Opinion Sur
(Wei ji). In Chinese, the word denotes, from its first character, “crisis” and from the second character, “crucial or opportune moment.” What opportunities appear in the present global economic crisis? What are the most promising solutions of the many that are being proposed? Under which cover or pretext will they be enacted? I will risk a preliminary forecast: do not expect the birth of a radical “new model” for the economy, but a new way of connecting its principal sectors. I propose the word synergy as a name for these processes Just like with a coin, the planetary crisis that en gulfs us has two sides. “Tails” is the side on which the actual value of the piece appears. In our case the numbers are all negative: employment, economic activity, profits, savings, stock values, available credit, exports, and son on. The other side of the coin, “heads”, is usually an effigy, a face or a figure. Here we can see a serious but hopeful countenance. The double-side configuration is nothing new, of course, but a very old numismatic convention. Let us then think about the predecessors of our current crisis.
The Great Depression of the thirties, which also began in the United States, was not only a period of hardship and unemployment –it was a fertile era for social innovation as well. As a response to the economic and social crises of that era, social movements and governments initiated a veritable cascade of novel programs and experiments. Many of them became, with the passage of time, solid institutions that have survived until today and which in fact are preventing the current crisis from deepening further. Social Security (the national inter-generational retirement plan of the US), the Securities and Exchange Commission (a regulatory body to the more dynamic markets), the Federal Deposit Insurance Corporation (which protects deposits from the failure of banks), are all social inventions designed to protect individuals from catastrophic mishaps and the infirmity of old age, but also to protect the economic system in which the individuals interact.
These and other institutions were established to cushion the system from financial crashes followed by a deflationary spiral. Without them today the bank deposits of millions of citizens would be blocked or lost, unemployment would easily reach a level of 25% or more, and retirees would lose their livelihood, their homes, their health, and what remains of their lives. In other words, without these buffer institutions established in the thirties, the United States and other advanced economies would be in 2008-9 in a similar situation to that of Argentina in 2001-2. Other programs instituted in the thirties, such as the Work Projects Administration (WPA) and the National Recovery Administration (NRA) were terminated as soon as the economy showed signs of recovery at the end of that fateful decade.
In a future article I will consider the prospects for a repeat of the largest public works program of all –one that many argue finally pulled the American economy out of the Depression, namely security preparedness and the mobilization for World War II. It would be absurd and even perverse to recommend a repetition of that titanic casus belli in this century. Luckily, the type of post-industrial and globalized production of present-day economies prevents a mass mobilization of mid-twentieth-century proportions. But we should not forget the fact that large-scale war effectively got rid of the unrealized surplus of the economy, eliminated idle capacity in factories and enterprises of all kinds, fostered the full employment of the labor force, and ultimately made it possible for the United States to emerge from the conflict some 300 times richer than it was at the beginning, thereby assuring its world hegemony for the next fifty years at least. That experience cannot be repeated, and it is a good thing that it cannot be repeated. But many of the social, economic, and technological programs that will be set in motion in the coming years will need an international “security” legitimation to overcome ingrained social habits, vested interests, and ideological prejudices. They will represent a form of near-total social mobilization to face environmental risks and security threats in a world in which local crises easily metastasize into global emergencies. I will develop this argument in a forthcoming book on the future of warfare.
The current consensus among economists (with all due reservations, since these gentlemen have demonstrated a predictive acumen comparable to that of my late aunt Emily who read the future in tea leaves) is that our global economy is not doomed to the same fate as the world economy of the thirties. Nevertheless, the collapse of the financial system and the freezing of credit are as real today as they were then. The trail of consequences is being felt in the “real” economy, and its impact has only begun. There will be more dramatic failures of enterprises and markets in the near future. Some of the symptoms are visible already: rising unemployment, consumer diffidence, mortgage foreclosures, and the imperative need of retirees to return to work, if they can find work, in order to make ends meet. Savings have evaporated; investments are stalled, and money, when available, is being hoarded rather than put to productive use. Under such conditions, the public sector has moved from being a guarantor of last resort to being a first responder. The specter of socialism has returned to haunt the capitalist economy, not as a gravedigger but as a welcome rescuer.
Longer-term consequences are more difficult to fathom, but they are even more important than emergency measures. There will be at least a partial nationalization of the banking sector, a greater regulation of financial flows, a greater public control and accountability of private economic transactions, and a greater demand for public services, since demand for other goods and services has experienced a precipitous drop. There will be also a greater demand for services provided by the “third sector”, that is, nonprofit organizations, from private foundations to churches and civil-society organizations. But here again, and in a process similar to that of the private enterprise sector, we must expect a concentration and consolidation of resources.
As I pointed out in a previous note for Opinion Sur, it is astonishing to behold how governments which until recently professed a devout commitment to free unregulated markets are now intervening with force and gusto in the economy. They do not hesitate in launching programs that hitherto they would have denounced as bordering on “communism.” Robust state intervention has ceased to be a bad word. In the United States alone, the Bush administration, never suspected of socialist leanings, has turned its policies 180 degrees on a number of fronts, from bailouts to direct state control of economic enterprises, in particular to help ailing financial and insurance companies, with such strings attached as government-mandated limits to CEO compensation. These are hard times indeed when a right-wing Republican administration takes “national and popular” measures.
At the state and local levels, authorities are also taking measures unusual and “radical” in the American context. Thus, the sheriff of County Cook, in Chicago, issued order to his deputies not to enforce home foreclosures, and leave families in their places of residence, which they can no longer afford. Overnight, an American city became peronista. Of course nobody knows if all these measures and gestures will stop the decline in economic activity. So far, from the top officers of administration to local authorities, those in charge are improvising, playing by ear.
We have entered an era of fear and uncertainty, but also an era of opportunity. In the middle of a great crisis, people search for solutions “out of the box” of standard proven responses. New ideas on how to work, how to use transport, how to consume energy, and how to govern communities are already appearing in articles, editorials, think-tank proposals, and government task forces. In our own little corner of the globe, Opinion Sur will eagerly explore these initiatives, and learn from ongoing experiments.
In many parts of the world, the public asks what is the proper role of governments, what is the social responsibility of enterprises, what is the proper role for NGOs. We are moving from a concern with private troubles to a debate on public issues. The time has come for many people to consider the meaning of economic success, for questioning the underlying values of hitherto unexamined pursuits. What is freedom, especially economic freedom? Until recently, our economic understanding was that it was freedom from regulation and public intervention, that is, freedom from, but, except in the narrow sense of self-advancement, we did not ask what freedom is for in a social world that is not just a sum of its parts. Can the market alone provide us with health, education, and well being. What are the different meanings of “the pursuit of happiness’?
The answers to these and related questions will not necessarily lead to a new super New Deal. The experience of the last half century has shown that the responsibility to solve social problems does not rest exclusively on the shoulders of government. But more recent experiences have shown also that the private sector can also fail, and fail quite miserably.
What I see in front of us is a new compact between the public, the private, and the non-governmental or “third” sectors. Each sector has some answers to our plight, but none has all the answers. There are no monolithic solutions to the crisis. The challenge is to know who does what things best, and how to combine the diverse provenance of excellence. This art of combination and collaboration between countervailing sectors and groups deserves a specific name. I call it synergy.
