Digital pebbles

Clarke Mulder Purdie on PR, media and other random topics

Capitalism after the downturn: a shifting ideology

Posted by alicocksworth on April 2, 2009

The world leaders arrived at the G20 summit with several Herculean tasks in front of them: to somehow reboot a devastated financial system, to agree reforms that would safeguard the global economy in the future, and to restore public confidence in a discredited system that has caused brutal damage to individual lives – and may continue to do so for a long time to come as the recession intensifies.

Whether the summit has succeeded in mapping a path out of this global recession remains to be seen, but whatever the eventual outcome, it has afforded an insight into the future of capitalism and the imminent realignment of world order.

virginTowards a progressive agenda

As jobs are lost and houses repossessed, public frustration continues to grow. This dissatisfaction indicates a fundamental change in public sentiment that Barack Obama identified in his inaugural address, when he claimed that “what the cynics fail to understand is that the ground has shifted beneath them”. This change has enabled the US President to put forward an unapologetically progressive agenda explicitly designed to address the deeper failings of capitalism, namely, rising income inequality and corporate misconduct.

The Obama agenda is emblematic of an ideological shift towards what Lord Layard recently identified as ‘a less selfish capitalism’. In a Financial Times article he called for ‘a more humane brand of capitalism, based not only on better regulation but on better values’. The financial crisis has acted as a reality check, demanding a reassessment of what constitutes ‘progress’. As Lord Layard pointed out, the term was defined by the Anglo-Saxon Enlightenment as the reduction of misery and the increase of happiness. Wealth creation is no longer synonymous with progress.

Capitalism: ‘a different animal’

The developing countries of the world will demand that capitalism survive this crisis – China, India, Brazil will not forfeit the benefits it can confer – but it will have undergone significant transformation. I is unlikely that wealth creation will be accepted as an end in itself. Brazil’s President Lula da Silva is well attuned to this shift: “Capitalism will be a different animal once the turbulence is over”, he told TIME in a recent interview. “Developing countries will be responsible for a major percentage of world economic growth.”

There is a growing sense that Brazil is outperforming the other emerging giants: poverty may be falling in India and China but inequality is only falling in Brazil. This expansion of social mobility is attributable to what Lula refers to as ‘the financial strategy of the future’. In simplest terms, this strategy is a post-ideological approach that places as much emphasis on wealth redistribution as on wealth creation.

Brazil’s problems are still weighty and numerous – political corruption is endemic, the education system barely functions, and absolute poverty is still rife – but Lula’s take on capitalism may constitute a route out of a classic dilemma facing developing countries: how to expand an under-achieving economy and simultaneously reduce social inequality. It is no wonder he has an approval rating of 80 percent.

The Asian influence

Traditional capitalist strongholds like the US and western Europe will be permanently scarred by this recession, and it is likely that the greatest proponents of capitalism in the future will be in Asia. It is reductive to discuss an ‘Asian approach’ to capitalism, but there is a tangible gap in perspectives between the West and the East. The divergence is only likely to increase as the global recession deepens. Widespread scepticism about the American model of deregulation has always existed in Asia and, as Kishore Mahbubani notes as part of the Financial Times’ Future of Capitalism series, Asian capitalists will greet any economic advice now emanating from the West with even greater cynicism. gun

The world order will shift as the global economy recovers and the brand of capitalism that emerges will be reflective of this. It will be characterised by caution and dominated by the strong regulation and expectation of government supervision that pervade Asian approaches to capitalism.

Finding a new way

It is tempting to see this imminent remodelling of capitalism as a great challenge facing the corporate world, but it could also constitute an unprecedented opportunity. In throwing out the old ways, businesses will be able to shape the new.

As President Obama’s esteemed chief of staff Rahm Emmanuel put it: “Rule one: never allow a crisis to go to waste.”

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