Date created:12 February 2001 Last modified: 12 February 2001 Maintained by: John Quiggin John Quiggin
23 November 2000
The chaotic outcome of the United States election has inspired a worldwide burst of schadenfreude at the discomfiture of 'the essential nation'. From Europeans chafing at American economic triumphalism to Third World recipients of lectures on the imperfections of their partially democratic systems, commentators of all stripes have taken the opportunity to get a bit of their own back..
In the absence of obvious differences between George Bush Jr and Al Gore Jr, the fact that the leadership of the world's most powerful country may turn on the distinction between 'dimpled chads' and 'pregnant chads' has been a cause for more merriment than concern. Defenders of the US system have been reduced to protestations that things are far worse in Haiti and Sierra Leone.
The dish has been sweetened by the simultaneous collapse of the dotcom sector, where the shakeout in progress since April has become a fully-fledged meltdown, with multiple failures and hundreds of layoffs being announced every day. Fear at the prospect that American first movers will own the 'new economy' is changing into relief that the damage in Europe, Australia and Asia will be limited to a writedown of investments in the US and the obliteration of the comparative handful of indigenous dotcoms.
Yet when all the fuss has died down, the United States will still have the world's richest economy, and most Americans will still enjoy high material living standards. America will still be the world's dominant technological, economic and military, power. This outcome has been achieved even though, as we have seen, the US has one of the least efficient systems of government in the developed world.
What should we make of this fact? Defenders of the US take two, mutually contradictory, lines. The first is that, despite all appearances, the American electoral system, with its bizarre variety of local procedures, arcane Electoral Colleges and massive advertising expenditure, truly represents the divinely-inspired wisdom of the Founding Fathers. The second is that, although the political system is as inefficient as it appears to be, or even worse, the dynamism of a free economy more than compensates for the dead weight of government.
To get a more accurate perspective it is useful to look at Japan which, ten years ago, was touted as the ruling power of the 21st century. Japan's great strength was, and is, the possession of the world's most efficient manufacturing sector. The dominance of Japanese manufacturers in world markets led many to downplay the gross inefficiency of Japanese agriculture and retail trade, and to put a favourable spin on the systemic corruption of the financial system.
The Japanese recession of the 1990s turned this sentiment around. But nothing is more fickle than international economic fashion. It wasn't that long ago that New Zealand was being hailed as a miracle economy. Some time in the next few years, no doubt, Japan will be booming while the US struggles to escape from recession. Japan's problems will be forgotten while the malaise of American governance will be the focus of attention.
A more realistic assessment is that no unambiguous ranking of the economies of the developed world can be sustained for any length of time. No one country can be best at everything, or needs to be.
In part, this is an illustration of what economists call, rather obscurely, 'the envelope theorem'. The core of the theorem is that, supposing we could identify a uniquely optimal set of social arrangements, it is possible to allow quite large deviations from those arrangements with only a small reduction in welfare.
A more fundamental point is that wealthy societies can afford a wide range of choices. Americans can afford a political system with an inefficiently high degree of local autonomy. Japanese can afford Mom-and-Pop retail stores and pocket-handkerchief farms. Europeans can afford lengthy annual holidays and egalitarian social welfare systems.
We in Australia are similarly free to choose our own path. We can choose to have higher incomes, as in the United States, or more leisure, as in Europe. We can choose between better public services and lower taxes. We can choose to push ahead with high-pressure microeconomic reform, or we can be, in John Howard's memorable words 'relaxed and comfortable'.
The great illusion of the policy debate over the past two decades has been the Thatcherite claim that, in a globalised world,''there is no alternative', to free-market neoliberalism. On the contrary, we make our own choices and must live with them.Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the Australian National University and Queensland University of Technology.
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