January 17, 2012
Capitalism has seen better days. Sensing a market opportunity and anxious to comfort its flock, the Financial Times recently commissioned a series on "capitalism in crisis". With their intellectual content, these essays provide a merciful escape from the trivial pursuits of US primary campaigns.
Given their decentralized mode of production, no two essays offer the same opinion. This is to the benefit of the series since, within the constraint of a column, no author could possibly cover the whole topic. But this very variety wants a synthesis, even at the risk of adding but another opinion.
While Western societies are in crisis, it would be dangerous to focus on capitalism alone, whether to laud, to blame or to fix it. We must not forget that their engine runs on a fuel mixing a spirit of enterprise and a need for solidarity, or in more cynical words, greed and fear. And even more than capitalism, social solidarity is in crisis, its own reputation in tatters.
Lawrence Summers cleverly rescued the FT series from its congenital flaw (*). Social solidarity is indeed what he is talking about when he declares that in the US, "the current path of planned spending and revenue collection is inconsistent", when he stresses that rising unemployment calls for appropriate "macro-economic policies", when he focuses on "health, education and social protection" (1).
Lawrence Summers's analysis is inclusive but also dynamic. The more successful capitalism, the harder it is for social solidarity, he points out, as both its delivery costs and the citizens' expectations rise in proportion to their standard of living. No wonder Mahathir Mohamad speaks of "the refusal [by Western populations] to accept their impoverishment" (**). His gloating tone should not close our minds to how distorted perceptions have become when citizens fall for either easy promises of unfunded social entitlements or brazen lies painting social duties as a burden on society.
The converse is just as true. The more developed social solidarity, the harder it is for capitalism. For markets, though useful, are not sufficient to deliver solidarity. As Paul Krugman reminds us "America is not, in fact, a corporation" (***). Take away non monetary rewards and punishments, which express the shared morality of a functioning society, you are left with nothing but numbers. They look informative, yet blur reality. Citizens become mere iPatients to healthcare, iStudents to education and iCases to social protection. And to iTaxpayers, taxes will always be too high.
Still the instability inherent to financial markets cannot be ignored. While trading, even High Frequency Trading, do not a bubble make, while what David Rubenstein calls "unfettered [human] exuberance about wealth creation" does (****), banks should remain responsible for their actions.
Yet "Simon Johnson, a professor at MIT Sloan School" finds "the regulatory agenda [...] too modest to start with, and the banks' political power [...] incredible", according to John Gaper's quote (*****). This debilitating influence of lobbies is capital (2). Neither can capitalism endure outside of the rule of the law nor can social solidarity bind citizens outside a social contract. But how can a society meets these twin requirements when it selects, elects and judges its representatives, and hence its laws, through a process financed and controlled by unaccountable lobbies?
David Rubenstein recommends better education as a means to solve the crisis. He has in mind "the mismatch between job openings and qualified candidates". Isn't it also a necessary condition to rid the electoral system of the undue influence of money? If education is an investment to be made and financed by the parties to which it is imparted, it is true, but in part only. Educating citizens also falls within the sphere of social solidarity.
Fathom then the depth of the Western crisis. Beyond a crisis of both capitalism and social solidarity, it is a crisis of democracy, corrupted as it is into a new regime I call pronaocracy. But the very way out of the latter, better education, is undermined by the former, which renders education at the same time too expensive and too wasteful. A circular trap.
In times of crisis, history, especially the evolution of language, provides useful insights. Take the definition of a person, a concept fundamental to the US Constitution. Because the latter does not explicitly mention these essential agents of modern society, corporations have been recognized by including them under the definition of persons, thereby hopelessly confusing the rights and the duties of two obviously different types of entities.
John Kay makes a similar remark apropos capitalism (******). "Warning us after Confucius that "sloppy language leads to sloppy thinking", he characterizes capitalism by "the ownership of capital and the control that ownership [gives] over the means of production and exchange" and renames what we call capitalism as "the market economy".
I wisely defer to him as far as the history of economics is concerned. But as an economic system, what we call capitalism for lack of a better word is to be reduced to markets no more than to capital. I will keep the noun picked by the Financial Times to name its series.
Quarrel about words have received poor press in the past. John Kay is not trying to become a foreign correspondent of the Académie Française. His point is that "ownership of the means of production and exchange matters very little" today, while "control" over them is everything, independent as it has become from ownership. This in turns creates what John Plender (2) described as "the agency problem at the heart of the banking and boardroom pay sagas", professional captains morphing into condottiere.
John Kay's dissection of economic power into control and ownership is a matter of great import. Based on decentralization, capitalism can only suffer when central management escapes from the control of a distributed ownership. But forget "buildings and machines". Today's "means of production and exchange" is data. Return control of data to its dispersed legitimate owners and you will go a long way to restore the balance.
Insider trading is how corrupt managers and their hangers-on repurpose data belonging to the shareholders. Privacy violations is how corporations repurpose private data which ought to belong to each one of us. Don't believe blandishments. There will always be insiders, of course, but they should noy trade for themselves, be they Foster Winans (3), Galleon's informers or Goldman Sachs itself. Filtering commercial contacts through personal profiles is indispensable to an online economy, of course, but it does not follow personal profiles must be aggregated by corporations.
I have a dream of ePrivacy. If today you think private dreams should cede to public hopes, why not all begin by sharing a dream of democracy?
- (*) ........... Current woes call for smart reinvention not destruction, by Lawrence Summers (Financial Times) - Jan 9, 2012
- (**) ......... The west needs to go back to the capitalist basics, by Mahathir Mohamad (Financial Times) - Jan 12, 2012
- (***) ....... America is not, in fact, a corporation, by Paul Krugman (New York Times) - Jan 13, 2012
- (****) ..... A letter from Adam Smith to concerned capitalists, by David Rubenstein (Financial Times) - Jan 10, 2012
- (*****) ... Promises that proved ultimately empty, by John Gaper (Financial Times) - Jan 10, 2012
- (******) . Capitalism is the wrong target - but we can refine it, by John Kay (Financial Times) - Jan 11, 2012
- (1) the original text, "health education and social protection", is manifestly victim of a typo.
- (2) my last week's fillip quoted this very point from the conclusion of the first essay in the FT series,
The code that forms a bar to harmony, by John Plender (Financial Times) - Jan 9, 2012
- (3) for more information, see Foster Winans in the wikipedia