Review of False Dawn: The Delusions of Global Capitalism by John Gray

John Gray surely expects economists in general, and perhaps me in particular, to denounce him as an ignoramus; I will not disappoint him. But one of the puzzles about False Dawn is why he even needed to be an economic ignoramus, when his core argument does not really depend on economics anyway.

Gray's economic analysis is as garbled as you might expect. He attacks the supposed naivete of conventional economic theory, but cannot be bothered to get straight what that theory actually says. Thus he declares at one point that Ain theory and practice the effect of global capital mobility is to nullify the Ricardian doctrine of comparative advantage. Yet it is on that flimsy reed that the edifice of unregulated global free trade still stands.@ [82] I don't know who told him the urban legend that capital mobility undermines the case for free trade, but one might have expected him to glance at an actual textbook, where he would have found a passage something like this (from my own sophomore-level text): ABoth international borrowing and lending and international labor movement can be thought of as analogous in their causes and effects to the movements of goods ... So when we turn from trade in goods and services to factor movements we do not make a radical shift in emphasis.@ It's true that the simplest model of the benefits from international trade, the one David Ricardo introduced 180 years ago, assumes no capital mobility; but any economist could have told him that the simplification is not essential to the principle.

It is less easy to catch Gray getting his facts wrong, because there aren't that many facts in the book. Indeed, for someone who doubtless imagines himself a free-thinker challenging conventional wisdom, he has an odd tendency to try to buttress his argument, not by producing evidence, but by quoting supposed authority figures, often puffing them up with obsequious honorifics - AThe distinguished American banker and financial commentator, Felix Rohatyn, ...@ [116](The same peculiar preference for arguing via appeals to authority is common among left-wing American writers on economics, like Robert Kuttner and William Greider. I think it has something to do with intellectual insecurity). I am pretty sure, however, that he is under the impression that capital is being transferred in vast quantities from high-wage countries to low, in which case somebody ought to tell him that both the U.S. and the U.K. have consistently been net recipients, not exporters, of capital in recent decades.

But at a fundamental level Gray's objection to laissez-faire economics seems to have relatively little to do with economic doctrine per se. No sooner does he deny the validity of the classical case for free trade than he concedes that AIn terms that are strictly and narrowly economic it is true that a global free market is incredibly productive.@ [82] His real objections to the free market start to become apparent in his bitter critique of America, Athe Utopia of global capitalism.@ What really bothers him about America, it turns out, is the breaking of traditional social bonds. AHow many children live in the same neighborhoods or cities as their parents? ... [The] workings of an economy that has been re-engineered as a free market conflict with traditional institutions.@ [112] And - incidentally without a single reference to the sociology research literature - Gray blames free markets for everything from divorce to crime.

What does Gray want instead? His chapter extolling the virtues of Asian capitalism was, of course, written before last year's debacle. But in any case he seems less drawn to the economic achievements of Asia than to what he sees as its preservation of social bonds. In one remarkable and revealing passage he actually seems to regard Japan's stagnation since 1990 as a promising development: AElsewhere in the world the vision of a no-growth economy has proved a chimera. Perhaps in Japan's uniquely mature industrial society the collapse of economic growth could be an opportunity to reconsider the desirability of restarting it. But that would involve defying the central imperative of the Washington consensus, which dictates that social betterment is impossible without unending economic growth.@ [175]

What Gray dislikes about free-market capitalism, in short, is the constant change it produces. He is certainly not a liberal, in either its 19th-century or modern American senses. Instead, he is an old-fashioned conservative - paleoconservative? - in the tradition of Burke, or of modern representatives like James Goldsmith, Edward Luttwak, and once and future U.S. presidential aspirant Pat Buchanan (whose new book The Great Betrayal sounds many of the same themes as False Dawn). What he really wants is a society in which people stay in the neighborhoods in which they were born, stay with their spouses, and stay with their traditional cultures.

It's a defensible goal, though Gray refuses to offer any hint of how it might be achieved. You might, for example, expect his declaration that AA programme of neo-liberal restructuring was not the only, or the most promising response to New Zealand's quickening relative economic decline@ [40] to be followed by some description of what he would have done instead; but no.

At first I found this reticence puzzling, but I now think I understand it; and I think it ties in with his garbled economics. What Gray really wants is to stop things from changing so much; he himself would be quite happy, it seems, to sacrifice economic progress for the sake of a more stable social order. But most people, faced with that choice, would be less sure - would indeed wonder if there wasn't a whiff of aristocratic condescension in the assertion of a comfortable don that we should all settle down, that society already has enough of the material things. And so Gray tries to have it both ways, arguing that free markets are bad for progress anyway. But his heart isn't in it - and neither is his mind.

It's too bad. If Gray had only written about the issues he really cares about, minus the routine and bungled attempts to attack conventional economics on its own turf, he might have had fewer readers; but he would have written a better and more honest book.