In a dialogue with his daughter, Giacomo Corneo considers the alternatives to current capitalism in search of a better system. The solutions proposed – public investment funds, “shareholder socialism”, etc. – are lacking in modesty and unwavering faith in financial markets.
Giacomo Corneo’s book, translated from German, proposes, as its subtitle indicates, to review different economic systems and compare them to capitalism. The author uses a rhetorical device to introduce the problem: a dialogue between a father and his daughter. The latter addresses to capitalism (and indirectly to her economist father) a set of well-known reproaches (waste of resources, social injustice, alienation). The father will try to respond by considering a series of alternatives to capitalism, with the idea that the latter can only be replaced by a “better” system. The different chapters of the book will therefore be devoted to exploring some essential aspects of economic organization such as the role of the State, property or the difficulty of cooperation, as well as to examining the merits and defects of centralized planning, self-management, market socialism or the market economy augmented by social protection. The epilogue sees a family consensus emerging around a kind of shareholder capitalism with a human face, mixed with financial market socialism.
Through economic theories
The book is accessible and enjoyable to read, even though the author, a professor at the Freie Universität in Berlin, displays a great mastery of contemporary economic theories. The breadth of the subject covered, capitalism and socialism(s), requires addressing an impressive variety of themes ranging from the internal organization of companies to financial markets, including the (re)distribution of income. From this point of view, the book can also be read as an educational presentation of a wide variety of economic approaches. Few contemporary economists would have been capable of writing such a book, which requires its author to have a great deal of culture and cutting-edge knowledge of economic theories.
But the author’s main point of reference remains “mainstream” economic theory and even microeconomics. Now if there is one characteristic of mainstream economics, it is that it forgets history, in its desire to pose as a science whose principles are valid at all times and in all places. However, the theme of the book calls for at least some historical considerations, and the link between the strictly theoretical arguments and the latter is established in a fairly flexible way by the author who sometimes evokes history, or more modestly some empirical facts, to pass judgment on this or that economic system alternative to capitalism such as, for example, centralized planning, and sometimes calls upon results of economic theory to conclude on the impossibility or inefficiency of this or that arrangement.
Finally, and surprisingly given the subject matter, the great absentee from the book is Karl Marx and materialism. historical. Capitalism as analyzed by Giacomo Corneo does not appear to be very well situated historically since the work evokes “Athenian capitalism” or even “market capitalism” supposed to characterize ancient Greece. Capitalism is then assimilated to the “market economy” of which Giacomo Corneo tells us that Plato was a follower. This confusion between market economy and capitalism is partly what explains the near disappearance of class relations from the work, which only manifest themselves timidly in the very weakened form of “inequalities”.
A transformed capitalism
Giacomo Corneo’s approach should not be confused with a defense of the status quo. On the contrary, one can easily guess what becomes more and more explicit as one progresses in reading the book: the author’s preference for a substantially reformed capitalism, but not in the sense that this term takes in the context of the neoliberal transformation of contemporary economies. Giacomo Corneo believes that a pluralist market economy with an efficient and generous social protection system is the best economic system immediately achievable because, to sum up, this system combines the efficiency of market economies with the ambition for social justice characteristic of socialism.
Giacomo Corneo’s proposal is to create a public investment fund holding the capital or, in the author’s words, a socially responsible sovereign investment fund with the objective of maximizing “collective shareholder value”. The non-German reader will probably not be particularly reassured by the idea that the socially responsible sovereign fund is envisaged in the image of the Bundesbank, that is to say as an organization whose independence is guaranteed by the constitution so as not to subject its leaders to “political pressures”. One might say that independence could just as well be exercised with regard to the most essential democratic requirements and that, in these conditions, this fund would have to be managed by individuals with particularly high moral values. But this would perhaps be conceiving of financial managers as one would like them to be rather than seeing them as they really are.
“Market socialism” would almost be favoured by Giacomo Corneo, but it lacks one property to be fully satisfactory in his eyes: the discipline of financial markets. This is probably what is most surprising in the book: that, written after the 2008 crisis, it respects to such an extent the capacity of financial markets to serve as a guide for investment and the management of firms. At no time does the author question the principles of “corporate governance” or, to use another language, financialised capitalism. Financial markets are supposed to indicate where to invest, where profitability is highest, and at the same time provide firm managers with the “right incentives”.
Of course, there are some imperfections that remain (speculative bubbles and others) but nothing that is a deal-breaker in the author’s eyes as long as the right regulations are adopted. These are hardly explained and one cannot help but think that the book misses one of the most flagrant problems of contemporary capitalism or that it dismisses it somewhat hastily. Many contributions after 2008 have highlighted the fact that it is the very development of financial markets that calls into question the basic postulate of the market economy according to which prices provide the “right signals” to investors and public decision-makers. Speculation, to put it briefly, blurs asset price signals to such an extent that it is illusory to want to rely solely or even mainly on financial indicators to make economic decisions, and that it is on the contrary urgent to take non-financial indicators into account if we wish to tackle the most crucial problems of the planet, starting with global warming.
Under these conditions, Giacomo Corneo’s solution, which is to create what he calls a shareholder socialism, appears very (too) modest to change anything significant. Let us note in passing that this proposal is not very far from that formulated a few years ago by Michel Aglietta, who was less optimistic about the virtues of “shareholder value”.
Reality of economic systems
More fundamentally, the approach of the book is exposed to two criticisms. The first, mentioned above, is that there is a certain ambiguity in the terms of the comparison of economic systems. This oscillates between the “theoretical” and the “really existing”. Capitalism is thus sometimes understood as the way in which the economy works in (advanced) microeconomics textbooks, and sometimes as the mode of production that has effectively dominated the world economy in recent centuries. The same is true for alternative systems for which references to historical situations are, in the author’s defense, sometimes more difficult to find precisely because of the domination of capitalism. Ultimately, the criticism that Giacomo Corneo addresses to centralized planning differs relatively little from that of Friedrich Hayek, who already emphasized that the market allowed for more efficient processing of information. Yet it could be argued that the enormous advances in information technology in recent decades are likely to renew the terms of the controversy between Friedrich Hayek and Oskar Lange over socialism and the value of information.
Second, the lack of consideration for the historicity of social relations is particularly evident in the fact that the ultimate reference for judging the relevance or performance of alternative systems or institutional arrangements to capitalism is to verify their compatibility with the behavior of the agent of microeconomics. Giacomo Corneo insists on the fact that it is necessary to take the behavior of human beings as it is Todaywhich can be interpreted as a refusal to base alternatives to capitalism on a very hypothetical transformation of individuals into beings oriented towards cooperation. It is certainly a good method to take human beings as they are and not as we would like them to be. But it can also be seen as a way of denying that, to remain in a Marxist perspective, the transformation of social relations would necessarily modify human consciousness.
Giacomo Corneo remains in this respect in a perspective that can be described as “liberal” in the broad sense. In the discussion on the possibility or not of cooperation (underlying the idea of common property), he remains close to the conclusions of Mancur Olson: it is only possible in small communities. Similarly, the author justifies that he does not take into account the moral values that would support cooperative behavior by the fact that these values, or more precisely the individuals who would carry them, would gradually disappear in favor of individuals carrying materialist values. Evolutionary reasoning assumes on the one hand that the selection of individuals or values is done on a materialist basis, success being judged by wealth, and that on the other hand individuals can change values over time, which somewhat contradicts the initial postulate mentioned above which consists of reasoning from a constant ethos. It is therefore difficult to understand what could push individuals with high moral values to transform themselves into materialists driven by the lure of gain under the pretext that this is the best way to become rich.