enemies of Capitalism
When The Economist became 160 years old, they published a number titled Capitalism and Democracy. The number defended the idea that capitalism's worst enemy is capitalists themselves. It is not the movements in favor of an alternative globalization, the Socialist-Democrat party or Communists that have survived the Fall of the Berlin Wall, but rather Capitalism's friends, its trustworthy men who have loosened the grip and take advantage of their power in an unlimited way. The climax in the economy and in the financial markets of the 90's was so extreme that their decadence has provoked a countless number of entrepreneurial scandals, the resentment generated by the enormous increase of inequalities, an overwhelming hole of the private retirement funds of millions of citizens and especially a disillusion regarding the democratic institutions' capacity to make the guilty people respond for their actions. Spanish journalist and intellectual Joaquín Estefanía talks about it in his interesting article: "When Capitalism loses its head".
For years, all the banks have bombarded their clients and the rest of the citizens through abusive advertising campaigns to convince them to invest their savings in an investment fund or in a retirement plan. They produced the feeling that the States' system was on the verge of failure due to population growth and that it was better to change our trust to the charitable and providential management of the market economy's agents. It's alarming that public institutions did not react reacted with an adequate information because people pay taxes with a worse disposition when they become convinced that they will lose whatever the State retains.
20th Century Capitalism's heart is investment funds. Their managers deal with more money than that of the world's richest countries' budgets. If the trust crisis that they generate took place, it would be much more important than the scandals that have damaged the rest of the financial system: the companies that pay the stock market; the investment banks that coach them; the audit companies that should have detected the countable deceits; the regulating bodies that allowed for fraud; the executives and directives that gave more importance to their personal interest than that of the societies that they represented; the stock market that has laundered capital for years and trying their investors with inequality. And now, the investment funds in which millions of citizens participate.
The industry of investment funds in the United States has entered a profound trust crisis due to their numerous irregularities. When companies like Enron or Worldcom go bankrupt, those who suffer are their shareholders, their investors, their workers and their retired population. But when investment funds are manipulated, it's millions of citizens who can get damaged. Ninety-five million North Americans have their savings deposited in the more than 8,000 investment funds that operate in the United States for the amount of seven trillion dollars, equivalent to a budget 12 times greater than Spain's. And it affects citizens worldwide that have trusted the profitability of those funds or the retirement funds to secure their old age's well being.
"What does this Capitalism of fraud and deceit have to do with the one envisioned by its founders Adam smith, Benjamin Franklin or Max Weber?," asks Joaquín Estefanía. Capitalism requires trust; investors have to put their money in other people's hands and shall trust that they won't be cheated on. Strong regulation strengthens Capitalism.
Nobel Prize winner and former chief economist of the World Bank Joseph Stiglitz claims that regulation prevents companies and the financial sector from taking advantage of their monopoly capacity when competition is limited; it helps mitigate conflicts of interest and abusive practice so that investors can trust that the market provides a fair game frame and that those who say they act to defend their interests really do so. But in reality, the other side of all this is that regulation acts against quick benefit; that's why self-regulation lobbies have proliferated.
Many other economists have the opinion that generalized scandals have crumbled the intellectual foundation of the laissez faire economy: the belief that markets are self-sufficient to deal with the economy efficiently and in a just way.
We have all been affected by the scandals of companies that sustain the stock market, by investment banks, by audit companies and by the institutions that earned our trust for so many years so that we put what was saved with effort for a calm old age. They have played with the trust of hundreds of millions of citizens and they have added the mockery of our lack of hope to criminal fraud.
Carlos Gª Fajardo
Este artículo fue
publicado en el Centro de Colaboraciones Solidarias (CCS) en 2006