Banging the Drum for the Market State is a Loser If Voters Listen to a Different Music

George Bush had something of a hell raising youth, but he was probably a bit too old for the release of the first Ramones album in the summer of 1976. Pity. Line one, track one on this seminal punk album goes: "Hey ho, let's go" and has the appropriate title of Blitzkrieg Bop.

A Blitzkrieg Bop is what the markets are banking on. A lightning strike, a week-long conflict, the ousting of Saddam Hussein and seizure of the oil fields will be just what the global economy needs to lift it out of torpor. If the campaign goes according to plan, there may have to be a remix of the Edwin Starr classic, which goes: "War! Huh, what is it good for?" It's good for oil prices.

Like the three-minute single, the "war as catharsis" argument has a compelling simplicity but lacks depth. Stage one is for the war to be over in double-quick time. Stage two is for the price of crude to come down to $20 a barrel. Stage three is for share prices to leap and consumer confidence to recover. Stage four is full-scale global recovery. Stage five is the arrival of the economic nirvana that the proponents of the new world order have been promising since - well, since the last Gulf war, as it happens.

There are three big holes in this thesis. The first is that an easy victory is taken for granted, and while that may be understandable, the risks are that the war will be longer, bloodier and costlier than the markets are confidently predicting.

The second drawback with "war is good for business" is that the problems of the global economy predate the Iraqi crisis and will still be there whatever happens over the next few months. It is entirely possible that even if the military strategy works to the letter, there will be a short term rally followed by the realisation that the problems of financial fragility, deflation, excessive indebtedness and weak corporate profitability have not been washed away. This is a subject I intend to return to next week.

Finally, it is worth taking the predictions of the new world order people with a large pinch of salt. These are the people who told us that the demise of communism would lead to a golden age of peace and prosperity in which a more efficient market allocation of resources would lead to higher investment, growth and living standards for all. This is the world as seen by a tiny elite of policymakers, academics and entrepreneurs, not the one that actually exists.

A classic example of this genre is Philip Bobbitt's tome, The Shield of Achilles*, which argues that in the age of globalisation the nation state has been supplanted by the market state. This process has been lubricated by what Bobbitt calls the final victory of liberal democracy in the long war conducted first against fascism and then against communism.

The market state, he says, depends on the international capital markets and the modern multinational business network to create stability in the world economy, in preference to management by national or transnational political bodies. "Whereas the nation state justified itself as an instrument to serve the welfare of the people, the market state exists to maximise the opportunities enjoyed by all members of society ... for the nation state, full employment is an important and often paramount goal, whereas for the market state, the actual number of persons employed is but one more variable in the production of economic opportunity and has no overriding intrinsic significance. If it is more efficient to have large bodies of persons unemployed because it would cost more to the society to train them and put them to work at tasks for which the market has little demand, then the society will simply have to accept large unemployment figures."

Bobbitt may be right when he says we have witnessed the triumph of the market state over the past decade, but there is scant evidence, if any, to suggest that the market state is better at delivering the goods than the nation state. Living standards have grown less - not more - quickly; financial deregulation has led to an explosion in speculation rather than more productive investment; the past decade has been beset by financial crises and a ratcheting up of insecurity and inequality. Governments have found that all those policies that were considered judicious during the cold war - generous welfare provision, job protection, final salary pension schemes - are seen as no longer affordable. The demolition of the iron curtain may have been good news for the countries of eastern Europe but a a mixed blessing for workers in the west. The technocracy that runs the new world order is blind to these trends - it faces few of the pressures encountered by most people. Final salary pensions may have been phased out for new entrants into the labour market but they are still there in the boardroom. Would-be policymakers move from think-tanks to governments and back again, dreaming up plans for an "opportunity society" that involves making labour markets more flexible - the sack - and making welfare systems more affordable - cutting your pension.

One upshot of all this is decay in the political process. It has led in the UK to a Conservative party that has lost the ability to conserve and a Labour party where there is the possibility of a fight to the death between those led by the prime minister who want a market state and those led by the chancellor who believe a modern nation state can deliver on traditional promises. Tony Blair set out his stall last month in Progressive Politics, a journal published by Peter Mandelson. "We should be far more radical about the role of the state as regulator rather than provider, opening up healthcare, for example, to a mixed economy under the NHS umbrella and adopting radical approaches to self-health."

Given that perhaps the most popular acts by the government since the last election were the increases in funding for the NHS and the decision to pull the plug on Railtrack, the believers in a market state face an uphill struggle. And this is not just because the world that was supposed to be safe for all of us to get rich in has proved economically unstable, riven by inequality and culturally barren. It is also because the failings of the new world order have resulted in ideology making a comeback. Ideology has always been the bane of the technocrats; it threatens the smooth running of the machine - ideology is bad, capital B.

It's true that there are plenty of examples of ideology being bad. But we are also seeing a stirring of interest in green, social democratic and Marxist interpretations of the global economy. That's what happens when the economy doesn't deliver and policymakers don't listen. It's the clash of the market state and democracy in a mass media age.

Bobbitt may be right. Market states may be all that's on offer. But if governments can no longer deliver what their electorates expect, big trouble is on the horizon. The message from the new world order brigade is that people had better wise up to the realities of what the system can deliver. But there is an argument for changing the system to one that more of us prefer, even if that means rolling back the "gains" from market liberalisation. Otherwise the first decade of the new world order could turn out to be the equivalent of the years running up to 1914. The calm before the storm.

*Philip Bobbitt; The Shield of Achilles; Allen Lane