FREE MARKET CAPITALISM IS IN MELT-DOWN: MANY ECONOMIES ARE IN IRREVERSIBLE DECLINE; SOCIETIES ARE FACING DISINTEGRATION
Radical re-building is the only solution
This piece mainly concerns the case of Britain. But its messages are relevant for other countries that also espoused market fundamentalism.
The roots of the current crisis
Despite propaganda that the crisis of 2008 onwards was caused by irresponsible government spending and a bloated public sector “crowding out” virtuous private sector investment, the real roots of the crash are much more complex.
In summary, the causes were as follows:
- Consumerism and booming consumer debt which had many roots, but were mainly caused by inappropriate expectations of the “good life”, and static or falling wages for large parts of the populace in the US and to a lesser degree in Britain. People therefore resorted to borrowing to support lifestyles that they were persuaded were a right. This caused an unsustainable rise in private debt.
- The erosion of social bonds. The extended family was already breaking down as a result of dying industries and internal migration. This process was accelerated by atomisation of communities caused by increasing self-centeredness; founded on the idea of citizen as consumer and self actualisation as the highest goal. Social altruism was seriously weakened.
- Burgeoning inequality and the ability of the rich to avoid their responsibilities to society by tax evasion fostered serious social schisms, leaving many excluded. It suited much of the political class and media to deny compelling evidence that inequality causes widespread damage.
- Grossly irresponsible behaviour by the banking industry that cashed in on the boom and magnified it hugely. As is well known, banks indulged in an immoral splurge of lending and speculation, taking and hiding huge risks with other peoples' money. The boom was magnified by advertising and political encouragement.
- The wrong-headed convictions of many politicians, who became hooked on the idea that “the market” was the solution to economic success and improving health and social welfare; despite common sense and overwhelming evidence that unregulated free markets result in speculation, short-termism; and most seriously, gross inequality.
There were four distinct effects of the “Marketisation” of society:
- An erosion of the effectiveness of democratic institutions, undermined by the power and aggressive influence of massive banks and international corporations over government. It is probably true to say that governments in the UK, United States and some other countries currently find it almost impossible to pursue agendas that go against the interests of corporate power.
- Increasing instability in the economy, and long-term underinvestment in productive industry, especially in advanced sectors of technology. Governments deliberately backed off from a constructive role in industrial strategy, and the investment banks had never been enthusiastic about long term investment in complex technologies. It was if the investment lifeblood was being sucked out of the UK and many other economies and blown on speculation and consumerism.
- Burgeoning inequality and social exclusion, leaving up to one third of the population in some rich countries living in social ghettos, often close to the bread-line, denied opportunity and social mobility. Economic and social exclusion are becoming a permanent state for many in such countries as Britain and America, causing immense damage not only to society but also to the economy.
- A marked decline in public morality. Markets in themselves are amoral. But the behaviour of powerful players in the markets is often quite immoral. Banks and corporations have behaved disgracefully, avoiding legitimate taxes, exploiting customers, attempting to deceive the public and using their power to further anti-social agendas. Many rich individuals have sheltered their earnings and wealth in tax havens.
The result has been a decline in trust generally and in many quarters ethical standards have fallen with the prevalence of values that condone amoral behaviour.
What needs to be done
Recognise the true seriousness of the crisis - the very fabric of society is at risk:
What Britain, America and many parts of Europe are facing is a crisis of free-market capitalism that threatens to destroy the very fabric of civilised society. In its way, it is as serious a threat as a war, and is now causing moral decay and many of the symptoms that were manifested in the German Weimar Republic after World War One. In many countries, including Britain and America, we are witnessing societies that are beginning to tear themselves apart.
Economic decline and gross inequality is disenfranchising more and more people from being able to participate in productive activity, increasing numbers will never participate in the employment market. Education is failing to meet the needs of the non-academic, who leave school without useful life or work skills. A growing rump of the population is excluded from society, living in ghettos with generational unemployment. Meanwhile the majority is turning against the poor and excluded, characterising them as second-class citizens, responsible for their own woes, scroungers and potential criminals. An increasingly strident popular press is blaming the problems on “outsiders”, “Europe”, immigrants, minorities and “scroungers”.
Extreme right wing political parties are springing up all over the world, political and economic isolationism are becoming the vogue at a time when the solutions lie in more international collaboration.
Power and the ability to influence events is slipping away from the political classes, society is beginning to fragment into a myriad of narrow interest groups, positive government is becoming more and more difficult.
Countries are being destroyed by enforced austerity, when rigorously managed strategies for re-building shattered economies will have far better longer term outcomes. It is hard to see how the Greek and other economies razed by enforced austerity will recover unless rebuilding is the priority.
Acknowledge the roots of the problems. Economy and Society are closely interlinked:
They lie fundamentally with flawed socio-economic theory that encouraged selfish consumerism, a lack of common purpose; created economic instability and gross inequality - handing political power to the rich and powerful, thus undermining the democratic state.
Free market theory tends to deny the importance of society and denigrate the beneficial potential of government as a player in stimulating and directing industrial strategy, investment and research.
Rich institutions and individuals are able to exercise undue influence on politicians, furthering their often damaging parochial interests. Democracy is becoming a form of corporatism, and the interests of the majority subjugated by commercial exploitation.
Politicians have become increasingly cut off from experience of the wider community, by living inside political “bubbles”, and preyed on by armies of corporate lobbyists. This tendency has become exaggerated by the rise of professional politicians.
Inequality is the flywheel that connects economic decline with social fragmentation.
Many market economies especially that of Britain, are suffering from a long term cycle of decline. Lack of investment in productive industry, and the growth of banking and financial services as the engine of the economy have caused an enormous gap to develop between relatively low skill and lowly paid jobs and some hugely paid occupations. In the middle, cost pressures have caused incomes to stagnate. Personal debt has boomed and the economy has become increasingly unstable.
This has resulted in burgeoning income gaps and exclusion of the poor. The resulting gross inequality is fragmenting society, creating a growing underclass which is separated by geography, income, health, educational and occupational opportunity. When this becomes a permanent state, the economy also suffers from the availability of skills and high-grade employment opportunities.
Gross inequality thus causes both economic and social damage
Courageous and persuasive leadership is needed to override selfish interest in the cause of national regeneration.
Need to build new alliances, away from old party politics
New “narratives” are needed; created by people with the courage to take society in a new direction - away from decline and moral decay. Alliances need to be built that include politicians, religious leaders, industry, trades unions, local government, education and the professions. They need to be demonstrably diverse, non-partisan and dedicated to the national interest.
Too many politicians have sought to score political points, blame anyone but themselves, pander to powerful interests that are the causes of the problems and pursue tired policies that have no hope of solving them. The public is confused by a cacophony of competing remedies. There is an urgent need to strengthen the political centre to counter the growth and aggression of the various facets of the right. The situation is akin to wartime when the very survival of the nation was threatened, only this time the enemy is within. Alliances that break traditional political boundaries with a remit to develop radical strategies for addressing the major social and economic problems are probably the only effective way to proceed. There are probably enough politicians of the centre ground with eyes to see the real problems, break the old political moulds, overcome narrow party interests, and recruit other stakeholders into a national alliance for regeneration.
In Britain, The driver of re-building society must be the economy.
The overriding economic need is for serious investment, which should be concentrated on several key facets:
- Infrastructure-building, especially in the road and rail network, but also in air travel. Britain is an international hub at present, but will not remain so without major capacity investment in the South-East and North of England.
- Energy capacity building, focusing initially on capacity that will fill the generation gap that will open up in a decade - and then in nuclear and the more effective aspects of renewable, especially wave and tide power. For example, the Bristol Channel is a major opportunity for tidal generation that cannot be missed
- Science, medicine and technology - through the more successful top universities like Cambridge and Imperial College, London. Incubator funds need to take promising technology from the laboratory, through piloting to commercial exploitation
- House-building to provide decent living for the millions that are living in sub-standard accommodation at inflated costs. But the emphasis must be on building “mixed” developments to counteract the divisive effects of separation by class and income.
- Major encouragement by direct and indirect incentives to smaller companies that are likely to be the engines of future growth. Some of this can be done by diverting resources from the current investment banks, which have been the cause of the economic disaster and are failing to invest even now. A national industrial bank and a network of regional banks, free of direct political interference could directly encourage investment
- Investment in practical skills, through apprenticeships and technician training schemes, based on colleges and companies, which must be incentivised to take their training responsibilities seriously. Training initiatives need to be co-ordinated with regional investment.
Where would the money come from?
- First, by slowing the debt repayment programme and diverting the money directly into investment. It is also possible to increase borrowing in the short term, as a credible growth and recovery strategy would have credence with the markets. Decline by austerity will not. This can be justified by the increased economic activity that such activities as infrastructure and affordable house building, increased employment and government revenue.
- Encouraging foreign investment, especially in energy, infrastructure and housing. Investment in industries with important technologies and intellectual capital should be come from domestic sources to protect competitiveness.
- The strength of UK higher education and business schools in attracting foreign students should be exploited to the maximum, as a source of income and long-term relationship-building
- By closing the myriad loopholes in the tax systems that allow both individuals and corporations to leach £billions from the economy; instead offering them incentives to invest in useful growth initiatives.
- New banks can offer ordinary savers the opportunity to invest in national regeneration by offering tax incentives and underpinning a measure of risk.
- By radically overhauling public sector sourcing and purchasing to ensure that domestic industry obtains the maximum benefit. Incentivise private companies to prefer local suppliers.
- By establishing a “living wage”. There is a myth that many companies cannot afford to pay employees a wage that would enable them to support themselves and their families. Many on the minimum wage have to draw benefits to live. Thus the state finds itself in the bizarre position of indirectly supporting enterprises at public expense. A living wage, at a level 25% above the current minimum, would many more to support themselves - reducing dependence, enhancing self-esteem and benefiting the economy by increased consumption
- By discouraging speculative and short-term investment; giving major incentives to fund managers that invest and hold shares in companies, especially technology companies, for the long term.
Capitalism remains the most vibrant economic system, but:
Free-market capitalism needs to be replaced by a more positive and kinder form that encourages collaboration and recognises that the overriding need is to build healthy societies. This is not unrealistic idealism - many facets of it can be witnessed in Germany and the Nordic countries.