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Commentary: New Capitalism

By Lee Cullum, KERA Commentator

http://stream.publicbroadcasting.net/production/mp3/kera/local-kera-805681.mp3

Dallas, TX –

As we career down the road to the unknown land of the next economy, it would be wise to ask ourselves what kind of capitalism we want to pursue. What is the banner beneath which we wish to sail?

It will be some kind of capitalism, I feel certain. Even the most despairing in the nation do not seem ready to turn to communism, as some did in the 1930s in the wake of the great capitalistic crash. Nor will it be socialism as it was in Britain after World War II, despite the ascent of Washington to the commanding heights of our financial, and soon, industrial, system. In time the government will follow the lead of Sweden from earlier in the decade and sell its shares in American banks, and probably the automakers as well, to private investors.

But after that, what? Will we move toward the sort of statist capitalism favored in France and China? There still would be be room for such a system, even after the divestiture of federal financial holdings. Or to the social capitalism preferred by Germany?

One thing is clear: There will be no going back to free-market capitalism. Those who suppose this is possible, and it is the prevailing view, I suspect, here in Texas-are refusing to see the permanent damage done to the free-market idea by rampant and reckless speculation.

Now the John Templeton Foundation regularly runs double-truck ads in the New York Times asking various thinkers to consider the question, "Does the free market corrode moral character?" Out of thirteen respondents, only four said, unequivocally, no. But that isn't really the point. The purpose of an economic system is not to build moral character but to create the greatest material good for the greatest number of people. To accomplish this requires rules to protect the system and everybody in it from those who not only would corrupt it, but would run it right over the edge of a cliff.

Speculative capitalism, therefore, cannot be permitted to return. What is needed instead is common-sense capitalism - not onerous regulation with a thousand new Sarbanes-Oxley bills, but sensible rules such as banks must keep at least 50 percent of all the loans they make. Then they would have to pay attention to the credit-worthiness of their customers. Sensible rules such as banks must hold adequate reserves relative to their loans. Sensible rules such as all executive compensation, including bonuses, above, say, $2 million a year would be taxed at 70 percent and stock options could not be exercised until five years or more from the date of their granting. Sensible rules such as hedge funds must disclose the holdings in which they are seeking to sell an interest. Sensible rules to force people to do what they should have been doing all along.

We also need sensible principles such the motto of Bob Strauss that the consumers of the world - including Americans - should be able to buy the best possible products at the lowest possible price. That means open trade. Sensible ideas, such as the financial sector is not operating on another planet, apart from the real economy. Both are integral parts of the same small, fragile world. Together they are the real economy. Sensible behavior that grasps the fallacy of the free market, which is the notion that anything goes. Surely it's plain by now that this does not work.

Lee Cullum host the monthly series C.E.O. on KERA Television.

If you have opinions or rebuttals about this commentary, call (214) 740-9338 or email us.