A once in a lifetime opportunity to shape capitalism

I've been wanting to blog for a while about the current banking crisis, but it's hard to know which 250 words to choose to write about such a momentous period in our economic history.

Instead, I'll point you to a couple of good articles I read in The Observer yesterday. Will Hutton's startlingly headlined piece - I've watched the economy for 30 years. Now I'm truly scared. is a good (and slightly scary) read. I was interested in his take on whether we're seeing the start of the end of capitalism:

"This is not the end of capitalism, as some wildly claim; there is no intellectual, social or political challenge to a market system based on respect for private property rights, even by the Chinese Communist Party. Rather, it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to "wealth generation". What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values."

I'd agree with that - I can't really see a whole new system appearing - but the current Anglo-American model of capitalism has got to change. Or at least it should change - if we're smart enough to come up with an alternative to the brave new world that the neo-cons are no doubt eyeing up as they stoke up fear of what might happen if we don't bail the banks out.

The second piece was a comment piece by Ruth Sunderland, and her focus was on the opportunity that the current crisis offers, in her words to "slay the myth of the omnipotent market." It's telling, as she points out, that the Archbishops of Canterbury and York weren't laughed at in the way they would have been twelve months ago. This comment struck me in particular:

"In the excesses of the past few years, some forgot, if they ever knew, that the only way to make sustainable profits is the hard way: by adding genuine value, by providing superior service, by outperforming rivals."

That sums up a lot of what's wrong with the current incarnation of capitalism. People making vast sums of money without adding any real value, and in the process messing things up for the rest of us.

We have to take this opportunity to change the way capitalism works. I noticed Simon Caulkin mention a report soon to be published by Tomorrow's Company about post-crunch capitalism. Has anyone else come across any other good work in this area?

Comments

[MIke Chitty]

One of the things about the development of markets and capitalism in general is that they require both a seller and a buyer. Every time I open my wallet I am influencing the shape of capitalism through my spending decisions.

Perhaps if buyers were more thoroughly educated in the implications of their purchasing decisions.

[Edward]

Well I’m a long way yet from perceiving even a significant change in the underlying structures and power dispositions in global capitalism. In fact, for me a sober and instructive piece is by Michael Skapinker in the FT today. He still sees New York and London retaining their preeminent position in international markets – still less does he worry about any likely fundamental change in the structure of international capitalism.
My view has increasingly been that we must find our own ways ahead and not look to any fundamental change or end to capitalism. In fact I’m increasingly impatient about folks who seem to endlessly predict the trials an d tribulations of ‘the system’ instead of getting on and constructing their own alternative.

Extract from Skapinker’s piece on why NY and London have USPs and will return to prosperity:

“The first is language. Lehman Brothers may have gone overnight, but it takes centuries for a language to disappear. A global generation has invested years learning English, which has no ready challenger.

The two cities’ second advantage is law. The US may be excessively litigious and lawyers may charge outrageous fees in both cities, but where else would you look to the law to defend your corporate rights? Shanghai? Moscow?

The third advantage is collective brain power. This may seem laughable, given where bankers’ supposed intelligence has landed us now, but the solutions to this crisis will come in cities most open to raucous debate from whoever has anything to contribute. The next 30 years will be different, but New York and London will rise again."

[Edward]

This article from the journal of Federal Reserve Bank of St Louis is both fascinating and worrying about how near the precipice it can be argued we are. It is unfortunately a pretty heavy read, but in essence, it concludes that whole countries can go broke – and that the USA is actually going broke. Their solution is that foreign inflows are staving off the worse for now but that will not last long and that other, fundamental, systemic reforms and restructuring are essential.

Federal Reserve Bank of St Louis

http://research.stlouisfed.org/publications/review/06/07/Thakor.pdf

[Rob Greenland]

Are you trying to tip me over the edge Edward?! It certainly is worrying stuff - Governments can't keep on promising to honour debts forever. You get the impression that a lot of it is about confidence - Governments have to say that they'll honour the debts - as otherwise stock markets will fall even more and then we'll be in even more trouble. There's got to be a better way to run the world.