Time is up for short-term thinking in global capitalism
By Al Gore and David Blood
FT November 26 2009
(...) Winston Churchill said: "It's not enough that we do our best;
sometimes we have to do what's required." So what is now required? How do we
change? In order to start developing sustainable capitalism, we need to
reconsider the basic building blocks of commerce and markets: accounting,
disclosure, incentives, regulation and responsibility. (...) Executive and
Wall Street compensation needs to be better aligned with stakeholders and
long-term objectives, but so does compensation of investors and asset
owners. Specifically, if asset owners continue to review and reward their
asset managers reflexively on a quarterly or annual basis, they should not
be surprised to find their investors optimising returns within this
time-frame - often at the expense of long-term value. People often do what
they are paid to do. And if asset managers are compensated for maximising
short-term value while saying they are focused on long-term value, they are
fully capable of doing exactly that. In truth, this approach to investing is
not investing at all. It is trading, or - at its worst - gambling. These
asset managers are betting that they can anticipate the behaviour of other
short-term investors and move assets more quickly than the herd. Some
managers are skilled at this. But this approach has not typically maximised
value for investors or economies. This should change. Asset managers (and
owners) should be evaluated and incentivised (compensated) using long-term
metrics that measure - and reward - long-term performance. (...) Albert
Einstein famously remarked: "We can't solve problems by using the same kind
of thinking we used when we created them." To solve the still prevalent
problems in capital markets, we need new thinking. We must re-examine old
perceptions and re-evaluate obsolete assumptions. Many, including the
present chief of staff in the White House, have said that a crisis is a
terrible thing to waste. Yet we are in danger of doing just that. We need to
change urgently and should start by revisiting the fundamentals necessary
for strong and functioning capital markets. We must act now to do what is
required to build sustainable capitalism.
http://www.ft.com/cms/s/0/1b1067b2-dacd-11de-933d-00144feabdc0.html?nclick_check=1
How can we "re-examine old perceptions and re-evaluate obsolete assumptions"
without contrarian thought, without critical thought?
The Gore rhetorics are splendid, but every concept used can serve multiple
interpretations. Well, if I may don Alex Callinicos's thinking cap for a
moment for a brief comment (I haven't read the FT for thirty-five years, but
okay), "the kind of thinking used to create the problems" was capitalist
thinking, and capitalist thinking cannot solve them. Why? Because "cleaning
up the capitalist act" carries a cost, a price tag.
Who will pay for the crises? That is the first question at issue.
No capitalist, or for that matter any individual, has a private interest in
paying for that cost, unless he gets an acceptable return for it, in
exchange, which outweighs the costs - except if he acts against his own
interests, or is forced to do so. Therefore, there is really no "economic"
or financial solution, only a political-organisational one. It's a question
of power.
The convoluted idea behind schemes such as the Kyoto protocols is that you
can redistribute the costs in such a way, that there is a profitable market
trade in not creating a mess. But quite especially in a crisis, capitalists
in fact become zealous socialists - they want to socialize the costs, and
privatise the benefits much more than usual. And everybody follows their
example.
In reality, the redistribution of costs ("spreading the risks") thus always
devolves on those who cannot avoid paying, because they lack bargaining
power in markets: workers and peasants who have only their own labour to
stake their claim in the world. Rather than going broke, the big market
players get bailed out, and indeed profit from the mess. They are rewarded
for their misdeeds, rather than punished. This scam is aided by the sudden
re-invention of the ideology that "everyone is responsible" for the mess,
whereas, normally, responsibility and control is vested strictly with the
bosses and the authorities.
Karl Marx explained to us long ago that there is no such thing as
sustainable capitalism, since the growth of capitalism occurs through a
never-ending series of social convulsions, wars, expropriations, and
impoverishment of the many to enrich the few, on a scale unprecedented in
all the human history that preceded it. "Wenn das Geld, nach Augier, "mit
natürlichen Blutflecken auf einer Backe zur Welt kommt" so das Kapital von
Kopf bis Zeh, aus allen Poren, blut- und schmutztriefend." (Das Kapital, ch.
31).
There exists simply no economic mechanism within capitalism that would
guarantee systemic sustainability, and thus, capitalism can only eternalize
itself - or project this imagination - at the expense of people who either
die, or eke out a life not fit for a human being. The riches of some are
conditional on the poverty of others. Needless to say, these dehumanized
people have no particular stake in following environmental sermons. They are
born in filthy conditions, live in filthy conditions and die in filthy
conditions, that is their life.
In an Internetised world which makes the lives of the masses suddenly
visible, that reality can hardly be denied anymore, and therefore, the moral
debate is focused just on "how many" lives can be improved and "how many"
must suffer, about which opinions can differ of course. Jim O'Neill of
Goldman Sachs argues for example that "globalization is good" because (he
claims) it has made two billion people richer, and created new middle
classes in many countries.
The hidden premiss in all this is, that some must definitely lose, and
cannot win, because that is life. There must be winners and losers, and
there is competition between them. The central question one ought to ask
therefore is: "sustainable for whom?". For more than a billion malnourished
people, capitalism is not sustainable, and that's just for starters.
If the rate of profit on capital invested in industries falls, the only
route for the growth of capital is through global market expansion. If
however workers' real wages are capped or fall, markets can expand in
aggregate only by means of credit, a purchase on the future. But if final
demand fails to grow fast enough, because sufficient collateral for credit
is lacking, profits can grow only by trading in already existing assets,
effectively by "asset stripping" in a zero-sum game where the gains of some
are conditional on the losses of others. So would you like to have your
assets stripped some more?
"Freier Handel! im Interesse der arbeitenden Klasse; Schutzzölle! im
Interesse der arbeitenden Klasse; Zellengefängnisse! im Interesse der
arbeitenden Klasse: das ist das letzte, das einzige ernstgemeinte Wort des
Bourgeoissozialismus. Der Sozialismus der Bourgeoisie besteht eben in der
Behauptung, daß die Bourgeois Bourgeois sind - im Interesse der arbeitenden
Klasse." (Communist Manifesto, part 3 section 2).
The current propaganda catch-cry about "regulation" is nothing but a
prologue for authoritarianism and totalitarianism. And the main reason for
that is simply that capitalist markets cannot redistribute the costs to
human society of the private accumulation of capital in any equitable way.
If capitalist markets were indeed self-regulating, as in the equilibrium
fictions of economists, there is no need for "regulation". In reality,
"regulation" becomes the conduit for "passing the buck", for socializing
private costs and privatizing public assets some more... with the threat of
force.
The contemporary crisis of socialism has nothing to do with the lack of a
market for socialist ideas. The majority of the world population is
dissatisfied with capitalism and wants a better kind of economy and society.
The crisis of socialism is a crisis of thought, namely, most socialists can
only think in terms of "state versus market" and democratic centralism.
Since however state organisation, market organisation and democratic
centralism are equally problematic, then by defending the one against the
other we don't get very far with the argument, or move in any way beyond
social democratic thinking - but since social democracy failed to solve
basic problems and created more, in fact social democracy itself is in
decline. The true argument concerns the very basis of how human cooperation
and competition is organized, should be organized, and will be organized.
That is the real problem we need to sort out, utilizing the new forms of
association, communication and moral reasoning coming into being.
Jurriaan
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Received on Fri Nov 27 21:01:44 2009
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