Introduction
The lucid facts, logical ideas, mindboggling thoughts and authoritative opinions presented in Richard Sennett’s highly revered book of “New Capitalism” have been increasingly debated over the recent past based on their relevance in the modern day society.
A few economic bigwigs have been able to come out in opposition of thoughts presented in that book, while a whole lot of many others have strongly defended it. So what really is it about this book that makes it a bone of contention for economists, economy-oriented academicians and even scholars from other fundamental disciplines such as sociology?
Preliminarily, the book coherently outlines the earlier forms of industrial capitalism in both public and private organizations and its global impacts.
From that background, he then goes a mile further and circumspectly analyzes the current form of capitalism which he calls “New Capitalism” and explicates its diverse effects including: the progressively widening gap between the “haves” and “have-nots” in the society, the rise of a new influential capitalist group of people based on their timely positioning in the shifting economy, socio-political and economic traumas of those who constantly face oppression from actions by the elitist class in the society and finally, Sennett presents possible solutions and practical initiatives that can help bring reform to this derogative new form of capitalism (Sennett, 2006).
It is based on these documentations by Sennett that this paper is going to explain the current socio-economic and political happenings as selectively reported by the media on the amassed consequences of “New Capitalism.”
Main discussion
The evolution of New Capitalism and its consequences
Just a few decades ago, banks were considered as invincible institutions that could never collapse. Their perceived strength for a long time is what essentially ensured that economies of countries stayed intact in spite of repeated global hiccups Stelzer (2008). But looking at the current situation, one can not help but feel awed—if not sympathetic—at their rate of collapses which have in turn led to the tumbling of governments. This is the exact scenario that Sennett (2006) had forecasted, and many more sociopolitical happenings are further getting confirmed by the day.
A recent expansively written article by BBC’s renowned writer Robert Peston in December 2008, clearly highlights how the dawn of the New Capitalism is adversely affecting Britain, USA and the world at large—and how the already grim situation can get grimmer if reformative steps are not taken. His article is primarily going to be the basis of analyzing and ascertaining projections by Sennett (2006).
To begin with, many researchers observe that the current economic challenges that are being faced globally are principally because of them getting into huge debts. To this effect, Peston (2008, p.1) says that:
We borrowed too much, especially in the US and the UK. And the process of paying the money back is not only leading to a fall in living standards but is also precipitating very significant changes in how the global financial economy operates.
He goes ahead and cites that the most affected parties in this issue of borrowing are households and corporate institutions. And based on the fact that so much of the economy is controlled by these two parties, the resulting economic impact is devastating. Sennett (2006) explains this situation by saying that in the New Capitalism—which we are in fact already experiencing; societies will be enticed into taking huge debts by the calculative money managers.
Once this is done, the lenders will come to ask for their money when you least expect it. And if you can not pay it back, they will freeze your assets and booming businesses thus getting even more benefits than what should. This is the typical scenario that Peston is explicating above.
Peston (2008, p.1) further preempts that the “Economic conditions in 2009 will be treacherous. There’ll be a formal recession in most developed economies, and the economic contraction is highly likely to be more severe in the UK than almost anywhere.” And as we now know, most of the high performing and well-to-do economic countries have been on a downward spiral with the USA and UK being the most affected (Stelzer, 2008).
According to Sennett (2006), this economic meltdown and economic tumbling further presents an opportunity for the rise of capitalists’ states that had foreseen this scenario ages ago and socio-economically aligned themselves accordingly. A good example is China who, according to Peston (2008, p.2), have been saving over the past decade as a country and as individuals. He additionally states that the Chinese have also been increasingly industrious over the past few years making viable (yet cheap) products, which are in turn exported to the USA and Britain.
Then unknowingly, we borrow money from clever bankers who saved their money (or at times, from moneys that our governments borrowed from countries like China) in order to buy these goods. As a result, China and these few bankers keep on progressing financially while our nations continue spiraling downwards. Essentially, this is what Sennett means when he says that “the rich will keep on getting richer while the poor ones get poorer” (p.6).
Moreover, Stelzer (2008) and Peston (2008, p.1 and p.6) assert that the new age capitalism has resulted in higher numbers of unemployment. Peston (2008) equates this numbers to “The extraordinary volatility we’ve experienced in the price of sterling, commodities, energy, shares and capital – which makes it so hard for businesses and investors to plan.” (p.1).
He then collectively alludes that the remaining unemployment figures are as a result of tight budgets in economies which is making companies streamline their expenditure through cutting down of jobs (p.5-6).
To this effect, Sennett (2006) says that the cutting down of jobs will only affect the tumbling economies and not those capitalist societies that had anticipated the socio-economic shake up. Again, this is the reason why China and India have been recently reported to have increased employment rates (Stelzer, 2008).
Interestingly and sadly, this new brand of capitalism is making most governments use the common man as their financial cushion—when in real sense, it should be the opposite. Accordingly, Peston (2008, p.3) notes that this “oppression” to the common man is comes in form of over-taxation and the reduction of support-funds.
The money realized from the taxes are then used by the governments to try resuscitating the, seemingly, dying financial powerhouses like banks, state corporations, privately state owned investments among many others. As for the reduction in funds, this is simply meant to cut on the expenditure by banks and other donor organizations so that the money can be ploughed into other revenue-generating projects.
According to Sennett (2006), this poses a great challenge to the “modern man” who has grown up relying on such funds. Consequently, the withdrawal or reduction of the funds leads to impoverishment of this people which further opens a door for a vista of detrimental effects like: low economic output, poor healthcare and in some cases, untimely deaths which wholesomely plunges these economies even more.
In relations to the above point, Peston (2008, p.3) observes that once the banks have started facing problems, most money managers withdraw their moneys from banks and, in most cases, invest them in overseas countries or bank them in offshore accounts. This eventually leaves their native bank with no money to conduct its business. And as we all know, this cumulatively impacts negatively on the country’s socioeconomic and political setup (Sennett, 2006).
Notably important, Peston (2008, p.1) says that “For many years to come, what’s happening will affect the relationship between business and government, between taxpayers and the private sector, between employers and employees, between investors and companies.” This is a trivially bad circumstance to end up in—based on the much we have witnessed so far. It is therefore important that we not only look at the consequences of the New Capitalism, but go a step further and show how we can curb or if possible, ultimately stop its negative effects.
In doing so, we must first inherently establish its root causes (things that have contributed to it), then from here; we can get to uproot them and cultivate a new environment that nurtures positivity by offering possible solutions. So what/who is responsible for this perilous situation we are in?
Contributing factors to the consequences of New Capitalism
With regards to what/who is responsible for our current New Capitalism predicament, Peston (2008, p.5) says that “We’re all at fault to varying degrees.” Whether knowingly or unknowingly; we all have, in one way or another, contributed to the dilemma we are in.
Starting with the government, Peston (2008, p.5) reports that “The authorities in the US and the UK were aware of the dangers of allowing the financial and trade deficits with China and other exporting nations to persist” but instead of correcting it through proper regulation of taxation and interest rates to reduce increased consumption; they chose to keep quiet thus landing us in our current quandary.
Additionally, Peston (2008, p.5) says that the general public partly got themselves into the mess that they are in. Instead of questioning the ramifications of the colossal hedge funds and private booms of 2007 which were given at absurdly cheap terms; they blindly signed the dotted line and partook of the funds. As at now, most of them are still struggling with repaying that, when they would have simply avoided it in the first place.
As for the banks’ role in the devastating implications of New Capitalism, Peston (2005, p.5) expressively notes that:
A corollary of precisely this complacency was that central banks, such as the Bank of England, were hopelessly wrong in believing that the explosive growth of credit and the surge in the price of assets such as houses was somehow hermetically sealed from the rest of the economy, such that it wouldn’t damage everything when the bubble was finally popped.
As we now know, the growth of credits was a porous plan that negatively impacted and still continues to devastate Britain’s economy.
To make matters worse, Peston (2008, p.5) observes that:
Regulators were negligent in allowing the creation of what’s become known as a shadow banking system, in which trillions of pounds of long term loans in the western economies were financed with credit that could be withdrawn far too quickly.
As a result, there was no fall back or something to adhesively hold the economy once financial shake-ups began hitting hard. Finally, Peston (2008, p.5) blames the media for agenda setting a platform for the negative growth of New Capitalism by ignoring to play the “watchdog role” and warning the world about this predicament.
The way forward—possible solutions
Of course banks and the government played a bigger role in getting us in this dangerous situation we are in; but going around negatively trumpeting each others’ names and pointing judgmental fingers to one another will not help us. So what is the way forward for Britain, USA and other parts of the world as well?
Firstly, Zhou Xiaochuan’s sentiments that the US should take a leading role and adjust its policies, reduce fiscal deficits and increase its saving ratios since it is the world’s superpower; can be a good start (Peston, 2008, p.2). Factors like the heavy debts by the US and the falling down of prices might inhibit this, but in overall it is a venture worth trying (p.4-6).
Peston (2008, p.5) just like Sennett (2006) say that massive printing of money can also help reducing debt. However, this should be done sparingly and cautiously to avoid high inflation like the renowned case of Zimbabwe.
Personally, I think that the creation of more investment avenues for those at the grassroots of the society can also offer a good balance in the spread of resources thus reducing the gap between the rich and the poor. Once equilibrium is reached, the society is bound to progress as an entity and in-turn, having a positive socioeconomic impact on a global scale. This, among many other fundamental solutions, not stated, can be of invaluable help.
Conclusion
In finality, it is inevitable to note that New Capitalism is not an entirely bad thing. China, India, Japan, Saudi and other increasingly growing economies are typical examples to ascertain that (Peston, 2008, p.2).
Additionally, the increased networking and cooperation among various countries has been able to open up more trading avenues for investors to spread their financial tentacles. All we have to do is positively learn from our mistakes and forge ahead rather than just sitting down and blaming ourselves over past things that we can not change.
References
Peston, R. (2008) The New Capitalism. BBC News. Web.
Sennett, R. (2006) The Culture of the New Capitalism. London: Yale University Press.
Stelzer, I. M. (2008) New Capitalism: Market capitalism in the United States will never be the same. Weekly Standard. Web.