Right or Left Economic Recovery?

It is high time to begin looking in earnest around the corner, past the present disrup­tion—even devastation—caused by the COVID‑19 pandemic to the all‑important question of eco­nomic recovery. From its onset, nearly a year ago, many policymakers in the Silk Road region and around the world have reflected on the ways in which their respec­tive governments should address the health and ensuing economic crises. Some scholars point to the success of China, Singapore, Vietnam, and other countries with controlled political systems; other experts highlight the achievements of New Zealand, Germany, South Korea, and similar states.

The effectiveness of national governments in their responses to the COVID‑19 pandemic and the economic crisis has gained consid­erable prominence in the current discourse on the subject. Public health concerns raise the ques­tion of larger state policy with re­gard to the economic and social dimensions of the crisis. While it is clear that governments should, in many cases, help businesses to recover, and they are doing so on a global scale from the United States to China, a heated debate about post‑pandemic “rightist” or “leftist” policy preferences is raging on political podiums in many countries. Outgoing Amer­ican president Donald Trump has vowed to save the country from “leftist radicals,” whereas in more social‑democratic Europe many parties are demanding more vig­orous state involvement.

Here we are facing the already quite old dilemma between a laissez‑faire approach or a Keynesian‑style intrusion into the national economy.

I argue that this perennial ques­tion is fundamentally the wrong one to ask. Left or right, so­cial‑democratic versus conservative policy—these are both outdated concepts for the simple reason that humanity has already entered into a new post‑industrial world. The Fourth Industrial Revolution that we are experiencing has already altered the way we live, work, and earn. It is also affecting national authorities. Our discussion should go beyond the nature of production and consumption and focus on hu­man‑to‑human and human‑to‑gov­ernment interactions.

Some History

At this point, we need to make a short excursion into the history of relations between state authorities and the market to deter­mine the future of policy choices. Since the birth of modern political economics in the nineteenth cen­tury, the focus of classical econo­mists has been on the relationship between the market and the au­thorities. Hence, a goal of the disci­pline of economics was to tune gov­ernment policies to govern national economies in the most efficient way possible. Pre‑industrial agricultural societies were believed to have had limited market interactions and the role of government authorities, op­erating within mostly monarchical regimes, was limited to collecting taxes and ordering some public ac­tivities, such as building palaces, religious sites, or roads.

With more sophisticated market relationships and the arrival of large production chains, the need for better regulation to provide governmental supervision over the national economy led to the emer­gence of two basic concepts. The first was a redistributive model based on an interventionist vision of the role of government, or a leftist policy. On the right side of the spec­trum we had the protagonists of limited governmental interference in the market. This is, of course, a rather simplistic description but, for the time being, we will stick to these two models to advance the discourse in this article.

The advocates of conservative political thought have relied upon the ideas of Adam Smith, who be­lieved in the “invisible hand” of the market, which regulates itself in the best possible way based on human self‑interest. His concept evolved over time into laissez‑faire capitalism—an economic system that protected the operations of individuals and businesses from government intervention and in­volved only the minimum level of taxes, regulations, and subsidies. Extending Adam Smith’s theories, another British economist, David Ricardo, advanced the labor theory of value and the idea of free trade.

Countering the trend in favor of laissez‑faire capitalism, Karl Marx asserted that an unfet­tered market privileges those with wealth and facilitates the exploita­tion of the poor, which causes class struggle. To resolve this problem, Marx recommended removing wealth from the relatively small number of owners and distributing it among all people. His theory had a tremendous impact on global de­velopments, but a political result of his doctrine was the totalitarian command economy, which, moral and political consequences to one side, ultimately reached a dead end in terms of economic theory—as manifested in the collapse of the Soviet system. Hence its abandon­ment by most political economists.

At the beginning of the twentieth century, political activists devel­oped the concept of social democ­racy that abandoned Marxist po­litical radicalism but developed a theory of social justice combined with mixed economies that had the market as their foundation, but with redistribution of wealth at the top. The terror that characterized the 1917 October Revolution and the Soviet system thereafter ap­palled many social democrats and turned them away from a radical egalitarian vision of society. The foundation of modern European social democracy came to rest on the vision of the welfare state, first developed in the 1920, which pro­motes liberal democracy and wealth redistribution through taxation and other instruments.

The Great Depression of the 1930s further shook the edifice of the free market. In response, yet another British economist, John Keynes, developed a theory for measured and appropriate state interference in a market economy. Keynes advo­cated the use of various monetary instruments and employment poli­cies to mitigate the negative effects of a depression. He advocated more robust government interference in market relations, and this was in time adopted by many capitalist governments.

During the 1930s and 1940s, at the height of Soviet re­pression and Nazi ideology, two Austrian‑born British philosophers, Karl Popper and Friedrich Hayek, came to the defense of liberal de­mocracy. Popper laid the electoral and competitive foundation for the political edifice of the state, while Hayek wrote about the economic fundamentals of democracy. Hayek believed that the guarantee of per­sonal freedom is based on private property and “small” government, which limits its interference into the market, and argued that there was a threat of totalitarianism emanating from central economic planning.

In the 1970s, when many Western capitalist countries were faced with economic stagnation, polit­ical leaders such as Ronald Reagan in the United States and Margaret Thatcher in Great Britain ushered in a new era of laissez‑faire economics, labeled as neo‑liberalism. American economist Milton Friedman crit­icized Keynesianism and offered monetary policy as an alternative for the regulation of the economy. Friedman favored minimalist inter­ventions by the state and large‑scale privatization. For him, a certain level of unemployment was healthier for society and the economy compared with the zero level that was targeted by Keynes. The end of the Cold War, the collapse of the Soviet Union, and the apparent victory of the free market, gave an additional impetus to the principle of unfettered com­petition. International trade agree­ments such as NAFTA and the Eu­ropean common market followed the trend.

The End of History and the Pandemic

Euphoria regarding the free market economy lasted until 2008, when a deep financial crisis broke out. The expert community voiced its collective concern over unregulated market forces. Even before this, the Asian crisis of 1998 and many instances of corporate fraud should have raised concerns about weak and inadequate regula­tion.

Neoliberal scholars had blinded themselves with their own narrative of scientific progress and the “end of history.” On paper, the funda­mentals of the prevailing economic theory, with its elegant supply and demand curves, rules of competition, comparative advantage, free trade, and so on, appeared ideal. However, in reality neo‑liberalism’s idealistic picture was shattered by the crisis, high unemployment, and income inequality. This led to the formation inter alia of the Oc­cupy movement as well as helped precipitate the rise various types of populist forces across the political spectrum.

Moreover, the success of the Chinese model over the past two decades has reinvigorated the de­bate on the choice between political control and economic interventionism, on the one hand, and lib­eral democracy and the laissez‑faire economics, on the other.

In past and current discourses about leftist or conservative pol­icies, the political and economic choices (democracy vs. authori­tarianism; market vs. command economy) were sometimes mixed. For example, Chile’s Augusto Pi­nochet advanced both dictatorship and market reforms. Scandina­vian countries, in general, opted for political liberalism and heavy state regulation. The economic ad­vancement of politically centralized China is based on the move from a planned to a market economy.

The fathers of laissez‑faire economy such as Adam Smith and Friedrich Hayek also envisaged certain obligations of the state to render essential public services to the population. Much more moot is the question of the effectiveness of a politically con­trolled society. Here, the debate became compli­cated by new po­litical trends: the Russian “sovereign democracy” narra­tive, the European far‑right, and the American “alt‑right” assault on lib­eral democracy.

This short and simplistic excur­sion into the history of political economy manifests that there is no single “right” or “left” policy that could address all the complexi­ties of the development of modern states and markets.

The COVID‑19 pandem­ic once again reivigorated the debate about the role of government control, protectionism, income re­distribution, and various state instruments in regu­lating the market.

The COVID‑19 pandemic once again reivigorated the debate about the role of government control, protectionism, income re­distribution, and various state in­struments in regulating the market.

Thus far, countries with liberal democratic forms of government have manifested much better per­formance in the advancement of economic and social welfare than authoritarian ones. However, in the economic domain, the choice be­tween a conservative laissez‑faire model and a social‑democratic re­distributive and in­terventionist policy is not backed by definitive statistics for success either way. Scandina­vian countries can boast about their ratings in the UN Human Develop­ment Index, but the United States, the UK, and South Korea are also close to the top of the list, and excel in technology, science, and higher education.

The question of the relationship between government and market remains at the core of the current debate. In the eighteenth century, with the rise of manufacturing and machines, the market, capital ac­cumulation, and production devel­oped without much government intervention except for limited regu­lation through taxes. The state appa­ratus was rudimentary and revolved around the power of the monarch. In the twentieth century, unregulated market forces and the exploitation of labor caused a chain of revolutions and uprisings. The administration of the state became a new scientific discipline. National governments realized the necessity of rendering essential public services, such as education, health, and unemploy­ment and retirement benefits, in order to avoid revolutions. In part, this development rested on more sophisticated modes of production. Meanwhile, democracy empowered the voices of ordinary citizens by expanding the franchise in response to demands for more public services and benefits from governments.

Too much government interven­tion into the market caused stag­nation, as witnessed in the UK and many other European countries in the 1970s. Leaving market forces unregulated, however, led to the crises of 1932‑1933, 1997‑1998, and 2008‑2009.

Contemporary Trends

People’s self‑interest dictates that they compete for re­sources and income, and, if they can, they make every effort to enhance control over desirable re­sources and diminish competition. Unregulated, both companies and individuals tend to remove com­petitors and create monopolies and bubbles, whereas too much inter­vention destroys incentives to work and develop. Today, most countries adhere to more or less centrist policies.

This generally centrist approach should be continued as we enter a new era of production and con­sumption. There are several trends that are radically modifying the centuries‑old structure of market relations. As a result, current state instruments, developed from the mid‑nineteenth century up to the beginning of the twenty‑first cen­tury, will be insufficient to address future challenges.

First, the robotization of produc­tion means that millions of jobs will be, and are already being, lost. The future of production with minimum human labor is no longer science fic­tion. This revolution puts pressure on governments to provide a basic income to large segments of their populations. Thus, we come to inter­ventionist and redistributive policies.

Furthermore, with the rise of artifi­cial intelligence, automatization, and other related digital technologies, the cost of production will become min­imal from the current standpoint. Demand for low‑skilled workers is diminishing, while the search for highly skilled specialists is on the rise. This will highlight the importance of education and talent over cap­ital. Thus, the duty of governments to provide, at a minimum, a strong enabling environment for contem­porary educational opportunities so as to better prepare their respective populations for the job market of to­morrow will undoubtedly become an increasingly important factor in en­suring the success of national econo­mies in transformational times.

In the meantime, many pundits have raised concerns over the over­whelming power of national gov­ernments to surveil and control their populations through the de­velopment of digital technologies. It is believed that the COVID‑19 out­break may lead to the introduction of systems by which citizens may be totally monitored by the state, thus creating a threat to human rights. Famous Israeli historian Yuval Harari writes about this in apoca­lyptic tones. However, the problem of a “superstate spy” already exists, regardless of outbreaks of corona­virus or other infections. Famous French philosopher Michel Foucault wrote about the threat of general surveillance back in the middle of the last century, using the concept of “panoptism,” the roots of which go even deeper into history (recall, for instance, the famous project of an ideal prison, the “panopticon” of eighteenth‑ and nineteenth‑century British philosopher Jeremy Ben­tham). Supervision is a characteristic feature of all modern states, including both democratic and authoritarian ones, both of which make use of constantly‑evolving technologies. The market economy, with its credit cards, mobile phones, applications, and social networks, which billions of people use completely voluntarily, is constantly pushing the envelope in this regard.

The aforementioned trends will undoubtedly increase the role of government. At the same time, however, opposing trends are also ap­pearing around the corner.

One such revolutionary change is related to the system of payment. Human civilization has witnessed several previous revolutions—from barter to coins, and from coins to paper money. The use of credit cards and wire transfers is still pegged to currencies issued by national gov­ernments. However, the time when money issue was the exclusive priv­ilege of national authorities has al­ready gone. With the volatility of many currencies and the question of the sustainability of the world’s largest economy, namely the United States, and its currency, namely the U.S. dollar, many are now talking about the growing power of digital curren­cies. Bitcoin has already become pop­ular in many countries where people do not trust the local government. We have yet to fully comprehended the implications of digital currencies outside the control of national gov­ernments. It is quite likely that digital currencies will become more widely circulated and that governments will not be able to contain this phe­nomenon, although the arguments of economist like Nouriel Roubini against their mainstreaming poten­tial will need to be factored into the equation as well.

In 2005, Thomas Friedman pub­lished The World is Flat, in which he argued that the forces of globaliza­tion make borders increasingly irrel­evant and that global supply chain dictates national policies. Despite the fact that, since the publication of this seminal book, globalization has been threatened by nationalism and protectionism, which has become especially acute during the COVID‑19 pandemic. The specter of technological bifurcation due to the growing rivalry between America and China is something Friedman did not see coming. Nonetheless, some of his arguments remain valid.

After all, no country can survive by shutting down borders in the long term. From an economic point of view, global production and trade is unstoppable, and it has its own ef­fect on the movement of people and ideas. Similarly, in the political do­main, with all its surveillance mecha­nisms, the digital space also provides opportunities for various non‑governmental actors to operate—both legitimate businesses and NGOs, and illegal crime syndicates and terrorists. The battle between government sur­veillance mechanisms and personal freedoms and people’s free move­ment is still ongoing, but the “flat world” is likely to remain preferable over closed societies.

Taking into account all these developments, I tend to be­lieve that, in the economic domain, policymakers across the Silk Road region and beyond should gear their recovery measures somewhere to­ward the center—fostering market development through carefully chosen distributive and regulatory instruments.