Commentary: Return of the welfare state?

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Kees Marges detects some hopeful signs

An era of modern history dominated by capitalist dogma began on 11 September 1973, in Santiago de Chile, when an army general used his military power to overthrow the struggling but democratically elected government of Chile, killing thousands of his opponents. President Salvador Allende, a staunch socialist, had tried to fight poverty and introduce a welfare state. Now General Pinochet and his supporters wanted to “free” Chile from too much state intervention in the economy.

General Pinochet was inspired by an American professor living in Chicago, Milton Friedman, who wrote and spoke about two of his favourite things: money and freedom. Friedman’s view was that inflation, at the time a serious problem in many countries, was caused by governments pumping too much money into the economy. At the same time Friedman was convinced that private individuals and companies should be given as much freedom as possible to carry out economic activities.

Friedman became the most outspoken economist of his time, promoting small governments, low taxes, free markets and privatisation. He attacked even the dominant theory of the time, developed by the British liberal thinker John Maynard Keynes among others, who espoused capitalism with a softer, more human face.

Friedman promoted capitalism in its basic and less human forms, centring on a fundamental belief in the working of markets and privatisation: market fundamentalism. In 1976 Friedman was awarded the Nobel Prize for Economics, which gave him the status to impress not only generals like Pinochet, but others including British prime minister Margaret Thatcher (1979-90) and US president Ronald Reagan (1981-89).

Signs of change

The economic reform processes begun in these and other countries, which have failed spectacularly to deliver on their early promises of wealth for all, are ongoing in many parts of the world. However in recent months commentators have begun hinting at a renewed role for the strong state. Even known supporters of market liberalisation have been warning about the dangers of free and global financial markets. The British Financial Times columnist Martin Wolf, for example, has been using his columns and his book, Why Globalisation Works, to emphasis the potentially catastrophic consequences of bad governance.

He explains that good markets need good governments and good governments need good markets. He draws on the writings of another top US economist, Joseph Stigliz, to accuse commercial banks of causing the two major financial crises we have seen in Latin America and East Asia.

Wolf distinguishes finance from trade. He is in favour of the liberalisation and globalisation of trade (or “international integration of economic activities” as he puts it), but against such liberalisation in the case of finance.

More surprising signs of a shift in thinking come from Professor Francis Fukuyama, author of the international bestseller The End of History and the Last Man and a member of the influential right wing think tank Project for the New American Century.

Mistakes acknowledged

In his new book State Building, Fukuyama gives his explanation of the failure of many so-called structural adjustment programmes in developing countries. He writes:

The problem was that although states needed to be cut back in certain areas, they needed to be simultaneously strengthened in others. Economists who promoted liberalising economic reform understood this perfectly well in theory. But the relative emphasis in this period lay very heavily on the reduction of state activity, which could often be confused or deliberately misconstrued as an effort to cut back state capacity across the board.

The state-building agenda, which was at least as important as the state-reducing one, was not given nearly as much thought or emphasis. The result was that liberalising economic reform failed to deliver on its promise in many countries. In some countries, indeed, absence of a proper institutional framework left them worse off after liberalisation than they would have been in its absence.

But the most remarkable text in his book is a quote from a statement made by Milton Friedman himself, the godfather of market fundamentalism and privatisation. Fukuyama says:

“He (Friedman) noted that a decade earlier he would have had three words for countries making the transition from socialism: ‘Privatise, privatise, privatise’.

‘But I was wrong,’ he continued. ‘It turns out that the rule of law is probably more basic than privatisation.’”

Of course neither Wolf, Fukuyama, nor retrospectively Friedman, are promoting the reintroduction of the state in its old glory as the protector of workers and the guardian of society.

But is it sheer optimism to see in these and other signals a distant pendulum beginning to swing back, ushering in the Return of the State? What kind of state it would turn out to be is a matter for debate and for action. We will never get back our Salvador Allende but as workers and trade unionists we must seize any opportunity to revitalise the welfare state, making it suitable and workable for the 21st century as the ultimate goal of globalised solidarity.

Kees Marges, former ITF dockers’ secretary, is a writer and consultant on trade union issues.

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Issue 19 April 2005

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