Wall Street’s dominance of our economy is frightening. Too big to fail banks are tremendously powerful, but it could be worse. In the UK, the banks are the only industry they have left. What saved us from that result? A lot of the economics and the players are very similar. The answer is our federal system that divides powers between the state governments and Washington, DC…
Our federal system gets a bad rap. From the electoral college to the way our Medical system functions there are frequent calls to revise and even scrap elements of the system that divides power between the national government and our individual state governments. Washington, DC is always ready to take on new powers. We often hear about the positive developments that new national powers have brought about. What we don’t often hear about is how our federalized system has saved us. Today we’d like to tell one of those stories.
You all know about the evils of our current financial system of too big to fail banks. The roots of that system go much further back than Bush or even Clinton. The current model of unleashed financial capitalism goes back to the 1970’s and 80’s. Adam Curtis, sort of a British Michael Moore, with a more interesting visual style, has told this story in “The Mayfair Set” a documentary series for the BBC you can find on youtube. Curtis’s relation to the facts is often as problematic as Moore’s but he tells an interesting story.
From World War II until the 1970s, the British and American economies were dominated by corporate managers. The post-war economic boom allowed these managers to set up a cozy relations between capital, labor and government. Economists like John Kenneth Galbraith claimed that capitalism had changed from a battle to a carefully organized and planned system. There was no longer any need for the entrepreneurs and self-made men that built the international economy.
The 1970s proved how wrong they were. As post-war growth petered out, the planned system proved unable to deal with the challenges of new competition(TOYOTA VISUALS), and emerging market players(OPEC VISUALS) who had little respect for the comforts of the developed world. A solution was developed, but as always happens, it presented its own problems.
The power of the shareholders, the actual owners of the great industrial companies was unleashed. Corporate raiders and take-over specialists began to liquidate the old companies, freeing up value, and ending millions of economically inefficient jobs. The costs were extraordinary, and the old post-war model was obliterated. On balance I believe this process was necessary, and has yielded valuable results. The costs are of course indisputable.
But Anglo-American capitalism, as it is sometimes described, has had very different careers in Britain and the United States. Some of this is due to size of course, but much of it has to do with our different systems. Britain is occasionally described as an “elective dictatorship”. Due to stronger party loyalty, and less constitutional restraint on the central power, in the 1980s Financial capital was able to capture the government to an extent that we are only now reaching in the United States.
In the US Wall street had to justify itself to, bribe and deal with a whole class of senators, representatives and governers with real power bases outside of the national system. When a corporate raider wanted to liquidate a US company, the process was more difficult. These other power centers couldn’t stop the process, but they changed it, slowed it down, and may actually have improved it for all involved. It is important to remember that Michael Milken and Ivan Boesky ended their careers in jail, while their British equivalents ended up with knighthoods.
This is why the United States still has a car industry, and a manufacturing industry, and possibly why the US has such a robust technology industry. The differing centers of political power have managed to preserve multiple centers of economic power. The story is not this simple, but it is a part of the story worth paying attention to.
Financial capitalism brought great rewards to both countries in the years leading up to 2008. The US economy once again stunned the world, and Tony Blair’s “Cool Brittannia” helped to rebuild British self-respect. The rewards, however, hid a disturbing fact. The UK was becoming a one-horse economy. There is London’s financial industry, and a bunch of Northern cities competing desperately for the annual title of a European Capital of Culture and the few tourist dollars that that brings in.
The Crisis starting in 2008 threw this into stark relief. Both countries experienced economic devastation. In the US however, the unemployed could move to Texas, or benefit from years of unemployment insurance paid for by government debt. The British government did not have that luxury. They had to react to a massive recession with massive cuts in their social safety net. London’s continued resurgence seems to have saved them for now, but it’s a tentative recovery at best. The US economy is in much better shape, and we owe that to our Federal System.
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