The gale of destruction - Capitalism is a magnificent engine of wealth creation, but cannot provide social or economic stability. John Gray on the benefits and dangers of globalisation

The Edge of Now: new questions for democracy in the network age

David Howell <em>Macmillan, 392pp,

Globalisation has become a catchword for everything that is wrong, and right, about the world today. It is a mantra for politicians of all parties, something at once ill defined, inevitable and vaguely beneficial, which can be invoked to show that there is no alternative to the ephemeral orthodoxies of the day. For the majority of economists, it represents the worldwide reach of the free market, a development that - so long as it is not tampered with by meddling governments - can be relied upon to deliver rising prosperity for all. For many outside this consensus, globalisation is little more than a conspiracy, a stitch-up by multinationals that impoverishes developing economies, ravages the environment and rips off the poor of all countries. Running through all of these reactions is a lack of clarity about what globalisation actually means, combined with a pervasive historical ignorance about how the phenomenon has come about.

In The Edge of Now, David Howell presents a refreshingly unorthodox view of what is genuinely novel in our current circumstances. One of the few real thinkers at work in the political classes in recent years, Howell, a Tory Cabinet minister who then became chairman of the select committee on foreign affairs for a decade, subscribes to none of the sloganising ideologies that serve as substitutes for thought in British public discourse. He was among the first advocates of privatisation, and remains one of its most intelligent exponents. In the careless lexicon by which political notions are currently classified, Howell's enthusiasm for privatisation makes him a neoliberal who believes free markets to be the solution to practically every social or economic problem. Yet, although he is insistent that the free market is by far the best economic system, he subscribes to none of the grand simplifications of most neoliberals.

Howell is adamant that free markets are extremely complicated cultural and legal institutions. They are not what is left over when government has withdrawn from the economy, but artefacts, constructed and enforced by governments. This is an essential insight, but Howell does much more than demolish an unreal view of the market. He mounts a powerful criticism of the scientific pretensions of economists, suggesting that, in the pursuit of mathematical modelling, they have "withdrawn into an isolated make-believe kingdom", where they pretend that "problems which really have their roots deep in human psychology, in philosophy and in political institutions, can be isolated as semi-scientific economics and resolved by economic theory".

Mainstream economics lacks the insight into the market as a historical process that is found in Hayek's Austrian school. As a result, Howell writes bluntly: "The diagnoses have been wrong . . . we have broken market theory propelling nations into instability and chaos."

I am sure Howell is right that the pursuit of a sub-scientific ideal of precision has left economic theory at a vast distance from reality, and that this professional deformation is partly responsible for some of the disastrously inept policies of recent years.

One of the book's central theses is that market competition is a highly unnatural state of affairs, which can be maintained only by continuing vigilance and effective regulation. New technologies enabling worldwide access to information are potent forces for competition in themselves, but globalised markets will not work well if left entirely to their own devices. Howell is clear that market forces need intelligent policing at both national and international levels. This, in itself, is not a new idea. Where Howell challenges conventional wisdom is in his clear-eyed recognition that sovereign nation states remain pivotally important. Global markets are not necessarily best regulated by transnational institutions. Where regulation has worked reasonably well, as it has in the global banking system, it is through what Howell calls "the nationalisation of international law", whereby transgovernmentally agreed rules are enacted voluntarily by sovereign nation states.

Both globalisation's boosters and most of its critics have taken for granted that it spells the end of the nation state. Whether they are free-marketeers ranting about the impotence of governments in a borderless world or anti-WTO protesters who believe that multinationals rule the world, they are sure that the day of the sovereign state is over. Howell's view is almost the opposite: "It is the nation state that is coming to the rescue of the global order."

This arresting claim forms part of a view of globalisation that owes a good deal to the work of Manuel Castells, the sociologist who pioneered the idea that information technology is engendering a "network society". In his magisterial trilogy, The Rise of the Network Society, Castells argues that a flux of open-ended exchanges and shifting alliances is replacing the settled hierarchies of the past, with far-reaching consequences for how the economy, government and social institutions such as the family operate. The result is a world that is not reflected in any of the social and economic philosophies - Marxian theories of class and functionalist accounts of society as an integrated system, for example - that we have inherited from the 19th century. Society is no longer held together by central authority, but that does not make it any less stable. In The Edge of Now, Howell applies this central insight with impressive force and subtlety, mounting a compelling argument for the view that the technology-driven rise of a worldwide network society is the true meaning of globalisation.

Public discourse would be notably improved if politicians and pundits were required to read - and show they have understood - this unfailingly interesting book. But it will not tell them a great deal about how to cope with the problems that accompany globalisation. This is partly because Howell invests much too heavily in the idea that networks are largely self-regulating. Although he nods dutifully at suggestions that instability in global markets may be dangerous, he seems oddly content that things will eventually sort themselves out. At times, he seems like a latter-day Edmund Burke, finding in the internet a surrogate for Burke's trust in the workings of a benign historical providence. But history itself has undermined this Whiggish faith. Burke's own confidence in a providential order was shattered by the French revolution, and he spent his last years adrift in a fog of confusion and despair. It is hard to see how the events of the 20th century could have revived it.

The first great movement towards globalisation culminated in the international economy that came into being in the 1870s, but it was largely reversed by the First World War. Dictatorship and the economics of autarchy flourished for decades afterwards. Today, the public mood is as complacent as it was a hundred years ago, but there is no law of history that can be relied upon to prevent globalisation being derailed again. To look to the World Wide Web as a guarantor of progress is to ignore this lesson.

In any case, Howell's faith in the internet is undercut by his own argument. He is right to remind us that sovereign states remain the most important actors in world affairs, but he forgets that destructive rivalry is as common among them as voluntary co-operation. As a result, he underestimates the potential for conflict in current circumstances. At present, despite much of the world enjoying boom conditions, there are serious trade disputes. Again, although the United States exercises unprecedented global hegemony, important sections of American opinion seem bent on finding new enemies - by demonising the emerging power of China, for example. How will these dangers be handled in the less securely affluent times we will face when the boom has sputtered to a close?

Howell praises the Austrian school for an insight into history that is lacked by mainstream economists. But the greatest among the Austrian economists, Joseph Schumpeter, was clear that the development of capitalism is not a steady march into the sunlit uplands. Market economies advance through a succession of crises in which boom is followed by bust, and new industries win out by driving old businesses - along with the communities they supported - to the wall. Capitalism has shown itself to be a magnificent engine of wealth creation, but it does not provide stability, economic or social. Like many less penetrating observers, Howell seems to believe that Schumpeter's gale of destruction has become a gentle breeze, bestowing all the benefits of continuous innovation at almost no human cost - a metamorphosis in capitalism that is credible only if history does indeed contain the benign providential order that Burke strove in vain to discern.

John Gray reviews regularly for the NS. His most recent book is False Dawn: the delusions of global capitalism (Granta, £17.99)