It is not true that the greater part of the populations of China and India have benefited from Globalisation. Employment in manufacturing is lower than in 1993, mostly due to technological change.
The second part of the Guardian Debate, Capitalism in Crisis took place this evening at Kings Place, London, UK. The challenge of the night, as presented by the excellent chair Larry Elliot, asked: ‘The global economy: Can we fix it?’ The response by the panel, on a day where markets returned to 1997 levels and AIG reported the largest quarterly loss in corporate history, was near-uniform and unsurprisingly gloomy.
John Gray
‘No,’ says the London School of Economics Emeritus Professor, we cannot fix it; It is the ‘fag end of debt-based financial capitalism’. And rather than the usual benchmark of the Great Depression, Gray prefers to compare the current crisis to the collapse of Communism twenty years ago. We have seen changes of governments (Iceland, Lativa) but not regime change, yet. The next wave of the current crisis can be expected to hit Eastern Europe, where West European banks are heavily leveraged. The current reliance on Keynsianism is, according to Gray, desperation. The political and intellectual leadership have not grasped the scale of the challenges, particularly not the inevitable resource constraints.
Jayati Ghosh
The Jawaharlal Nehru University professor of economics began by saying that the current crisis is more extensive than the Great Depression. Her explication of three imbalances to describe the situation was most eloquent. Firstly, the imbalance between finance and the real economy has been manifested in extreme levels of speculation. Accordingly, banks have to be nationalised and will be in the next few years, says Ghosh. This, however, is not tenable in the long run due to the second imbalance: macro-imbalances between economies. The US current account deficit ‘has to shrink’ as China cannot take her place. And even if ‘co-ordinated expansion’ is agreed internationally, this solution will come up against the third imbalance: the ecological. ‘The environment is biting back’ and trying to get another bubble going will not remove this imbalance.
Terry Smith
The chosen parallel of Tullett Prebon’s chief executive is the Crime of ‘73 that began the de-monetization of silver and promoted gold to be the only metallic standard. On the question of fixing capitalism, Smith doesn’t believe we will go back to what we had. But he is sure that whatever is next, we will continue making similar mistakes: ‘History doesn’t repeat itself but it rhymes’. Smith expects a return to life as extended families, and that Eastern European countries will soon return to the economic abyss they came from. ‘The problem,’ says Smith, ‘is not Capitalism’ but interference with Capitalism. He points to Chapter 11 for hindering ‘creative destruction’ and to Alan Greenspan for dropping rates when not needed. This he reminisces with memories of Bond traders (going long on falls in Asia), with their regular chants of ‘AG is our hero because he sends rates to zero!’
David Goodhart
In an effort to counter the uniform gloom of the three first speakers, the editor of Prospect magazine goes for hope; that of creating a more balanced society. He dislikes the comparison with the Great Depression as he expects to bounce back (‘v-shape’), partly because of a much larger public sector than in the 1930s. Goodhart cites a Robert Skidelsky (contributor to Prospect) when describing what has caused the financial crisis. It is the simultaneous removal of constraints on movement of capital and the collapse of communism. This in turn has resulted in over-investment and problems of effective demand. The solution, according to Goodhart, is to build a Chinese Welfare State; an enormous increase in spending.
Questions & Answers
There were a large number of questions and many more people keen to ask them. One so keen that he was agreeably removed even before the Q&A session began. Another so keen not to ask a question that Elliot had to prompt her several times, repeatedly interrupting her carefully crafted epic. Here are a few snippets of what the panellists answered (paraphrased). (Please note the initials.)
TS: A new bank would be a good idea. No toxic investments. Let the old go bust.
JG: I am certain of social unrest, not bloodless everywhere. Increasingly, internal and external minorities will be targeted.
JG: Financing has not been doing what it should do. Why do rich countries with falling population need to grow GDP?
TS: Unrest may come from China. They have not bothered much about democracy as long as they were getting richer. Now that they are not getting richer maybe they will. I know of no peacful transition to democracy. On regime change, Vincent Cable for Chancellor.
DG: There is no revolution. Where are the revolutionaries? What is the alternative?
TS: A good thing about the crisis is that the great magnet (the City) has been weakened, releasing talent for more useful work.
JA: It is not true that the greater part of the populations of China and India have benefited from Globalisation. Employment in manufacturing is lower than in 1993, mostly due to technological change.
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