Keeping capitalism with a new face

There is no doubt that capitalism will continue to be a driving force for the future global economy. And it is actually too early to think that socialism will revive in the near future to challenge capitalism. Stimulated by these facts, champions of capitalism are divided broadly into two groups in rewriting the rules of the market-oriented philosophy. One group throws weight behind the fully market-driven forces to keep capitalism at the centre stage of the global economy. Another group calls for cutting down the role of market forces and rewriting rules to give capitalism a moderate face. Three economists, belonging to the second group, come up with a set of propositions to move ahead in such a direction in their book Decent Capitalism: A Blueprint for Reforming Our Economies.
Sebastian Dullien, a professor of international economics at HTW Berlin, Hansjo¨rg Herr, a professor at the Berlin School of Economics, and Christian Kellermann, a financial analyst, constitute the troika in writing the book.  Their work is an outcome of their effort to understand global financial crisis that popped out and spread in the United States and Europe during 2008-09. Supported by Friedrich Ebert Stiftung (FES), a Germany-based international development organisation, the authors try to draw an outline for the future course of capitalism so that more crises could be averted in the coming days.
Dullien, Herr and Kellermann have divided the book into two parts. In the first part, they have analysed the roots of the crisis. In the second part, they have outlined the path to 'decent capitalism'.  They are of the view that capitalism has to be decent for the sake of greater good of the humanity, and hence it shouldn't be an entirely market-oriented, profit-driven model.  Although, it is not a new or unique thought, it is a new addition to the thoughts of reforming capitalism.   
Considering the latest financial crisis as a serious alarm bell, the authors say: "Our systems remain at risk of instability. Crises will continue to be the norm rather than exception, if we keep on working with the dysfunctions of current capitalism." (P-1) They have pointed out that the rise of market liberalism ultimately unleashes financial market.  They add: "A central element of the market-liberal globalisation project was the deregulation of financial markets at both the national and the international level. While the financial markets developed more dynamically than all other markets, at the same time, from the 1980s they became subject to constant instability" (P-27). The authors rightly establish that deregulation of financial market ultimately turned the market into an uncontrolled greedy monster. In this way, economic activities become largely exposed with the unstable and risky financial market and spread across the borders.
In fact, global financial crisis has sparked a severe criticism of finance capital and financial engineering which became the core driving force of capitalism. Giant financial institutions like JP Morgan and Goldman Sachs became very powerful and dictated economic policies to promote financial engineering for unlimited profit. But excessive financial liberalisation, along with neo-liberal policy in the developed world, finally forced it to pay heavy prices.  The highly speculative financial market ultimately fell apart and millions of people lost their assets, kept in the form of investment in different complex and risky financial products.  
As global economy moves ahead with strong financial markets in the developed countries, the interlink between the countries become risky due to flexible foreign exchange rate and free movement of capital.
Dullien, Herr and Kellermann are of the view that international capital flows become a source of global instability. At the same time, labour market becomes vulnerable due to deregulation. "The process of labour market deregulation was intensified in many countries by the dismantling of social security systems.  High unemployment rates, the creation of employment relationships with no liability for social security contributions, and demographic developments in most countries increasingly put social security system under pressure." (P-79)
In fact, Dullien, Herr and Kellermann show that fundamental flaws stay with deregulation in the name of free market which also changed the pattern of income distribution. "In view of the increasingly unequal distribution of income and assets, and so also of opportunities, capitalism has been moving from a more decent to a more brutal form, as is clear even if it is viewed through ideologically tinted spectacles." (P-80)
At this point one may ask, what is the solution?  The authors come up with a new economic model termed 'decent capitalism', which is a combination of green growth and balanced distribution of wealth. It is definitely quite challenging to develop and keep such a model running in the real world.
Unlike the 'extreme leftists', the authors stress growth process but link it with environmental sustainability. "For ecological reasons it is simply not possible to continue with the existing type of growth for another century or so without disastrous consequences."(P-182) Thus, they think that production process and technologies should be adjusted in line with environment which is not possible in the market-dominated model. "Markets do not only fail in the workings of financial systems and in creating sufficient employment and acceptable income distribution; they also fail fundamentally in their impacts on the natural world." (P-188). They have called for a 'green new deal' through which governments would create markets for new environment-friendly products with research support.
While green growth is essential in the long run, the authors also call for 'resurrecting the public sector' to contain the wild run of market forces. They show that the government spending should be strategic like investment in education and infrastructure. "Government investment in infrastructure is also central for sustainable economic development. If a country's motorways and rail network are in such a shoddy state that, for example, highly qualified mechanical engineers spend all their time stuck in motorway tailbacks on the way to their clients, productivity cannot achieve its full potential." (P-117) They have also stressed on consolidating sources of government revenues by ensuring progressive income tax system under which higher earners pay a higher tax rate on additional income.  This will help reduce income inequality.
The authors have also laid emphasis on standardisation and prohibition of financial products and strictly regulating the financial market. "We propose that all financial products, like drugs, should be subject to licensing prior to introducing them into the market. Just as drug, a product would only be allowed into market if the investor can convince the regulator that the product in question provides added value to investors or borrowers and the risks related with it, for the whole system as well as individual institutions, are worth taking given the additional benefits." (P-155) This is a radical suggestion and is very difficult to implement as players in the financial market are very powerful.
 They also call for reform in the global monetary and financial system to contain speculative behaviour in the foreign exchange market.
One may find the proposed model of 'decent capitalism' a utopian idea. But the issues raised in the book are quite pertinent.  No one can deny the need for ecological sustainability, productive workforce with decent wages and a less volatile market.  The work of Dullien, Herr and Kellermann is a challenge to the neo-liberal dogma with a new dimension. In this connection, one can recall the book Saving Capitalism from the Capitalists", written by Raghuram Rajan and Luigi Zingles or the one titled A Capitalism for the People by Luigi Zingles. Both the books have severely criticised excessive role of the financial market and called for reforming capitalism for the sake of sustainable development. Despite some shortcomings, Decent Capitalism is a valuable addition to this genre of writing.
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Decent Capitalism: A Blueprint for Reforming Our Economies
by Sebastian Dullien, Hansjorg
Herr & Christian Kellermann
Pages: 228
Published by Pluto Press,
London, 2011