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,:
The first step in defining a new economic paradigm is coming up with the proper terms…new words to define a new economic environment. As words, “capitalism”, “communism”, “socialism” may now be inadequate to describe the emerging economic reality. We need new nomenclature. Any thoughts?
Here’s one suggestion. There seems to have been precious little capital building going on is the last few years, so even in a free market, capitalism sounds a bit inaccurate. How about “leverageism”? Borrowers of the world, unite. You have nothing to lose but your shirts.
Time to pick up the challenge. What should we call the dominant economic system?
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.
As for the future of capitalism:
In our view, the most likely scenario is moving along from one end of a spectrum where market is king (minimum regulation) towards the other end, where we could see more onerous regulations and government intervention in, and control of, the economy. The extreme risk, however, is the demise of the capitalist system and the end of the market as the primary means of resource allocation.
And the impact:
The economy would be likely to run a higher risk of failure and economic growth would be sluggish in the long run due to lower productivity. Centrally controlled economies tend to be characterised by shortages, which are inherently inflationary. Private investment activities would collapse or even be terminated. The end of capitalism is simply the ultimate extreme risk. The economy is likely to be associated with extreme uncertainty and a large amount of wealth destruction during the transition period.
Watson Wyatt does try to give its free market clients some hope, suggesting that buying gold may be one way to hedge against the propect of capitalism’s demise. But it admitted that in such a circumstance investors would probably be more concerned about the return of their investments rather that the return on them.
I’m probably wrong but, hasn’t true capitalism been dead for nearly 100 years now if not more?
from Global Investing:
Away from the flock
Companies need to actively encourage dissent and aspire to heretical rather than consensus views if they want to avoid being as unprepared as they were for the financial meltdown.
Noreena Hertz, professor of finance, sustainability and globalisation at Erasmus University in the Netherlands, kicked off the CFA Institute's second annual European Investment Conference in Frankfurt with a wake up call for the assembled asset managers and bankers.
"This was not just a financial crisis - this was an existential crisis that exposed a faultline in the system," she said. "The way we thought about the world was profoundly flawed."
Hertz identified several major problems - a culture of intellectual conformity, the deification of experts like Alan Greenspan, and dogma superceding reason. She said the free-market economics that triumphed post-1979 should have been treated more as a hypothesis, not fact, but within economics debate was discouraged, and thinkers like Keynes and Minsky who didn't fit the prevailing view were sidelined.
For their part, individuals and businesses had accepted orthodox thinking and allowed the proclamations of "experts" to go unchallenged. She urged delegates to think in a more holistic way - for example, rather than just focusing on rising house prices in the US, they should have given some consideration to the amount of credit cards the average household had.
Psychology also played a part. Investors had accepted Bernie Madoff's ability to deliver an 11 percent return year after year because they wanted to believe it. "In the same way, you need to ask yourself whether the "green shoots" recovery story is so dominant because everyone is bored with bad news. Is it a political construct in the hope that it will become a self-fulfilling prophecy?"
Having unsettled delegates, Hertz offered them some hope. Replacing the individualistic "Gucci capitalism" that has predominated for the last 30 years she foresaw a more co-operative capitalism in which individuals took a more active role in helping solve complex problems like climate change, the demographic timebomb and sustainability. Everything to play for there.
Capitalism, Brazilian-style
Brazil’s president, Luiz Inacio Lula da Silva lays out his views today on how the world will work in the future. It’s part of a Financial Times blog on the outlook for capitalism:
Anon, Glass/Steagall, Breton Woods and other agreement were broken to further capitalist gain. What was forgotten was that this regulatory framework was put in place as a response to a similar crisis that unfolded in the 1930s.
We made the mistake of not regulating and keeping banking separate from investing 80 years ago. We changed that. Shame on the bad bankers. We repealed all of that and the bad bankers went at it again. Shame on us!