Sun, 15 Jan 2012
Capitalism - What is It?

The word "capitalism" is thrown around a lot just now, primarily because it may or may not be on its last legs, depending on who you ask. If, indeed, we can call our economic system "capitalism" at all. So it's a good idea to try and make sure we understand what we mean when we talk about it. This is why I am always grateful to read a well considered and non-ideological summary of the system. Never the final say of course, but a brick in the wall of understanding.

I subscribe to John Kay's blog because he posts well reasonable discourses on things like this. His take on capitalism emphasises the shift that took place separating ownership from actual control. Ownership diffusing through shareholding and control moving to a professional managerial class and a corporate bureacracy :

So the business leaders of today are not capitalists in the sense in which Arkwright and Rockefeller were capitalists. Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital. They have obtained these positions through their skills in organisational politics, in the traditional ways bishops and generals acquired positions in an ecclesiastical or military hierarchy.

Kay's article Let's talk about the market economy is concise and worth reading.

In a slightly different vein, he also recently wrote a review of a book called Good Stategy/Bad Strategy by Richard Rumelt. Business book sections have more than their fair share of rubbish it appears, but this book sounds better :

Declining market share or inadequate profitability is not the problem, but the symptom of the problem. But in business, as in the surgery, such diagnosis is frequently uncomfortable and embarrassing. And self-examination demands honesty which is particularly difficult to achieve in groups of competitive individuals. It is easier to announce aspirations, or to luxuriate in fluff. Then you seek “buy-in” to your bad strategy. That process saves thought and minimises disagreement.

Kay is a severe critic of the current financial system and most of his criticisms ring true to me. A lot of people are making similar arguments but Kay does so in a clearer and, dare I say it, saner way than many. This is a desire to fix the system not destroy it.

"Capitalism" working properly, fairly and for the common good.

John Kay : accessible & relevant economics