No such thing as a final collapse of capitalism

12 03 2009

Marx may have been semi-resurrected a while back, at least in a bastardised version. It has taken a global slump to bring Lenin back into the limelight. He is quoted in the Financial Times as saying in 1919 that,

To believe that there is no way out of the present crisis for capitalism is an error.

In the run up to the G20 meeting in April it is important to keep in mind what Lenin said. You would be forgiven for thinking that some supporters of capitalism have forgotten this crucial truth. The news media are full of  articles from erstwhile advocates of the free market, such as Anatole Kaletsky, arguing that only state activity can get the world economy going again. Others, like Noreena Hertz, dream of a new form of capitalism which is free from conflict and based on cooperation.

We are moving into a global slump the consequences of which could be terrible for the developed west and disastrous for the developing world. But capitalism is not going to collapse. In the continued absence of any alternative the market will revive at some point. Nor is it going to somehow transform itself into something which is not capitalism, mainly because there is no agency to affect that kind of change. The main problem is not the potential for capitalism to collapse or to be transformed, but whether the world’s leaders can prevent a full blown catastrophic slump.

Leadership is the key issue at the moment, not the mode of production. We can agree that the market economy is failing. It would certainly be a good thing if we could think about practical alternatives to the market and how to promote them. But the priority has to be to encourage ways of involving more people in finding solutions to the current crisis. Looking to the state or relying on utopian dreamers is not going to help create a long term solution.

The current quiescence of the population in most countries in the face of recession is the biggest barrier to recovery. Most people are still in a state of shock and disbelief and that extends to the political elites. For example, as Daniel Finkelstein points out, our leaders here in the UK are in denial about the consequences of the slump for the future funding of the public sector.

In the absence of proper democratic politics, with parties that stand for something and which have ideas for change, the scope for activity to get out of the slump has fallen entirely back within the realm of the state. The rest of us are reduced to passive observers or suffering victims. Yet the economy is not a technical process,it is the product of all of our activity. We need to find ways of involving more people in the debate on what is wrong and what we can do to fix it.

Reasons to be cheerful-an occasional series

11 03 2009

When I wrote in my blog that the future is contained within the seeds of the present I was challenged by a friend to come up with some ideas of what exactly is happening now that could turn into something positive as the recession becomes resolved. Crystal ball gazing is not very productive but I think there are identifiable currents which have the potential to become significant.

I would add however that nothing is predetermined and the subjective factor,ie what you and I do to make things change, is the most important aspect of the problem at present. So with that caveat out of the way I invite you to join with me in identifying potentially positive outcomes from the recession.

Just to kick things off, I would argue that three developments in education have the potential to become positive. One is the increase in applications for teaching science, maths and engineering. Without getting hung up on whether the UK needs to reindustrialise there is no doubt that maths and science are the building blocks for any kind of productive future economy.

 Two is the plan to fast track people from the commercial sector into teaching .  Running a school requires many skills but a key one is leadership from the top. It is unlikely that any school can be succesful without a good head teacher and strong management skills are central to this.

Three is the decline in private schools. This may mean that more middle class parents will have to help tackle the problems of the state sector rather than trying their utmost to escape from it.

None of this of course will of necessity change the drift of education away from high academic standards,which remains a severe problem. But the renewed focus on the need for innovation in the UK may help to focus us on the fact that world beating innovation requires highly skilled and well educated people to deliver it.

The seeds of destruction

9 03 2009

Martin Wolf has written a semi-apocalyptic analysis of the recession as part of a major series on the Future of Capitalism in the Financial Times. Read this in conjunction with this article by Roger Altman and it is clear that a recognition of the deep hole that capitalism is in is spreading amongst those who have been its biggest advocates. Wolf argues that

the assumptions that ruled policy and politics over three decades suddenly look as outdated as revolutionary socialism…the integration of the global economy on which almost everybody now depends might be reversed.’

Wolf’s fear is that history may repeat itself,

Remember what happened in the Great Depression of the 1930s. Unemployment rose to one quarter of the labour force.. in the US..It led to the collapse of liberal trade, fortified the credibility of socialism and communism…led to xenophobia and authoritarianism.

Wolf argues that the system of financialisation of the world economy carried ‘the seeds of its own destruction’.  We should also bear in mind that the future is contained within the seeds of the present. Whatever is to come is already present in nascent form. It may be as gruesome as Wolf suggests but history does not repeat itself in straightforward ways and we are able to affect its outcome simply because it is we who make history.

It is an extraordinarily remarkable thing that we have now reached a point in history where we have  global twin crises,of politics and economics, simultaneously,but that the only real critics of the system are those who come from the standpoint of wishing the system to implode.  The main opposition to globalisation has been inspired by those who have opposed it as unsustainable and environmentally damaging. These are people who campaign against flight while the numbers of flights are plunging, who oppose free trade while world trade is disappearing.

The main political parties are discredited because of their close association with the financialisation of the world economy over the past 20 years and the current collapse. The main opponents to this approach are opposed to growth altogether.  Yet without economic growth billions will be condemned to lives of poverty. We are at a crucial turning point in history and it is vital that we do not throw out the baby of growth with the bathwater of the free market. We desperately need an opposition which is pro-growth and also not tied to the failed policies of the past.

The Great Crash 2008

6 03 2009

Yesterday I was in Brussels for this event on innovation. There are only two places in the world where I have been advised by the locals not to go for a walk . One is Los Angeles,for obvious reasons, the other is now Brussels. not because of its mean streets but because the walk is ‘boring’. And they are not wrong. Apart from the tiny picturesque old city centre most of the rest is fairly relentlessly 1950s brutalist. However I did find a buzzing cafe during a break and while I was there read this article, The Great Crash 2008, by the former US deputy treasurer, Roger Altman.

Written at the end of 2008, this is an attempt to think through what the recession is going to mean for the US’s  place in the world. It identifies a partnership with China as being the key relationship for the US going forward and because the analysis is rooted in economic developments it is well worth a read. Some useful background to this can also be found in Gavin Poynter’s white paper.

The Paradox of Risk

4 03 2009

At the Economist’s conference on innovation last week,the organisers revealed the results of research on innovation amongst business leaders they had consulted worldwide. In the opinion of those surveyed in the UK,the top three factors inhibiting innovation here are: red tape,taxation (presumably excessive rather than not enough) and risk aversion. In the rest of the world,taxation was seen as less of a problem and risk aversion was at number 2 (everybody in business  seems to hate red tape most).

Risk aversion has become endemic in the UK and other, particularly western, societies over the past 20 years or so. Risk aversion now influences all aspects of our lives,from child rearing to bank regulation. The response to any problem often takes the form of a clamour for regulation to avoid or reduce risk. In the field of science risk aversion is represented by the notion of the precautionary principle and in economics by the idea of sustainibility.

The Paradox of Risk is a bit like Keynes’s paradox of thrift in that good intentions can lead to bad outcomes. It may feel safer, for example, for your own children not to walk to school on their own,but if all children are not allowed out alone then their ability to socialise and learn to cope with the world decrease, adults forget how to deal with other people’s children and society as a whole suffers. Risk aversion may make narrow sense for individuals but for society as a whole it can be crippling.

In the UK our economy faces a grim future and some fairly big gambles and bold actions have to be taken if we are to turn things around. But the overall climate of risk aversion makes such leaps forward far less likely. Visitors to dynamic economies like China and India often make the point that, although these countries still suffer from poverty and other social problems, there is a tangible desire for change and progress, a sense that any problem can be fixed.How do we generate such an optimistic and ‘can do’ atmosphere in our country?  I think we begin by having an open and frank public discussion about what the problems are. There are many people now in our society worried about the future who are open to a debate about what needs to change.

The political sphere is where this debate has to start,unlikely I know given the low repute in which our politicians are held. But politics is where we can all debate and act as citizens whoever we are and whatever we do.  The conference on May 16 will be a good place to begin that debate.

Innovation island?

2 03 2009

At the Economist’s Conference, Innovation Island,on Friday I was struck by two things.

Firstly,this assembly of businessmen was still largely in semi-shock and near denial about the true state of the economy. In between the sessions there was a tremendous thirst to discuss what is going on and what could be done. To me this demonstrates the need and the opportunity for a more open public debate about the way ahead, something I hope we will be able to address at the conference planned for May 16 (keep the date free in your diaries).

Secondly the speakers’ proposals for how to innovate our way out of the recession were nowhere near radical enough. This became clear in the contributions around what the state should be doing to encourage innovation. There is some confusion about what legitimate role the state should play in encouraging change. Many businessmen see the state as a blocker to change because of red tape or excessive taxation. While I generally go along with a ‘small state’ approach, I also think that governments should lead. A big problem with our government is that it is often not prepared to take bold action, for example in pushing ahead the nuclear power station building programme, because it is afraid to face down the opposition.

The state in the UK spends too much money, time and energy in intervening in daily life, and encouraging a generally risk averse approach. We need leaders who are prepared to throw off this obsession with risk and who can enable change on a large scale. Leaders who understand that the ‘economy’ is the product of our collective activities, not something that is outside of our control.