- Simon Zadek: Reflections for the Magic Mountain
- John Mathews: What happened to the greening of Capitalism?
- Christian Kellermann: Politics matters. Really.
Simon Zadek: Reflections for the Magic Mountain
The Davos countdown has begun, as some of the world’s most powerful embark on the ritual trek up the Magic Mountain. What should be expected from this glitzy, snowy, global dialogue in this Year of Unreasonableness? The Davos headline for this year is The Great Transformation, “…an indisputable leadership challenge that ultimately requires new models, bold ideas and personal courage to ensure that this century improves the human condition rather than capping its potential”. But can Davos offer real alternatives or will it serve up a smiling, gritted-teeth espousal that ‘business as usual’ can and should be sustained?
Martin Wolf, the FT’s economics supremo, has tried to meet expectations in his article on 7 Ways to Fix the System’s Flaws. Sadly, however, he has wasted a great opportunity in clothing a softly-softly approach in the claim to be addressing ‘capitalism in crisis’. Fixing finance, the elephant in the room, needs in his view higher capital ratios, stronger oversight, and smarter consumers. Whilst no one would disagree with such common sense advice, there are equally few who would agree that these actions will fix the problem. They leave in play perverse incentives, conflicts of interest and the entire, under-regulated shadow banking system that is busy repeating yesterday’s profitable errors. Mr Wolf’s solution to inequality is equally laudable, large-scale fiscal redistribution and investment in education for the poor. But does such fashionable moral Keynsianism, echoing the best of Victoriana, really address the economics of inequality; how best to change a system that is increasingly delivering winner-takes-all outcomes?
Mr Wolf agrees that problems with power and accountability lie at the heart of our broken economic system in highlighting the need for changes in corporate governance and the corporate financing of politicians and their parties. But again, his solutions seem at best partial. Limiting direct financing of politicians is a great idea, as would making public finance available for our noble representatives in their struggle to be elected. But how does he propose to get these turkeys to vote for Christmas? And does he really believe that closing the front door to political financing will shut down an activity that some estimate to be the most profitable game in town. And similarly for corporate governance. Mr Wolf declares the ‘corporation’, by which one must assume he means the Anglo-Saxon approach to running business, as the best we have and as good as it gets. Improvements, he pleads, need intelligent, well-informed board directors, greater transparency and no government intervention, (except for the banking system). Yet few believe that any but deeply involved (and therefore no longer) ‘non-executive’ directors can understand the complexity of today’s corporate money-making moves. Any a ‘how-many-clicks’ map of today’s non-executive directors of the world’s largest, listed companies highlight how small this club really is, and raises doubts as to whether it can support any real challenges to ‘business as usual’. Indeed, given the short-term interests of most investors, today’s dominant fiduciary approach seems unlikely to deliver anything but trouble, including lower financial returns.
Mr Wolf is one of my professional heroes, fearless, smart and vocal. But although his solutions are sensible they do not address the underlying problems.
Think first of all about what he has left off the table. After decades of crusading anti-corruption measures, there is little doubt that things are getting worse. And far from this being a problem linked exclusively to emerging economies and businesses, we see an ever-greater visibility of those on the take, flaunted cynically by politicians and businesses, in countries with mature regulations and institutions that are meant to provide oversight. Frankly, the main difference between corruption in developed economies compared to weakly governed societies is that corruption in the former has been legalised into super-profit taking, obscene remuneration, laying-off risks on the poor, and systematic under-contributions of the rich and profitable through the tax system. The inequality of outcomes identified by Mr Wolf are the manifestations of these endemic features of our political and economic system, and cannot be solved by calls for fiscal redistribution.
And what of the environment, Mr Wolf, which you get around to mentioning three lines from the end of your article, calling for “above all, protection of the environment”. Surely such trivialization is not worthy of one of today’s most visible economists. The problem here is not just that you have, or at least offer no clue as to what to do about it. It is that you appear to see no links between the state of the economy and the state of the natural ecology that sustains our lives on this planet. The real problem with the financial markets is not that they are unstable and liable to periodic implosion – it is that they are not doing their task of investing our money in creating a resilient, sustainable economy that will benefit current generations and those to come. Endemic short-termism is another way of saying that investors are disinterested in what creates real value, financial or otherwise, but have decided that competing with each other to make money out of money is a simpler way to get rich. Even if you are unwilling to value what cannot be monetised, take a look at how catastrophic last year was for the insurance business because of natural disasters, or the speculation-driven food price peaking just before the Egyptian revolution. Please, Mr Wolf, do not relegate the environment to an after-thought to your ‘serious economic analysis’.
Radical change rarely comes from the mainstream. We know all about disruption when it comes to technology. CEO’s nightmares are filled with unexpected enterprises that in short time suck the value out of their incumbent businesses. But when it comes to institutions, political systems, values and beliefs, most folks – especially economists – turn their backs. Mr Wolf has under-played himself in doing the same. He does of course mention the Occupy movement, but only in the context of a complaint against inequality, not as a source or vector for economic innovation. Surely the ‘financial transactions tax’ is worthy of mention, not because he agrees with it (which he certainly does not), but because it illustrates exactly the kind of solution that we should be debating, inventing and advancing into practice. If reform of corporate governance is part of the solution, why not consider the value of a new generation of state-owned enterprises from China to Chile that are entering the global economy with both profit and public interests in mind. Or closer to home, why not consider the merits of the so-called B Corporations emerging in the US and elsewhere as having fiduciary arrangements that allow for, indeed encourage, financial and broader interests to be taken into account.
Political Economy 101 tells us that change is unlikely to come from the dog that bit us in the first place, the politicians, businesses and classes of people in whose interest it is to change as little as possible. And that brings us back to Davos. Like capitalism, the World Economic Forum has been hugely successful in reshaping its constituencies and narrative to stay in the game. Thanks in no small part to the political intuition of its founder, Klaus Schwab, the Forum has avoided becoming the stranded asset that is the fate of most fashionable venues. Responding to earlier anti-Davos sentiments, the Forum established a public forum that allows the local community and global activists to voice alternative views whilst remaining outside of the Forum. Furthermore, as its earlier constituencies aged and perhaps got a little drab, the Forum created its own disruptors, social entrepreneurs, young global leaders and technology pioneers just to name a few. And this year, in response to the Occupy movement, Davos will sport yet another class of internalized disruptors, the Global Shapers. It is nothing short of genius, simple and effective.
Yet Davos does not seem to be able to avoid the Orwellian-type edict that inclusion in an exclusive club eventually makes for a room full of rather like-minded folks. Differences are carefully socialised, and disruption frowned upon and a cause for the removal of club privileges. This is not especially bad or mean, it is just the rule of all clubs. There may well be an expert in B Corporations at Davos, and there will certainly be folks who support the financial transactions tax and see the power of state-owned enterprises to improve the state of the world. There may even be the odd person on-site who wants to discuss the role of resource nationalism, religious fundamentalism and non-democratic political systems in saving us all. And to be fair, somewhere on Davos-campus, perhaps in one of the smaller hotels up the hill, protected from serious visitors and the media by distance, ice and a lack of prestige, some of these discussions might actually, in fact almost certainly will, take place. Yet these conversations are in Davos born to be marginalized, ridiculed, or just ignored.
It is tough to seek to disrupt the lives and livelihoods of one’s own members, sponsors and friends. That is certainly true in Davos, but is also painfully true in the inner world of international NGOs, or the bureaucracies of government and international organisations. Try supporting nuclear in a Greenpeace meeting and see how far it gets you. But it is disruption that is needed, of that there is no doubt. The Davos strapline, the Great Transformation, is not conceivable without the Great Disruption, and there are few if any incumbents that will welcome that. So Mr Wolf, thank you for your proposed seven tasks and thank you for being a wonderfully erudite economist and writer. But might I ask you to raise your ambitions, and those of your readers, by applying yourself and risking more in setting out what needs to be done to address the underlying problems of our time, and the fuller range of possible measures for doing just that.
Simon Zadek is an independent advisor and author. He blogs from Davos 2012 at http://www.zadek.net/blog/
John Mathews: What happened to the greening of capitalism?
Martin Wolf has presented a provocative diagnosis of the current flaws found in capitalism, and suggested some cures. At the same time, the World Economic Forum is preparing for its meeting in Davos, under the slogan ‘The Great Transformation – shaping new models’. The problem is that neither Mr Wolf nor the Davos organizer, Klaus Schwab, has anything to say about the biggest issue of all – how to transform capitalism so that it does not proceed along its ‘business as usual’ lines to destroy the planet.
We have to start with some common ground, and that is surely that capitalism is an amazing human invention. It started in some small city states in Europe. It then became turbo-charged with the Industrial Revolution, lifting hundreds of millions of people in North America, Europe and then Japan out of poverty. And then it became global, and now it promises to lift many billions of people – in China, India and successor countries – out of poverty as well. The Great Divergence, where the West powered ahead of the East, has been followed by the Great Convergence, with China et al catching up with the advanced countries, and even leaping ahead.
And here the common ground ends – because the western model of capitalism conveniently assumed that nature was an infinite source of resources and an infinite sink for wastes, and that the whole shebang would be powered by fossil fuels forever. As soon as China and India et al venture to replicate this model, they come immediately up against the problem that the resources are dwindling (think peak oil) and becoming scarcer and more expensive, not to say geopolitically explosive. China is seeking to avoid this inconvenient truth by developing its own ‘green development’ model – where as fast as it builds coal-fired power stations it also builds the world’s biggest fleet of wind farms and solar farms and exports green technology all around the world. And this is not even to mention carbon emissions, where China et al are scolded by the West for adding their contribution after everyone else has done so. China’s strategy will deal with carbon emissions as well – no wonder Hu Angang argues that green development is ‘an inevitable choice’ for China.
So the next ‘great transformation’ (to borrow Polanyi’s wonderful formulation) is surely going to be the greening of the system that has brought so much wealth and promises so much – if only it can be aligned with natural cycles and mimic life. China is showing the way, presenting the developing world with a model that breaks away from fossil fuel and excessive resource dependence, and from a finance system that promotes such biases. Here then are seven ways to fix the system and make it sustainable – as an alternative to what Mr Wolf proposes.
- Maintain corporations earn their ‘limited liability’ by subjecting them to eco-audits (impacting on their share price);
- Make renewable energies the default option – with tax penalties imposed on every other source – and public procurement the driver of their accelerated uptake;
- Make resource circulation the default option, attaching penalties to securing ‘virgin’ resources and creating wastes that cannot be used by anyone else (China’s Circular economy);
- Promote eco-finance by linking financial flows to their end-products and subjecting them to the test of ecological sustainability, via differential interest rates;
- Stop taxing capital and labour and instead tax resource throughput and carbon build-up;
- Treat finance as a utility, and regulate it accordingly;
- Allow a stabilized green sector to grow, underpinned by green finance, setting standards for the rest of the system to meet.
Yes, this a radical diagnosis – in the sense of getting at the roots of the system – but we can agree with Mr Wolf that the system is already in crisis and begging for a new direction and new wave of sustainable investment. The program embodied in these seven points is designed to move the system towards a new pattern of alignment with the living planet, rather than being at war with the planet. It’s not meant as a blueprint or end-state. And it doesn’t need a ‘Kyoto Accord’ because it will have to be implemented country by country, region by region, city by city. The greening of capitalism will be the next great transformation, exactly what the doctor ordered.
Professor John Mathews holds the Eni Chair of Industrial Dynamics and Global Strategy at LUISS Guido Carli University, in Rome.
Christian Kellermann: Travelling on duty
Martin Wolf’s “seven ways” to fix capitalism draw the perfect line between the 99 and the 1 percent. His reform agenda would find applause at the Institute of International Finance just as it would raise some hands at the Occupy camps. Defining the “realpolitik” of economic reform in such an intelligent way is admirable, but unfortunately also dreadfully inadequate and insufficient.
Wolf touches some of the major systemic flaws, going beyond the superficial reform concessions of the direct profiteers of current crisis capitalism. He lists problems with pro-cyclicality in financial markets as well as regulation, rising inequality across the world, the incentives to manipulate and loot under current corporate governance regimes, the need for taxation in order to redistribute, to invest, to employ and provide for (global) public goods. He also seeks to protect politics from being purchased by private interests by providing more direct public financing to political actors and parties. All these ideas are spot-on. His conclusions, however, remain overly incrementalist – for good reasons, of course.
Take the example of rising inequality: Wolf lists a number of solid arguments explaining the phenomenon across the OECD-world, ranging from globalisation to the rise of unfettered finance. Politics matters, he writes, in order to correct that trend and emphasizes the immediate need to subsidise job creation or generally promote public employment. This sounds almost like the creation of a Scandinavian, ideal-type social democratic variant of capitalism. But he avoids a crucial point: Politics has lost a great deal of its influence and effectiveness! Establishing and maintaining a fair tax system that generates sufficient revenues – the precondition for state action – has become a nearly impossible task, undermining the acceptance of regionalism or globalisation as such. The rise of anti-European right wing populists, combining welfare chauvinism and nationalism on the back of immigrants is a case in point. If Wolf remained true to his analysis, he would not only demand a wealth tax and more indirect taxation at the national level, but endeavour to explain the win-win-situation of an internationalisation of some taxation in order to regain national tax sovereignty and provide for the appropriate means to generate more equality effectively. Davos would a good place to argue for such true “realpolitik”, going beyond the narrow interests of an increasingly destructive logic of “über-competition” and promoting a compelling logic designed to regain national political space by international cooperation for a better variant of capitalism.
Capitalism needs to be decent if it is to be accepted by the 99 percent. It needs more profiteers and for that it needs strong politics. Relying on capitalism’s “genius” alone to fulfil this task is an approach too close to the 1 percent and will fail. In Wolf’s world politics matters only theoretically. Most in Davos can very well live with this – for the time being.
Christian Kellermann is Director of the Friedrich Ebert Foundation for the Nordic Countries in Stockholm and co-author of Decent Capitalism. A Blueprint for Reforming our Economies. He writes here in a personal capacity.
Martin Wolf proposed seven ways to fix our economic system. What do you make of Wolf’s points? Is his argument going into the right direction? Or do we need a less incrementalist, more holistic strategy? Which arguments do you think he is missing? Which would you take further?
Add your voice to the debate by commenting below.
http://www.opendemocracy.net/openeconomy/dennis-nottebaum/flaws-of-capitalism-and-how-to-fix-them
Democratizing Capital
While a great many commons seek to develop alternatives to conventional businesses – and even to bypass markets altogether – the struggle to democratize capital should not be lost in the shuffle. Popular ownership of capital assets and business enterprises is still a great strategy for building the commons and advancing the public good. Fortunately, there's a growing enthusiasm for this approach.
One of the most eloquent advocates for socially friendly forms of capital ownership – the French call it the “social economy” – is Gar Alperovitz, a historian and political economist at the University of Maryland and a founder of the Democracy Collaborative. Alperovitz's 2005 book, America Beyond Capitalism, was recently re-issued, presumably because it speaks to the political moment. How can we make economic progress when banks and large corporations are simply looking out for themselves? How can we reduce wealth inequality when government is captured by corporations and the affluent?
Alperovitz showcases the history and great potential of co-ops, worker-owned companies, and urban land trusts. He notes the constructive role that is played by municipal utilities, state-owned banks and state-chartered trusts such as the Alaska Permanent Fund. There are also dozens of cases in which states use their investment dollars to help communities, use government procurement to help worker-owned businesses, and provide venture capital to startups.
These alternatives to traditional capitalist models are actually flourishing, Alperovitz notes: “We may be moving toward a hybrid system, something different from both traditional capitalism and socialism, without anyone even noticing. Some 130 million Americans, for example, now participate in the ownership of co-op businesses and credit unions. More than 13 million Americans have become worker-owners of more than 11,000 employee-owned companies, six million more than belong to private-sector unions.”
The great virtue of Alperovtiz's hybrid “wealth building” models is that they “challenge dominant ideologies which hold that private corporate enterprise offers the only possible way forward; and they help open new ways of conceptualizing practical approaches to meaningful larger scale democratization.”
As a theoretical approach, Alperovtiz focuses on the democratization of wealth; the mobilization of communities, especially at the local level; the decentralization of power; and democratic planning in support of community and long-term ecological and economic goals.
Yet theory is not used here as an ideology or as a rhetorical posture. It is a way of describing projects that work. That is what makes so many of the examples in this book so appealing: they work. Chapter 7 surveys worker-owned firms as viable alternatives to footloose corporations. Chapter 8 describes “enterprising cities” that use their land, infrastructure and other resources to generate money for public purposes. Other chapters deal with local democratization and larger-scale “public trusts.”
Alperovitz has focused a lot of his energies on Cleveland, where there are a variety of worker-owned businesses. Perhaps the most notable is the Evergreen Coop, which consists of a “green” institutional laundry, a solar-panel installation coop and hydroponic agriculture businesses. The details of these and other stories add up to a refreshing approach to economic and community development.
Alperovitz writes:
Almost half the states manage venture capital efforts, taking partial ownership in new businesses. Calpers, California’s public pension authority, helps finance local development projects; in Alaska, state oil revenues provide each resident with dividends from public investment strategies as a matter of right; in Alabama, public pension investing has long focused on state economic development....
In Indiana, the Republican state treasurer, Richard Mourdock, is using state deposits to lower interest costs to employee-owned companies, a precedent others states could easily follow. Senator Sherrod Brown, Democrat of Ohio, is developing legislation to support worker-owned strategies like that of Cleveland in other cities. And several policy analysts have proposed expanding existing government “set aside” procurement programs for small businesses to include co-ops and other democratized enterprises.
If such cooperative efforts continue to increase in number, scale and sophistication, they may suggest the outlines, however tentative, of something very different from both traditional, corporate-dominated capitalism and traditional socialism.
In a recent New York Times oped piece, Alperovitz noted that “this year some 14 states began to consider legislation to create public banks similar to the longstanding Bank of North Dakota; 15 more began to consider some form of single-payer or public-option health care plan.”
So long as the national debate is locked into the old categories of “capitalism” vs. “socialism” -- as if they were the only choices, and as if each were a monolithic creature -- we will be stuck in a ditch, unable to bring about any systemic change. But if we can begin to see how a diverse array of community-based business models are succeeding, we may just glimpse a productive path forward.
- David Bollier's blog
- Login or register to post comments