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发帖数: 602 | 1 The path out of capitalism's second crisis
By Edmund S. Phelps
director of the Center on Capitalism and Society, Columbia University, and
winner
of the 2006 Nobel Prize in Economics
In countries operating a largely capitalist system, there does not appear to
be a
wide understanding among its actors and overseers of either its advantages
or its
hazards. Ignorance of what it can contribute has in the past led some
countries to
throw out the system or clip its wings. Ignorance of the hazards has made
imprudence in markets and policy neglect all the more likely. Regaining a
well-
functioning capitalism will require re-education and deep reform.
Capitalism is not the “free market” or laisser faire – a system of zero
government “plus the constable”. Capitalist systems function less well
without
state protection of investors, lenders and companies against monopoly,
deception
and fraud. These systems may lack the requisite political support and cause
social
stresses without subsidies to stimulate inclusion of the less advantaged in
society's formal business economy. Last, a huge social insurance system,
with
resulting high taxes, low take-home pay and low wealth, may not hurt
capitalism.
In essence, capitalist systems are a mechanism by which economies may
generate
growth in knowledge – with much uncertainty in the process, owing to the
incompleteness of knowledge. Growth in knowledge leads to income growth and
job
satisfaction; uncertainty makes the economy prone to sudden swings – all
phenomena noted by Marx in 1848. Understanding was slow to come, though.
Well into the 20th century, scholars viewed economic advances as resulting
from
commercial innovations enabled by the discoveries of scientists –
discoveries
that come from outside the economy and out of the blue. Why then did
capitalist
economies benefit more than others? Joseph Schumpeter's early theory
proposed that
a capitalist economy is quicker to seize sudden opportunities and thus has
higher
productivity, thanks to capitalist culture: the zeal of capable
entrepreneurs and
diligence of expert bankers. But the idea of all-knowing bankers and
unerring
entrepreneurs is laughable. Scholars now find that most growth in knowledge
is not
science-driven. Schumpeterian economics – Adam Smith plus sociology –
captures
very little.
Friedrich Hayek offered another view in the 1930s. Any modern economy,
capitalist
or state-run, is a great soup of private “know-how” dispersed among the
specialised participants. No one, he said, not even a state agency, could
amass
all the knowledge that each participant “on the spot” inevitably acquires.
The
state would have no idea where to invest. Only capitalism solves this “
knowledge
problem”.
Later, Hayek fleshed out a theory of how capitalism makes “discoveries” on
its
own. He had no problem with the concept of an innovative idea, for he
understood
that, even among experts, knowledge is incomplete about most things not yet
tried.
So he felt free to suppose that, thanks to the specialised insights each
acquires,
a manager or employee may one day “imagine” (as Hayek's hero, David Hume,
would
have put it) a commercial departure – one that could not be inferred or
envisioned by people outside the individual's line of work. Then he portrays
a
well- functioning capitalist system as a broad-based, bottom-up organism
that
gives diverse new ideas opportunities to compete for development and, with
luck,
adoption in the marketplace. That “discovery procedure” makes it far more
innovative than the top-down systems of socialism or corporatism. The latter
are
too bureaucratic to learn about ideas from below and unlikely to obtain
approval
from all the social partners of the ideas that do get through.
Well-functioning capitalist economies, with their high propensity to
innovate,
could arise only when serviceable institutions were in place. The freedoms
borne
by England's Glorious Revolution of 1688 and the “commercial society” of
the
Scots were not enough. There had to be financial institutions where there
would be
disinterested financiers, each trying to make the best investment, and –
importantly – a plurality of views among them, so financiers funded a
diversity
of projects. There also had to be limited liability for companies and a
market
enabling their takeover. Such institutions had to wait for demand by wide
numbers
of business people wanting to build a new product or new market or new
business
model. Rudimentary institutions began to emerge early in the 19th century,
from
company law and stock exchanges to joint-stock banks and “merchant” banks
lending to industry.
Unprecedented rewards soon followed in Europe and America: new cities rising
,
unbroken productivity growth, steadily climbing wages and generally high
employment. Lifetime prospects improved for all or nearly all participants.
Less
measurable but ultimately fundamental, growing numbers of people in
capitalist
economies had engaging careers and were energised by their challenges and
explorations. Capitalism was a godsend for them.
From the outset, the biggest downside was that creative ventures caused
uncertainty not only for the entrepreneurs themselves but also for everyone
else
in the global economy. Swings in venture activity created a fluctuating
economic
environment. Frank Knight, observing US capitalism in his 1921 book, said
that a
company, in all of its decisions aside from the handful of routine ones,
faces
what is now called “Knightian uncertainty”. In an innovative economy there
are
not enough precedents to be able to estimate the probability of this or that
outcome. John Maynard Keynes in 1936 insisted on the “precariousness” of
much of
the “knowledge” used to value an investment – thus the “flimsiness” of
investors' beliefs. (Yet now he is seen as “Smith plus psychological swings
”.)
No coherent moral justification was ever suggested for throwing out a system
providing invaluable and irreplaceable novelty, problem-solving and
exploration,
thus personal growth. On the contrary, humanist philosophy has continued
since
ancient times to hold up such experience as the “good life”. Socialists
and
corporatists never offered an alternative good life. They simply claimed
that the
system they advocated could out-do capitalism: wider prosperity, or more
jobs, or
greater job satisfaction. Unfortunately, there is still no wide
understanding
among the public of the benefits that can fairly be credited to capitalism
and why
these benefits have costs. This intellectual failure has left capitalism
vulnerable to opponents and to ignorance within the system.
Capitalism lost much of its standing in the interwar period, when many
countries
in western continental Europe shifted to corporatist systems. This was a low
point
in the public's grasp of political economy. In the end, the promises of
greater
prosperity and lesser swings could not be delivered. The nations that kept
capitalism while making reforms, some good and others maybe not, ultimately
performed well again – until now. Those that broke from capitalism were
less
innovative. After the disturbances of the 1970s, they saw unemployment rise
far
more than the capitalist nations did. They were worse on economic inclusion
too.
Now capitalism is in the midst of its second crisis. An explanation offered
is
that the bankers, whatever they knew about capitalism, knew that to keep
their
jobs and their bonuses they would have to borrow more and more to lend more
and
more, in order to meet profit targets and hold up share prices. The
implication
was that the crisis flowed from a failure of corporate governance to curb
bonuses
and of regulation to rein in leveraging of bank capital to levels that made
the
banks vulnerable to a break in housing prices.
But why did big shareholders not move to stop over-leveraging before it
reached
dangerous levels? Why did legislators not demand regulatory intervention?
The
answer, I believe, is that they had no sense of the existing Knightian
uncertainty. So they had no sense of the possibility of a huge break in
housing
prices and no sense of the fundamental inapplicability of the risk
management
models used in the banks. “Risk” came to mean volatility over some recent
past.
The volatility of the price as it vibrates around some path was considered
but not
the uncertainty of the path itself: the risk that it would shift down. The
banks'
chief executives, too, had little grasp of uncertainty. Some had the
instinct to
buy insurance but did not see the uncertainty of the insurer's solvency.
Much is dysfunctional in the US and the UK: a financial sector that turned
away
from the business sector, then caused its self-destruction, and a business
sector
beset by short-termism. If we still have our humanist values we will try to
restructure these sectors to make capitalism work well again – to guard
better
against reckless disregard of uncertainty in the financial sector while
reviving
innovativeness in business. We will not close the door on systems that gave
growing numbers rewarding lives. |
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