A new era for capitalism

“Capitalism is changing in fundamental ways. For many years to come, what’s happening will affect the relationship between business and government, between taxpayers and the private sector, between employers and employees, between investors and companies. … A new capitalism is likely to emerge from the rubble.” 

- Robert Peston, business editor, BBC

EXECUTIVE SUMMARY

“Derivatives,” said Warren Buffet, a renowned US investor, “are the financial equivalent of weapons of mass destruction.” He has certainly been proved right, with failing banks around the world showing that opaque financial instruments cannot mask the effect of reckless lending. After a lull in which it seemed that the rest of the economy might just avoid the worst effects of the banking crisis that started in August 2007, consumer demand, manufacturing and trade have all fallen precipitously and the global economy is in the grip of the worst downturn since the 1930s. After close to 30 years of light-touch regulation, globalisation and free-market binges, during which some politicians claimed to have tamed the business cycle, many commentators have now suggested that capitalism itself is entering a new phase.

In this report, the Economist Intelligence Unit examines the views of the people who own and manage the world’s businesses. Has capitalism changed, and if so, what might the new landscape look like? How will organisations adjust as a result of the crisis? Do business people support the actions taken to stem the crisis and do they favour expanding the government’s remit beyond the banking sector? To answer these questions, we conducted a survey of more than 400 senior business people in companies around the world. We supplemented the findings with interviews with experts, analysts and executives, as well as analysis from our editorial team.

The most striking finding is that almost 60% of respondents agree that the current crisis has “fundamentally changed” capitalism. According to one respondent, “Much as the Great Depression did in the 1930s, this crisis will permanently change the way governments and businesses view the world.” In summary, the survey respondents believe that there will be more government oversight, more economic nationalism, less risk-taking and slower growth. Decision-making within businesses will reflect a new reality, as frugal customers and state regulators hold sway. The respondents support emergency intervention in the banking sector, but their opinions are more conservative when it comes to further reform, such as outright nationalisation of other key industries, creating so-called bad banks that buy and ring-fence toxic debts, or limits on executive pay and bonuses.