Beating the Global Odds: Successful Decision-making in a Confused and Troubled World

Privatizing the Gains, Socializing the Losses

… We have promoted an insider form of capitalism which exploits and indeed creates subsidies and tax loopholes on which the insiders prosper [who have] rigged the game rather than won in honest competition.

—Martin Wolf, Chief Economics Commentator, Financial Times

You can’t prevent institutions from failing. I mean, it will happen, inevitably. It has to be that when an institution fails that it’s borne by the shareholders, then their debt-holders, but not ultimately the taxpayer.

—Mark Carney, Governor of the Bank of Canada

One of the greatest engines of growth of all time was the development of the limited liability joint-stock company of the 1700s. It allowed investors to provide their capital in exchange for a share of the profits. What made this revolutionary was the fact that shareowners were neither stuck permanently, nor were their potential losses unlimited. They could trade out of their holdings, and their downside was limited to their initial investment. However, the losses were the responsibility of the company, not of the government or of society more broadly. This risk-reward structure is literally the foundation of the modern economy.

Bad news, folks: The model has broken down and we’re feeling the pinch. The old joke about communism was that the government scooped up the goodies but socialized the losses—not exactly a motivating combination. Today, we have ended up in a similar place but with a capitalist twist: The ...