What I mean is that for years, politicians from the centre-right leftwards agreed that capitalism was unfair but at least delivered the goods. However, it is now questionable that it can even do the latter. The problem is not, then, simply that capitalism is predatory, irresponsible, unfair or immoral. It’s that it is inefficient too. As Faisal Islam rightly says, the party leaders just don’t see this.
Now, before the closed-mind libertarians whine, I’ll agree that capitalism has been a massive force for global prosperity. But on this, everyone agrees. It was Marx, not Hayek, who wrote that capitalism “during its rule of scarce 100 years, has created more massive and more colossal productive forces than have all preceding generations together.” However, to presume that this must continue is to mere inductive reasoning, of the sort the chicken commits when he expects to be fed by the farmer, only to have her neck wrung.
I’ll also agree that capitalist economies are superior to centrally planned ones. This is as true as the fact that I’m a better fiddle player than Abu Hamza - and as relevant.
Instead, what I mean is that there are (at least) four problems with capitalism, which the current crisis has revealed rather than caused:
1. The rise of low-wage competition from Asia, the slowdown in the rate of innovation, and the difficulty of monetizing some innovations has lead to a long-standing dearth of profitable investment opportunities and thus to slow real growth. One effect of this has been that money has flowed into malinvestments instead, creating a tendency towards speculative bubbles and slumps.
2. Top-down control of companies is inefficient, both for Hayekian reasons (bosses haven’t the knowledge or rationality to control big organizations) and because of perverse incentives and selection effects.
3. Capitalism concentrates ownership of (some) risky assets into a few hands, and thus creates greater fragility and vulnerability to crises than is technically necessary.
4. There’s a division between ownership and control. The problem of collective action, allied to the fact that the key asset in many firms is human rather than physical capital, means that shareholders are unwilling and unable to control firms. The result is that they become mechanisms whereby bosses and key workers can tunnel assets away from formal owners to those with real power.
One can, of course, question how severe these problems are. We shouldn‘t expect an economic system to be perfect; as Adam Smith said, there is a lot of ruin in a nation.
And one could argue that these problems can be mitigated or glossed over by better macroeconomic policy - though I‘d be sceptical of this; in an economy lacking investment and capacity, increased aggregate demand would lead to inflation before full employment.
My point, though, is simple. The flaws with capitalism are, increasingly, not merely those of fairness but of efficiency too. And the political parties don’t seen sufficiently aware of this.