Rhine Capitalism

18 April 2014


rhine castle

Thursday’s Financial Times included a special supplement on “Frankfurt as a Financial Centre,” and this supplement included the article “Deutsche Börse hopes that its philosophy has global appeal.” And what is the philosophy of Deutsche Börse AG? According to chief executive Reto Francioni, the philosophy of Deutsche Börse AG is “Rhine capitalism.” So what is Rhine capitalism?

deutsche-borse-group logo

Here is a quote from Reto Fancioni from the Financial Times article that employs this interesting formulation:

“We share the same basic belief that the market economy also has to fulfill a social obligation, and that the ‘Rhine capitalism’ model of an economy buffered by corporations and focused on the long term, with strictly regulated markets — which are free for that very reason — is fundamentally superior to the Anglo-American capitalism model of deregulation.”

Further along in the same article we find the following:

[Deutsche Börse AG] hopes that its philosophy of a capitalism based on long-term careful planning will find a more receptive audience worldwide.

If you take a minute to read the mission statement and core values on the Deutsche Börse AG website you will find the usual corporate platitudes, though the following sentence underlines the quotes above from the Financial Times article:

We stand for integrity, transparency and the safety of capital markets. We support regulation that advances these qualities.

A New Year’s reception speech by Reto Francioni on the Eurex Group site repeats some of his thoughts on “Rhine capitalism” in a slightly different context. After stating his strong support for the European idea — saying that “there are no alternatives” to a united Europe — Francioni goes on to say:

…we share the same basic belief that the market economy also has to fulfill a social obligation and that the “Rhine capitalism” model of an economy buffered by corporations and focused on the long term, with strictly regulated markets — which are free for that very reason — is fundamentally superior to the Anglo-American capitalism model of deregulation.

This very interesting claim, however, was preceded in the speech by this…

I am a fan of good regulation. But I stress the word “good”, meaning professional. After all, we are involved in a global competition in regulation.

…and this…

The US remains a pioneer in many respects… They are ahead of us in re-regulation of capital markets and they made use of the crisis to rapidly create new and effective banks and stock exchange
organisations which have been strengthened through mergers and disciplined through sanctions.

Francioni really sounds like he’s trying to have it two ways here: he acknowledges that the US is ahead of Europe in re-regulation but then also holds that “Rhine capitalism” is distinctive because it does not endorse the Anglo-American model of deregulation. So which is it? Is the US leading in re-regulation, or is it guilty of a reckless deregulation that stands in stark contrast to “Rhine capitalism”?

Francioni is talking like a politician when he talks about Rhine capitalism embracing regulation and being the stronger for it while saying that there is a global competition in regulation so that “good regulation” is called for. I doubt that you could find an Anglo-American banker who would have anything but praise for “good” regulation. For this statement to have any content at all it would need to explain the difference between good regulation and bad regulation, preferably citing actual examples of each.

Setting aside Francioni’s double-speak about regulation, what are we to understand by “Rhine capitalism” on the basis of his public pronouncements? We can include within “Rhine capitalism” at least the following:

1. the market economy has social obligations

2. corporations “buffer” the market economy

3. the market economy should be focused on the long term

4. the market economy should be strictly regulated

5. free markets are free in virtue of being regulated

6. regulation of the market economy should be professional

All of these are nice ideas, but they all beg the question. What are the social obligations of a market economy? Are they the obligation to increase the wealth of a society, or to attempt to impose an elusive “safety” and “stability” on markets? How do corporations “buffer” the market? Are corporations to have privileges over and against sole proprietors and partnerships in their role as market buffers? Or is this rather a veiled criticism of the role of private equity? What is the long term for Rhine capitalism? Are we talking about ten months, ten years, or ten centuries? I certainly don’t see in Europe (not to speak of the Rhineland) any more willingness to fund the future than I see in the US. What is a strict regulation, and how are we to distinguish between good and bad regulation? Between professional or unprofessional (amateurish?) regulation? How much strict regulation means that a market is free in virtue of its regulation?

Although I don’t expect that my questions will be answered, I don’t ask them merely rhetorically. I really would like to know exactly what “Rhine capitalism” is, though I think the key to understanding the idea is this: Rhine capitalism is not Anglo-American deregulation. In other words, whatever the British and Americans are doing, we aren’t doing, but we’re still capitalists.

I worry that, in the wake of a devastating financial crisis, European bankers selling themselves to a suspicious public now focused on resentment of “the one percent” by defining “Rhine capitalism” as a vague alternative — the one thing that is clear is that it is not Anglo-American deregulation — are really selling a bill of goods. Francioni offers all kinds so reassuring ideas about a carefully planned, strictly regulated market that fulfills social obligations, but we are right to be suspicious of this in the same way that the working class is right to be suspicious of wealthy bankers. Bankers who claim to do good usually end up making a mess of things, and the bankers that usually benefit society the most are those than focus on making the most money.

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Grand Strategy Annex

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