Monday, May 01, 2006

On a new form of Capitalism.

On this International Labor Day, I would like to, take a moment to reflect on a couple of very interesting articles by William Pfaff, the correspondent of the IHT in Paris since 1978.

Not only does he have a good grasp of the recent events in France (with the sort of cultural and political knowledge of Europe rarely seen among American pundits these days) but he also sees the greater picture with what I consider a fascinating political and philosophical view of economics.

His latest op-ed last Friday entitled Why Europe should reject U.S. market capitalism is good enough to draw attention from the usual economic assumption taken by most media. In another recent (and longer) article in the New York Review, Pfaff explains in details his view of the evolution of modern capitalism and offers aternatives and that's where it becomes fascinaing.

He contends that a new form of capitalism has replaced what he calls the "stakeholder" version of reformed capitalism that prevailed during the period following World War II which was characterized by the ideology that that corporations had a duty to ensure the well-being of their employees and an obligation to the community, chiefly but not exclusively fulfilled through corporate tax payments. (a model influenced by the New Deal as well as by reform unionism, European social democracy, and Christian social doctrine).


According to Pfaff, the American model of capitalism has transferred wealth to stockholders and managers, and (through corporate tax cuts) away from spending for public purposes and on employees (through depressing wages and eliminating employee benefits). In other words, it has taken wealth from workers, and from the funding of government, and transfer it to stockholders and corporate executives.

It is hard not see some reality in his analysis particularly if you consider the intermingling of business and politics in recent years, with the increasing dependence of both American political parties on money from the coporate world, hence the lack of will to reform.

And Pfaff is not alone in his thinking. He mentions Felix G. Rohatyn, the financier and former US ambassador to France (and as Pfaff reminds us, not your dangerously anti-capitalist thinker!) who suggests a new model - the "stakeholder capitalism." that would allow corporate directors to take into account factors (such as the interests of employees, communities, customers, and suppliers —the "stakeholders" of the company—) other than simply maximizing stockholder value in reaching their decisions.

As far as globalization and free trade are concerned, Pfaff moves away from the usual consensus, claiming that "free trade often proves predatory in backward societies, destroying functioning institutions and failing to replace them". "One remedy", he suggests, "is that free trade be emphasized within blocs of economies at comparable stages of development, instead of the universal deregulation advocated until now."

I find those suggestions quite attractive. They have the merit of giving an alternative to the usually binary view of those who are ideologically simply either for or against the current model. This is where Europe, and France in particularly, might have a role to play, if it can overcome the counter-reaction of those who are critical of the American corporate model but give no realistic alternative and if France can overcome its obsession with 'declinism'.

In any case, whatever the solutions may be, it is certain that Europe should be looking for social and economic evolution on its own terms.

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