The New Political Capitalism, How Businesses And Societies Can Thrive In A Deeply Politicised World, By Joe Zammit – Lucia

Capitalism’s Resilience

Capitalism has been one of the most resilient forms of organising our societies and our economies for centuries. Its resilience stems from its ability to adapt to the times.

We have had feudalism, mercantilist capitalism, industrial capitalism, consumer capitalism and, the era from which we are now emerging – financialized capitalism. Communism, which is the alternative to capitalism, crashed and burned under its own contradictions.

Within those broad categories of capitalism we have had different ways of organization. From the socialist capitalism that emerged in the industrial era, to neoliberal capitalism that was fashionable in the 80s, 90s and early part of this century, to China’s new model of state-directed capitalism – a capitalist market system that is subordinate to the state.

My contention is that we are entering a new era – what I call The New Political Capitalism. What is that? What does it look like? Why is it emerging? What are the implications for both business and political governance?

The Rise and Fall of Financialized Capitalism

We have just lived through a period of financialized capitalism that had two overriding characteristics. The first is the rise of the belief that the purpose of business is to make money. That the only thing that has value in the world is that to which we can put a £ sign. No financial value was equated with no value.

That belief system is and always has been flawed. The purpose of business is not to make money. The purpose of business is to deliver goods and services that improve people’s lives in some way. If businesses can do that well and profitably, then they will make money – and they will do that sustainably. In other words, making money is a consequence of good business not its purpose.

Take the example of a conversation I was part of years ago in a pharmaceutical company. During a meeting between research and commercial people, the senior commercial director, bored with the technical conversation, burst out “This is all very interesting scientifically. But you guys seem to forget that what we’re here to do is make money.” The President of R&D, a wise old Scotsman retorted: “Laddie, we’re not here to make money. We’re here to make medicines that make people better. And if we can do that well, then we’ll make money.”

During the age of financialized capitalism, that sort of common sense went out the window.

The second characteristic of financialized capitalism is that much economic activity takes place through financial channels rather than through industrial channels. Finance as the life blood of industrial development becomes transmogrified into finance that makes money by trading with itself through ever more complex financial instruments. Worse, finance becomes extractive of money created by industry rather than putting money into the development of the non-financial economy. Which is why the London financial markets now take more money out of industrial development than they put in. Another perversion of what finance is supposed to be about.

This has real world consequences. When Boeing fell victim to the financialized mentality, its leadership preferred to spend large amounts of its free cash on stock buybacks and to cut corners in the amounts invested in the development of the 737Max aircraft. The result – two airline crashes that left hundreds of people dead, damaged corporate reputation, and had a significant damaging impact on its own profits and investor returns.

The age of financialized capitalism brought some benefits – all systems do. But it has run out of road. We now see its negative consequences outweighing the positives. We see how it has led to large externalities like environmental degradation, increasing wealth and income inequalities, increasingly precarious employment that does not provide the dignity that employment should provide, the rise in slave labour in global supply chains, debt mountains and financial leverage that has made our economies highly unstable, and much more.

As a result, we are now seeing the next major transformation in the nature of capitalism. And the new era will be political.

The rest of this editorial will be published at a later date.