“[Bishop and Green] argue trenchantly that some root-and-branch reform will be needed to prevent capitalism’s vitality from being sapped by ill-designed regulation and political cronyism.”
—Niall Ferguson, Laurence A. Tisch Professor of History at Harvard University, author of The Ascent of Money
“An uncommonly lucid, unfailingly gripping analysis of the financial crisis that has placed the nation and much of the world in profound economic jeopardy. A particular value of the book is the rich historical, global, and intellectual context.”
—The Honorable Richard A. Posner, author of A Failure of Capitalism
“The Road from Ruin will be remembered as a serious, highly readable book, of the broadest intellectual scope. Its insights will help all of us reshape the future and enable both citizen and policy maker alike to separate real reform from the grandstanding bluster so prevalent today.”
—Robert J. Shiller, Arthur M. Okun Professor of Economics, Yale University, author of Irrational Exuberance and coauthor of Animal Spirits
In a new book, U.S. Business Editor of The Economist Matthew Bishop, and economist Michael Green, herald the economic crisis a much needed opportunity to design a new, improved form of capitalism. The biggest mistake we could make would be to assume that capitalism does not need to change.
THE ROAD from RUIN
How to Revive Capitalism and Put America Back on Top
By Matthew Bishop & Michael Green
Capitalism as we knew it ended on September 15, 2008, the day Lehman Brothers went bust. Many books have ably described what happened during the financial crisis, but what we need—and what The Economist’s U.S. Business Editor Matthew Bishop and economist and writer Michael Green deliver in The Road from Ruin: How to Revive Capitalism and Put America Back on Top (Crown Business; January 26, 2010; $27.00)—are prescriptions for reform so that we don’t drive the economy off the proverbial cliff yet again.
We are at a crossroads. What we do and how we do it will profoundly affect whether the coming years will be ones of depression, stagnation or renewed prosperity. In The Road from Ruin, the authors take a much needed look at the bloody corpse of capitalism, and offer a vision for the road ahead to a revived, and reformed capitalism that benefits not only America, but positively impacts the economic health of the entire globe.
“Something must be done about regulating financial markets,” say both pundits and the public. But what? Here is where historical parallels offer valuable lessons. In the book, the authors pull from the French Panic of 1720 (in which paper money was banned, causing the economy to collapse, and spurring the Revolution of 1789), the Tulip Craze of the seventeenth century, the Great Depression of the 1930s, Japan’s Great Deflation, the Long Term Capital debacle of the 1990s, and the Dotcom bubble among others, to illustrate the common blunders that delay economic healing or set a course for a repeat crisis.
Applying the lessons from these blunders, Bishop and Green skillfully plot a course forward. This map incorporates four essential factors that must shape our decisions as we create a new, improved capitalism. The biggest mistake we could make would be to assume that capitalism does not need to change.
- Don’t throw the baby out with the bathwater: Better regulation of capitalism is needed. Bad regulation that imposes new costs on the economy without improving the soundness of the system is not. Sadly, the latest proposals for financial reform from the Obama Administration fail to learn the lessons of history by trying to abolish risk in banking and turn back innovation. Capitalism goes through bubbles because it is an optimistic system that taps into the deep human desire for a better life. Bubbles usually go hand-in-hand with financial and economic innovation—from trade with the New World to the railroads, radio, Internet companies and, even real estate finance—that are economic breakthroughs generating great benefits. Rather than banishing the innovation that spark booms, the challenge for regulatory reformers and financiers is to figure out how to use them wisely.
- A global economy needs global rules: This has been a global economic crisis; the problems in America have done deep damage abroad, and America’s problems have been caused in part by the economic policies of countries such as China. Global economic institutions like the International Monetary Fund failed to do their job, because they are too weak and pursued the wrong policies. They need to be modernized and empowered. The reliance of much of the world economy on the “dollar standard,” caused dangerous economic imbalances. Ending the dollar standard—just as the gold standard was put to rest in an earlier era—is crucial for creating a stabler global financial system. America should now take the lead, working with other countries to write the new rules for the global economy, just as it did after the second World War at Bretton Woods.
- We have to stop driving blind: The crisis has revealed that much of the data we relied on as evidence of economic progress was downright wrong. Short-term profits were not an indicator of long-term value creation. Rising share prices were evidence not of better, more profitable companies but of a bubble that many economists and policymakers—Alan Greenspan chief among them—said could not exist. Higher GDP turned out to be less a productivity miracle than an illusion. The economic ideas that led us to put so much faith in these measures—such as the efficient market hypothesis—have been discredited; we need to replace these toxic ideas. The authors’ insights into how to understand the complexity and irrationality of the human beings who make up the economy provide the foundation for reinventing a dismal science that is in danger of becoming less and less relevant to the way the world really operates. After the Great Depression, policymakers realized they had been driving blind, and launched a global initiative to measure economic activity more accurately. It is time for a major overhaul of that system.
- Don’t accept the “Nuremberg Excuse”: Just because a company provides incentives to do what you believe is the wrong thing (selling sub-prime mortgages to those who could never pay them back) and your boss says it’s “OK, because if we don’t do it the competition will” is not a justification. At the heart of the crisis was a failure of values and personal responsibility, encouraged by the short-termism of the financial markets. People who work in the capitalist system have to undertake individual responsibility to do the right thing and do their part to give capitalism a soul. Investors, especially the pension funds who look after our retirement savings, need to change fundamentally to encourage business to take long-term approaches that create sustainable profit in ways that improve rather than harm society.
This is the moment that will shape the twenty-first century. Behind us lie the ruins of the discredited old capitalism. In one direction is the path of denial—to do nothing to reform the financial system. In another direction, to hand control of the economy back to government. But straight ahead lies perhaps the more difficult choice, because it is one without a road map of old orthodoxies. It will involve preserving the much that is good in capitalism while finding ways to make it work better. This is The Road From Ruin.
For more information, please visit: www.TheRoadfromRuin.com.
Matthew Bishop is the U.S. business editor of The Economist and a former faculty member of the London Business School. He has served as a member of the Sykes Commission on the investment system in the 21st century, as well as on the Advisors Group of the United Nations International Year of Microcredit 2005, and has been honored as a Young Global Leader by the World Economic Forum. He has been interviewed on numerous media outlets, including NPR, BBC, CNBC, and the Charlie Rose show.
Michael Green is a London-based writer who previously taught economics at Warsaw University and was a senior official in the British government. He is the co-author, with Bishop, of Philanthrocapitalism: How Giving Can Save the World. Green has written for the New York Times, Washington Post, Guardian and other publications.
THE ROAD FROM RUIN
By Matthew Bishop & Michael Green
On-sale: January 26, 2010; Hardcover, 384 pages
ISBN: 978-0-307-46422-4; Price: $27.00
For more information, contact Dennelle Catlett at firstname.lastname@example.org or 212-782-9486.