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John Hilary: Despite what Gordon Brown says, we need a completely new approach to the global economy, not more of the same

Guardian Economics 3rd February 2009

With the London summit of the G20 just two months away, Gordon Brown has launched a new offensive in support of free market globalisation. Speaking in the rarefied air of the Davos world economic forum, the prime minister pleaded for a continuation of the "open, free market, flexible" approach to globalisation that he has championed over the past dozen years. Back in the real world, he attacked as "indefensible" the wave of industrial action by British workers whose jobs have been sacrificed to the market flexibility he applauds.

The perils of protectionism have been enlarged upon by many commentators, with differing degrees of lurid detail. Yet rejecting Brown's free market model of globalisation does not entail an instant return to the 1930s or the reappearance of Adolf Hitler, as some would have us believe.

On the contrary, suggesting that the solution to today's economic turmoil is another dose of open, free market, flexible globalisation fails to appreciate the root causes of the current crisis. What the world needs now is a completely new approach to solving the problems of the global economy, not more of the same.

The globalisation programme of the past 30 years has been based precisely on the liberalisation and deregulation of existing markets, plus the creation of new markets where none existed previously. The Washington consensus – and its Swiss variant, the Davos consensus – entailed the enforced opening of many emerging economies to international competition, the widespread privatisation of public services and state-owned enterprises, as well as new freedoms for banks and other financial institutions to boldly go where no one had gone before.

We are already witnessing the chaos caused by such financial deregulation on a grand scale. Yet despite the growing consensus on the need for re-regulation to correct the errors of the past, Gordon Brown persists in calling for the rapid conclusion of the Doha round of world trade talks, which include their own subset of negotiations to open up and deregulate financial markets still further.

These negotiations could entail the removal of prudential regulations which protect many developing countries from suffering even greater fall-out from the financial crisis. Thankfully, an outbreak of acrimonious finger-pointing between trade ministers at Davos has once more torpedoed the prospect of negotiations being resumed any time soon.

Yet even before the current crisis hit the finance sectors of the rich world, free market globalisation had signally failed to deliver for the majority of working people on the planet. Last year, the World Bank was forced to admit that its previous estimates of the numbers living in poverty had been too optimistic, and that three decades of globalisation and open markets have left some 1.4 billion people still facing extreme want.

The only saving grace has been China's achievements in reducing poverty over the past 30 years – notably by following its own, more balanced path of development rather than the Washington consensus approach to globalisation. Without this, the Bank admitted, the world would be hopelessly off course in its attempt to meet the millennium development goals.

The World Bank figure was calculated well before the current crisis, and has now been updated by the ILO's prediction that 200 million more workers and their families face the prospect of falling into extreme poverty as a result of the global recession. These grim warnings do not come as the result of a lack of open, free market, flexible globalisation in the economies concerned, but quite the opposite.

Having been exposed to the most extreme form of market opening over three decades of structural adjustment, the countries of sub-Saharan Africa have seen their share in global exports collapse by almost 70% in the past 30 years, and four in five of the continent's workers remain mired in poverty. According to UN studies, those countries which liberalised their trade regimes most dramatically have also experienced the highest increase in poverty levels.

Rejecting Brown's free market fundamentalism does not mean swinging to the other extreme and shutting down trade in favour of North Korean self-sufficiency, even if such a scenario were possible. The same UN studies show that autarky has led to increases in poverty almost as great as those which accompany full scale liberalisation. Instead, it means taking back democratic control of the global economy and redirecting it towards principles of public benefit and environmental sustainability rather than unfettered private profit. That is the challenge for our common future.

In terms of historical parallels, this would be less a return to the 1930s and more an attempt to rediscover for the 21st century the "golden age" of the 1950s and 1960s. That period between the second world war and the crisis of the 1970s was characterised by strong and balanced economic growth with high employment levels and an equitable distribution of the spoils – a welcome change from the increased inequality and boom-bust crises of the past three decades.

While the high priests of globalisation were calling for more of the same in Davos, over 130,000 activists meeting at the world social forum in Brazil issued their own call for a radically new approach to the world economy. Joined by a record number of government leaders from Latin America, this year's forum demanded the wholesale reorientation of the global financial architecture, and set the date for a week of international mobilisations to coincide with the G20 London summit in April. Gordon Brown would do well to listen.

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