Thursday, March 12, 2009

Finding a New Capitalism

Harold Meyerson writes a very lucid column today about different kinds of capitalism. He argues that the Wall Street kind of Capitalism that Reagan and Thatcher installed in the 80s has now failed and needs to be replaced by something else. He recommends taking a look at German stakeholder capitalism and Swedish social capitalism for ideas.

The Reagan-Thatcher model, which favored finance over domestic manufacturing, has collapsed. The decline of American manufacturing has saddled us not only with a seemingly permanent negative balance of trade but with a business community less and less concerned with America's productive capacities. When manufacturing companies dominated what was still a national economy in the 1950s and '60s, they favored and profited from improvements in America's infrastructure and education. The interstate highway system and the G.I. Bill were good for General Motors and for the U.S.A. From 1875 to 1975, the level of schooling for the average American increased by seven years, creating a more educated workforce than any of our competitors' had. Since 1975, however, it hasn't increased at all. The mutually reinforcing rise of financialization and globalization broke the bond between American capitalism and America's interests.

His description of the German model is particularly fascinating as to why it is so strong:

In Germany, manufacturing still dominates finance, which is why Germany has been the world's leader in exports. German capitalism didn't succumb to the financialization that swept the United States and Britain in the 1980s, in part because its companies raise their capital, as ours used to, from retained earnings and banks rather than the markets. Company managers set long-term policies while market pressures for short-term profits are held in check. The focus on long-term performance over short-term gain is reinforced by Germany's stakeholder, rather than shareholder, model of capitalism: Worker representatives sit on boards of directors, unionization remains high, income distribution is more equitable, social benefits are generous. Nonetheless, German companies are among the world's most competitive in their financial viability and the quality of their products.

As Tevye (or was it the butcher?) sings in Fiddler on the Roof: "Something to think about, something to drink about!"

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