Business

22 September 2011

Has Western capitalism failed?

Twenty years ago, the fall of communism in Eastern Europe seemed to prove the triumph of capitalism. But was that an illusion? Constant shocks to the world's financial system over the past few years prompted the BBC World Service's Business Daily programme to ask leading figures whether they thought Western capitalism had failed.

Angel Gurria: Secretary General, Organisation for Economic Co-operation and Development (OECD)

My answer to this question would be no. But I also wonder whether capitalism should be answering to the prosecution.

We failed as regulators, we failed as supervisors, we failed as corporate governance managers, we failed as risk managers, and we also failed in the allocation of roles and responsibilities for international economic organisations.

Some international organisations saw the crisis coming. Some even managed to put out some warnings, but they did not co-ordinate their assessments, they did not speak with one strong voice.

“It is very important to send clear signals of how we are going to address this debt problem without sacrificing growth and employment”

Thus, they were ignored in an atmosphere of great prosperity where everybody was making a lot of money and everybody thought that innovation was the name of the game - and by warning that something could go wrong, you would look like you were holding progress back.

There was also the philosophy that markets needed to function with the least possible government intervention. But that did not mean that they could work without any intervention at all, nor did it necessarily mean that the intervention could be such a light touch that you were not able to identify risks.

So the crisis left a dire legacy. A legacy of high unemployment, enormous fiscal deficits which we are still struggling to control, and an accumulated public debt which has already reached 100% of GDP on average in the OECD countries.

It is very important to send clear signals of how we are going to address this debt problem without sacrificing growth and employment.

Reforms to product and labour markets, education, innovation, green growth, competition, taxes, health - they are the things that should be the object of our primary focus in the context of a long-term strategy to restore sustained growth.

This will create jobs and help to tackle debt.

We also need to "go social" and focus on innovative policies to protect the most vulnerable.

Ken Ofori Atta: Executive chairman and co-founder of Databank Financial Services (Ghana)

The 20 years prior to the recent credit crisis could be described as capitalism as its best, with global wealth accelerating at ever increasing rates.

Since 1990, when we left Wall Street and founded Databank to offer the first investment banking services in Ghana, we were able to capitalise significantly on the boom years,

We have also observed and embraced how some of that capitalism-fuelled wealth has found its way into funding education, innovation and creativity, all in pursuit of a better life and hopefully a better world.

“What went awry among the frenzy for growth in more mature markets was people losing sight of the fact that someone somewhere has to work hard”

All too recently this notion was challenged. The spark that ignited the crisis led to a conflagration of adverse effects. These spread like a virus across North America, Europe and right down into Asia.

While our counterparts dealing on the historically more developed markets were taking increasing amounts of risk, employing complicated financial instruments to make returns from increasingly complex derivatives, Ghana - and Africa as a whole - was focused largely on helping to fund a growth in enterprise.

We were not so widely exposed to toxic assets so we weathered the storm well. And we did so employing the techniques the Databank founders learnt on Wall Street: Western capitalism in its truest form.

From this Ghanaian's perspective, no talk of capitalism could be made without mentioning Dr JB Danquah, the father of this philosophy in the then Gold Coast. Danquah's vision was to create an environment in which individuals would be able to set up and run enterprises that would in turn create wealth for themselves and their households.

Citizens would therefore be in the position to acquire and own properties that could be used as collateral for credit to enhance their businesses and expand wealth to benefit more families.

This thesis not only allows many people to create wealth, but stimulates initiatives, making people more independent for their own good and also for the good of the nation.

What went awry among the frenzy for growth in more mature markets was people losing sight of the fact that someone somewhere has to work hard to make a market and build a business to create real enduring value that goes beyond the bottom line.