24 February 2010

Crisis of capitalism

Capitalism succeeds mainly because of creative destruction: the failure of businesses that respond inefficiently or not at all to the concerns of ordinary people, as manifested in a relatively free market. It fails when businesses become so big that they constitute monopolies, or so powerful that they can manipulate the trade and regulatory environment to suit their short-term interests at the expense of the longer-term interests of society and the environment. Such failure takes the form of inefficiency and a widening gap between government and big business on the one hand, and ordinary people and smaller enterprises on the other.

We are beginning to see a crisis of capitalism playing out now. Government and big business have done their best to subvert creative destruction, and are powerful enough to succeed. They are the most influential entities in our societies and they are big enough to distort or eliminate the market's way of responding to individuals' wishes. The result will be more central planning, and the increased alienation of ordinary people from the political process.

Social Policy Bonds might be a way of reconciling the need for centralised guidance of our large societies with the equally important need for efficiency - and freedom. They would contract out the achievement of our social and environmental goals to the private sector. Inefficient players would find themselves bid out of their part of the contract. Our goals would still be large scale, but the organizations of people with a vested interest in achieving them - holders of Social Policy Bonds - could be of any size, with a constantly varying composition. More important, these organizations would be subject to creative destruction. That's a marked contrast to the current system, under which the organizations supposed to help achieve our social goals are government agencies, whose immunity from creative destruction and whose close relationship to big business are at risk of discrediting the best features of capitalism and market forces for a long time to come.

No comments: