At Davos, Debating Capitalism’s Future
By ED MILIBAND - THE NEW YORK TIMES - January 26, 2012
IS 20th-century capitalism failing 21st-century society? Members of the global elite debated that unusual question on Wednesday at the annual World Economic Forum.
There was a time, not long ago, when such a debate would have been held only among the protesters who annually shelter in igloos farther down the Alpine slopes. So it is encouraging that more than three years since the global financial crisis, a belated process of soul-searching has begun in search of the right lessons to learn from it.
In Britain, members of the Conservative-led government — not least the prime minister, David Cameron — have echoed the Labour Party’s call for a more responsible capitalism.
There is a great difference, however, between being willing to talk about an issue and being ready to act.
It is a difference between those who still believe that all governments can do is get out of the way and those who believe there is a real role for governments in first reviving our economies, and then setting the right rules for future success. The challenge therefore is not just to capitalism but also to politics.
At the Group of 20 summit in London three years ago, Prime Minister Gordon Brown and President Obama led concerted action to guide the world economy from the brink. Three years later, some governments are engaging in a short-sighted fiscal protectionism that can only lead to stunted growth.
If we learned anything from the 1930s, it was that governments cannot shrug their shoulders and watch as their own people are consigned to unemployment. I find it tragic and astonishing that some governments need to learn this lesson again.
Nor should we forget the causes of the current growth and debt crisis as we seek to put our economies on a more sustainable footing.
Both the United States and Britain suffered because their economies were overly reliant on the financial sector’s artificial profits; living standards for the many worsened while the economic rewards skewed to the top 1 percent; a capitalist model encouraged short-term decision-making oriented toward quarterly profits rather than long-term health; and vested interests — from giant banks to media moguls —were deemed too big to fail or too powerful to challenge.
We need to recognize that the trickle-down promise of conservative theorists has turned into a gravity-defying reality in which wealth has flowed upward disproportionately and, too often, undeservedly. To address properly the squeeze in middle-class incomes on both sides of the Atlantic requires fresh thinking from governments about how people train for their working lives and what a living wage should be.
Governments can set better — not necessarily more — rules to encourage productive businesses that invest, invent, train, make and sell real products and services. We need rules that discourage the predatory behavior of those seeking the fast buck through hostile takeovers and asset-stripping that do not have the interests of the shareholders, the employees or the economy at heart. In Britain, the Labour Party is considering how we can raise the bar for corporate takeovers so that companies’ futures are not determined by just a handful of speculators.
And governments must remember they are elected to serve the people, not the powerful lobbies who can pay for access or influence. Too often the real enemies of market capitalism are some of the leading beneficiaries of the current model, which favors price-gouging cartels and consumer exploitation. In Britain, airlines need to be more upfront about the true cost of their fares, and pension firms cannot continue to sign up customers for products that can chip away at their retirement income through exorbitant management fees.
As President Obama noted in his State of the Union address on Tuesday, it is neither socially nor economically sustainable for the wealthiest and most powerful to avoid paying their fair share. I support proposals for a financial transactions tax levied equally on the major trading centers from Hong Kong and Singapore to Wall Street and the City of London. The British government needs to show more leadership on this issue in Europe — and all members of G-20 need to help make it happen.
Britain loses billions of pounds in revenues because of outdated rules that allow our richest citizens to keep their money in off-shore tax havens. Tax authorities need to know about income and wealth hidden behind front companies, trusts and other complex financial products. If these rules cannot be changed by international agreement, progressive governments should go ahead and do it themselves.
As President Obama said in his State of the Union address this week, it is “common sense” to ask a billionaire to pay, proportionally, at least as much as his secretary in taxes. Indeed, in Davos this week, I will look around the room and ask myself who pays taxes at a higher rate — those eating the soup or those serving it?
In my country, I believe that changing the rules of capitalism will mean a change of government. But more generally, it will require a change in what citizens expect and ask of politics. The question is not so much whether 20th-century capitalism is failing 21st-century society but whether politics can rise to the challenge of changing a flawed economic model.
Ed Miliband is a member of the British Parliament and the leader of the Labour Party.