Jan. 25, 2012
By PAN PYLAS
DAVOS, Switzerland (AP) — A four-year economic crisis has left societies battered and widened the gap between the haves and have-nots, financial leaders conceded Wednesday — with one suggesting that Western-style capitalism itself may be endangered.
As Europe struggles with its debt crisis and the global economic outlook remains gloomy at best, there’s a sense at the heavily guarded World Economic Forum that free markets are on trial.
Many at the elite economic gathering in the Swiss Alps accept that more must be done to convince critics that Western capitalism has a future and that it can learn from its massive failures.
For David Rubenstein, the co-founder and managing director of asset management firm Carlyle Group, leaders must work fast to overcome the current crisis or else different models of capitalism, such as the form practiced in China, may win the day.
“As a result of this recession, that’s lasted longer than anyone predicted and will probably go on for a number more years … we’re going to have a lot of economic disparities,” Rubenstein said. “We’ve got to work through these problems. If we don’t do in three or four years … the game will be over for the type of capitalism that many of us have lived through and thought was the best type.”
Some 2,600 of the world’s most influential people came for the forum this week amid increasing worries about the global economy and social unrest due to rising income inequalities.
China has reaped the rewards of its transition to a more market economy and is now the world’s second-largest economy. Unlike the capitalist systems in the U.S. and Europe, China’s market transformation has been heavily guided by a state apparatus that continues to balk at widespread democratic reforms. Latin America, too, has seen success in the development of “state capitalism” in certain industries.
“You combine elements of private enterprise with public responsibility,” said Colombia’s mining and energy minister, Mauricio Cardenas.
Although Rubenstein’s stark appraisal may be an outlier, there was a clear defensive posture among many participants on this opening day of the forum.
There were numerous references to the need to innovate, the need to consult with employees and the realization that power in the world is shifting from the west to the east. While the traditional industrial economies of the United States and Europe have limped through the last few years, often from one crisis to another, many economies in Asia and Latin America have been booming.
But Raghuram Rajan, a professor at the University of Chicago, doubted that the Chinese model was likely to last for too long.
State capitalism, he said, may be good if you’re playing “catch-up” but it reaches its “natural limits” once that’s been accomplished. Others worried about conflicts of interest as the same government officials run the companies and set industry regulations.
Mark Penn, global CEO of the public relations firm Burson-Marsteller, told The Associated Press that “the whole crisis has raised larger questions about how is capitalism working, how do you redefine fairness in the 21st century?”
Many rejected the suggestion by Sharan Burrow, the general secretary of the International Trade Union Confederation, that capitalism has lost its “moral compass” and needed to be “reset.” Business leaders insisted they were learning from the mistakes that dragged the world into its deepest economic recession since the World War II.
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