It isn't often you find apocalyptic tomes in business publications warning of the imminent demise of global capitalism but that seems to be changing. Ten days ago the Wall Street Journal, in an interview with noted economist Nouriel Roubini tossed around the idea that perhaps Karl Marx was right, that capitalism inevitably self-destructs.
Today it's The Guardian warning that capitalism is facing its own "Scrooge" moment:
For the past two centuries and more, life in Britain has been governed by a simple concept: tomorrow will be better than today. Black August has given us a glimpse of a dystopia, one in which the financial markets buckle and the cities burn. Like Scrooge, we have been shown what might be to come unless we change our ways.
...It was chastening to see consumerism laid bare. We have seen the future and we know it sucks. All of which is cause for cautious optimism – provided the right lessons are drawn.
Lesson number one is that the financial and social causes are linked. Lesson number two is that what links the City banker and the looter is the lack of restraint, the absence of boundaries to bad behaviour. Lesson number three is that we ignore this at our peril.
The system is an utter mess, particularly since almost every country in the world is now seeking to manipulate its currency downwards in order to make exports cheaper and imports dearer. This is clearly not possible. Sir Mervyn King noted last week that the solution to the crisis involved China and Germany reflating their economies so that debtor nations like the US and Britain could export more. Progress on that front has been painfully slow, and will remain so while the global currency system remains so dysfunctional. The solution is either a fully floating system under which countries stop manipulating their currencies or an attempt to recreate a new fixed exchange rate system using a basket of world currencies as its anchor.
The break-up of the Bretton Woods system paved the way for the liberalisation of financial markets. This began in the 1970s and picked up speed in the 1980s. Exchange controls were lifted and formal restrictions on credit abandoned. Policymakers were left with only one blunt instrument to control the availability of credit: interest rates.
For a while in the late 1980s, the easy availability of money provided the illusion of wealth but there was a shift from a debt-averse world where financial crises were virtually unknown to a debt-sodden world constantly teetering on the brink of banking armageddon.
Currency markets lost their anchor in 1971 when the US suspended dollar convertibility. Over the years, financial markets have lost their moral anchor, engaging not just in reckless but fraudulent behaviour. According to the US economist James Galbraith, increased complexity was the cover for blatant and widespread wrongdoing.
Looking back at the sub-prime mortgage scandal, in which millions of Americans were mis-sold home loans, Galbraith says there has been a complete breakdown in trust that is impairing the hopes of economic recovery.
"There was a private vocabulary, well-known in the industry, covering these loans and related financial products: liars' loans, Ninja loans (the borrowers had no income, no job or assets), neutron loans (loans that would explode, destroying the people but leaving the buildings intact), toxic waste (the residue of the securitisation process). I suggest that this tells you that those who sold these products knew or suspected that their line of work was not 100% honest. Think of the restaurant where the staff refers to the food as scum, sludge and sewage."
Finally, there has been a big change in the way that the spoils of economic success have been divvied up. Back when Nixon was berating the speculators attacking the dollar peg, there was an implicit social contract under which the individual was guaranteed a job and a decent wage that rose as the economy grew. The fruits of growth were shared with employers, and taxes were recycled into schools, health care and pensions. In return, individuals obeyed the law and encouraged their children to do the same. The assumption was that each generation would have a better life than the last.
This implicit social contract has broken down. Growth is less rapid than it was 40 years ago, and the gains have disproportionately gone to companies and the very rich. In the UK, the professional middle classes, particularly in the southeast, are doing fine, but below them in the income scale are people who have become more dependent on debt as their real incomes have stagnated. Next are the people on minimum wage jobs, which have to be topped up by tax credits so they can make ends meet. At the very bottom of the pile are those who are without work, many of them second and third generation unemployed.
...Together, the global imbalances, the manic-depressive behaviour of stock markets, the venality of the financial sector, the growing gulf between rich and poor, the high levels of unemployment, the naked consumerism and the riots are telling us something.
This is a system in deep trouble and it is waiting to blow.
Like Roubini, Stiglitz, Krugman and others, The Guardian piece lays bare the entirely self-destructive, predatory instincts of unregulated global corporatism. It's akin to handing the delinquent teenage son the keys to Dad's liquor cabinet and his Corvette. The outcome is preordained and it's awful.
Miscreants like Cheney, Bachmann, Perry and Harper are the High Priesthood of malignant corporatism that preys upon and ultimately destroys societies. They don't openly seek the outcome, yet they certainly ensure it. Decades of right wing politics in the U.S. (Republican and Democratic) have facilitated the ascension of the uber-rich and the massive transfer of wealth from the once vibrant middle classes to the richest of the rich. Whenever they're criticized they scream "socialism" and raise images of Lubyanka.
We don't need to overthrow our political institutions but we do need to purge the temple of these crooked moneylenders. We face many challenges this century, a number of them of a potential magnitude greater than anything our civilization has known. To meet these threats it is essential that we have the strongest, most cohesive societies possible and you simply cannot achieve that without first harnessing corporatism to the service of the public and reversing the utterly cancerous spread of inequality.
As a former Liberal, one thing I found unbearable in the Bay Street Boys' boy, Ignatieff, was his refusal to acknowledge much less promise to reform Canada's own chasm between rich and poor. Then again I didn't see much of anything recognizably Liberal in that character. To the contrary, Ignatieff was determined to move the Liberals to the centre-right and the voting public rewarded him and his followers appropriately for that, sending the Liberals from Sussex Drive to Stornoway to Motel 6.
What chance is there to turn this around, to rescue our societies from the jaws of global corporatism? Slim to none. There are too many Harpers and Camerons in office. In the United States there is a truly "bought and paid for" Congress and a timid, feckless man in the White House. Fire up the Corvette and pass the bottle.
Footnote: Just as all this unfolds Canada loses Jack Layton to cancer. His absence will be deeply felt, particularly as we confront the struggles that now befall us.