Capitalism needs to lift its game

(First published in the Nelson Mail and Manawatu Standard, September 30.)

I read in the paper a few days ago that the American documentary maker Michael Moore had hosted a preview of his latest film, entitled Capitalism: A Love Story.

Anyone who is familiar with Moore’s work will realise that the title drips with deliberate irony. Moore is an implacable foe of the American conservative establishment and his latest film is reportedly based on the premise that greed and corruption have subverted democracy.

Moore himself was quoted as urging guests at the preview in his impoverished home state of Michigan to help overthrow an economic system that he said was beyond redemption.

Now I don’t care much for Moore as a documentary maker. He’s clever, but he's also highly manipulative and very selective in what he chooses to show and what he chooses to leave on the floor of the editing suite. In another place and time he would have been honoured for his consummate skills as a maker of political propaganda films. But could he be on to something in his latest work?

Certainly his timing couldn’t be better. Capitalism appears to have disgraced itself internationally, plunging the world into its worst economic crisis since the Great Depression. People are likely to be receptive to a film that portrays capitalism as driven by selfishness and greed, which will undoubtedly be Moore’s message.

I couldn’t help but note that two pages further on, the Dominion Post had a report about the chief executives of two large New Zealand companies who, despite a substantial slump in profits, had been awarded massive pay rises. Skellerup boss Donald Stewart was paid $801,000 – up from $509,000 the previous year – while David Baldwin, the managing director of Contact Energy, made an extra $117,000, bringing his annual pay package to $1.6 million.

This is the same Contact Energy that outraged shareholders and the public last year with a proposal to double directors’ fees, a move that it admits severely damaged its reputation. You have to wonder whether the company learned anything. Mr Baldwin’s increase equates to nearly four times the median annual per capita income. Such figures are beyond the comprehension of wage-earners struggling to pay mortgages, school fees and, yes, outrageous electricity bills.

Such trends are not peculiar to New Zealand. The previous day, it was reported that the former head of Qantas banked a salary of $A10.7 million last year, despite being chief executive for only five months of that period. For the rest of the time he was retained as a “consultant”.

I turned the page again and I saw that Blue Chip founder Mark Bryers, whose dodgy property company hoovered up the life savings of many elderly New Zealanders, had lost the latest round in the ongoing legal battles that have followed Blue Chip’s collapse. Normally this would be good news, but wait; it turned out that the High Court had merely ruled that Bryers must repay a $4.3 million loan to a multimillionaire Auckland investor.

No comfort here, then, for the many superannuitants who were persuaded to place their money with Blue Chip and now face financial ruin. While wealthy men use all the legal means in their power to protect their investments, these ordinary New Zealanders – most of them unable to afford lawyers – sit fretfully at home, wondering when the bailiffs will call.

When you look at all this, it’s natural to start wondering whether Michael Moore might be right to condemn capitalism as an immoral system.

The issue of income disparity, highlighted so vividly by the salary packages of people like Contact’s Mr Baldwin, is particularly interesting.

For a long time I took the view that it didn’t really matter how much money the corporate elite made, provided ordinary workers were fairly paid and were able to share in the benefits of economic growth. The adage “a rising tide lifts all boats” seemed to make perfect sense.

The problem is that even when the tide stopped rising, corporate pay packages continued to head for the stratosphere. There have even been reports that some British and American finance institutions have resumed paying the outrageous bonuses that became a symbol of corporate greed and excess when the recession hit.

In any case, I have come around to the view that gross income inequality, such as we now see in New Zealand, does have an insidious, corrosive effect. Proportionality and fairness are important. People’s confidence in the capitalist system is undermined when they see a corporate elite being extravagantly rewarded for no obvious reason other than that “experts” say they need to be paid prodigious sums to keep them in New Zealand.

This argument conveniently serves the purposes of the corporate elite, but it has worn very thin. People have become rightly sceptical, especially when salaries appear to bear little relationship to performance.

In view of all the above, it would be reasonable to conclude that I have experienced a Road-to-Damascus conversion and am now firmly in the camp of people like Michael Moore and others like him, who can’t wait to dance on the grave of capitalism. Wrong.

Leftists the world over gleefully greeted the worldwide recession as proof of capitalism’s fatal flaws, but it’s nothing of the sort. Capitalism is a resilient and self-correcting economic system that invariably bounces back, as it is showing signs of doing now.

No one ever pretended it’s perfect. It can’t be, because human nature is imperfect. Capitalism has always been susceptible to greedy, selfish and unscrupulous behaviour. It has certainly disgraced itself over the past few years, and it won’t be the last time.

But the evidence is overwhelming that capitalism, particularly when combined with liberal democratic government that moderates its worst excesses, is the only economic system that has consistently demonstrated, over time, that it can improve the human condition. That’s why all the most humane, liberal, advanced societies in the world have capitalist economies.

Capitalism stumbles and stuffs up now and again, as it has recently done, but most of the time it functions pretty well. Contrast that with the socialism that men like Michael Moore seem to favour, which has never worked anywhere, under any circumstances. On the contrary, wherever it has been tried it has become synonymous with repression and deprivation.

The challenge, as always, is to promote a form of capitalism that balances the natural desire to improve one’s economic position – the essential driver of capitalism – against moral values such as fairness and the need for social cohesion. To quote my old school reports, a better effort is needed.