Fareed Zakaria has an article in the June 22 issue of Newsweek on the current state of capitalism. In it he paints a picture of an economic system that has continued to evolve over time. With each twist and bend of evolution we both sense a pending doom of sorts while also learning something about ourselves, the way the world works, and the human condition. But what you begin to pick up as you read the article is not anything cyclical, rather something very linear and progressive. That is, we continue to push out into the unknown; into the unpredictable—and that is what scares us. The simple fact is that the tension we feel is the tension that results from the need to control something that lies beyond our control. Capitalism remains the best system, but we would do well to remember that it is highly dynamic with the ability to inflict great harm. There is a great line in Lawrence of Arabia when a colleague tries to duplicate Lawrence‘s “trick” of putting out a match with his bare fingertips. When the match burns the colleague’s hand, he asks Lawrence, “What’s the trick.” “The trick,” Lawrence responds, “is not minding it much.” Maybe there is no “trick” with capitalism other than expecting periodic pain and finding a way to “not mind it much.” Below are a couple of excerpts from the article:
Consider our track record over the past 20 years, starting with the stock-market crash of 1987, when on Oct. 19 the Dow Jones lost 23 percent, the largest one-day loss in its history. The legendary economist John Kenneth Galbraith wrote that he just hoped that the coming recession wouldn’t prove as painful as the Great Depression. It turned out to be a blip on the way to an even bigger, longer boom. Then there was the 1997 East Asian crisis, during the depths of which Paul Krugman wrote in a Fortune cover essay, “Never in the course of economic events—not even in the early years of the Depression—has so large a part of the world economy experienced so devastating a fall from grace.” He went on to argue that if Asian countries did not adopt his radical strategy—currency controls—”we could be looking at?.?.?.?the kind of slump that 60 years ago devastated societies, destabilized governments, and eventually led to war.” Only one Asian country instituted currency controls, and partial ones at that. All rebounded within two years.
Capitalism means growth, but also instability. The system is dynamic and inherently prone to crashes that cause great damage along the way. For about 90 years, we have been trying to regulate the system to stabilize it while still preserving its energy. We are at the start of another set of these efforts. In undertaking them, it is important to keep in mind what exactly went wrong. What we are experiencing is not a crisis of capitalism. It is a crisis of finance, of democracy, of globalization and ultimately of ethics.
Read the whole article by clicking here.