Thursday, March 12, 2009

Reports Of The Death Of Capitalism Are Greatly Exaggerated

Rodney Adler is not exactly the most popular person in Australia. His involvement in the $5.3 billion collapse of H.I.H. in 2001 has meant that his reputation has been permanently wrecked. He may have done his time in prison, but the people who were affected by that disaster are still suffering form the fallout, and Mr. Adler will always be remembered in that light. But, at the same time he is uniquely qualified to offer a view about the causes and effects of the Global Financial Crisis, and what he has to say is worthwhile considering.

In an article in BRW Magazine, Mr. Adler is quoted as saying “all the politicians and leading people are saying that this is the death of capitalism. I actually have a different view.” He goes on to explain that great capitalists do not base their wealth upon debt. They may employ debt along the way, but success is built slowly over 20 or 30 years. In Mr. Adler’s view, the Global Financial Crisis has been brought about by an insidious undermining of capitalism from within.

He says, “About 10 or 20 years ago executives on good salaries who hadn’t taken the risk, who hadn’t built the corporation, they said to themselves: ‘I’d like to be rich, I’d like to have equity in the company but I don’t want to buy it. And a whole new set of instruments evolved out of America which then infested the rest of the world, certainly the Western World, where executives became owners but with no risk.”

Mr. Adler may have been in the wrong about many things in the past, but he is right about this. This is the crucial point of difference between successful business people who invest their own time, effort, and money, and take the risk to build up their own enterprise and create something where there was nothing before, and the high flying overpaid corporate buccaneers who make a living by raiding other people’s investments. It has become popular to criticize the excessive pay packets of corporate executives, along with the bonuses, the benefits, the handshakes, the parachutes and the go-away money handed out to people who have often cut jobs, reduced customer service and destroyed shareholder value. What Mr. Adler has done is explain why that criticism is justified, and also to warn that blaming capitalism itself misses the real culprits.

It is the abusers of capitalism who are to blame for the mess, and now that the rest of us are left with picking up the pieces we should remember that healthy capitalism is the solution and not the problem. Capitalism is not the villain. It is the potential hero of the story so long as the pirates don’t get back in charge of the ship. Market forces did not fail. They did what they should do, and punished poor decision making and bad business practices. The way to restore prosperity is to return to the time honoured sound business practices that reward diligence and prudence… exactly the sort of business practices that might have kept Rodney Adler out of jail in the first place.

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