Et tu, FT?
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talkpoliticshttp://www.ft.com/intl/indepth/capitalism-in-crisis
For almost a month the herald of capitalism, the British newspaper FT has been compiling this section about the state of world economy. Various observers, economists, politicians and entrepreneurs from around the world are having a debate around the FT pages. The whole thing is called "Capitalism In Crisis". It's like Oservatore Romano, the official newspaper of the Vatican coming out with a critique of the Catholic church, could you imagine that happening?
The general consensus of the experts on FT sounds pretty grim. And it could be summarized with the gloomy conclusion: the form of ultra-liberal and unregulated capitalism from the 80s no longer works. These words fit more to any statement by the French socialist presidential candidate Francois Hollande. But no, they appeared on the pages of one of the most influential newspapers in the business world. Publications like these are an important signal 3 years after the beginning of the crisis, and FT keeps coming up with those heavy verdicts after the meeting in Davos. Of course there are various schools of thought there, just like in any other sphere. These tendencies are having a free-for-all showdown across the pages of FT, WSJ and The Economist.
The transformations from the Reagan-Thatcher era who overhauled the post-war moderate capitalism of the late 70s were preceded by a long process of demonizing the role of the government by the deep thinkers of the so-called conservative revolution. Along with the subsequent globalization in trade and economy, this conservative revolution led to the birth of the present form of capitalism. And I'd argue that it eventually led to crises like that of 2008-present.
"We need to overhaul the market economy in its present form. This version turned out not only extremely unstable, but utterly unjust", one of the headline articles on the special FT segment says. As the former Fed chairman Lawrence Summers said, in the US, i.e. the country that's supposed to embody the highest achievements of capitalism, "Capitalism is losing people's trust". According to polls, only 50% of the US citizens still view modern capitalism in a positive light. Capitalism has become a symbol of huge wages and bonuses for the financiers, and an anaemic real economic development, and high structural unemployment.
The main element in this FT verdict is the following conclusion: capitalism is in crisis, because capitalism itself is the source of inequality. It doesn't defend any moral values, just on the contrary, it's the best system among the known systems for creating wealth. That's all what it's designed to be. And in its 80s version, capitalism was known for distributing that wealth in a relatively acceptable way. The economists would argue that the market encourages the sensible distribution of the resources.
But that harmonious relationship is in the past now. The last 30 years have seen inequality in America and Europe taking staggering proportions. It has reached such extents that FT is now saying it's beginning to create real threats to western democracy and to the society that was built through consensus, and that used to be supported by the dominant middle class.
In the US presently the largest social discrepancies for the last century are being observed. Not long ago the political scientist Norman J. Ornstein wrote that the structure of income in the US corresponds to the characteristics of many Third World countries. Since 1980 until now the wealth of the top 1% has increased by 300% (although they'd tell you otherwise). Meanwhile, the average income of the average American family has risen by 40%. What's more, this growth was achieved mainly because a large part of the women entered the labor market during that period. If we discount this additional source of growth, turns out the average income of the previously dominant segment (men) hasn't really risen that much at all. In Europe a similar, if not so pronounced tendency of growing disproportions is observed.
For the sake of fairness, this analysis needs to add data about the change of the purchasing power in the US and Europe as well. In some sectors it has grown considerably, indeed. Mostly due to the pressure from the globalized prices. At the end of the day, FT concludes, turns out there are two lanes in the world economy. One is the high-speed lane, the one for the super-wealthy. And the other one is for everyone else, and it's blocked.
The main focus of the ensuing anger from this inequality have been the bankers. Their ridiculously disproportionate wealth clearly has little to nothing to do with the creation of any real goods, and yet they're calling the shots in the economy. That's how the economy has become hollow, devoid of essence, outsourced, basically a giant on clay feet. So it's no surprise we're hearing so many doomsday predictions these days. Sure, we could shun them and say "Meh, I've heard that before", or we could make some conclusions.
An example. In London there was recently a scandal when the enormous bonuses of the board of directors of the central bank was published. People were outraged. That bank is largely supported by the taxpayers' money, and its primary task is to finance the debt of the middle class which is hurting big time. Because it's true that people have been living beyond their means for far too long, and that living standard could be sustained only through perpetuated debt.
The big villain of the present day are the likes of Lloyd Blankfein, the chairman of Goldman Sachs. And the hero of the day is Steve Jobbs. Most FT articles in that section are praising entrepreneurs and criticizing the bank CEOs for granting themselves inexplicably huge bonuses for doing little else but shuffling virtual money here and there and making profits out of it. We truly live in interesting times: the CEO of a large bank is getting 400 the salary of the bottom-of-hierarchy employee in that bank. And in 1980 that ratio used to be 40. A change by a factor of 100 in just three decades! How did that happen? What changed?
The market economy was so successful compared to the other economic systems because it showed a tremendous ability to adapt. Capitalism, on the other hand, has been a string of booms and busts. Many economists argue that this is inevitable, it's built into the system. Fine, but with huge discrepancies like the above-described, and with inept leaders taking dumb decisions and burying their heads in the sand to the real problems, these fluctuations would only tend to get more frequent and more severe with every next cycle.
The success of capitalism itself is related to its adaptability, too. FT has published the two necessary reforms that should be a top priority if we're to get out of the swamp of the 80s model. One: the income in the financial sector should adhere to clearly set rules, and proper oversight is needed. Because it has gone out of control, and enormous wealth is leaking through the loopholes. Two: the system of governing corporations needs urgent reform. That would facilitate short-term strategies, maximum fast capital liquidity and possibly would allow more long-term solutions after that. Surprisingly, in formulating these prescriptions, FT borrows some lines from some of Francois Hollande's speeches (he's Socialist, remember?) But perhaps his words would weigh a bit more than usual when cited on the pages of the most reputed financial newspaper in Britain, than if you merely heard them during his press statements on the presidential campaign trail. Or maybe that, too, is just some populist election posturing?
For almost a month the herald of capitalism, the British newspaper FT has been compiling this section about the state of world economy. Various observers, economists, politicians and entrepreneurs from around the world are having a debate around the FT pages. The whole thing is called "Capitalism In Crisis". It's like Oservatore Romano, the official newspaper of the Vatican coming out with a critique of the Catholic church, could you imagine that happening?
The general consensus of the experts on FT sounds pretty grim. And it could be summarized with the gloomy conclusion: the form of ultra-liberal and unregulated capitalism from the 80s no longer works. These words fit more to any statement by the French socialist presidential candidate Francois Hollande. But no, they appeared on the pages of one of the most influential newspapers in the business world. Publications like these are an important signal 3 years after the beginning of the crisis, and FT keeps coming up with those heavy verdicts after the meeting in Davos. Of course there are various schools of thought there, just like in any other sphere. These tendencies are having a free-for-all showdown across the pages of FT, WSJ and The Economist.
The transformations from the Reagan-Thatcher era who overhauled the post-war moderate capitalism of the late 70s were preceded by a long process of demonizing the role of the government by the deep thinkers of the so-called conservative revolution. Along with the subsequent globalization in trade and economy, this conservative revolution led to the birth of the present form of capitalism. And I'd argue that it eventually led to crises like that of 2008-present.
"We need to overhaul the market economy in its present form. This version turned out not only extremely unstable, but utterly unjust", one of the headline articles on the special FT segment says. As the former Fed chairman Lawrence Summers said, in the US, i.e. the country that's supposed to embody the highest achievements of capitalism, "Capitalism is losing people's trust". According to polls, only 50% of the US citizens still view modern capitalism in a positive light. Capitalism has become a symbol of huge wages and bonuses for the financiers, and an anaemic real economic development, and high structural unemployment.
The main element in this FT verdict is the following conclusion: capitalism is in crisis, because capitalism itself is the source of inequality. It doesn't defend any moral values, just on the contrary, it's the best system among the known systems for creating wealth. That's all what it's designed to be. And in its 80s version, capitalism was known for distributing that wealth in a relatively acceptable way. The economists would argue that the market encourages the sensible distribution of the resources.
But that harmonious relationship is in the past now. The last 30 years have seen inequality in America and Europe taking staggering proportions. It has reached such extents that FT is now saying it's beginning to create real threats to western democracy and to the society that was built through consensus, and that used to be supported by the dominant middle class.
In the US presently the largest social discrepancies for the last century are being observed. Not long ago the political scientist Norman J. Ornstein wrote that the structure of income in the US corresponds to the characteristics of many Third World countries. Since 1980 until now the wealth of the top 1% has increased by 300% (although they'd tell you otherwise). Meanwhile, the average income of the average American family has risen by 40%. What's more, this growth was achieved mainly because a large part of the women entered the labor market during that period. If we discount this additional source of growth, turns out the average income of the previously dominant segment (men) hasn't really risen that much at all. In Europe a similar, if not so pronounced tendency of growing disproportions is observed.
For the sake of fairness, this analysis needs to add data about the change of the purchasing power in the US and Europe as well. In some sectors it has grown considerably, indeed. Mostly due to the pressure from the globalized prices. At the end of the day, FT concludes, turns out there are two lanes in the world economy. One is the high-speed lane, the one for the super-wealthy. And the other one is for everyone else, and it's blocked.
The main focus of the ensuing anger from this inequality have been the bankers. Their ridiculously disproportionate wealth clearly has little to nothing to do with the creation of any real goods, and yet they're calling the shots in the economy. That's how the economy has become hollow, devoid of essence, outsourced, basically a giant on clay feet. So it's no surprise we're hearing so many doomsday predictions these days. Sure, we could shun them and say "Meh, I've heard that before", or we could make some conclusions.
An example. In London there was recently a scandal when the enormous bonuses of the board of directors of the central bank was published. People were outraged. That bank is largely supported by the taxpayers' money, and its primary task is to finance the debt of the middle class which is hurting big time. Because it's true that people have been living beyond their means for far too long, and that living standard could be sustained only through perpetuated debt.
The big villain of the present day are the likes of Lloyd Blankfein, the chairman of Goldman Sachs. And the hero of the day is Steve Jobbs. Most FT articles in that section are praising entrepreneurs and criticizing the bank CEOs for granting themselves inexplicably huge bonuses for doing little else but shuffling virtual money here and there and making profits out of it. We truly live in interesting times: the CEO of a large bank is getting 400 the salary of the bottom-of-hierarchy employee in that bank. And in 1980 that ratio used to be 40. A change by a factor of 100 in just three decades! How did that happen? What changed?
The market economy was so successful compared to the other economic systems because it showed a tremendous ability to adapt. Capitalism, on the other hand, has been a string of booms and busts. Many economists argue that this is inevitable, it's built into the system. Fine, but with huge discrepancies like the above-described, and with inept leaders taking dumb decisions and burying their heads in the sand to the real problems, these fluctuations would only tend to get more frequent and more severe with every next cycle.
The success of capitalism itself is related to its adaptability, too. FT has published the two necessary reforms that should be a top priority if we're to get out of the swamp of the 80s model. One: the income in the financial sector should adhere to clearly set rules, and proper oversight is needed. Because it has gone out of control, and enormous wealth is leaking through the loopholes. Two: the system of governing corporations needs urgent reform. That would facilitate short-term strategies, maximum fast capital liquidity and possibly would allow more long-term solutions after that. Surprisingly, in formulating these prescriptions, FT borrows some lines from some of Francois Hollande's speeches (he's Socialist, remember?) But perhaps his words would weigh a bit more than usual when cited on the pages of the most reputed financial newspaper in Britain, than if you merely heard them during his press statements on the presidential campaign trail. Or maybe that, too, is just some populist election posturing?
(no subject)
Date: 4/2/12 18:45 (UTC)Anyway, if the government were the very model of frugality, fairness and openness when it comes to setting salaries and awarding promotions and appointments for top civil servants and executives of crown corporations, government regulation of the pay for executives in private corporations might make sense. In Canada, the government is notorious for giving sweetheart deals to high level appointees, many of whom are collecting government pensions and severance packages at the same time as they are drawing high salaries for political appointments. Often, this information is hidden from the public. An example was former Liberal cabinet minister David "I'm entitled to my entitlements" Dingwall.
It is also common here for political leaders to have cozy relationships with business leaders. A few years ago, Canwest, a Canadian media company fired the editor of a newspaper that published an expose of corruption involving then prime minister Jean Chretien. Permit me some skepticism that Chretien's government would turn around and cut the salary of Canwest's CEO.
I am all for regulations that provide shareholder and public visibility and influence into the salaries of corporate executives, but I think that governments would be reluctant to enact this sort of thing for fear that it would lead to the same standard being applied to them.
(no subject)
Date: 4/2/12 19:08 (UTC)Nope, but would've made it a bit more exciting. :)
(no subject)
Date: 5/2/12 02:25 (UTC)