British socialist economist Chris Harman was in Cairo last week. He talked to Wael Gamal on the latest developments in the international economy Cairo is used to hosting mainstream, neo-liberal economists. It has been the frequent destination of experts from the World Bank and the International Monetary Fund and other similar institutions. This time it is hosting a dissident voice, namely the British socialist economist and political activist, Chris Harman. The editor of International Socialism magazine and author of Explaining the Crisis and The Economics of the Madhouse was recently in Cairo to take part in the four-day Socialist Days forum, organised for the first time by the Socialist Studies Centre. Harman is a radical opponent of what are called Washington Consensus policies. The term which was coined by the economist John Williamson in 1990, refers to areas in which decision-makers worldwide accepted a neo-liberal agenda such as fiscal discipline, public expenditure priorities, tax reform, financial liberalisation, competitive exchange rates and trade liberalisation. With these policies profoundly influencing the economic programmes of nearly all governments around the world, and recently more fully adopted in Egypt with the new government in place, many economists argue that state intervention can no longer deal with the complexities of the world economy. Harman stresses the idea that this policy package is the result of a historical process. In this regard, he outlines three stages of capitalist development in the 20th century. One stage was from the beginning of the century until the late 1930s. "It represented a continuation of free market capitalism from the 19th century, the conviction that the ups and downs of the economy and that crises and recessions solve themselves out always into a new boom. This stage lasted till the crisis of 1929 which didn't ultimately resolve itself," he says. Internationally, country after another responded to the crisis by turning to state intervention in the economy. "After 1933, this was the case in all the major economies and even the weaker economies in the Eastern bloc and the post colonial world that adopted central planning. There was a general consensus that the state has to intervene in the economy," Harman observes. The first sign that this system no longer worked was when the first major economic crisis since World War II erupted in 1973-1974. The state intervention to deal with the crisis only made it worse. This marked the re- appearance of free market capitalism. "Then, it was called monetarism after Milton Freedman and Von Hayek. They defended the idea that the state has to withdraw from economic activity. What began as Thatcherism and Reagnism turned into the internationally adopted prescription for the last 30 years," Harman says. The result is nothing but a disaster. "What we have now after 30 years is chaos," he argues. "Booms take place but it never generalises to be an international phenomenon as it used to be in the past. It just happens in a part of the system for some time then the crash comes and the boom might move to another part of the system." The centres of economic growth shift according to these cyclical booms and busts. "In the 1980s, the American economy was growing slowly while the Japanese and the German economies were going through very high growth rates. In the 1990s, the picture was reversed. The Japanese stagnated, the German economy was growing slowly and the American economy took their place," he adds. "It is worth remembering that only 12 years ago, Japan's economy was thought to be a threat to American leadership of the international economy and would outperform it. That didn't happen. Moreover, the American economy, the lung of international capital accumulation in the 1990s, turned to recession in 2001-2002. "The Chinese economy now is taking the place of Japan and Germany in the 1980s and the US and the Asian tigers in the 1990s. It is expanding with incredible speed attracting raw materials from elsewhere and adding value to them." But Harman considers this situation as unstable, characterising it as a house of cards. The Chinese companies are buying more and more expensive raw materials in order to sell cheaper and cheaper goods. "The Chinese then lend money to the Americans to buy their goods. A situation like that is not going to last indefinitely," he explains. This unstable and chaotic nature of the current phase of international economy shows itself in the falling value of the US dollar. "The American boom was basically built on great arms expenditures and continued borrowing from the rich in the US. Now they are letting the dollar sink in order to make others cover the deficit. This could be fatal. The chaos it might cause can explode the situation if central banks in Europe and Asia began to sell their dollar reserves in fear of further decline," Harman suggests. In fact, Washington Consensus policies failed in achieving their most crucial aim, that of economic growth. The last 20 years have shown a clear decline in growth rates compared to previous decades. This context is discouraging for underdeveloped economies seeking to achieve growth just by lifting capital movement restrictions and slashing state expenditures on health and social services. "Some countries even were led to an economic crash doing that, like Argentina, Mexico and Russia," he says. Also, what growth was accomplished has not trickled down to all the population as promised. Harman refers to the American case where economic growth meant 25 years of falling real wages and longer working hours for US labour, which is 400 hours a year more than in France and Germany only to reach the same profit levels as in 1973. In China, meanwhile, capitalism and the abandonment of the traditional Maoist emphasis on rural development widen the gap between the city and the countryside. "The Chinese succeeded in revolutionising eastern China into a modern industrial region but that went hand in hand with massive deprivation for the poor in other parts of the country," he says. The contradictions on the ground reflected itself in economic theory. The Washington Consensus is no longer so. Mainstream economists are adjusting their positions taking into consideration criticisms of the prevailing paradigm and trying to build what they label a Post-Washington Consensus. According to Harman, "it is incredible to see people like Joseph Stiglitz, the Nobel prize winner who was the vice- president of the World Bank, opposed to all that the IMF is saying. Nevertheless, when he and people like him go forward to solution, they face the changes in the globalised international economy which means that any redirection of policies towards state intervention cannot be applied the 1930s' way."
