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The Changing Nature of Capital Flows

Written by on 05 April 2012

Our society has been well served by the dynamic catalyst of capitalism. The basic assumptions of ownership and workers sharing the benefits of economic and social advancement have been a central cornerstone of Western civilisation.

Has the present capitalist structure begun to falter?

The CityThe present economic crisis has highlighted critical weaknesses in Western capital markets and these have been exasperated by weak leadership that has been caught on the conundrum of solving the cycle of debt selling and the short-term requirements of maximising profits for the few. Although this sounds a simple dilemma to solve, the problem runs much deeper. It rests with the culture and psychological makeup of our political and economic leaders.

Two forms of capitalism

We tend to think of capitalism as a singular model yet this is not the case. US/Anglo Western economies have evolved and embraced a form of capitalism known as 'shareholder capitalism'. Shareholder capitalism is driven by the markets and focuses on short-term returns. This drives management decision making and can be counterintuitive for long-term strategic planning or even sustainable economic practice. This structure promoted the global markets and initiated the selling of repackaged debt. When debt became the global commodity it became an unsustainable economic proposition which has now caused such long-term economic devastation, the ramifications of which are still to be unravelled.

Global EconomyThe second form of capitalism is the Asian/German model of social capital. These countries have social banks that are only permitted to invest in long-term projects such as state infrastructure. These projects have more modest returns but focus on physical realisation of tangible assets with long-term economic potential. Over time, these economic models have emerged as resilient and robust and now form the basis of what little stability remains in the global economy.

Leadership for the capitalist structure

I hope it is obvious to the reader that these two very different capitalist systems require very different leadership and management. The critical problem with shareholder capitalism is that the returns and margins have almost disappeared, debt is being sold and the risk now rests with the society that those structures reside within. The concept of risk and reward would widely be accepted by most people, however shareholder capitalist managers now enjoy the unimaginable position of receiving all the reward without the accountability of economic failure. This phenomenon has supercharged the corporate greed culture and is danger of igniting social unrest.

Danger from within

As the economic environment deteriorates and the full extent of the consequences are fed through into the general population, many corporates are going to great lengths to distance themselves from responsibility. This will simply not do. Organisations that have been at the forefront of the shareholder economic structure must accept responsibility for their part of the economic crisis. The growing unrest within the general population will not be satisfied by simple justifications of self-fulfilling management decisions.

Putting the cork back in the bottle

A growing number of politicians are beginning to recognise the social unrest within society and are beginning to try to reconcile the anger and perception which their societies feel. The public has not been well served by political and economic leadership, however these individuals who have so long been at the centre of this system will have a long way to go before they can prove to the public that they have earned the right to lead.

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