Capitalism needs root-and-branch shakedown of the ‘fruits of greed’

SO, capitalism is in crisis. The Americans have had the most extraordinary week when a crisis in the financial markets got mixed up in the presidential election.

The search for a solution in the US, still not resolved, has threatened to undermine the authority of the office of the president itself. How many times throughout the week did you hear President Bush referred to as “not so much a lame duck, more a dead duck”?

And throughout the week, again and again, there were references to 1929 when the very concept of capitalism and the markets was almost destroyed.

In Ireland, of course, we have had our own version of a crisis of capitalism. The building industry has been terribly hard hit, the banks are reeling under an onslaught on their share prices and the collapse of consumer confidence has dealt a terrible blow to various forms of tax revenue.

In some quarters, at least, fear stalks the land in a way that it hasn’t done for 25 years.

The responses have been almost as scary as the crisis. Throughout our so-called civilised world, commentators have been wondering if this is the end of civilisation — or indeed, if anything will change at all.

In one perceptive piece, written for the Financial Times, Philip Augar makes the point that “much depends on the regulators’ response to the investment banks’ problems. The bailout is so large and public opinion is so inflamed that new rules are inevitable. However, it is unwise to underestimate the industry’s powers of survival.

“The last time Wall Street was in the mire was between 2001 and 2003 when the dotcom bubble burst. President George

W Bush pledged ‘to end the days of cooking the books, shading the truth and breaking our laws’, but instead a patsy settlement with the investment banks was reached in 2003 that imposed trivial fines and minor rule changes but left their business model intact.

“What happened then was the industry argued that the investment banks were essential to oiling the wheels of global capitalism. They will be hard-pressed to use such arguments this time round but Washington and Whitehall are still pro-market and the investment banks, whether independent or part of larger financial conglomerates, may yet receive more lenient treatment than seems likely today,” Augar concluded.

And it’s fascinating, isn’t it, that venerable institutions like Time magazine can run cover stories about the ‘fruits of greed’ and yet all the emphasis is on bailing out the system rather than on fundamental reform. Surely it is as obvious as the nose on your face that we are going to have more and more crises if reform of the most fundamental kind is avoided?

Financial markets, which take up so much of the news nowadays, are actually a relatively recent invention. The stock market was invented first, and it was created essentially for two reasons. People wanted to invest in enterprises, and enterprises wanted to attract investment.

But little by little, people lost interest in investing in steel or furniture or mining. There wasn’t enough return, not enough excitement. And over time the whole idea of an exchange, where people who needed investment in productive enterprises could meet people with money to invest, became corrupted into a whole series of different markets.

You could now make money on interest rates or currencies going up or down. You could invest long or short. There were markets exclusively devoted to things likely to happen in the future.

In short, and putting it crudely, I suppose, a vehicle for investment and risk-taking was turned into a sort of gambling den. The reward for greed was enormous, and greed became the form of decadence that seems to have come close to bringing the whole house of cards tumbling down.

Against that background, the other thing that has been fascinating to me has been the relative silence of the great voices of the left.

As I said here last week, it is old-fashioned left-wing solutions that are being used to bail out the system — nationalisation of debt, the introduction of regulation. But the odd thing is that the most interesting commentary around the whole subject has come from people you would never have associated with the left.

Here, for example, is what French President Nicolas Sarkozy had to say in a major speech in which he vowed to transform the world economic crisis into an opportunity by reinventing capitalism with a strong dose of morality and fostering a new international regulatory system.

He told his audience that a certain idea of globalisation was ending with a financial capitalism that “that imposed its logic on the entire economy and helped distort it. And he went on to say that “the idea of the all-powerful market which must not be constrained by any rules, by any political intervention, was mad. The idea that markets were always right was mad”.

According to Sarkozy, “capitalism had made possible the extraordinary development of western civilisation for the past seven centuries”. But now, he says, capitalism needs to be refounded on the basis of ethics and work. “Self-regulation, laissez-faire and the market is always right” were finished, Mr Sarkozy said.

And in this, he was essentially echoed by one of the world’s richest men, Bill Gates. In an article in Time magazine a couple of weeks ago — and before the total collapse of the financial markets — Gates said capitalism had improved the lives of billions of people — but it had left out billions more.

“They have great needs,” Gates said, “but they can’t express those needs in ways that matter to markets. So they are stuck in poverty, suffer from preventable diseases and never have a chance to make the most of their lives.”

AND Gates, too, went on to call for “a more creative capitalism — an attempt to stretch the reach of market forces so that more companies can benefit from doing work that makes more people better off. We need new ways to bring far more people into the system — capitalism — that has done so much good in the world”.

Bill Gates is still a believing capitalist. He may be, and no doubt is, driven by idealism, but he is not so much interested in tackling the issues of reform and greed, and he certainly hasn’t become a socialist overnight. Gates is more interested in applying the skills and drive of entrepreneurs to the massive social problems of the world — hunger, disease, poverty. He really does believe capitalism can cure these ills.

I’d like to think so — I’m sure we all would. But right now capitalism seems incapable of fixing itself. We can all see the value of a free market that thrives on adventure, on risk, on the encouragement and rewarding of great ideas and hard work.

But a free market that has become corrupted by human greed offers no value to anyone. Greed and financial corruption aren’t even a mark of basic civilisation — they are the sort of things that have destroyed civilisations in the past. If we can’t address that, then capitalism really has no future.