Peter Apps, Political Risk Correspondent:

(Reuters) – The crises at the heart of the international financial and political system go beyond the debt woes currently gripping the Western world and to the heart of the way the global economy has been run for over two decades.

After relying on it to deliver years of growth, lift millions from poverty, keep living standards rising and citizens happy, nation states look to have lost control of globalization.

Here. Globalization has raised living standards but I think Mr. Apps misses some crucial points.

Globalization resulted from governments loosening political control of their economies. Politicians in China, India, USSR, South America and other countries decided their way sucked. This was more than the tinkering levels of deregulation as Americans know it, it was a change in ideology. Centralization in all its forms mired people in poverty and corruption.

Politicians allowed capital, goods, services, people, ideas to flow more freely — not completely mind you — but more freely across their borders from other countries and among each other within those countries. That freedom let people discover in those countries what they were missing, and the people in the freer countries such as Japan, US, and in Europe see the deprivation they had avoided. It was acceptable to legitimately make money, conduct business, and to live and travel freely.  It was acceptable to the politicians stuck in the top-down controlling mindset.

So it was a change in political thinking that led to the economic liberalization, and that led to the rising living standards.  The challenge now is to figure out how to extend that liberalization to more countries and to more sectors of economies, right?  We already concluded that economic liberalization led to higher living standards.  Why stop now and where we are? 

Mr. Apps has assumed, like many others, that we currently live in an unfettered global free market.  We don’t.  Mr. Apps, et al need to shed their current blinders and see the political controls still in place in various sectors of each country.  Sometimes there is outright government ownership, other times the control takes the form of bureaucratic administration and technocracy.  An objective assessment would re-consider what were thought to be natural monopolies, such as telecom, and to examine other top-down controls, such as immigration restrictions, central control of interest rates by central banks like the US Federal Reserve — note the word central.  Health care is a biggie that is dominated by political control, K-12 education is another, as are agricultural subsidies and airline subsidies.  Justification for government control for each of these industries varied, but the justification was made and assumed for decades.  Agricultural subsidies and protections were needed to ensure a nation could eat.  Control over airlines were needed to ensure a country could turn them into a military air force if there was war.  Health care — ooph — how can people make a profit from another’s illness.  Who could entertain such an immoral idea!?  Well, time’s now we overcame.

You can see it in Mr. Apps piece — politicians needed to assert control.

These instruments of globalization have delivered huge wealth and kept economies moving with arguably greater efficiency, but can also swiftly turn on those in authority.

Just as Egyptian President Hosni Mubarak discovered that shutting down the Internet was not enough to prevent social-media fueled protest overthrowing him, the world’s most powerful nation states are confronting their helplessness in controlling markets and financial flows.

Shutting down the Internet?  Why would a politician do such a thing?  To remain in control of power.  It is this continued control that is causing disruptions in global markets, not unfettered markets, and certainly not a still heavily fettered financial sector. 

If total control created mass poverty, shouldn’t we move in the opposite direction, and should we remove those controls over existing industries?  We should change laws to let products and services move in freer markets.  We should let people buy and sell with more latitude.

Think about the Federal Reserve in the United States.  It is an institution that controls the money supply, ie conduct monetary policy,  based on the ruminations of a handful of humans.  Why aren’t interest rates — the price of money — set by market forces?

Mr. Apps, et al, and frankly many others, need to open their minds more and to think creatively to the possibilities that will await.

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