The Washington Post Paris, Tuesday, September 8, 1998 RETHINK CAPITALISM What is frightening about the world's current economic troubles is a sense that rules we thought we understood don't seem to apply now. Until a few months ago, we thought we knew what a developing country had to do to join the ranks of the wealthy. We thought we knew how a Communist country could transform itself into a capitalist one. The general understanding was that as the world became more connected, it also would become more prosperous. Now, with Russia and much of Asia having crashed, with Eastern Europe and Latin America imperiled and with much of Africa going backward, the certainties of only a year ago seem far from certain. Malaysia last week shut the door on the global economy, as its autocratic leader withdrew his currency from international circulation and fired the deputy prime minister who had pushed hardest for openness and liberalization. ''The free market system has failed and failed disastrously,'' Prime Minister Mahathir bin Mohamad declared. Russia edged toward nationalization of industry and more state control. Even Hong Kong, until now the world's most ardently free economy, spent billions of government dollars to prop up the local stock exchange - an intervention that free marketeer Milton Friedman bluntly labeled ''insane.'' Looking around Mr. Mahathir's stricken neighborhood, it is not hard to understand his retreat. But it is important at a time like this not to draw more lessons than the facts provide. Not everything we thought one year ago, in other words, now has been proved wrong. Yes, this is a time for humility. Yes, the IMF's doctrinaire opposition to any controls on capital, even on short-term movements, may have been mistaken, and its initial efforts at Asian rescue may have been misguided in key respects. But much of what Asia did in the past 30 years - investing in health and primary education, welcoming outside investment, eradicating poverty - was correct, and it is still, quite likely, enduring. Much of what Eastern and Central Europe have accomplished in a few short years has been not only heroic but absolutely on track. If the mistakes that have been made have a common thread, it was the emphasis of economic solutions over political ones. In Indonesia, it was believed that economic growth would, in its own time, overcome the obstacles of autocracy and corruption. In Russia, it was hoped that macroeconomic stability and privatization would foster the middle class that would, in turn, insist on rule of law, contract sanctity and the rest. In both cases, the sequencing didn't work. A lot of rethinking needs to be done. But many of the goals and principles were right, and they should not all be thrown overboard in a panic. Louis Proyect (http://www.panix.com/~lnp3/marxism.html)
