According to the FT, the overwhelming common characteristic of the books that are being considered for its Business Book of the Year award is their concern for the future of capitalism, coupled with doubts as to the consequences of the prevailing modus operandi of the world's economies.
I will be quite honest in saying I have read few of the books on the list: there is only limited time in life. As a result I am not passing comment on them, as such.
But that this is the mood is hardly surprising. It's not just that we are ten years after the biggest crash in living memory. Nor is it the fact that seemingly many politicians and economists' response is to hanker for times past. It's not even the inability to control the continuing excesses of capitalism that really gets people. Deep down the real issue is that people know the form of capitalism we have cannot deliver now.
I am not saying that there is no role for markets. That is not true, in my opinion. They continue to be important.
What I am saying is that people know now there is no guiding hand that leads to well being for all. It's just not present. Whatever the blackboard theory says, the unequal predistribution of wealth, the persistence of monopoly, the power of banks and landlords to extract rent, the inability of the tax system to really redistribute as things stand, and the ever-present failure of the veneer of regulation undertaken by cronies, means the system does not work.
The greatest need in the twenty first century is for a system of economic management that embraces markets, but which always puts the needs of people, and the imperative of meeting them, first whilst recognising the reality of climate change.
Modern capitalism does neither of those things. The doom-mongers are right to say so. But too few are thinking about what comes next. And that's largely because they cannot get their heads round the state being the agent for change.
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It looks like the book-reading public have decided that the guiding hand idea of capitalism delivering should be canned. Idly, I would suggest a book from the 18th century which would easily win the prize today if it was condensed and re-published without all the analysis of silver markets.
🙂
Well we could go back to a mixed economy system like the one between 1945 to the 1970s when there was a huge change in wealth distribution, followed by the reagonomics of greed which is ending badly for the hard pressed middle classes, or we divise a system that satisfies the 0.1% and the 99.9%.
How do we do that…….? That’s down to the smart people from both camps…… If the super rich don’t get the indefensability of thier ivory towers…. I suspect the first few demolitions with occupants inside will convince them……. or if the labour representatives don’t get the outlet of extremism is satisfied by the excesses of the rich and famous I’m sure the TV reality shows will show them along with the cookery classes….. I’m sure somewhere along the way we’ll manage to find a system that works…….. Perhaps it just takes a new radical “SOCIALISTIC” Approach where we all realise there’s a place for everyone. But then it probably won’t happen and they’ll be no change and the ecosystem will fail completely.
I always liked the term ‘social market system’ myself.
Capitalism is at its best when everyone benefits – the social welfare element.
The State has a major part to play in facilitating this.
Surely you mean that the ‘guiding hand’ should be caned – not canned?
And yes – I’m all for balance – of which we have none at the moment.
I think the “invisible hand” has been magnified out of all importance to what was originally intended, a metaphor for how the pursuit of self-interest can sometimes result in more general social good, and seized upon by lesser minds as “proving” that Smith was a fan of unbridled and unregulated free markets. Tosh.
Leaving aside who cooked his dinner, (an important omission, but then he was a man of his time, while we, of course…..) I see Jesse Norman’s new book on Smith, “which corrects some of the misconceptions and caricatures of the man and his thinking” didn’t make it onto the short list. Perhaps worth a read. But Mazzucato’s did and is certainly worth a read. Can’t say I’ll be rushing to buy Greenspan’s book on why US dynamism is slipping “blaming both the rise of welfare payments (really, who would have guessed this was his view?) and the instability of the financial system”.
Yes, too few can accept that the State is also an agent for change, hopefully for the betterment of all, and not as presently characterised as a dead weight repressing individual dynamism and then having the temerity to relieve these self-made dynamos of their ill-gotten loot for redistribution.
Is Greenspan talking about corporate welfare I wonder?
He ought to be.
‘Nor is it the fact that seemingly many politicians and economists’ response is to hanker for times past.’
I think this is the most dangerous tendency and if fully realised will be neo-liberalism’s most destructive legacy. People are tired, stressed, have been fed false explanations of the roots of their problems. Just a few days ago, the ghastly Johnson exploited this further. AT times like this it is easy for the Mogg’s and Johnsons to disingenuously and condescendingly feed simplistic untruths to the populace.
It’s clear that a whole 70 year period since the Second WW is over and that thorough-going change is needed but we are in Gramsci’s ‘interregnum’ a dangerous time different from the 30’s because then there was an eagerness for education and learning whereas now we have soporific media and large-scale narcolepsy partly due to private debt allowing many to keep consuming combined with politicians of poor quality, some of whom are the most disgraceful low-lifers one can imagine.
Can recommend Graeber – Debt the first 5000 years. Explains that barter (as basis of economics and historic incident) is fantasy. Demolishes the study of economics in Chapter 1.
The notion the private sector “Invisible Hand” automatically optimises employment and therefore demand bit the dust in 1936 with the publication of Keynes’s “General Theory”:-
https://www.srcf.ucam.org/marshall/documents/KeynesGeneralTheoryLecture.pdf“>https://www.srcf.ucam.org/marshall/documents/KeynesGeneralTheoryLecture.pdf
Of course, the “IH” theory never explained why the private sector would create the money in the first place to boost flagging demand or indeed to pay for public fire and police forces. It obviously takes the bulk of humanity a long time to adopt anything as a conventional wisdom or indeed reject it especially if there’s money to be made by the few not accepting the need for it. Anyway the “Invisible Hand” has been “second-hand” for 85 years now in terms of it’s “cure-all” capability, time to file it in the human experience archive!
You know that
But try telling Neo Keynsians…
Capitalism is neither bad nor good. It’s just another economic model to sit alongside state socialism, customer co-operatives (think the Co-Op or the mutual insurers of yester-year) or worker collectives (think John Lewis or the Mondragon Corporation in Spain).
They all exist to serve the best interests of the people and they are all capable of doing so. Things start to go wrong when one of them becomes overly dominant. It starts to believe that it alone is the right answer and from there it is but a short step to move from the economic model existing to serve the people to the people existing to serve the economic model. State socialism did that to its people in the Soviet era and capitalism is doing that to us now.
There is no right answer but the least wrong one is probably a healthy mixture of all such models, with safeguards and regulations to ensure that none can dominate, squeeze out the others and abuse the people. But how do you get there from a situation where one is all-dominant without suffering a highly destructive transition. That’s the question I can’t answer and I’m pretty sceptical about anyone who claims they can.
When and where have worker co-ops ever been dominant?
In order to achieve better balance maybe we need more worker cooperatives. I’m no great fan of the current Labour front bench on the whole but John McDonnell and Rebecca Long-Bailey have produced a useful paper https://labour.org.uk/wp-content/uploads/2017/10/Alternative-Models-of-Ownership.pdf which indicates that a Labour government might introduce legislation to change the economic infrastructure, making it much easier to form new worker co-ops. Hopefully this might also encourage greater citizen involvement in politics and economic democracy.
‘Capitalism is neither bad nor good.’
I’m not sure that I agree.
There was a time when capitalism did work not too badly in the immediate post war period in the sense that it employed people in meaningful jobs and state policy supported it. My father was a toolmaker and was able to buy and pay for his first house for example out of the training and support he got from his union and his country.
This all changed in the early to mid 70’s where he was made redundant. The capitalism we live with now was spawned in that time of rampant asset stripping where making money out of assets became the driver. It seems that industrial policy became disconnected from social policy too from about this time and it got worse from there.
I’d recommend reading this from Yanis Varoufakis because I think that he makes a good point. It is not capitalism per se that is the problem: it is the form of capitalism that is the problem. One could also say for example that communism is not a problem – it was just the way the Russians/Chinese/Vietnamese chose to implement it is where it may have gone wrong.
http://www.theguardian.com/news/2015/feb/18/yanis-varoufakis-how-i-became-an-erratic-marxist
http://www.youtube.com/watch?v=A3uNIgDmqwI
My conclusion on political and economic systems is that they all have the propensity to go wrong when they lose their humanism and the emphasis on people/society is lost and that system becomes beholden to the wishes of the few – whether it is the Koch brothers or Josef Stalin.
I think we should remember what capitalism was like as a reference point because as Milam Kundera said “The struggle of man against power is the struggle of memory against forgetting” .
Capitalism does not need to be like it is now.
Agreed
The conclusion is entirely correct
Richard, markets, private property and competition are not the defining features of Capitalism. All those characteristics were present in both Slave and Feudal economic societies, as were state enterprises. So, addressing any shortcomings in how Capitalism functions by seeking to redress the balance between private and public ownership, or freely competitive as opposed to regulated markets for example, is not IMO getting to the heart of the matter.
Within Capitalism, the people who produce all the wealth have no say in how that wealth is appropriated or distributed. The people who decide to appropriate and distribute the wealth have at best (and that is being very charitable) only a minor role in its creation.
Part of the difficulty in understanding may be people think that in criticising Capitalism we are attacking private property, entrepreneurship or free markets. We are not. What we do find problematic is, for example, the false dichotomy between private and public forms of enterprise. Private firms may be well or badly run. The same goes for public enterprises.
The defining feature of Capitalism is that the people most affected by any decisions the board of directors make, what to produce, where to produce, what technology to employ, and what to do with the profits have no say what so ever in that decision-making process. Thus, those who produce the wealth and the society where Capitalist enterprises are situated have no agency whatsoever. A feeble political vote every five years has proven not to cut the mustard.
The only duty a capitalist towards the workforce is to pay the wages. A decision can be made at any time to up sticks and move to a lower wage economy. No more wages here to be paid. The negative consequences on the community abandoned are of no concern.
Perhaps we should focus more on how the 99% can achieve the agency in the decisions that affect their
Thanks
Yes.
The article headline suggests good capitalism is achievable by tweaks. I do not agree.
Keynes did very good stuff by making it sort of work, but in reality it humbled along through gritted teeth acceptance of inequality providing there were restraints.
That isn’t what we are here to be, to settle for something workable at a bottom line which is acceptable for the greedy.
Most significant is the fact it has not prevailed. While returning to it would be comparatively wonderful, its massive failing is that it is fragile to the bottom line being unsustainable – no matter what regulation occurs.
Until those, that are empowered through restrained power wealth, manage a breaking point where regulation is overturned to get the unrestrained power and wealth they want: Thatcher,Reagan.
*humbled not humbled
‘Tweaks’?!
No one is suggesting tweaks here Brian.
Tweaks might have worked in the past but were then pushed aside from say the early 70’s to now as profit gouging and ‘shareholder value’ has taken over.
The biggest concern is wages which have and continue to decline. Without sufficient income in society, how can capitalism survive? With debt? And how will markets efficiently allocate resources? How can honest profit be generated?
There are some big ideas out here that just need to be tried. A phalanx of new policies and law is required to put things right.
It can be done – but only with vision and courage.
Replying to Pilgrim Very Slight Return
(probably an out of sync reply as could not see a reply button on your comment)
I agree we don’t want mere tweaks or a revisit to the Concensus.
My point is that talking about ‘this capitalist system we have now can’t deliver’ type language is worrying phraseology.
Implication is that there is ‘deliverable capitalism’ if the system is adjusted.
Such tweaking I certainly don’t want. I want radical change.
Which is why I expressed concern at the headline, phrased as it seems, to suggest there is a ‘capitalism answer’.
Wanting radical change desperately, such apparent context confused me.
John Adams,
it seems to me that, inadvertently or not, you are advocating for the end of the corporation as we know it, the limited liability, multi-national corporation.
So am I.
https://www.theguardian.com/business/2004/oct/24/politics.money
As we know, it is in need of fundamental reform
And I still mourn Simon Caulkin’s column
Yes Marco, but only by general consent. As Marx said Slavery, Feudalism, Capitalism and Communism and Self Employed can all co-exist together. However at any one time only one may be dominant. In our society we have all five, although Slavery is much frowned upon and illegal, for example, it is still present.
Capitalism as a system is very unstable it ceases to function where the stabalising counterforce of believe is absent. However, that belief will not be withdrawn until we transfer our allegiance and hence belief to a better system. Marxism although it plays a major role in this process is not that better system. Marxism is a theory of anti-Capitalism. It is not and Marx never claimed that it was, and is a theory of Communism. It does IMO provide the a bridge. That theory was for future generations to provide. Without adequate theory effective action is not possible.
“But how do you get there …without suffering a highly destructive transition.” I don’t think you can. The history of social transition to something less inequitable and more fair is littered with destruction, whether it’s revolution or human induced famine or appalling working conditions or excess deaths thanks to austerity (though we don’t know if the future will be fairer after austerity is consigned to the dustbin of history). Even Attlee’s Welfare State was a product of the most destructive war ever. But even then, slowly the gains are to some extent rolled back as reactionary forces reassert themselves.
Walter Scheidel explains in “The Great Leveler”.
G Hewitt
“But how do you get there …without suffering a highly destructive transition.”
Excellent point and one that the different schools on the left have been arguing about since it seems for ever. Part of the answer may be to make joining a Worker Co-Op voluntary. Therefor there should not be any laws banning any capitalist enterprise. A lot of people still support Capitalism and that support may last for some considerable time; their constituency must be respected. People are free to join or leave the Worker Co-Op sector when ever and how often they chose. Allowing that democratic choice avoids the street confrontations that would be a feature if a ban was imposed. All members of the Worker Co-op sector belong to the same bank. It would be difficult for the riot police to move against anyone simply for changing their bank. The forces of repression are not trained or geared up for that. Also, giving people a democratic choice lets them experiment and see if a change of systems is for them. Stick their toe in the water, wriggle it about a bit all in the knowledge that no irrevocable decision must be made. The two systems would in fact regulate one another. The more successful the worker Co-Op sector became the more the Capitalist sector would need to respond e.g. paying their taxes, paying a decent wage and so on. In this the Capitalist sector would get a large boost from trade with the Co-Op sector. This may be another factor that would help mitigate against violence.
Agreed. I’m impressed with the idea of the WSDE, (Workers self directed enterprise), which I think you mentioned previously, and promoted by Prof. Richard D Wolff, who takes a Marxist perspective and sees it hastening the demise of capitalism. A programme such as you suggest may indeed avoid the kind of violence which has characterised much of previous social change. And may even be more sustainable and environmentally friendly.
*Or even bumbled not humbled not humbled
A couple of things need to be said about this “Invisible Hand” notion.
Some commenters above have pointed out that it was never front and centre in Adam Smith’s analysis. Well and good. The notion was a one-off anecdote from The Wealth of Nations that was blown out of proportion by certain folks that were quite happy to misrepresent Smith for their own purposes.
As to the Invisible Hand concept itself, it represents what is known as an externality. Externalities are unintended consequences of economic activity. Things that occur as a result of production but are not part of its purpose. Externalities can be positive or negative. Industrial pollution is negative. The idea of the Invisible Hand is that relative cheapness, abundance and efficiency are positive externalities that flow from the individual’s pursuit of self-interest in a competitive market.
The first thing that needs to be said about this that those externalities can only occur in a diverse and highly competitive market where none of the competitors can influence market conditions. Most of our money is spent in markets that are not highly competitve. In a market where monopolies or oligopolies prevail, rent-seeking is the result of self-interest and market power. That’s not an externality, it is intentional.
The 2nd thing needs to be said is that there other less positive externalities that can flow from the individual pursuit of self-interest. “Co-ordination failure” (an academic term) is the flipside of the Invisible Hand. It can be seen to occur in asset market collapses where shareholders (for example) pursue their individual self-interest by panic-selling that is intended to get ahead of the game and avoid further losses. Their individual actions, however, drive the overall market down further and make things worse for all concerned. If they were organised (co-ordinated) they would behave differently but they are not. They are pursuing self-interest individually. A similar example can be seen in the case of depositors’ staging bank-runs. Irving Fisher identified an important example in the case of deflation where businesses plagued by falling prices stage desperate fire-sales that drive prices down further in a deflationary spiral.
The individual’s pursuit of self-interest does not always work for the better. To conclude otherwise one requires limited knowledge or very selective thinking.