Jeannette von Wolfersdorff: “In Sofofa and the CPC I have never seen a real willingness to make pro-market structural reforms” – La Tercera

The phrase is attributed to the Marxist theorist Fredric James: “It seems easier to imagine the end of the world than the end of capitalism.” With his usual cunning and sense of provocation, the Slovenian philosopher Slavoj Zizek takes the quote and sarcastically reworks it: “It seems that capitalism will survive not the end of the world but of humanity.”

On a distant sidewalk, the German-born economist Jeannette von Wolfersdorff (1976) observes the virtues of the global market economy: “Capitalism is probably the best possible economic system,” she says. “No economic model has been capable of creating so much well-being for so many people and in such a short time,” she underlines in her book Capitalisma thorough essay on the challenges and possibilities of the market economy.

Co-founder of the Fiscal Expenditure Observatory, Jeannette von Wolfersdorff was the first woman to sit on the board of the Santiago Stock Exchange. Now, after her failed appointment to the board of directors of Banco Estado, her name sounds to replace Jorge Desormeaux as president of the Autonomous Fiscal Council.

“A complex system is never perfect, but in recent years capitalism has been receiving more and more structural questions about its functioning,” he writes. “In Chile, it was the social outbreak of October 2019 that led to a more in-depth discussion of unresolved aspects of capitalism.”

From the Nobel laureate in economics Joseph Stiglitz to the British philosopher John Gray, global capitalism has won relevant critics. The malaise has permeated the new generations even in rich countries: according to a report by the British Institute of Economic Affairs, 80% of young people in the United Kingdom blame capitalism for the housing crisis, while 75% hold it directly responsible of the climate crisis.

“We are at a turning point, capitalism needs structural reforms”, says Jeannette von Wolfersdorff.

Published by the Taurus label, the book analyzes the advantages of capitalism as a system that generates wealth, promotes competition and facilitates innovation. It also observes its undesirable effects: environmental and social negligence, as well as the desire to take away freedom from markets. “The innovative energy of capitalism, in turn, sinks into concentrations of power.”

Drawing on history, neuroscience, and evolutionary biology, the author describes how capitalism has shaped culture and how it influences behavior. She offers a historical tour where Marx, Von Hayek, Friedman and Walter Eucken, one of the inspirers of the German social market economy, travel. And of course, she dedicates a chapter to Chile’s challenges: an economy dominated by large groups, with little dynamism and innovation and large gaps.

The book seeks to invite dialogue on “how to move towards a more equitable, innovative and sustainable capitalism.”

How responsible are businessmen for the malaise towards capitalism?

The starting point of how polarized a country is in the economic debate depends mainly on the economic elite and big businessmen who want to maintain the status quo and are not able to give in to regulations. And finally, this delay in reforms makes economic or social crises excessively large and difficult to resolve.

The Chilean economy has a rather hierarchical character. How does this trait hurt the market?

As a small country, Chile has a special challenge: an economic elite that knows and cares for each other. Small markets should focus on pro-competitive measures. And in the case of Chile, I use the example of Israel: based on a study by the Central Bank, Israel approved a law that prohibited pyramid structures, because they are a kind of multiplier of an already concentrated power. And it separated the banking and non-banking business, which makes a lot of sense in terms of competition and would be very important to evaluate in Chile. We have pyramid structures and large economic groups that are not properly regulated. And to that are added the excessive hierarchies and wage gaps that are too large.

How could this hierarchy be reduced?

Incentives could be thought for companies to be less hierarchical and do more bottom-up innovation. Because today, in the fourth Industrial Revolution, innovation will never be born from the head of a manager; today innovation is born collectively. But when we have companies where management is excessively vertical, where the manager does not like being criticized, where there are bureaucracies that finally lead to Machiavellian styles to climb, the Chilean company is not going to get out of its lack of complexity.

Next to competition you highlight cooperation. Is it possible to unite both, for example, in large companies?

Evolutionary biology has shown that homo sapiens evolved through competition with other groups. And within the group there was cooperation, to beat the rivals. The same goes for markets: they need these two concepts. There are cases of companies like Nuk in the United States that base their success on competition and internal collaboration. But for that they need market pressure. Today we see that competition is being reduced by concentration in the markets and that large groups do not really want competition, and seek regulations to stay in certain niches without competitive pressure. In fact, they resemble the communist ideology of not wanting competition, although for different reasons. There are few who actively defend the market. And I believe that this is the challenge of the regulation that we have today.

If the Chilean economy were a garden, it would have a handful of gigantic trees and a multitude of bushes. Is it a sustainable ecosystem?

The economist Luigi Zingales says that capitalism must be rescued from the capitalists. And what does that mean? Regulating these big interests because they are not good for democracy, as former President Roosevelt already pointed out in the 1930s, when he used the New Deal in the United States, which explicitly addressed the phenomenon of economic groups. And that in Chile, in my opinion, is something we have to do. But before thinking about regulations for large groups, step number one should be to think about how to approach these issues systemically, such as having a permanent council that makes proposals and monitors the functioning of the market, with better data, but also with continuous proposals, not only as the National Productivity Commission does today, but much broader and stronger in the sense of making proposals for the functioning of the market or the dynamism of innovation. Even thinking of Leonard Miksch, the German economist, a student of Walter Eucken, and one of the most important authors for the concept of the social market economy, I believe that an economic policy must be created in our country.

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“Hopefully the big businessmen will open up in the future, because you have to make reforms with or without their will, and they do much better with them,” he says. Photo : Andres Perez

At this time, businessmen should contribute to the transformation of capitalism, he says. What disposition do you see in them?

For me, this is where neuroscience comes into play. Without wanting to fix it excessively in the case of Chile, whoever has power tends to abuse it, even more so when this power comes with spaces for discretionary decision. And when the one who has power also has high levels of testosterone that condition each other, the desire to want more and more increases. Because testosterone has a positive relationship with a hormone called dopamine and so no dividend is big enough, no market possession is enough, no yacht, because there may be someone in the world who has more. This is the neuroscientific challenge of capitalism and the reason why it must be regulated, with an institutional framework in charge of that. Furthermore, studies have shown that the expectation of making money activates more or less the same areas in the brain as cocaine does. Money is highly addictive. Narcissism is at the heart of the problem of capitalism. It is not rational to deny market regulations, because denying them ultimately builds an anti-capitalist opposition that is also irrational, but is born from the denial of wanting to regulate capitalism. And given that this is not just a phenomenon of the big businessmen in Chile, I think that we really have to think about incentives, recognizing this condition. Perhaps companies can be rewarded when they are sustainable, based on audited data, when they create value for their parts, their employees, the community, and greatly reduce their emissions. And when they are not transparent, they should receive sanctions.

After the social outbreak, the economic elite was concerned about the levels of inequality. Do you see the same concern today?

In the CPC and in the Sofofa I have never seen a real willingness to make pro-market structural reforms. I have never seen a will to want to approach the OECD averages, with a clear vision and objectives. And in my opinion it is what we need most, not only to align the will of investors, but also to align economic policies. And start discussing economic tools. In Chile we speak of the tax on wealth, of redistribution, without being clear about how we measure what we want. If we want to reach the OECD average in so many years, one adjusts the tools, and if these are not effective, they have to agree on others. But in the end it is a much less ideological debate when we have clear objectives. Hopefully the big businessmen open up in the future, because reforms have to be made with or without their will, and they do much better with them. And the government has always pointed out that this is what it is all about, reaching consensus on reforms

Is the debate in Chile highly ideological?

Excessively polarized and ideological. And my goal with the book was to contribute and hopefully de-ideologize the debate. The economic elite in Chile, as happened in the 19th century, is not capable of making minimal structural proposals for the functioning of the market. And with that, again, it creates anti-market antibodies. For some Chileans today, talking about the market and competition is like talking about something bad. And it is a tremendous mistake, because the human being to innovate needs competition and cooperation, both. The ideologization in Chile makes the economic debate very old-fashioned.

What role does the new Constitution play in this scenario?

The debate on the functioning of the political system is very important. And how does that later translate into law? But hardly social changes are achieved through constitutions. I believe that it is urgent to understand that the discomfort that was expressed in the social outbreak needs a response not only constitutional, but concrete reforms, and not only in the field of social protection and health; urgently needs to rethink the functioning of the market and the State. Public spending needs a series of structural reforms. When we see that the two actors need changes, we cannot afford to continue waiting for the Constitution. The lack of will to promote reforms in both areas is the root of the social explosion, the malaise with the State, with corruption, with inefficiency, but also the abuse of power in the private sector. It seems dangerous to me that the focus is almost exclusively on the constituent process and we do not promote reforms in the sphere of the State and companies with the same intensity. I find it sensitive because precisely the wills leave when the crises move away. Crises must be taken advantage of.

He is mentioned to assume the presidency of the Autonomous Fiscal Council. Have you received the proposal?

That is open. I will be happy to contribute from the public or private world precisely on the issues that matter to me, the shortcomings of the market, greater transparency and information.

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Jeannette von Wolfersdorff: “In Sofofa and the CPC I have never seen a real willingness to make pro-market structural reforms” – La Tercera