Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 317 | September October 6-12 , 2023
Are free markets history?
The Economist | October 5, 2023
Extractive Summary of the Article | Listen
Sometimes, in wars and revolutions, fundamental change arrives with a bang. More often, it creeps up on you. That is the way with what the Economist is calling “homeland economics”, a protectionist, high-subsidy, intervention-heavy ideology administered by an ambitious state. Fragile supply chains, growing threats to national security, the energy transition and the cost-of-living crisis have each demanded action by governments—and for good reason. But when you lump them all together, it becomes clear just how systematically the presumption of open markets and limited government has been left in the dust.
The Economist special report this week argues that homeland economics will ultimately prove to be a disappointment. It misdiagnoses what has gone wrong, it overburdens the state with unmeetable responsibilities and it will botch a period of rapid social and technological change. The good news is that eventually it will bring about its own demise.
Central to the new regime is the idea that protectionism is the way to cope with the buffeting of open markets. China’s success convinced working-class Westerners that they had a lot to lose from the free movement of goods across borders. The covid-19 pandemic left elites thinking that global supply chains had to be “derisked”, often by moving production closer to home. China’s rise under “state capitalism”, with its disregard for rules-based trade and challenge to American power, was seized on in rich and emerging economies as a justification for intervention.
Mix of protection, spending by the state and regulation comes at a heavy cost. For a start, it is a misdiagnosis. The pooling of risks is indeed an essential function of governments. But not all risks: for markets to work, actions must have consequences.
In contrast to the accepted view, covid and the Ukraine war have shown that markets deal with shocks better than planners do. Another flaw in homeland economics is to overburden the state. Rising interest rates make everything worse. The least visible, but potentially most costly flaw is that homeland economics is a blunt instrument in a time of rapid change.
The energy and AI transitions are too big for any government to plan. Nobody knows the cheapest ways to decarbonise or the best uses of new technology. Ideas need to be tested and channelled by markets, not governed by checklists from the centre. Excessive regulation will inhibit innovation and, by raising costs, make change slower and more painful.
Despite its flaws, homeland economics will be tough to restrain.
3 key takeaways from the article
- Sometimes, in wars and revolutions, fundamental change arrives with a bang. More often, it creeps up on you. That is the way with what the Economist is calling “homeland economics”, a protectionist, high-subsidy, intervention-heavy ideology administered by an ambitious state. Fragile supply chains, growing threats to national security, the energy transition and the cost-of-living crisis have each demanded action by governments—and for good reason. But when you lump them all together, it becomes clear just how systematically the presumption of open markets and limited government has been left in the dust.
- The Economist special report this week argues that homeland economics will ultimately prove to be a disappointment. It misdiagnoses what has gone wrong, it overburdens the state with unmeetable responsibilities and it will botch a period of rapid social and technological change. The good news is that eventually it will bring about its own demise.
- Despite its flaws, homeland economics will be tough to restrain.
(Copyright)
Topics: Globalization, Nationalism, Protection, Regulations
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