Capitalism – the god that failed?

We ought not fear a move beyond capitalism. Its had a good innings. Despite its attendant problems, as David Harvey points out The Enigma of Capital, capitalism served us well in dispossessing arbitrary feudal institutions and liberating creativity. Both Marx on the left and Schumpeter on the right, predicted the end of capitalism.

Let’s be clear what we mean by ‘Capitalism’. It’s generally agreed to have at its heart three key principles; the majority of ‘the means of production’ (land, resources, capital) are in a concentration of a minority of private hands, markets are used to mediate between producer and consumer (set prices etc) and the majority of us work for a wage (i.e. for other people) and do not ‘own’ the outputs of our work.

All three must be present for something to be called capitalist. Thus China, the world’s current economic poster-child, is not capitalist as most land and industry is not in private hands. So which of these three is inherently incompatible with limits to growth?

Most problematic is the majority of the economy being in private ownership. This lends itself to the drive for profit maximizing and the ‘treadmill of accumulation’. In turn the in built moral hazard of the ‘invisible elbow’ of the market is unable to even consider public goods and causes systemic externalities harming both people and planet.

The result is inefficient use of natural resources for wellbeing satisfaction, concentration of wealth and political influence with its inherent capture, path-dependency and lock-in. Hence our failing attempts to regulate and to provide ameliorating welfare state provision.

The majority of finance capital being in private hands also causes massive issues. As our economies have become more and more orientated towards financial services and speculative, rather than real, commerce, this has starved real productive industries of investment. Despite these speculative markets being built on sand, the higher profits they make means productive industry is starved of investments. This forces the economy into ‘privatised Keynesianism’ where ordinary consumers are forced to go into debt to be able to purchase enough new production to keep the merry-go-round going. When the music stops, too-big-to-fail banks get bailed out whilst ordinary consumers are left to carry their debt on top of paying out to save the banks. No one gains from this except the capitalists profiting from the make-believe speculative financial markets.

The irony is these banks have been at the forefront of the spread of neoliberalism and free markets, and yet they have now shown just how ‘non-market’ they actually are. They are creatures of massive state subsidy – out in the free market the would (and should) perish. But above all a system built on majority private control of the means for production and its profit-drive brings with it what Professor David Harvey calls the Capital Surplus Absorption Problem – a non-negotiable requirement for 3% exponential and compound growth. In the absence of absence of decoupling, this just ain’t possible on a finite planet.

The majority of the means for production being in private hands also means that most people have to work for wages. The predomination of wage labor in turn leads to inequality and society being split between the under/unemployed and the overworked. It also brings inevitable and painful, bi-polar booms and busts so constant in our economies. Capital owners are continually forced to repress wages in order to divert the ‘surplus’ to increase profits and pay back hungry private investors. They have to pay workers significantly less than the value of outputs and by doing so they thus starve the economy of sufficient demand for productive output (we can’t afford to buy enough ‘stuff’) and the merry-go-round stalls.

Markets per se are less problematic and indeed are possibly in some form vital for civilization as we know it. They could perform a good job of communicating between supply and demand if set within the right framework. Whilst non-market alternatives such as Parecon have been proposed, they seem to many to be fairly intractable. Perhaps we don’t have to throw the baby (the market) out with the bathwater?

For more on this subject I’d recommend readers to check out the work of Professors David Harvey and David Schweickart as well as that of Richard Smith in his excellent paper from which I stole the title of this blog – Capitalism he God that failed.


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