There is a paradox in the current economic crisis. Some think the drive towards free markets, which has been the unquestioned given of almost all political thinking for thirty years, has at last got its comeuppance: Nemesis may have been slow to show her hand, but has acted all the more decisively to bring devastation to the pretentions of a theory that was never more than a combination of ideology and greed. Others are not quite so sure.
How else can we describe the humiliation inflicted on the bankers? The exposure of their venality and incompetence, leading to the nationalization of some banks and the spectacle of state-dependency for the survival of others, leaves nothing to add. Their dominance is over, and to the spectacle of economic power lurching from North America and Europe to India and China is added that of a massive shift in influence from markets to the state. Regulation, regulation, regulation is the new orthodoxy as governments scramble to protect voters from the worst effects of the crash and to assure them of a stable future.
As theories go, the crisis theory of political change has much to recommend it. The 1917 Russian Revolution reflected the unwillingness of the soldiers, sailors and urban workers to accept the horrors and privations of the first word war. Fifteen years later in Germany mass unemployment created fertile ground for agitation against the injustices, real and imagined, of the Versailles settlement, and paved the way for the Nazi ascendancy. Modern Japan was born as a democracy out of the radioactive ashes of a ruined imperial state. Are we not seeing in rather less dramatic form the destruction and replacement of a discredited order?
Since the 1950s, however, crisis theory has taken a new turn. As Naomi Klein brings out in The Shock Doctrine, economic and political crises have been repeatedly used to impose allegedly free market orthodoxy on populations disoriented by violence and impoverishment. Chicago School economists - imbued with the free market doctrines of Hayek and Friedman - would descend upon military dictatorships and ex-communist countries to write their rules of economic conduct, essentially removing price controls, downsizing the state (i.e, sacking every possible public sector worker), privatising public industries at knock-down prices and awarding the resulting opportunities to snap up industries and services to western corporations. O yes, and doing so with the right to repatriate 100% of profits.
Later, as the Chicago School infiltrated the IMF, the US Treasury and what was then GATT, crises facilitating these demands were not so much exploited as precipitated. In yesterday's Guardian Madeleine Bunting reports Korean economist Ha-Joon Chang as pointing out that in the 1997-98 Asian crisis, "not only did the US and IMF stop the Asian countries from implementing a state bail-out, they took advantage of the desperate situation to force South Korea and other Asian nations to adopt further financial deregulation".
And herein lies the problem. What crisis theory tells us is that while crises are relatively unpredictable, the forces shaping the solution are the ones best organized well before the breakdown: the Russian communists in 1917, Hitler's storm troopers in the 1930s and the US occupation in Japan.
Who is best organized to benefit from the dislocation we are experiencing today and the steep downturn to come? Is it the forces of enlightened social democracy, green, egalitarian and sensitive to liberties? Or is it, once again, the forces of neoliberalism, emerging from the wreck to claim that it happened - and this is what Chicago theory would claim - because markets were not free enough, governments were too intrusive and citizens too protected from market disciplines?
The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein (Penguin 2007)