Free Market Blues, 20 Years On

Some news, in case you missed it (unlikely, given the current wave of anniversary fever): the Berlin Wall came down 20 years ago, triggering the collapse of communist governments across Eastern Europe, the disintegration of the Soviet Union and prompting American political philosopher Francis Fukuyama to announce the ‘end of history’. Liberal democracy – and economic liberalism – had triumphed everywhere and ‘mankind’s ideological evolution’ was at an end.

What with the rise of Islamic fundamentalism and 9/11, Fukuyama’s verdict on liberal democracy has been looking rather premature for a while now. But when it came to the economics, to capitalism and the free market – surely Fukuyama had it right there, didn’t he? It’s a question we’ve been exploring in our latest global polling for BBC World Service.

The popular verdict on capitalism, it turns out, is pretty lukewarm. Across the 27 countries we polled, we found little unalloyed enthusiasm for the free market system – an average of just 11% said they thought it worked well and did not need further regulation. A bare majority felt that capitalism had problems that could be addressed by regulation or reform (51%). And nearly a quarter (23%) – felt that capitalism was ‘fatally flawed’.

At the same time, the numbers telling us they see free enterprise as the best system on which to base the future of the world have been drifting down. 54% feel that way now, compared to 63% when we started tracking in 2002.Trust in global companies, meanwhile, continues to decline.

In view of these misgivings, then, why is it that the fall of the big banks last year doesn’t really look likely to rival the Berlin Wall collapse in terms of its long term impact on our economic beliefs? Maybe it’s because there still isn’t really an established alternative model to free market capitalism – Hugo Chavez notwithstanding - for public opinion to rally around. And our increased scepticism of political leaders means that such a new system might find it hard to establish itself. But if Fukuyama was right, and capitalism has won, it looks these days rather like a victory by default.

Consumer Confidence - Has Asia's Economic Sprint Resumed?

There has been much talk of the economic upheaval of the last year as a ‘global’ crisis. And with emergency meetings of the G20 called to address a critical loss of confidence in the banking sector as well as global capital flows still a fraction of what they were, that has seemed like a fair assessment. But perhaps we need to reconsider that ‘global’ tag.

In much of Asia, the recession is looking more and more like a short pause for breath in an economic sprint that’s still ongoing. China’s Statistics Bureau announced at the end of last week that the country’s GDP in the third quarter of 2009 was 8.9% up on the same period last year. Indonesia’s economy is expected to grow at 4% this year – not at all shabby. Compare this to economies in North America and Europe, where if things look a little less bleak than they once did, the return to economic growth is slow and shaky, and a lapse back into recession well within the bounds of possibility. And in some major economies - notably here in the UK, where figures last week showed the economy continuing to contract in the third quarter, it’s far from clear that the recovery has got going at all.

This picture is amply borne out by our International Consumer Sentiment Index - the first in what we hope will be an annual study of consumer confidence across the world. We’ve taken the same approach that academics at the University of Michigan have adopted in monitoring US consumer confidence for more than fifty years, asking people across 22 countries to assess how their finances compare to this time last year, how they expect them to change in the next year, what they think will happen to their country’s economy over the next year and the next five years, and whether they think now is a good time to make major household purchases.

Chinese consumers emerge as the most confident by a long way, with an index score of 113.5, with Indonesians second, recording a score of 100.6. Americans were at only 71.9, and the terminally gloomy Japanese at only 45.1. To put it in some historical context, the highest level of US consumer confidence recorded over recent years was at the height of the dotcom bubble in February 2000, when 111.3 was recorded, while the lowest was in May 1980 as the energy crisis and impending recession started to bite. With two-thirds of Chinese expecting to be richer in a year’s time, perhaps it’s no surprise their economy is booming again – as we know, confidence is central to any economic recovery. And maybe the much-anticipated changing of the economic guard, with the US giving way to China as the motor of growth, is starting to happen sooner than we thought?

A Boost for Big Government

It’s a year today since Lehman Brothers went bankrupt, and we’ve been busy over the summer gauging the effect of a year of market crunch - and government splurge - on global public opinion.

As billions of dollars of state spending has poured into national economies over the last year in a frantic attempt to shore up the financial system and stop recession turning into depression, it’s become increasingly apparent that reports of the death of government as a serious economic player - a fashionable idea in early 2007 - were, as they say, somewhat exaggerated. Big government is back.

The seeds of the financial meltdown were, no doubt, sown over many years. But it’s worth remembering that the situation deteriorated so rapidly last autumn that governments in the major economies by and large didn’t have the time to consult their electorates about the handbrake turn in macro-economic policy that they undertook at the end of last year. The rediscovery of big government has largely done so without the endorsement of voters.

So, what’s the belated verdict? Positive, it appears. Our latest global poll for BBC World Service shows that, by and large, citizens around the world approve of governments attempting to stimulate their national economy in response to the recession - majorities in 13 of the 20 countries we polled supported a significant increase in government spending. Fully two-thirds want to see an increase in government stimulation and oversight of their economy - including nearly half of Americans, who are usually among the most suspicious of government overreach. Supporting troubled industries is also popular; bailing out banks less so. And the unprecedented stimulus package at the heart of the US response seems to have won plaudits, with 46% approving of the US’s approach so far.

But what is also apparent is that while people seem to feel the stimulus was needed in response to the crisis, it won’t in itself be enough in the longer term. One of the most striking findings is the very strong support for government investments in renewable energy and green technology, backed by nearly three-quarters. People seem to be looking for a different model. And they continue to feel that the benefits and burdens of the boom years haven’t been shared fairly. The crisis may have passed, but this appears to be a reminder that big governments need to lead, as well as spend.

A New Economy? Looks Suspiciously Like The Old One

Is a 'new', more sustainable economic model in prospect as the world attempts to pull itself out of recession? That's the question we posed at the latest of our regular 'salon' discussion evenings last night. We had distinguished speakers from Philips (Josephine Green), the BBC (Andrew Walker) and Sally Jeanrenaud of the International Union for the Conservation of Nature, and a diverse audience drawn from across the corporate and NGO world.

The discussion was certainly fizzing with ideas, but on the whole, the consensus was pretty downbeat - no, a new economic model was not around the corner. Many seemed to feel that the impressive rhetoric of government leaders about committing large sums of money to a low-carbon and sustainable economy is very far from being realised. And as far as reforming the wild excesses of global capitalism was - one panellist commented that he fully expected to see the economic high-rollers back at the gambling tables of the world's financial markets within a couple of years - even if perhaps with not quite as many chips as they had before the crash.

A number of hypotheses were floated - was a testosterone-driven, 'fight or flight' mentality in the upper echelons of business, finance and government to blame for the crisis? Are we suffering from the dominance of an orthodoxy that believes that a boom will always follow a bust, no matter how severe? Or is the main problem a lack of effective structures for international policymaking, and a political short-termism that's hard-wired into most of our modern democracies? There was no shortage of diagnoses, but optimism that a cure could be found was lacking.

But if it is indeed to be back to business as usual - for now - it's in the teeth of mounting unhappiness from the global public. Our latest data shows that support for both globalisation and the free market economy continues to erode. But in the absence of a clearly articulated alternative model for organising the world, what chance is there of real reform taking place?

Those looking for a silver lining have to search hard. We did find that the proportions believing that their children and grandchildren will have a better quality of life has increased, just a little. But before things get better, our salon felt they might be about to get a whole lot worse...