Sir, Lawrence Summers and Samuel Brittan, in the “Capitalism in Crisis” series, complement each other in important ways. Prof Summers (“Current woes call for smart reinvention not destruction”, January 9) manages to reduce a modern capitalism economy to two sectors, the innovative and productivity-generating market sector and the low-productivity state-funded social services sector. In the latter, raising productivity levels through innovative approaches to services is seen as the key to breaking the vicious loop of growing demand for such services and growing public debt in providing them.
This dualist overview lacks two elements. First, it ignores the financial sector where innovation has been primarily devoted to new ways of generating speculative gains from masticated and regurgitated assets and is notable for top pay scales for which, as Sir Samuel suggests citing Lord Melbourne, there is “no damn’d merit”. Second, Prof Summers makes no reference to the public sector as a considerable source of profit for the private sector.
Sir Samuel (“The market still has no real rivals”, January 13) tries to fill both these gaps with his discussion of market socialism. First, he argues that publicly owned banks may need to be around for some time to come; second, that public ownership does not preclude a market focus. This is a pragmatic response to the ideological position of Tea Party Republicans that all state spending crowds out private investment. But what if the private market sector were the source of the problem? In fact Austrians, as much as Marxists, recognise the “gales of creative destruction” that is capitalism. The key difference is historical perspective.
Austrians see the process as forever continuing in cycles. Keynesians see the need for managing those cycles. A Marxist perspective is to see those ever-expanding cycles becoming global, but as they do so their associated costs rising. At first sight this would seem to be contradicted by rising productivity, but not so. As global pre-capitalist sources of labour run dry, the need for and cost of social services, such as education and healthcare, from within the system inevitably rises, depressing the average industrial rate of profit and sending resources spinning off into the financial sector. This has been termed Ageing Capitalism, only superficially at odds with smartphones and connected televisions.
The solutions to any of the above analyses will lie less in economic policies as such, and more in how far populations in countries used to social services will tolerate their degradation, and populations in countries not used to social services will demand their provision. Prof Summers is right to see productivity in social services as an essential issue, but can capitalism or any other system come up with a solution? From where we stand today the answer is not yet obvious.
