The failure of our capitalism, not theirs

13/11/08
As announced on the BBC Today programme, Bush will defend free-market capitalism today. Nothing wrong with this economically as long as it pays its way; but our capitalism (i.e., in the west except Germany) is consumption-driven and debt-led; to keep ourselves in the race militarily and scientifically, a manufacturing base is needed. That is the inconvenient fact. As ever, our leaders defend this discredited form of Capitalism by saying “it increases growth and pulls more people out of poverty” – these are the justifications Bush has used. Compared to Socialism, I’m sure he is right; but Socialism is the straw man, the defeated enemy of the 20th century; the real question is what form of Capitalism we will have in the future.

“It increases growth and pulls more people out of poverty”. Well, let’s look at this: we have seen Gordon Brown increase growth by allowing unrestricted immigration and boasting about GDP growth more people means a bigger economy unless per capita wealth goes down; per capita income hasn’t increased so people are not better off. As for “lifting people out of poverty”, well it is the Chinese form of Capitalism which is lifting their people out of poverty, albeit perhaps more quickly than if the West were less profligate in spending more than we earn; meanwhile, it is our form of Capitalism which is slowly impoverishing us. There is nothing wrong with us buying Chinese goods in moderation; it is the scale of the trade balance which is so destructive on the balance of power in the world, our ability to pay our way and, ultimately, to maintain our military capacity.

I would also question how the vast surpluses held by China are helping Chinese peasantry given the practical difficulties that generally obtain when large amounts of money are channelled quickly into development projects. We know that a lot of the Chinese surplus is in Sovereign Wealth funds and invested in the West. The sheer scale and speed of wealth transfer from west to east, I suspect, leads to diminishing returns in the battle against poverty.

Lastly, we see that defenders of an unconditional pure-free trade policy (in a world where import tariffs are very common) gloss over how we disadvantage ourselves in relation to our competitors; in the final analysis their justification for it is based not on how it benefits their own societies, but how it benefits others. The Bush presidency created a lot of jobs in China; what about jobs for Americans? That is, jobs that pay well because they create wealth for their society rather than channel it around. We are lifting other people out of poverty, supposedly, but a smaller deficit would probably have a similar effect; what is certain is that we have been gradually impoverishing ourselves. The financial crisis is payback for our profligacy and debt-fuelled optimism.