Future Summit II

One of the few comments I've received on this blog was in response to my questioning of the whole Davos thing.

It will not surprise my readers that I didn't attend the latest "Future Summit" but Cassandra Wilkinson gives us a summary in the Oz. Her experience was another meeting of capitalists wallowing in a sea of regret trying to appease the anger of those who feel capitalism has let them down. Her response was;

Capitalism has bubbles, and from time to time the animal spirits rise and fall, but historically we find ourselves better off over time with continuing gains in living standards, health and literacy. While unemployment and the other impacts of the recession will be everyone's problem, we need to be careful in regulating against the bubbles, lest we curb too much of the animal spirits that have seen free market societies feed, house, educate and connect citizens faster than any planned economy.

This is an incredibly blasse response from someone who seems to have heard about classical (or neo-classical) economics but never actually studied, and certainly one for whom (a) the entire Keynesian theory never occurred and (b) hasn't read any of the stories that explain exactly how perverted the unrestrained financial markts became with people trading assets with absolutely no idea of the risks they were engaging with.

All credit to Future Summit for at least trying to engage with the issue, but I must confess that judging by the program this was another one of those "capitalism apologist" sessions, a small bit of self-flagellation and promises to do better without really deep philosophical analysis. Meanwhile the promised "blog" seems to have stopped before the conference began.

Note: Another interesting element of the discussion of the future of capitalism is the definitional issues surrounding "capitalism". The most general version seems to be equating capitalism with a market economy, but one of the lessons of communism is that certain aspects of markets occur everywhere. Nothing you can do as Government removes the fact that people make choices and the aggregation of choices is a market.

The equating of capitalism with "unregulated markets" clearly gets you into a mess because all effective markets are regulated in some way. Look at listing rules on stock exchanges or the importance of regulation of both money, property rights and contract law to make most markets for physical goods and real property work.

The classical definition of capitaism was the system wherein the ownership of the means of production is separated from the actual producers. A more extensive definition relates to the importance of capital accumulation. The big difference between capitalism and pre-capitalist economic organisation is the fact that capitalists intentionally generate surpluses which are saved for reinvestment. This explains the fundamental shift in economic growth with the advent of capitalism.

But early capitalism was still dominated by "capitalists", a class of people who undertook the capital accumulation process and were also typically the entrepreneurs. The modern era of capitalism is mostly managerial capitalism, where the accumulated capital is run by a group of professional managers running the business on behalf of a dispersed group of shareholders.

It is this version of capitalism that is failing. No amount of clever remuneration plans fixes the principal/agent problem btween CEO and shareholder interests. The role and reward for entrepreneurial activity is largely lost and very discontinuous (some get really lucky, the rest miss out).

A good Future Summit would ask the question "what comes after managerial capitalism"?