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Has Capitalism failed?


Loki

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http://www.bbc.co.uk/news/business-14972015

 

Yesterday saw the biggest fall in the markets since the original crash of 2008.

 

With the financial situation in the Eurozone progressively worsening, and the global recession still seemingly in full force, the Beeb asks the question - is Capitalism proving to be a failed system? Should we be talking seriously about moving our economies to a different model?

 

I've always wondered about the unshakeable belief that constant economic "growth" is possible everywhere in the world, constantly. When you get old enough to consider it, it's one of those questions you ask adults - how can everyone get richer? How does the system just "grow" money like that? And it appears that the answer might possibly be "they didn't - it was all a house of cards".

 

In the meantime, as the West looks likely to be entering a long period of decline, the East is now furiously involved in the same sort of rapid economic expansion that we saw during the last half of the 20th century. Will theirs be any more stable a system than ours, or are they just subscribing to a similar mania?

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With the financial situation in the Eurozone progressively worsening, and the global recession still seemingly in full force, the Beeb asks the question - is Capitalism proving to be a failed system? Should we be talking seriously about moving our economies to a different model?

Good question. Does the current situation presage the fall of capitalism? My thinking is that it doesn't but that it does well indicate that unfettered capitalism brings bad baggage along with it because people behave inappropriately.

 

But: We shouldn't abolish all those elements particular to capitalism (private property, the returns to innovation) any more than the similar collapse of the socialist economies should have led to the kicking out of the State from every walk of life. There are situations where the state is the appropriate provider (defence, national infrastructure, universal health care) and others where a private enterprise, rewarded for its efforts, is better. There should always have been a mix anyway, based not on absolutist political ideology ("I believe in free markets; abolish the State!" and "Capitalists are evil; abolish private property!") but on what works best in each situation.

 

I've always wondered about the unshakeable belief that constant economic "growth" is possible everywhere in the world, constantly. When you get old enough to consider it, it's one of those questions you ask adults - how can everyone get richer?

Trade and innovation will have that effect. If we stick to what we're comparatively good at then we'll both be better off. (My economy's suited to growing oranges; yours is good for fish. Rather than expecting you to invest in expensive heating facilities and me to drive thousands of miles to somebody else's coastline to fish, let's simply trade some of my oranges for some of your fish. We're both better off.) At some point, of course, you've traded up to the point where you can't do any better.

 

Where it gets daft is when this constant growth is predicated on intangibles, such as these crazy derivatives packages. That is, how you say, nothing but a house of cards. These things are only of any value if somebody else is willing to purchase them for more. As soon as people say "I don't see any resale value in them" then they become valueless. It's not too different to your house.

 

Will theirs be any more stable a system than ours, or are they just subscribing to a similar mania?

If their growth is predicated on intangibles such as derivatives, debts, and speculated stock-market growth, then they're also set on course for a hiding.

 

Anyway, apologies for what is probably an indecisive response.

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As someone who doesn't understand economics in the slightest can someone please explain this whole global crisis to me in a single paragraph?

 

Many thanks.

 

Well, Rising prices for the following items and services: Everything.

 

It pretty much will be an excuse for every company that isn't actually suffering to charge you more for the same things, and for the companies that are suffering they'll get snuffed out, expect a lot of businesses to struggle in the next few years.

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No. It hasn't.

 

What's failed is the embedded liberal compromise that speaks out of both sides of its mouth, and presumes the rationality of markets on one hand and then tinkers with the regulatory mechanisms on the other. Instead of strongly regulated capital markets or unregulated laissez-faire markets, you have a floppy mess where the industries that have the power to bring post-industrial economies to their knees despite their economic unreliability, i.e. the financial services industry, being able to forego regulation by wielding the 'we'll leave' excuse and the forgotten industries, i.e. manufacturing, have been regulated within an inch of their lives and muscled out of markets, retreating to the East.

 

Moving forward, a capitalism needs to be forged that works for the people and not above them. Which means an even regulatory footing regardless of the size, or political importance of your industry. Which, roughly speaking, means releasing the regulatory burden on small and medium enterprises whilst making sure investment banks and their equivalent financial peers (hedge fund managers, pension fund owners) know that as the responsibility of their actions is both economic and political, they have to be subject to new regulatory constraints, and can't play fast and loose with the future of people and countries.

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