BOOKS: I Say Chianti, You Say Coke - Uncle Sam thinks his is best, but this study claims European economic models are better. Don't call the whole thing off, says John Kay - there are many ways

BOOKS: I Say Chianti, You Say Coke - Uncle Sam thinks his is best, but this study claims European economic models are better. Don't call the whole thing off, says John Kay - there are many ways - The World We're In; By Will Hutton; Little, Brown pounds 17

by JOHN KAY
Last Updated: 31 Aug 2010

The World We're In; By Will Hutton; Little, Brown pounds 17.99

I like America less than Will Hutton does. Like him, I stand in awe of the intellectual firepower of its great universities, and am grateful (though not very grateful) for Windows 98. But I don't enjoy Sheryl Crow and Clint Eastwood, and wild horses would not drag me to an American football match. I spend half my time in France, and prefer Chianti to Cherry Coke.

So I am sympathetic to Hutton's general anti-American, pro-European theme.

His attack on the US scores many hits. The problems of social and economic inequality in the US, and of the excesses of American CEOs, for example.

But he makes some less familiar points. He argues that the emphasis on shareholder value in US corporations has led to increasing failure to invest in developing the long-run capabilities of businesses.

And he is right to express some scepticism about the vaunted scale and flexibility of America's venture capital market. Many of the IPOs on US markets in the late 1990s can now be seen as hit-and-run operations. Founders, early-stage investors and investment banks stung gullible investors on the basis of poorly conceived business plans. We should not confuse the entrepreneur with the confidence trickster.

It is not true that Europe is losing an economic competition with the US. Productivity levels in Europe are similar to those in America and, by virtually any criteria, the most successful societies in the world are small states in western Europe. Switzerland, Denmark, Norway and the Netherlands are rich and socially cohesive and have the highest environmental standards and public services in the world. There are many models of capitalism that work.

Even so, Hutton's relentless hostility to the US is wearing, and the attack on the forces of neo-conservatism is exaggerated. He is unlucky that his book appears just when we have been reminded that Europe has its own far right, even more overtly racist than that in the US.

Yet there is some basis for his fear that the pro-market, anti-government doctrines of the mainstream American right - the so-called Washington consensus - are threatening to European values. Although there are many types of market economy that function effectively, what distinguishes the American is its proselytising self-confidence. In economic matters, the US position is that if Europe is not like the US, it is because Europeans are too slow to see the inevitability of the American way. By contrast, there are few evangelists for the Swiss or Danish way of life. The Swiss have opted out and the Scandinavians are embarrassed by prosperity in a way that is incomprehensible to an American.

Hutton correctly identifies how the policy prescriptions of this Washington consensus - more liberal capital markets, US-style corporate governance, deregulation - have become a self-evident truth. This is the world in which New Zealand is congratulated for its neo-liberal experiment, even though its economic performance has been lamentable: since the policies are right, there is no need to examine the results.

No need to look through Galileo's telescope, since the Church has already decided what is there. Even so, I feel there is more to the deregulationist case than Hutton will concede.

In his final chapter, he offers his own reform proposals. More supranational institutions (a world financial authority, a world competition authority); more powers for those that already exist, particularly the EU. All this in the name of democracy and fighting US unilateralism.

But Hutton's real gripe is that the world is not run by sensible people like himself. The problem with that is that no-one - not Hutton, Gates, Greenspan or Prodi - knows enough to determine the appropriate industrial structure and financial organisation for a prosperous future.

Only fools believe that free markets are utopias - although there are plenty such fools, many of whom he names. But running economies on the dictates of one authority is worse.

John Kay's book on How Markets Work will be published by Penguin in March 2003.

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