The new capitalism
Fraser Nelson 8:42am
Most paradigm shifts in politics are recognisable only in retrospect, but it’s fairly clear we’re living through one now. When you have the US seeking to nationalise $700bn of dodgy assets and the average British household now liable for £3,020 of Northern Rock debt something has changed. But what? I’ve been struggling to find a proper analysis of this, so it was great to read Irwin Stelzer’s meaty lecture to the Centre for Policy Studies where he says that, though free marketeers may hate it, a New Capitalism is now upon us. Here’s his take:-
He identifies five characteristics.“You know that a revolution has succeeded when the opponents of change capitulate. Which is what has happened in America in the past several months: a conservative Republican President, a conservative central banker, and the former head of the most successful investment bank in the world combined to agree with capitalism’s left-leaning critics that fundamental change is required. Game, set and match to the revolutionaries of the New Capitalism.”
The whole speech is worth printing out and reading. As I say in my piece for the current magazine, this comes at a sensitive time for Cameron. The gloablised world is spinning on its axis: will he follow the spirit of his recent FT interview and defend capitalism? Will he decide to embrace the era of New Capitalism? Or (worst of all) will he resurrect all that “social responsibility” stuff where he wants companies to be social actors and dress that up as his 21st century regulation? It’s a turning point, and Brown conspicuously failed to give a new analysis. Stelzer has his. And Cameron? We’ll see at 2.30pm next Wednesday.1) A reduction of the willingness of individuals and politicians to accept the risks inherent in the market system as it has been structured and as it has functioned until now2) The replacement of the bias in favour of deregulation that saw airlines, trucking, banking, electricity generation, natural gas production and other industries freed from pervasive (although not all) government controls, with one in favour of more regulation
3) A refusal to accept any longer the market’s verdict as to how income and the fruits of economic growth should be distributed
4) The rejection of the idea that the benefits of free trade are so obvious, and so widely distributed, that the post-World War II free-trading regime—its economic benefits notwithstanding—should be extended
5) An insistence that the balance between considerations of economic efficiency and equity that has guided public policy since the end of World War II be changed, with equity considerations being given greater weight when coping with the increasingly powerful winds of change that are buffeting the US economy.
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maas101
September 26th, 2008 9:40am Report this commentPersonally I think he should stick with 'old school' capitalism. More regulation leads to ever more inventive ways of circumvention.
I do have a question though. Why has no one looked at the role of the credit rating agencies? These agencies would have been responsible for rating the securitised mortgages and obviously gave them an AAA grade. As it turns out they were junk. Why is their role not under scrutiny?
A possible solution towards preventing a repeat of the current problems would be to bring the function of the rating agencies under the control of central banks.
Max Kaye
September 26th, 2008 9:43am Report this commentI'd like to take this opportunity to congratulate you, Fraser, for the good show you put on last night on Question Time.
Keep it up!
Richard Holloway
September 26th, 2008 10:14am Report this commentThese are words that will come to be regreted. Why can't we learn to act quickly and decisively, but plan for the future in moderation and calm. Now is not the time to be setting the steer for the next years of capitalism.
maas101
September 26th, 2008 10:27am Report this commentPersonally I think he should stick with 'old school' capitalism. More regulation leads to ever more inventive ways of circumvention.
I do have a question though. Why has no one looked at the role of the credit rating agencies? These agencies would have been responsible for rating the securitised mortgages and obviously gave them an AAA grade. As it turns out they were junk. Why is their role not under scrutiny?
A possible solution towards preventing a repeat of the current problems would be to bring the function of the rating agencies under the control of central banks.
Pontop Pike
September 26th, 2008 10:28am Report this commentI hope he makes it plain that the British tax payer should not be held responsible for the sort of debts incurred by the purchase of Manchester United by the Glazers or by buy-to-let merchants felled by their own greed. Anyone who's borrowed beyond their ability to repay should be held up for ridicule not offered sympathy and taxpayer handouts while the rest of us are offered no thanks or compensation for our generosity..
JR
September 26th, 2008 10:54am Report this commentFraser - You mentioned in your magazine article that they have substantial welfare reform policies in place. Bad news I'm afraid - the wheels are probably about to fall off the welfare reform market.
The Freud type proposals only work in an economy where the costs of placing difficult to help benefit claimants into work is less than the tax and fiscal savings - with a significant variable (and inescapable) cost for providers related to the number of claimants. Already on the first contracts directly influenced by Freud - the so-called Flexible New Deal to be contracted next year - the established players are saying they won't bite at the funding levels slightly to be offered by the Government (i.e. those that will allow near AME/DEL break even).
There must also be substantial doubt about whether the Pathways to Work contracts, which are outcome based and meet the AME/DEL criteria, are viable. Those contracts drove an incredibly hard bargin with providers by competative tendering (on number of job outcomes projected) in the context of a bouyant market. I will gaurantee that some/all of those providers will not hit their projected job outcomes and therefore will not be paid anywhere near the amounts they were expecting.
Put simply we're probably heading for market failure. If the Government (whether Tory or Labour) are bold they will allow providers to go bust/pull out of the contracts. But this will mean the collapse of the Freud type model for the next 3-5 years. The alternative is renegociation of contracts (or in other words - a bailout).
The only good news is that the tax payer is protected because of the job outcome based nature of the contracts. What Freud, Purnell, and the Tories is about to find out is that the flipside of "paying for success" is not paying for failure and the potential collapse of many back to work services and conditionality (i.e. forcing benefit claimants to do interviews/activities).
The challenge of course is that when the green shoots of recovery are in place you want to get as many people off benefits as possible (as opposed to drawing in labour supply shortage migration) - unfortunatly the welfare reform market is likely to be an inefficient way of doing that because it will charge a risk/historical experience premium (in terms of bidding lower numbers of job outcomes for £x funding).
Anyhow this rambling comment is to give you a heads up that there is a substantial risk the Tories don't have a workable welfare reform policy anymore.
D.Maclean
September 26th, 2008 1:48pm Report this commentLoved last nights show on Question time,watching you prompt Havel Blears on the subject of her being a potential leadership candidate was like watching an enactment of my favourite Aesop fable
David Bouvier
September 26th, 2008 2:02pm Report this commentAll this seems to ignore the international context - where such complacency will simply lead to decline and irrelevance.
What I really want to see is a reinvigoration of the idea that we have to work for a living in the world, that results not effort or desert is what matters. The consequences of complacency and decline will be very unpleasant.
D.Maclean
September 26th, 2008 5:16pm Report this commentOh, my comment is cut short,I was referring to the story of the Fox and the crow,although flattered as she was Ms. Blear is more suited in the role of head girl in the Brownie choir!
Rajanish Pandey
September 27th, 2008 7:28am Report this commentPersonly i think the step taken by Honrably Jorge W./ Bush is good for giving the $700bn to the companies named as Freddi mac,Ginnie mac nd Aig.
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