Draghi’s alarm? Late but right
The message sent by Mario Draghi to the EU is perhaps a little late, but fundamental: for this reason all parties should take it up. Marco Mayer's speech
Better late than never. Mario Draghi at the La Hulpe conference in Belgium did well to demolish the "boomerang" theory of the European playing field which has damaged the European economy so much from the financial crisis of 2007/8 to the present day. As Startmag recalled , Draghi spoke clearly: “Europe has focused on the wrong things. We have turned inward, seeing ourselves as our competitors, even in sectors, such as defense and energy, in which we have deep common interests. At the same time, we didn't look outside."
At this point the question to ask is the following. Because – unlike the United States – in the last fifteen years the EU has continued to obtusely and obstinately pursue the "perfect" conditions of competition within itself as if Europe could be immune to the dynamics that for more than two decades years characterize the performance of markets on a global scale?
A first answer comes from Organization Theory. The EU is not a political actor of global relevance and we know that – in the absence of political stimuli – any techno-bureaucracy tends to automatically repeat its usual practices, completely ignoring what happens outside its borders of administrative competence. I am referring specifically to “the routine processes produced by the force of inertia” authoritatively described by Karl Pearson.
A second response concerns the dominant political culture and calls into question a mistaken vision of the global market and its impact on our continent of the majority of European economists. They seem to have forgotten the fundamentals of Luigi Einaudi's thought, namely that the formation of the equilibrium price between supply and demand in a competition regime can be achieved provided that public institutions are able to impose and guarantee effective conditions of freedom, loyalty , public order and justice.
In this regard, I suggest Startmag readers reread an exemplary passage from Einaudi's social policy lessons:
Have you ever been to a country village on a fair day? That fair is a market. Everything is offered at the fair and many offer the same thing. Thousands of buyers eager to stock up on the household goods and things they lack. Buyers arrive in droves and good-naturedly because they know that where there is great competition it is always easier to find what you need and find it at the best price conditions. The sellers also arrive numerous and punctually because they know that where there is a large multitude of people eager to buy it is always cheaper and the sellers sell at a high price. Driven by opposing motives, they hurry towards the same place, towards the fair, the market […]. Everyone who goes to the fair knows that it couldn't take place if, in addition to the sellers' stalls and the crowd of buyers, there wasn't something else: the double-cornered hat of the couple of carabinieri seen passing through the square, the uniform of the municipal guard who silences two who have insulted each other, the town hall building, with the secretary and the mayor, the magistrate's court and the conciliation court, the notary who draws up the contracts, the lawyer who is used when the parish priest believes he is wrongly cheated in a contract and reminds us of the duties of a good Christian, duties that must never be forgotten even at the fair.
Ignoring the abysmal difference between the logics that govern the ideal type of market theorized by Luigi Einaudi and the dynamics that dominate the global market, liberal fundamentalism – as Dani Rodrick has repeated many times – has done "more damage than hail". With the rapid succession of economic and financial crises from 1997 to 2008, the empirical inconsistency of liberal thinking emerged ever more clearly. The idea that by globalizing the market, market transparency and balance could be maintained has generated a false vision of the functioning mechanisms of the world economy.
Just think of what was supported by Kenichi Ohmae – indicated by the Economist as one of the five world management gurus: "The power over economic activity will inevitably migrate to the borderless network formed by the countless individual decisions taken starting from the reality of the market" . In the last twenty years exactly the opposite has happened, but only after the invasion of Ukraine and the pandemic have mainstream European economists seemed to have rediscovered the influence of political factors in the world economy: the role of the great powers, the weight of geopolitical factors, the impact on the economy of the difference between states of law and democratic regimes as well as the risks of the oligopolistic processes of globalization about which Milton Friedman himself had expressed some doubts.
Mario Draghi's important speech raises a third aspect. It directly calls into question the fragility of political forces within European countries as well as their representatives in Brussels and Strasbourg. What is of particular concern is its transversal permeability with respect to the light and dark pressure of the most powerful interest groups.
On the left we have witnessed the paradox that in the name of the same principles of free competition, taxi drivers have been demonized on the one hand and the doors have been thrown open to Chinese digital and telecommunications companies subsidized by the protectionist policies of the Chinese Communist Party on the other. On the right (I am thinking in particular of the Germany of Alternative fur Deutschland and of Orban's Hungary) in the name of the values of tradition and conservatism, the objectives of Russian neo-imperialism as well as the interests of the strategic industries (see Rosatom) of the Russian Federation are being legitimized .
Finally, I remember that 17 years have passed since 5 November 2008, in the midst of one of the most dramatic phases of the world crisis, Queen Elizabeth II, during the inauguration ceremony of the new headquarters of the London School of Economics, polemically asked: " it's horrendous; Why didn't anyone realize the storm was coming? The provocation provoked a bitter discussion which culminated in the forum organized on 17 June 2009 by the Royal British Academy for Humanities and Social Sciences. The conference resulted in a letter to the Queen in which the inability of the world community of economists to predict the global risk determined by the interconnection of multiple market imbalances was recognized, each of which had – vice versa – only been analyzed separately. The essential aspect is that the British Crown experts underlined that the overall interconnection of global imbalances is not supervised by any authority and caused by multiple state political actors (China primarily) as well as by monopolistic mega groups whose decisions (or non-decisions ) – uncoordinated and potentially conflicting – produce structural market distortions in the global economic arena.
I hope that Mario Draghi's message will find political and intellectual responses much quicker in Europe than the heartfelt appeal launched by Queen Elizabeth II many years ago.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/lallarme-di-draghi-tardivo-ma-giusto/ on Wed, 17 Apr 2024 13:06:09 +0000.