Wednesday 23 Jun 2021 | 18:00 | SYDNEY
Wednesday 23 Jun 2021 | 18:00 | SYDNEY

GFC: Blame the communist collapse?


Mark Thirlwell

21 April 2010 09:36

I've recently finished John Lanchester's short book on the GFC. It does a fairly good job of explaining some of the financial instruments and concepts involved, and at times is quite entertaining (a slightly snooty review in The Guardian dismissed some of this as 'being funny in a Jeremy Clarkson sort of way', but I must be low-brow enough to enjoy this stuff; I quite like Top Gear, too).

One argument Lanchester makes early on is that an essential precursor to the GFC was the fall of the Berlin Wall and the collapse of the Soviet Union. His point is not that the old socialist bloc countries were in themselves a good thing: Lanchester is quick to state that in his view the Western democracies are 'the most admirable societies that have ever existed' while the socialist bloc 'had grave, irredeemable flaws'. 

Rather, he suggests that the existence of an 'ideological beauty contest' between capitalism and communism worked so that the presence of the latter served to temper the excesses of the former. Once the contest was over, there was no external force left to exert any sort of restraint, and the result was a kind of takeover by the financial sector, followed by a rapid decline in any concerns about economic inequality or fairness. The great crash then ensued.

It's an interesting argument, although I'm not sure I completely buy it (for example, I tend to think that the importance of the collapse of the communist experiment provided the clinching evidence for an ideological counter-revolution, particularly in the US and UK, that was already pretty well entrenched by the late 1980s).

But it does pose the question as to whether there are any signs of new, countervailing competition in the post-GFC world that could theoretically perform a similar function to that which Lanchester attributes to the old Soviet bloc. Right now, there doesn't appear to be an obvious candidate.

You might want to offer up the rise of authoritarian capitalism. And at first glance, China's version of state capitalism appears a plausible contender: after all, nearly everyone agrees that Beijing has had a good crisis. But in this particular context, such a suggestion stops being plausible after even the most cursory of second looks; while the Chinese model might well draw some envious stares from other, less successful, developing countries, the Beijing consensus is not a model that is going to translate easily to the developed world. 

Perhaps even more to the point, its far from clear that the systems competition on offer here would be of the kind to mitigate the rich world's capitalist excesses in the way Lanchester has in mind. After all, for many observers, China's current set-up is closer to a Sino-style Gilded Age than some flawed version of a workers' paradise.

If a viable competing model is not apparent outside the developed world, what about from within it? That seems more plausible to me. Back at the start of the crisis there was some suggestion that this could be Europe's moment, and that the more managed capitalism of the continental European model would now become more attractive to the rest of the world.

But as the euro-area struggles to deal with the severe problems in Greece and elsewhere on its periphery, and as the US recovery continues to lead its European counterpart, we have been hearing rather less of that particular argument.

Any other possibilities? Well, I sometimes try floating the idea of the 'Australian model' past international visitors to the Institute. Some seem quite taken, but a greater number appear to think (more than a tad unfairly in my opinion) that the guts of our model amount to little more than 'find yourself sitting on top of lots of stuff you can dig up and sell to China' and hence that its not an easily replicable approach.

Photo by Flickr user anja_johnson, used under a Creative Commons license.