U.S. Treasury Secretary, Timothy Geithner, interviewed by Charlie Rose, says Capitalism will be ‘profoundly different‘ going forward.
U.S. Treasury Secretary Timothy Geithner’s comments should come as no surprise. Neither should the fact that a leading global economist recently noted, rather matter-of-fact-ly, that “the Anglo-Saxon model of capitalism has failed.” But more on that point later. For now, any talk of “capitalism” evokes strong, usually partisan responses often equated with American national pride and patriotism. In fact, most Americans believe that our form of ‘democratic capitalism‘ is the only game on the global playing field. That, of course, is not the case, but Free-market capitalists see it as the most powerful driver of prosperity and development since the industrial revolution of the 19th century. Honest critics of capitalism ontheotherhand point out — precisely, I believe — that Free-market or “Laissez-faire” capitalism, meaning ‘let the buyer beware,’ is a volatile and inefficient system that leads to severe economic shock exacting severe human costs — as we’re currently experiencing — and growing economic disparities and instability; and that it was a system that worked for industrial economies of the last century, but is not the appropriate model for an inter-connected 21st century global economy. And here is where the argument becomes interesting. The argument is no longer capitalism vs. something else; the argument is now which version of capitalism is the best framework as we move deeper into the 21st century.
Over the past few decades the Anglo-American free market system has been the model of choice for many. But now as we see the instability and insecurity generated by the flaws in that system, there is a renewed interest in the social market system long practiced in western Europe, which has always been an effort to blend the proven strengths of capitalism with the human values of social equity and individual security. There is even a third model being promoted. For instance, China, which may no longer be a command economy controlled by the state, but is increasingly a market-driven economy regulated, and enforced, by the state. Undoubtedly, the future of capitalism and so-called ‘Efficient Markets’ have been over the last decade, and will continue to be, a hotly debated topic among leading global economists.
In the Charlie Rose interview, Geithner goes on to explain that evidence of the current economic crisis is the ‘tragic failure of financial regulation’ in the U.S., and that we need a regulatory framework and economic system that is strong and resilient enough to resist unregulated volatility that can create violent social shocks to the economy. Just a few weeks ago, Nouriel Roubini, a professor of Global Economics at NYU’s Stern School of Business argued in a Forbes magazine article based on 2Q 2008 data that “the global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production, employment, exports and imports is accelerating rather than decelerating.” Professor Roubini concluded that the current financial crisis lays bare the weaknesses and failures of western-style capitalism, and he attributed the failures to the unchecked risks and inefficiencies associated with the ‘Laisse-Faire’ model, or ‘cowboy capitalism.’
To this last point, in his original book, ‘Capitalism vs. Capitalism‘ (4 Walls 8 Windows, 1993), noted French economist and investment manager Michel Albert outlined a compelling comparative analysis of the benefits and consequences of the two prevailing paradigms of global capitalism — the aforementioned Laissez-faire model; and the so-called “neo-American‘ or Rhine Model of a regulated free market economy. The Rhine model’s central tenet is based on regulated Markets balanced between the rights of private capital vs. the long-term, social needs of a functioning economy — which Albert argues is a model more appropriate to the realities of 21st-century global economy. The Rhine model is most often associated with nations such as Germany and Japan. This model essentially minimizes the wrenching volatility (inefficiency) of Market forces found in the western model, and relies on access to bank, rather than stock market, capital to fuel growth and investment in the economy.
Further on this issue, Felix Rohatyn, a highly regarded Public Finance investment banker who helped New York City recover from the brink of bankruptcy in the 1970’s, in his new book, Bold Endeavors (Simon & Schuster, 2009), speaks about America’s current competitive disadvantage in the global economy. And noted, among other things, that China was building 100 new airports and that Spanish trains traveling between Madrid and Barcelona reach speeds of 300 kilometers per hour, thus fueling and facilitating the growth of commerce in that nation. The central point, he argues, is how effectively and efficiently we manage our economy today, has real and lasting impacts on our ability to compete in an increasingly competitive Global Economy tomorrow, as well as how we manage relations with those international competitors. “We are falling behind on too many fronts,” he said.
All these issues, along with the future of the Basel II Accords, are sure to be central to the upcoming G-20 Summit in London next month. Global competitiveness is yet another example of why our Economic Foreign Policy matters. To see why U.S.-style capitalism is inefficient, see this video.
