Open Society – Reforming Global Capitalism

Given the level of concern about the current global crisis I think it appropriate to open up on the subject with reference to a man who, most would think the last person given his great success in exploiting the system for significant financial gain in the past, would understand the failings of global capitalism and the areas most needing urgent reform.

Financier, George Soros has expressed his concerns about the inadequacies of global capitalism and the tendency toward increased deregulation having an increasingly adverse effect on our ability to maintain our democratic values. In his book Open Society: Reforming The Global Capitalist System, Soros writes:

“Capitalism and democracy do not necessarily go hand in hand. There is some correlation: rising standards of living and the formation of the middle class tend to generate pressure for freedom and democracy: they aslo tend to support greater political stability. But the connection is far from automatic. Repressive regimes do not relax their grip on power willingly, and they are often aided and abetted by business interest, both foreign and domestic. We can see this in other countries, particularly where natural resources such as oil and diamonds are at stake. Perhaps the greatest threat to freedom and democracy in the world today comes from the unholy alliances between government and businesses.

Capitalism is very successful in creating wealth, but we cannot rely on it to assure freedom, democracy and the rule of law. Business is motivated by profit: it is not designed to safeguard universal principles. Most business people are upright citizens: but that does not change the fact that business is conducted for private gain and not for public benefit. The primary responsibility of management is to the owners of the business (and more often than not, themselves), not some nebulous entity called public interest – although enterprises often try, or at least pretend to be acting in a public spirited way because that is good for business. If we care at all about the universal principles such as freedom, democracy and the rule of law, we cannot leave them to the care of market forces: we must establish some of the institutions to safeguard them.

The protection of the common interest used to be the task of the nation state. But the powers of the state have shrunk as global markets have expanded. When capital is free to move around, it can be taxed and regulated only at the risk of driving it away. Since capital is essential to the creation of wealth: governments must cater to its demands, often to the detriment of other considerations. Chasing away capitalism can do more harm than taxation and regulations could bring.

The capacity of the state to perform the functions that the citizens have come to expect of it has been impaired. This would not be a concern if free markets could be counted on to take care of all our needs, but this is manifestly not the case. Some of our collective needs are almost too obvious to need mentioning: peace and security, law and order, health, education, human rights and some elements of social justice. Market values express only what one participant is willing to pay another in free exchange and do not give expression to their common interests. As a result, social values can only be served by social and political arrangements, even if they are less efficient than markets.

The global capitalist system has produced a very uneven playing field. The gap between rich and poor is getting wider. This is dangerous, because a system that does not offer some hope and benefit to the losers is liable to be disrupted by acts of desperation. By contrast, if we offer economic incentives to countries that are eager to take advantage of them we create a powerful tool for crisis prevention. Incentives foster economic and political development: the fact that they can be withdrawn provides leverage that can be used against recalcitrant governments.

Unfortunately, the global financial architecture that prevails today offers practically no support to those less fortunate. Current trends go in the opposite direction.

Since market fundamentalism has become so influential, it today constitutes a greater threat to a global open society than communism and socialism, because those ideologues have been thoroughly discredited.

Markets are not perfect. They can only cater to individual needs; taking care of social needs is beyond their scope. And even as the allocation of resources they are less than perfect: financial markets are inherently unstable. That does not mean we should abolish capitalism; rather we should endeavor to correct its shortcomings.

Communism sought to abolish the market mechanism and to impose collective control over all economic activities. Market fundamentalism seeks to abolish collective decision-making and to impose the supremacy of market values over all political and social values. Both extremes are wrong. We need to recognise that all human constructs are flawed. Perfection is beyond our reach. We must content ourselves with the second-best; an imperfect society that opens itself open to improvement. Global capitalism is badly in need of improvement.

What are your thoughts?

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17 Responses

  1. UPDATE

    End of America’s era – now it is China that calls the tune

    The world order is changing, because China is propping up the US,

  2. I think I made a comment a few weeks ago that the end result of this meltdown will be the loss of Wall St dominance in the world markets. As they say – he who has the gold makes the rules.

  3. Yes, I recall your ‘call’ . You’re getting really good at this ‘stuff’ Joni.

    Also in the news:

    “CRISIS talks between world leaders will do nothing to prevent another dark week for the world’s stock markets, analysts believe.

    Leaders from the Group of 20 rich and emerging countries concluded talks in Washington yesterday claiming it would use all the means available to tackle the financial crisis rocking world markets.

    Local economists believe the resolutions achieved at the meetings were simply more rhetoric without concrete answers. “

  4. Waleed Aly on smh.com.au has this interesting piece on societal change arising from the meltdown, and in particular the way in which voices in the US are beginning to blame minority groups including gays and Latino’s for the meltdown.

    http://www.smh.com.au/news/opinion/beneath-the-crisis-waits-a-nastier-beast/2008/10/12/1223749846530.html

  5. Reb

    Honestly, the possibilities resulting from a berakdown are disturbing.

  6. My ex would have been perfect for a job – a gay latino accountant. I will blame everything on him – well, I blame him for a lot anyway so a little but more won’t make a difference.

  7. Now, now Joni, don’t let this crisis bring the worst out in you.

  8. berakdown – correction I was not referring in any way to that fella running for president. I meant ‘breakdown’ LOL

  9. Oh well, at least Obama’s ahead in the polls.

    Hopefully he’ll get over the line and bring some sense to the whitehouse.

    Shudder to think what’ll happen if McCain/Palin get in. Bombing Iran wouldn’t suprise me. Nothing like introducing another ‘evil villain’ onto the set, that has to be taken out immediately, in order to distract americans attention from the issues back home…

  10. What it all shows to me is that there must be capitalism with a socialist government. Items essential to the polulations well being must be regulatorily controlled or owned by the Govt. This puts a temper on the natural greed and monopoly of capitalism.

    We were always told that the Govt should not own anything as it has a monopoly and cannot run it well. Yet capitalism is also a monopoly philosophy as they try to take over their competition to be the only player in their market.

    Good and bad in both, a balance is the answer.

  11. Shane

    Excellent response – it’s all about balance and the global capitalist system has swung to its extreme, but that doesn’t mean we should be looking to throw the ‘baby out with the bath water’

  12. Capitalism with regulation. Essential services owned by the people and democratic government with absolute transparency.

    Want to join the Transparent Party?

  13. The transparent and no perks party

  14. Time stamp should be fixed now.

    Thank you for using the blogocrats help desk.

  15. […] Open Society – Reforming Global Capitalism “Communism sought to abolish the market mechanism and to impose collective control over all economic activities. Market fundamentalism seeks to abolish collective decision-making and to impose the supremacy of market values over all political and social values. Both extremes are wrong. We need to recognise that all human constructs are flawed. Perfection is beyond our reach. We must content ourselves with the second-best; an imperfect society that opens itself open to improvement. Global capitalism is badly in need of improvement. […]

  16. stuntreb

    Good article by Waleed Aly you have linked to, and something I htink politicians should be addressing NOW (like they don’t have enough on their plate).

    Lets hope it doesn’t end up with the outcome like the depression. As someone remarked here a few weeks ago, the depression ended with WW2, this one began with Iraq. The ending could foresseably be even worse.

    It is time for great leaders to stand up. I wonder if any are up to it?

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