Old is new again in upside-down economic policies

From Oct. 18 to Dec. 3, 1961, 116,000 people visited New York's Museum of Modern Art before anyone noticed that Henri Matisse's painting "Le Bateau" had been hung upside down. Modernity is supposed to "transgress" standards of the traditional, which is why Paul Hindemith, while rehearsing one of his dissonant orchestral compositions, said to the musicians, "No, no gentlemen - even though it sounds wrong, it's still not right."

Proponents of today's world-turned-upside-down economic policies say the policies might seem wrong but really are boldly modern in their rejection of markets in favor of pervasive government intervention in economic life. Hence New York, which until eight months ago was the financial capital of the world, is no longer even the financial capital of the United States. Washington is.

So says Ian Bremmer in "State Capitalism Comes of Age: The End of the Free Market?" in Foreign Affairs.

Most Americans assume government is doing this reluctantly. Bremmer, president of the consulting firm Eurasia Group, believes that although the governments of many developing nations have made "a strategic rejection of free-market doctrine," governments of developed countries do not intend to "manage" economies "indefinitely." About the former, he is correct. About the latter, his wish may be the father of his thought.

Among myriad signs that many nations are developing systems "in which the state functions as the leading economic actor," Bremmer notes that the 13 largest oil companies are owned and operated by governments and that governments in the developing world control three-quarters of the world's energy reserves. Privately owned multinational companies produce just 10 percent of the world's oil.

"Sovereign wealth funds" - state-owned investment portfolios - already account for one-eighth of global investment, double the figure just five years ago. The largest such funds are those of Abu Dhabi, Saudi Arabia and China, with Russia's rising. The only democracy operating one of the 10 largest funds is Norway. The combined assets of all such funds exceed the assets of all the world's hedge funds.

Bremmer says, correctly, that state capitalism "has introduced massive inefficiencies into global markets and injected populist politics into economic decision-making," that "deeper state intervention in an economy means that bureaucratic waste," and politicians tend to develop stimulus packages with constituencies, not economic efficiencies, in mind. Therefore, he says, the state must eventually retreat. He underestimates the pleasure politicians derive from using their nation's wealth as a slush fund for purchasing political advantage.

In "Democracy in America," Alexis de Tocqueville anticipated people being governed by "an immense, tutelary power" determined to take "sole charge of assuring their enjoyment and of watching over their fate." It would be a power "absolute, attentive to detail, regular, provident and gentle," aiming for our happiness but wanting "to be the only agent and the sole arbiter of that happiness." It would, Tocqueville said, provide security, anticipate needs, direct industries and divide inheritances. It would envelop society in "a network of petty regulations." But softly: "It does not break wills; it softens them, bends them, and directs them" until people resemble "a herd of timid and industrious animals, of which the government is the shepherd."

So what today seems as modern as Matisse once seemed was actually foreseen 17 decades ago. Like Hindemith's music, what is happening seems wrong. And it is.

© 2009, Washington Post Writers Group