Capitalism XXL: Smith versus Keynes

"Capitalism XXL" is not only the English version of "Gigantism", it is much more than that. The whole book was rewritten, to make it much more a story about which form of capitalism can help us achieve a fair society, get to net-zero, and deliver prosperity for everyone. In that sense, it has become a rediscovery of some "founding fathers" of our current economic system, and most notably a comparison between Adam Smith (18th Century) and John Maynard Keynes (20th Century).

As we are speaking, too big to fail banks of the previous financial crisis (2008) are bailing out regional banks and larger systemic banks (Crédit Suisse), pushed by central banks. Too big to fail bailing out too big to fail...

Also, Microsoft and Alphabet (Google) are putting up a fight in pursuit of leadership of Artificial Intelligence (AI). The giants are more present than ever!

Capitalism XXL is not about "small is beautiful and big is bad". However, small should be treasured much more, and "too big" is certainly a potential threat for a balanced and fair capitalist system.

On my flight to New York I re-read "A theory of moral sentiment", a book written in 1759 by Adam Smith, long before his famous "The Wealth of Nations" (1776). Both have to be seen together, as Smith wanted to draft a guideline for a "just", a moral, today we would probably say ethical or sustainable, economic system.

For such a system to be fair, two rules should prevail according to Smith:

1. Cartels should be avoided at all price

2. The distance between politicians and business should be monitored - hence crony capitalism avoided.

Adam Smith was not the selfish-egoist economist that some portray. To the contrary. He was an economist that was very conscious about human behaviour, and wanted to direct this human behaviour towards what was best for society as a whole.

John Maynard Keynes was a mathematician, who became an economist later. His view of the world is much more "system-driven" as opposed to Smith's "morally driven" economy. Keynes is also the father of "Gigantism" or the economist that is at the origin of current "Capitalism XXL". He rejected the atomistic competition as an efficient market form. The policies that he advocated called for the government to assist the ongoing movement towards cartels, holding companies, trade associations, pools and other forms of monopolistic power. He saw this as an efficient way for governments to achieve certain goals, and the benefits would trickle down to all companies and society at large.

We are clearly in favour of more Smith, and less Keynes.

In a certain sense, "Gigantism" or "Bigness" carries the seeds of its own destruction. Giants are fragile, inert, and are doomed to crumble under their own weight one day. In the process, they make a lot of damage however, which should be avoided. Prevent them from becoming too big to damage the system.

Big organisations can avoid the problems of "bigness" by working on three strengths:

• Decentralisation
• Loyalty
• Subsidiarity

Large organisations formed as a partnership will be stronger than equally large organisations that lack such a bond. Also, centralised large organisations (or countries) are more fragile than the same size organised in a decentralised way.

In the debate that followed the presentation of the book, some interesting points were raised by the panellists.

Stijn Van Nieuwerburgh - Earle W. Kazis and Benjamin Schore Professor of Real Estate at the Columbia Business School highlighted the role of debt and easy monetary policies in this process. He is working on current overvaluations of commercial real estate, and also on the impact of Covid-induced homework on office space!

My good friend Daan Struyven , Macro Economist and Senior Energy Economist at Goldman Sachs, raised a lot of good questions. I.a. the risk of paternalism, the benefits of monetary and budgetary policies to avoid permanent damage in business cycles, the role of AI in Gigantism and last but not least the quality of the Champions'League soccer game (it was the evening of Manchester City versus Real Madrid, won by the first (4-0) with a star role for our compatriot Kevin De Bruyne!

Jan Bellens EY Global Banking & Capital Markets Sector Leader, stressed the importance of clear vision as companies grow larger, referred to the ongoing war between Russia and Ukraine, and the weakness of highly centralised system.

We welcomed the presence of many business leaders, academics and also our Belgian tennis legend Kim Clijsters.

It was a night to remember!

Many thanks to Filip Vanden Bulcke , consul of the Consulate General of Belgium in New York .

Capitalism XXL is published by McGill-Queen's University Press and can be ordered via Amazon or other online bookshops.

Econopolis