Capitalism Teetering on the Edge of a Precipice

So, it’s been another bad week for the banks. Two weeks ago RBS suffered a systems meltdown following a software upgrade that affected up to 17m customers. To put that into perspective, the UK’s population is around 62m. This debacle even led to a defendant spending a weekend in jail when bail funds couldn’t be processed. Last week, it was the turn of Barclays, engulfed in the LIBOR manipulation storm. Barclays has had to pay fines of $450m to both UK and US regulators and more banks are, we are told, being investigated and the FBI is moving in.

The air is thick with the talk of the need to take top management scalps, impose larger fines, slash bonuses and tighten regulation.

But this talk is like trying to use a layer of wallpaper to shore up a structurally damaged firewall. There is far more at stake here than we realise. We are standing on the edge of a world-changing moment.

A decade ago we were being told that the world’s financial markets had become so sophisticated that the days of the ‘boom and bust’ economic cycle could be consigned to the history books. But now, nearly four years after the collapse of Lehmann Brothers, the UK is officially in the grip of a double-dip recession, doubts surround the robustness of even Germany’s economy and youth unemployment is spiralling, apparently out of control.

And then we have the European debt crisis. Concerns started to emerge regarding the economic health of some European states in early 2008, but here we are, over four years later, and EU leaders are still in talks to define a long-term solution that will enable the indebted states to compete effectively in the global marketplace. Whilst the leaders talk, Greece worries about paying for basic medical supplies.

We are now firmly in a unique position that none of us have experienced in our lifetimes. The legitimacy of the two architects of the post-war world order, nation states and financial markets, is now in doubt, grave doubt. Democracy and free market capitalism stand teetering on the edge of a precipice. Everything that we believed in and worked for could disappear over the edge. Perhaps Greece has already silently tripped over the edge with more to follow.

Research tells us that in times of prolonged economic hardship, when families struggle to pay food and healthcare bills, people will be prepared to give up on democracy. They will look for strong, and in their eyes, credible leadership. Decisions will be driven by emotion and fear, not by rational thought. One more debacle could take us over the precipice and then the once impermeable wall of democracy and capitalism will fall as quickly as the Berlin Wall fell in 1989.

Life at the bottom of the precipice is a dark place, especially in Europe where extremism still silently bubbles away beneath the surface. Right-wing extremism will vie with communism for dominance.

Absurd you may say. But who predicted the fall of the Soviet Union? Who predicted the Great Recession that we were promised could never happen?

The ‘western way’ has just entered the last chance saloon.

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