Faith in free markets is a secular religion that overlooks culture

THE BALTIMORE SUN

PARIS -- Last month Alan Greenspan, chairman of the Federal Reserve, gave a striking talk to a Woodrow Wilson Scholars' Center audience, describing the cultural factors at work in economic behavior, speaking in particular of their influence on the Russian economy since the Soviet system collapsed.

What was noteworthy about this speech was that Mr. Greenspan found the notion that cultural factors are an important force in the economy a novel idea.

Mr. Greenspan is not a foolish man, and if this idea was a new idea to him, that surely is evidence of a huge and crucial professional deformation among Western economists, too often educated to ignore all but a narrow range of materially or mathematically defined factors in an economy's functioning.

How many high policymakers in the West, and Western advisors to the Russian and other ex-Communist governments following 1989, have been the victims of the illusion that dismantling Communism would "automatically establish a free market entrepreneurial system" an idea in which Mr. Greenspan himself believed?

In contrast, one might ask how many ordinary businessmen who had dealt with the U.S.S.R., or how many political specialists or journalists who actually knew the Soviet Union and how the Communist system had functioned there over the previous forty years, believed such a thing? Not many, I should think.

Mr. Greenspan said that after 1989 he, or "we," as he put it, discovered that "much of what we took for granted in our free market system and assumed to be human nature was not nature at all, but culture. The dismantling of the central planning function in an economy does not, as some had supposed, automatically establish" market capitalism.

It explains a lot about what has happened to the ex-Communist world since 1989 that men and women with the influence of Mr. Greenspan, occupying posts of great power, should have held so egregiously naive, or historically and culturally "deaf," a belief as did Mr. Greenspan.

It also demonstrates the degree to which the conception of market economics today has turned into an ideology, which is to say into a belief-system detached from the empirical or scientific observations with which it originated, so as to become to use the definition of ideology put forward by Raymond Aron, Daniel Bell, and others in the 1950s a "secular religion."

It has become a political as well as economic religion, the dominant one today in much of the industrial West. Certainly it is dominant in the United States, where both conservative Republicans and Clinton liberals avow that markets and democracy are not only indissolubly interlinked, but a fundamental expression of human nature itself. This is, of course, a version of the Liberal Illusion, even though so-called conservatives believe it the illusion of mankind's essential innocence and natural virtue.

Surely it should be self-evident that culture has a deep influence on economic conduct, both in practical and intellectual ways. If there is no established culture of law and obedience to law, system of contracts, network of conventional behavior concerning the conduct of business, or history of sophisticated commerce, there will be no "automatically established free-market entrepreneurial system."

Poland, Hungary, and the Czech Republic have made successful transitions from Communism because all were relatively sophisticated industrial or commercial societies before Communism was imposed on them at the end of the 1940s. Freed of Communism, they knew how to become capitalists again.

In Russia, only the beginnings of a modern economy had existed in Saint Petersburg and Moscow when the Bolshevik Revolution took place. That not only was 80 years ago, but those involved in that economy were mostly subsequently murdered.

Russians for decades afterwards were taught that property is theft, capitalism is exploitation, and individual wealth is not "earned" but stolen. This has had a lasting influence on how people think today. It was natural that Russian capitalism after 1989 evolved toward what its new practitioners had been taught to believe it had to become.

Before the Communists took power, much of Eastern Europe's as well as China's commerce and industry rested on family alliances, patronage, government favoritism, and clientelism. This was the "oriental" commercial system of the Ottoman Empire, as well as that of much of the Far East. That is what it has tended to become again.

All of this will change over time, but not because human nature is spontaneously capitalistic (or "American" as Americans have always been inclined to assume). It will change because the external system with which it is forced to interact will demand change.

Foreign business will demand enforceable contracts and transparent financing, and will resist doing business with Mafia-controlled enterprises.

Foreign banks and international institutions will not finance unverifiable borrowers and will resist handling funds whose origins are suspect.

An evolutionary change is under way which is also an educational experience for the ex-Communist societies. It is an exercise in pragmatic change. It contrasts, obviously, with the Communist world's ideological beliefs of the past, but also with the Western inclination today to make market economics a new secular religion.

William Pfaff is a syndicated columnist

Pub Date: 7/14/97

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