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The Road from Ruin: How to Revive Capitalism and Put America Back on Top Hardcover – Deckle Edge, January 26, 2010
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"Well-written, challenging, uplifting--Bishop and Green bring incisive insight and timely analysis to some of our biggest economic and social topics. The Road from Ruin is an intelligent and stimulating contribution to a vitally important conversation."
Jim Collins, author of Good to Great and How the Mighty Fall
“As the smoke begins to clear after the biggest financial crisis since the Great Depression, Matthew Bishop and Michael Green have some persuasive suggestions about where we go from here. As befits an Economist writer, Bishop has not lost his faith in American capitalism. But the authors argue trenchantly that some root-and-branch reform will be needed to prevent it vitality from being sapped by ill-designed regulation and political cronyism.”
Niall Ferguson, Laurence A. Tisch Professor of History at Harvard University, author of The Ascent of Money
"Bishop and Green have written an uncommonly lucid, unfailingly gripping analysis of the financial crisis that has placed the nation and much of the world in profound economic jeopardy. A particular value of the book is the rich historical, global, and intellectual context in which the authors situate the crisis. Their diagnosis of the causes of the crisis, which emphasizes psychological factors, will be controversial, as will a number of the measures they propose to prevent similar crises from arising in the future. But they have provided rich food for thought. Let the debate begin."
The Honorable Richard A. Posner, author of A Failure of Capitalism
"In The Road From Ruin, Matthew Bishop and Michael Green show why companies must respond to this crisis with long term vision and a renewed emphasis on values. An essential read for anyone who wants to learn why a corporate focus on sustainability and building a better society is the key to the long-lasting productivity growth and job creation that are needed now more than ever.
John Chambers, Chairman and CEO, Cisco
“Drawing not only on their keen understanding of current economic events, but also on a depth of knowledge of financial history, Matthew Bishop and Michael Green have written a lucid and lively account of the underlying factors that brought the world economy to the brink of collapse.”
Liaquat Ahamed, author of The Lords of Finance
“Everyone--from the CEOs of the world’s biggest companies to the consumers of their products and services--seems to asking whether capitalism as we know it will survive as our economic system. Through a unique blend of historical insights into past crises and pragmatic reforms, Matthew Bishop and Michael Green provide the ideas and action steps for renewing prosperity and preventing another meltdown.”
Ram Charan, coauthor of Execution
“The Road from Ruin is a masterpiece. Matthew Bishop and Michael Green combine truly luminous writing with simple, clear, unprejudiced scholarship and a keen journalistic awareness of how to extract lessons from the financial crisis to begin forming an agenda for a badly-needed reform of capitalism.”
Robert A.G. Monks, shareholder activist, founder of the Corporate Library and the author of Corpocracy.
"The Road from Ruin will be remembered as a serious, highly readable book, of the broadest intellectual scope. Its insights will help all of us reshape the future and enable both citizen and policy maker alike to separate real reform from the grandstanding bluster so prevalent today.”
Robert J. Shiller, Arthur M.Okun Professor of Economics, Yale University, author of Irrational Exuberance and coauthor of Animal Spirits
“The title suggests a map for a new, improved capitalism to follow - and that’s exactly what Matthew Bishop and Michael Green provide. A steely analysis of the structural and human frailty that led to the implosion of 2008 becomes their foundation for specific future reform. Alternative remedies are scrupulously examined; some discarded; others seized upon and improved. In its clarity of both thought and expression, this is a book that leaves you feeling cautiously better about the potential of capitalism and so cautiously better about its prospects.
Sir Martin Sorrell, CEO, WPP
About the Author
MATTHEW BISHOP is the U.S. business editor of The Economist and a former faculty member of the London Business School.
MICHAEL GREEN is a London-based writer who previously taught economics at Warsaw University and was a senior official in the British government. He is coauthor (with Matthew Bishop) of Philanthrocapitalism.
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They illustrate their points with a very good historical overview of how international finance has worked for the last several hundred years. I finally learned some interesting stuff about the gold standard. For example, its downside: it limited the supply of money when more gold was hard to mine. This put a crimp on economic growth.
The second part of the book is devoted to the premise that the recent (2008) financial meltdown is another example and it requires that governments remake capitalism intelligently. It's a very good discussion of the pros and cons of regulation and free market theory.
As I write this (April 2010) I hope the people in charge of economic reform in the US and the EU will read this and takes it's lessons to heart.
Many of the positions restate mainstream economics viewpoints: free trade, free markets, better ag policy, modest fiscal/monetary responses to a weak economy, anti-protectionism, allow derivatives, allow short-sales, don't allow the financial system to collapse, pure free market or pure regulatory solutions are suspect, etc.
The authors provide a large number of important, relevant insights about the current economic situation: currency imbalances harm both countries; Keynes and Smith offered deep solutions; improved financial market information is valuable; extreme efficient market, rational expectations and rational man views are inadequate; liquidity and solvency both matter, but are tough to disentangle in practice; common bank risk models increased the risk to the whole system; innovation starts bubbles and they end when experimentation breaks limits; the role of moral hazard is central but must be de-emphasized in the midst of a crisis; capitalists find ways around regulations; the RTC bad bank model worked; the impact of financial crises varies widely based upon policy responses; purely efficient markets are undermined by agency problems; regulatory capture, limited information and irrational decision-making; alternatives to corporate structure in partnerships, private equity and rich/powerful CEO's exist; and the general international government response to this crisis was better than ever before.
The authors summarize their specific solutions in a concluding chapter: bank risk can be reduced by living wills and contingent capital reserve requirements; the federal reserve needs to act faster and with greater clarity, consistency and impact, including temporary nationalization as required, in spite of political pressures; banks require a greater capital reserve cushion with countercyclical components; greatly increased regulation is counterproductive, but regulators could add value by collecting and sharing information on systemic risks; regulation should be consolidated into one agency; international free trade should be expanded; and the IMF should be modified to be a truly effective lender of last resort with increased independence from politics, adequate reserves to handle liquidity crises and a global currency that is not limited by the interests of a single country.
The book also provides guidance on where a new and improved economics can be developed. Behavioral economics provides an improvement on homo economicus. Institutional analysis can provide insights into why firms and countries with billions and trillions at stake failed to identify or hedge against the obvious risks of an overheated global economy. Using incentives in place of detailed regulations is a preferred strategy. Automatic or countercyclical stabilizers have great potential. Simpler markets and institutional structures may provide the greatest capitalist value. The biological model or adaptive market hypothesis may provide a better framework.
Some of the writers' positions are less convincing: they claim that a split between retail and investment banking does not reduce systemic risks and would be overcome by depositors and banks; limits to bank size do not reduce risks; historic regulation of interest rates and the stock market destroyed value and could not be sustained in the global economy today; Keynesianism was proven a failure in the 1970's; most economics, policy and political groups migrated to the Chicago school's monetarist, rational expectations and anti-regulation views; nationalization of banks is the most effective response to crisis; regulatory staff are inherently inadequate to their tasks and regulation is always overcome; international capital controls are ineffective; and financial innovation would be stifled by requiring derivatives to be traded in exchanges.
The authors devote a good portion of the text to describing many widely decried problems with the incentives faced by economic actors, without providing better solutions: role of institutional investors with boards; generally ineffective corporate board governance; short-term bias and incentives everywhere; ineffectiveness of global institutions; various problems with regulators; executive compensation faults; financial illiteracy at all levels; role of legal versus principle based regulations; rating agency and executive pay consultant incentives.
Although the authors invest much time describing the counterproductive role of assigning blame, they fall into this trap by criticizing: politicians, journalists, the media, uninformed citizens, the IMF, Sarbanes-Oxley 404, mark to market accounting, rating agencies, institutional investors, George Soros, Nicholas Taleb, Milton Friedman, board members, auditors, lawyers and regulators.
The text may be overly ambitious, attempting to incorporate all related public policy issues, background and history. At times, the writing is repetitive or meandering.
The title, sub-title and chapter headings are overly ambitious in positioning this work as a guide to how and why American capitalism should be overhauled to avoid "ruin". One sentence captures this reach: In the future, American leadership will depend on its ability to remake capitalism in a way that is not only more productive but also sustainable, socially and environmentally.
Significant space is allotted to business as a profession, ethics, and corporate responsibility with a plea for business leaders to ignore Milton Friedman's advice and take broader responsibility for the capitalist system and society. The focus on "doing well by doing good" and enlightened long-term self-interest seems out of place in a work devoted to managing the structural incentives of an economic system.
Throughout the text, the authors appeal to actors to see the broader picture: long-run versus short-run; the general good; improved information; a commitment to innovative solutions; economic and social goals; a combined economic framework, international perspective and a mass movement of stockholders to manage corporations. They have identified the vital issues, but not the structural solutions to align incentives.
In spite of these quibbles, this is an outstanding work that provides a solid base for enlightened public policy debate.