Financial capitalism has failed. We need to democratize the economy. Oskar Lafontaine, 'We want to overthrow capitalism', Interview with Spiegel Online
The global financial crisis is at a very early stage. What seems clear to me is that the western mixed economy model has been totally discredited. This is not to imply that there are any better systems out there; rather that it has lost the consent to operate that it enjoyed over the past few decades. The tacit agreement was that the private sector would work, within laws, regulations and unwritten codes of decency to maximise sales, market share or profits. Government would impose taxes on producers and consumers, mainly to provide public services (law and order, defence, infrastructure, education and healthcare etc) and transfer income to the poor. What happened? Big business and government corrupted each other, at the expense of small enterprises, ordinary people and the physical and social environment.
It was always a bit haphazard; the idea that trickle-down or government action would ensure that the net non-market impacts of corporate activity would be positive, and that the human (as distinct from corporate) casualties of capitalism would be looked after by a benevolent, caring state. There were always visible signs of rot, to those who had time to look at, for instance, who actually benefited from subsidies to agriculture and other corporate welfare scams. Now the extent of that rot has become visible to all.
How can we ensure a better working model, and avoid what looks like a very painful transition to it? One answer could be Social Policy Bonds; rather than leave the achievement of social and environmental wellbeing to chance or coercion, we could instead subordinate all government activities to our broad social goals. So, for instance, if we wanted to achieve full employment we'd reward people who help achieve it, however they do so. We wouldn't subsidise or bail out inefficient industries simply because they allegedly need some temporary help or are too big to fail (or more likely, have too much political muscle and aren't afraid of using it). Rather than gamble with climate change, by assuming (or pretending to assume) that cutting back (or aspiring to cut back) greenhouse gas emissions will bring about climate stability, we'd issue Climate Stability Bonds that would reward people for stabilising the climate, however they do so.
Governments everywhere have shown that they cannot master the inevitable complexities of an increasingly interlinked world. Perhaps no organization can. We need large numbers of diverse, adaptive programmes and projects to restore social and environmental harmony. Targeting outcomes, and rewarding the people who achieve them would, I believe, work better than either the corrupt corporatist-capitalist model whose day has recently ended or large-scale central planning, whose day ended many years ago.