Capitalism Needs Periodic Catastrophes to Keep It on the Straight and Narrow ; There Is an Age-Related Distinction: The Direct Consequences of the Slump Largely Affect the Old; the Indirect, Largely the Young
McRAE, Hamish, The Independent (London, England)
The long misery on the markets continues. It won't for ever, of course, because that is not the way the world works. Nevertheless the fact is that the decline from peak is so great, already more than 40 per cent for all major markets, that it will change the way people, particularly young people, think about both the world of finance and indeed the way they should organise their lives.
The last stock market downturn on this scale, in the early 1970s, was accompanied by a huge surge in inflation, fuelled in part by the surge in oil prices, and here in Britain by serious labour disruption. That had a profound effect on social and political attitudes. The surge in inflation led to the so-called monetarist policies, and high interest rates did indeed eventually succeed in taming most aspects of inflation. The labour unrest led to the election of Margaret Thatcher and political support for policies to curb union power.
So in a sense, what happened in the 1980s and 1990s was shaped by the instability of the 1970s. The intriguing question now is whether the latest slump of shares will, in different ways, shape attitudes of the next 20 years. It is of course too early to be at all confident of the change in attitudes that may take place, for we have yet to see the full scale of this market and economic cycle. We don't know, crucially, how much damage has been done to the real economy. Still it seems pretty inescapable that people will view market capitalism differently as a result of this once-in-a- generation share slump.
There is an important age-related distinction here. The direct consequences of the slump largely affect the old; the indirect, largely the young.
Up to now the story has been one of pensions and savings - the effect that falling share prices have on the value of the occupational pension pots and on other savings media such as PEPs and ISAs. Most of us will have had a conversation with someone recently who has realised that retirement will have to be postponed a couple of years, maybe more, because their pension is not worth the number they expected it to be.
But for the young, or at least most of them, the impact is on attitudes and prospects rather than the way they will live in the next few years. Of course some young people will have lost their jobs: I feel particularly sorry for students who chose Enron or Andersen on the milk round rather than BP or KPMG. It is rough, too, on people seeking their first job right now, who will face a much tougher job market than they would have done two or three years ago. But while the demand for young skilled people remains reasonably secure, the impact for most of them will be in the future, not now.
Most obviously there is the impact on attitudes towards the commercial world. I don't think some people in the business community have any inkling of how much damage has been done. In yesterday's Financial Times there was a full-page advert by WorldCom entitled "Moving Forward". It was signed by someone called John Sidgmore, who is the present president and chief executive officer, the previous senior officers having been sacked.
It starts off: "There has been a lot of reporting and speculation about the state of WorldCom lately. I want to tell you what I see as our future." It then goes on about the team of 60,000 "working hard to support our 20 million customers" and the "unparalleled global infrastructure that our customers rely on..." And there is stuff about their "strong competitive and creative spirit" and "our legacy will continue". …