Timothy Garton Ash is a prominent modern European historian, who became famous writing about the collapse of Communism and the transformation of Eastern Europe in the 1990s. It was something many people thought they would never live to see.
A friend asked me what I thought of Ash’s article a couple of months ago in The Guardian, where he asked what will come of modern capitalism in the wake of the financial and economic crisis.
An extreme “neoliberal” version of the free-market economy, characterised not just by far-reaching deregulation and privatisation but also by a Gordon Gekko greed-is-good ethos – and fully realised in practice only in some areas of Anglo-Saxon and post-communist economies – seems likely to find itself [left in ruins or at least very substantially transformed]. But how about a modernised, reformed version of what postwar German thinkers called the “social market economy”?
Ash goes even farther than what you might call the Continental European social-democratic model, and envisions a world with a better balance between production and consumption, between national and international governance, and between exploitation and protection of the environment.
Ash’s essay reflects the feeling that the financial crisis was so cataclysmic, and the behavior that precipitated it so indefensible, that it could not help but trigger a major change in economic organization and perhaps even in societal values. Today, it’s pretty easy to label it as hopelessly optimistic. Many emerging markets, with China in the lead, are determined to return to an economic boom as quickly as possible. In the United States, the official administration strategy is to reflate the banking system as a means of stimulating the economy. After a couple of months of uncertainty, the media has consolidated around reporting this as an ordinary recession, though more severe than most.
More fundamentally, people change only a little bit, and only very slowly. People may be a little less willing to buy flat-screen TVs on credit, but they will still aspire to own flat-screen TVs. Domestic political systems will still undercut attempts at international governance; “internationalism” is perhaps more a dirty word than ever in the United States, as evidenced by the shameful attempts to portray Harold Koh (until recently dean of the Yale Law School) as un-American during his confirmation hearings. As for the environment, I have yet to see compelling evidence that the human race will pull it together in time to meaningfully slow down global warming, and if anything the recession is being used as an argument against investing in alternative energy.
In the longer term, I think we can hope for a few silver linings from this crisis and recession. People may be less willing to take on debt, which will mean greater domestic savings and therefore greater domestic investment with less foreign debt. People may feel less secure economically, or maybe will at least remember feeling less secure during the dark days of 2008-2009, which may make them a little more concerned about the poor and a little more willing to pay for a better social safety net. Graduates of our top universities may want to do something other than become bankers and hedge fund managers, and may invent new technologies and teaching methods instead of new derivatives. Maybe the glorification of extreme wealth will be tempered a bit for a few decades, so the ultra-wealthy will flaunt it a little less and the rest of us will admire it a little less.
All of these things would be good, and they may still happen. But it will be within a capitalist system that remains pretty much the same as before – perhaps with a tiny bit more regulation.
By James Kwak
27 thoughts on “What Will Change?”
I’ve hammered on this point before in several ways, but it really comes down to the character of the individuals who happen at this moment in time to constitute what are usually referred to as “the elites”.
You really only need a few good souls there, who are actually trying to do the right thing. That, plus a tincture of luck for them, and who knows, this just might turn out to be a more humane place to live.
James, isn’t all this assuming that the recession/depression doesn’t get much deeper? That’s a highly unlikely scenario.
This thesis is essentially correct in it broadest outlines, that there will be no important change in the appearance of the future. Within these outlines, however, profound weaknesses become apparent. Presupposed are certain conceptions about “human nature” and the effect they will have upon outcomes, no flat screen TVs on credit but an undiminish ardor for them, for example. What seems decisive in these calculations is a reduction of the human person to a kind of consumerist amoebism, a drooling oaf capable only of the most elemental functioning, eating, belching, sleeping, exreting, etc. Yet the human person is hardly something reducable to these catagories, even when seen through an economic lens. What is most obviously missing here is the political element, that no change will come about not because of some oafish economic determinant but because it simply will not be permitted politically. Orwell’s vision of the future is to be seen as far more germaine here, and that not in some infantile libertarian sense. Imagine a boot stamping on a human face – forever, Winston Smith is told in 1984. That’s the reality that will keep things unchanged into the future. Human nature recoils in the presence of such evil, it doesn’t seek accomodation with it, it instinctively knows of something better. It is the very thing that finds revulsion today in the evisceration of democracy brought about by special interest ownership of our politicians and political institutions. And it will be central to any successful effort to cast off the oppression these filth together have imposed on us.
It is disgusting how quickly reaction got its mojo back the moment it became clear that Obama’s entire campaign had been a despicable lie, and that he was dead set on pushing forward with Bush corporatism on every front, while reformers would be left as completely stranded and disenfranchised as they had been under Bush.
Far less sanguine expectations than those of Ash now look hopelessly naive, while even those of us who maintained a health, history-informed skepticism often find ourselves just amazed at how quickly things are getting this bad again.
Even those who have practically memorized The Shock Doctrine must sometimes be surprised at the facility with which disaster capitalism has created and now exploits its own disaster, and with such impunity, and with so little resistance.
Unfortuanely, even James’ anemic hopes expressed above look too optimistic, if we’re to count of people voluntarily doing this, or if we’re to count on political will to resist these crimes.
Sometimes I think man will never lift a finger to save himself, and that the only solutions to these problems, and the only suppression of these crimes, will have to be imposed by the fundamentals of nature and history.
It seems like, just as only Peak Oil is going to definitively cap carbon emissions, so only the end of cheap fossil fuels, and the inherent unsutainability of exponential debt/growth, will constrain the criminals and end this capitalist death march.
The thing about getting hit with the cluestick — which we certainly were in the last year — is that if you ignore it and go about your business, the universe hits you again. And again. And the stick gets bigger. And pretty soon you’re getting pounded on the head with a clue-by-four and you can’t ignore it any more because it drives you to your knees.
The structural, regulatory and cultural weaknesses that created this crisis have not been addressed — in fact, they’ve been explicitly swept under the rug. But they won’t stay there. I think we’ll get another whack pretty soon…
On a more positive note, I design building HVAC systems for a firm that specializes in green buildings, and despite the redepression and the chaos in California state finance, we are absolutely crazy-nuts busy. Renewable energy and green building has taken a hit, along with everything else. But there are signs that it is recovering faster, and thus stealing market share, from the traditional solutions.
James wrote TGA wrote: “But how about a modernised, reformed version of what postwar German thinkers called the “social market economy”?
It seems to me a first step would be, if the United States can bring in genuine health care reform. It’s occurred to me, if this did happen, the US would build in becoming a different kind of society and, ultimately, a better global influence. Just a theory.
I agree with JK and have been saying so for a while. The return to the good old days is what “everybody” – Main Street, Wall Street, and DC – wants. With all those interests aligned, there is really no one aside from a few academics, doomers, and their blog commentors, who are advocating for change.
If every geo-political-economic shock of the last 200 years, including the Great Depression, did not end wanton free market capitalism, this recession won’t either.
Capitalism is crack. It makes everyone feel really good in the short term, and care little, if at all, for the long term effects.
Goldman Sachs just issued a press release yesterday, informing the nation of their magnanimous generosity in selling back warrants for the full value named by the feds.
(Goldman originally wanted to pay $600 million and the feds wanted $1.1 billion.)
Goldman’s press release noted the ROI the nation had gotten on its investment in Goldman – 23 percent!
But neglected to mention the ROI they’d gotten from the feds investment in them – the billions in profits they’re seeing this quarter and the billions they’ve set aside for bonuses.
All at a time when unemployment in America inches higher each month.
And the same day Goldman issued its release congratulating itself for its generosity, Morgan Stanley posted a dud of a quarter, thanks to the fact that they chose not to engage in risky investments.
Our economy has collapsed and we’ve learned nothing at all from the catastrophe. In fact, we’ve learned that risk is good. Greed is what greases the wheels and if you want to be too-big-to-fail, you need a fat helping of both.
“it’s pretty easy to label [Ash’s analysis] as hopelessly optimistic….”
“Maybe the glorification of extreme wealth will be tempered a bit for a few decades”
I thing “a few decades” is rather optimistic, and as for graduates being less interested in banking jobs – arent profits this year bigger than ever? Bonuses are Back? So why would gradutes be less interested – for moral reasons? Its difficult to type and hide sniggering at the same time….
“But it will be within a capitalist system that remains pretty much the same as before – perhaps with a tiny bit more regulation.”
The lament in this statement is somewhat irritating…somewhere, somehow and in someway we have made a judgement that the cause of the crisis is capitalism — that is the efficient resource allocation process of capitalism. The unfortunate part of of all of this is that no one offers not a shred of evidence to prove that assertion. Somehow, we are left to assume that the truth in that asssertion is self evident.
May be there is a case to be made that with a stouter form of regulation on all forms of intermediation and by not making the colossal policy misjudgments (low rates for too long leading to spectacular credit growth intermediated by banks and others who were eventually left with too much residual risk) of the Greenspan era, we may come out of it hurt and still pretty much together. May be the face of the developed world does not need the radical surgery or facial graft that you and others may be suggesting.
Could it be that in five years hindsight it becomes clear that the crisis of 2008-2009 was an adjustment period for the biggest growth spurt than human race had ever evidenced ( at least the biggest growth spurt that involved more of humanity than ever before).
We were all saying the same thing after 1998-2000…didn’t turn out to be the case…ditto for 2001-2002.
livingston: I agree, and admit in my own post I generalized too broadly about “capitalism.”
I believe at issue here is not pure, academic capitalism, but a twisted and distorted version of a subset of it that has taken root and spread over the past 50 years, most virulently in the last 25.
A better definition of terms is certainly in order, though I leave that to the experts. What seems to be widely discussed (though far from agreed) is that some change to the system of the last few decades is in order. The system we currently have in no way efficiently allocates resources, as it is full of un-accounted externalities, subsidies, and outright fraud.
A distinction needs to be made between policies labeled as “free market”, “deregulation”, and similar terms and a “genuine free market”, “genuine deregulation”, and so forth.
As a specific historical example, the savings and loan “deregulation” of the 1980’s (which culminated in the collapse of most of the savings and loans in the US) was clearly not “genuine deregulation”. Numerous restrictions on risky investments and so forth were removed. This was the putative deregulation. However, the federal government guarantees through FSLIC and other programs were sharply increased. This is a very clear case because the government backing was explicitly spelled out in the fine print of the enabling laws.
Would the huge speculative “investments” in the 1980’s in regional real estate bubbles, junk bonds, and other things have occurred absent the explicit government guarantees? Maybe, but it is not clear and indeed I suspect not.
In the lead up to the financial crash (both in the 1980’s and today), conservative, libertarian, and business sources have, with some exceptions, embraced these policies as “genuine deregulation”, “free market”, and similar terms. As soon as the crash occurs, they aggressively blame the government and back away very rapidly, often claiming the policies weren’t “genuine deregulation” or “genuine free market” (which is technically true).
The current crisis involves a de facto government policy of “too big to fail” as demonstrated by a long series of ad hoc measures such as the infamous “Long Term Capital Markets” bailout. This seems to be based on informal political connections between Wall Street and political leaders, the Federal Reserve, the US Treasury and some other agencies. Only a small amount of “too big to fail” can be found in specific laws leading up to the crisis. Of course, TARP and other recent actions leave little doubt as to the existence of the “too big to fail” policy.
Policies that favor certain companies or groups of companies (at least in the short term) can be labeled “free market” or “social capitalism” or “liberal” or whatever one wants. Framing the issue as “free market” versus something else, e.g. the government, or “regulation” versus “deregulation” distracts from the substance of the policies.
Again, a clear distinction should be drawn between the labels and the actual policies.
I do believe we’ll see less graduates interested in banking and wall street. If not on purely moral grounds, there is the general societal disapproval. In the past it might have been easier to decide to make banking your life’s work when there was no stigma attached. But it will be more difficult when every time you talk about being a wall street banker people look at you like a clump of excrement.
My thoughts aren’t that insightful, but still I can’t resist to add my 2 cents.
I think America will always be a democratic country. I think America will always be a capitalist country. 95% of Americans (including President Obama) believe in these 2 systems because over the years they’ve been very good to us, and at this time we don’t know of any better 2 systems to use. I think if Americans TREASURE THE IMPORTANCE AND RESPONSIBILITY OF VOTING, then America’s better days lie ahead of us. (Yes folks that means reading the newspaper, magazines, and good quality internet sites. Such a BURDEN to remain free huh??? While others die in Afghanistan, you may be missing Britney Spears puking on Youtube).
But America faces many challenges: a booming population (exponentially growing as it always does through the ever popular sport of sex) and huge inflow of immigrants, developing nations that have a hunger for a better life and don’t really care what America thinks is the “best” way. Nations and groups wanting to push us over for no other reason then they want to see a new “king of the mountain”.
It’s a new game. Few people care that America liberated France (including the French), helped to save England from being bombed into oblivion, and liberated the Jews from the death camps. Few young people care that America helped bring down the Berlin Wall, and even to this day help to keep South Korea safe from invasion and death from North Korea. We don’t have many factories left to give to China and Mexico. And those countries don’t feel it’s “benevolent” we let them slave in a shoe or auto parts factory anymore, if they ever did. The thing people ask is “What have you done for me lately?”
We’re not the only game in town anymore. And the sooner we get off our arrogant high horse, and realize there are other players who want and WILL HAVE their voices heard, the sooner we will be respected again. And not resented and snickered at, like many of the world sees us now.
livingston: “The lament in this statement is somewhat irritating…somewhere, somehow and in someway we have made a judgement that the cause of the crisis is capitalism — that is the efficient resource allocation process of capitalism. The unfortunate part of of all of this is that no one offers not a shred of evidence to prove that assertion. Somehow, we are left to assume that the truth in that asssertion is self evident.”
People don’t always — or even usually — mean exactly what they say. In addition, what any “ism” means is hazy. People strongly feel that capitalists, and not just any capitalists, but the high lords of capitalism have let them down and ripped them off. That is largely what they mean when they say that capitalism has let them down. They mean more than that, but what that is is not clear, and probably differs from person to person. I doubt if most people are thinking about efficient resource allocation, or could even tell you what that means.
John F McGowan: “As a specific historical example, the savings and loan “deregulation” of the 1980’s (which culminated in the collapse of most of the savings and loans in the US) was clearly not “genuine deregulation”. Numerous restrictions on risky investments and so forth were removed. This was the putative deregulation. However, the federal government guarantees through FSLIC and other programs were sharply increased. This is a very clear case because the government backing was explicitly spelled out in the fine print of the enabling laws.”
The right term is “welfare capitalism”.
“Would the huge speculative “investments” in the 1980’s in regional real estate bubbles, junk bonds, and other things have occurred absent the explicit government guarantees? Maybe, but it is not clear and indeed I suspect not.”
Well, they were predictable. Even a layman like me saw trouble coming as soon as that so-called deregulation was passed. What did surprise me was that the S&L crisis was not a wake-up call. Instead, things went from bad to worse. And here we are. :(
Ted K: “I think America will always be a democratic country. I think America will always be a capitalist country.”
In form, Ted, in form. Remember that the Roman Senate continued to exist under the Roman Empire, right up until the end.
Arguably, the U. S. is already a plutocracy, politically. Economically it may well be a reverse socialist country. (Under socialism the state owns the means of production. Under reverse socialism the producers own the state.)
Atul Gawande talked about these types of people in a speech he gave to U of C med school graduates – the positive deviants who can do so much with less…. wouldn’t it be nice if we found some of them on Wall Street?
Sadly, I disagree with you on this – not on principle, but because I think people still admire the Wall Street banker… and why not? The ones that clawed their way to the top of the ash heap are still making more than anyone else in the country….
After extensive social-scientific study (i.e. I sat and thought about this and did some google searches which seemed to confirm what I already thought) I’ve concluded that those who had some suspicions about banks and some moral boundaries will be less likely to go into banking. But those who don’t comprehend moral boundaries and the idea that banks might be suspicious will be interested in proportion to the rewards available.
My sense is that, in the main, banks have never relied much on those who question and have suspicions, and like to employ and certainly to promote those have have no such thoughts.
The same could be said of many industries and government of course, including international development (my field).
Of course there will be dramatic change in the USA. It won’t be in the form of increased financial regulation, revolting consumers, or some such nonsense. It will arise from a fringe right-wing element, who will target the elite with violence. After perhaps 3 elites are killed in mob-style hits, the elites will start to alter their behavior, giving more concessions to the working class. Unmitigated greed can exist only when there are no negative consequences for the actors. When the killing starts, elite concepts like “I always need more” will rapidly change to “I’ll get as much as I can without unduly endangering myself or angering the masses”.
Next, more wars will be started in a last-ditch “military Keynesian” effort. Think World War III: Israel attacking Iran, the US “coming to Israel’s aid”. Or, perhaps the US will attack some nation for “undermining the US dollar”. Ultimately, the pretext for the war will be created regardless of the situation. Opposition to the war and general economic depression will lead to further domestic unrest. This will escalate state repression, but inevitably lead to some type of “new New Deal” welfare state programs. “Stagflation” or a “Lost Decade” will ensue.
How do you like your soybeans cooked?
correction: “It makes everybody AT THE TOP feel really good in the short term…”
Actually I tend to think capitalism itself may not have failed, if only all the institutions who took too much risk would just go bankrupt. Saving these failed investment banks is what will cause problems in the future.
Sure, the short term problems would be horrible (maybe even too much, since overall economy was already very stressed). But saving failed institutions only encourages taking more risks…
While I support capitalism, much of the current problems arise from natural end result of it: At the end, there are few biggest actors left that had beaten the competition (the big investment banks in this case). No new competitor can really threaten them without taking huge amounts of risk.
Also, the really big ones can start manipulating markets and distort the pure idea of capitalism. Bribing the politicians, affecting (or, owning) the central bank decisions and regulations… The strongest can eventually make sure that nothing (short of total collapse) threatens their position, no matter how bad decisions they make.
This is the core problem of capitalism in my opinion: How to prevent formation of too strong enterprises that are too big to fail and/or can prevent it with political strong-arming?
Also, being big enough gives you the strength to bend markets to your will. Making bets where you know the outcome will be what you will make it be, who would not like that?
Quite right. The relentless growth of the global population and the finite oil supply will trump any optimism.
By the way, I wish James would stop picking on flat-screen TVs until I get my first.
I agree that capitalist economics will survive in the short-term, but what about the long-term? Aren’t a pair of trivial observation we cannot continue business as usual: (1) exponential growth inevitability collides with the finite (we are within a couple of centuries of that collision); and (2) our current economics is predicated upon exponential growth (even debt with compound interest requires it).
Imagine 1 oz of gold invested 2% annual interest in 0 CE. On 1/1/2009 the descendants of that investor would have had 189,559,288,395,933,515 oz of gold; the implausibility of this is obvious. It is 34,012,123 times as much gold has been ever mined. Compound interest is not sustainable for even a thousand years; we require wars, dark ages, and depressions to wipe the slate clean of the terror of the exponential function. Capitalism therefore is predicated upon such slate-cleaning events. Is this what we want?
Remember that we’re talking about an economics that has only been invented recently; the word “capitalism” wasn’t coined until 1877. When Adam Smith divided the world into three (landowners, wage earners, and employers), he had to describe them as “those who live for profit.” One can have market economies without capitalism (though not modern ones until someone invents an alternative, and there’s the rub).
(It is odd that the patron saint of of capitalists wrote of them, “The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” The catchy phrase “invisible hand” made up for all of the abuse I guess. A real triumph of marketing over substance.)
Comments are closed.