On the present and future of capitalism – my TED debate with Dambisa Moyo

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Greece’s former finance minister Yanis Varoufakis calls himself a libertarian Marxist Keynesian — or “completely confused,” as he jokes. So it was hard to predict how he would react to Zambian economist Dambisa Moyo, a more traditional proponent of free markets. The two economists spoke with TED’s European director Bruno Giussani ahead of December’s TEDGlobal conference in Geneva, where they argued that during these uncertain economic times we should question ideologies, discard certitudes and adapt to a messy, new economic reality. They share their views on how to revive the global economy (the text has been edited for length and clarity).

What’s wrong with the world economy today?

Dambisa Moyo: We, the international community, very successfully convinced a whole swathe of emerging market countries that they should be more democratic and they should be more market friendly. You look at a place like South Africa, which in 1994 had about 25% unemployment; 20 years later in 2014 they had 25% unemployment and the population had increased. When you spend time with their policymakers, they say, ‘We did everything right. We opened our market, we have trade, we started to take on more debt internationally so we could be more transparent. We did everything right, and here we are in a very dire situation.’ Russia I would argue is somewhat on that path, as is Brazil, as are many other countries in the world. The fundamental point that I’m trying to raise is liberal democracies, market capitalism, state capitalism — those models are not fixed endpoints. It is a live and evolving issue. Right now there is a massive vacuum in the discussion about what sort of policies can create economic growth, and it’s the same in the political frame.

Yanis Varoufakis: We have the largest saving rate in the history of capitalism and the lowest investment rate, and this imbalance is at the bottom of the various manifestations of a crisis that’s been happening now for a while. 2008 as far as I’m concerned, was our generation’s 1929. In exactly the same way that after 1929 the world ceased to make sense in terms that people used to understand their world prior to 1929. After 2008, it’s a different ballgame. If you look between the 1940s and 2008, we have a situation where the United States of America was playing a rather efficient but complicated role in global recycling [of saved income]. Recycling [income] surpluses from where they were being produced to where there were deficits. Initially in the first twenty years after Bretton Woods, America was a surplus country and it was recycling its own surpluses politically, using political machinations, I mean, the Marshall Plan is just one example.

But with the end of Bretton Woods, which happened because America lost surpluses and could no longer recycle a surplus it didn’t have, we moved into completely different phase, again with America in the driving seat, where the American economy, through its strong deficit spending, was recycling everybody else’s surpluses. It didn’t have surpluses to recycle itself so it recycled other people’s surpluses by acting as a huge vacuum cleaner that was sucking into American territory. That broke down in 2008. Wall Street has lost the capacity to do this recycling in a way that maintains savings and investment. And the fact that our political sphere is imploding is a reflection of the breakdown of this global recycling mechanism.

Should politicians meddle with the free market?

YV: The marketplace is incapable, through standard market forces, of recalibrating the global economy, so there has to be political intervention. However controversial it may sound, we need to try something we haven’t tried out in the last 300 years, and that’s democracy — democracy as an economic mechanism for bringing about calibration in the international economy.

DM: My theme is really about ideology being in essence an enemy of growth, and I think that in a sense, perhaps we do agree. I’m really talking about the left and right-leaning public policies that are targeted at economies, and you’ll be very familiar with many of them I’m sure. But nevertheless, if you ask me right now what sorts of political system might work, I think that we probably don’t have a system that can stand the veracity of a lot of the challenges that the world faces today. If I were to critique liberal democracy, I would say it definitely needs to be more open-minded and basically draw in a lot of the perspective that comes from the Chinese model.

Neither capitalist nor socialist — the confounding case of China

YV: Many governments — particularly in emerging countries — are looking at [China] as an alternative to the Western democratic model. Tell me what you think should be absorbed from that and why you think that traditional Western democracies would be okay with that?

DM: I’m not here to be assigned a sympathizer to the Chinese. But I spent an hour with President Xi Jinping in Beijing and it became very clear to me that he’s actually not wed to a particular economic sense. If tomorrow we could convince him that liberal democracy and market capitalism is the tool to create economic development and to reduce poverty, he would adopt it tomorrow.

Their ideology is really around economic growth, if I may use the term, “ideology.” And so I think we are ones who ascribe on the Chinese that they are Communist, that they are state capitalists. They don’t view themselves as that. They view themselves as evolutionary. They are now very open about saying, “Hey, this program that we’ve had for thirty years has worked pretty well for us. We’ve moved hundreds of millions of people out of poverty, we have not had a democratic system in place. There might be some merit to democracy, we’re going to try and road test that at the lower levels and we’re going to also try and open up our markets and move away from investment towards consumerism.”I think that that is very emblematic of an openness that we don’t see in the democratic stance.

YV: None of the institutions that I’ve dealt with were interested in growth, in liberal democracy, or indeed in free markets. Here I am, a finance minister of the party that goes by the name of the Alliance of a Radical Left, trying to convince the IMF people and the European Central Bank people that we should not be pushed to increasing corporate tax rates. We live in a very topsy-turvy, weird world when one has to be a radical left-wing Marxist in order to pursue a policy that Adam Smith would have appreciated in Europe. That just goes to show how crazy this place is.

But let me make a comment on China, because I dealt with the Chinese in secret and at some point I will write about it. It was along the lines of what Dambisa was saying, an excellent experience. I found them decidedly open-minded. Mind you it did help that on the third day I was in the ministry I signaled to them that I was quite happy to privatize the Port of Piraeus and give it to [China’s state-controlled shipping firm] Cosco. So that opened doors in Beijing. But one of the things that I tried to do in the months that I was in the ministry and in the Eurogroup was to put the brake on the rather moronic and particularly baseless critique of China in Europe, at least on the question of its economic policy and open-mindedness. That is because I could see the Chinese model, despite many reservations that I have, that many of us have, is an essential part of the solution, not of the problem.

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