This Anglo-Saxon model of capitalism (its chief exponents have been the US and the UK) has become the world’s economic system of choice, and the bankers who drove it the self-styled ‘masters of the universe’. It is based on trust in the markets and the private sector, alongside a non-interventionist state and light-touch regulation.
But the credit crunch which began in the US housing market has exposed the international finance system as a house of cards. Financial innovation - once lauded as a sign of sophisticated capitalism - arguably spun out of control in a maelstrom of securities and derivatives. An extraordinary few weeks has seen the lines between state and finance completely redrawn, with governments across the world having to take stakes in financial institutions to keep the system afloat. After 20 years of selling off assets, the Governments of the US and UK have embarked on huge nationalisation programmes.
The backlash against the finance sector has been brutal. The global press has been filled with outrage at the slick spivs on Wall Street and in the City who have seemingly brought about global ruin. In Asia in particular, the crisis could have profound implications. China’s growth has followed experiments with a freer market. Now there are reports of Chinese anger at the extent of the West’s excess. China’s vice-premier Wang Qishan is said to have told a group of Americans: “The teachers now have some problems.”
There are also political ramifications - capitalism, which in its Western incarnation thrives on stable government, is often sold hand-in-hand with democracy.
The question now is whether free-market capitalism can revive itself and provide a template for the world, or whether different models involving a stronger, and potentially more authoritarian, state will emerge.
But the credit crunch which began in the US housing market has exposed the international finance system as a house of cards. Financial innovation - once lauded as a sign of sophisticated capitalism - arguably spun out of control in a maelstrom of securities and derivatives. An extraordinary few weeks has seen the lines between state and finance completely redrawn, with governments across the world having to take stakes in financial institutions to keep the system afloat. After 20 years of selling off assets, the Governments of the US and UK have embarked on huge nationalisation programmes.
The backlash against the finance sector has been brutal. The global press has been filled with outrage at the slick spivs on Wall Street and in the City who have seemingly brought about global ruin. In Asia in particular, the crisis could have profound implications. China’s growth has followed experiments with a freer market. Now there are reports of Chinese anger at the extent of the West’s excess. China’s vice-premier Wang Qishan is said to have told a group of Americans: “The teachers now have some problems.”
There are also political ramifications - capitalism, which in its Western incarnation thrives on stable government, is often sold hand-in-hand with democracy.
The question now is whether free-market capitalism can revive itself and provide a template for the world, or whether different models involving a stronger, and potentially more authoritarian, state will emerge.
| FACT BOX |
| - According to the IMF, global losses on debt originating in the US will total US$1.4 trillion. - US household debt rose from 80 per cent of disposable income in 1986 to 140 per cent in 2007. In the UK it rose to more than 170 per cent. - The US has nationalised Fannie Mae and Freddie Mac, taken over AIG and set up a $700 billion fund to buy toxic debt. The UK, meanwhile, has adopted sweeping measures to buy stakes in struggling banks, promising $82 billion from the public purse. - Chinese GDP growth slowed to nine per cent in the third quarter as the global economy stagnated. |
Angela Mackay, executive director, Asia-Pacific, Financial Times
For the first time in the 21st century, capitalism is taking a beating for failing to live up to its USP. Nonetheless, capitalism remains a strong brand. The very mention of the word invokes thoughts of freedom, possibilities, hard work and purpose. At a stretch, it could even conjure romance.
Capitalism doesn’t need rebranding, it just requires a little redefinition because economic theories are like skirt lengths - they go up and down as well as in and out of fashion. The capitalist system put forward by John Maynard Keynes was not the same as that of Milton Friedman.
Over the past century, capitalism has been delivered to the general population via mass share ownership. It has gone ‘green’ with the environmental movement. It even went ‘red’ after Deng Xiaoping realised that business rather than communism was necessary to underpin the Iron Rice Bowl.
Capitalism is also all about cycles, and we are heading rapidly toward the bottom of one.
Weakness in the capitalist system has put us in this position, and when it regains its strength we will emerge out the other side. This has always been the case.
Branding is also about consistency. So long live capitalism!
Chris Dillon, founder, Dillon Communications
With global stock market routs and the nationalisation and collapse of some of the biggest names in finance, it’s been a tough couple of months.
Capitalism is a victim of its own success. It has lifted more people out of poverty and extended and improved more lives than any economic system in history. For the most part, this has happened so effortlessly that we take capitalism’s benefits for granted.
So the first task is to remind people that capitalism is dynamic. Businesses and entrepreneurs create new products and services. A rare few succeed. Most fail. That’s the price of progress.
Second, publicise the alternatives. Few of us would wait weeks to have a phone installed - as in pre-Thatcher Britain - much less tolerate the rationing that exists in Cuba today.
Finally, as Adam Smith observed 232 years ago in The Wealth of Nations, capitalists need oversight. Politicians and bureaucrats must be held accountable for the regulatory and policy lapses that allowed these failures to occur.
Letting markets operate without effective, competently enforced regulations is like handing your car keys and a bottle of Scotch to a 16-year-old.
Got a view?
Email feedback@media.asia
