Two Crises and a Historical Turning Point

The American market and the global economy will recover from the crisis, but it is difficult to suppose that we will soon again see unrestrained and crushing capitalism in the form we have known for the past two decades.

In the summer and fall of 2008 two ostensibly unconnected crises occured: the war between Russia and Georgia and the most serious global financial crisis since 1929. They both surprised all the observers, politicians and economists alike, each occuring in a different arena and out of separate dynamics. There was also no reason that they should both have taken place almost at the same time.

But despite the differing character of the two crises, they are both turning points and both smashed accepted conventions, which seemed to be incontrovertible in international political, economic and intellectual discourse.

Even if Fukuyama's "end of history" theory was the most extreme expression of this system of incontrovertible truths, in both the political and the economic realms there had been almost complete agreement that the world had finally found its internal point of balance. Extreme Islamic terror, the war in Iraq and the conflict in the Middle East were disrupting this picture somewhat, but in broad strokes it seemed that the heads of state and the global economy knew what they were doing and where they were going. It turned out that in both these areas, the attitude was utopian and naive.

In the political realm the collapse of communism seemed to have led to the end of the ideological struggle that had characterized the 20th century. After the fall of fascism, now the second type of totalitarian regime, Soviet communism, had crumbled; the way was now open for the universal dissemination of democratic ideas encapsulating Kant's vision of peace, since democratic countries do not make war on each other. And if there were countries, as in the Arab world, who had not yet taken this high road, they should be directed to it; if necessary, perhaps also by force.

It turns out that Soviet ideology has indeed disappeared, but the Russian state - a historical power that in no small way has determined the fate of Europe since the Napoleonic wars - has not disappeared. After a period of weakness Russia has revived, combining a neo-authoritarian regime internally and the radiating power and its use externally.

It also turns out that the world does not have one superpower existing in the shadow of pax americana, and the foundations of competition between powers has not disappeared. National and ethnic conflicts, which it seemed might still exist in the Balkans or, mercy upon us, in the Middle East, have once again become a pretext for real wars. The 21st century has begun to look a bit more like the 19th.

Something similar has also happened in the economic realm. The break-up of the Soviet Union served as proof of the superiority of the principle of the market economy, and the American ideologues of the fundamentalism of the unbridled market (and all those who imitated them the world over), saw the collapse of the Soviet economy as an excuse to goad any social-democratic ideology. This was so because the Chicago school saw in every government intervention in market processes a blow to the automatic mechanism of the "invisible hand" that knows how to balance and rein in market fluctuations: Give the economy a free hand, and welfare and prosperity will always follow.

The fact that even the People's Republic of China, which remained a single-party dictatorship ostensibly championing communism, adopted the market economy also served as clear proof of the superiority of the unfettered capitalist model. But although Western social-democracy was one of the pillars of the struggle against Soviet communism, the break-up of the Soviet Union also hit the moderate left hard in the democratic world.

Then the present crisis came and proved that if market forces are left to operate without restraint, the result will be global catastrophe. At the same time it became clear that globalization, the phenomenon that Tom Friedman so picturesquely called "the world is flat" - is not just a recipe for growth and prosperity but also a pipeline that quickly and limitlessly channels one economic crisis to another and acts like a deadly universal virus.

The best example of the devastating outcome of globalization is the fact that municipal pension plans and British police departments lost all their money when the Icelandic bank in which their money was deposited went under.

And then came the wake-up call. The Bush administration, not the North Korean government, is trying to stabilize the market, not by channeling money to banks in distress, but by imposing nationalization (partial, albeit, but compelled) on the nine big banks - to ensure people's deposits and prevent massive bankruptcy. Could anyone have imagined that the Bush administration would compel the nationalization of banks? Welcome to the world of Keynes and the welfare state, in which the state - and not the market - is the guarantor of citizens' welfare.

We are not going back to the Cold War, but we are going back to classic competition between powers, in which realpolitik and balance-of-power control the heights. The American market and the global economy will recover from the crisis, but it is difficult to suppose that we will soon again see unrestrained and crushing capitalism in the form we have known for the past two decades. No, history does not repeat itself; it only continues along its circuitous paths.