CAN CAPITALISM BE REBUILT

Capitalism: we can rebuild it Nigel Farndale


January 18, 2012

It is battered and bruised and remains the worst type of economic system - except for all the others.



SHORTLY after the fall of the Berlin Wall in 1989, political economist Francis Fukuyama declared that we had reached the end of history. Communism had failed. Liberal democracy, and the capitalism that underpinned it, had triumphed. There were no more arguments to be had on the subject of how man should best govern himself.



The only trouble was, history carried on going, first throwing the world into convulsion on 9/11 and then, with the financial meltdown of 2008-09, pulling the ideological rug from under all those triumphant liberal democracies. We were used to a ''natural'' cycle of boom and bust and some even welcomed its ''creative destruction'', because it meant the weak companies went under while the strong survived, but this bust was something different and more profound. It seemed to be a bust of capitalism itself.



After all, when taxpayers have to bail out banks because they are ''too big to fail'', that surely is a contradiction of capitalism - the survival-of-the-fittest part, anyway. Bailouts amount to nationalisation, the opposite not only of privatisation but also the laissez-faire economics that we were supposed to believe in. This seemed to have more in common with socialism, or even the planned economies of communism. Perhaps it was not the end of history, then, but the end of capitalism - at least capitalism as we know it.



Advertisement: Story continues below A number of books have been written on this, usually with apocalyptic titles featuring the words ''death'', ''end'' and ''nightmare''. But as I sifted through them, trying to penetrate the fog of economic jargon, I started to wonder: do these doom-mongers have any better ideas? If capitalism really is failing, is there a viable alternative?



Perhaps we need to look to heterodox economics: schools of thought outside the mainstream. One idea that has traction in France is the decroissance, or decrease movement. This group wants to decrease economic growth, which it believes is damaging the planet. Not only must it stop, it must be reversed. The usual eco-handwringing, you might think. But in a way, it is at the heart of the great macro-economic debate of our age: should our main concern be unemployment or inflation? Austerity or growth? Do you reduce the size of the state or increase it?



For the decroissance movement, gross domestic product is an inadequate yardstick for economic performance, not least because it doesn't measure the degradation of the environment as lost wealth - and it doesn't distinguish between productive economic activity and the creation of jobs for jobs' sake. In contradiction of John Maynard Keynes, the guru of interventionism, decroissance favours ''real'' economic growth over the ''make-work'' it associates with stimulus programs, such as the $US787 million one Barack Obama introduced in 2009.



I ask George Magnus, the senior economic adviser to UBS, what he makes of this. ''It chimes with ideas that have been around for a while,'' he says. ''Such as the need for a happiness index, or an economic and social wellbeing index, instead of vanilla GDP.



''But if decroissance means we have got past the point where economic growth matters, well I dispute that. It's not a natural state of affairs; people will always want to become better off. And in Western countries, where populations are due to rise, we are going to need growth. The idea we can get on without it is naive.''



Another idea doing the rounds is that old-style capitalism is failing because we don't understand how human psychology drives the economy. This takes various forms and offers various solutions, such as a theory that if more women were running banks and major companies there would be more stability, because there would be less testosterone involved and so less risk.



Before we ask if there are any alternatives to capitalism, we ought to say what it is. Karl Marx more or less invented the term in the 19th century to describe something that had existed since the end of feudalism. Capital for him was all about the private ownership of the means of production. And exploitation, of course, what with all those hardened mill owners and their grim, smoke-spewing factories.



But capitalism has come a long way. Speaking in its defence recently, former Tory cabinet minister Michael Portillo asked: ''Is there any other system that could lift so many people out of poverty and create societies rich enough to provide welfare, health and education services?'' When you put it like that, the anti-capitalists look like Monty Python's People's Front of Judea: ''Apart from those capitalists who made us rich and provided welfare, health and education, what have the capitalists ever done for us?''



Marx decreed that capitalism carried the seeds of its own destruction. But as philosopher Karl Popper argued, the communism that Marx thought would replace it was even more doomed to failure - because it required the arrival of a ''New Man'', one who would embody freedom. And this New Man would be the end that justified the means, which, in the case of Stalinist and Maoist communism, meant not only denying freedom but committing genocide on a scale that would have made even Hitler gasp.



But if capitalism's supposed nemesis failed, were there any worthwhile ideas that could be rescued from its ashes? Well, one post-communist movement is called participatory economics. Parecon, as it is known, has four elements: solidarity, self-management, diversity and equity. Solidarity means encouraging people to work for the benefit of others as well as themselves. Self-management means that everyone has a say in decisions that affect them. Diversity means giving people more options for how they work and what they consume. And equity is about fairness and equality - nobody should have substantially more wealth or power than anyone else.



See what they did there? It all sounded reasonable, right up until equity, which is back-to-basics communism.



But the other three perhaps amount to a new, more responsible capitalism, and this idea is very much in the air. British Prime Minister David Cameron's Big Society is, after all, barking up the same tree. I ask Paul Ormerod, author of The Death of Economics, where he stands on this. ''The capitalism we have today is not the same as capitalism in 1910,'' he says. ''Then there wasn't the same idea of a welfare state or state intervention, except for defence. The great strength of capitalism is that it is not static, it's dynamic. It evolves.''



Perhaps, I say, its real problem is its name - it needs rebranding. And perhaps there is something that can be borrowed from Marxism here, the coming of a New Man? ''Yes, I do think there needs to be a shift in attitude and a change in values,'' says Ormerod. ''Something like the Big Society or one-nation conservatism. If you are wealthy you ought to give something back through a sense of noblesse oblige. You have an obligation to the rest of society.''



This chimes with the rather Victorian views of Margaret Thatcher. She believed that people would have a more heightened sense of responsibility the wealthier they became.



Ormerod again: ''It's not a matter of pulling levers but more of values needing to change. It's like these directors of companies awarding themselves raises when their companies haven't been performing well. Their behaviour is damaging to capitalism.''



Ormerod believes this is not an economic problem so much as a cultural one. ''How do you alter culture? You have to send cultural signals. So governments shouldn't give knighthoods and invitations to Buckingham Palace garden parties to bankers who have ruined the economy through their greed.''



Adam Fergusson's book When Money Dies: the Nightmare of the Weimar Hyperinflation has become a modern classic. I ask for Fergusson's take. ''I don't think there are any serious alternatives to capitalism,'' he says, ''not if we hope for growth and recovery, because capitalism represents the competition and enterprise that produce these things. The events of the past three or four years will have taught those who practise capitalism some big lessons.''



A shortage of money is not the problem. The problem is that the money is in the wrong place. It's in China, where people, for reasons that seem enigmatic to us, like to - say it in a whisper - save. What we are witnessing, then, is the ''creative destruction'' of the heavily indebted Western economies by the emerging economies of the East. Darwinism at its purest. And a very capitalist idea. What, after all, is capitalism about if not competition and survival of the fittest?



Capitalism, like the poor, will always be with us, because trade is how society operates. Trade is the human condition. As philosopher Michel Onfray has said: ''Is this the end of capitalism? Absolutely not. Capitalism has been through antiquity, feudalism, the industrial era. It has worn the guise of fascism and now it's wedding itself to the ecology cause. After this latest event, it will take on a new form. It is indestructible and works like the Hydra of Lerne, cut off one head and another grows in its place.''



How might it adapt? Well, Bill Gates has spoken of ''creative capitalism'', an idea to change capitalism to work more in favour of ''the people''. But actually it's the very lack of overall direction that is capitalism's genius. Who could have predicted that we might look to the BMW factories of Germany for a new model of capitalism?



There they are attempting to reuse all the materials that go to make up a car. And what are we to make of the success of employee-owned companies such as British retailer John Lewis? Isn't that a rather fresh capitalist take on the old communist idea that workers should employ capital rather than the other way around?



It is time to mention the elephant in the room, China. Perhaps the alternative to capitalism is already here or, rather, there. Perhaps their version of capitalism is working at the moment because China is a totalitarian state, not despite it being one. Ormerod again: ''It was only when China moved towards a type of capitalism that it started becoming wealthy. But can its one-party state evolve into something sustainable? Will it allow dissidents, which is what capitalism needs to evolve? Without differing ideas, their version of capitalism will die.''



So where does that leave us? Churchill said that democracy is the worst form of government, except for all the others that have been tried. He could have said the same of capitalism.



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Nigel Farndale is a Sunday Telegraph columnist and author of five books.





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