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Nicolas Sarkozy, the leading contender in the French
presidential election, recently lashed out against what he called
“speculative capitalism,” and says he wants to “moralize the
financial zone” created by the euro. What does Sarkozy mean by
“speculative capitalism?” Something immoral, apparently, but
what? The term has rarely been used before, and seems to be
redundant. After all, capitalism is practically a synonym for
speculation, isn’t it?
Sarkozy is expressing a wave of
sentiment that is neither unique to his party nor to France. At
stake with his comments are emerging ideas and attitudes that will
inform the 21st-century economy. So we should think hard about what
“speculative capitalism” means.
Sarkozy has called free trade
“a policy of naiveté,” and wants to take a number of steps that
would stand in the way of economic globalization. Although he does
want to make the French labor market less rigid, he would block
foreign takeover bids of French companies and protect Airbus workers
from possible job losses. Protecting France from speculative
capitalism seems to mean interfering with free trade to protect
local jobs.
To be sure, Sarkozy is right to
note the enormous risks that workers and their communities face in
this rapidly globalizing world. But putting this problem center
stage should not mean protecting existing jobs come what may.
Capitalists put their money where
they think it can get the highest return; that is what we call
speculation. They buy companies, break them up, recombine them, fire
some employees, and hire others. To do this profitably, they cannot
afford to let patriotism or sentiment interfere. They do business in
whatever country is most advantageous. Rewarding successful ventures
is the basic idea of capitalism—a dynamic process that Joseph
Schumpeter called “creative destruction.”
Under capitalism, one is immoral
if one reneges on a contract or breaks the law, but not if one
speculates. Planned economies were never able to flourish because
uncertainty about the future is just too high, something that is
best left to the speculators, with the potential of reward if they
are right and the disciplining whip of the market if they are wrong.
Concerns about free trade similar
to Sarkozy’s are gaining strength around the world. In an article
last year in the US journal Foreign Affairs, Alan Blinder, a former
adviser to President Bill Clinton and Vice-Chairman of the US
Federal Reserve Board, argued that the process of globalization has
the potential to cause massive job loss in the future. Given that
electronic communications technology has a powerful potential to
replace employees with others who are thousands of miles away, we
may now be seeing only the beginning of this process.
Blinder is absolutely right that
the problem could get worse. Deniers of the problem—such as
economist Jagdish Baghwati—cannot prove that the worst will not
happen. We ought to prepare for the possibility of massive turmoil
in our economies in coming years, even if we cannot prove that it
will happen, just as we should take steps against global warming,
even if some scientists doubt that it is a problem.
According to Blinder, governments
should encourage education for jobs that are harder to outsource
overseas. He wants the government to subsidize “personally
delivered service” jobs, which cannot be delivered over the
Internet, to encourage the expansion of such jobs instead of
“impersonally delivered services.”
Subsidies, of course, interfere
with free trade. But Blinder’s solution appears to be a creative
new idea, and one may think of legitimate justifications for the
government to interfere with free markets this way. His idea
certainly is more focused and theoretically sound than Sarkozy’s
plans to protect existing jobs. In fact, Blinder’s proposal is
only one of many possible government policies aimed at dealing with
the Internet-age turmoil in the market for jobs and livelihoods.
Capitalist institutions include
risk-management schemes that provide insurance, hedging, and
diversification. Government can promote the democratization of such
institutions so that they protect people from the very risks that
they are worrying most about. Such possibilities include livelihood
insurance, home equity insurance, income-linked loans and GDP-linked
and home-price-linked securities.
Moreover, government can make our
social insurance (a government institution that complements private
insurance) more incentive-compatible and better at managing
risks—and not just the risks of the extreme losers—by, say,
launching inequality-indexation of the tax system. And governments
should improve our information infrastructure, so that financial
contracts can better capture the outcomes of economic risks.
So Sarkozy shouldn’t be lashing
out against “speculative capitalism.” On the contrary, he should
be asking how capitalism can be developed even further, with new
institutions in finance and insurance to deal with the very
important problem that his campaign has highlighted.
[Robert J. Shiller is
Professor of Economics at Yale University, Chief Economist at
MacroMarkets LLC, which he co-founded (see macromarkets.com), and
author of Irrational Exuberance and The New Financial Order: Risk in
the 21st Century.]
Copyright: Project Syndicate,
2007.
, www.project-syndicate.org
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