UK: HANDY'S VIEW - THEIR FUTURE IS IN YOUR HANDS. - Charles Handy fears the collapse of capitalist democracies unless today's voters are prepared to make sacrifices for the sake of their grandchildren's future.

Last Updated: 31 Aug 2010

Charles Handy fears the collapse of capitalist democracies unless today's voters are prepared to make sacrifices for the sake of their grandchildren's future.

Several years ago a little-known researcher in the US State Department wrote a book with the portentous name The End of History. He was Francis Fukuyama, now a sort of global guru. His argument was that the combination of capitalism and democracy was so potent that it would never be replaced.

Capitalism created wealth better than any other known system, and democracy made sure that the wealth got spread around. When countries got richer, he argued, they inevitably become democratic in the end. Look at Spain.

The fall of the Berlin Wall, and the subsequent collapse of Communism everywhere, seemed to prove him right.

Fukuyama wasn't all that happy with the end of history. We shall all end up like dogs in the sun, he said, Iying on our backs waiting to be tickled and fed. Politicians want to be elected, so politicians try to keep us happy with ever more goodies and, always, promises of - 'watch my lips' - no more taxes. There will be no great causes any more, as we compete only for gold medals in world sports. 'The end of history', he concluded, 'will be a very sad time.'

Most people heard the first part of his message - that capitalism and democracy were an unbeatable combination - but failed to read to the end and to his pessimistic verdict. Now we have a book by a far from unknown economist, Lester Thurow of MlT, which argues that capitalism is poised on top of something like the San Andreas fault - an earthquake waiting to happen (The Future of Capitalism, published by Nicholas Brealey at £16.99). This time maybe we will listen, although more likely we shall go on as we have always done, hoping that 'the big one' won't happen in our lifetime, rather like the inhabitants of San Francisco. That would be a pity, if not for us then for our grandchildren.

Thurow's argument is that there are at least five forces (he calls them tectonic plates to fit his earthquake analogy) undermining capitalism. Each of them, individually, is familiar - for instance, the fact that the new sources of wealth come from human capital, brains essentially which can't realistically be owned by anyone - but the combination of the five is potentially deadly.

You will have to read the book, and it is well worth it, to explore his 'plates' in any detail, but the warning is clear.

What do you do, for instance, when the growth rates of the mature economies hover between 2 and 3% per year, and anything more is called 'overheating', but the pressures of global competition mean that productivity has to improve by at least 5% every year? The answer, in the US, is that you let the price of labour fall so that each generation is poorer than its parents, while in Europe unemployment is allowed to rise to unforeseen levels (20% in Spain with more to come). The jury is out on which of these options is more humane, but neither can go on indefinitely.

Capitalism is driven by consumption and self-interest but it is fuelled by investment and made tolerable by social systems which carry the fruits of wealth creation to the parts which they otherwise wouldn't reach: public education and housing, medical care and welfare, public infrastructure systems like roads and (it used to be) railways. In the past, in Europe, the private sector took care of much of the investment, and a social consensus permitted the growth of systems for the spreading around of the fruits of growth.

As the future draws nearer it is clear that the investments which are now needed are beyond the scope of any business, because they are investments in the capacity of our next generation of citizens to be the human capital of the future, the brains rather than the hands of the wealth-creating machine. Unless that investment is made, the costs of the spreading around to those who can't contribute will seriously damage the social consensus - and increase the costs of the wealth creators, putting them at a disadvantage in that global marketplace.

Democracy, however, is notoriously short-term, focusing on the next election if not the next poll. Democracy talks consumption, not investment. Democracy finds that appeals to sacrifice the present to a future which you may not be around to enjoy, are not guaranteed to get you elected. Maybe this is why businesses remain stubborn dictatorships, or oligarchies at best, in a democratic age. When most of the voters will be over 50 their eyesight is short.

There are three possible scenarios. One is that the capitalist democracies will collapse when the gap between rich and poor becomes intolerable.

The earthquake will happen. Demagogues will arise, only to fail to solve the basic problem, to be replaced by dictators who will, in due course, restore prosperity and eventually democracy, but by then even our great-grandchildren will be dead. The second possibility is that I am wrong, and that the emerging majority of older voters will be prepared to sacrifice their present for their grandchildren's future.

But even they will need a pointer to that future. My most optimistic scenario is that a leadership group will arise that can articulate a vision, and a set of goals, which the nation will deem worthy of sacrifice. We need the equivalent of John Kennedy's 'a man on the moon by the end of the decade', of the spirit behind Marshall Aid or the GI Bill after the war. Should that happen, business must be prepared to lead the sacrifice, to pay the dues, because if it doesn't there won't, one day, be much business around.

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