Harold James: Schadenfreude Capitalism



Immediately after Lehman Brothers' collapse, German Finance Minister Peer Steinbruck put this diagnosis as a challenge not only to the US, but also to other countries - notably the United Kingdom - that had 'Americanised' their financial system. The problem, Mr Steinbruck argued, lay in over-reliance on highly complex financial instruments, propagated by globalised American institutions: 'The financial crisis is above all an American problem. The other G-7 financial ministers in continental Europe share this opinion.'

Criticism of America did not stop there. Mr Steinbruck's successor, Wolfgang Schauble, persisted in the same tone, attacking 'clueless' American monetary policy, which was supposedly designed only to feed the American financial monster.

But such criticism ignores the problems faced by banks that did not use or deal in complex financial products. Bank regulators had long insisted that the safest possible financial instrument was a bond issued by a rich industrial country. Then came the eurozone's sovereign-debt crisis, with its roots in lax government finance in some (mostly southern European) countries.

Critics now had a new focus. Naturally, many conservative Americans were delighted by the imminent failure of what they saw as Europe's tax-and-spend model, with its addiction to a costly and inefficient welfare state.

They were not the only critics. The chairman of China Investment Corporation, Jin Liquin, commented skeptically on a proposed Chinese bailout of Europe, which he called 'a worn-out welfare society' with 'outdated' welfare laws that induce dependence and sloth.

Criticism of large European transfer payments may have some justification, say, insofar as French, Greek, and Italian civil servants could indeed retire young. And restrictive labour laws have indeed discouraged many firms from hiring new workers. But such criticism captures only one small part of Europe's difficulties.


One of the most widely used Chinese terms of recent years is 'xing zai le huo,' best translated as 'schadenfreude': somebody else - some other society - tripped on an enormous political banana peel. Asian critics looking at America and Europe could easily convince themselves that the Western model of democratic capitalism was collapsing.

But haven't similar capital investments and soaring property prices also been an increasingly important part of China's transformation since the 1990's? Chinese citizens are now not only frustrated with the high-speed trains' increasingly obvious imperfections and inadequacies, but are also wondering whether their government has set the right priorities.

Schadenfreude comes in several flavours. Russia's Prime Minister Vladimir Putin and Argentina's President Christina Kirchner liked to think that their versions of a controlled economy and society built in the aftermath of default on foreign debt offered a more viable alternative to cosmopolitan international capitalism. Both now face major problems with disillusioned populations.

In short, the world's major economies share many more vulnerabilities than is commonly supposed. A response to global challenges based simply on schadenfreude may promote a short-term sense of well-being, as people often like to think how lucky they are to have escaped a mess that originated elsewhere. But soon they encounter their own banana peel; indeed, today's global economy is a riot of slipping economic models. And tomorrow the cacophony will be even louder.

So, is there any absolutely sure way of organising economic life? If the quest is for a way of securing perpetual security or dominance, then the answer is 'no.'



Behind the idea of a particular model of growth was the belief that a sensibly ordered state could somehow capture and eternalise the fruits of economic success. Like it or not, states cannot organise themselves in that way any more than individuals can.
