by Noreena Hertz
February 23, 2009 | 6:09am
The first full crisis of globalization means the start of a kinder, more selfless economic system.
There are some who say this current global financial recession, this recession/depression that is being felt in London and New York, in Shanghai and Sao Paolo, will not have an impact on the nature of capitalism. That five years from now, well, capitalism will basically look like it did six months ago.
I understand this caution about predicting anything new, a reluctance to call the past era one of capitalism’s demise. But I do not agree with it. I believe the conditions are in place for a markedly different economic model to emerge from the carnage this economic crisis has wrought.
Under Gucci Capitalism, mandating corporations to do things for a greater public good was rare. Under Co-op Capitalism, mandates rather than voluntary measures will increasingly be the norm.
For what we are seeing today is not just a variant of the Russian crisis, the dot-com crisis, the Japanese crisis. This first full crisis of globalization, this first collective lose-lose, this first blue- and white- and multicolor-collared recession is so profound, is going to negatively affect so many people all over the world, is so obviously a manifestation of what happens when private institutions are allowed to put their profits before all else, and is so obviously linked to the flawed doctrine of the past 30 years, that to navigate it successfully will, I believe, demand a different operating environment.
I have named the past era of capitalism, Gucci Capitalism. It was an ideology born in the mid-1980s—the love child of Ronald Reagan and Margaret Thatcher, with Milton Friedman its fairy godfather and Bernard Madoff its poster boy. An era whose fundamental assumptions were markets should be left to self-regulate, governments should be laissez-faire, and human beings are nothing more than rational utility maximizers. A time when a conspiracy of marketers, credit-card companies, banks, and advertisers fueled a particular narrative—that it was less shameful to be in debt than not to have the latest pair of Nike sneakers or Gucci handbag.
No wonder, with this its underlying ethos, regulators were too weak, bankers too powerful, checks and balances were not in place, whistleblowers ignored. No wonder, with this the driving force in society, it wasn’t a matter of if but when the whole pack of cards would come tumbling down. Gucci Capitalism was as lacking in real values as its name suggests. Unsurprisingly, it is now under attack from both left and right. Even one of its most prominent cheerleaders, Alan Greenspan, claims to have been blinded by its ideology. But attacks of self-awareness can be short-lived. Is there enough evidence to point to the emergence of a significantly different alternative economic model?
I believe there is, that the conditions are in place for a new form of capitalism to arise from the debris of the past: Co-op Capitalism, with values of cooperation, collaboration, and collective interest at its core.
There are five key reasons why I believe this is so.
First, the public is angry and the media is on its side. While initially this anger was directed at bankers, it will soon shift to big business more generally, at companies that pay their executives millions of dollars while laying off workers. At companies that are still recording significant profits and are unwilling to share any of that bounty with those of their customers who are finding life tough. At investors who take over companies with little of their own monies by pledging the companies’ own pension funds, and then walk away with impunity when the company files for Chapter 11. We are already seeing a rise in public protest in the form of demonstrations and web-based campaigns and boycotts. Anticipate more of this in the coming months unless political and business leaders make explicit that they are on the public’s side.
Second, there is now a mandate for government to intervene that simply was absent over the past three decades. In a recent survey conducted in the US, more than half of those polled now say the free market should not be allowed to function independently. This is a seismic shift. Again, it is banks that are the first to see the impact of this, with interventions ranging from nationalization to the capping of executive salaries. Although I don’t predict or condone such wholesale micromanagement by government of the private sector as a whole, any company that could be perceived to be acting against the public good now risks standing in the line of fire.
Obvious industries to be targeted first are the fast-food industry and Big Pharma. With health costs soaring, and governments needing to rein in expenditure, predict more pressure on fast-food companies to take responsibility for the obesity crisis and on pharmaceutical companies to deliver affordable medicines. Under Gucci Capitalism, mandating corporations to do things for a greater public good was rare. Under Co-op Capitalism, mandates rather than voluntary measures will increasingly be the norm. No wonder some of the smartest companies are pre-empting this and swiftly pledging to make necessary changes unbidden. Both PepsiCo and Mars, for example, are hurrying to shift their product mix toward healthier lines.
The third reason why the time is now ripe for a new form of capitalism is that the downside of globalization has finally been exposed. Just how quickly the financial crisis infected country after country—Taiwan is now expecting its GDP to fall 11 percent—shows us all too clearly how in an interconnected world we stand or fall together.
Under Gucci Capitalism, I felt it was always quite likely that the chances of collective fall were higher than collective ascent. That was because the only body truly protected in the international arena was business. Under the aegis of the World Trade Organization, companies could feel secure that they could sell their goods all over the globe.
While the rights of global business were well cared for under Gucci Capitalism, no comparable mechanisms were set up to address the global problems that businesses were culpable for: climate change, infringements of labor and human rights, or the negative consequences of relocating business in terms of job losses and ghost towns. Instead these were dealt with, if at all, by a patchwork of weak separate bills and bodies that lacked teeth, clout, and resources.
Discussions are already under way about the creation of a global financial-regulatory system. The financial crisis revealed the limitations of trying to regulate a global industry nationally. But this is just the beginning. If Co-op Capitalism is capitalism’s next incarnation, expect the establishment of new WTO-type global institutions or the integration of new toothsome global rules into existing bodies—this time with a mission to address the myriad problems that are generated by business and affect the general public both domestically and overseas.
Without minimizing the difficulties of bringing nations together, it is not unprecedented. It was the international cooperation fostered at Bretton Woods that stopped us from falling off a collective precipice 65 years back, while more recently the Montreal Protocol, an initiative initially resisted by the CFC industry but now ratified by 194 countries, succeeded in stopping the widening of the hole in the ozone layer.
The fourth reason why we are heading toward a new era of capitalism: A new configuration of geopolitical forces is emerging as a result of the rise of China, Brazil, and India and the emergence of the G20, a new credible, cohesive, and powerful body that demands to be heard, and has limited if any allegiance at all to Gucci Capitalism. I anticipate a period in which the intellectual and practical hegemony of Gucci Capitalism will be directly challenged. And in which voice will be horse-traded for cooperation, with limitations on CO2 emissions, for example, exchanged for greater power within such institutions as the World Bank and IMF.
Combine this with a new US administration that even before the crisis talked about spreading the wealth and is committed to a multilateral ideal, and a Continental Europe that, having been hit particularly hard by the global recession, has a strong incentive to distance itself from an ideology that it neither spawned nor ever sat that well with its inherent communitarian values, and we have all the ingredients in place for a significant ideological shift.
Fifth and finally, it is not just at an intergovernmental level that we see the signs of more cooperation. The assumption of Gucci Capitalism that we as individuals were selfish, super-individualistic beings who only cared about maximizing our wealth, salaries, and resources is proving to be more an expediency of mainstream economists than an accurate depiction of mankind.
While it is true that over the past few decades there has been a growing obsession with material worth, this may be more a case of nurture than nature. Anthropological studies show that societies that have less share more, while recent work in behavioral economics has confirmed that benevolence is not alien to human nature. So while under Gucci Capitalism there was a tendency to bowl alone, it might just not be the case that we are essentially individualistic.
More likely is that we are entering an age of pulling together, as was the case during the Great Depression and the Blitz, and that this will be one of this era’s key defining characteristics.
It’s early days to show mass manifestation of this, but there are a few things we can point to: the meteoric rise of the global “freecycle” movement, whose members give stuff away for free rather than sell their goods on eBay; or the rise in Japan of “job sharing,” where employees, rather than witnessing their colleagues’ sackings, are choosing to work fewer hours themselves to minimize the collective blow.
All are manifestations of the new Co-op Capitalism.
We are now at a most critical juncture, when leaders in business, in government, in society have a choice to make: to embrace the Co-op agenda, with its calls for multilateralism, and global institutions to protect our environment and our citizens. This agenda has a renewed idea of government as an institution whose primary allegiance is to humanity as a whole, however rich or able. And it has a renewed idea of business as a force for innovation and improving the state of the world, which needs reining in where the pursuit of profit conflicts with society’s interests, and helping out when the short-term finances for innovating for our future are not there.
Or instead we could choose a very different path: the path of naked self-interest, the path of dog-eat-dog, in which reward is decoupled from responsibility. Those leaders currently calling for economic protectionism should be clear about the consequences of such a path. If China sees its imports banned, it will be less likely to agree to concerted CO2 emissions reductions. If the UK attempts to give jobs only to British workers, its already hemorrhaging manufacturing base may find itself with nowhere to export. This is a path that treads a thin line, as history should remind us, between economic nationalism and xenophobia.
This is a critical juncture, a dangerous one even, because the stakes are so high and there’s everything to fight for.
My hope is that our leaders have sufficient vision, and we the public have sufficient ambition, to turn the wreckage before us into an opportunity to join forces to push for a more supervised, more equitable, economic system. One that tends to fair rules, social justice, and sustainability, and reconnects the economy with what is right and just. That we choose to pull together not apart to co-create a better future, and really mean it when we say yes “we” can, and put the emphasis on the “we” when that is what we say. That we choose the open-source version of capitalism, the multiplayer version in which one only wins when all parties work together in pursuit of a common good. That we choose to shop not at Gucci, but at the co-op.
Noreena Hertz is a fellow of the Judge Business School, University of Cambridge, UK, and visiting professor of globalization at Erasmus University, Netherlands. She is the author of the bestsellers The Silent Takeover and IOU: The Debt Threat.