Comparative Cultural Economics Offers Insights into the Current Crisis of Capitalism

Path Dependencies and Anti-Capitalism at Work

By
NY World Financial Center
Comparative Cultural Economics Offers Insights into the Current Crisis of Capitalism : Path Dependencies and Anti-Capitalism at Work - Patricia Commun

Abstract

This paper intends to show how Comparative Cultural Economics help to understand more about the path dependencies that affect economic agents in case of brutal and severe economic downturns such as the current one. Policymakers tend then to get back to former economic models experienced as successful in the past or mainly try to avoid already experienced dangers. The actual spreading of anti-capitalist behavior in the economic and political elite itself and of deeply rooted anti-capitalist violence by the victims of the downturn is one more sign that the current economic downturn also entails a strong psychological and cultural dimension. This thesis is illustrated by short examples from France, Germany, the UK and the USA.

Introduction

What has recently been referred to as a vast comeback of state regulated capitalism could also be considered a totally uncoordinated panic reaction among various Western countries, each remaining faithful to its past experiences, economic systems and intellectual mainstreams. Experiences and intellectual beliefs constitute a “shared framework of mental models that groups of individuals possess that provide both an interpretation of the environment and a prescription as to how the environment should be structured.”[1] These are so called “path dependencies.” In situations of major stress, such as the current financial turmoil, policymakers are often compelled to act on the basis of intellectual and cultural traditions deeply rooted in history. To illustrate this, it is important to look at comparative examples taken from French, German, British and American crisis management policies over the last few months.

Coming back to former successful economic models might be a serious temptation as well. After the Center on Capitalism and Society’s 2009 conference in New York, Nobel Prize Winner Edmund Phelps presented proposals to the British Prime Minister Gordon Brown strongly resembling the neo-liberal and ordo-liberal principles on which the American Free Market Economy and German Social Market Economy based their post-WWII reconstruction.

Refounding Western capitalism might also suppose a better understanding of the anti-capitalistic forces (like risk aversion and lack of confidence) that influence and could partly explain the general decline of Western economies. Cultural Economics can shed a certain amount of light on the extent to which and reasons why these forces have been at work in the very heart of financial capitalism.

Economic policies as path dependencies in Europe

The French government issued guaranteed debt for French banks[2] but did not consider any further financial steps. This seems to reflect a return to the country’s traditional interventionist policies though the government remains reluctant to initiative more radical measures like a general rescue plan.[3] Public investments in infrastructure renewal have been launched but had already been planned prior to the current economic crisis. There have been several pragmatic, short-term measures designed to encourage banks to lend to medium-sized businesses and to bolster the car industry. And although the most recent measure was strongly criticized by France’s European partners as being “protectionist,” it simply follows France’s long history of supporting its car industry.[4] The main political debate in March 2009 focuses on shareholder value, suppression of stock options, tax havens, and so forth. All of these issues have piqued controversy in recent years not only by left-wing intellectuals but also by prominent financial experts who appear to defend the old banking system.[5] The rise of Private Equity as competition to traditional banks has actually fueled anti-capitalistic criticism, even among the “elite.”[6] Generally speaking, there is condemnation the system of shareholder value rather than the stakeholder value. They miss the time of “intermediate capitalism” where investors were satisfied with modest and long-term returns on equity and where banks were valuable and trustworthy partners for both the state and industry. As a consequence of this very sensitive atmosphere, companies now have to address both the shareholders and public opinion whenever they publish any report. They must face not only the financial crisis and the international market crisis but also a homegrown, infuriated, anticapitalistic political atmosphere that condemns all signs of long despised inequality and social injustice.[7]

The current French economic policy backs the fundamental thesis of the regulation scholars who analyze the market forces as sociologists and deny the market any ability to rationally allocate resources. The idea of “stakeholder value,” which is very fashionable these days, was originally developed by the Regulation School in France.[8] “Laisser-faire” capitalism and liberalism are publicly condemned today, just as they were in the 1930s, accused of being the source of all deregulation problems in the last ten years.

French management of the financial crisis is mainly a political reaction to the deep social frustration fed by the economic downturn. It clearly demonstrates a rush to find scapegoats (stock options, tax havens, etc.) and a quick response to the vast anti-capitalistic movement[9] that could threaten the country’s social and political stability. It is framed through the still very vivid French intellectual tradition of neo-Marxist anti-capitalism and an even longer and deeper-rooted state interventionism. But it falls short of dealing efficiently with the financial and economic crisis itself.

Germany’s Chancellor Angela Merkel initially seemed reluctant to back any French-led European rescue plan, for both financial and political reasons. Instead, the German government took advantage of the economic turmoil to try to get back to its old “Deutschland AG model,”[10] encouraging a big intra-German consolidation wave of major commercial banks (like Dresdner Bank and Commerzbank) and of regional Länderbanken, rather than a Europe-wide or global consolidation movement.

The German government has also made significant efforts to rescue German banks. Berlin has given German banks the chance to issue bonds with state guarantees. While several banks including Commerzbank have used such guarantees, the continued turmoil in the sector has led to calls for the support to be extended to five years in order to be more effective. This, however, raises the issue of market distortion.[11] Moreover, the German chancellor’s cabinet recently agreed to change the country’s bailout law. The government will now be allowed to expropriate shareholders of a bank that receives state aid. This is not meant to be a new rule which is systematically applied but rather to open up the possibility of nationalizing the major German mortgage lender Hypo Real Estate which received about €102 billion in state aid over the past three months. A second acquisition through a foreign bank, like Unicredito acquiring Hypovereinsbank, should be avoided since one of the expropriated shareholders is a Private Equity Group, J.C. Flowers in New York, which happens to own 34% of HRE.[12]

This expropriation of a Private Equity Group (PEG) has to be seen in the context of the fight against certain hedge funds and private equity funds which were considered as “locusts” (i.e., evil speculators) by a few social-democrat and even Christian-democrat policymakers a couple of years ago. [13] Until recently, primarily Anglo-Saxon private equity companies successfully financed, restructured and internationalized a considerable number of medium-sized companies in Germany. But there was little acceptance of demanding shareholders who imposed high returns on equity. The crisis seems to be feeding hopes of eliminating some of them. German companies may have a different position from the German government regarding foreign investors. Daimler Benz, for example, was happy to find a sovereign fund in Abu Dhabi to provide about 9% of its capital and cooperate in research for a new electric engine.

Last but not least, German policymakers are very afraid to fall back into hyperinflation, which they experienced in the 1920s. This was a terrible trauma. It ruined not only their economy but also their young democracy. For a vast majority of German policymakers, democracy is linked to welfare, as President Horst Köhler recently reiterated.[14]They are therefore very reluctant to deepen their state deficit (often considered a key cause of inflation). This is why they do not address American priorities to “do more” against the crisis and continue to focus on balancing their budgets. In addition, the Maastricht rules limiting budget deficit and creating a strong independent European Central Bank to prevent inflation were inspired by German neo-liberalism (also called ordo-liberalism). The main statutes of the European Central Bank are inspired by Germany’s historically-rooted inflation phobia.

American Deflation Phobia and UK Fear of Bank Run

In contrast to the German inflation phobia, Americans tend to fear deflation. For years, Ben Bernanke, chairman of the Federal Reserve Bank, reflected on the Great Depression and came to the conclusion that credit crunch might lead to deflation and in turn to a depression.[15] This is why he continuously tried to bring more liquidity to the market. The dramatic experience of deflation during the Great Depression might strongly influence American economic policy as well. Today, the constantly growing public and private debt in the US has reached amounts representing more than three times the GDP (i.e., double the levels found at the time of the 1929 Wall Street stock market crash). But the consequences of the deflation phobia might be the makings of the next bubble (i.e., the state debt bubble). And when it bursts, it could provoke devastating inflation in America with incalculable repercussions affecting the monetary equilibrium worldwide.

In a long-term perspective, similar trends hold true for the other Western countries. The recapitalization of the UK’s quasi-nationalized banks will also prove very costly to the English taxpayer, as combined assets of the five biggest UK banks represent 400% of the UK’s GDP. A mere 1% recapitalization of the sector would cost 4% of the UK’s GDP, not to mention a 5% recapitalization of the system which would cost 20% of the GDP.[16]

Again, the quasi-nationalization of the UK banking system partly resulted from a path dependency: the fear of bank runs that used to happen in the 1930s and recently occurred with Northern Rock.

Therefore, state regulated capitalism at work everywhere through path dependency, might be less of a threat for capitalism than for the states themselves. Ireland, for instance, might default on its soaring national debts. Pledges made by Ireland to support its banking sector amount to 220% of the country’s annual economic output. The total loans held by Irish banks are more than 11 times the size of the Irish economy.[17]

If a series of state insolvencies took place in Europe,[18] insolvent states might be forced out of the Euro Zone and would then have to come back to strongly devaluated national currencies. Hyperinflation would then become the definitive temptation for getting rid of the state’s debts, socializing the losses by ruining capital owners and impoverishing the entire population.

After apparently having stopped the danger of a systemic melt down of the banking system (for now), current economic policies in major Western countries openly refer to past dramatic experiences related to the Great Depression. As does the chairman of the IMF, French socialist Dominique Strauss Kahn. On the one hand, this historical reference confirms that policymakers identify the current financial turmoil as much more serious than a cyclical downturn or a classical asset price correction. The problem is that the two largest Western economies (i.e., The United States and Germany) experienced opposite dramatic situations in the past and therefore developed opposite phobias: one taking strong measures to avoid deflation, the other trying to curb state deficit in order to avoid the risk of inflation at any price.[19] A common economic policy would supposedly overcome path dependencies in order to be open to more precise current studies by economists and bank analysts. Otherwise, countries might be reduced to political measures against commonly defined scapegoats (like tax havens and stock options here, or short selling and private equity there) or broad reflections about regulations, rather than tackling the currently rather acute problem: the still unresolved banking crisis spreading and the still worsening economic turmoil it creates

More Path Dependencies in the American Economic Policy

European governments currently seem to forget about the bank crisis, focusing instead on fixing the social consequences of the economic downturn. As previously noted, intellectuals and policymakers see the crisis as a good opportunity to reform capitalism.

Far from the speculations about capitalism’s refounding, current Treasury Secretary Timothy Geithner is desperately trying to restore confidence and liquidity in the financial system by helping the banks to get the toxic loans off their balance sheets. The technical content of this plan should not be discussed here. However, the path dependency of this special measure is worth noting. It seems to be a remake of a formula, which was successfully adopted 15 years ago by the Resolution Trust Corporation, the body that resolved the Savings and Loan Crisis between 1986 and 1992.[20] Geithner’s plan appealing to the forces of the market, supposes therefore that this crisis might have to be managed like one of the numerous “bubbles” which burst in the last twenty years.[21] Many “classical” liberal economists in the US used to consider bubbles and crises as part of the financial capitalism system’s endogenous instability. Most of them even consider market forces to be able to clear up the crisis before coming back to stability.

But this financial turmoil is nothing comparable to the bubble crises from the previous years. First of all, the housing market crisis, the so-called subprime crisis, is one of the many asset market crises which produced a thus far unknown amount of toxic assets. The derivatives crisis is potentially endangering millions of pensions and deposits since the trading activities of investment banks have been collateralized by the insured deposits of the retail banks after repeal of the Glass-Steagall legislation in 1999. This is why the American government had to save a major insurance company like AIG. The market forces seem unable to work properly now, with central banks substituting for the inter-banking market. Finally, the American banks seem unwilling to clean up their balance sheets and therefore face potentially numerous insolvency cases. American and other Western financial institutions are badly damaged indeed, but seem reluctant to be cured.2[22]

This crisis can no longer be characterized as a price asset correction or a bubble bursting, as Treasury Secretary Tim Geithner tries to see it, relying on previous US experiences instead of a fresh perspective on today’s unique reality. It is a major systemic crisis that could harshly affect all Western economies for many years.[23] This is the reason why Geithner’s plan might be quite unable to stop the financial turmoil. This is also why financial capitalism is now being questioned all around the world.

Heading Toward a Better-Controlled Financial Capitalism?

In preparation for the next G20 international summit, Sir Edmund Phelps, winner of the 2006 Nobel Memorial Prize in Economic Sciences, summarized the 6th Annual Conference of the Center on Capitalism and Society focused on “Emerging from the Financial Crisis.” He recently addressed a long public letter to British Prime Minister Gordon Brown that has even been published in the German Handelsblatt.

One of the main criticisms of classical liberal market concepts expressed in this letter strongly resembles the numerous anti-liberal pamphlets printed in Germany back in the 1930s: “the belief that markets are self-correcting and hence should be left to their own devices, was a misconception.”[24] Moreover, the criticisms of “oligopolistic” rating agencies and the “diversified conglomerate structure of the financial services industry producing extreme speculative excesses” call to mind the anti-monopolistic criticisms expressed by the German neo-liberal school, the so called ordo-liberal school, and more particularly those made by Walter Eucken in the 1930s.[25]

Lastly, the goal is supposed to now be “the creation of a new class of banks with the aim of reorienting the financial sector as to serve the business sector to finance long term investment and innovative projects by business firms.” Phelps brought the concept of “narrow banks” financing the real economy. These banks would ensure “that consumers and employment creating small and medium enterprises are adequately financed and can contribute to the reactivation of the economy.” Restoration of prosperity would require restoration of aggregate investment activity that should be controlled in terms of size and mainly industrial
investment.

This is exactly what the German intermediate banking system was doing for years after World War II. The numerous Sparkassen and Länderbanken, Mittelstandsbanken were financing the German middle sized industry until worldwide financial competition and home made losses following the German Reunification pushed it into a deep crisis.[26] Such a banking program might positively address the European and especially German policymakers who are desperately trying to rebuild their national industry-oriented banking system. But it somewhat ignores the reality of growing worldwide competition in the finance industry. “Narrow banks” or Mittelstandsbanken might be competing with worldwide operating sovereign funds from emerging countries that happen to finance more and more German middle-sized companies.[27] In a fully globalized economy, banks need to become profitable again. Getting back to smaller banking systems might be a nice reminder of the good ol’ days when intermediate banking was still successful, but it is a dangerous illusion in a global economy.

Aversion to Risk and Lack of Confidence Are Now the Main Defaults in Western Financial Capitalism

“Shock-and-propagation approaches” are used by banking crisis analysts who try to understand the way the financial crisis spread and continues to do so. In contrast to the current general criticism of deregulation, they recently came to the conclusion that deregulation cannot be considered as a main cause of “credit crunches.” Credit crunches mostly result from “banks’ attempts to limit their risk of failure.”[28] Limiting the risk by sharing it worldwide like the hyper-developed derivative and CDO/CLO instruments did, or very rapidly moving from one investment to another to maximize return on equity like investment funds did (sometimes with little regard to long-term consequences of this practice on the underlying assets), awarding rapid short-term success like many corporations did with their top management. All of these are examples of an underdeveloped sense of risk by economic agents.

More generally speaking, economic ag ents are always subject to the natural temptation to limit their risk of failure by creating vast safety nets. Empirical research on the banking collapses of the last two decades of the 20th century produced a consensus that the greater the protection offered by a country’s bank safety net, the greater the risk of a banking collapse. Several US states that had adopted deposit insurance during the early 20th century did indeed experience bad banking collapses.[29]

Overdeveloping safety nets and runs for short-termism are two sides of the same coin. They result from a widespread panic in times of growing uncertainty. During such times, as pointed out by John Maynard Keynes in 1937 and further developed by Douglas North,[30] economic reasoning might be of little value. Quick decisions are often made based on insufficient or incomplete information, consequently lacking in rational thinking. In the case of bank trading, demands of rapid high returns on equity or development from extremely complex “futures” (i.e., bets on future value of shares) might be seen as desperate attempts to secure things in unpredictable environments. Derivatives are of course a necessary part of finance in a world of impersonal exchange created by international trade and globalization and therefore cannot be suppressed. But the uncontrolled surge of collateralized debt obligations (CDOs) could reveal an underlying lack of confidence and impending panic reactions, long before an official crisis takes shape. Moreover, the desperate search for safety and security is coupled with longer life expectancy and thus huge pension needs. The millions of capitalists (saving for retirement) put extra pressure on recurring high returns on equity as well.

The natural temptation to limit the risk of failure could increase amidst declining hope for progress. As the banks stagger to stay afloat, the domino effect becomes more likely. The current lack of long-term perspectives in Western societies, combined with the creation of vast safety nets in the banking system, insurances and welfare states as well, might have encouraged all economic agents, not only bankers, to act recklessly, looking to maximize short-term profit regardless of the long-term consequences.[31] As in the 1930s, times of high uncertainty are typically full of financial scandals and a general decay of values. Anti-capitalism then affects capitalists themselves who get tired of the ongoing process of social selection determining each individual’s position and income in the free market economy.[32] When faced with social catastrophe, the whole value system collapses.[33]

The Grapes of Anti-Capitalistic Wrath

The rampant anti-capitalism now resurfacing all across Europe is primarily an outburst of long-brewing wrath. Traders, bankers, and the economic elite are all considered to be responsible for the current turmoil. Policymakers in search of convenient scapegoats peg them as evil individuals whose misbehavior stigmatizes the whole community.[34] The vocabulary used by politicians from various Western countries[35] is strangely similar to that of the era when successful Jews, merchants, tycoons, and bankers were blamed for tough financial times. Even before the terrible Holocaust, Jews were publicly labeled as dishonest, unscrupulous scoundrels, swindlers, exploiters, and rugged individualists in political propaganda. Numerous historic and psycholinguistic studies have already proven the link between public verbal attacks and the pogroms of the 1930s and 1940s. In the 1970s, the RAF (Rote Armee Fraktion) carried out terrorist attacks in Germany as a consequence of a prevalent anti-capitalist scorn.

In recent weeks, anarchist websites have been running “burn a banker” campaigns. In the UK, the house of the former head of the Royal Bank of Scotland was vandalized. April 1, the day before the G20 summit, is being dubbed “Financial Fools’ Day.” The G20 “Meltdown group” is planning to reclaim the city of London. The Internet is flooded with appeals to attack the banks during the London Summit. Police fear violence and riots could plague the summer holidays. Again, old anti-capitalist path dependencies are clearly at work here.

Conclusion

Anti-capitalism is not only an ideological and theoretical mindset. It is a vast hate movement targeting capitalists, blaming them for severe economic downturns. Financial capitalists who operate internationally and therefore escape state control are particularly in the hot seat now, just as they were in the 1930s. Since many countries are being dragged down by the financial turmoil, many policymakers are publicly criticizing financial capitalists. A closer look at path dependencies in European countries indicates a probable shift towards greater violence, racism, and xenophobia as well. The pervasive anti-capitalism might not actually destroy capitalism but could very well chase many capitalists out of the main Western countries and into emerging economies.

Until now, state regulated capitalism has mostly emerged through national emergency economic rescue plans in an effort to save key institutions and manage the social consequences of severe downturns. However, this type of state regulated capitalism is more dangerous for the states themselves than capitalism. Western countries appear to be grabbing at straws as they try to cope with the huge and still unpredictable financial turmoil that is far from having hit rock bottom. Some are turning to former successful models like ordo-liberal capitalism (i.e., social market economy) that might be illusory in the near future. Instead, development of new economic models should integrate more about de-industrialization induced by globalization and the likelihood of powerful emerging countries dominating the world in the coming decades.

In closing, one should also note that many capitalists themselves have behaved like anti-capitalists by building endless safety nets. Short-termism is a symptom of a lack of confidence in the future. And yet confidence and responsibility are vital, core values for capitalism. Throwing huge amounts of unfinanced liquidities on the markets might not be the right way to restore them. More thought should be given to how such feelings and values can be restored. Examining the emerging economies where capitalism is now very vivid might provide valuable insight as to why it is so badly damaged in the West and how we can fix it. Comparative cultural economics could unveil the secret to our future stability and prosperity.

Notes & References

  1. Denzau, A.T. and D.C. North (1994), Shared Mental Models: Ideologies and Institutions, Kyklos, 47 (1), 3–31. See also: Gerold Blümle, Nils Goldschmidt, Rainer Klump, Bernd Schauenberg, Harro von Senger (eds.), (2004), Perspektiven einer kulturellen Ökonomik, Lit Verlag, Münster. Cultural Economics in Germany can be seen as a revival of Max Weber and of the German Historical School.
  2. On October 16, 2008, within the framework of the Amending Finance Act for 2008, the French Parliament decided to create a dedicated structure to issue debt securities guaranteed by the French Republic to raise funds that will be made available to various credit institutions. Under the French Law, the aggregate guarantee that the French Republic can provide to this structure is capped at €265,000,000,000. Source: Review of Worldwide Government Initiatives of 2008 to Guarantee Financial Institution Obligations, Orrick, January 2009.
  3. For example Natexis, now merging with Banque Populaire Caisses d’Epargne.
  4. The French government’s €6 bn loan to the financing arms of the two major car manufacturers was not a subsidy but just a loan at a preferential rate. However big this amount may seem, it is far too small when compared with the sums needed for renewal investments and the development of new car models.
  5. Jean Peyrelevade (2005), “Le capitalisme total,” Paris, Seuil; P. Arthus, M. P. Virard (2005) “Le capitalisme est en train de s’autodétruire,” Paris, La découverte.
  6. Former students from the Elite Universities ENA, HEC and Polytechnique organized a symposium in March 2006 questioning the future of capitalism: “Le capitalisme a-t-il un avenir?”
  7. More recently, the French oil giant Total was heavily criticized for having announced the destruction of about 500 jobs, despite the fact that the same company intends to create 3,300 jobs elsewhere in France.
  8. Michel Aglietta laid the foundation for the Regulation School of Economics with his book A Theory of Capitalist Regulation: The US Experience, Paris, 1976. He already warned against the excesses of Financial capitalism in his book published 2004, Dérives du capitalisme financier. His idea of “stakeholder value” has been overtaken by the German Social-Democrats. Stakeholder Values Perspective, as opposed to Shareholder Values emphasizes responsibility over profitability and sees organizations primarily as coalitions to serve all parties involved.
  9. Besancenot, a former Trotskyite, recently created the “anti-capitalistic party.” According to recent polls, he is deemed the second-best person to fight against the crisis, after French President Sarkozy.
  10. It meant an economic model where banks and industry were strongly intertwined as mutual shareholders.
  11. The banks behind Germany’s €800 bn market in covered bonds (Pfandsbriefe) are now warning of market distortion if the government extends the guarantees it has offered to financial sector bond issuers. Source: “German banks warn of market distortion,” by James Wilson, Financial Times, Feb. 3, 2009.
  12. www.tagesschau.de 26.03.2009. HRE already got more than € Billion 102 and is supposed to need at least about €billion 200 more state capital.
  13. Patricia Commun, “Le capitalisme financier en France et en Allemagne: Critiques, réalités et consequences” in Claire Demesmay, Hans Stark (eds.), “Radioscopies de l’Allemagne,” IFRI, Paris 2007, pp. 77–120. See p. 79: especially severe cost cutting made by Private Equity managers KKR in the well known German middle-sized company Siemens-Demag arouse considerable outrage by social-democrat policymakers in Rhineland 2005.
  14. Horst Köhler, Berliner Rede, March 24, 2009.
  15. Ben Bernanke, “Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression,” The American Economic Review, 1983. Looking back at data from the 1930s, Bernanke demonstrated how problems in the financial system tended to lead to output declines as there was a sharp contraction in lending to less credit-worthy borrowers. The effects of this credit crunch on aggregate demand helped convert the severe, but not unprecedented, economic downturn of 1929 into a severe and protracted depression.
  16. According to Alain Le Berre, Managing Director, Huron Consulting Group in London.
  17. Sunday Times, Feb. 15, 2009.
  18. Countries like Hungary and the Baltic States have had to be rescued by IMF. Some worry that Greece might as well be on the verge of insolvency. Spain has already been downgraded by the rating agency Standard and Poor’s. France and Italy are exploding their state deficits as well.
  19. Actual strong pricedowns worldwide as a consequence of the brutal slowdown of international trade and industrial production seem to argue in favor of an upcoming deflationist situation.
  20.  “Back then, the Resolution Trust Corporation extended 85% non-resource loans to private investors to kickstart a market for Savings and Loans assets.” “The US Treasury hopes actions speak louder than words,” by Gillian Tett, Financial Times, March 24, 2009.
  21. The plan to handle this first break down of the mortgage market already cost about $153 billion (i.e., 2.8% of the 1986 American GDP. The next bubble to come was the Dot-com bubble in 2000. Other major financial crises affected other countries worldwide. The worst and the longest one affected Japan 1990–2000. During the Asian Crisis 1997–1998, the Federal Reserve had to bail out the big Hedge Funds LTCM. (Source: “Note de veille du Centre d’analyse stratégique” no. 113, October 2008.)
  22. Banks were unable to sum up their toxic assets so far.
  23. This is what the IMF has been asserting over the past couple of months.
  24. Ludwig Erhard, 1st Minister of Economy after World War II reintroduced 1948 economic liberalism, condemning dirigisme and war economy. In the 1930s though, his numerous anti-liberal declarations condemned laisser-faire capitalism as a cause of the deflation crisis. See: Patricia Commun (2004), “Erhards Bekehrung zum Ordoliberalismus: Die Bedeutung des wirtschaftspolitischen Diskurses in Umbruchszeiten” in: Freiburger Discussion Papers on Constitutional Economics, Walter Eucken Institut, Freiburg, 04/2004.
  25. Walter Eucken (1951), The Foundation of Economics: History and Theory in the Analysis of Economic Reality.
  26. Patricia Commun, “La crise bancaire allemande,” Geoeconomie No. 47, November 2008.
  27. For instance a sovereign fund from Abu Dhabi recently got 10% of Daimler AG.
  28. Charles Calomiris (2008), NBER Report, Research Summary 2008, No. 4. Charles Calomiris is a Professor of Financial Institutions at the Columbia University Graduate School of Business.
  29. Ibid.
  30. The linkage between Economics and Cognitive Science enables us to understand more about irrationalities on the financial markets. See: Andre Orlean, “Les croyances et représentations collectives en économie,” in: Bernard Waliser (ed.) 2008, Economie Cognitive, Ed. Opkris.
  31. Daily newspapers or publications edited by tax payers’ organizations in Germany, France and the UK are full of examples of swindlers being active everywhere.
  32. Ludwig von Mises (1956), The Anticapitalistic Mentality, p.80.
  33. Bertram Schefold, The German Historical School and the Belief in Ethical Progress, F. Neil Brady (ed.), Ethical Universals and the Belief in International Business, Berlin, Springer, 1996.
  34. In the USA during the 1930s, socialists and communists thought that capitalism should be abolished. Lots of people thought that Wall Street was bad, many others enjoyed the discomfort of the rich and powerful and felt that some of the elites had to be found guilty. See: John Galbraith, The Great Crash 1929, Hamilton, 1955.
  35. Luxemburg’s Premier Jean-Claude Juncker, who is also chairman of the 15-nation Eurogroup of eurozone finance ministers, recently called excessive executive pay a “scourge.” France’s President Nicolas Sarkozy has criticized “rogue directors.” Last but not least, even German President Horst Köhler described global financial markets as a monster.
Patricia Commun is Associate Professor at the University of Cergy-Pontoise and a member of the CICC Research Center (Civilisations et Identités Culturelles Comparées des Sociétés Européennes et Occidentales) in Cergy-Pontoise, France.