There are a few books on a shelf here, in the shipping container I call home, that deal with crises in capitalism; banking, currency and financial crises; and the political-economic (social) impact of these disruptions. For what it’s worth, everything I know about the world I learnt from books. This means I can’t claim much originality in thought and word.
Nonetheless, with the help of some imagination a few book titles that have stared back at me since the collapse of Silicon Valley Bank (SVB) on March 10 flow almost prosaically: Firefighting: The Financial Crisis and its Lessons; Fault Lines: How Hidden Fractures Still Threaten the World Economy; Hall of Mirrors; The Great Depression, the Great Recession, and the Uses — and Misuses — of History; Crashed: How a Decade of Financial Crises Changed the World, and one that’s a doozy: This Time is Different: Eight Centuries of Financial Folly.
In a corner, next to a set of books on the “decline of the West” and the “crisis of liberalism” is the book, How Will Capitalism End? Purely because of space constraints I have withheld the names of authors. I am sure readers of this newspaper will be familiar with both the titles and the topics.
Explanations for the immediate causes of the SVB crisis on March 10, and of consecutive/consequential banking crises since that date, have been presented as purely technical and managerial. A standard explanation of the cause of the initial crisis, simplified here, is that bond prices increased sharply, sparking a “flight to safety” in a bank run, initially at VSB when depositors tried to withdraw about $42bn over March 10-11. Within four or five days the share prices of major European banks plummeted too.
These have been some of the visible problems. However, there is cause for concern. Least of all are the tweaking of technical and strictly managerial issues. Swiftly after the SVB crisis there were calls for an inquiry into the crisis, with particular focus on supervision, a managerial issue, and tightening up of regulations, a technical issue. The message here is that liberalism, free markets and global financial capitalism are all fundamentally secure, progressive and necessary, and related institutions, customs and practices are permanent, and their underpinnings eternally valid.
However, it is worth asking whether we are seeing the final drawn-out groans of liberal capitalism. To consider whether capitalism itself is a problem means we have to look beyond the technical or managerial superficialities. We know that if liberal capitalism is left to its own devices it would probably devour itself. We also know that capitalism is inherently “unstable”, that we speak, euphemistically, of “corrections”, of laggards or underperforming entities that would be “shaken out of the system”, and are comforted ultimately by the thought that whenever there is a crisis, governments will step in with “bailouts”.
These crises are not rarities or abnormal; they are frequent and inevitably leave damage to communities, individuals and sometimes states in their wake. The most reliable database on especially banking crises identifies 147 systemic banking crises between 1970 and 2011. Any other social system that was so prone to self-destruction, and that needed so much life support, would surely be abandoned. Surely if the theory says one thing, and the evidence says another, we should probably go back to imagining a new system if possible. Almost all innovation starts with imagination.
An important reason the system persists is evident in the VSB case. It shows how the prevailing system offers generous and disproportionate rewards for people at the top; never mind how they got to the top. These same people would then use their money to lobby legislators to make sure the system is maintained, and its privileges reproduced. This was clear when Donald Trump, champion of deregulation, became US president.
After the 2008 crisis there was a furtive round of regulation in the US, the country with the largest excesses in the banking sector. The Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010 established strict requirements for stress tests, risk committees and capital, and leverage ratios for banks. Trump relaxed some of these controls, a move that has contributed significantly to the latest crisis.
The point is that the recurrent crises may be deeper than what technical or managerial tweaks and tinkering can deal with. Evidence is overwhelming that the underlying reason the SVB crisis has caused worldwide concern is that global capitalism has not fully recovered since 2008. And so, going back to the list of book titles that stare at me at home, they tell of fighting fires of capitalism; fault lines that remain (after the fire); how, with smoke and mirrors, we misuse history; how we remain “crashed” after a decade of financial crises has changed the world; and that some still believe “this time is different” when we may be reaching the end of capitalism.
Just for the record, I don’t believe we have reached that end, yet.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
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