Critique of a FT article: Old economists can teach us new tricks by Rana Foroohar
In her column of June 3 Mrs. Foroohar defends the ideas of the late economist John Kenneth Galbraith that governments should have interventionist policies to correct market failures
It is a pity to watch the FT, a historic supporter of free markets, fall into the traps of interventionism and statism.
The article says citing Galbraith “He predicted that innovation and entrepreneurial zeal would decline as such organisations rose” and then “Look at any number of troubled behemoths — from GE to Kraft Heinz to Boeing — and it is hard not see exactly what Galbraith predicted.”
How wrong. Do I live in a different world from Mrs. Foroohar?
Those are behemoths from the past. They have been surpassed in size — employees, market value, branding, any other metric you name except physical assets — by the newer more agile companies that operate in the 21st century digitally based economy, the GAFAM (Google, Amazon, Facebook, Apple, Microsoft) and others. I can’t remember, in my few decades of professional activity, a period of so much innovation as in the early part of the 21st century.
Innovation has been happening at a rapid pace, not only in terms of technology but also of business models and it has changed many industries, some beyond recognition. This seismic change came about through schumpeterian creative destruction luckily without government intervention. Let’s hope that government intervention does not stifle it now.
Then the article goes on “We live in a world in which markets cannot handle even a tiny rise in interest rates without plunging, and when the savings from tax cuts went not into new capital investment but share buybacks, which were also fuelled by debt issued at those very same low rates. Can anyone really argue that the private markets are allocating resources efficiently?”
Has the author asked herself where is the root cause for this malaise? In the first period lies the answer. Extremely low interest rates artificially kept for years by government induced loose monetary policies, like we have never seen in the West in times of peace. Does the author propose even more government intervention to correct the problem it caused in the first place? It is like calling the pyromaniac to extinguish the fire.
Then it cites Galbraith “I am not saying that we need centralised planning. I react pragmatically. Where the market works, I’m for that. Where the government is necessary, I’m for that. I’m deeply suspicious of somebody who says, ‘I’m in favour of privatisation,’ or ‘I’m deeply in favour of public ownership’. I’m in favour of whatever works in the particular case.”
But let me ask who decides what works and what does not? The consummer, the market? Or Mr. Galbraith’s incarnation in any central planner? Even if he/she were the smartest person on Earth, it would be impossible for him to capture the subtleties and the highly dynamic interactions of millions of market players in the huge amount of sectors and segments that make up a real market economy with its discontinuities utility, preferences and price movements. That is the essence of capitalism. If you kill this you kill market capitalism.
In fact Reagan’s statement “The government is not the solution to our problem; government is the problem” has never been so true.
Then the case of China is brought up to support the columnist’s argument. It says “in the current era of tech-based disruption and inequality, public sector support may be necessary for the private sector to thrive”.
I thought that the times when governments selected and supported the national champions had gone. Who really believes that the GAFAM would exist if it was to the government and not consummers to decide?
Or is the chinese corrupt, iliberal, human-rights-abusing system the one the author is proposing. Really?
Then it ends saying “This is not socialism. It is smarter capitalism.”
I would call it “Political Capitalism” instead, using the words of Randall Holcombe, in his recent book with the same title “Political Capitalism: How Political Influence Is Made and Maintained”. My critique of the book:
A short summary of the book in an article by the author. I advise you to read it: