Will the Global Crisis Lead to Capitalism With a Human Face?

1
Will the Global Crisis Lead to Capitalism With a
Human Face?

• Ivars Brivers
• The Chairman of the Latvian Economic Association,
• Professor of BA School of Business and Finance,
• Riga, Latvia

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SPEECH BY M. NICOLAS SARKOZYPRESIDENT OF THE
FRENCH REPUBLIC40th World Economic ForumDavos
Wednesday, January 27, 2010

• This crisis is not just a global crisis. It is
  not a crisis in globalisation. This crisis is a
  crisis of globalisation.
• By discarding all our responsibilities in the
  marketplace, we have created an economy which has
  ended up running counter to the values on which
  it was nominally based, and to its own objectives.

3
Is the present crisis economical?

• The three dimensions of sustainable development
• Environment the basis
• Economy the tool
• Social the target
• (From Our Common Future The Brundtland
  Commission, 1987)
• Thus the present global crisis should be
  considered as
• environmental crisis (in narrow sense ecological)
• economical crisis
• human crisis
• in general historical crisis

4
Ecological crisis

• If the present growth trends in world population,
  industrialization, pollution, food production and
  resource depletion continue unchanged, the limits
  to growth on this planet will be reached sometime
  within the next 100 years. The most probable
  result will be sudden and uncontrollable decline
  in both population and industrial capacity.
• (From Limits to Growth Donella H. Meadows,
  Dennis L. Meadows, Jorgen Randers and William W.
  Behrens, 1972)
• resource depletion
• environmental pollution and degradation of
  ecosystems
• global warming

5
Human crisis

• Moral crisis
• people are confused about the values of life
  added value has superseded real values
• Institutional crisis
• the contradiction between individual preferences
  and social goals, which cannot be solved without
  irrational elements, such as Th.Veblens
  institutions
• Educational crisis
• are the people in the XXI century better educated
  than in XIX century?
• considering the higher education as non-elitist
  has lead to the loss of real higher education
• the education has been subjugated to the market,
  it has lost its moral aspects

6
Where we can see the end of the crisis?

• Still a lot of economists give more attention to
  the financial markets, considering that the
  signal about recovery will come from there. This
  is curiously as even during the Great Depression
  J.M.Keynes considered labour market, not the
  stock market as the main indicator of the
  recovery. Searching the way out of the present
  crisis only as a financial crisis may lead to
  recovery, not welfare.
• (Jose Antonio Cordero)
• Finding the way out of the crisis only in one
  dimension economical, may lead to very harmful
  consequences one should remember the
  consequences of the Great Depression.

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We need to guard against destructive creation,
Jagdish Bhagwati, university professor at
Columbia University, The Financial Times, October
16, 2008

• In each case, the assumption was that financial
  innovation was like non-financial innovation.
  When the personal computer was invented, the
  economy profited without upheaval. The typewriter
  became obsolete an example of what Joseph
  Schumpeter famously called creative
  destruction. But with financial innovation, the
  downside can be lethal it is destructive
  creation. We have to work hard at defining the
  downside scenarios.

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SPEECH BY M. NICOLAS SARKOZYPRESIDENT OF THE
FRENCH REPUBLIC40th World Economic ForumDavos
Wednesday, January 27, 2010

• The question of innovative financing is central.
  We cannot avoid the debate on a tax on
  speculation.
• Taxing the exorbitant profits of finance to
  combat poverty who cannot see how such a
  decision even if I am well aware of the
  complexity of implementing it would contribute
  to putting us on the path of a moralisation of
  financial capitalism?
• If financial capitalism went so wrong, it was,
  first and foremost, because many banks were no
  longer doing their job. Why take the risk of
  lending to entrepreneurs when it is so easy to
  earn money by speculating on the markets?

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SPEECH BY M. NICOLAS SARKOZYPRESIDENT OF THE
FRENCH REPUBLIC40th World Economic ForumDavos
Wednesday, January 27, 2010

• finance, free trade and competition are only
  means, not ends. From the moment we accepted the
  idea that the market was always right and that no
  other opposing factors need be taken into
  account, globalisation skidded out of control.
• Globalisation first took the form of
  globalisation of savings. It gave rise to a world
  in which everything was given to financial
  capital and almost nothing to labour, in which
  the entrepreneur gave way to the speculator, in
  which those who lived on unearned income left the
  workers far behind

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Latvia Ponzi from the start(D.Bezemer,
M.Hudson, J.Sommers)

• In Latvia the state power has grown together with
  the speculative business, taking a full control
  over the mass media, thus manipulating with
  peoples consciousness. Thus the democracy there
  is fictitious.
• Political and economical power is in the hands of
  cleptocracy, which make decisions, according
  their narrow interests, ignoring the survival of
  Latvian nation.

11
IMF as a charitable adviser

• Dont rely on profuse inflow of foreign capital,
  which will inflate your finance system or real
  estate sector. This is a warning to many Central
  and East European countries, that rely too much
  on those two sectors.
• (Marek Belka, Director of European department of
  IMF, March 30, 2009, reverse translation from
  Latvian)

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Economic crisis

• The goal of economy in the XXth century
  economic growth has turned out to be false.
• Economic growth in the developed countries does
  not contribute the increase of real welfare.
  While the rich got richer, middle-class incomes
  in Western countries were stagnant in real terms
  long before the recession. (Jackson, 2009)
• Economic growth is unsustainable, as
  environmental resources at an exponential rate
  are turned into rubbish, and both of them are
  close to the limits.
• Though economic growth is necessary, as the
  increasing productivity and labour substitution
  by capital allows producing the same amount of
  product with less labour.
• Perhaps, this is the main contradiction of
  economics in the XXI century, and solution of it
  will be the main problem of economics.
• Is it possible to achieve prosperity without
  growth?

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Tim Jackson, Prosperity Without Growth?, 2009

• Growth has been (until now) the default mechanism
  for preventing collapse. In particular, market
  economies have placed a high emphasis on labour
  productivity. Continuous improvements in
  technology mean that more output can be produced
  for any given input of labour. But crucially this
  also means that fewer people are needed to
  produce the same goods from one year to the next.
• As long as the economy expands fast enough to
  offset labour productivity there isnt a problem.
  But if the economy doesnt grow, there is a
  downward pressure on employment. People lose
  their jobs. With less money in the economy,
  output falls, public spending is curtailed and
  the ability to service public debt is diminished.
  A spiral of recession looms. Growth is necessary
  within this system just to prevent collapse.

• This evidence leads to an uncomfortable and
  deep-seated dilemma growth may be unsustainable,
  but de-growth appears to be unstable. At first
  this looks like an impossibility theorem for a
  lasting prosperity. But ignoring the implications
  wont make them go away. The failure to take the
  dilemma of growth seriously may be the single
  biggest threat to sustainability that we face.

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Oscar Wilde (from The Young King, 1891)

• Sir, knowest thou not that out of the luxury of
  the rich cometh the life of the poor? By your
  pomp we are nurtured, and your vices give us
  bread. To toil for a hard master is bitter, but
  to have no master to toil for is more bitter
  still.

15
John Stuart Mill (from Principles of Political
Economy, 1848)

• I confess I am not charmed with the ideal of life
  held out by those who think that the normal state
  of human beings is that of struggling to get on
  that the trampling, crushing, elbowing, and
  treading on each other's heels, which form the
  existing type of social life, are the most
  desirable lot of human kind, or anything but the
  disagreeable symptoms of one of the phases of
  industrial progress.
• The best state for human nature is that in which,
  while no one is poor, no one desires to be
  richer, nor has any reason to fear being thrust
  back, by the efforts of others to push themselves
  forward.
• It is only in the backward countries of the world
  that increased production is still an important
  object in those most advanced, what is
  economically needed is a better distribution.
• It is scarcely necessary to remark that a
  stationary condition of capital and population
  implies no stationary state of human improvement.
  There would be as much scope as ever for all
  kinds of mental culture, and moral and social
  progress as much room for improving the Art of
  Living, and much more likelihood of its being
  improved, when minds ceased to be engrossed by
  the art of getting on. Even the industrial arts
  might be as earnestly and as successfully
  cultivated, with this sole difference, that
  instead of serving no purpose but the increase of
  wealth, industrial improvements would produce
  their legitimate effect, that of abridging
  labour.

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Herman E. Daly (from A Steady-State Economy, 2008)

• Growth is more of the same stuff development is
  the same amount of better stuff (or at least
  different stuff). The economy must conform to the
  rules of a steady state - seek qualitative
  development, but stop aggregate quantitative
  growth. GDP increase conflates these two very
  different things.
• We have lived for 200 years in a growth economy.
  That makes it hard to imagine what a steady-state
  economy (SSE) would be like, even though for most
  of our history mankind has lived in an economy in
  which annual growth was negligible. The growth
  economy is failing. The quantitative expansion of
  the economic subsystem increases environmental
  and social costs faster than production benefits,
  making us poorer not richer, at least in high
  consumption countries. And even new technology
  sometimes makes it worse. We do not bother to
  separate costs from benefits in our national
  accounts. Instead we lump them together as
  activity in the calculation of GDP.
• How do we deal with poverty in the SSE? The
  simple answer is by redistribution - by limits to
  the range of permissible inequality, by a minimum
  income and a maximum income.

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The institutional roots of criticism of the
steady-state economy Institutions are habitual
methods of carrying on the life process of the
community. (Th.Veblen)

• The ideas of steady-state economy, prosperity
  without growth, and sustainable development in
  general usually meet a negative attitude from
  most of politicians, bankers, and even from
  common people. How to explain that these rather
  obvious conclusions about limits to growth are
  treated with resistance?
• May be the explanation is in the fact, that the
  notion of increase of personal wealth through
  competition has institutional roots people
  cannot give a rational explanation to their
  belief, thus are defending it with the same
  strength, as a zealot is defending his
  confession. If he feels that he is losing in the
  discussion, the only let-out is to give an ironic
  and none-serious spirit to the discussion.

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SPEECH BY M. NICOLAS SARKOZYPRESIDENT OF THE
FRENCH REPUBLIC40th World Economic ForumDavos
Wednesday, January 27, 2010

• We will not be able to change our set ways if we
  do not change the way we measure and represent
  things, our criteria. That is not an issue only
  for the experts. It concerns us all.
• Purely financial capitalism is a distortion, and
  we have seen the risks it involves for the world
  economy. But anti-capitalism is a dead end that
  is even worse.
• Either we change of our own accord, or change
  will be imposed on us by economic, social and
  political crises.

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• Is there a solution for the dilemma of growth?
• Can one find the solution under capitalism (i.e.
  private property of capital)?
• Can the financial markets exist in economy
  without growth?
• Can the economy exist without financial markets?
• How can we return the economy to the service of
  mankind? How can we act to ensure that the
  economy no longer appears as an end itself, but
  as a means to an end? (N.Sarkozy)
• Is it possible to create a capitalism with human
  face?
• I guess, that the answer is no.