The great reckoning

We live, we are told, in a new world on which old theories have no purchase. Globalisation is dissolving national frontiers and nation states. Industrial processes are post-Fordist, mentalities are post-modern and societies are multicultural. Jobs for life have disappeared; the working class has been hollowed out; the labour force has been feminised; the family has been transformed; and old elites have been toppled. The collectivism of the past has been replaced by a new individualism, and the social democracy of the postwar period has become unworkable.

To this eager chorus there is only one sensible response: "Up to a point, Lord Copper." Of course, we live in a new world: each new generation lives in a world new to it. John Donne famously complained that "the new philosophy calls all in doubt." De Tocqueville called for a "new science" to explain the novelties of the 19th century. Plato, Hobbes and Burke, the great philosophers of conservatism, wrote in reaction to the flux and insecurity of revolutionary change. It is true that the world of the 1990s differs from that of the Keynesian golden age which is still the unconscious reference point for most people over 35. But it is not true that the golden age was in some sense the norm, from which our own age is an extraordinary and unprecedented aberration. On the contrary, the age of Keynes, Beveridge, Bretton Woods and the sunlit uplands to which they pointed was the aberration. As all these books remind us, the norm is what has followed since-and what went before.

The heaving, masterless, global economy of the 1990s differs from its benign and stable predecessor of the 1950s and 1960s, but it has a great deal in common with that of the 19th century and something in common with that of the interwar period. Keynes may be dead, but Marx and Malthus have had a new lease of life. The tamed welfare capitalism that Keynes helped to create may have vanished, but the untamed capitalism of today is reminiscent of much earlier phases in the creature's life cycle.



This applies most obviously to the deflationary bias that now bears down on economic activity through all the peaks and troughs of the business cycle. The fundamental Keynesian (and Marxist) paradox of under-utilised resources in the midst of unsatisfied needs has returned. So has that old faithful of Marxian wage theory, the "industrial reserve army" of the unemployed. In Britain and the US, where capitalism's untaming has gone furthest, two other half-forgotten props of Marxist eschatology-the immiseration of the proletariat and the proletarianisation of the lower bourgeoisie-have returned, too. One of the central themes of the golden age was "embourgeoisement": the spread to the working class of the job security, career ladders and lifestyles which had formerly been the prerogatives of the middle class. Now the engines have gone into reverse. If the emblematic figure of the 1960s was the affluent worker, today's are the redundant middle manager and the anti-social inner city youth.

As Paul Hirst and Grahame Thompson brilliantly demonstrate, today's globalisation is also the return to a status quo ante. Indeed, the world economy of the late 19th century was more "global" than ours. Borders were more open to migration; capital flows in relation to GDP were greater; the gold standard imposed tighter constraints on national economic autonomy than does the exchange rate regime of today. The trade barriers and competitive devaluations of the interwar years-the horror story which Bretton Woods was designed to end-were a response to the breakdown of the late 19th century order. The global economy of 100 years ago was unsustainable.

Hirst and Thompson suggest that globalisation as rhetoric is a more urgent topic than globalisation as fact. We may or may not be moving towards a truly global economy. Hirst and Thompson are sceptical, but that is partly because they have adopted a rather restrictive definition of what a truly global economy would be like. But even if we are moving towards it, we are not there yet; and just because current trends are carrying us in that direction, it does not mean we are bound to get there in the end. The rhetoric of globalisation, on the other hand, already resounds from every rooftop. Why deregulation? To survive the pressures of global competition. Why low taxes and impoverished public services? Because the globalisation of financial markets rules out tax increases. Why falling real wages and dwindling social protection? Because our unskilled workers now have to compete with millions of hungry Asiatics, happy to work for even less.

As all these examples imply, the rhetoric is a powerful weapon in the intellectual armoury of the new right. To the extent that the neo-liberal world view of the 1980s still enjoys hegemony (and the silences of the Clinton administration in the US and the New Labour leadership in Britain suggest that it enjoys at least a vestigial one), it does so by courtesy of globalisation as rhetoric. The new global markets may be cruel, the rhetoricians insist, but their pressures are unstoppable. In any case, it is in our long term interests to let them prevail. A rising tide floats all ships; imports breed exports; provided it is allowed to work freely, the global marketplace will eventually bring prosperity to us all. This was precisely the message of the globalisers of the 19th century. Then, too, the global marketplace was supposed to be governed by iron laws. Politics was assumed to be subject to economics, nation states to market forces. Suggestions that it might be necessary to interfere with the workings of the global market to safeguard prized social values were condemned as self-destructive folly. We have, in short, been here before.

This is where Karl Polanyi's half-forgotten masterpiece of 50 years ago, The Great Transformation, enters the argument. It speaks even more loudly to the 1990s than it did to the 1940s, when it was published. It tells the story of a double paradox. For Polanyi, the self-regulating free market of the early 19th century, entailing the commodification of land and labour, was a "utopia." It was unrealisable, because land and labour are not in fact commodities like any other. It was also unnatural. It was not a spontaneous product of unfettered human instinct, as its apologists claimed. On the contrary: massive state interventions, pushed through by a ruthless and centralised bureaucracy, were needed to uproot the old value system that impeded it. This did not produce a market utopia. But the attempt was a social and cultural disaster, provoking, in the end, an instinctive, unplanned reaction against it. According to Polanyi, the real essence of 19th century history lay in this double movement-state-imposed market utopianism, followed by a spontaneous countervailing reaction later. As he put it himself:

The road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism. To make Adam Smith's "simple and natural liberty" compatible with the needs of a human society was a most complicated affair. Witness the complexity of the provisions in the innumerable enclosure laws; the amount of bureaucratic control involved in the administration of the New Poor Laws; [...] This paradox was topped by another. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not [...].

The second, "unplanned" countervailing movement affected the global dimension of the free market utopia as well as its domestic one. Like today's globalisation theorists, Marxists and liberals alike assumed that the market order would expand inexorably until it embraced the entire human race, establishing a worldwide division of labour and a worldwide self-regulating system. As Marx and Engels put it in the Communist Manifesto, the bourgeois mode of production was battering down the "Chinese walls" of national self-sufficiency. Liberals echoed the thought. Free trade was so obviously in everyone's interests that everyone would embrace it. The resultant global market would bind all nations together in an unbreakable embrace.

This, of course, is a good description of what did not happen. Politics turned out to be more potent than economics; specific, "thick" cultural traditions proved stronger than the "thin" universalities of market economics. Friedrich List, the apostle of German economic nationalism, was a better prophet than Marx or Adam Smith. The Germans, the Japanese, the French, even the Americans of that era did not want their societies to be remade in the image of Engels's Manchester or Dickens's Coketown. Still less did they want their economic destinies to be controlled by a hegemonic Britain, acting as the agent for supposedly impersonal economic laws which turned out to benefit the British more than anyone else. They took from the free market paradigm what they wanted and rejected the rest. Late 19th century globalism, though extensive, was incomplete; it was incomplete because the rising economic powers of the day refused to let it be completed. The universal interdependence of nations did not arrive; the Chinese walls of national specificity remained intact. They shaped the emergent market economy in their own differentiated images, producing the complex world of multiple capitalisms which we still inhabit.

These multiple capitalisms provide the subject matter of Harold Perkin's path-breaking study of the contrasts and similarities between the managerial elites of the US, Britain, France, Germany, Japan, the former GDR and the former Soviet Union. It stands on its own, but the organising concepts are drawn from two earlier studies, with which Perkin made his name. The first examined the struggle for supremacy between the three "social ideals" of industrial revolution Britain-the "entrepreneurial ideal" of the owner managers, the "working class ideal" of the proletariat and the "aristocratic ideal" of the landed elite-and told the story of how the first defeated the other two. The second traced the rise and eventual ascendancy of an alternative "professional ideal," furthering the claims of a distinct professional class, whose income and power derived from expertise, or human capital, rather than from ownership or entrepreneurship. The Third Revolution completes the canon. In it Perkin uses the notions of professional society, professional expertise and a professional class as prisms through which he examines the varied fortunes of capitalist economies and their most significant erstwhile communist rivals.

It is a rich and subtle book, but the central thesis is simple enough. The "third revolution" of the title is the revolution of the professionals. It is as momentous in its implications as the neolithic revolution which transformed our ancestors from hunter-gatherers into agriculturalists, and the industrial revolution itself. The technological innovations it has brought in its train have produced enormous increases in productivity and wealth. But professional societies, like all societies, are vulnerable to internal contradictions.

Like their predecessors, the landed aristocracy and the capitalist bourgeoisie, the professional elites that control them may be tempted to divert an excessive share of the social product to themselves. If they succumb to temptation, they risk destroying the moral mainspring of their society and bringing it down around their ears. That is what happened to the Soviet nomenklatura. Once the fires of communist ideology had burned low, it became a kind of Mafia, frivolously sacrificing the future to the present. In the end, the system imploded. But western triumphalism is misplaced. On present trends, the over-rewarded and socially irresponsible corporate elites of the US and Britain are threatened by the same fate. The reasons hark back to Perkin's earlier books. The first is that US and British capitalism has been shaped by a conception of absolute property rights unique to the English-speaking world, the origins of which can be traced back to the dawn of modern capitalism in the 17th and 18th centuries. The second is that the corporate elites of present-day America and Britain have bamboozled their societies-and even themselves-into accepting a new version of the entrepreneurial ideal developed in the utterly different circumstances of the industrial revolution.

The result is that the corporate elites of the US and Britain sit on top of mighty agglomerations of irresponsible power. They are able to grab an unfair share of the productivity gains created by modern technology because they are under no obligation to respect the claims of others with stakes in the organisations they control. The elites of the stakeholder economies of Japan and continental Europe behave more responsibly, not because they are composed of morally superior people-Perkin is well aware of the corruption endemic in the Japanese elite, for example-but because convention or explicit rules oblige them to share power with other interests. And these conventions and rules are part of economic cultures to which absolute property rights and the entrepreneurial ideal of early capitalism are both alien.

The recent history, current state and future prospects of Britain's political economy should be seen against this background. Part of the explanation for the stubborn longevity of the new right's hegemony, and for the left's failure to construct a coherent project of its own, lies in the widespread view that the "Thatcher revolution" was a vehicle for modernisation: that, with all its excesses, it liberated the new and adventurous from the old and backward looking; and that the left should therefore build on it instead of challenging its legacy head-on. In a Polanyian or Perkinian perspective, this interpretation is eccentric to the point of perversity. There was no Thatcher revolution, only a counter-revolution. The real achievement of the Thatcherites was to re-invent the market utopianism of the early 19th century; and, like their early 19th century predecessors, they imposed it on society with the aid of a ruthlessly interventionist and highly bureaucratic state.

That is only the beginning of the story. In a Polanyian-Perkinian perspective, the great work of Victorian Britain was to mark out a distinct public domain, governed by the service ethic of Perkin's professional class, and to ring-fence it from the market domain. That was how Polanyi's countermovement against market utopianism manifested itself, and what "Victorian values" and Gladstonian liberalism were all about. If ever there was a victory for modernisation in British history, that was it. Its monuments included the creation of a professional civil service recruited by meritocratic public examination; the abolition of the sale of commissions in the army; the reform of Oxford and Cambridge; the secret ballot; a public accounts committee to ensure propriety in the disbursement of public money; and, above all, the emergence of a regulatory state with the capacity to discipline market power in the public interest.

The modernisers' victory was, of course, incomplete. Though Britain was the first professional society in history (just as she had been the first industrial society), she never became a fully professional one. That is why she failed to develop a stakeholder economy on German or Japanese lines. That, in turn, is why Thatcher got her moment of opportunity when Britain's only half-modernised political economy plunged into crisis in the 1970s.

Still, Victorian modernisation did achieve a partial victory; and it was that partial victory which the new right's centralisation, marketisation and privatisation were designed to undo. Its project was utopian in the sense that the laissez-faire project of the early 19th century was utopian. If anything, it was more so. Its architects sought to remake a complex, late 20th century society and economy in the image of the entrepreneurial ideal of early 19th century owner-managers who had long since given way to organised, bureaucratic modern corporations. Inevitably, they failed. But the damage they inflicted on society-growing inequality; a swelling underclass; crippled intermediate institutions; a public domain twisted out of shape by market values; an official rhetoric that denigrates the service ethic and exalts self-interest; an intermeshing of political and market power akin to the "old corruption" of the early 19th century-is a milder version of the damage inflicted by the market utopianism of 150 years ago. We have not returned to the capitalism of Hard Times and The Condition of the Working Class in England in 1844; the institutions created during Polanyi's long countermovement against market utopianism are too strong for that. But we have got much closer to it than anyone would have thought possible 20 years ago.

One implication is that we have more to learn from the wisdom of the past than the fashionable amnesia implies. This gives a special resonance to the ten-volume collection of classic mixed economy texts, Theories of the Mixed Economy, republished by Pickering & Chatto, edited by David Reisman. Many of the detailed arguments and policy recommendations are necessarily time-bound. Taken as a whole, however, the collection blows through the historyless theorising of our time like a gale of fresh air. It shows that the institutions of the postwar golden age were supported by an authentic social-democratic tradition, distinct from both Marxist socialism and economic liberalism. It also shows that the contemporary left forgets that tradition at its peril.

Three of its themes, in particular, need rephrasing in a modern idiom. The simplest and most obvious is the theme of market failure. The capitalist free market, said the intellectual progenitors of the mixed economy, does not-cannot-function as its apologists say it does. Markets fail; and their failures are systemic. They have to be supplemented and regulated; and the only body that can do that is the democratic state. The second is the theme of democracy. Democratic self-government and the capitalist free market are not blood brothers, as western shock therapists proclaimed after the fall of communism. As Hayek knew well, the capitalist free market cannot work properly in a mass democracy. Either democracy has to be tamed for the sake of the market, or the market has to be tamed for the sake of democracy. That leads on to the third theme-that of redistribution and common citizenship. For the theorists of the mixed economy, injustice and exclusion were not accidental blemishes on particular market economies: they were inherent in the capitalist free market as such. It followed that, without redistribution, common citizenship was impossible.

Linking these themes together is a common thread. Unlike Marxist socialists, the theorists of the mixed economy did not want to suppress the market. They wanted to tame it. That is still the task; and it is even more urgent today. Some of the implications of the Polanyian perspective are more sombre than I have suggested so far. The 1980s and early 1990s were a replay of the early 19th century, and a Polanyiesque countermovement is inevitable. Society cannot indefinitely tolerate alienation, social fragmentation and insecurity on the present scale. It is bound to search for ways to protect itself. The only questions are, from whom will the protection come, and what form will it take?

The leading candidate at present is more or less authoritarian, more or less populist, more or less fundamentalist xenophobia-the cohesion of the tribe or sect. The former communist bloc is rich in examples, but it would be self-deception to imagine that Bosnian Serbs, Russian nationalists and Chechen separatists have no western equivalents. Jewish fundamentalists in Brooklyn, Muslim fundamentalists in Bradford and Protestant fundamentalists in the American bible belt belong to the same family. So does Pat Buchanan and so, in a somewhat different vein, does Newt Gingrich. In Britain, Michael Portillo and John Redwood appeal to the same emotions. So does Le Pen in France, and so do the neo-Fascists and the Lombard League in Italy. A milder version of the same phenomenon is the fascination with the east Asian "little tigers" displayed by growing numbers of British politicians.

Unlike their predecessors in the 1930s, however, the tribalisms of the 1990s are not always dirigiste in economics. Sometimes, they combine authoritarian xenophobia with market fundamentalism. This is intellectually incoherent. A frenzied insistence on national sovereignty in the political sphere and on traditional values in the social sphere cannot go hand in hand with an equally frenzied insistence on the sovereignty of the market in the economic sphere. But that is not the point. We are dealing with the politics of the gut, not with those of the head: with a desperate yearning for stability, identity and security which will become all the more desperate the longer it is left unsatisfied. Against that background, the intellectual incoherence evident in the combination of authoritarian nationalism and market fundamentalism is neither here nor there. It is psychically coherent; that is all that matters. In any case, a countermovement that starts by trying to combine incompatibles may not continue in the same way. Despite the scorn of dogmatic free traders, Pat Buchanan's mixture of xenophobia and protectionism was intellectually coherent; and if our societies continue to fragment-as they will if free trade dogma continues to prevail-a lurch into Buchananism, on both sides of the Atlantic, is more probable than not.

Can the left trump the new tribalism with a tolerant, outward looking alternative? Can it give the inevitable countermovement against market utopianism a liberal, pluralistic, social-democratic form? Can it teach society how to protect itself from fragmentation without turning to a modern version of the man on a white horse? These will soon be the central questions in the politics of all western countries. Plainly, there are no certain answers. One point, however, is surely clear. As Robert Skidelsky hinted in a Prospect essay last January, economic and political liberalism no longer live together. Globally and nationally, we shall sooner or later have to choose between the free market and the free society. Globalization in question, paul hirst and grahame thompson Polity Press ?12.95

The Great Transformation, The Political and Economic Origins of Our Time, Karl Polanyi Beacon Press $16

The third revolution: professional elites in the modern world, Harold Perkin Routledge ?14.99 paperback

Theories of the Mixed Economy, David Reisman (ed) Pickering & Chatto Publishers ?595 (ten volumes)