Which Way’s Left? Future of Capitalism

1 November 2009

Should the Left seek to shape a fundamentally different model of capitalism in the aftermath of the banking crisis and subsequent recession?

There has been little serious debate about economic policy on the centre-Left for the best part of twenty years. The financial crisis, credit crunch and subsequent recession have brought questions about the nature and purpose of capitalism back to the centre of British politics. However over the last 12 months much of that debate has either focused on highly technical and specialised issues (such as reform of credit markets), or has consisted of hyperbolic and generalised critiques of the “Anglo-American model” with few constructive or precise solutions. To shape an economy that serves society and contributes to our broader political goals, we need to identify the lessons – both good and bad – from the past two decades and the implications for future policy.

There are a range of particular issues which need to be addressed? What are the future sources of investment, growth and jobs? How should the banking and finance sector be restructured? Should we embrace broader models of ownership, to spread economic power? What is the role of trade unions in the modern economy? Is it possible to shape a more stable housing market? How can the state protect people against insecurity, alongside reaping the benefits from an open international economy? Do we need a new industrial activism?

To help confront these issues we have asked Andrew Gamble, Professor of Politics at Cambridge University, and Maurice Glasman, from London Metropolitan University to write a short paper responding to this issue.

As a guide, we think there are broadly two potential approaches:

    The crash of 2008 represented a massive failure of financial markets which caused first a credit crunch and then a serious recession. This requires significant regulatory reforms to address these failings and their consequences. However, it was not a crisis of capitalism more broadly or of markets in particular. It will continue to be the job of government to step in either to correct markets failures or to mitigate their worst consequences. However, the greater risk now is an overreaction against ‘markets’ or ‘capitalism’ as a whole. New policies will be needed to ensure a return to stable and sustainable growth, but these will go with the grain of open markets not against them.
    The crash of 2008 and the ensuing recession have demonstrated the fundamentally flawed model of political economy pursued in the UK and the US since the mid 1970’s. The architecture of financial markets and the banking sector will have to be significantly reconstructed. However, more systemic reforms are also required; not only to avoid a repeat of the credit crunch but to set the economy on a path of more equal, more balanced and more sustainable growth. This requires a more active role for governments in addressing or counteracting the damaging aspects of capitalism, while enabling its innovative and creative potential. A different model of capitalism can and must be shaped.

Some Responses:

Duncan Weldon on why we need to shift away from ‘finance capitalism’.

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