The Great Debate UK

Capitalism in the West and other myths…

The West’s claim to be a capitalist society has been eroded throughout the European sovereign debt crisis. If we were truly capitalist then the markets wouldn’t expect Germany to step in to solve the euro zone’s problems or to eradicate the excess debts of Europe’s periphery. The prospect of this safety cushion provided by Berlin has kept the euro propped up even though Spanish bond yields are hovering around 7%, even after it received the go-ahead to get a bailout for its banks.

The same is true the other side of the pond. Since the financial crisis, the central bank in the U.S. has stepped in to prop up stock markets and other asset classes with quantitative easing when volatility has spiked. Some people in the markets now just expect officials to step in and save investors when the going gets tough.

Surely that is the exactly the opposite of the principles upon which capitalism was founded? One of the central tenets of this social system is to limit state intervention and give individuals the freedom to work and reap the fruit of their own labours. That means that people are free to prosper, but also free to fail. Many could argue that the bailout of Spanish banks’ is another perversion of capitalism. If the 50% of young people who are unemployed in Spain are allowed to go without a job then why should Spain’s banks get bailed out when they were the ones that extended unsustainable loans leading to one of the biggest economic disasters in Spanish history? No wonder nearly 40% of Harvard graduates in 2010 went into a career in investment banking – you win, you get paid a fortune, you lose you might also get paid a fortune. If that 40% became entrepreneurs then they may have found out that if you lose, you really lose.

So the sovereign debt crisis in Europe is yet another economic disaster in the West that highlights the holes in our capitalist façade, but it is not the only one. An intriguing article on Marketwatch about the myth of perpetual growth in America got me thinking about Europe. There has been a lot of talk that bailouts etc. won’t help Europe’s periphery, what it really needs is growth: growth to pay down the debt and growth to build its economy on a surer footing for the future. However, I have two problems with this theory. The first is that growth in the last decade in parts of the currency bloc was the negative kind, fuelled by debt and thus not really growth at all. Hence why Spain and Ireland’s banks needed bailing out: strong growth rates were fuelled by unsustainable lending to the construction sectors, which eventually imploded. Greece lived on a public spending binge for a decade that was also fuelled by another form of borrowing – sovereign debt.

Why natural capital will transform the 21st century global economy

By Adam Matthews, Secretary-General of Global Legislators Organisation (GLOBE). The opinions expressed are his own.

One of the great advances in the past century in economics is the understanding that there is such a thing as human, social and intellectual capital.  We have come to realise that a well functioning judicial system and an excellent education system are as much a part of the wealth of a nation as its roads, ports and factories. The irony is that economists and economies have not caught up with the most important capital of all — natural capital – upon which we all depend.

The corporate hijacking of Occupy Wall Street campaign


By Kathleen Brooks. The opinions expressed are her own.

As New Yorkers hurried to work on Wall Street on Friday morning they were greeted by police bracing themselves to cope with a wave of protestors apparently threatening to storm the New York Stock Exchange. By lunchtime the storming had failed to occur, 14 protestors had been arrested and hungry workers were free to go out and get a sandwich.

In recent days the Occupy Wall Street campaign is looking more like a damp squib than a counter-capitalism movement. The protests may be born out of a genuine frustration with bank bailouts funded by the tax payer, but no sooner had the first placard been written then corporate big-wigs sensed the opportunity it presented and rushed in to join the fray.

from Global News Journal:

Iran’s Ahmadinejad tells UN capitalism’s dying

Iranian President Mahmoud Ahmadinejad and U.N. Secretary-General Ban Ki-moon

Iranian President Mahmoud Ahmadinejad and U.N. Secretary-General Ban Ki-moon

Iranian President Mahmoud Ahmadinejad told a U.N. General Assembly session on poverty this week that capitalism is on the verge of death and that it's time for a new economic system.

"The discriminatory order of capitalism and the hegemonic approaches are facing defeat and are getting close to their end," Ahmadinejad said at a summit meeting assessing progress on achieving U.N. goals to drastically reduce poverty by 2015.

from MacroScope:

Step aside capitalism, how about leverageism

Our recent post on the End of Capitalism triggered much interest and comment.  There were plenty of diverse views, as one would expect. But one thread that came out was that what we are now seeing is not true capitalism (nor, of course, is it old-style communism). Ok, but what is it?

Anthony Conforti suggested in a comment that we need a name for what is happening,:

Slavoj Zizek on resurrecting the Left


Soon after the global financial crisis erupted in 2008, treatise “Das Kapital” saw a resurgence in popularity throughout eastern Germany.

The 1867 critical analysis of capitalism by Karl Marx became a bestseller for academic publisher Karl-Dietz-Verlag, as a rejection of capitalism set in following intense financial turmoil.

from MacroScope:

The end of capitalism

Hard to imagine with financial markets still buoyant and newspapers full of tales of bonus greed, but there is still the possibility that captialism will end.  At least there is according to prestigious investment consultants Watson Wyatt in their latest study called "Extreme Risks".

The firm listed the demise of the system of private ownership as one of 15 threats to investors and the global economy that probably won't happen but which it reckons are worth worrying about anyway. The idea behind the report is that such things as climate change, the break up of the euro zone and war are always worth being included in an investment risk management process.

Economist John Kay mulls Berlin Wall anniversary


When the Berlin Wall fell 20 years ago, the momentous event marked the triumph of the market economy over planned economic structures, says British economist John Kay.

He explains his views on why the capitalist system reigns supreme.