January 25, 2013 in Economics
Or Why Capitalism as we know it is doomed
For the third time in its turbulent history, the capitalist world (nowadays that means almost the whole of humanity) faces a crisis that threatens its very existence: a third Great Depression (1880’s, 1930’s, wobbling from the early 1970’s or at least 1986 and now the 2010’s where we may be in the deepest parts of the current downwave). To ordinary Westerners like myself, sitting semi-comfortably in a McDonald’s ‘restaurant’ as I write this, that threat to capitalism may seem a little exaggerated. Yes, there’s talk of austerity, and in countries like Greece and Spain they really know the meaning of that term right now, but here in Britain the government is still largely succeeding in bamboozling an under-educated, under-politicized and over-advertised-to population that they will prosper in the long run with just a few more years of high taxes, high prices, lies about how low the inflation rate really is when the currency has devalued by some 20%-40% (depending on which figures you take and which almost nobody seems to know about) since the crash of 2008, with wages falling behind continuously – and government inactivity and complacency. So is it really that serious?
Well, I think that when you look back at the history of such times, then yes, it is that serious – at least potentially. Despite appearances to the contrary, the world as a whole is still being run primarily by and for wealthy elites who keep their domestic (Western) populations docile and ignorant while they rape the rest of the world’s natural wealth. Of course, with 7 billion people, there are bound to be problems, but there appears to be no moral inclination to ‘improve’ the non-Western portions of humanity, or to advance the awareness of we Western plebs about anything except how to shop and get into debt (to that same elite). In short, colonialism never died; like capitalism itself, it survived by transforming its appearance in the face of changing circumstances.
The capitalist system itself began with a period of economic malaise and revolutions in the late 1780’s, roughly, with the British Industrial Revolution and the French Revolutions of this period, and the wars and further revolutions that spread around Europe as a result, fairly rapidly doing away with the Feudalism that had run the primarily agricultural world economy before then. The feudal lords ended up losing influence to upper-middle-class capitalist industrialists (who gained their influence in the long run from their phenomenal profits). The former system of bonded serfs ended up becoming replaced with an industrial working class who knew all about “Liberty, Equality, Fraternity” and gradually set about unionizing themselves for protection against the ruthlessly exploitative early capitalists, even where the elites tried to make it illegal. Unionization didn’t really become effective, though, until the 20th Century, due to the literally violent opposition of the business owners and governments of the day, and the length of time it took for the contradictions involved in on the one hand believing that all men were equal and on the other hand oppressing people managed to work through the legal system somewhat. The lords and the bosses both started out strongly believing that they were intrinsically superior to the workers and the poor generally, and of course other races, since they saw their wealth and position as proof of this. It is obvious that many still do think like this, of course. Other possible explanations for Europe’s advance and their own good fortune, such as the beneficial effects of the large moderate climate zone stretching from Portugal to China, the concentration of vital resources, their own educational advantages and ready access to capital, their strongly inegalitarian protectionist economic policies and so on, were not understood at the time.
Nevertheless, the elites did not fail to notice that their world had been changed primarily by revolutions of the lower classes: typically socialist radicals leading peasants in a revolt for fair distribution of wealth and for freedom from bonded labour, but moderated by middle-classes who as much as the others wanted to get rid of the Feudal landlord parasitical classes (the aristocrats), but without losing their own property and influence. The result of the revolutions therefore was not socialism of any sort, but capitalism, because the middle-classes managed to keep things under enough control. They were well-educated and influential people and got their own pseudo-socialist factions onto the committees making the rules for the new societies, and they changed things enough to suit themselves and to pacify the ignorant peasants that things would be fairer, but no more. In essence, the laws of property ownership were changed so real-estate could be freely bought and sold (as opposed to being shared out fairly in a socialist manner or as it had been, just owned permanently by the aristocrats). Feudal debts were abolished and made illegal: the peasants were therefore “free”. Free, that is, to be unemployed or to work in a factory at the lowest possible wage for the longest possible hours, if they didn’t manage to acquire a viable quantity of ex-feudal farmland to support themselves and make a profit too.
So we had capitalism. Early idealists experimented with cooperative societies, but overall, these could not compete with the limited liability companies who could raise big capital to freely rip-off their investors by either failing (strategically or otherwise) or returning them big dividends, as the case may be.
Now the problem for capitalism comes from what appears, so far anyway, to be a fact of its nature: every couple of generations or so, it seems to undergo a long-wave cycle, the “Kondratieff” or “Kondratiev” cycle: a long, powerful boom in which everyone with little sense imagines the good times are going to go on forever, followed by a long, powerful crash and slump, from which, again, most people imagine it cannot recover. It remains to be seen, of course, how or if it recovers from the current slump – in theory it probably should be recovering now but there is not much sign of it, and the massive public and private debt that may lie behind it is yet to be liquidated. The timing of this “cycle” is a bit vague and it is not really clear whether it is just an illusion created by general random fluctuations in the system or not, but either way, a slump is a slump and they seem to happen from time-to-time whether fundamental to the economic system or not.
The danger for the capitalist system stems from two basic areas. Firstly, people start to wonder if the system itself is just fatally flawed: does it need replacing? Can it be manipulated to make it work better? Should it be left to the unregulated market to fix things (the answer to this appears to be “no” as lack of adequate regulation and control appears to be a major contributory factor to the slumps in the first place, as unsustainable government and private debt is built up – hence the depressions in the first place, plus the collapse of the laissez-faire “Shock Therapy” as tried in post-Soviet Russia and which failed miserably)? Secondly, once the population as a whole recognize that the system a) isn’t working, and b) can’t be made to work, the rich and powerful fear rioting, and, ultimately, civil war or revolution. These things do happen when the economy fails – especially when food prices go too high or wealth becomes concentrated in too few hands (a very inefficient state for the economy to be in). Recent revolutions across North Africa seem to fall into this category, along with other contributory factors (corrupt and vile governments, for example).
Revolution might seem like a rather dramatic outcome for what for most Westerners seems like a few minor economic difficulties mostly affecting other people, but the problem with humans is that we are rather impulsive creatures, and historically have revolted many, many times. For example, a mere six countries with population over 500,000 in the whole world did not suffer from violent change of government whether by occupation, war or civil war, coup or revolution in the 20th century: the USA, Canada, Australia, New Zealand, Swizerland, Sweden and Britain if we don’t count the Northern Ireland “Troubles”. In the past few years we have seen revolutions or revolts or serious protests in Egypt, Tunisia, Libya, Syria, Algeria, Bahrain, Iraq, Jordan, Morocco, Oman and Yemen. Burma is in danger of severe civil unrest with riots in Bangkok in 2010. Even the UK has had rioting in 2011 in multiple cities. The Tuareg in North Africa are in rebellion too. There was an uprising in Kyrgyzstan in 2010, China has thousands of illegal protests every year. Greece and Spain, of course, are suffering severe protests and rioting almost constantly at the time of writing and it was only 1981 when Spain suffered an attempted coup, and 1974 when Greece managed to dump their last military dictatorship. There has been civil war in the Ivory Coast, in Chad, and arguably in the Palestinian territories. There is war in Darfur. And after all, it is not so long since the sudden and mostly unexpected collapse of the Soviet Union and all of Eastern Europe at the beginning of the current downwave (a typical event of such times), plus revolt in China which was put down by way of the Tienanmen Square massacre. Well… you get the picture, I suppose: the World is not a stable place at the moment. Some observers note with alarm how the USA is setting up FEMA camps and buying huge numbers of plastic coffins while at the same time rolling back individual freedoms one by one. Do they know something the rest of us don’t?
So what is going wrong with capitalism? OK, I can’t pretend to know all of the answers, but I can point to a few problems easily enough. I have already alluded to the fact that the downwave always follows a period of strongly laissez-faire policy – that is, deregulation of the financial markets and a general lack of proper government supervision and control of the markets, especially the financial ones: it seems that every time the free-marketers are given a chance to show us what they can do, we get a massive and wonderful boom (except in post-Soviet Russia where we got a massive and awful hyperinflation and mafia-style oligarchic take-over instead). The boom always results in a build up of colossal debt, hubris and record-breaking fraud in the financial system. And, it always results in a disastrous collapse – either a deflationary slump or an inflationary one (the current one seems to be of the latter type). For such people to say things like, “no-one could have foreseen this,” or “This Time Is Different,” which they do every time, just shows their profound ignorance of economic history. Such slumps and defaults have been traced back over some 800 years, well into pre-capitalist times. Personally, I think nobody should be allowed to work in government or the financial markets without having passed at least a basic training in economic history. The fact is almost none of them have any economic knowledge going back more than one or two generations, but the long cycle is longer than this. This kind of incompetence is really inexcusable as the information is out there.
Another problem of the capitalist system comes from its inherent contradictions, of which there are many, and history is gradually working through them, possibly towards the eventual extinction or profound modification of the system.
Capitalism began and became profitable based on ideas of human freedom going well beyond the freedom to work in some factory or cubicle for some inhumane and stupid boss until you drop. Indeed the founding ideas of the system certainly included the liberty, equality and fraternity of the French revolution, plus the freedom to buy and sell property. The “fraternity” element included ideas of cooperation too: a company is a group of people working together to achieve some end, but this idea clashes directly with ideas of individual freedom which are being promoted most heavily in our cultures and with the idea of the boss as capitalist dictator, which is all too common in tin-pot companies up and down our countries everywhere. All this is to the detriment of society’s moral values, on which the entire system stands or falls (if we can’t trust our fellow humans, we won’t cooperate with them; if we hate our bosses, we’ll do the minimum necessary to keep getting paid, and no more; etc.). The excess of selfishness that is promoted also results in a failure of society, and rich individuals, to re-distribute their wealth by re-investing in improving the lower classes (or their situation), as the great philanthropists tried to do originally. While there are some notable exceptions, today it seems there is a surplus of wealthy people who don’t feel the need to “give something back.” This can only lead to long-term deterioration in the quality of life and profitability of the system, especially as it also implies the need for a good education for all. Yet, it is clear, the population as a whole is being dumbed down; on the one hand by boring, regimented, unintelligent schooling that serves only to emphasize one fact to the most creative and intelligent children: learning is painful and of no relevance or value; and on the other hand by watching 15 years’ worth of advertising propaganda per life, on average. Such a population ends up being good for nothing but shopping for the latest unnecessary fashion item and for getting into debt: just what the advertisers want, but such a “Brave New World” is no longer on an improving long-term trend.
Capitalism was also founded, especially in the Anglo-Saxon and North European countries, on the Protestant work ethic, which has all but disappeared in the West now, destroyed in large part by the contempt most companies have had for their staff over the centuries, and by the observable stupidity of these nations’ leaderships, starting with First World War but by no means ending there (we see idiotic political posturing on our screens daily, after all). Asians (Oriental and South) and Islamic peoples have versions of the same work ethic: work hard and you will get your reward (in this life or the next), and these people are being imported in large numbers to Britain and the USA to help the disastrous demographics of those countries (not enough young people to go to work and pay the bills, high-paid jobs being exported to poor countries). Islamic people’s ideas of religion and culture also differ dramatically from those of the countries they are being brought into, and that too will inevitably undermine the system in the long run, unless their religion can be diluted – but then they will lose the work ethic too, most likely. Maybe robots will be able to do most of the work before too long – but that will only be viable if the population is supported in some way that doesn’t require them to get a job (if there aren’t any), and where that support is well above subsistence level or they won’t be able to buy all the rich people’s products anyway.
Equality has, one way or another, ended legal slavery, although human trafficking continues for sex and domestic workers primarily. It has also led to more rights for women and non-white racial groups in the West but not for children or animals so far – but this process of general emancipation is still proceeding around the World (and even in the West, where women’s and black’s wages are usually less than white men’s). And yet, democracy is proving something of a problem. The population generally doesn’t approve of measures that may well be necessary for keeping the system at least half-working – the redistribution of wealth, for example – so governments have to do things slyly, increasingly. This need clearly stems partly from the poor education and enculturation of the populations and in any case is a direct consequence of the selfishness which laissez-faire economics claims is such a good thing – one of those fundamental contradictions inherent in the system that I mentioned at the start.
So what is the future of capitalism? To summarize the above, I am claiming that laissez-faire economic theory results in slumps and crashes, that is, it doesn’t work well enough to provide stable and peaceful government, although the Western governments don’t give any sign of being aware of this yet. It also seems to me that the socialist alternative as represented by the USSR and communist China was an even worse failure, not least because they allow psychopathic madmen to take control, and anyway because they lead to the economic doldrums. Only the Israeli kibbutzim seem to work, on a local level, anyway.
The mixed-economy alternative of Europe and the UK did seem like a viable alternative for a while, but politicians in those countries have also lost their way and gone down the laissez-faire route too far, with predictable consequences. The European Union’s attempts to control things by by-passing democracy are of course unpopular, and anyway are a failure because, if nothing else, the chosen policies don’t work.
Where are the succesful models? Well, I suppose I can point to post-communist China, Hong Kong, Singapore, South Korea, Taiwan, and less so, Japan. I know less about these countries than is necessary to make a strong argument, but what they all seem to have in common is strong government planning of the economic system and not much in the way of true democracy. This is still a mixed-economy system, but with far more authority given to the government. Hong Kong taxes are very low. Japan used to do well, but has been struggling for decades with depression, and perhaps a culture of being afraid to admit mistakes, and being afraid to blow the whistle on corruption and failure in general. These weaknesses appear to be preventing Japan from really fixing its long-term economic problems. The Fukushima and tidal wave disasters are not helping much either, of course.
China is probably the most interesting example, since it is such a huge economy and the main source of almost all manufacturing in the world, or so it seems these days. A lot of people are predicting an economic collapse there, and I see no reason why it shouldn’t happen, given that they are promoting a very laissez-faire approach, which has generated the usual property market bubble upon which so many loans depend, for the time being, and they have been building up vast reserves of foreign cash, which they are getting from countries like ours, which are in a state of unpayable debt – to China and elsewhere. If we’re in trouble, they are in trouble as their economy is very heavily dependent upon exports. Let’s face it, the vast majority of their potential consumers are too poor to purchase the goods they slave away making in the factories. China needs a domestic market too, but that will be a long time developing in a slave-wage economy, with leadership who have apparently been neglecting this issue for a long time. On the plus side, they have the cash to invest with… so is the Chinese way the way forward? It really isn’t looking like it is any different. The government is undemocratic, but democracy and laissez-faire economics don’t have to go together anyway (there are many other historical examples, not least in Latin America).
But it seems that the only way forward to get economies moving, and distributing their wealth fairly, or efficiently from a human-centred rather than market-centred point of view, is some sort of semi-command economy. These can work well, as wartime economies did during the 2nd World War (when there was also a political consensus between the governing parties and the population as a whole) and they can work badly – but can be managed if so. Not ideal, perhaps, but, they seem to be the only alternative to the increaing anarchy of the early 21st century. Of course, we might have to wait until the engine of the West truly falters or even collapses – the USA – before we can change things enough to make a difference without risking military or political intervention from them. In reality, if they don’t manage to fix their debt situation, their days could well be numbered, especially as their political system is essentially bankrupt and paralysed anyway. Who knows?