Jim O’Neill recently wrote that the growing discontent in the world is the result of a breakdown in the international capitalist model.
This matters. Lord O’Neill is the man who built BRICS (originally BRIC), the concept that decreed Brazil, Russia, India, China be considered as one economic group with enormous potential. Later, South Africa was added on and BRIC became BRICS.
Lord O’Neill is the former chief economist of Goldman Sachs. And he’s the current chair of the Royal Institute of International Affairs, otherwise known as Chatham House.
So, why does Lord O’Neill think international capitalism is in trouble?
He picks 2008 as the cut-off year. That’s when the international capitalist model stopped functioning as it should, he says, something that has become “apparent to many Western voters, even as experts have struggled to understand the precise nature of the economic and political shifts underway.”
What are these economic and political shifts? To my mind, there are two: Monopolies and rising inequality.
As Lord O’Neill writes, economic textbooks from half-a-century ago said that successful businesses deliver profits, which leads to stronger investment and higher wages, even as new companies enter the market, allowing for competition, and innovation.
But this pattern does not really hold anymore. “Incumbents’ reported profits seem to rise persistently – often with the help of extremely efficient balance-sheet and financial management – but there is scarce evidence of rising investment or wages. As a result, productivity across many advanced economies appears to be trending lower.”
Unsurprisingly, voters are picking anti-establishment parties (and heading to both left and right extremes of the political spectrum) because of their desperation for change.
Lord O’Neill suggests that the political centre has to hold. But it can only do so by trying to ensure that market forces are delivering the same results they did in previous decades. And rather than whipping up Sinophobia, Lord O’Neill suggests that Western policymakers should be “encouraging their societies to live comfortably with China…If the West adopts sensible policies, its own firms and consumers stand to benefit substantially from China’s growth.”