Oct.
31
2014

Polite Capitalism

One of the most influential European historian-economist of our days is Sebastian Dullien. He sees the cure against the development of new crises in the restoration of production-based societies. As for the road to the implementation, the member of the European Council of Foreign Relations, guest lecturer of excellent American and German universities and the co-writer of the bestseller Decent Capitalism does not approve the re-nationalisation. He calls the method a virus threatening democracy, in the interview given to the Alapblog.hu. In addition, he draws attention to how much damage can occur to a country if its legitimate leaders declare of their plans misleadingly and ambivalently.

Dullien’s critique of capitalism – decisively – focuses on the impetuosity of the independent and uncontrollable branches of the financial service sector. According to the interviewee, the stable and ‘decent’ capitalism is good, however if its extremities are not removed from the system by the agents of democratic market economy, it can lead to the collapse of society.

Péter Zentai: The ECB, exceeding its legal and political power, starts to load astonishing amount of money to the whole euro-area. Am I right to assume that the actions of Draghi bank president and his team, serves not only as a hindrance to the return of the recession but the rescue of the euro as well?

Sebastian Dullien: The euro-crisis indeed is not completely over yet; however, its most insecure financial phase is. The most recent macrodata coming from European economic indicators with the most determining relevance foreshadow the likely risk of a new recession. This is only the minor problem. The major problem is the risk of a political crisis. In the leading European countries, such as Germany, Spain, France, Eurosceptical parties are getting considerably stronger.

So far this empowerment is only reflected in surveys. For instance, in France if the Front National was ever got a parliamentary majority, I would bet, they would not want to eliminate the euro.

I would discourage everyone from underestimating the effects of public surveys on financial and capital markets. On the other hand, the nature of the capital cannot be determined based on the promises of the government – for example in France – until it is proved that the Front National would act differently after it was elected, compared with how it ‘speaks’ currently. It is important to note what happened in Brazil in 2002! According to the surveys, opposition candidate Lula da Silva, who won the election, lost favour by stating in an interview that the validity of some Brazilian debts should be reconsidered. However, just as soon as the interview was published, such a significant capital was pulled out, that the result was a financial crisis, even though these were just words from someone who was not even the legitimate leader. He had to save his country from the position of opposition candidate: he made a public statement written to the IMF which said in case he won the election, Brazil would fulfil every of its financial obligations. So the spoken word – if it is from a potential or legitimate leader – does have an exceptional effect on the market, because its agents leave no time to analyse whether a statement serves only domestic politics or real plans. So if in Germany, Spain or in any other EU country a politician on power speaks misleadingly, it can strengthen the withdrawal of capital and indirectly deepen crisis concerning the euro and the EU.

In any case, Draghi (president of ECB) is not misleading. He has been doing what he says for two years. For example, he launched the new European banknote printing. Are we satisfied with it?

We will see. It will be difficult to avoid that the ECM will government bond, even if it has severe restrictions, especially in Germany. It is going to be quite a show when Draghi, and Merkel will find legal loopholes and through those ECB can start buying government bond…

Will the European Union and the structure of the euro-area be carried off by those who are planning to handle the economic and financial crisis by regulating the free flow of capital? In many countries – with more or less vehemence – re-nationalisation is seemed to be on the rise. For example, in the bank sector…

As long as the common banking union isn’t applied on a full scale and there is no real (financial and bank) transfer union, even in the integrated European market it is – theoretically – legitimate to limit the free flow of capital – for a while – in exceptional circumstances by smaller and vulnerable national economic regulations. Nationalisation of the bank and financial sector is, however, one of the most dangerous solutions. It is, so to say, a ‘chimera’. A relatively strong nation economy such as the German or the French – alone – is too weak to stand its ground against the fluctuations of the global economy, or make a positive global economic impact. So if the need for the regulation of capital appears, it is only possible to execute it on the European, rather than on a national level. The permanent renationalisation of the financial flow, the bank sector, and actually any other sector – with examples given from anywhere and anytime – has only brought more bad than good. If we study it thoroughly, we can see that nationalisation can endanger the whole national economy: it is the hotbed of corruption and indebtedness.

Still, in some parts of Middle-Eastern-Europe the process of renationalisation seems to be initiating…

It is understandable that there will be an aspect of that, especially in your area, but also in Spain and Greece. It appears that the public opinion is really fed up with the EU’s crisis fighting policies and thinks they are inefficient. Six years have passed since the outbreak of the crisis, and there is still no evident sign of decreasing the level of unemployment or the increase of the pan-european economic growth.
Surely, there will not be any improvement, but a risk of bankruptcy if nationalisation is the answer to the expectations of the public. As for the structure of the EU and the end of the crisis, it is a vital interest to put an end to this trend. However, if the crisis fighting methods of the EU will not improve and they cannot show the results of invigoration of the economy, then nationalisation, the political concentration linked to it and the abuse of state power will spread, threatening the political and financial pillars of the European Union.

Just like the title of your book ‘Decent Capitalism’ suggests, it seems you believe in establishing a fair and good mannered form of capitalism. Likewise, you think this is the essential solution to today’s crisis. It has been proven that it is possible only within the framework of capitalism to acquire such achievements which improve the life of humanity. Furthermore, the condition to the development of capitalism is the freedom of market and society. If this is the case, then why should we risk the main point: freedom – by artificial governmental intervention?

Following the World War, a stable capitalism has evolved in Western Europe. This stability was guaranteed by the consecutive broadening of consumer community and the assurance of the increase of demand constant. For that, a production based economy gave frame which in one hand kept creating new jobs and in the other hand didn’t give way to extreme differences in income gap to arise; keeping the financial inequalities under control added to the social calmness. The trembling of the capitalism is connected most closely to the autotelic spread of financial services. After all, this led to the global crisis in 2008.

So you agree with that we should return to labour-based society… In other words, should we travel back to the 1960s? It’s impossible!

It is indeed, as long as the pivotal capitalism hasn’t created series of – bank, but mainly communication, information transmission services, by whose development our lives have become easier and more comfortable. But its prerequisite is the regulation of the government’s financial role, the deregulation, making the competition more liberal. Still: the excessive freedom contributed to the extreme flourishing of the not only socially unbeneficial, but injustice triggering and inequality strengthening financial services. These have created such incomes which haven’t been caused by real economic output.

But these services have created jobs for millions who, sooner or later, would have lost theirs to robotisation and automatisation.

In the majority of cases, only illusionary jobs have been created. The crisis in 2008 proved most clearly how volatile these jobs are. They do not stabilize capitalism, it is rather the opposite. The financial services that added only a little to the economic growth, threatened those which did provide benefits. This way, many more people became unemployed than the financial services could employ. I only want to indicate that for a stable capitalism it is essential to regulate the financial services in order to restrain them from overgrowth.

If the government can repress an economic field in a free society, it gives a way to the regulation of others and to nationalisation as well. All in all, it leads to the elimination of democracy.

This is not mandatory. In the 50s, 60s and 70s of America, the freedom of the financial sector was highly regulated, just like two, three or four decades ago in Europe. Nobody at that time or ever since has thought of accusing the United States or western Germany with dictatorial inclinations. Moreover: we can say in the abovementioned countries, democracy was stable and could spread.

However, faith in capitalism and democracy can be lost if we let the amuck of services which can generate crisis, high unemployment rates and extreme inequality.