A bold critique

Daniel Ben-Ami's 'Cowardly Capitalism': a refreshing and much-needed riposte to the new impulse for economic restraint.

Phil Mullan

Topics Politics

We live in a new economy – but it is not the ‘new economy’ that is generally talked about as a product of revolutionary new technologies and of globalised markets.

Rather, it is a new economy characterised by diminished expectations of what it can produce – both in direct material terms of goods and services, and also in the sort of society it can help bring about. In terms of isolating what exactly is new about today’s economy, Daniel Ben-Ami’s book Cowardly Capitalism: The Myth of the Global Financial Casino is one of the most interesting and useful critiques to date.

All economies are ‘new’ in the sense that, with every passing decade, an economic snapshot would show different things with respect to the structures and make-up of production, distribution and exchange. But occasionally it is appropriate to talk of a ‘new economy’ to describe a significant shift in the way economies work and are understood.

For example, the rapid expansion of international activity in trade, and especially investment and production, from the latter part of the nineteenth century represented one such break. The Keynesian mixed-economy of the post-1945 era marked another. And for the past decade or so, evidence has been accumulating of another break. In these early stages it is impossible to say whether this particular ‘new economy’ will be as long-lived as either internationalisation or Keynesianism. Nor does it yet have a recognised label. But the signs of change are too widespread to ignore.

Most apparent is the different cultural appreciation of economic growth and development. Anti-growth prejudices abound. Grow too fast, it is said, and we will only suffer from the inevitable crash and all kinds of other downsides. Innovation and technology tend to solicit apprehension rather than the acclaim of past times. Economic development, without which we would not be here today, is seen to invite bigger problems for humanity. Instead, goes the argument, best that we limit ourselves, in case we broach nature’s limits and bring about all sorts of ecological chaos.

In today’s world there seems to be a one-sided concentration on the destructive and negative sides of actual and planned progress. Build a dam to bring irrigation and clean water to the people of a less-developed country, and the critics complain about the impact on the environment. Reduce death rates and make possible control over fertility, and the concern is about the problems of declining and ageing populations. Establish a successful business, and the critics complain about abuse of market power.

One result of all this is that, barely a decade after the end of the Cold War, it seems that ‘anti-capitalism’ is back on the agenda. But although the rhetoric against the market is shrill, there are big differences to past movements against capitalism. This time there doesn’t seem to be any alternative on offer. As a spoof placard declared on the London May Day protest this year: ‘Get rid of capitalism and replace it with something nicer.’ Criticism without giving an alternative is a false criticism. However, this does not mean the criticism is of no consequence.

Today’s anti-capitalist mood has few dissenters. The strength of the anti-market and anti-growth sentiments are not because of the loud voice of street protest (far from it), but because of the weight of sympathy emanating from the cabinets, boardrooms, executive committees and editorial rooms of the great and the good. There are few ardent, self-interested advocates of the expansionary capitalist cause. Everybody seems to share misgivings, at least, about the effects of capitalism. The reactions from the political and economic oligarchies to the protests in Seattle, Davos, Quebec, this year’s May Day events, and the recent riots in Gothenburg were invariably the same: the protesters mar a good cause with their violence.

The message is clear – they are saying we all share the concern about the destructive effects of growth. Hence the emergence of a new language of ‘sustainable development’, ‘socially responsible behaviour’, ‘business ethics’ and ‘caring’. And the important thing is that this type of talk is embraced in the headquarters of global economic and financial institutions and corporations, as much as it is in the most radical non-governmental organisation (NGO) or direct-action group.

The effects of this ‘hold back’ mindset are manifest across the economic spectrum. Daniel Ben-Ami’s book addresses and challenges them head on through the prism of the financial markets. For the author, ‘the new economy’ is one primarily ‘in which fear of financial instability and the demand for more forms of restraint are central’.

The book (which I had the privilege of discussing with the author in draft form), provides a refreshing and much-needed riposte to this new impulse for restraint. Through a review of the explosion of financial activities and financial instruments of recent decades, Ben-Ami identifies the common theme of risk aversion that both informs, and now also encourages – or, as he writes, ‘reshapes’ – these phenomena. His conclusions require the rewriting of standard financial market textbooks: ‘The modern financial system is more about the allocation of risks than of capital.’ (1)

Bringing his 15 years of experience in financial journalism to bear on the subject, this book turns upside down the received opinion on what is wrong with the world’s financial system. Reversing the conventional view that financial markets are a force for economic instability, Ben-Ami argues that the actions taken out of a perceived concern about instability are the far bigger economic problem.

Recognising that most readers of spiked probably do not make a beeline for the financial pages of the Financial Times or the Wall Street Journal each morning, first I stress that this book is lucidly written for the non-finance specialist. While engaging with the assumptions of financial economists, it is not a narrowly financial text. In fact, it is one of the author’s main arguments that the financial world does not exist in splendid autonomy.

Ben-Ami pointedly illustrates how, throughout the twentieth century, developments in the theory and practice of finance have reflected wider economic and social forces. In his discussion of what is different about finance today, he specifically highlights the emergence of a ‘risk society’ in the 1990s. Ben-Ami shows how developments in the finance arena both reflect and reinforce this wider sentiment that we live in a riskier world.

For example, he takes issue with the view that derivatives trading is inherently dangerous and a new source of risk to be curbed – a view which has entered popular consciousness through the book and film Rogue Trader, and the many other writings which have dramatised the exploits of Nick Leeson, the trader whose actions brought down Barings Bank. Ben-Ami explains in straightforward terms that derivatives are really a form of insurance against future uncertainty. Paradoxically, the escalating demand for them is not, as is generally thought, the cause of a more risk-prone world, but instead expresses an increasing demand by institutions for more tools of risk management.

The example of derivatives also illustrates one of the ironies of risk aversion, to which Ben-Ami returns several times. Acting out of an exaggerated concern for risk tends to create real problems for society. In one sense, this book is a timely reminder to the business world of President Franklin D Roosevelt’s infamous phrase from his 1933 inaugural address – ‘The only thing we have to fear is fear itself’.

In the case of derivatives, argues Ben-Ami, too much risk aversion is bad for business. Companies increasingly use derivatives to manage risk because of their concern that the business world has become a lot riskier. The problem now is that the ‘obsession with risk management is so overbearing that it tends to become prioritised over growth. Whereas companies have traditionally concentrated on growing their business, today they are preoccupied with protecting themselves against uncertainty. This fear of the future is itself a deeply conservative view which can lead to the squandering of potentially lucrative opportunities’ (2).

Focusing too much on risk can actually heighten the business risk that, should you fall behind others in your sector, you may not survive.

The dangers of risk aversion do not lie just at the level of competition. Everybody can be harmed by the hold this new sentiment has. Ben-Ami considers how, in the financial markets themselves, ‘the exaggerated fear of financial instability can lead to or intensify a panic response that can make a situation much worse than it would be otherwise’ (3).

When it comes to developing the same theme in the wider economic context, the book’s most important contribution is to identify the scourge of increasing regulation. While many are familiar with the explosion of the regulatory impulse in the workplace and in our private lives, Ben-Ami targets ‘regulationism’ in the financial sphere at global and national levels. Countering the misleading image of the ‘smaller’ state, he charts the rise of the new orthodoxy about the need to extend state regulation. With the premise well established that financial flows are inherently destabilising, the new consensus is to impose more controls. This was the near universal conclusion drawn after the Asian financial turmoil of 1997-98.

Ben-Ami warns that such controls, and the contractionary mentality that accompanies them, will create much bigger problems by holding back economic development: ‘The preoccupation with economic and financial safety is immensely damaging. It means that although growth may be seen as desirable in the abstract, its potential will always be sacrificed where it is thought necessary.’ (4) This warning – and not least the disastrous implications he spells out for the impoverished less-developed regions of the world – deserves a wide audience.

Though tangential to the main thesis, this book also serves as an excellent briefing for the general reader on the often uninspiring and sometimes off-putting technical language of the financial world. The non-specialist is introduced to some lesser known but seminal figures in financial economics, like Hyman Minsky and Harry Markowitz. And the reader will come away from the book with an understanding, not just of where stockmarkets and fund managers fit in, but also the role of portfolio theory and the workings of derivatives and hedge funds.

Throughout, Ben-Ami never wavers from the theme that the real economic danger is not the imagined disruptions of casino capitalism, but the ascendancy of risk aversion and the actions that this breeds.

Buy Cowardly Capitalism: The Myth of the Global Financial Casino from Amazon (UK) or Amazon (USA)

Phil Mullan is the author of The Imaginary Time Bomb: Why an Ageing Population Is Not a Social Problem, IB Tauris, 2000 (buy this book from Amazon (UK) or Amazon (USA))

(1) Cowardly Capitalism: The Myth of the Global Financial Casino, p69

(2) Cowardly Capitalism: The Myth of the Global Financial Casino, p102

(3) Cowardly Capitalism: The Myth of the Global Financial Casino, p132

(4) Cowardly Capitalism: The Myth of the Global Financial Casino, p148

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Topics Politics


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