Posted by: Dirk | August 7, 2012

Rebuilding Capitalism

Let me develop a panorama today of what is going on in the world. We are still in the by now institutionalized financial crisis, with austerity being imposed on the European periphery. Europe is rebuild after the dictate of the German government, which means supply side reforms. Falling wages, cuts in the welfare state, tax cuts for the rich and privatisation of public companies is the order of the day. This, of course, has catastrophic effects on the population. In Spain, the people are falling out of love with their conservative government quite quickly, according to El Pais:

The dynamic in the political arena is the same as in Greece. Both major parties of the left and right are driven by interests not of their people but of bond holders. Submitting to those interests means that the reforms suggested are rammed through the political system at whatever cost to the respective party. After all, voters will surely forget quickly and after the other party will have done the same it is their turn again. The parties in power change, but the policies in Greece and Spain – as well as in Italy – are always the same. At least up until 2012.

The French elections have changed that somewhat. Mr Hollande won on a platform that was pro-poor, promising to put at least part of the burden on the rich. The burden stems from stabilizing the prices of financial assets by saving the financial sector from the consequences of its mistakes. This drove up government debt and unemployment, while driving output down. Now, for the elections 2013 in Germany Mr Gabriel is copying the policy platform of Mr Hollande, as the SPIEGEL reports:

“Die Bundestagswahl 2013 muss zu einer Entscheidung über die Bändigung des Banken- und Finanzsektors werden”, heißt es in dem Papier, das der SPD-Chef am Samstag auf der Internetseite seiner Partei veröffentlichte.

According to Mr Gabriel, the next elections have to be turned into a referendum on taming the (banking and) financial sector. This certainly is the right idea when it comes to stop austerity policies in Europe. As Fabius Maximus notes:

We know that Europe’s leaders seek to protect their banks (and bankers). They seek to preserve the European Monetary Union, and continue progress to eventual unification. Perhaps there is a third goal in the shadows. Massive deficits combined with recessions — even depressions — provide the opportunity to break Europe’s social welfare systems, including the unions and legislation that empowers workers.

The same dynamic is at work in America.

That dynamic is at work everywhere, the FT seems to add:

Political sensitivities about the gap between the wealthy and the rest are not confined to the west. The lifestyles of the rich and powerful is now the most sensitive and dangerous topic in Chinese politics. The website of Bloomberg News was recently shut down in China, apparently as punishment for the publication of an article on the family wealth of Xi Jinping, soon to be China’s new president.

In one incident a couple of weeks ago, riots over pollution in the city of Qindong took a nasty turn when demonstrators demanded to know what brand of clothing the local party secretary was wearing. The BBC reports: “On discovering it was an expensive Italian brand, they are said to have stripped him to the waist.”

So, after the liberalization of financial markets allowed capital owners to increase their share of the cake, the backlash is now in full swing. Apparently more and more people have understood that the income distribution that comes from market processes is not a god given thing, and that it is not welfare-maximizing neither.

What is in danger today is our liberty. Our liberty to control our fate as the people, who are ruled by and for the people in a democratic system. If we are to retake that liberty, we need to rebuild the institutions of capitalism to make them fit our needs.



  1. To control this resultant excess of capitalism, the time tested solution is taxation with a broad base.

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