More workable forms of capitalism will not appear without a wholesale reassessment of ideology, institutions and regulations
Suddenly, debating the nature of capitalism has become mainstream politics. The most important starting point is that capitalism is not just one phenomenon; it comes in many varieties, in different places and different times. There is no point, then, in getting bogged down in arguments about capitalism versus communism. The question is: what sort of capitalism do we have and what sort do we want?
Many commentators, such as Richard Sennett, have identified "the new capitalism" as the economic system that developed from the early 1970s. It gained momentum for many, highly complex, reasons, but it did not develop by chance: it arose initially out of the abandonment of the Bretton Woods agreement in 1971 – a system that had regulated international finance since the end of the second world war. This itself arose mainly as a result of the costs of the Vietnam war. It was not the result of some natural law or an act of God: it came from decisions made by human beings.
Innumerable further policy decisions, especially during the 1980s, cemented this new capitalism. For example, the first policy decision of the 1979 Thatcher government was to abolish exchange controls. The financial deregulation in 1986, known as the Big Bang, was another key moment. Meanwhile, international free markets were promoted in a variety of ways: the Washington consensus entailed the imposition by the IMF of the new capitalism on the developing world. The North American Free Trade Agreement and the EU did the same in North America and Europe. The General Agreement on Tariffs and Trade and the World Trade Organisation pushed it globally, while the former Soviet Union was exposed to one of the most dramatic transitions to a free market economy ever seen. At stake in all this was not just the globalisation of free trade, but deregulation, including credit deregulation, and the privatisation and marketisation of public goods and services, the policy ensemble of neoliberalism. And, in the UK, this was not just Thatcherite dogma: the profound meaning of "New" Labour was the acceptance of the fundamentals of neoliberalism.
The scale of these transformations makes the current debate in the UK look woefully anaemic. Much of it focuses on high pay but, while important, that is only one symptom of a much wider problem. In the meantime, almost all of the assumptions underlying the new capitalism continue to be unchallenged. For example, the present reforms of the NHS are all of a piece with the idea that competitive markets provide the best incentives for service delivery. That Tory proposition can scarcely be challenged by Labour since they, in office, held the same view and, in opposition, are chary of challenging it very vociferously. Neither, apparently, are so committed to rethinking capitalism.
The NHS debate offers a good illustration of what is at stake. It's sometimes pointed out that there have always been private provision, most obviously in the form of GP practices. But there is a world of difference between that and an asset-stripping outfit like Southern Cross. Just as there is a world of difference between private equity vultures and the German Mittlestand – family-owned firms with long-term commitment. Both are "capitalist", but they are very different kinds of capitalism. These differences relate to scale, accountability to a range of stakeholders, long-term commitments to enterprises and communities, and what constitutes an acceptable rate of return on capital.
The emerging debate about the nature of capitalism needs to go much further and deeper than it has done. The more workable and stable forms of capitalism will not magically come into existence without a wholesale reassessment of ideology, institutions and regulations. It will require a set of policy decisions as far reaching as those that created the new capitalism. Perhaps that can happen. Gillian Tett, the respected FT journalist who consistently predicted the financial crisis, has recently opined that capital controls may be reintroduced, which would undo one of the key causes of the form of capitalism that has failed. In France, Nicolas Sarkozy has called for a new Bretton Woods. And Ed Miliband raised at least one of the key issues in questioning laxity of the rules on foreign takeovers of British companies.
Of course, it will not be easy. It will be much harder to get inter-governmental agreement on re-regulation than it was for national governments to de-regulate, and even that took four decades to happen. This, by the way, makes it foolish to imagine that there can be a fully worked out blueprint for how capitalism should now proceed. It is instead a matter of acknowledging how fundamental were the flaws of the new capitalism, chipping away at its foundations, while avoiding policies that extend it further. Otherwise, the debate that has opened will consist of no more than pious phrases.
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