The fact that western capitalism is in a severe crisis is now so commonplace that it’s become almost a cliché. In 2008 the global financial system stood on the brink of collapse and the rescue measures undertaken by panic-stricken governments will burden their economies for years to come.
Economists and analysts of a neo-conservative, economically liberal frame of mind have nothing to add to our understanding of this. Their models simply cannot explain why a system based on de-regulated market activities can ever get into crisis – and why it cannot rediscover the path to prosperity if the state is gradually dismantled and market forces let loose.
But economists and analysts tuned to Keynesian and reformist thinking are much closer to reality: their criticism amounts to saying that the wrong kind of policies – deregulation of markets, liberalisation of the financial system, shrinking the state and the scandalous growth in inequality – had already undermined the system’s stability. In a word: the wrong policies have been pursued for 30 years and a disastrous set of policies has been enacted since the outbreak of the crisis but the system can only be stabilized once the right policies are in place.
But let’s take a closer look at the world: Here’s Spain, with its ghost houses, monuments to a failed fresh start, stretching all along the beaches for kilometer after kilometer; or let’s cast a glance at the ‘solidarity’ clinics in Greece over-crowded by people with no health insurance; at rural America, where the jobless numbers refuse to go down despite growth on tick; at our inner cities in northern Europe where everything seems to be stable but we very quickly get to feel that things are not really progressing, it’s at best stagnation with ever-harsher competition for decent living standards and, along with that, rampant resentment without any confidence in the future. Briefly put: it ain’t working properly any more. So the question is: what if Keynesian tools don’t do the trick anymore?
The American economist Robert Brenner noted such a development as long as 20 years ago in his book The Economics of Global Turbulence – and forecast a crisis-ridden future. It was Brenner who coined the concept of “secular stagnation”: a phrase now spoken aloud by all mainstream economists.
The charm of Brenner’s analysis lies in that it explains the end of the post-war boom and the start of the slow decline through endogenous tendencies or the logical in-built dynamics of capitalism. And thus the conclusion follows: Even if they’re only crudely true then these critical tendencies cannot simply be wished away through a different set of policies because developed capitalism, for technological as well as economic reasons, is hitting limits that no longer allow for high rates of growth and productivity increases.
Because the profit margins of average firms are declining, business organisations, helped by friendly governments, began attacks on workers’ rights and the welfare state, thereby reducing the incomes of normal people but failing to solve the problem – as this depressed consumer demand again. Each answer to the crisis heightens it anew.
In such a situation it’s completely obvious that there will be a bubble on financial markets and financial institutions will become the determinant players of global capitalism. But bloated financial markets once again bring into play those intrinsic instabilities that top economists such as Hyman Minsky have analysed. The more reckless the gambling on the markets the more the entire system balances on a knife edge.
Why Capitalism Needs Growth
Reduced growth is, for various reasons, a systemic problem. To understand this we must examine a decisive factor in capitalism. What made it so successful and prosperous was investment credit. In other words, it needs debt. Firms take out credit, run up debt in order to invest but these investments only pay back if there’s adequate growth; if not, there’s a wave of bankruptcy.
If we look back soberly on the last 20 years then we have to acknowledge there was a huge explosion of credit but only relatively low economic growth. If the general economic lesson to be drawn from such a credit explosion were that a gigantic amount of growth would ensue – it might remark critically that this growth would be unsustainable, would be diverted into the wrong channels, capital would not be allocated to the right places but it would smartly assume that a credit expansion on this scale would generate huge growth. But this didn’t happen. We have credit expansion and mini growth – and not just overnight.
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One of the least observed but, possibly, most significant crisis symptoms is the general degree of indebtedness in capitalist economies. What we mean by this is the accumulated debt of all economic actors in an economy, not just the state: government, corporate and private household debt taken together. Most economies have gearing of 300% of GDP. Often 400%. A few decades ago the level was still only a quarter of this. How is one supposed to bring this level down if there’s low growth, how are the resultant repayments supposed to be financed?
The End Of Capitalism?
Can one therefore imagine that capitalism is a caputalism bearing the Cain’s mark of collapse? And how can we envisage this end?
“The image I have of the end of capitalism — an end that I believe is already under way — is one of a social system in chronic disrepair” is how the German social scientist Wolfgang Streeck put it two years ago. A permanent quasi-stagnation with at best mini-growth rates, explosive inequality, privatization of all and sundry, endemic corruption and plunder, where normal profit expectations get ever lower, a consequent moral collapse (capitalism is more and more linked to fraud, theft and dirty tricks), the West getting weaker and weaker, staggering along as it foments disintegration and crisis in trouble spots on its periphery.
The Nobel Prize winner for economics, Paul Krugman, like Larry Summers, paints a picture of “permanent slump.” Bill Clinton’s treasury secretary – truly no leftie – uses the phrase of “secular stagnation” as a self-evident truth – meaning that the long centuries of dynamic capitalist growth could come to an end.
The renowned economist Robert J Gordon has also investigated in a much-discussed paper whether – at least in the USA – “economic growth is over.” Growth rates took on dynamic pace in 1750, reached breakneck speed in the mid-20th century and have since gone down in successive periods. The great innovations that bring both productivity progress and growth – they may be history: “The growth of productivity … slowed markedly after 1970.” The third industrial revolution, with computerization and concomitant labour saving, also demonstrated its essential effects between 1960 and the late 1990s but has practically come to a standstill since the noughties. Despite superficial impressions, the past 15 years may have produced practically no more genuinely productive innovations. “Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter, and more capable, but do not fundamentally change labour productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it.”
In his latest book The End of Normal, economist James K. Galbraith plays a similar tune and even goes one step further. The era of prosperity between 1850 and 1970 has anchored in the economist fraternity the unspoken certainty that constant growth is “normality” but stagnation and crisis “the exception.” Galbraith now suspects: “Whatever worked in times gone may well no longer work today.”
Even if Robert Gordon’s thesis about a declining dynamics in innovation is not entirely right it might well be the case that today’s innovations no longer serve the prosperous nature of capitalism as a whole but have rather ambivalent effects. Above all, one of their effects is that jobs are destroyed without new ones replacing them. The new digital technologies mainly serve the purpose of reducing costs and winning new markets at the cost of older firms. Here the current period is distinct from earlier phases of innovation: whereas, in earlier times, ‘creative destruction’ in the process of innovation got rid of old and often poor jobs (as in agriculture) but huge amounts of new and often better ones arose (as in the car industry), so now innovations bring higher joblessness for one part and, worse, more precarious jobs for the other part of the labour force. The cumulative income of the man on the street thereby comes under increasing pressure and heads irredeemably downwards.
All the indicators and the analyses sketched out here point in the direction of what experts call the “stationary state” – or economies without any great growth.
Now, obviously, it’s not at all certain that capitalism will, therefore, die. History is full of crash theories that never came to pass. But, at the same time, we shouldn’t be that confident about its survivability. Given these symptoms that are all indicators of the system’s chronic collapse, a collapse that cannot simply be staved off through “cleverer” economic policies, we would do well to ask how tomorrow’s society will be shaped if the prophets of gloom turn out to be right. Or, in the words of Galbraith: “How to cope with a situation in which the problems are substantially greater than we’ve ever experienced in the past 80 years. We’ll have to pay far greater attention to the needs of the most vulnerable in our society.”
But, perhaps, we should ponder these things in a more ambitious manner. Perhaps, after all, a slow, successive transition from a capitalist system to a different economic order is possible and, yes, we’ve already begun this transition. That would be the best prospect, of course.
I’ve found signs of this in my many journeys across economies that remain strong but also a few in the so-called crisis countries. Not hat long ago, I had a conversation with Ioannis Margaris, the CEO of the Greek state energy producer, a technician and economic theorist who is investing a lot of his own energy in transforming Greek electricity production into peer-to-peer production. Before he joined the energy firm’s senior executive team Margaris was a researcher at the Technical University where, with the Syriza economist Elena Papadoulou, he wrote an important briefing on the “transformation of production.” The idea behind it was: How can one slowly change the economy so that more and more decentralized, self-managed firms, co-operatives and initiatives play a gradually more important role – so that, in the end, a mixed economy emerges composed of private companies, state enterprises and co-operatives and alternative economic bodies.
You’ve only go to look around the world with open eyes and, straight away, you can see at every turn that there are all kinds of initiatives, NGOs, companies and coops that are altogether building a kind of network, the nucleus of a new type of socialism. A socialism or a form of sharing economy, of communal economy, founded on the initiative of small groups and wholly decentralized – a socialism that has nothing in common with the bureaucratic beast of earlier state-run economies nor with those we know from communism and not with state capitalist societies as they existed close to home 30 years ago. And, of course, these are so far just small islands, around a new hundred initiatives, but their weight and value cannot be estimated highly enough – we could barely survive this crisis without them. “I believe,” writes the British economic author Paul Mason in his book Postcapitalism about projects like these, that they offer “an escape route – but only if these micro-level projects are nurtured, promoted and protected by a fundamental change in what governments do.”
Perhaps, all we need to do is learn to look at things properly. Do you know these famous picture puzzles which, when you look at them one way, seem totally chaotic and blurred and only when you look at them the right way does an image appear?
It could be that’s the same with our economy: We think we’re living in an economy which turns solely around trade, profit, money, material wealth and the resultant social status. And all other economic actors, be they self-help groups, file-sharing circles, coops, creative ideas for firms, altruistic aid projects, therefore seem to us to be somehow extra-economic, like the activity of a few mad people who have comical idées fixes, like work therapy for good men and women. But perhaps that’s utterly the wrong way to see the world. Perhaps we’re already right in the middle of the post-capitalist transformation – and simply don’t notice it.
Robert Misik is a writer and essayist living in Vienna. His Das Große Beginnergefühl: Moderne, Zeitgeist, Revolution (Suhrkamp-Verlag) will appear in May. He publishes in many newspapers and magazines, including Die Zeit and Die Tageszeitung. Awards include the prize for economic journalism of the John Maynard Keynes Society.