The unlikely demise of capitalism
Naysayers such as Karl Marx and Friedrich Engels weren’t the only ones who wrote obituaries of capitalism. Other esteemed economists such as David Ricardo, John Maynard Keynes and Joseph Schumpeter prophesised the systems demise. Some even expected it to collapse during their lifetime.
Yet somehow capitalism’s long foretold demise never materialised.
And while it is true that capitalism has lurched from one crisis to another, it has survived by often transforming its economic and social institutions. This is what its naysayers have failed to account for time and again. A careful examination of the system’s evolution over the past two centuries reveals its remarkable ability to adapt to the changing milieu.
Wolfgang Streeck, an eminent sociologist, lays out its trajectory over the past few centuries in his new book How Will Capitalism End?
In the 19th century, liberal capitalism suppressed a revolutionary labour movement with a combination of repression and co-option, which included democratic power-sharing and social reform. But in the early 20th century, capitalism was commandeered to serve national interests in international wars.
Subsequently, in the aftermath of the Great Depression, this liberal strand of capitalism was replaced by Keynesian, state-administered capitalism. And out of this grew democratic welfare state capitalism. Although this evolution is testament to the system’s ability to adapt, Mr Streeck argues that “next time whatever cavalry capitalism may require for its rescue may fail to show up”.
But is this time really that different? Several others have also predicted the demise of capitalism recently.
Immanuel Wallerstein, for example, has argued that a battle is shaping up between defenders and opponents of the capitalist order.
Craig Calhoun believes that it is possible for the current system to be replaced by a centralised socialist economy with characteristics of Chinese-style state capitalism.
Mr Streeck has used these theories as his building blocks. But where he differs from others is what comes after.
Rather than prophesise the contours of the replacement, he contends that it is not necessary for an alternate system to emerge to replace capitalism.
“What comes after capitalism in its final crisis now underway is… not socialism or some other defined social order but a lasting interregnum – no new world system… but a prolonged period of social entropy or disorder.”
This, he argues, is conditional on interrelated developments such as falling growth, which heightens distributional conflict, ineffectiveness of macroeconomic policies, rising indebtedness, dwindling state capacity, the suspension of democracy, post-war capitalism’s engine of social progress, and the associated rise of oligarchic rule.
Mr Streeck identifies three mutually reinforcing trends that are exacerbating the system’s decline — declining growth, rising inequality and rising debt.
It’s easy to see the vicious cycle. Low growth aggravates inequality which in turn restricts demand, thereby lowering growth further. “High levels of existing debt clog credit markets and raise prospect of financial crisis. Also an overgrown financial sector both results from and adds to economic inequality.”
While these forces have operated in the past, they appear to be more acute this time around.
“Nothing is in sight that seems only nearly powerful enough to break the three trends, deeply engrained and densely intertwined as they have become,” he says.
Some argue that Mr Streeck underestimates the system’s resourcefulness. But to be fair it’s difficult to prophesise how things will pan out.
It is plausible that artificial intelligence may well attack the jobs of the middle class, just as manual jobs have been destroyed in the past. And if this happens, then the middle class, the defenders of the current system, may also revolt against it. Already, we are seeing waves of resentment leading to populist victories in the West. But as the history of capitalism has shown, labour has always been accommodated.
On the rise in inequality, it is plausible that individuals might accept higher levels of inequality if there is a sustained increase in income levels. But will absolute income gains coupled with some sort of universal basic income temper the outrage over higher inequality? It’s difficult to say. And what about China and India? The two have been the biggest gainers of the system over the past decades and now have a greater stake in ensuring continuity even as they continue to shape it. It is ironical to see the Chinese President Xi Jinping championing free trade at Davos at a time when the US is looking inwards.
Further, the decline of the current western form of capitalism may not necessarily mean the decline of all forms of capitalism. Other forms, such as China’s state-driven capitalism, posit alternative models.
But can it emerge as the dominant system?
Mr Streeck is sceptical. “Western capitalism will decay but non-western capitalism will not take its place, certainly not on a global scale and neither will western non-capitalism,” he writes, adding that “China will for many reasons not be able to take over as capitalism’s historic host. Nor will there be a co-directorate of China and US.”