iBlog: Capitolism vs Globalisation


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Thursday, March 05, 2009

Capitolism vs Globalisation

Reading about AIG got me thinking: if a company is big enough to lose $28m a day for so long without anyone batting an eyelid and then enticing the self preservation statement``too large to fail``, what sort of a world do we live in when corporations become indispensible?

We live now, in a situation where (to the chagrin of the FSA) protectionism, tighter investment fund regulations, banker accountabilities etc all seem more like a responsible necessity. As someone who's not too badly hit by the recession - but still pissed off enough to look down on the banks from the moral high ground of irritated hindsight - I don't want to see a banking or economic system that's mollycoddled by the FSA or worse still, one that's under the thumb of the treasury as that would be contrary to the goals of capitolism.

Which raises the question, what relationship should the state have with capitolism?

That moral highground is leaning heavily to the left right now but that's because those affected by the economic downturn have been financially violated by everything from endowment mortgages to hedge fund performance. And then some more with looming redundancy and the tabloid's `WE'RE ALL GUNNA DIE!` stance on the situation! All this collaborates to ostracize the banks as brands to whom people entrust their money, and undermines the system through which the country grows its wealth.

But despite the sense that thinking offers, it's ultimately a knee-jerk response. A petulent attitude that's most often seen in the insecure opinion: the wrongly placed frustration against those whom you trusted but were let down by. The deferal of responsibility that doesn't acknowledge the need of the individual to so much as monitor, let alone police, those in whom they have quite literally, put their trust.

I'm not trying to defend the banks in saying that. Indeed if anything I think that thought vilfies them more by highlighting their indifference to their customer's collective blind eye.

But if the en masse consumer body are demonstrably incapable of protecting their own assets by scrutinising the funds their banks invest in, and the bonus system that governs the fund managers leads to unstable investments, then it stands to reason the government or FSA should patrol the corporate investments for danger spots.

But let us not forget that this financial year is the polar opposite of the 1980s where yuppies playing the market intellegently swelled the FTSE 100 growth to 13-14% over the year (or something like that) and if the endowment policy holders or savers of the time actually received anything near that amount would probably say that controlled market economies and protectionism are rediculous concepts. So it's reasonable to say that the `common sense` view on the relationship between state and capitolism is as whimsical as the markets themselves.

What the policyholders and bloggers are calling out for now is therefore a sustainable and effective banking system, where the state is simultaneously both and neither guarentor and naive to the practises of investment banking. I think it's tempting to argue that such an initiative has never been practised, and there is no precedent for such an industrious relationship to build from. I think that's an over complication of the reality of capitolism.

The very foundation of capitolism is that through pro-actove industry and the wherewithal for people to forge their own fortunes (and poses rights over the money they earn) is what the West is all about. This system works. It's always worked. It works because it calls on the basic human compulsion to work for the self, and in doing so society is mutually benefitted. Relatively small societies, such as the parochial village or market town all flourish on this concept of trade. The problem we face in this current recession is, however, nothing to do with capitolism, rather the globalisation of capitolism.

I think globalisation is the worst-case-scenario self-fulfilling prophecy of the nature of capitolism. There is of course, a moot debate over the simple pro's and cons of globalisation, but ultimately, it wipes out or engulfs competition to the point where the biggest business occupies a ~100pc market share. This then means the whole industry sub-sector relies on this one (or more) business and is at it's managemental whims and mercies.

This was the case in early broadcasting with the BBC, the Royal Mint, even the DVLA and for this instance governmental legislation is required to stop the compaies who monopolise the sector to abuse their position. So when the banks get into this position where five banks essentially run the country and the rest of the finance sector scatters market share between a handful of companies (like AIG) the mutual jostling and pro-active passion to make money through capitolist principles of sucess and entrepeneurism are overwhelmed by the closed circle investments that go on. As one bank swells in wealth, so too does the bank that has a stake in it. Put simply, when one fund area fails badly (like the American mortgage sector) the industry collapses like a pack of cards.

The globalised banks who are complicit in their own demise are certainly to blame for the economic crisis, as are the government agencies who allowed this all to go on, but the blame doesn't lie in the habit of investing in poor funds. Nor does blame lie in the bonus system that caused near sighted investment choices like that to happen. The blame doesn't even lie at the door of the FSA who's job it is to police the practise of commercially sensible banking. Instead the blame lies in the over globalisation of the banking sector.

The more banks that merge means the previously abundant pockets of fiscal capitol agglomorate more and more towards a singularity. The gamle is higher with bigger capitols, and the ante is raised too much for smaller competition to be taken seriously in terms of the wider trade markets.

So regarding the policyholder's cry for sustainable banking, the equalibrium between state intervention and autonymous banking doesn't lie in a legislative balance, but in a re-assertion of basic capitolist free-market principles but with the added flavour of wider competition and discrete investment funds.

Of course the industry needs policing in some way, but the legislation needs to be hands off: guidelines that shape the picture of the sector rather than dictate the cans and cannots of its practises. Free markets flourish, so to avoid this all happening again, we need to see the government keep the wealth scattered and the practise of mutually beneficial trade built on the backs of real world industries. We need to avoid putting financial eggs in the basket of imaginary money from American mortgages. Intead, keep investment in the working sector: in contruction, in property, in retail, in the fruits blue collar labour that won't go away.

In short: we need a typicly conservative free-market economy built on the backs of left wing values, and at the end of the day, that's all capitolism is, baby. That's all capitolism is.

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  • At 9:09 PM, Blogger Timothy V Reeves said…

    A good long thoughtful post. I like it.

    Does this make you a soft mushy socialist like me? That is, decentralised market forces can solve many of the local "information" problems and yet the system is liable to chaotic fluctuations and thus has to have a central "referee" regulating it. See my series on "Mathematical politics". Here is part 1.

  • At 9:53 PM, Blogger Ben F. Foster Esq. (c) said…

    on the contrary, I'm a staunch capitolist. I have braces any everything! (Still saving up for the pocket watch, three piece suit and top hat)... What I'm opposed to is the internecine (if you will) nature of capitolism that leads to monopolisation.

    I interpret (the way you describe) games theory to be a typicly conservative trait anyway. By affording each member the right to pick their own equalibrium in `playing the game` (or `playing the complex system` to be candidly dry about it) the free market comes into its own. People are allowed to flourish and fail as the fruit of their own business compulsions...

    Using the theory to the extreme (ie to hold the system in a state of equalibrium by each member playing to a homogenised strategy) is still quite a controlling move by government, indeed, something of an imposition on the principles of capitolism.

    To use your phrase (out of context) I think if government are involved it should be in managing the principles, not the particulars of business operations to portend a balanced trading market - rather than dance coroporations on a string to mould a (hopefully!) malleable market.

  • At 1:37 PM, Blogger Timothy V Reeves said…

    I largely agree with that, in particular the last para. I suppose my position might be described as one that supports "managed capitalism". But for some in the left-right spectrum, that would put me on the far, far left!

  • At 5:28 PM, Blogger Ben F. Foster Esq. (c) said…

    well you're not re-distributing wealth so you're right enough for me!!!


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