SAVING CAPITALISM FROM ITS OWN EXCESSES - MAKING THE MARKET SERVE SOCIETY

Getting our Values straight

SIGNIFICANT RECENT EVENTS - The failure of two opposing economic systems.

First - the Fall of "Communism".

The 1980's saw the collapse of the Soviet model of bureaucratic centralism. This system, which was dubbed 'Communist' but never was, fell under the weight of its own lumbering and brutal totalitarianism. The fall was hailed by many in the West as heralding the dawn of a new era of capitalist democracy. Optimists welcomed the "End of History", ushering in a new golden age in which all would benefit by the release of huge stores of energy and creativity through giving people freedom to pursue their interests unfettered by an overweening state.

The era of free-market capitalism

The latter part of the 20th century saw the growing influence of a system of capitalism which promoted individualism and support for free markets with the least interference from government. This system was underpinned by an international infrastructure particularly centred on the International Monetary Fund and the World Bank, cemented by the so-called "Washington Consensus" which spelled out the principles by which the global financial and economic systems would be guided. The era of Ronald Regan and Margaret Thatcher saw the rise to prominence of economic principles deriving from the thinking of Ludwig von Mises, Friedrich von Hayek, the Austrian School of economics and such academics as Milton Friedman and James Buchanan.
A subsequent period of free-wheeling economic growth was punctuated by periodic crises, but these were brushed aside as natural consequences of a basically superior system which would self-correct its flaws. A vast network of Foundations and Institutes was created to support the free-market dogma and denigrate the small number of doubters and critics. (See Spreading the True Faith, Ideas that drive our Financial System.)
The global financial system thus created was based on a large number of tax havens and therefore out-with the influence of national governments. From these bases, an alternative financial world burgeoned, leading to the creation of a vast system of speculation that overwhelmed corporations and whole countries. Most of the recent financial fraud has been run from offshore havens. Allen Stanford based himself in Antigua.
This vast financial juggernaut was profoundly anti-democratic and bound by no moral principles. It became a law unto itself and eventually marched to its own extinction - in effect, it destroyed the banks on which its survival depended.

Then: The catastrophic failure of market fundamentalism

The sudden, and for many, totally unexpected collapse of the banking system, particularly in the US and UK, followed by a consequent strangulation of many economies, has, as it unfolds, uncovered massive flaws in the system of lightly-regulated global finance. It has become apparent, that, far from generating wealth for all and liberating individuals to pursue their legitimate economic and social interests unfettered by corrupt governments, the system has engendered orgies of greed and speculation historically unparalleled in their scope. Ordinary individuals' interests have been irreparably damaged by the greed and power of rich elites which have used the system to pursue their own selfish interests.

Why has this happened?

The dogmas of market fundamentalism which guided economic policy and were enthusiastically espoused by so many politicians across the world are fatally flawed.
They are based on theories about the nature of human beings and their motivations that have no empirical basis to support them. Wild ideas about genetic selfishness, unproven mathematical systems like Game Theory and grossly inadequate theories about human social and economic behaviour provided a rickety edifice of dogma which was unquestioned by many in powerful financial and political positions. (See Free Market Economics, Ideas that Drive our Financial System)
Market fundamentalism is completely illiterate about moral, cultural and political factors that underpin human society; in fact it discounts the existence of a society beyond the market and human motivations beyond calculative ones.
The financial world has been mazed by this set of ridiculous theories. (see Free Market Economics, the remarkable ideas that lie behind the dominant Anglo-Saxon free market philosophies). The system thus created has survived for so long because it served the interests of a rich and powerful minority, particularly in the Anglo-Saxon countries. Politicians, whose main responsibility should have been to promote the interests of the bulk of people who elected them to government, either weakly stood aside and let the financial system undermine civil society, or appeared to actively collude with it. (see Barefaced Hypocrisy? Brown and Cameron Slam the Financial Markets and Bad News, Tony Blair cashes in).

Market fundamentalism has impoverished the societies that espoused it.

It is now apparent that the kind of societies created by this economic system are marked by gross inequalities of wealth and opportunity, poor education for a large minority, poor health and wellbeing for large excluded sections of the community and high levels of social disorder, crime and vandalism. In many cases, the public infrastructure of transport, power and social buildings are run-down and suffering from serious neglect. And as energy supplies become more problematic, the capacity of privatised utilities to cope is becoming more of a problem. The state of flood defences in New Orleans and the subsequent response of the public authorities is but one manifestation of the neglect of society's public assets. Another is the grossly inadequate UK transport and communications systems as compared with those of Norway. This is the result of misusing North Sea oil assets by fuelling rampant consumerism rather than public investment.

Societies that invested in public infrastructure and services are better placed to withstand the current crisis.

An important fact is that societies that invested in their public infrastructures and already have high quality public services provide their citizens with the full range of public benefits - health, education, transport, social and employment services and the like. Unlike those societies, particularly the United States, which have succumbed to the myth that the market is a superior mechanism for providing public goods, they have the experience of providing excellent services for citizens and the sunk capital investment to back them.
The costs of creating this infrastructure and the experience to back it will be absolutely huge - and the world is learning the hard way that a good society for all its citizens cannot exist without it.
Thus citizens of 'social market' societies such as the Nordic countries will be better buffered from the effects of the collapse of the financial system than those without a good public service infrastructure.

WHAT MIGHT GUIDE US OUT OF THE CURRENT MESS?

Some evidence to light the way

There are some examples of societies that seem to be suffering less than the US and UK from the crisis, and which have levels of average wealth comparable with the US and Britain, the twin beacons of market fundamentalism. But in addition, they have relatively low inequality of wealth, little inequality of opportunity, excellent public health and education and relatively low levels of crime and vandalism, together with high levels of employment. We would argue that these societies are far more successful than their Anglo-Saxon counterparts in providing healthy environments for the vast majority of people to live.
So what might we learn from Norway, Denmark, Finland, Sweden, Canada and the Netherlands?
First off, we would caution that it is simply not possible to slavishly copy what these countries do, because they have different cultures to say, the US or Britain. They have built up over time habits of collaboration between the various elements of society and high levels of public consensus about what is a 'good' society. These things do not exist in the Anglo-Saxon countries.
So we need to dig beneath the superficial facets of these exemplars and establish some more fundamental principles that underpin them and that might serve as beacons to guide us forward. We should avoid simplistic notions such as the "Third Way" which imply that we can easily move from the Soviet System as the notional First Way and Free Market Capitalism as the Second to a Third clearly definable state.

PRINCIPLES TO GUIDE US FORWARD

We need to explore and reach agreement on some basic Principles that might guide us forward out of the free-market morass.
Here is our first shot:

• The cult of individualism encouraged by market fundamentalism is deeply flawed. We support individual freedom - but that must be constrained by the needs of others. We laud individual enterprise, but need to recognise that most worthwhile human achievements have been as a result of collaborative effort. In every sphere of human activity, it is the interaction of individuals in organisations that produce the most outstanding results. Exceptional and creative individuals need to be valued and nurtured by any society, but often the full value of their creativity can only be achieved by collaboration and an organisation. The large corporate organisation has been instrumental in creating great wealth, the nation state has been a vehicle for developing human civilisation; in future organisations supporting international collaboration may save mankind. Even the achievements of individual sports stars are only possible because they are supported by teams - Ellen McArthur, famous lone yachtswoman testified that she would not have succeeded without an effective backing team. The cult of the superstar CEO is one of the more damaging manifestations of recent years - such individuals normally cause great damage to their organisations. There is growing evidence that the best CEOs are collaborative by nature and are closely bonded with many others in their organisations. (See Fame, Celebrity, Ego, Stardom - the poisoned chalice for corporate leaders)
• The instincts to collaborate with and to help others are natural to humans. They, along with creativity are some of the distinguishing features of the human race, so the encouragement of selfish individualism can simply foster pathological behaviour. We need to promote the idea that contributing to the welfare of others is one of the highest forms of human endeavour - there is good evidence to indicate that those whose behaviour is generous and altruistic are far more satisfied with their lives than those who strive to serve themselves alone. It is just not true that selfish competitiveness is a primary wellspring of creativity.
• There is nothing wrong with the market as a mechanism for distributing wealth and enabling people to exercise a degree of free choice in what they consume and how they lead their lives. Markets are the best mechanisms we know for enabling buyers and sellers to freely exchange goods and money. But, Markets are also dangerous, as they are subject to exploitation by individuals and institutions seeking to exploit others' ignorance for their own gain. Contrary to some economic doctrine, there are no perfect markets - ignorance and irrationality are just as likely to be found in the market mechanism as anywhere else. So, markets are very useful, far superior to bureaucratic centrism, but because not all humans are honest or un-corrupt, they must be rigorously regulated. One of the strange myths of our age is that whereas purveyors of goods are strictly controlled in what they sell and how they promote their goods, financial markets are different. They are best left to be free. We have now seen the tragic consequences of this gross error.
  Also, there are also severe limitations on what the market can do. For example, it cannot decide on important matters of policy such as the distribution and use of private wealth, on the deployment of public funds, on matters of national and international importance such as infrastructure development, defence and education. In these matters, the market must be the servant, not the master of Society.
• But most important, the market should not be dominant - the interests of society are superior to any other - this means that the economy and all that play in it must be guided by the needs of society and not stand outside it
• This leads to the most important issue of all - what kind of Society do we wish to live in? Failure to clearly and objectively address this question will leave us floundering in a fog of uncertainty that may allow matters economic and social to slip back to the bad old ways - there are still plenty of people who would see the return to the old free-market status quo as suiting their interests.

What would be some key features of a 'Good Society'?

• It would utilise the talents of its people by providing equality of educational opportunity for all. It would support less advantaged members to enable them to participate fully in economic and social life. It would strongly discourage the use of privilege and wealth to purchase advantages in education, work or health
• It would enable members to align their interests for the benefit of all and encourage collaboration above selfish individualism. It would recognise that exceptional achievement is as much a result of collaborative efforts from many as it is the singular creation of a very few, and that successful leaders are closely bonded with their colleagues. It would encourage those with unusual talents to use them to serve the wider good as well as their own interests.
• It would discourage high levels of inequality of wealth, recognising that intrinsic rewards and belonging to a community are more important than those arising from great wealth. Fiscal policy would ensure that all members made a full contribution to the public good through the tax system, with no exceptions. It would ensure that inequalities of wealth did not enable some to detach themselves from the rest of the populace socially or physically.
• Its political system would encourage co-operation between the key stakeholders in society in the determination and execution of public policy - it would feature proportional representation as its voting system, encouraging coalitions of interest rather starkly adversarial politics.
• A substantial proportion of national wealth would be devoted to supporting excellent public health, education, social welfare and employment facilities.
• Above all, it must be based on moral principles, be they religious or humanistic. Christianity lays out a set of moral principles to guide the behaviour of men and to define a healthy society. So do many other religions, and humanist philosophies also major on creating healthy communities for people to live in. It is ironic that many of the politicians whose actions so undermined the interests of the common man claimed to espouse Christianity.

ENDPIECE

Our definition of a healthy society obviously reflects our own values - but it also aligns quite closely with the Nordic Model societies and to some degree with those of the Netherlands and Germany.
But whatever the exact vision of a good society we might espouse, the crucial issue is that we cannot let economic and financial affairs loose again - they must serve society and be strongly guided by the needs of people and a sound moral code.