Is this really the end of capitalism?

Yesterday Alistair Darling announced short term tax-cuts, including the reduction of VAT to 15%, worth some £15 billion in his pre-budget report. He announced to the Commons that the recovery package would leave the country in an extra £100bn of public debt

Yesterday Alistair Darling announced short term tax-cuts, including the reduction of VAT to 15%, worth some £20 billion in his pre-budget report. He announced to the Commons that by 2010 the country will be in a record £118 billion of public debt. Darling has been accused of being overly optimistic by making the assumption that this recession will be shorter than those in previous decades; he is counting on growth resuming by 2010.

These government measures are a response to the global financial crisis which has provoked a major rethink in the way that economies worldwide are regulated. The G20 summit this month saw the coming together of countries that produce some 90% of the world’s wealth in an attempt to give the world economy a ‘fiscal boost’. The summit has been criticised for the vagueness of its outcomes but despite this there has been a clear message that lack of economic regulation, of some kind or the other, has been the cause of our current troubles.

Following the summit George W Bush announced his views on the solution: “the best way to solve the problem is economic growth, and the surest path to this growth, is free-market capitalism.”

Rightly or wrongly, this “free-market capitalism” is the very thing that most people are blaming for the crisis in the first place. Poor financial regulation has led to what has become known as the ‘sub-prime’ lending movement in the US, with bankers being allowed to sell off bad debts as attractive-looking investment packages. In the UK our currency has been overvalued and credit has been allowed to reach unsustainable levels. We are now, according to the Tories, paying the price for the so called ‘champagne years’.

The response has been to take steps back towards our post-war financial system. We have already seen the nationalisation of Northern Rock and the promise of long-term taxes rises despite temporary cuts. “The idea of credit went way too far; we definitely need to take one or two steps back towards our former economic system. It is now just a question of how many steps back we need to take in order to work for everybody’s benefit and not just the banker’s bonus” commented the University of York’s Professor P. Spencer.

Opinion is divided on the extent to which our economic regulation must be revised. Journalist Steven G Brant described the $85 dollar bailout of AIG as signalling the “death of capitalism”, a phrase that has become commonplace in the world media.

Despite the fact that in some circles capitalism’s obituary seems already to have been written, it seems unlikely that we will see a drastically more “left-wing” system of economic governance in the long term. The assumption tends to be that capitalism is synonymous with lack of regulation rather than the principle that markets should be as free as possible to allow for competition. What capitalists generally agree on is that in order to be ‘free’ the market needs to be regulated such that trade is honest, Monopolies do not emerge, and welfare is provided for those who can not compete. What we have seen is the failure of under-regulation, not necessarily the failure of capitalism.

Spencer is hopeful that we can find a compromise. “If we can’t find a hybrid system that works to our benefit then we may have to go back to that post-war banking system. However, I’m much more optimistic that we can find a happy medium that does work […] If people had a dose of what the alternative was like then they would be clamoring for the capitalists and the bankers back.”

7 comments

  1. “What capitalists generally agree on is that in order to be ‘free’ the market needs to be regulated such that trade is honest, Monopolies do not emerge, and welfare is provided for those who can not compete. What we have seen is the failure of under-regulation, not necessarily the failure of capitalism.”

    Under-regulation? When housing and banking are two of the most regulated elements of the market?
    Please, I would love to know, how this is an issue of ‘under-regulation’ when the very money supply is directed at the whim of whoever holds the reigns of the Fed; when the US Government backed all loans to encourage lending, good or bad, so that everyone could achieve the ‘American ideal’ of home ownership; when the US Government forced banks to lend in the sub-prime market, so as to encourage ‘equality’; when the US government kept interest rates dangerously low, just to keep riding the bubble.

    This is not to mention the thousands upon thousands of regulations which, may or may not have contributed to this particular mess, but which do exist, and which continue to hold the economy back.

    The mess we’re in is exactly the fault of the demand for a ‘hybrid’ system, for a ‘mixed economy’. The attempt was to water down the ‘nasty’ elements of Capitalism with some some ‘nice’ policies; the truth is, Capitalism is necessary to create all the good in the world, whilst all the Socialist elements were necessary to destroy it.

    All the regulations put in place were put in place not because they made economic sense – they didn’t and never could be justified – but on moral grounds. The idea was to live on credit, to sacrifice the financial security of all of us, so that the poorest in society could have their own house and not have to worry about mortgages. This is the ultimate evil of altruism – it requires all men sacrifice everything good in their lives, for a ‘duty’ to some social contract.

    Reply Report

  2. “the truth is, Capitalism is necessary to create all the good in the world, whilst all the Socialist elements were necessary to destroy it.”- Now this is just deranged. I don’t want to patronise you by going through a list of negative effects in the world that have resulted from systems purporting to be capitalist or from positive effects resulting from systems purporting to be socialist, suffice to say that in various locations and times, socialist principles have often dramatically increased the welfare of the least priviliged people while capitalist ones have often stood as a obstacle to further equality and directly hampered freedom movements and the lives of millions.

    This does not mean that capitalism is all-bad or that socialism is all good, I do not possess the same fanatical adherence to one system that you do but to pretend, as you do, that socialism is evil and capitalism perfect is clearly irrational.

    “This is the ultimate evil of altruism – it requires all men sacrifice everything good in their lives, for a ‘duty’ to some social contract.”- evidently you don’t even understand what altruism is; if someone is required or forced to sacrifice things for others, this is not altruism at all. Real altruism must be an expression of genuine compassion for others, I can only pity you if this concept seems foreign to you. To make an obvious point, altruism does not require all men (or indeed women) to sacrifice everything good in their lives, only to give some of what they can to help diminish suffering. (In any case, you are unfortunate if you can only understand goodness in terms of financial value, when do people have to give up their friends or family for the sake of altruism?). To talk about “the evil of altruism”, i.e. the evil of having concern for others and acting according to this, is so blatantly perverse that I can only assume that you are either affecting a stance that you do not genuinely hold or that you are somehow mentally disturbed.

    Reply Report

  3. Rory, I agree with you about the systems of banking and housing having too much regulation in some respects. The point I was trying to make was that we have seen the wrong kind of regulation. Personally, I think that we need to see less regulation overall but more thorough regulation of those aspects we do regulate. The repackaging of debt that I spoke of provides a good example of that way that bankers have been jumping through regulatory hoops. The regulations have tried to prevent them from deceptively selling on bad dept but they have not been thorough enough. Perhaps ‘poorly-regulated’ would have been a better phrase to use than ‘under-regulated’ but I think both are valid for the point I was trying to make.

    Bear in mind that this repackaging would also be possible in a laissez faire economic system so it is clear that regulation of some description is needed in order to stop it.

    Reply Report

  4. “Capitalism is necessary to create all the good in the world, whilst all the Socialist elements were necessary to destroy it.”

    Not true, in the slightest. The people dying of starvation in a world that has enough food to make everyone obese is a result of capitalism. The pay-off in millions to bank owners compared to the pay-off of nothing within the banking industry during this crisis was due to capitalism. The fact that the banks made their own faults and everyone else paid for it was capitalism.

    What was socialist was the Co-operative Bank, the now-nationalised banks (none of which suffer any form of risk and can’t harm other banks), the minimum wage laws, etc. etc. etc. I suggest you try to tell the truth when you respond because, frankly, socialist principles have helped those that they affect – the fact that they didn’t extend over banks, the fact that there aren’t council houses, the fact that minimum wage laws don’t extend over the rest of the world… these things are what are causing the problems we face.

    Reply Report

  5. Rory’s belief that it was “over-regulation” that caused the credit crunch is so absurd and reveals such a level of ignorance and blinkered fanaticism that simply defies logic and reason.

    The only reason I will bother offering a brief explanation of the actual facts behind the crisis is to prevent people from reading Rory’s insane comments and thinking that there can be any serious political argument hidden carefully behind them.

    The credit crunch started with the collapse of subprime adjustable rate mortgages in the US. Those refer to mortgages given knowingly to unreliable borrowers. Those mortgages were issued not because of “welfare policies” but because banks predicated their profits on the assumption that house prices would continue to rise, and hence even if those borrowers could not pay back, the bank could seize and sell their house, still making profit out of their increased selling price.

    And banks traded those debts, as they usually do, in the form of bonds, as investments. But the excessive supply of new houses led their prices into a free fall. So when people were eventually unable to pay, banks took their houses, but found themselves dealing with a devaluated housing market, that created a huge credit loss leading giants among them to bankruptcy.

    And this made stockmarkets lose all confidence and fluctuate uncontrollably, losing more than 25 trillion until now and threatening the real economy with a prolonged recession.

    Those are the facts, as accepted even by the last village idiot of the entire capitalist world. Rory, you can go along with your effort to try to convince us that it is all a socialist conspiracy and we are all just crazy, but I am afraid you’ll be becoming even less original and even more of a bad joke.

    Also: “If people had a dose of what the alternative was like then they would be clamoring for the capitalists and the bankers back”. This statement is just making the rather baseless assumption that what all socialists support as an alternative option is a form of a totalitarian statist monstrosity like that of the Soviet Union.

    Having lived pretty much all my life in a democratic nation where the Socialist Party kept getting consecutive landslide victories for 25 years in a row, I can assure you that this is not by any means the case. And so would anyone being even vaguely familiar with the names of Mohandas Gandhi, Nelson Mandela, Kwame Nkrumah, Morgan Tsvangirai and Salvador Allende.

    Reply Report

  6. 30 Nov ’08 at 1:14 pm

    Milton Friedman

    “Is this really the end of capitalism?”

    No, it’s not really the end of capitalism. That is all.

    Reply Report

  7. True. Though it is arguably the end of neoliberalism, in the same way that the 1973 crisis was the beginning of the end for Keynesian economics.

    Reply Report

Leave a comment



Please note our disclaimer relating to comments submitted. Please do not post pretending to be another person. Nouse is not responsible for user-submitted content.