The Perils of Global Capitalism: What’s Next?

In my recently published book, “Markets, Morals and Development” (Routledge, UK), I discussed discontent with the contemporary world economic order which is beset by the excesses of market supremacy and beholden to the interests of private companies. It is an economic order characterized by instability, massive human migrations driven by wars and misery, and an unprecedented concentration of wealth in a context of widespread poverty, threatening the very sustainability of health and poverty. the habitat of our planet. Some of my university colleagues have criticized me for having skilfully avoided the difficult question of escape routes, while pointing out the flaws in the system.

The book discusses the moral case of income redistribution beyond the usual debate over the economic consequences of redistributive policies, and quotes Cambridge economist Sir Partha Dasgupta as saying that no country is so poor as it is not. lacks the means to meet the basic needs of its entire population. The moral argument I have made rests to a large extent on the fact that the luck element plays an important role in income distribution, which is underestimated by both pro-market conservatives who tout virtues of entrepreneurship and effort, and by left-wing progressives. which entirely place the responsibility for inequality on the processes of the market economy. Poverty in a market economy may simply be the result of bad luck economic failure, so society has a moral duty to provide “insurance” for such failure. Likewise, much of the concentration of wealth may be due to annuity-type income earned by chance, and not necessarily through entrepreneurship alone.

This latter aspect of inequality indicates the possibility of redistributing not only income, but income-generating assets as well, without significantly harming the incentives for entrepreneurship. For this, the example of China is not of much help either, given that income inequalities have increased dramatically since the days before the reforms of the 1980s until today. . This shows that even a communist political system cannot be immune from the concentration of private income and wealth once the forces of the market economy under private ownership are unleashed. Moreover, a totalitarian regime with minimal human rights is not an ideal example to emulate.

In fact, a clue already exists, even though it can only be in the form of a conceptual model. The idea is how to combine a mechanism to generate enough public funds for a welfare state and thwart any disproportionate concentration of private wealth, while harnessing the strength of the market economy. The failure of the Soviet controlled economy experiment and the contemporary economic success of China proved the essential role of the market and private entrepreneurship in achieving economic prosperity. On the other hand, debates about the pros and cons of income redistribution policies do not provide much guidance on how to contain the growing economic power of corporations that corrupt democracies and prevent far-reaching reforms. welfare-oriented, whether it is to eliminate poverty or to protect the environment.

The new economic arrangement I am referring to comes from a relatively little-known book published in 1964 by Nobel laureate in economics James Meade, entitled “Efficiency, Equality and the Ownership of Property”. In that book, he proposed what he called a “proprietary democracy,” in which a state investment fund can be created to acquire portfolios of assets through the acquisition of commercial stocks – “a nationalization upside down, ”in his words – and in the design of an inheritance tax. The return on these assets could then be used as a social dividend or basic income for the poor. This, he argued, would avoid the disincentives to entrepreneurship created by the redistribution of income through high income taxes. While UK Social Democrats played with this idea in the 1980s and 1990s, it became a “lost prospect” thereafter.

Ironically, the idea of ​​ownership of public assets was rekindled by the ultra-conservative administration of US President Donald Trump, when it offered to take stakes in companies affected by Covid as a condition of providing a economic aid – “fairness for a bailout” in common parlance. Earlier, during the 2008-09 financial crisis in the United States, General Motors’ financial bailout also involved the acquisition by the United States Treasury of shares of non-voting companies. In the deeply rooted culture of Western capitalism, these measures were only conceived of as temporary, with the idea that the government would step down from asset ownership as soon as companies emerge from the debt and liquidity crisis.

However, the field of experimentation with such a model is much wider in many less developed countries. With the galloping flight of capital to these countries, many well-run private companies are falling into a debt repayment crisis, not because they are not profitable enough, but because the profits are expatriated abroad. Governments are forced to bail out these businesses through various financial aids, such as granting additional loans and rescheduling existing loans at concessional interest rates. The interest rates on these loans in real terms, i.e. taking into account inflation, often turn out to be negative, thus placing a heavy burden on financial institutions and harming the economy in its entirety. together. The government can instead save businesses by acquiring dividend-paying assets and create a public trust to use dividend income for public welfare activities.

This welfare economy model – let’s call it “shared democratic capitalism” – would certainly seem rather utopian, as Meade himself thought his idea of ​​“proprietary democracy”. Economists who once defended the so-called “Washington Consensus” doctrine of “privatize, liberalize” will be horrified at the prospect of returning to the era of state-owned enterprises (SOEs). These SOEs were not only poorly managed due to a lack of incentives to maximize the profits of the officials who ran the SOEs, but they also turned out to be a drain on public resources and were dealt with by bureaucrats and politicians as a way to reap all kinds of benefits.

The idea proposed here will only work with a deep political commitment and a fundamental change of mentalities. The management of companies in which the government acquires stakes will have to be allowed to operate in a completely independent manner, like any private company, while the performance of their management will be judged solely by their performance in maximizing the dividend of the shareholders, although in the usual market framework. regulatory framework. This kind of change of mind will not happen in a status quo situation, but can only happen in times of crisis, when a regime realizes that its legitimacy and sustainability are at stake, and that he must leave a legacy for the future. Who knows that a new, more humane market economy model will not emerge from the global South in transition, rather than from mature northern capitalism with its general aversion to such “statist” ideas?

Dr Wahiduddin Mahmud, former professor of economics at Dhaka University, is chairman of the Economic Policy Group in Dhaka.