COMPETITION OR COLLABORATION? THE ANGLO-SAXON DILEMMA.
Why Britain and America are heavily disadvantaged in the post-crash world economy.
The debate that has succeeded the "victory" of capitalism over Soviet-style bureaucratic centrism has mainly focused on the unique advantages of the de-regulated, individualistic free-market economies over their "sclerotic" social market counterparts. Free-market organs such as "The Economist" magazine argued that social market societies were at a competitive disadvantage to their flexible free market counterparts. In particular they criticised the practice in social market countries of government playing an actively participant role with other stakeholders in the management of the economy. This, they said led inevitably to bureaucracy, a lack of enterprise and economic stagnation.
Then came the crash of 2008 - the result of allowing huge unregulated financial institutions to have their way unhampered by democratic influences.
In the "Anglo-Saxon" countries, predominantly the US and UK, any consideration of alternatives to a fundamentally disastrous politico-economic model was until very recently hi-jacked by a cacophony of noise from the adherents of competition and free markets, supported self-interested financial institutions and an international network of Foundations, Think Tanks and Institutes dedicated to pushing the market fundamentalist message world wide. (See Spreading the True Faith in this website).
But there are now some signs of life stirring in the intellectual desert....
The beginnings of serious debate about a new era?
At last, voices are being raised that challenge the popular axioms about free markets and competition being best.
Institutions like the New Economics Foundation are beginning to receive a hearing for ideas that challenge the conventional wisdom that financial wealth and endless economic growth are the roots of individual and social wellbeing.
Klaus Schwab, founder of the highly prestigious World Economic Forum, held at Davos, which and attracts the great and good from finance, business and politics, wrote in the Guardian newspaper on January 6 2009:
"We have witnessed a gradual erosion of (this) communitarian spirit over recent years. This erosion of societal values has progressed particularly in the business world, and is also one of the primary reasons of the current economic crisis. The enterprise has transformed from a purposeful unit to a functional unit: the purpose of an enterprise - to create goods and services for the common good - in society has been replaced by a purely functional enterprise philosophy, aimed at maximising profits in the shortest time possible with the aim of maximising shareholder value".
Elinor Ostrom was awarded the 2009 Nobel Memorial Prize in Economic Sciences, which she shared with Oliver E. Williamson, for her analysis of economic governance "by showing how common resources-forests, fisheries, oil fields or grazing lands, can be managed successfully by the people who use them, rather than by governments or private companies". Ostrom's work challenged conventional wisdom, showing that common resources can be successfully managed without direct government management or privatisation.
Will Hutton, UK-based political adviser, writer of several books on the state of the economy and prolific journalist, reckons that the tide of opinion amongst thinking people is turning strongly against unfettered free markets and towards a more integrated notion of business in society.
Adair Turner, head of the UK Financial Services Agency, the main watchdog over the banking and financial services sector, has been voicing some remarkable sentiments in recent days. He has ruminated on the notion that much of the speculative activity in investment banking and other forms of investment have no social value. He has mooted with some others, including the Governor of the Bank of England, imposing a tax on speculative transactions - the Tobin Tax.
Now he has aired a view that certain forms of investment, such as those in renewable energy, cannot be left to the market - because investment markets are not capable of taking very long-term views on environmentally useful and technologically complex projects. He has also hinted that the obsession of politicians with the private sector as the best provider of public services may have gone too far.
All of this is causing furious reaction in the finance sector, where he has been dubbed "Red Adair", and alarm amongst many politicians, who have sought to distance themselves publicly from such thoughts.
Turner's thoughts are not radical or shocking in most parts of the world.
In Germany and France, it is taken for granted that government can participate actively in promoting and incubating new technologies and innovations that will benefit the whole of society. The same applies in the Nordic countries, which, with the disastrous exception of Iceland, never bought into market fundamentalism in the first place. So Norway, for example, now has a thriving state controlled oil and gas sector, which has generated huge revenues that have been invested in developing a modern transport infrastructure and creating a national pension provision that will support Norwegians for many generations. The Norwegian sovereign wealth fund, also the beneficiary of North Sea oil revenues, is a model of responsible and transparent investment.
China and India do not adhere to neo-liberal economic dogmas. China especially is developing an economic model that melds state and private interests in a way unique to that country. The South East Asian countries, burned severely by a dose of market fundamentalism imposed by the IMF, have developed a quite different models of capitalism which allow in some cases for significant government involvement in new technologies and incubating nascent industries.
There has been a strong revolt throughout South America against the free-market "Washington Consensus".
So, why have Britain and the US found it so difficult to achieve real change?
Change in the financial system needs concerted political will.
Why the British and American adversarial "winner takes all" political systems are huge burdens.
First: The biggest political question of all: What defines a successful society?
To make judgments on the success or otherwise of economies and societies, it is essential to look behind the financial numbers such as GDP and think about what constitutes a "good" society. Readers might like to consider my definition.
A healthy society:
- Ensures active engagement in productive work for the maximum number of its members
- Generates economic prosperity for the vast bulk of its members - and is able to offer support to those who cannot cope.
- Ensures that wealth is equably distributed and shared for the good of all
- Engages the energies and commitment of the majority of its members to work towards the common good
- Provides fair opportunities for all to receive education and succeed in the world of work
- Enables all its members to have equal access to public health and social facilities
- Is bound by commonly accepted values that foster collaboration
Against this kind of backcloth two nations seem to be trailing many other parts of the world, stuck with outmoded and seriously flawed beliefs about how successful societies work. These are Britain and the United States, scenes of a massive rearguard action by the dominant finance and banking industries, supported by a rump of economists who cannot face the fact that their models and most treasured beliefs lie in the ruins of the global financial meltdown.
In the US, the International Monetary Fund estimates that companies in the Finance, Insurance and Real Estate industries spent an average of $500,000 on lobbying politicians during the last presidential election. It concluded that "the prevention of future crises might require weakening the political influence of the financial industry".
In both countries, but especially Britain, a side-effect of finance sector dominance has been the destruction of huge swathes of industry based on science and technology.
The banking industry remains unrepentant. Goldman Sachs CEO Lloyd Blankfein described himself as just a banker "doing God's work". On the assumption that this was intended to be a joke, it is hardly worth asking what kind of God Blankfein worships. The Guardian newspaper reported on January 9th that London and New York-based banks were about to pay £40 billion in bonuses. So much for public outrage and politicians' lecturing.....
Floating about above the growing intellectual ferment are - in Britain the main political parties and - in the US, the political right, which seems to be encased in moral and intellectual permafrost.
It is going to be very interesting to see what transpires in these two erstwhile beacons of market fundamentalism, because they are subject to tendencies that are not fully shared by most other countries.
America manifests strong tendencies towards individualism and a decline in a sense of community; winner-takes-all politics, market fundamentalism and denial of a positive role for government as a participant in economic development.
Britain may be showing the first signs of positive change.
There are stirrings of hope in the fact that the new Conservative-led coalition and the Labour opposition are beginning to talk of community and "Society" as serious issues.
Concerns with community and the good of the whole society were overtaken in the 1980's by promotion of the rights of individuals to pursue their own interests regardless of the impact on others. This obsession with individuals was underpinned by strange theories based on Cold War gaming which asserted that if everybody pursued their own ends the net result would somehow be beneficial to all. The results of this aberrant period are now clear for all to see - economic instability, massive inequality, serious crime hot-spots and extensive incarceration, public order problems and extreme issues of social exclusion and deprivation, leading to serious educational and health challenges.
Naked competition fosters adversarial politics - which are a huge source of disadvantage
But behind all of this lies an even more deep seated and difficult problem - adversarial political systems that allow for little collaboration between political parties and a hatred of government based on coalitions despite the fact that this kind of model has been shown to be beneficial in many more politically mature countries (and worked very well in Britain during the Second World War).
In the United States, it seems to external observers that that country has split politically into two increasingly separate factions. As an example, the subject of healthcare reform caused furious conflict about issues that seem "no-brainers" to those used to successful universal, state-supported public health systems.
There seems to be a significant connection in these countries between commonly held beliefs in the beneficial force of the market, individualism and a lack of communal energy that could foster political systems based on proportional representation and acceptance of coalitions of common interest.
The big political issues are changing
Once it seemed obvious to many that letting individuals pursue their economic interests free from interference from politicians was a recipe for success. An unintended consequence of these beliefs was the growth of massive banking institutions that placed themselves outside the influence of democratically elected governments.
Now the big issues have moved on. No longer do serious thinkers promote the free market as a substitute for constructive engagement in society. The focus is shifting to the knotty issue of harnessing the global finance system to serve the interests of the community.
This leaves the "Anglo-Saxon" political model at a significant disadvantage, particularly because the investment banks have been allowed to consolidate a dominant position in these two countries.
Changes are needed in currently dysfunctional political systems
Shifting the balance of power will require national consensus on what needs to be done and massive political stamina to outface and harness the banks, which will use all their massive financial and lobbying powers to protect their interests.
But in the United States the political dynamics reveal massive divisions between left and right, to the point that the US can almost be described as two quite different countries. Summoning the political will to reform the banking system seems to be currently completely beyond the competence of elected politicians.
In Britain, a highly adversarial political system, based on first past the post party politics, symbolically represented in parliament by a confrontational layout that encourages regular jousting between party leaders backed by braying packs of supporters, means that what is proposed by one party will almost by definition be opposed by another. This system encourages political conflict and is supported by a massively partisan media.
The biggest downside of all is that grossly adversarial party politics completely blocks the possibility of mature debate about the reasons for economic and social problems and ways forward, such as that witnessed in Germany in the national election. There was considerable surprise in some sections of the UK media that the televised debate between Chancellor Merkel and the leader of the main opposition bloc seemed more like a mature and intelligent discussion about finding solutions to Germany's economic problems than a UK-style points scoring exercise.
The heart of the matter
Purely adversarial political systems mean that it is almost impossible to generate a political consensus of any duration or strength to change a now dysfunctional economic model and seriously tackle the fundamental changes needed in the banking and investment systems.
Encouraging signs stirring amongst elements in the economic and academic establishments and the media are extremely difficult to convert into consensual political action. The population remains confused by the cacophony of conflicting messages coming from those who should be responsive to their needs and providing clear political leadership.
It is almost certain that healthy change in the relationships between the financial system and wider society will only come when the political system is reformed to more easily represent the interests of society as a whole and provide consistent leadership on behalf of all citizens.
It is unlikely that there will be improvement without changes in voting systems that encourage collaboration and coalitions of interest on the most important political issues. This is already the case in many developed countries - why not Britain and America?
Stop Press
Britain has a coalition government!
The British electorate has shown its feelings about yah-boo politics by not voting decisively for either of the major political parties, resulting in a coalition between the Conservatives and the Liberal Democrats, an ostensibly social market party, committed to changing the voting system. This is a truly heartening development, as the country is also likely to have the chance to vote in a referendum about changing the first-past-the-post voting system. The coalition is taking a neo-liberal approach to reducing the massive public debt very fast, but is showing the effect of Liberal Democrat influence by initiating a serious review of the banking system and beginning to crack down on wealthy tax dodgers who use offshore tax havens.
It remains to be seen how the coalition works out and how the serious the electorate are about changing the nature of British politics in the teeth of furious opposition from the right-wing press and many politicians - but recent developments may show the first green shoots of hope.
