Capitalism has mislaid its moral compass

(First published in the Nelson Mail and Manawatu Standard, December 7.)

Cast your mind back to the 1990s. The Berlin Wall had collapsed, and with it the entire rotten edifice of Soviet communism. Democracy and free enterprise were taking root in countries previously kept under repressive state control.

Internationally there was a marked swing from left to right. Thatcherism in Britain and Reaganism in the United States had radically changing the political landscape.

Even in countries such as Britain, Australia and New Zealand, the traditional parties of the left were shedding their socialist heritage and reaching a new accommodation with economic liberalism.

Political scientist Francis Fukuyama was sufficiently emboldened to write in 1992: “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalisation of Western liberal democracy as the final form of human government.”

It was hailed as the ultimate triumph of capitalism over socialism. The great battle of the ideologies that had raged for much of the 20th century was proclaimed to be over. But was it?

Many of us thought so at the time, but we reckoned without one very important factor – that old human impulse, greed.

Capitalism’s golden age – if that indeed is what it was – turned out to be disappointingly brief. The Western world went on a delirious spending binge using borrowed money, precipitating what is now known as the Global Financial Crisis.

Consumerism – the urge to acquire the newest and best of everything – was rampant. In New Zealand, we joyously threw off the shackles after decades of tight economic controls by going on a residential property spree that drove house values, especially in fashionable suburbs and coastal resorts, to preposterous levels.

The new princes of capitalism, the bankers and financial traders in centres such as London and New York, acquired wealth previously undreamed of. Taking full advantage of an environment that spurned regulation and control in the belief that markets could safely be left to govern themselves, they created complex financial instruments tied to real estate values; and as these continued their apparently limitless upward trajectory, the money men rewarded themselves with stratospheric bonuses.

In New Zealand, investors fell over themselves in their eagerness to entrust their money to dodgy finance companies, some of them run by the same sharks who had feasted on the gullible during the sharemarket and property boom of the 1980s.

As is often the case, those closest to the centre of the action were the least capable of foreseeing how it would play out. They seemed to think the party could go on forever, but of course it couldn’t, and didn’t.

A catastrophic economic collapse reverberated throughout the West. Once-solid banks fell over like dominoes and had to be bailed out by the taxpayer, even as the bankers – by now completely detached from reality – continued to reward themselves with huge bonuses.

America was traumatised by unemployment and mortgage foreclosures. Thousands of New Zealand investors, many of them elderly, lost the savings they had counted on to keep them in their retirement.

More recently, the European Union has been through convulsions as incompetently managed economies collapsed under a mountain of debt and had to be rescued by more responsible member states.

Where this will end is hard to predict, but the unravelling of the EU can’t be ruled out. The industrious Germans can’t be expected to prop up the feckless southern Europeans indefinitely. And in the meantime, democracy itself is being undermined as elected politicians are replaced by technocrats appointed from Brussels.

Capitalism hasn’t covered itself in glory in Russia, either. There, assets that once belonged to the state have been corralled by a small coterie of ultra-rich and often corrupt oligarchs – hardly a good advertisement for the free market economy. Small wonder that the communist party still appeals to many Russian voters.

It’s fair to say, then, that capitalism is in crisis. In fact you could say it’s on trial.

You can sense a distrust of capitalism lurking behind public unease about our own government’s proposed partial selloff of state assets. People haven’t forgotten that when this last happened, state-owned businesses were flogged off at fire sale prices, stripped of assets and, in several instances, had to be bought back in order to save them.

There’s also a perception that unbridled capitalism runs counter to the spirit of egalitarianism that New Zealanders pride themselves on. I think too much is made of the gap between the rich and the poor; we shouldn’t worry that some people are stonkingly rich as long as everyone has enough, in the words of Listener columnist Joanne Black, to live decently. Yet there’s little doubt that social cohesion is undermined if people perceive that they live in a stratified society where status is determined solely by wealth.

One consequence of capitalism’s recent failings was the emergence of the Occupy movement, but it’s impossible to take seriously the ragtag protest groups that have taken over public spaces such as the steps of London’s St Paul’s Cathedral, New York’s Zuccotti Park, Auckland’s Aotea Square and Dunedin’s Octagon. They are mostly young and their idealistic minds are unencumbered by knowledge or wisdom.

Their objections to capitalism are vague and often incoherent. They express a fervent conviction that there must be something better, but they don’t know what it is.

The truth is that if there is a better way than free-market capitalism, humanity has yet to discover it. Capitalism may have temporarily let itself down, but it remains the world’s best hope for prosperity and peace. The world’s most liberal, humane, peaceful and prosperous states are all capitalist democracies – something the naïve young idealists of the Occupy movement don’t seem to grasp.

Certainly, socialism is no solution. Capitalism may not work perfectly all the time (what human system does?), but socialism has never worked anywhere, under any circumstances.

What’s needed, then, is for capitalism to rediscover its moral compass. In the words of Ken Costa, a former chairman of international investment bankers Lazards, the markets have “slipped their moral moorings”.

Costa was asked last month by the Anglican Bishop of London to lead discussions on how a form of “ethical capitalism” might work. While he believes markets are still the best system for creating growth and jobs, Costa said the market economy had shifted from its moral foundations “with disastrous consequences”.

The challenge now is for capitalism to set about regaining public trust. It may be a long haul, but it must be done.