The contradictions of capitalism

September 2, 2010 by
Filed under: Credit crunch, The RSA 

It’s lazy, I know, to make my readers do the work but here are three things you should be read and watched together: 

Robert Peston on the revival of financial trading, in currencies and various forms of derivatives. Once again, he suggests, a small number of people are getting very rich by pursuing activities which are of dubious value to the wider ‘real’ economy. 

LSE Director Howard Davies on the failure of attempts at international reform of banking and financial trading.    

David Harvey’s RSA Animate, arguing that the growing power of finance in capitalism is not an accident or a coincidence, nor is it simply a reflection of human frailty, it is an inevitable development of capitalism. 

Two years ago there was much talk of regulating financial transactions and rebalancing the economy towards manufacturing. There is very little of that talk now. Arguably for good reasons, the Coalition Government is sceptical of the role of Government in supporting industry, and anyway there’s no money. 

So, in a very short space of time, after the most dangerous and far reaching crises in the history of global capitalism, this country and others, like America, are going back. Back to being highly dependent on a finance sector many of whose instruments are good at making some people rich, but which mortgage the future and carry major risks of contagion, and which seem to have little or no effect on the wider economy or the livelihoods of those outside finance (apart perhaps from people who sell fine wines and yachts). 

For an economic layman like me, it is difficult to avoid the conclusion that capitalism has become dominated by finance because its underlying logic dictates so. I am sure there is a way of achieving a more balanced and fair economy without abolishing capitalism but at the moment it doesn’t look like anyone knows what it is.   Fortunately, my ignorance may be dispelled this evening with our fascinating event this evening with the development economics expert, Ha-Joon Chang, chaired by Larry Elliott.

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7 Comments on The contradictions of capitalism

  1. Mike Riddell on Thu, 2nd Sep 2010 7:22 pm

    2. I’m with you all the way on this one. My hopes lie in what Dan Robles is suggesting might be a new economic beginning. He calls it ‘Social Capitalism’ and I’m hoping it’s a more sustainable way of making the change we all so urgently seek.

    Check him out on Twitter @ingenesist

    @mikeriddell62

  2. Paul H on Fri, 3rd Sep 2010 8:54 am

    3. Matthew,

    It would be a shame if we had reached the high water mark in terms of mainstream critical discussion of this problem.
    Therefore, it’s good news that the RSA is hosting this event.

    However, I do think we have to be clear about precisely where the ‘contradictions’ lie on this issue.
    Could the difficulties experienced in reforming financial capitalism since 2007 be evidence of capitalism operating in a completely consistent manner?

    The contradiction as ever is in terms of the imapct of that internally consistent capitalism on life itself?

    Paul H

  3. Olli Issakainen on Sat, 4th Sep 2010 10:39 am

    4. We cannot afford to have our current financial system. Ha-Joon Chang has said that “we should simply ban complex financial instruments” , unless they can be shown to benefit society in the long run.

  4. ad on Sat, 4th Sep 2010 2:26 pm

    5. Arguably for good reasons, the Coalition Government is sceptical of the role of Government in supporting industry, and anyway there’s no money.

    Deregulation would be cheap: many businesses other than financial services seem to think they have a lot of rules to contend with.

  5. David G on Mon, 6th Sep 2010 12:05 pm

    6. The dethroning of capitalism seems like an impossible task. But I suppose the same could have been said of many inequalities 100 years ago.

    Once again, the answer that pops up in my head is ‘education’.
    The weaknesses of capitalism and a greater understanding of economics needs to be taught in our schools as mandatory, together with everything else here on the RSA website.
    Each year this is delayed the human race is set back by another 2 years.

  6. Jake on Wed, 8th Sep 2010 12:03 pm

    7. Really interesting, as ever, Matthew.

    I think the left has a big challenge getting to grips with what we think of finance and the state. I wonder whether the first stage for us economic laymen is to admit, rather like any addict, that we have a problem with an overblown financial sector and we don’t know what the solution yet.

    I haven’t read Ha-Joon Chang’s book, and I’m sure his analysis is more subtle than this, but I instinctively dislike the idea of simply banning complex financial instruments unless they can be shown to benefit society in the long run. Such a “simple” idea requires a heavy-handed and vigilent regulator. And isn’t the problem with so many financial products and social policies that we only have a hazy idea of what will and won’t benefit society in the long run? If we accept the importance of positive risk-taking in social policy why can the financial sector also benefit from this for social good? I’m thinking about products like Social Impact Bonds here.

    While we’re searching for solutions I think it is important to think about what could be done to engage with complex financial products for wider social benefit. This includes education, but also changes to the system itself to make finance more democratic and devolved.

    Though the URL makes it sound like a conspiracy theory, the site http://newfinancialorder.com/ has lots of interest on this.

  7. G on Wed, 8th Sep 2010 6:11 pm

    8. Thanks for the recent posts on this.

    I’m no economist but I’ve often thought that once the capitalist genie is out of the bottle it’s nigh on impossible to put it back it back in.

    And the bigger the genie the smaller the chances of taming it.

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