The state in a shifting economic paradigm

Marco Aurélio Garcia

Economic crises tend to expose deep-seated contradictions in society. This is particularly true when the crisis in question has global and systemic proportions, as in the current case. In times of crisis, it is not unusual to witness “some of the most perverse phenomena”, to borrow a phrase from an Italian intellectual from the previous century, as old paradigms are questioned and new ones have not yet necessarily taken their place. Indeed, during such paradigm shifts, one must not underestimate the persistence of old modes of thinking, particularly when alternatives are not yet fully developed. This short digression is useful when thinking about the comeback of the state as a fundamental factor in economic organisation in light of the current global economic crisis but also from a historical perspective:

Post-war reconstruction and the strategic state
After 1945, at the end of the “second thirty year’s war”, to borrow the term coined by Arno Mayer, the state assumed a decisive role in lifting Europe out of its economic and social depression. The newly created “welfare state” – not only in countries under social-democratic control, but also where Christian Democrats prevailed – was not only responsible for setting up wide-ranging social protection nets, especially for workers; it also guaranteed a strong presence for the state in strategic areas of economic life. The strengthened role of the state was not only the result of the weakness of Europe’s business elites, crippled by the war; the state was also the only actor in a position to think strategically about how European societies could be redesigned to guarantee economic reconstruction and long-term sustainability.

The post-war years also saw the state assume an important role in economic development in countries on the global periphery, notwithstanding the different circumstances they faced. This was particularly true of states experiencing a process of late industrialisation such as Brazil. This is not to say that there was no resistance to this new paradigm during this time. In Brazil, this resistance was associated with liberal groups who advocated an essentially agricultural role for the country and deemed industrialisation to be a protectionist aberration fostered by an oversized state. Still, the period between 1945 and the 1970s was marked by the rise of a strategic state paradigm.

Globalisation and the weakened state
The end of the “the glorious thirties” in the developed world, together with the resounding failure of the Soviet model, saw the emergence of a conservative counter-revolution, which rapidly extended to the global periphery as well. One of the key elements of the emerging paradigm was the discrediting of the role of the state in economic growth. It was felt that the market was the only efficient mechanism for addressing the big social and economic challenges of the time. This belief fed on numerous examples of public managerial inefficiency and ultimately on the liberal fundamentalism that re-emerged from the 1970s onwards. All of this was assumed to be an inextricable part of  “globalisation”, an all-purpose argument used by conservatives to justify the radical changes affecting capitalism.

While the new paradigm developed in the advanced economies, it acquired a more extreme interpretation for countries on the global periphery. Here, conservatives consigned the nation state to the pantheon of history and spoke about the creation of a new international economic order based on the globalisation of production, markets and finance. In this new order, national borders were meaningless, as was political debate, for there was no alternative but to follow the dictates of the global marketplace. The weakening of national sovereignty inevitably led to a dilution of popular sovereignty as well.  Voting would become largely irrelevant, given the lack of meaningful alternatives.

The global crisis and the return of the state
There is no need to revisit the reasons for the fall of this conservative paradigm. The roar of the crash, still under way, does not allow us to hear all the signals that the present crisis is sending. In the midst of it all, one can nonetheless hear pathetic calls for state intervention to rescue banks, insurance companies and industry. These calls cannot be ignored. Even if the firms in question are still run by the adventurers who created the chaos in the first place, their downfall would bring about unemployment, repossessions, cancelled pensions, and the disintegration of our social protection systems. Resistance to change takes the form of an unwillingness to call things by their names. To avoid old taboos, the salvaging of the banking industry is not labelled “nationalisation”.

Clearly the state is back. It emerges as the only reliable response to the economic irrationality of the free market system. Its former detractors now bow before it, but are unwilling to show contrition. In developing countries, such as Brazil, the state’s failings were largely caused by the encroachment of private interests, which suggests a democratic deficit. Concern about the state’s renewed role in managing the economy should not serve however as a cover for cringing conservatives to deny responsibility for creating the global disorder into which humanity has been thrown.

Marco Aurélio Garcia is an adviser to the President of Brazil