My quote of the day comes straight out of a political science textbook, but it rings so true today:

“The lesson that capitalist countries needed to combine the efficiency of markets with the broader values of community … did not come to them easily. It took the calamitous collapse of the Victorian era of globalization — into worldwide war, followed by extreme left wing revolution in Russia, extreme right wing revolution in Italy and Germany, militarism in Japan, the Great Depression, unprecedented financial volatility and the shriveling up of world trade.”

The quote is from John Gerard Ruggie, Director of the Center for Business and Government at Harvard University. His point, which he originally made in 1982, is nicely summarized in a lecture Ruggie gave at the LSE in 2002 (see transcript). He talked about why a new era of globalization requires a new social contract, suggesting that unregulated free markets could spawn another series of cataclysmic events if adequate social and environmental protections were not somehow embedded in the global economy.

Apart from making the obvious point that history repeats itself, what’s fascinating to me is that if one starts counting from the end of the Cold War our recent spell of global free market capitalism really only survived a couple of decades before crashing down around us. Even more fascinating will be to see what kind of new political orders emerge as a result.

I believe in Ruggie’s general principle that the efficiency of markets must be combined with the values of community to sustain a viable global society. I am no longer convinced that the institutions that established the historic social bargains that underpinned post-WWII prosperity (i.e., national governments, business associations, and organized labour) are the rights ones to help rebuild the global economy and fashion a new form of sustainable governance.

Although society appears to lack serious alternatives (unless you believe that the G20 is a serious alternative), I do believe two things: 1) that markets abhor a vacuum and 2) that governmental inertia will be the mother of invention. In other words, the fumbling efforts on the part of governments and international organizations to impose regulations on unregulated global markets will help stimulate the creation of new governance models and I won’t be surprised if many of the new innovations are driven by political entrepreneurs acting outside of the traditional realm of government. The unfortunate reality may be that things will need to get a whole lot worse before mainstream society recognizes the flaws inherent in our current arrangements and invests in building these new institutions.