once in a while the capitalist system requires a fire, a crisis, to shake it and get rid of the bad fruits, the reckless, and to reward the prudent. But when the crisis rewards the reckless bankers and punishes the rest of society, then a political crisis of legitimacy emanates, and there will be a face-off between economic and political elites, if such a distinction is indeed true.
the capitalist economic system has a central weakness in the concept of ‘limited liability‘ for corporations. so anyone who buys into a corporation has no real responsibility toward the harm that the corporation might do. the profits and losses can be enjoyed by anyone who invests, but the non-financial harm caused is borne by others.
‘limited liability’ is therefore a political tool not an economic one. it distorts markets because it removes the natural link between ’cause’ and ‘effect’ within economic, social, environmental and political relations.
the company that i manage may make many homeless, engage in slave labour, benefit from gender disparities, destroy the environment or profit from causing war, but this will have no implications for me. i will simply benefit or lose depending on how much profit the company makes.
doing away with the notion of limited liability would make economic activity far riskier, as it would make liability a natural part of the process. as it should be. but instead, the liability is pushed back on consumers, shareholders and taxpayers rather than those who make corporate decisions.
so the moral imperatives that inform and guide most human interactions are reduced to a single axiom in capitalist economic relations: making profit ‘good’, losses ‘bad’. nothing else matters much, and the state, its laws and its monopoly on coercive power will be designed to protect this limited liability for the sake of continued and competitive economic growth; thus creating ‘the Wealth of Nations‘.
but when the wealth of a whole nation is put at risk for the benefit of individual managers of corporations, the system becomes subverted, and a political crisis ensues, as is the case in both usa and europe today. heads of corporations refuse to accept the principles of liability or accountability, will continue to enrich themselves through massive bonuses, betting on risks and dishonest marketing of derivatives etc. while shareholders will pay through losing their share value, and ‘austerity measures’ are paid for by ordinary citizens.
the wealth of the nation becomes second priority against the wealth of corporate management.
the global financial elite were the main cause of the recent crisis, but they seem to have escaped any consequences for themselves while millions of people have lost their homes, jobs, pensions and savings.
in both the us and europe there is a serious crisis of legitimacy that must be tackled or there may be consequences for the regimes in place. this explains for example obama’s current efforts to confront Wall Street. it is a show of the political elite taking on the economic elite, and in the process trying to regain some legitimacy for the system.
in europe, a similar situation has gone as far as challenging the union’s legitimacy.
regardless, we are at a historical crossroads with several possible scenarios.
markets essentially are political inventions. the lack of a political will to fix the challenge to the system coming from corporate greed at the expense of the wealth of nations (after almost two years since the current crisis broke) bodes ill for the West and it’s geopolitical future.
while many have obsessed with ‘regime change’ in Iran for the past few decades, there is a real likelihood of a regime collapse in the west unless some serious measures are undertaken to resolve the current crisis of legitimacy.