"supporting and encouraging high quality economic, financial and business journalism"

The Wincott Foundation was set up in 1969 in honour of Harold Wincott, the most distinguished economic journalist of his day in the UK. The current chairman is Sir Richard Lambert, chairman of the trustees of The British Museum and former editor of the Financial Times. Sir Richard is supported by a group of trustees who have backgrounds in business, journalism and academia.

50th Anniversary of The Wincott Foundation

Commemorative Debate - "Should liberal capitalism survive?

Opening statement by Yanis Varoufakis, former finance minister of Greece

TOWARDS A POST-CAPITALIST LIBERAL, TECHNOLOGICALLY ADVANCED SOCIAL ECONOMY

It is only fitting that any re-assessment of capitalism ought to begin with its great students. And since Martin Wolf chose to oblige this erratic Marxist by kicking off with a quotation from The Communist Manifesto, I feel compelled to return the favour with a quotation from Adam Smith's Wealth of Nations - one which, to boot, should have gladdened Harold Wincott's heart.

Referring to the merchant, Smith wrote: "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. The rich divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants." (Adam Smith, Wealth of Nations, 1776)

So, it was Adam Smith, not Milton Friedman, who first advocated the paradoxical hypothesis that the common good is best served when no one is trying to serve it and everyone, instead, seeks to maximise their private gains. As long as firms were small and family owned, Smith had good cause to believe that shared prosperity might result from unfettered private greed.1

Karl Marx, who studied Smith meticulously, also celebrated capitalism for its capacity to unleash immense productive powers while, also, tearing down superstitions and poisonous nationalisms. But he also noted the seeds of crisis and discontent within capitalism. Taking Smith's own analysis further, so that it accounts not only for the price of things but also for the price of labour, Marx concluded that: "Society as a whole is more and more splitting up into two great hostile camps, into two great classes directly facing each other." A society split between non-working shareholders and non-owner wage-workers, with physical and fictitious capital accumulation its main driver, is a society that bifurcates, its middle class - the dinosaur in the room - set for extinction.

When I received the invitation to today's debate, the Wincott Foundation's chosen question "Should liberal capitalism be saved?" brought to mind something a Marxist friend once said: "A sure sign that capitalism is in deep trouble is when the powers-that-be begin to utter its name again, ending their insistence to speak only of the market system, the price mechanism, the mixed market economy etc." If he was right, and I believe he was, capitalism today seems to be in the deepest of trouble!

The strongest evidence comes in the form of the musings of the ultra-rich. They seem increasingly stressed, guilt-ridden even, as they watch the majority around the globe descend into a crushing precariousness - the price of ending abject poverty in the developing countries. As Marx foretold, a supremely powerful minority is proving 'unfit to rule' over polarised societies, unable to guarantee non-asset owners a reliable existence. Barricaded in gated communities, the smarter amongst the uber-rich recognise in democracy, and in a redistributive state, the best possible insurance policy. They call for higher taxes on themselves. They even advocate a new Stakeholder Capitalism. Alas, at the same time, they fear that, as a class, it is in their nature to skimp on the insurance premium.

When asked by journalists who or what is the greatest threat to capitalism today, I defy their expectations by answering: Capital! Take the chasm between the vision of Smith and the corporate practices supported by economists like Friedman. It is best explained, in my view, by Marx's analysis of capital accumulation - in particular the remarkable energy unleashed by the decoupling of the market value of labour power from the market value labour instils into commodities; the ever-expanding gulf between those who produce without owning and those who own without working in the firm they own.

This disconnect has always been around. But, while in Adam Smith's time firms were small and power dispersed, it seemed not to matter much. Competition between privateers produced greater quantities of better commodities at lower prices - exactly what society needed was provided, as Smith had said, by those who did not "trade for the public good". However then came electromagnetism and the 2nd Industrial Revolution. Since the late 1890s, the rise of networked mega-corporations, of the Edisons and the Fords, created big business cartels investing heavily into how to usurp states and replace markets.

In their wake, megabanks were fashioned to finance the megafirms and, in the process, filled the world with fictitious money resting upon mountain ranges of impossible debt. Together, captains of industry and masters of finance accumulated war chests of billions with which to pad campaigns, capture regulators, ration quantities, destroy competitors and, in this manner, control prices. The first time the inevitable crisis hit that audacious superstructure was, of course, in 1929.

John Kenneth Galbraith was once asked how he went about, as FDR's 'Price Czar', fixing countless prices during the War Economy. He answered: "It was pretty easy, considering that they were already fixed!" Through interminable mergers and acquisitions, corporations had replaced markets by a global Technostructure (Galbraith's term) oozing with the power to shape the future for themselves and in their image.

For too long we lived under the illusion of world capitalism as a small-town, front-porch community rather than the weaponised Soviet-like (or maybe Google-like) planning system that it is. The larger the Technostructure grew the larger the financial sector necessary to conjure up the fictitious capital needed to fund its largesse. Bretton Woods was a remarkable attempt to reclaim political power on behalf of our societies and to stabilise the Technostructure.

When Bretton Woods died, officially on 15th August 1971, and financialisation became a necessity for financing the increasing deficits of the American Hegemon keeping global capitalism quasi-balanced (the Global Minotaur, as I called it), capitalism's global imbalances were turbocharged. Before we knew it, General Motors turned into a huge hedge fund that also produced some cars on the side while, across the West, the tug-of-war between profits and wages was supplemented by the workers' struggle for credit.

By the middle of the noughties, out of the one hundred wealthiest entities on Earth sixty-five were financialised corporations, not states. How could anyone expect them to operate in synch with society's values and priorities - whatever those might be. Even the prospect of environmental catastrophe cannot convert such a highly concentrated, obscenely powerful power grid into the agent of our collective will.

Then came 2008. It proved that, even when the overheated Technostructure-on-financial-steroids melts down, its stranglehold over society grows proportionately to the black holes in their accounting books. In a fascinating inversion of Darwinism, the larger their failure and the steeper their financial losses the greater their capacity to appropriate society's surplus via gargantuan bail-outs that their political agents push through neutered parliaments.

Capitalism, thy name has become Bankruptocracy: Rule by the most bankrupt of bankers. Democracy, in this context, resonated like a cross between a fond memory and a cruel joke.

So, setting aside the normative question "Should liberal capitalism be saved?", let's ask the more practical question: "Can it be saved?" Those who passionately believe that it should be saved tend to argue that it can be saved - confusing a normative and a practical question. They, correctly, identify three causes of liberal capitalism's malaise:

  • Excessive financialisation
  • Inordinate concentration (i.e. monopoly/monopsony power, usually due to network externalities)
  • Massive malfeasance (i.e. fraud, corruption, capture and tax evasion)
  • Their understandable conclusion is that we need institutional interventions that put the financial genie back into its proverbial bottle, break up monopolies and limit corrupt practices (tax evasion in particular). Additionally, the more democratically inclined propose a fourth task: reversing the process of shifting important decisions from parliaments to unelected pseudo-technocrats.

    These are fine aspirations with a good pedigree, in the form of the original Bretton Woods system. I too advocate a New Bretton Woods that restricts financial flows, legislates global curbs on tax havens and, last but not least, denominates cross-border trade and finance in a digital IMF-issued transnational accounting unit (implementing, at last, Keynes' International Clearing Union) which can then be deployed to finance the International Green New Deal we so desperately need.

    However, there are two obstacles in the path of this internationalist program for humanising, and stabilising, liberal capitalism. First, there is no latter-day FDR or any sign of the global political agency to implement it. Second, even if it were to be implemented, its therapeutic effects would, again, not last long - resembling antibiotics that lose their potency with use or, for that matter, Quantitative Easing.

    As the fate of the original Bretton Woods system showed, private capital accumulation and financial asset creation - the two sides of really-existing capitalism's coin - capture regulators and yield inexorable forces that tear through all institutional obstacles put in their way. It is, in short, in the nature of the beast to be untameable and, ultimately, illiberal.

    The hypothesis I want to put to you today is that we are at a historic crossroads. Our dilemma is no longer between a road leading to authoritarian state-run socialisation and another road leading to a reformed liberal capitalism. That used to be our dilemma. No longer. Today, we face a harder and, at once, a more exciting choice made possible by advances in AI, 3D printing, etc.

    One road, the one we are treading, continues along the path of what Larry Summers refers to as secular stagnation, coupled with unbearable inequality, in a system where rent trumps both profit and wages every time and liberal democracy is consistently bunk.

    The alternative road is one that we can, and I think we must, create from scratch once we have reined in the Technostructure through a transformation of our institutions (e.g. an International Green New Deal that is pursued via a New Bretton Woods).

    Let's fleetingly imagine what this alternative road might be like. To build it, we must, first, revisit property rights over the means of production (who owns the robots, AI and the right to claim their products and income?). Then we must redefine money (pulling the rug from under the financiers' feet). Finally, we must dare to imagine an advanced, liberal, decentralised society in which capital is not only increasingly socially produced but also increasingly socially owned - the gist here being the crucial distinction between social and state ownership.

    What would a post-capitalist liberal, technologically advanced social economy look like? Let's do some more imagining, shall we? Imagine for a moment:

  • Corporations whose shares resemble electoral votes (in that they can neither be bought nor sold), with each new hire receiving a single share granting a single vote to be cast in the all-member ballots deciding every matter of the corporation - from management and planning issues to the distribution of its net revenues.
  • Corporations, thus, in which the profit-wage distinction makes no sense.
  • States that collect no personal income tax, or VAT, just land and corporate taxes.
  • A trust fund for every baby, to be used to finance future ventures that set up new companies owned equally by its founders and newcomers.
  • Perfect freedom to move across firms and jurisdictions, together with one's accumulated personal capital.
  • A universal basic dividend that allows one to live in dignity, but not in wealth, outside the paid labour process.
  • Central Banks providing each with a twin bank account, one account for one's personal capital fund, the other a current account.
  • This is enough imagining for now. I just wanted us to share a glimpse of a truly liberal post-capitalist technologically advanced society to inspire us to admit that which Marx wrote in Das Capital, Vol. 1, in 1867 - a truth we have known since the inception in 1599 of the first joint stock company, the East India Company. That when the means of production belong to faceless shareholders, and are worked on by harassed employees,"the increase in value of the world of things is directly proportional to the decrease in value of the human world." I can fully understand that it is hard to imagine an advanced, liberal society featuring all sorts of markets but free of stock exchanges and an almighty financial sector. But, then again, we used to take slavery and the divine right of Kings as permanent givens!

    To conclude, Marx did, indeed, provide the most epic, pertinent celebration of capitalism - as Martin helpfully reminded us. But he also celebrated, or at least highlighted, another facet of capitalism: the seeds of crisis and unsustainability within capitalism.

  • Capitalism manufactures previously inconceivable wealth on the same production line that generates unimagined deprivation.
  • Capitalism trades on the virtues of competition to procure a Technostructure that necessarily destroys competition.
  • Capitalism is at once the greatest propagator and the worst enemy of authentic liberty, which can only prosper in the presence of shared prosperity.
  • Economists, taking their cue from Adam Smith, believe that at the root of all conflict there is scarcity. But, under the Technostructure which long-ago usurped Adam Smith's world, the direction of causality is reversed. It is not dearth that necessitates exploitation today. It is exploitation, of humans and nature, that causes dearth.

    This reversed causality is why the prevailing price of labour leaves millions under-employed, the destruction of the planet is 'free' and the price people pay for money is the loss of their soul. This is why environmental catastrophe, depravity and dispossession grow in the humid shadows cast by an enormous superflux, like a dismal moss that the superflux feeds on.

    So, what should we do? Yes, we must use really-existing capitalism's own institutions to limit financialisation, concentration and malfeasance. However, we shall not be able to do this if we fail to overcome the greatest modern absurdity pointed out by my great friend Slavoj Zizek: a greater readiness to fathom the end of the world than to imagine the end of capitalism.

    APPENDIX: The unsung defeat of personal liberty in (il)liberal capitalism's hands

    Liberals demand a strong fence protecting our private sphere from a busy-body external world eager to interfere with our hopes and dreams. They say that our desires are no one's business but our own. They believe we should all live within a safe haven where we can be sovereign and free to develop as individuals before relating with others, before leasing ourselves to an employer on mutually agreed terms and always on the understanding that the property rights over a person are non-tradeable. In short, inalienable self-ownership.

    The first breach of the liberals' essential fence appeared when industrial products became passé. Richard Branson had captured that moment with a statement that made William Morris spin in his grave: Who produces stuff and how does not matter one bit. Only brands matter now, proclaimed Sir Richard. Before long, branding took a radical new turn, imparting personality to objects, boosting consumer loyalty and, of course, the Technostructure's profits.

    Before they knew it, people felt compelled to re-imagine themselves as brands. The Internet allowed colleagues, employers, clients, detractors and 'friends' constantly to survey one's life, putting pressure on each to evolve into a profile of activities, images and dispositions that amount to an attractive, sellable brand. Our sovereign personal space is now almost gone. The right to a time during the day when we are not for sale has vanished. Our liberty's wetlands have been drained, its habitat destroyed.

    Young women and men lacking a trust fund thus end up in one of two dead-ends. Condemned to working under zero-hour contracts and for wages so low that they must work all hours to make ends meet, rendering ridiculous any talk of personal time, space, or freedom. Or they must invest in their own brand every waking hour of every day, as if in a Panopticon where they cannot hide from the attention of those who might give them a break.

    In job interviews enlightened employers tell them: "Be true to yourself, follow your passions." Angst-ridden, they redouble their efforts to discover passions that future employers may appreciate, and to manufacture a true self that the job market will want to pay for. They struggle breathlessly to work out what average opinion among opinion-makers believes that average-opinion thinks is the most attractive of their potential true selves. Never slow to miss an opportunity, the Technostructure creates entire industries to guide them on their quest made up of counsellors, coaches and varied ecosystems of substances and self-help.

    The Technostructure that emerged in the 1920s is developing new capabilities daily. It can now manufacture not just prices, money and consent but also desires and our self-image. Emasculated prices guarantee its profit. Hyper-complicated debt allows it fully to usurp the state's monopoly over money. And turning over the private realm into a digital Panopticon destroys resistance to its authority. Liberalism, not just democracy, has thus become incompatible with contemporary capitalism.

    _________________________________________
    1. The difference between the two economists is that, while in Smith's estimation for the market to procure its miracle firms had to be small and family owned, for Friedman it did not matter whether the market featured giant conglomerates or merely Smith's fabled baker, butcher and brewer.
    _________________________________________

    To download this text, please click here.

    To read or download Martin Wolf's opening statement, please go here.

    Discussion of the future of liberal capitalism.

    If you wish to comment on liberal capitalism or the views of Martin Wolf and Yanis Varoufakis, you may send your submission for publication here to:

    The Secretary
    The Wincott Foundation
    secretary@wincott.co.uk

    or follow us on Twitter

    @wincottfound

    THE TRUSTEES
    SIR RICHARD LAMBERT (Chairman)
    SIR GEOFFREY OWEN
    PROF IAN HARGREAVES CBE
    JOHN O'HIGGINS
    RUPERT PENNANT-REA
    CHRISTOPHER HIRD
    BRONWEN MADDOX
    BILL ROBINSON
    DANIEL WINCOTT

    Contact our Director, Jane Fuller, at director@wincott.co.uk
    © The Wincott Foundation 2012
    Registered Charity 313770