This year's World Economic Forum, which meets at Davos, Switzerland each year, adjourned with calls for more "social responsibility" and less pure capitalism. Sessions on "remodeling capitalism," "fixing capitalism," and the virtues of the "Chinese model" for state capitalism figured prominently on the program, and participants were not shy about pointing out the supposed failings of the free market. With Timothy Geithner representing the United States and European leaders seeking a convenient scapegoat for their failed policymaking, it's no wonder that capitalism found so few defenders.
Even the founder of the Davos forum, Klaus Schwab, couldn't resist going after capitalism. "Capitalism, in its current form, no longer fits the world around us," he stated flatly. Calling for "a more holistic, inclusive, and qualitative approach" to development, Schwab argued against those who seek economic growth as an end in itself and in favor of a more nuanced, managed model of development that takes into account multicultural and multiethnic communities. For businesses, he stated, the model requires an approach "based on a 'stakeholder' and not on a pure 'shareholder' concept." It was capitalism, he implied, that was responsible for the financial meltdown of 2008-2009. There must be a "global transformation" that will impose "a global sense of social responsibility."
In that spirit, Archbishop Desmond Tutu was proclaimed a "Global Champion" in the fight against world hunger at a dinner at the forum. The award, sponsored by the United Nations World Food Programme, recognized Archbishop Tutu's work on behalf of the world's poor. With all of these goings-on, Bono, who was in attendance as usual, must have been ecstatic.
The forum's neat little indictment of free-market capitalism probably gratified most other attendees as well -- even the big-money crony capitalists who normally hang out with Barack Obama. No one at Davos seemed particularly interested in the economic future of ordinary human beings -- those who cannot afford a week at an exclusive Davos resort and cannot find some government department or nonprofit willing to foot the bill. No departure here from prior years, in which famous participants included former president Bill Clinton and green entrepreneur Al Gore. What attendees at Davos seemed to be about was their own economic future and not "improving the state of the world," the official catchphrase for the conference.
It's troubling, however, that in their eagerness to lobby for their own lucrative contracts, subsidies, and other forms of political payback while at the same time boosting expenditures of taxpayer money for the benefit of the oppressed masses, the Davos crowd felt compelled to rewrite economic history in such a blatantly dishonest manner. Contrary to what social reformers like Klaus Schwab seem to think (or at least want us to believe), it was not free-market capitalism that caused the financial meltdown of 2008-2009, and it is not capitalism that is behind the fiscal crises plaguing Europe and America today.
It is widely accepted that the global financial crisis of 2008-2009 began with the subprime mortgage crisis in the U.S. This crisis led to the default or near-default of Lehman Brothers and numerous other financial firms, including Washington Mutual, IndyMac Bank, AIG, Countrywide Financial, and others. From there, the financial crisis spread to Europe and beyond.
But what was the underlying cause of the subprime crisis? It was the affordable housing push that began in the Clinton administration as a sop to low-income voters, many of them minority supporters of the Democratic Party. That costly initiative spiraled out of control during the early 2000s with Sen. Chris Dodd and Rep. Barney Frank, among others, demanding that banks offer adjustable loans with no down payment, no documentation, and, in some instances, deferred interest payments as well. The predictable result was the purchase of expensive homes by millions of borrowers who could not afford to make their payments even in the first year, to say nothing of when their loans adjusted to normal rates. The subprime revels were doomed from the start, but no one, least of all the politicians who garnered lobbyist contributions from lenders and support from low-income voters, wanted to shut things down before it was too late.
The salient point is that it was not capitalism that initiated the subprime mess -- it was pressure from politicians acting under the auspices of "social responsibility." "Pressure" is not quite the right word, however. It was not really pressure, but utter command. If they wanted to survive relative to their competitors, mortgage lenders had no recourse but to play along with the demands of agencies like Freddie Mac and Fannie Mae, under which 90% of home loans are guaranteed.
In a word, the cause of the financial crisis of 2008-2009 was the heavy-handed intrusion of government into the free market. The culprit was the distortion of mortgage lending by politicians who were far more intent on pursuing their own ideological ends, and in amassing power for themselves and their party, than they were in protecting ordinary citizens from financial disaster. Or, put another way, it was the insistence that capitalism make way for "social responsibility."
Unfortunately, the Davos gang are especially fond of proclaiming their solidarity with the world's poor and of dreaming up ways of spending American taxpayer money to uplift them. Even as they, the political and corporate elite, wine and dine in luxury at one of Europe's most exclusive resorts, they seem to have little regard for hard-pressed wage-earners in their own countries. It must be nice to feast on quantities of Russian caviar and swill rare wines while lining up lucrative contributions and contracts, all the while basking in the illusion that one is "improving the state of the world."
Isn't it reassuring to know that those same types who caused the financial crisis of 2008-2009 are alive and well, and in charge of the global economy?
Jeffrey Folks is the author of many books on American culture, including Heartland of the Imagination (2011).