There is something rotten in the state of capitalism

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Capitalism is in crisis. This is the proclamation of one of the banners at the St. Paul’s protest. What this means, or what the protesters stand for, no one is quite sure. The protesters’ demands are incoherent and often inconsistent. But their disillusionment with the current state of capitalism is entirely justified. The political elite have been unwilling to act upon the expressed concerns of the majority. So a motley group of ramshackle protesters have taken up the mantle, acknowledging the reality that ‘there is something rotten in the state’.

St. Paul’s, captured in an iconic photograph of World War Two, emerges alone and proud from the dust cloud created by Luftwaffe bombs, is now being humbled by nonconformists that have been ostracised by modern day society.

Whilst capitalism has been a force for good in the past, it has become inherently unfair for two reasons. Firstly, evidence demonstrates unequivocally that capitalism massively benefits the economic elite, reinforcing class division. In the UK, between 1999 and 2009, the money earned by the richest tenth rose by 37 per cent, whilst the money made by the poorest tenth fell by 12 per cent. Such trends are echoed in most other capitalist economies throughout the world. Wealth inequalities on this scale show that it is failing the average person. Archbishop Rowan Williams lucidly exposes the second unfairness in capitalism as it stands: “There is still a powerful sense around – fair or not – of a whole society paying for the errors and irresponsibility of bankers”. The taxpayer was obliged to bail out the banks in the financial crisis of 2008-09. One might expect that the necessary response to this would be increased regulation and accountability. Evidently not. Regulation is meagre and major investments banks have in fact grown in size.

Neither I, nor the St. Paul protesters have the solutions. I’m a lowly 19 year old whose understanding of economics is based almost solely on the book The Undercover Economist. But the protesters and I do not require a PhD in Economics to know that something is rotten. We know that there is a systemic crisis that demands a systemic reformation. The current financial system is fundamentally undemocratic. The economy disproportionately serves the will of the elite and the average person is powerless to change anything.

A poverty of ambition has paralysed our world leaders. But the greatest leaders in history are those that have been bold enough to challenge the norm, not because it is easy, but because it is right. They need to come together in order to thrash out a uniform systemic change to the banking system. There is not only a crisis in capitalism. There is also a crisis in the political process. History rewards leaders who dare to do what is necessary, however daunting the task and trying the journey.

2 comments

  1. Just a couple of ideas/comments…

    With relation to the ‘elite’, an interesting look at this was Nick Robinson’s latest programme on the BBC, showing that the top tenth pay 53% of all income tax taken in by the UK government, and the top 1% pay 27%. I’m not taking sides here, it’s just not something I would’ve realised myself, and is interesting to think about in the whole ‘tax the rich more’ debate…

    Also I would argue that it’s not a failure of capitalism we’re experiencing, it’s a failure of consumption-ism – we’ve become obsessed with consuming rather than investing in capital.

    We’re not really in a capitalist economy: based on capitalism, yes, but we’re really a mixed economy, the same way China is a command/socialist based economy but moving towards being mixed.

    It’s the regulation that has failed, and some idiots in the finance sector (and it doesn’t take many, but they mainly became the CEO’s), who have lost the idea that doing a good job is just as important, if not more so, than making money.

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  2. Point of correction from someone who now works in the investment industry: regulation does not prevent fraud, poor management or credit tightening. What matters is who is watching and who has the greatest motivation to prevent bad management from making bad decisions – the only way regulation can help this is by increasing transparency, not by defining behaviour.

    Secondly neither CEOs or politicians have the greatest incentives to ensure sound banking practise because both are motivated by short-term goals. Whilst share-holders and investors can force a change in CEO behaviour governments are generally driven by populism and/or ideology. You don’t need to look any further than Feb/March this year when French and German government-owned banks were directed to buy up Greek sovereign bonds to provide the Greek government with temporary liquidity. Now those short term losses have appeared on their balance sheets and have triggered a European-wide liquidity crisis. Hell, Credit-Agricole almost went under about 3 weeks ago and was only saved by emergency US Treasury lending. That would have sunk the European economy.

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