Terence Corcoran: Capitalism’s comeback

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Bruce

Total Credits to the Financial Post

It’s up to free markets and the private sector to bail us out of the mess

The spirit of capitalism, supposedly killed off in the wake of the financial crisis, is sweeping the world’s economies. From Obama’s new White House to the Las Vegas computer show to the international auto industry and beyond, business is making a comeback and the essence of free markets — competition — is ripping through the global economic system.

Never mind the jobless rates. They are lagging indicators. Jobs don’t create investment. Investment creates jobs, and there is every sign that competitive enterprises are turning around despite the vast overhang of big government, deficits and inflation risks.

One obvious epicentre of capitalist competition is the Consumer Electronics Show in Las Vegas. If electronics executives were bankers they’d be regulated out of existence as greedy soul-less corporate plunderers intent on filling their own pockets and driving their competitors out of business. That’s what electronics executives do for a living. But since iPads and tablets are tangible objects of progress, profits and fun, rather than seemingly useless abstractions such as derivatives and default swaps, the electronics show is viewed as a glorious demonstration of the benefits of dog-eat-dog competition.

Companies from all over the world have one objective — to overthrow Apple’s iPad dominace. One estimate put the number of competitive tablets coming on the market at 80. Other dominant firms, such as Canada’s Research In Motion, must bring in new improved BlackBerry products to meet the onslaught of wireless products. These products are themselves killing off a young industry — PCs and laptop computers.

A famous economist once said that capitalism is creative destruction. It’s not. It’s simply creative.

The global auto industry is just as explosive.

On Friday Chrysler introduced revamped models of the Chrysler 300, Dodge Charger and Dodge Challenger into a market that is about to be flooded with new models. New large-car models, sports cars and compacts from Hyundai, Toyota, GM, BMW, Honda, Ford, Mercedes and others — with powerful engines, lighter weight and snazzier new interiors and designs — are about to swamp consumers with competitive choice. Today, no one company holds more than 17% of the North American auto market, and seven firms have shares of 5% or more — indicators of increasingly intense competition.

Electronics and cars are just the high-profile manifestations of the new capitalism and the ideological shift that has taken place over the past year or so. We are on a wave of change that will continue to dominate throughout this New Year.

What we witnessed last year and will experience through much of this year was the crash and burn of the great liberal fantasy that grew out of the global financial crisis. The financial crisis, it was said, marked the End of Capitalism. Across Europe and throughout the United States, and into the darkest corners of the Canadian political landscape, we saw politicians and pundits declare the market economy to be a thing of the past.

Nothing symbolizes the failure of the new statist ideology than the rebirth of Barack Obama as a middle-of-the-road politician. The great leftist has transformed himself into the great centrist. In the wake of the mid-term election collapse of the Democrats, the Obama administration is now supporting tax cuts, backing away from radical reforms, pushing free trade.

On Thursday, Mr. Obama appointed Bill Daley, a Chicago moderate Democrat with JPMorgan/Wall Street credentials as White House chief of staff. A meeting with Thomas Donohue, head of the anti-Obama U.S. Chamber of Commerce, is scheduled for next month, marking a major shift in the Obama administration’s approach to business.

In Canada, there are plenty of signs that ever-expanding interventionist governments are not all that welcome by voters.

British Columbia lost a Liberal premier after a tax revolt. Ontario is heading into an election that seems likely to administer some punishment to a Liberal government that has created a fiscal mess, soaring electricity rates and a ubiquitous nanny-state. In Alberta, the Wild Rose Party is nipping at the flabby Ed Stelmach Conservatives. In Ottawa, the left never caught the financial crisis wave that swept Europe and the United States.

In short, we are witnessing the end of The End of Capitalism as the world waits to see whether free markets and the private sector can bail us out of the mess left behind by massive expansion of government spending and monetary extravagance.

The markets are ready to take up the challenge. Corporations and investors are sitting on unprecedented volumes of cash. This is the capital that will drive capitalism’s recapture of the economy and a return to growth. That’s already happening, as Richard Salsman of InterMarket Forecasting noted recently.

 That these trends toward more growth and production will continue through the year seems all but inevitable. What is not certain is the ability of governments to get out of the way fast enough to make growth solid and sustainable. Getting out of the way means two things: reducing government spending and reining in monetary policy.

All governments now talk about reducing deficits. But if Washington, Ottawa and the provinces are to avoid fiscal calamities — and even Eurostyle debt meltdowns — they must begin by reducing spending. So far, politicians are talking about the need for fiscal reform but nobody is doing anything.

The second big uncertainty is monetary policy. Unprecedented printing of money by the Federal Reserve has flooded the world economy with U.S. dollars. As a result, the U.S. dollar is going down and commodity prices are rising, including oil.

Low interest rates and monetary expansion are creating an environment that could fuel pockets of inflation—bubbles—that risk a repeat of the mortgage bubble that was at the heart of the financial crisis.

But there’s no denying a major shift in the political and economic landscape — a shift back to markets, growth and competition. Capitalism is on the rise, but the state has yet to get as far out of the way as it should.

Read more: http://opinion.financialpost.com/2011/01/07/terence-corocoran-capitalisms-comeback/#ixzz1ATxLak6a