COLUMN RIGHT : ‘Harmonizing’ Will Handcuff Free Markets : The bureaucratic prerogative has shifted to economic intervention, the new socialism.

My colleague, Edward Luttwak, says that the waning of the Cold War means the decline of geopolitics and the rise of geo-economics. The vast bureaucracies that comprise the modern state and the intellectual resources organized in universities and think tanks will find themselves “impelled by the bureaucratic urges of role-preservation and role-enhancement to acquire a geo-economic substitute for their decaying geopolitical role.”

If he is right, it means that the West will experience a new onslaught of economic intervention by the state. It is ironic that the collapse of socialism has set in motion two opposite forces. On the one hand, socialist economic failure has spurred privatization and renewed commitment to a market economy. On the other, the decline of the communist geopolitical threat means that Western bureaucracies and strategic thinkers will have to find a new self-justification. Luttwak thinks that the bureaucratic imperative will shift conflict to the arena of commerce.

The new socialism will hide behind a patriotic nationalism as foreigner-bashing moves to the fore. Instead of defusing commercial conflicts in the interests of geopolitical alliances, politicians and bureaucrats will be quick to politicize them. The causes and instruments of conflict will become economic. Disguised import restrictions, concealed subsidies, public funding of commercial technologies and the manipulation of fiscal and regulatory measures to disadvantage foreign competitors are among geo-economic weapons.

Much of this has been going on for years, but the decline of the Soviet threat will unleash geo-economic rivalries within the Western alliance that were formerly subdued by a common purpose. Industrial policy could come into its own as bureaucracies, politicians and commercial interests engage in symbiotic manipulation. As the state manages its geo-economic interests, profitability will be less determined by market forces. If we are indeed entering an era of geo-economics, economies will be increasingly characterized by rent-seeking activities in which people use government to create protected profits that are not subject to competition. Consumers everywhere will be the loser as governments manipulate economies in the name of survival in a competitive world.

The conventional wisdom today is that the Japanese have a head start in geo-economic strategy and that we must rush to catch up. On the whole, the policies that are adopted will work to stifle competition and increase the role of privilege in our economic system. The world economies will suffer, just as the punitive measures we imposed on foreign purchasers of U.S. real estate have worsened the savings and loan problem.

Already we can see within the European Community a shift away from reliance on market forces to harmonize national economic differences. Under the leadership of the French socialist Jacques Delors, the new emphasis is on social harmonization achieved through regulatory means. Social regulations designed to equalize labor costs across national boundaries are a subtle form of protectionism for the trade unions in the welfare democracies and French and German business cartels.

Luttwak is right that a diminishing Soviet threat will give wider scope to rent-seekers. But the battle between privilege and competition is as old as economics itself, and each generation has to fight it. The other side of communism’s decline--the failure of state interventionism--together with the dismal failure of development planning in the Third World, greatly strengthens the case for free markets. All over the world people have lost confidence in government and no longer associate more government with the public interest.

Geo-economic rivalries could even work to free international businesses from government controls. Just as international capital markets have made it harder more difficult for national central banks to control domestic interest rates, multinational companies are unlikely to come under the sway of national governments. The free market itself is a powerful force, as the rise of extensive informal economies in Latin America and the Soviet Union demonstrate. As a result of 20th-Century experience, no honest intellectual can make a case for more state interventionism.

As Mikhail Gorbachev recently said, the market economy “has existed for centuries. It is an invention of civilization.”