Vince Cable’s dynamic appraisal of world’s economic thinkers

Sir Vince Cable is talking about Thatcherism: a political philosophy he believes is widely misunderstood. “Margaret Thatcher was primarily driven by moral concerns: now those moral concerns were not shared by [Thatcher’s] critics, but they were predominantly moral nevertheless,” the 77-year-old retired politician explains from his home in Twickenham, South West London.

“The intellectual case for free markets and private enterprise wasn’t Thatcher’s starting point,” says Cable. “[Thatcher] began with the idea that socialists and communists were fundamentally wicked and immoral— and that [as a society] we have to be free.” Nevertheless, the former leader of the Liberal Democrats says the anti-socialist revolution Thatcher’s Conservative government begun in Britain pace May 1979 was chiefly inspired by Friedrich von Hayek. The Nobel prize winning Austrian economist was a leading proponent and father figure of neoliberalism: a theory of political economic practices that promotes individual liberty, strong private property rights, free markets, and free trade. Hayek called the modern capitalist system the apotheosis of “the extended order”— and argued that socialist economies could never be fully efficient because “dispersed knowledge” is required for every versatile-modern economy.

“Thatcher read and quoted Hayek’s The Road to Serfdom as her bible and policy manual [all in one],” says Cable.

Cable claims Hayek’s intellectual influence on Thatcher’s thinking is a perfect example of abstract economic theory making the transition to political reality. Market forces may typically shape economic outcomes. But Cable stresses a more important factor: a nation’s economic destiny is often shaped by politicians —they take crucial decisions on economic matters at critical moments in history.

Cable runs with this theme for most of Money and Power: The World Leaders Who Changed Economics. The book begins at the turn of the eighteenth century: when there was a step-change in the sophistication of a global economies, industrializing societies, and when recognizably modern, democratic institutions became apparent.

The first chapter looks at the life of Alexander Hamilton: a Founding Father of the United States. In the aftermath of the War of Independence Hamilton maintained a polymath existence. He was a lawyer, a politician, a journalist, an anti-slavery campaigner, as well as a leading author in the Federalist Papers—a collection of 85 articles that made numerous arguments for the ratification the proposed U.S. Constitution.

Cable says “Hamilton probably accomplished more than any of the[other] Founding Fathers even though he never became president.”

The Hamiltonian economic programme believed in strong government. But it also embraced more manufacturing, more free markets, more free enterprise, and more free trade. That pro-business-industrial agenda did not always sit well with other Founding Fathers. Especially Thomas Jefferson and John Madison. They believed the future of the United States was an agrarian model — and that slavery would be paramount to the economic and social system.

But George Washington embraced Hamilton’s ideas. When he was elected as the first president of the United States, he appointed Hamilton as the first secretary of the U.S. Treasury.

“In his role at the U.S.Treasury Hamilton established the beginnings of a central bank,” Cable explains.”He also helped to create a true Federation [in the U.S.] by launching government bonds in the markets.”

Cable’s book profiles another fifteen political leaders from twelve different countries, spanning a time span covering nearly 250 years.

That motley crew includes democrats and autocrats from both the left and the right. They all share one commonality: taking radical —and often unpopular— decisions that changed the economic paradigm of their respective countries during the historical epoch they governed. Cable’s book looks at figures like far-left Bolshevik Russian revolutionary leader, Vladimir Lenin; the populist Argentine president and fascist sympathizer, Juan Domingo Perón; 19th century Conservative German statesman, Otto von Bismarck; and the 45th President of the United States, Donald Trump.

Cable says Trumponomics is hard to define as an economic theory. Mainly because it contains no real solid substance, beyond bias prejudices from Trump’s political base and Trump’s own personality.

“Trump had some weird notions,” says Cable. “I mean from an economic point of view the idea that trade has to be bilaterally balanced makes absolutely no sense.” “But Trump undoubtedly tapped into a powerful strain of public opinion in the United States, “Cable continues. “[Namely]: the left behind communities in the [US] who blamed American job losses on Chinese competition and aggressive Chinese policy [in the area of] intellectual property.” “Now there is some evidence to support this idea, although it’s not as big as Trump claimed,” Cable adds.

Cable dedicates an entire chapter of his latest book to the most influential Chinese statesman of the 20th century, Deng Xiaoping: he became China’s paramount leader in 1978 and began an economic miracle unparalleled in human history— rapidly transforming China from a traditional agrarian society to a modern urbane nation. Since 1979 China’s productivity has increased by 20-fold, lifting 850 million Chinese citizens out of poverty.

Cable says the key to Deng’s success was political pragmatism. Deng listened to Milton Friedman’s ideas about markets as studiously as he read Marx and Machiavelli. The method Deng applied to open China up globally for business was cautious but effective: state capitalism. The invisible hand of the market was allowed to work its magic. But the authoritarian rules of a one-party communist system still applied.

“State capitalism has worked spectacularly well in China,” says Cable. “It’s played a major role in China’s brilliant economic success story so far.”

Last October Cable published China Engage: Avoid the New Cold War. There are many factors to consider when trying to predict the rise of China over the coming years and decades, says Cable. The ongoing trade war with the United States. The fact that China has the largest standing military on the planet, as well as the largest national economy. Cable says the prospect of China overtaking the United States as the world’s number one global superpower “is painful and potentially dangerous.” But Cable believes the West should take a Kissingeresque balance of power approach to China. And that diplomatic engagement must begin and end with three key words: realism, restraint, and realpolitik.

“The sensible approach to China is to be pragmatic and to engage with them,” says Cable.”[In the West] we’ve got to recognize that we have much in common with China. And that we can benefit —economically and in other ways— by engaging with them.”

“There are a lot of people in the West who are spoiling for a fight with China,” says Cable. ” But I don’t think that’s helpful.”

China recently had its biggest economic growth in two years after the slump caused by the COVID-19 pandemic in 2020. But Cable doesn’t share too much optimism for the rest of the global economy.

He recons there will be a short term recovery as the lockdowns are lifted. “By the end of 2021 and the start of 2022 we are going to see rapid growth in the world economy,” he says. ” But it may take several years to get back to the level we were at before.”

Cable identifies two major problems from the Coronavirus crisis. Governments being loaded with debt. As well as a huge fall in productivity.

“The next decade is going to be a real struggle,” Cable concludes. “And it’s going to be worse in the poorest countries that have the fewest resources to deal with it. So there will be a short term recovery. But real damage has been done.”

Money and Power: The World Leaders Who Changed Economics

  • Sir Vince Cable
  • Atlantic Books, €12.99

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