The Great Swing Left

UPDATE:  4 June 2009 – Freedom House and some other organizations have released a report, Undermining Democracy: 21st Century Authoritarians (pdf) that captures the ideas expressed here so I guess it is now official.

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I have been meaning to write about this for about 5 years, but the installment of the Obama administration with what should be a compliant Congress is as good a time as any.  In the sweep of history as viewed from the scale of years to a few decades, we are about 8 to 10 years into a swing away from increasing levels of freedom globally and toward greater statism, or state control of economies and of people’s personal lives.

While there are a few notable exceptions like China which maintained momentum toward greater market orientation, most instances from Asia to Latin America have been swinging the other way.  Like markets, these things do not go in a straight line, but oscillate, sometimes waxing, sometimes waning.

At close scales the change from waxing to waning (if plotted as a curve this would be when the slope of the curve went from positive to negative, not the inflection point from more positive to less positive, ie the change in convexity) is chaotic, messy and jagged, but if you zoom out sufficiently far, it becomes smoother.  I place the changeover in late 1998 with the election of Hugo Chavez in Venezuela.

Prior to 1999, it was clear that there was something magical happening in the world.  The first sign was perestroika in the late 1980s, then the fall of the Berlin Wall in 1989 and the coup in Moscow in 1991.  In 1994 the Uruguay Round of GATT talks concluded, setting the stage for expanded world trade.  In 1995, the Internet became available to a large part of the public.  Large numbers of countries in Eastern Europe, Asia and Latin America were adopting western democratic institutions and opening their economies along market lines.  By 1998 the Internet was a phenomenon, energy was cheap and productivity was galloping forward.  You could find music in any genre from classical to hard core by  any artist on services like Napster and Audiogalaxy.  Open source software blossomed; multitasking operating systems allowed computing to become mainstream.  Prices of things seemed to fall as labor was globalized and living standards around the world brought more people out of poverty than ever before.  It seemed anything was possible as the world headed into the millenium.

Some warning signs had already started to appear.  Late in 1998 Hugo Chavez was elected in Venezuela and started down the path of his self-styled Bolivarian socialist revolution.  At the end of 1999, Putin became President of Russia.  Early in 2000 the asset bubble in technology and other stocks burst.  The major labels put an end to open access to music when Napster was forced to shut down.   The RIAA started suing people for sharing music.  9/11 happened.

After a brief recession, it seemed as if things were going to get back on track.  Home ownership and home prices rose to incredible levels as the stock mania was transmuted by the Fed and a world awash in wealth into the housing bubble.  Commodities began an incredible 6 year bull run in late 2002.  Saddam fell in 2003.  Prices continued falling as manufacturing and service labor was rationalized.  However the forces of statism were resurging and eclipsing the brief flowering of freedom.

Russia jailed Mikhail Khodorkovsky in late 2003.   It was this that really set Crude Oil prices on fire.  Russia also reinstated the practice of sponsoring the murder of political critics.  Russia has returned to a state in which elections are held but they are pretty meaningless as the outcome is known in advance and largely controlled by the party in power, methods that Hugo Chavez and others in Latin America are now also seeking to employ.  More states in Latin America have also turned left;  Bolivia, Argentina, even Brazil.  Other states have also become less free in the last 8 years such as Zimbabwe and Burma (Myanmar).

Now with the bursting of the housing and commodities bubbles and the implosion of the world financial system, even America has elected a congress and a president who are more sympathetic to statism than it has had since Reagan beat Jimmy Carter in 1980.  On the Sunday talk shows this weekend, I heard some idiot (probably Stiglitz) say with relief how the nightmare of the last 25 years has finally come to an end.  Yes.  The ‘nightmare’ that was the greatest period of global wealth creation ever known has finally come to an end.  The question is, is this really the end?  Will the curve of freedom (change) continue below the abscissa?  Or is this a downstroke that will soon reverse?  In other words, will we discard the lessons of history and embrace increasing state control over every aspect of political and economic life?  Or will we remember, pull ourselves together, and return to the path of progress we were on?

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