“I skimmed J. Livingston’s review rather quickly, and my first reaction after reading the first two paragraphs was that this isn’t an article about capitalism and “free markets,” but rather about the stability of the banking system (Wolf) or the role of central banks (King). As I read the review, I had a bit of trouble understanding what Livingston’s main point was. So I decided that I needed to clarify it for myself and think through what the author was actually trying to say.”
“Bank regulation is, of course, a major subtopic in the debate about capitalism, but I had the impression that neither author delved much deeper into it. I haven’t read M. King or M. Wolf’s books, and I’m very interested in how they actually argue about capitalism. However, I fully agree with both of them that the banking sector and its issues are highly specific problems. It seems to me that their goal is to find mechanisms or systems to rid us of the sources of regular financial crises. I get the impression that both are more concerned with the relationship between the banking system and capitalism only secondarily.”
“The rest and the core of the review seem to me like a prima facie debate about modern capitalism as a political system and the role the banking sector plays within it. And that’s already a magnum opus topic. It’s hard to cover it in a short essay, let alone discuss it in depth. I don’t mean that as criticism because it’s still a very interesting review of ‘modern’ thinking among economists, political scientists, and sociologists. What I take from the review is that contemporary capitalism, which has been ‘dominated’ by neoliberalism, faces specific limitations in the activities and efficiency of “free markets” due to greed, corruption, monopolies, bureaucracy, migration (!), and so on. The classic question arises—should markets be regulated, and if so, what role should governments (or regulators) play? For those of us who have lived through an attempt at communism, it’s hard to find sympathy with left-wing authors like Piketty or Stiglitz, who are cited in the article. They criticize modern capitalism as fundamentally dysfunctional (?) and oppose any efforts to restore a free market.”
Regulation. “James Livingston is an American from Rutgers University, so everything is written from an American debate perspective. But what’s happening in the USA is not only the result of internal American problems but also of what’s happening in the world around. Livingston is obviously aware of all this. The world around America has been talking about these issues and acting on them for quite some time. All the authors in the article seem to agree that in modern capitalism, the market must be regulated, but that regulation itself is a problem and criticized by both the ‘right’ and the ‘left.'”
Over-regulation or under-regulation or bad regulation? “Livingston draws our attention to regulatory policy issues discussed by the mentioned authors. The system can be ‘under-regulated’ through, for instance, the rise of “shadow banking,” which is beyond the control of regulators (or we could add digital currencies and others), as Sharma argues. Or it could be poorly regulated, as Baradaran argues, due to what is called ‘regulatory capture’ or ‘elite capture.’ Or it could be over-regulated, as argued by the Hoover Institute and other right-wing think tanks and big names like Milton Friedman or Edward Chancellor, though they are not cited in detail in the article. So, we have three fundamentally different viewpoints that call for different solutions to capitalism’s problems.”
“I sense that Livingston is convinced we’re in a period of poor regulation that threatens modern capitalism. The aforementioned ‘regulatory capture’ or ‘elite capture’ are what Livingston calls “guerillas in our midst.” They are causing what leads to social conflicts, financial crises, a retreat from globalization, rising power of autocrats, and conspiracy theories. It is ironic that we’ve arrived at this situation through neoliberal laws that allowed it, at least as Livingston maps it out.”
Slow legislation? Ineffective regulators? “I agree with Livingston’s summary and also agree when he suggests that solving these problems is evidently complicated. The article doesn’t cover that. It only addresses one aspect, namely legislation and the effectiveness of regulators. Here, Livingston cites the work of Admati and Hellwig, who analyze the work of regulators by pointing out various shortcomings, not only in formulating (banking) rules but mainly in weak rule enforcement, which leads to violations of existing laws and rules. To this, I would add that, in some cases, there is also confrontation between the regulated firm and the regulator, where the regulated firm can challenge a given rule from a constitutional perspective (in the USA), such as on the grounds of freedom of enterprise. This seems key to evaluating modern capitalism.”
Protecting freedom (of enterprise or consumer)? “This may lie behind the challenge to certain rules or laws. Elon Musk attacks Jourova, or Google rejects accusations of distorting competition. Regulators can only raise their hands and go to court. The losing party appeals, and the court carousel can begin. The result is a delay in problem-solving or even referrals to Constitutional or Supreme Courts, which typically leads to attempts to change laws or rules.”
The economic power of the banking sector. “The review begins with Livingston’s story of his contacts with M. Wolf and M. King about the banking sector, so let’s return to that. Livingston is quite right to emphasize the significant role of the banking sector in his literary tour. It now represents 24% of the US GDP, which is powerful! We would certainly reach similar numbers in Switzerland, Luxembourg, and many other countries—if not every country. This primarily means, in the eyes of all the authors, that we have to look at the banking sector a bit differently than, say, the sock-manufacturing sector. First, the banking sector is traditionally protected from liquidation. Second, banks may have been more successful in influencing regulatory policy. (No matter where you look, there it is: the idea that banking as we know it is a very long con, a public utility pretending to be a private enterprise. Cf. Livingston.)”
“But regulation issues aren’t only a problem in banking. The so-called tech firms, like Google or Microsoft, also wield considerable political power. The founder and owner of Amazon, Jeff Bezos, who also owns The Washington Post, wields tremendous economic and political power. And I haven’t even mentioned Musk, the owner of Tesla, Space X, X-platform, and others. As is known, Musk can quite easily influence human rights, as he recently demonstrated in Brazil and Ukraine, and his financial support of Trump shows his ability to influence the effectiveness of laws. And I’m not even mentioning JP Morgan, Goldman Sachs, Morgan Stanley, UBS, Deutsche Bank, and others. In summary, regulation is (primarily) a problem in the banking sector but also in other sectors, which Livingston doesn’t address.”
Missing solutions. “Livingston essentially doesn’t present any literature proposing modern fixes for modern capitalism. Literature that would answer the fundamental question posed by Martin Wolf at the beginning of the review—’is capitalism brain-dead, a body without a mind, comatose, if not already a corpse?’ Joseph Stiglitz steps into this, as he always has solutions for all humanity’s problems, including modern capitalism. His answer is: ‘no social system can survive as a set of centrifugal particles without the use of force. Rational thought, political debate, and the authority of bureaucratic reason based on rules are therefore needed when it comes to public interest or the common good (and that) with the help of state power. Free markets are of no help in addressing such issues.’ Cf. Livingston.”
“Livingston deserves praise for bringing up the topic of the ‘mortality’ of modern capitalism in a series of essays under Project Syndicate. Perhaps we’re not yet at the death knell of modern capitalism. But as shown in studies—by Admati, Hellwig, Acemoglu, Buiter, Sharma, and Mehrsa Baradaran, as well as by intelligent commentators like Martin Wolf, Robert Higgs, Robert Nozick, Niall Ferguson, Edward Chancellor, Fareed Zakaria, and Thomas Friedman—mortality is indeed the topic!”
Zdenek Drabek
Praha
October 2024