered free market any more. Market fundamentalism is a straw man set up by those who have lost faith in the unrestrained market, so that they can find a coded way of calling for new regulations to keep capitalism stable.
Those who argue for constrained capitalism like to imply that a powerful clique associated with Wall Street or the City of London is irresponsibly blocking proper regulation of the world financial markets. Jeffrey Sachs, prominent US economist, argues that 'the IMF and the US Treasury have listened for much too much to Wall Street importunings since the mid-1990s' (Financial Times, 22 January 1999). The conclusion is that new rules are needed to keep the financiers in check and stop them disrupting the entire economy.
In fact, there is no longer any Wall Street/Treasury/IMF clique of market fundamentalists. The people identified with this shady conspiracy are actually the ones implementing new forms of financial and economic regulation, and designing the 'new international financial architecture'. Top financial figures in Britain and the USA are promoting more detailed regulations to tame financial volatility than traditional Keynesians could ever fantasise about. Rather than old-fashioned state intervention they favour internationally accepted standards, including codes of good practice on fiscal transparency, monetary and financial transparency, corporate governance and even social policy.
The new demands for regulation come at a time when, despite the financial instability in East Asia and Latin America, most of those who play the world's financial markets have never had it so good. Since the start of the Asian financial crisis in July 1997 the markets have risen strongly. From July 1997 until 1 April 1999 the FTSE 100 in Britain was up 43 percent, while the S&P 500 index in the USA rose by 48 percent. Overall world stock markets increased by 24 percent. The clamour for regulations from top capitalists themselves clearly has less to do with any specific worries about financial matters than with a more general creeping fear of allowing the market to run free.
Critics who have seen the havoc that the market can wreak, particularly on what used to be called the third world, will welcome a new system of international regulation. But how much good will these constraints do, particularly in poorer countries?
They will bring every aspect of business, economic policy and welfare provision under external control by the IMF and the World Bank. Yet the real problem with the market economy today, particularly in poorer countries, is that it is too sluggish rather than too dynamic. By restraining economic activity further the new financial architecture could do even more harm than the problem it is meant to solve.
Reproduced from LM issue 121, June 1999