Bear Stearns, the merchant bank that disappeared in a puff of smoke yesterday, had been a Wall Street pillar for eighty-five years. The world of finance is in shock. A profit machine whose shares were worth one hundred seventy dollars a year ago went under in a crisis that eventually forced the Federal Reserve to step in to avoid a market crash. What is left of Bear Stearns now belongs to JP Morgan, which paid two dollars each for shares that only a week ago changed hands for seventy. With America in recession, Wall Street on the ropes, and Washington launching plans to stabilize the economy at the taxpayer’s expense, you might be tempted to view the United States’ problems as the crisis of globalized capitalism.
Some hold that it is now time for us to re-examine the role of the state and protect Italian businesses – as proposed by Giulio Tremonti in a recent book – from Asian competitors who have become rather too aggressive. The eve of major elections is probably the least appropriate moment to serenely analyze phenomena that are shifting society’s equilibria and the power relations that hold together the world’s various zones. This is as true of Italy as it is of America, where Barack Obama and Hillary Clinton are falling back on the protectionist rhetoric that is as much a vote-grabber as it is at odds with their political track record. Election campaign or no election campaign, we have to be careful not to confuse the American crisis, which has its origins in the grotesque version of free trade applied by some of the country’s more hamfisted, hyper-ideological leaders, with a failure of the liberal economic model. The Bush presidency’s years have been a time of decline in administrative skills for central government, and of the dogmatic application of deregulation, which has swept aside the controls that are necessary for the market economy’s healthy development.
The subprime disaster – which saw loans mushroom as the regulating authorities looked on from the sidelines, despite their awareness of the perils – is the most visible manifestation of this era of irresponsibility, but certainly not the only one. Examples of the Bush era’s inappropriate or erroneous application of economic deregulation are legion. Take the privatization of the war in Iraq. Tens of thousands of contract workers were called in to manage logistics, security, and even the interrogation of prisoners while costs shot up instead of shrinking. Where does the market come into it when a soldier’s job is being done by a private contractor – generally another soldier, recently recycled as a civilian – who is paid ten times as much and didn’t even tender for the contract? Ronald Reagan, a president sorely missed by all good Republicans, may have induced an ideological sea change, albeit by stretching one or two points, but he did at least govern pragmatically.
His deregulation of the skies, which in any case began under Carter, stimulated America’s air transport into extraordinary progress. But with the awkward sham deregulation of recent years, which has seen up to one hundred thirty departures an hour authorized at terminals barely able to cope with a hundred, we are facing chaos in the country’s airports. When necessary, the pragmatic President Reagan did not hesitate to renege his philosophy by introducing curbs on imports of automobiles, steel, textiles, and sugar. Of course, those were other times. Since then, technology even more than the political decision to open up the markets has made globalization a phenomenon that we can attempt to harness, but no longer ignore. This is as true of America as it is of Italy. The difference is that for decades the Americans enjoyed the benefits of privatization before they suffered the consequences of its excesses whereas in Italy, the process never even began.
America is still a benchmark for meritocratic, innovation-capable societies. It should not inspire demands for “more government,” even should this wounded country attempt to put together a new New Deal. We should not forget that in the United States the proportion of the economy covered by public spending, whether federal or local, is more than one third less than in Italy, even though Americans spend twice as much as Europe (in terms of GDP) for defense and internal security. Italy is less exposed to globalization-driven outsourcing, which in America extends into the professions and services, and also has a much higher level of social spending. We should be worrying about other things. While we are busy speculating about “welfare-state America,” we might find that the market has taken its revenge, from Detroit to California. Thanks to the mini-dollar, an America on the brink of a financial abyss could well become the new Shangri-La of low-cost, high-quality manufacturing.