Dennis Davis
Panic For Democracy by Rex van Schalkwyk (Eloquent Books)
Prior to reading this book, I finished John Cassidy’s How Markets Fail: The Logic of Economic Calamities. In essence he argues that the idea that financial markets are rational and self-regulating mechanisms is an invention of the past 40 years.
By contrast, Rex van Schalkwyk’s book is an argument on behalf of the market and its self-regulation, which has been subverted by the greed of financial executives and the stupidity or perverse ideology of those in control of government, which has meant that “increasingly the state is perceived as the ultimate provider and, in the process, the individual has become alienated from himself”.
If only we could return to the views of John Stuart Mill, reduce the role of government and increase the autonomy of individuals, not only would we prevent the widespread financial crises that now beset the global economy, but also democracy would be preserved and strengthened as individuals take hold of the shaping of their own society. Briefly, that is Van Schalkwyk’s thesis.
I mention Cassidy’s book not only because his argument is so starkly different but, more significantly, he engages the economic literature in a sustained and rigorous fashion to show the inevitable imperfection of markets and their operation. By contrast, Van Schalkwyk’s book is a pastiche of free-market clichés without any analytical rigour. Take, for example, his treatment of Keynes. We first encounter Keynes in the following terms: “John Maynard Keynes, that dandy well known for his propensity to oversimplify the craft of the economist …”. Leave aside the obvious homophobic reference, anyone with but a passing acquaintance of Keynes’s magisterial treatise, The General Theory of Employment, Interest and Money, would realise how much we owe him for our understanding that capitalist economies are not necessarily self-stabilising.
At precisely the time that the influence of market-efficiency theorists — better known as utopian economists, such as Milton Friedman and Friedrich van Hayek — has waned so significantly, and when most economists say “we are all Keynesians now”, Van Schalkwyk, without any attempt at analytical justification, and in the broadest of generalisations, rejects all of Keynes. Although The General Theory is cited in the bibliography, there is a stark absence of any serious engagement with Keynes’s arguments about shortfalls in aggregate demand, consequent unemployment and the need for intervention.
The impression of sloppy research is compounded in the way Van Schalkwyk cites authors in support of his overall argument that state intervention, captured by those who pursue material self-aggrandisement and interventionist ideology, lies at the heart of the threat to democracy. For example, he quotes Karl Popper in support of his argument that the politically privileged demonise as crude conspiratorial theorists those who point to the manner in which government uses a range of statistics to rationalise its policies. Popper did represent a powerful defender of liberal values, but he argued that while individual freedom is the critical component of an open society, the state had an obligation to prevent human misery and suffering. Must we forget this? Similarly, Joseph Stiglitz is mentioned in support of an argument that former US Federal Reserve Bank chair Alan Greenspan applied a low interest rate policy that encouraged consumption rather than productive expenditure. But there is no mention of Stiglitz’s consistent opposition to the very utopian market theory advocated by Van Schalkwyk. See, for example, Stiglitz’s Globalization and its Discontents.
Whereas Panic for Democracy advocates a concept of the rule of law in which the law effectively lubricates the wheels of the market, Chief Justice Pius Langa in his fine judgment in the Modderklip case understood well that if the state does not provide a set of minimum services for the poor, the latter are likely to take the law into their own hands. The judgment implies that markets alone only work in terms of the interests of those with power. Even though these markets are critical to the way economies work to best advantage, law that only privileges power and ignores human misery and indignity is law that cannot last. The point is that binary oppositions — markets or state — is hardly reflective of what social democrats argue.
Thank goodness our law today has developed along these lines and not those advocated by Van Schalkwyk. The adoption of the latter’s argument would represent an attempt to ignore all the lessons painfully learned over the past few years, thanks to the financial crisis. True, South Africa is appallingly served by the crudity and simplicity of its contemporary economic debate. This book does not take the debate forward: it sadly adds to the crudity.