Facing the risks of global economic growth, recently the European Central Bank (ECB) suddenly reversed its long-term monetary tightening policy.
After nearly three years of re-using administrative measures to restart the stimulus plan, it now not only has made the decision to provide new low-interest loans to Eurozone banks but also continues to keep the low-interest rates until next year.
It is expected that with this policy, it will provide the Eurozone countries with more “silver bullets” in order to support their respective economic developments.
Such a move is a clear signal of the increasing concern by policymakers regarding economic development. By increasing administrative guidance, ECB will use such a guiding methodology to prevent the rapid deterioration of the regional economic stability.
It is not a surprise that this move has naturally induced intense criticisms from the neo-liberalists who firmly believe that “small government and large market” should be the norm.
The 2008 global financial crisis, for all practical purposes, is not over yet. It should be recognised that while the economy appears to be superficially recovering, one could observe that it is still being punished at a deeper level.
At the core, the problem lies in the fact that there simply are not sufficient private investments to absorb, all the private savings with normal interest rates. Indeed, the market is still facing extraordinarily low-interest rates, weak demands, and low growth rate as well as inflation.
There is also an upward lifting of the price of existing capital assets. Indeed, if these issues could not be resolved, then there is a prediction that the next round of financial crisis may be just around the corner.
So, completely contrary to the neo-liberalists’ tranquil belief “that in time, the economy will naturally improve itself,” the European and American governments after the 2008 global financial crisis were compelled to deliberately move from laissez-faire to enhanced, or even direct economic intervention.
The intensity of this form of intervention, à la administrative guidance, to strengthen the economy, seems to become a trend now. Indeed, this is true whether it be government issuing administrative orders to strengthen the guidance of future industrial development, or simply improving the review of foreign investments to protect domestic industries.
Obviously, by establishing such a policy, the German government deviated gradually from a neo-liberalism doctrine, which promotes privatisation of state-owned enterprises as well as the marketisation of price and interest rates, and has essentially manifested its lack of confidence of such a line of economic thinking.
Furthermore, in recent years, for the world’s most powerful economy, the U.S. government has also demonstrated a propensity towards “big government, small market” principles through having more administrative guidance to promote the economy, stabilise the employment and promote the development of the manufacturing industry.
Through a series of EOs, Trump has also tried to promote the “U.S. priority” policy by revitalising and protecting traditional industrial sectors such as steel, aluminium, automobile industry and agriculture.
In addition, as a form of public criticisms, he would name the multinational companies who had set up overseas production lines. In response to this action, a number of U.S. companies under pressure have opted to return stateside to set up factories.
Trump’s practices were undoubtedly influenced by the traditional supply school and not by the economic principle of neo liberalism. We suspect because the reason is that the U.S. GDP growth rate was merely 1.5 percent prior to Trump taking office in 2016. This is far below the historical level of 3.5 percent.
There was a general feeling that the U.S. economic growth may risk the country falling into long-term economic stagnation. Therefore, soon after Trump took office, he passed a series of EOs to promote tax reform, financial system regulatory adjustments, and trade protection policies.
It was anticipated that such actions could revitalise the manufacturing industry, enhance the competitiveness of American companies, and of course promote economic growth.
No one would doubt that for Trump to proactively boost economic growth and stabilise workers’ employment is de facto an election vote-getting mechanism.
Indeed, from the latest poll released by the Wall Street Journal and the National Broadcasting Corporation News Network on March 4, the Trumpian support rate reached 46 percent. Other polls released by Real Clear Politics, which is another U.S. polling agency, also showed that Trump’s average support rate rebounded to 44.4 percent.
These numbers not only represent a new high in the past six months but also push him to his record high of 46 percent when he first took office two years ago.
In economics, neoliberal economists and state interventionist economists are forever debating, which of the two models, namely “small government, a big market” or a “big government, a small market” is better. So far, the outcome is inconclusive.
Of course, for governments which are more concerned about “civil hardships,” promoting industrial restructuring and development, employment and economic advancement, and mitigating economic crises and financial crises are bound to be their highest priority and responsibilities.
This is especially true when the government is facing “the market cannot” or “the market is self-destructing.” In this scenario, the government simply does not have the luxury to wait for the “market to self-adjust.”
Such delays in all likelihood could, and probably would lead to the emergence and even deterioration of the crisis.
We believe that one should not and cannot separate China’s success to become the world’s second-largest economy from the Chinese government’s guidance on industry and economic developments.
In recent years, whether it is the ECB or the German and U.S. governments, they all have decisively exerted administrative functions of the government to guide the respective economies in order to curb adjustment during the period of industrial structural transition, the economic growth, or the market volatility.
The economic crisis and significant market fluctuations have caused damage to the population and society. This practice has also deviated from “the market” further, and closer to the “mayor’s dogma.” It is obvious that the Chinese government’s action adheres to people-oriented and society needs.
Under the successful manifestation of the above-mentioned countries and international organisations, we are confident that more countries’ governments will adopt administrative guidance methodology to promote economic development and improve people’s livelihood.