Whatever happened to Capitalism?

Mel Stride on the current crises

This year holds an important and, given the current state of the capitalist world, a meaningful anniversary. It is almost 20 years since the fall of the Berlin Wall. Very shortly after the astonishing news in 1989 that the checkpoints had opened I took a trip to West Berlin. I went to witness what I knew would be one of the most extraordinary historical events that would occur in my lifetime. Shortly after I arrived I plunged in to join thousands of others chipping away at the wall, intent upon its destruction. The mood on the wall itself was often frenetic and chaotic. In most cases we hacked away with more effort than effect as I remember the concrete being every bit as hard as it had been unforgiving. Unforgiving in its separation of families. Unforgiving in the slaughter of the 171 men and women shot dead for seeking to cross it. Unforgiving in its denial of one of the most basic of human rights. But the locals went at it with gusto. For Berliners that day hacking away at that wall was not just about thumping at some symbol of historic injustice. It was personal.

Amongst the feelings of euphoria I also recall moments of profound sadness. A sense of depression as I watched those coming over from the East with little in their pockets. Reduced to pressing their faces up against the windows in the Kurfurstendamn with a childlike wonder at the sight of so many apparently exotic goods that were so totally beyond their grasp. Perhaps the most dramatic contrast between the achievements of post war capitalism and the ‘democratic socialism’ of the East was to be found in the traffic. For amongst the Mercedes (those gleaming totems of the West German post war industrial miracle) there spluttered and shuddered, the East German Trebant or ‘Trebbie’. Dodgem cars made of plastic rattled like dysfunctional washing machines. They shunted over the border belching blackened smut. These were the naughty boys. The runaway truants from some far off and derelict fairground. They looked like they belonged to another world. In West Berlin in November 1989 they might just have well have done. You only needed to look to understand the catastrophic chasm between these two nation states. And, if any further encouragement were needed to fully appreciate the victory of the profits of capital over the prophets of Engels and Marx you only had to remind yourself that what was on view that day was the very best of it. East Germany was then the most economically successful communist country in the world. The juddering columns of Trebbies that found themselves on the streets of West Berlin that day were truly the vanguard of communist economic achievement – its finest hour. Some said, and a few still do, that the East German state should not have been judged by vulgar economics. Didn’t the Trebbie really symbolise a nation that had its eyes raised up to worthier endeavours? Equality, health, education, social justice, full employment. Values and ideals for which profit and wealth are but grubby cousins. None of those rushing to get out seemed to think so. 
More recently, of course, commentators have rightly begun to ask questions of modern Capitalism. We are in a crisis. Forty per cent (yes 40%) of the World’s wealth has been destroyed in the last 18 months. Unemployment is rocketing. We have discovered the shocking truth that markets are after all amoral. That those operating within them can be distinctly immoral. The world it appears to many is stalked by greedy bankers who blew our inheritance. The economic paradigm that has served us since the end of the second world war (with the great institutions of Bretton Woods bestriding it) is crumbling before our eyes. Many are suggesting a depression the like of which the modern World has never before witnessed. John Maynard Keynes and FDR are back. We are looking once more to big government and it is weighing in – big time. Public spending. Public works. A new-found appetite for nationalisation. And as all this swirls on there is, I believe, a dynamic afoot that we last saw in the 1930s when many western socialists trumpeted the achievements of the centralised state planning of the Soviet Union in the face of the apparent impotence of the West to handle the Great Depression. And the question is being asked ‘what does this mean for the future of capitalism?’ Perhaps those who ran the show the other side of the Berlin wall had something to teach us after all? 
I for one don’t believe so but there are undoubtedly hard lessons to be learned and tough decisions to be made. Not least we will need to substantially redefine the role of government in relation to markets. I say markets because this current crisis had its genesis in a series of market failures. When they function well markets set rational prices at which supply and demand are equalised and gluts and shortages eliminated. One way in which they fail is when they rush headlong into creating a bubble underpinned by misplaced human sentiment (‘property prices will just keep going up won’t they?’), unstable banking practices (‘yes of course you can have a 110% mortgage even though there is little evidence that you can pay it back’) and false information (such as that relating to the risks associated with securitised bundles of sub prime mortgages being sold between banks across the world). When this bubble burst, of course, confidence within the banking sector evaporated, inter-bank lending stopped, credit dried up and banks that would otherwise go to the wall got bailed out by governments aware that to have allowed them to go under would have created a systemic disaster that would have taken down their entire economies. The loss of confidence quickly moved out into the non financial sector where businesses and consumers have whipped in their horns, demand has plummeted and down we have all gone.
The tendency of people to get swept away in bull markets is unlikely to change but overhauling banking practices and ironing out misinformation is something that governments (working collectively) can and must address. This will require more government in the area of financial regulation and oversight (ideally with an emphasis on the latter over the former). Transparency, simplification and a new era of caution and conservatism must be the overarching themes. Anything less and the current crisis may end up being seen as a historic turning point every bit as meaningful as the events of November 1989.