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  • Technorati: graph / links

    Will Hutton’s - ‘The World We’re In’ Pt 1

    by Shariq on 7th January, 2009 at 5:34 am    

    I can’t recommend this book highly enough. It makes the best case for a centre-left economy that I have read and I doubt there are clearer or more persuasive thinkers on this subject than Hutton. I’ve divided my review into two parts. This post will look at his critique of American style capitalism and the second one will examine his positive case for European capitalism.

    Critiquing Economic Conservatism

    The main point of this book is to demonstrate the huge gulf between the capitalism practised by America (and to a lesser extent Britain) since the Reagan revolution and the liberal capitalism seen in most of Europe. Hutton is unapologetic in arguing that ‘European Capitalism’ is superior and that not only should Britain be learning from how continental economies are managed, but that the majority of the British people have European values.

    (A quick aside - Europe and America aren’t incompatible; Hutton notes the rise of American conservatism alongside the decline of the American liberalism established by FDR and continued by Eisenhower, Kennedy and Lyndon Johnson)

    This may seem an unremarkable point in 2009, but Hutton correctly identified the weaknesses in the American economy in 2002 if not earlier. Most importantly, this wasn’t pointing to the consequences of short-term economic policies such as letting the housing bubble inflate, but dismantling the libertarian, free-market philosophies which have underpinned so many American economic policies over the last twenty years as well as shaping the nature of globalisation.

    Hutton didn’t see Enron and Worldcom as isolated incidents caused by corrupt executives and auditors. Instead he connected it to an economic system in which companies prioritise share value above all. While this brings about short term gains, reductions in R&D and staff training have long-term consequences on productivity and innovation. Meanwhile companies also use their inflated share prices in order to make hostile takeovers which don’t have long term value but can create short term savings (as well as giving the bankers involved huge bonuses).

    The Auto Industry

    The Auto Bailout is an excellent example of American industry’s failure to keep up with other developed economies. Libertarians and Conservatives will have you believe that the main reason for the American Big 3’s decline was the cost of unionisation. This has a grain of truth in it, although as Ezra Klein points out, this is more to do with the fact that the private sector in America tried to provide a basic standard of living to its workers that the state does in Scandinavia. The problem with this as Klein points out is that there is always some other company which can undercut it. In the big 3’s case it was foreign car companies who not saddled with high health care costs in their own markets could set up non-unionised plants in the South.

    Even more importantly it ignores the fact that the leading German and Japanese companies also have high labour costs. The conservative argument doesn’t tell you anything about the willingness of American industry and finance to provide long term investment in producing fuel efficient cars. Instead, in an era in which executives were being paid 20 million a year and had lucrative stock options the main goal of companies was to meet their yearly targets and keep Wall Street happy. (Interesting article on how the car companies were selling securitised car debt to Wall Street here).

    A Change in America Values?

    Hutton argues that one of the reasons that America has been more open to libertarian economics is cultural. The concept of there being always more land to go and tame is a powerful one. Unlike Europe which had a settled population, America was built on the idea of immigrants going out into the world and making it on their own without government assistance. Of course while some of this resonates, just as influential has been the increasing influence of special interests and lobbyists in framing the political agenda.

    Interestingly with the events of the past year America may have started moving towards a more European model. Hutton identified 3 things which need to happen for this to take place.

    1) ‘Attack the Wall Street notion of wealth generation as short-termist financial engineering and to advocate a more subtle and sophisticated vision of wealth creation as a social and organisational act as much as an act of heroic individualism’.

    The first part of this has been done for us. Its crucial that the Obama administration continues to make the case against ‘heroic individualism’ so that reform is long-lasting rather than being limited to this current crisis.

    2) That America has a new vision of a social contract which includes the bottom half of America society.

    Obama campaigned explicitly on this and his message, partly due to the collapse of Wall Street resonated. Universal Health-Care would be a huge and possibly permanent triumph.

    3) A change in campaign fundraising which would remove the pre-qualification of being rich in order to run and reduce the influence of lobbyists.

    Again Obama’s online fundraising has likely changed the way in which campaigns are financed. There was also good news in that Mitt Romney didn’t get very far despite pouring in a lot of his own money into the campaign. Special interests still have influence in Congress but hopefully they will also be susceptible to more democratic fundraising.

    As Freddie said on his now apparently defunct blog, as much as the mainstream pundits try and convince you that Obama is a centrist, right now I’m still hopeful.

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