Professor Roland Berger on “Capitalism at the Turn of the Millennium”, a speech held recently in Helsinki, Finland
With the collapse of some of the seemingly most solid banks over the recent weeks and months and continued uncertainty over the future of the financial system, Prof. Berger’s speech gives a welcome overview over the future of the capitalist system, especially in Europe.
“The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries.” (Churchill)
At the outset Professor Berger establishes that the ability of the free market system to effectively meet the basic needs of most people makes it far superior to anything else humankind has experimented with. Even Mikhail Gorbachev, the former president of the soviet union, acknowledged that “…the market came with the dawn of civilization…”
As some figures impressively state, the capitalist system was able to improve the living standard of its people tremendously: In 1990, The US, with a 4.76% share of world population claimed a giant 21.43% of global GDP for itself, whilst the former USSR with 5.51% of world population was only responsible for 7.43% of global GDP.
These and other figures suggest that the capitalist structures might be seen as a guarantee for democracy and political freedom. But this is not necessarily true, as amply demonstrated by China.
South America’s Flirtation with Socialism
Although many authoritarian regimes such as Russia or Iran have managed to achieve market driven growth with making just small concessions to political freedom, it remains to be seen whether this is a sustainable way forward in business and political terms. As an example, Prof. Berger points out the recent election of socialist leaders in many South American countries such as Evo Morales of Bolivia or Hugo Chavez of Venezuela.
Extreme poverty is a fertile ground on which to cultivate these ideas, but Prof. Berger claims that any long-term establishment of socialism is certainly not a solution to South America’s or the World’s problems, but poses a number of challenges for the capitalist system.
Seven Challenges for European Capitalism
The most important challenges to the European social market economy are:
Europe´s way of life is coined by the appraisal of personal and market freedom and a high social inclusiveness. But the funding of this system will become more difficult in future, when tax and social security contributions are already set at more than 50% in some European countries. Low economic growth and an ageing population are threatening to undermine the European social market economy.
Innovation, as Prof Berger pointed out, is the key to survival in this race against low-wage countries to remain our standard of living in the future. The GDP expenditure on R&D in 2007, one important indicator for the power to innovate, was led by the US with US$341.3bn compared to US$243.8bn in EU27 and US$154.3bn in China.
Prof. Berger sees a bright future for all Europeans in a social market economy if Europe meets the challenges ahead and if markets are allowed to grow in a reliable and competitive environment.
“The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries.” (Churchill)
At the outset Professor Berger establishes that the ability of the free market system to effectively meet the basic needs of most people makes it far superior to anything else humankind has experimented with. Even Mikhail Gorbachev, the former president of the soviet union, acknowledged that “…the market came with the dawn of civilization…”
As some figures impressively state, the capitalist system was able to improve the living standard of its people tremendously: In 1990, The US, with a 4.76% share of world population claimed a giant 21.43% of global GDP for itself, whilst the former USSR with 5.51% of world population was only responsible for 7.43% of global GDP.
These and other figures suggest that the capitalist structures might be seen as a guarantee for democracy and political freedom. But this is not necessarily true, as amply demonstrated by China.
South America’s Flirtation with Socialism
Although many authoritarian regimes such as Russia or Iran have managed to achieve market driven growth with making just small concessions to political freedom, it remains to be seen whether this is a sustainable way forward in business and political terms. As an example, Prof. Berger points out the recent election of socialist leaders in many South American countries such as Evo Morales of Bolivia or Hugo Chavez of Venezuela.
Extreme poverty is a fertile ground on which to cultivate these ideas, but Prof. Berger claims that any long-term establishment of socialism is certainly not a solution to South America’s or the World’s problems, but poses a number of challenges for the capitalist system.
Seven Challenges for European Capitalism
The most important challenges to the European social market economy are:
- Demographic Change and Urbanisation: A strong tendency towards population loss and growing median age in Europe (47 by 2050) demands action to meet the immense challenges for labour markets and social security. Asia on the other hand can count on strong population growth and a median age of only 40 by 2050.
- Globalization and New Global Players: China’s economic power is projected to rise 8-fold over 30 years, hitting a high in 2030. Other developing economies also outpace Europe or the US. In 2040, China will be the world’s biggest economic power.
- The Growing Power of Capital Markets: The recent turmoil on the market has given new credence to Prof. Berger’s demand for global best practice returns from host enterprises/countries. A truly global financial system has to reckon with the power of new sovereign wealth funds, which stem from emerging countries but act worldwide, such as the Abu Dhabi Investment Authority, endowed with US$875bn.
- Rapid Technological Progress: This will continue to be the global engine for economic success in the future.
- Global Competition for Highly Qualified Talents: The lack of highly qualified talent will worsen in the “Western” economies. Even China and India are beginning to feel the lack of resources. It will be paramount to mobilize all intellectual potential, such as children of blue collar workers.
- Scarcity of Natural Resources and Climate Change: The recent rise in commodity prices reflects increased demand as well a uncertainty over the future of for example fossil fuels. Climate change may well have disastrous consequences on a global level; dealing with this threat can’t be left to the markets alone.
- Growing Social Imbalances: The ever widening wealth gap (worse in the emerging economies) should be counteracted, if only for moral reasons. However, inequality also provides for incentives to achieve, eventually benefiting everyone. Social security must only be for the weakest in society.
Europe´s way of life is coined by the appraisal of personal and market freedom and a high social inclusiveness. But the funding of this system will become more difficult in future, when tax and social security contributions are already set at more than 50% in some European countries. Low economic growth and an ageing population are threatening to undermine the European social market economy.
Innovation, as Prof Berger pointed out, is the key to survival in this race against low-wage countries to remain our standard of living in the future. The GDP expenditure on R&D in 2007, one important indicator for the power to innovate, was led by the US with US$341.3bn compared to US$243.8bn in EU27 and US$154.3bn in China.
- Europe needs high value-added products to win the race against low-wage countries
- Growing demand for higher education has to be met by a worldwide competitive and inclusive education system. Technology subjects should be pushed in particular, so that there are sufficient engineering graduates to sustain innovation
- Europe needs to mobilize all intellectual resources competitive
- Social security is for the weakest of society and should not be an incentive to stay at home rather than seek employment
- The single European market is a major advantage for EU companies so trade barriers and protectionism must be combated
- Europe must use its cultural and historical diversity as an asset in the global race for riches
- Europe must promote the understanding and acceptance of the market economy
- Good corporate governance is a formula for success, as it guarantees combined social and economic benefit
Prof. Berger sees a bright future for all Europeans in a social market economy if Europe meets the challenges ahead and if markets are allowed to grow in a reliable and competitive environment.
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