Friday, 9 January 2015

* Blame politicians for the ascent of the super-rich

Robert Marshall is chairman of Marshall Wace, a London-based hedge fund

 It is easy to complain about modern capitalism. It is not so easy to offer a real alternative — and when critics of the western economic order, from Thomas Piketty to comedian-turned-revolutionary Russell Brand, fail to do so they are often dismissed. Perhaps we (or they) have been asking the wrong question.

There may be no proven alternative to capitalism writ large. But there are stark choices, nonetheless, for there are different kinds of capitalism. What makes many people uneasy is that Anglo-Saxon capitalism is heading towards a plutocratic model. The economy is run by the rich for the rich.
It is corporate executives — not sports people, celebrities or creatives — who dominate the ranks of the top earners. In 2013, the average chief executive in the US earned $11.7m, 331 times the average US worker.

They are big winners from the rigging of the financial markets. In the past five years the US Federal Reserve has pumped more than $3.5tn into bond markets, driving down the benchmark rate and increasing the price of many other assets. Across the world, equity market capitalisation has risen by more than $18tn. Quantitative easing may have been a necessary evil, but the way it was done favoured a small cadre. For a corporate executive, awarding yourself a generous option scheme has been a lucrative no-brainer. Asset managers and hedge funds have benefited too.
The windfall gains in income and wealth could have been offset by fiscal measures, as they have been to a degree in the UK. But there seems little danger of that in the US, where corporate lobbyists have captured Congress.

Education ought to be the great leveller. But in the US it too is run for the rich. Schools are funded through local taxation, so well-heeled neighbourhoods get well-heeled schools, while poor ones are left behind. University places can be assured through timely “donations”.

The corrosion of US capitalism matters enormously because the US is still the lodestar of the world economy. It is hard for other western countries to resist US trends in taxation or pay.

Joseph Schumpeter, an Austrian émigré to the US, foresaw much of this. He shared with Karl Marx the insight that capitalism would eventually be the victim of its own success. Marx called it the “principle of infinite accumulation”. As successful companies became monopolies and wealth disparities widened, the bourgeoisie would become their own gravediggers. Schumpeter saw the problem more in terms of the stifling of innovation, as large companies became too dominant and vested interests prevented the process of “creative destruction”. Marx sought the demise of capitalism, but Schumpeter was a believer. His warnings matter.

We live in an age when, thanks to the power of the in­ternet and technology, Schumpeter’s ideal of disruptive capitalism has never been closer to realisation. Yet this disruptive age coincides with a consolidation of privilege, which risks undermining the legitimacy on which the system depends.

The fact that the plutocratic version of capitalism has gained ground is not a failure of capitalism but a failure of politics. Monopoly and privilege need to be challenged. US president Theodore Roosevelt may have been the last politician to understand this and act on it. He took on the wealthy and powerful.

Former UK prime ministers Tony Blair and Gordon Brown were bamboozled by bankers. US presidents have been reluctant to take on Wall Street or big business. George Osborne, the British chancellor, understands the importance of an enterprise economy but has a blind spot when it comes to the privileges of inherited wealth.

Ed Miliband, leader of the opposition Labour party, is much more interested in Marx than Schumpeter. What British and American capitalism needs, if it is to remain credible in the 21st century, is more of the Austrian, not the German.

1 comment:

  1. Very hard topic to comment on.Let's not forget that today's World economy is driven by the capitalist system.Any other form of management has failed so far.If wrong policies are forwarded capitalism will perish too.China is growing. It is going through a transition mood and is becoming prosperous and rich country.Cuba is talking to the US.Some of the middle east countries will have to once for all settle their dispute and decide their future .The rich got the money and they invest it.Sure you do expect them to get richer .There is no other way.
    J .


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