“The Road from Ruin”
Capitalism as we knew it ended on September 15, 2008, the day Lehman Brothers went bust. Most experts seem to agree on what the immediate needs are (e.g. save more, reduce debt, eliminate waste) but disagree on how to do it. Our nation seems to be at a crossroads in that decisions made now will probably determine if the coming years will be ones of depression, stagnation, or renewed prosperity. I have just read and will soon review an especially thought-provoking book published by Crown Business (2010), The Road from Ruin, in which Matthew Bishop and Michael Green explain “how to revive capitalism and put America back on top.” After examining the Tulip Craze of the seventeenth century, the French panic of 1720, the Great Depression of the 1930s, Japan’s Great Deflation, the Long Term Capital debacle of the 1990s, and the Dotcom bubble among other economic crises, they cite five lessons than can be learned from these previous blunders.
1. Don’t throw the baby out with the bathwater: Better regulation of capitalism is needed. Rather than banishing the innovations that spark booms, the challenge for regulatory reformers is to figure out how to use them wisely.
2. A global economy needs global rules and strict enforcement of them: Global economic institutions such as the International Monetary Fund failed to do their job because they were too weak and pursued the wrong policies.
3. We have to stop driving blind: The current crisis has revealed that much of the data we relied on as evidence of economic progress was downright wrong. Shirt-term profits were not an indicator of long-term value creation.
4. Don’t accept the “Nuremberg Excuse”: Just because a company provides incentives to do what you believe is the wrong thing (e.g. selling sub-prime mortgages to those who could never pay them back) and your boss says it’s “OK, because if we don’t do it the competition will” is not an acceptable justification.
I agree with Bishop and Green’s concluding paragraph and especially with the final sentence. “The last time we faced a crisis of this magnitude, in the Great Depression, President Franklin Delano Roosevelt used his inauguration speech in 1933 to warn that ‘the only thing we have to fear is fear itself.’ He was right. If we succumb to fear, the road ahead will be long and miserable. More than anything, whether we are able to once again set free our animal spirits and believe in our ability to create a better world will determine how quickly, or indeed whether, we can bet back on the road to prosperity.”