What type of capitalism do we have today and to what extent does it need to be reformed? By Ian Fraser: The version of capitalism that is prevalent in the world today is globalized, oligopolistic, crony and blind to its own crisis of legitimacy.
It was given impetus by the likes of Milton Friedman and the ‘Chicago School’ in the 1960s and 1970s. They cherry-picked the ideas of the enlightenment thinker Adam Smith, and with the help of political followers such as Ronald Reagan, Margaret Thatcher and their successors spread their market fundamentalism throughout much of the rest of the world. Sadly however such people focused exclusively on Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776), ignoring his earlier work, The Theory of Moral Sentiments (1759)
As a consequence, a ‘winner takes all’ or ‘feral’ version of capitalism became the norm. In this version of capitalism which the historian Eric Hobsbawm has described as “a pathological degeneration of the Adam Smith line” companies focused so relentlessly on short-term profit maximisation that responsibility and civilised values — including caring for customers, caring for their staff and caring the environment — were jettisoned.
Once this sort of capitalism takes root, a race to the bottom generally ensues. Indeed, the pre-crisis frauds in the banking sector, including the manipulation of Libor and rackets such as payment protection insurance and interest-rate swaps sold to SMEs, suggest that, under this version of the capitalism, banks thought it perfectly acceptable to swindle billions of dollars from their own customers and counterparies.
And the drugs multinational GlaxoSmithKline saw nothing wrong with committing massive fraud and corruption in the pharmaceuticals sector, even when it meant playing with patients’ lives. A “light touch, limited touch” regulatory regime caused such firms to believe they were pretty much above the law.
Business leaders who were incapable of building anything of enduring value such as Jimmy Goldsmith, Lord Hanson and Fred Goodwin were lionised by the media. The IMF became an instrument of Wall Street, workers in China and elsewhere were exploited, inequalities of wealth widened, and intellectual discourse was dumbed down.
Instead of letting it die or pursuing active reforms, governments propped up its corpse and tried to breathe new life into it by bailing out many of its busted institutions. In the process it turned them into potentially even more hazardous ‘zombies’. Policymakers also recreated the oligopoly in banking. In the UK the government of prime minister Gordon Brown allowed Spain’s Banco Santander to swallow up many of the country’s former building societies and waved through Lloyds TSB’s ultimately disastrous and anti-competitive acquisition of HBOS.
Central banks then compounded the problem. The US Federal Reserve, European Central Bank and Bank of England further distorted markets, patched up bubbles that should have been allowed to deflate and increased inequalities by printing money, keeping interest rates artificially low and pumping liquidity into the system.
The scope for ‘moral hazard’ and corruption when the government rescues failed banks and ends up owning whole swathes of the banking sector is immense (for example, the ownership of banks gives the government a vested interest in ensuring that their past and indeed current wrongdoing is swept under the carpet, and in generally whitewashing the sector through any number of wilfully blind “reports” and “inquiries”).
In a free market, corrupt and failed institutions would have been allowed to go bust. The people who drove them into the ground would have lost their shirts and perhaps gone to jail. But apart from a couple of scapegoats, they have now been largely exonerated, with many carrying on as directors and members of the “great and the good”.
Ultimately, the version of capitalism we have today is a dangerous perversion of what the likes of Adam Smith advocated.
Source
No comments:
Post a Comment