"Casino capitalism and sheer greed"

Will Hutton is one of the few people who appears to have a clear idea about what has gone wrong with the financial system and what must be done to put it right. His long piece in yesterday's Observer, This terrifying moment is our one chance for a new world, is an absolute must-read.

Hutton writes that the crisis has been 30 years in the making, caused by "libertarian free-market fundamentalism, unregulated globalisation, the collapse of social and political forces committed to fairness, the explosive impact of financial innovations ... and sheer greed".

He notes that, after the collapse of the Soviet Union (though I'm not too clear what that really has do with it), there emerged in the USA "an ideological commitment to the view that government regulation had no place whatever in the economy".

(My own take on this has always been that the emergence around that time of new technology that facilitated further globalisation made it easy for these far-right economic notions to take over the world in what is essentially yet another form of American imperialism. Trotsky told us long ago that you can't have socialism in one country; but now we cannot even have European social democracy in several countries, though it worked perfectly well in most of Western Europe for several decades and remains, I am sure, the preferred model for most Europeans. Because American fundamentalist capitalism wanted untrammelled free-market forces to let rip, all based purely on individual greed, the whole of the rest of the world was somehow obliged to follow suit.)

Anyway, Will Hutton forensically sets out the stages that were gone through to reach the present mess, with ever more obscure financial instruments to disguise what was going on, ever more grotesque opulence for the wealthy few who benefited, and an ever-growing gap between rich and poor. "There was no effective opposition", he says: the left everywhere simply collapsed as an intellectual and political force:

There was no conviction that any alternative to this shareholder value-driven financial, 'securitised' capitalism existed, or any political muscle to support it even if there were. Mainstream culture moved away from public purpose and fairness; the new priorities were individual self-fulfilment, personal experience and loyalty to self.

This kind of ruthless, selfish, short-termist, fundamentalist capitalism, which now seems to be self-destructing, is contrasted with the "stakeholder capitalism" that he espoused in his 1995 bestseller The State We're In. He puts forward, in some technical detail, his plan for what now needs to be done, involving the creation of a new system, "built around different principles -- a long-term commitment to building businesses, support for investment and innovation, and fairness". To achieve this, the government must become the biggest shareholder in the financial system, so that banks are forced to behave differently -- "to move from financing casino capitalism to productive enterprise". He concludes:

The world of go-getting investment banks has gone forever (.....) What we are witnessing is a system failure that requires a systemic response – the creation of a new system that sponsors a fairer, more productive capitalism in its place, while maintaining high flows of credit and debt.

This is a terrifying moment; but it is also our generation's once-in-a-lifetime chance to change British capitalism. Brown has an awesome responsibility to his party and his country. I hope he rises to the challenge.

In the following 13-minute extract from last Thursday's This Week, Hutton outlines some of his ideas and discusses them with Andrew Neil, Michael Portillo and Diane Abbott (the soundtrack is slightly out of sync, apologies).