Crunch time for Capitalism
Like communism before it, capitalism has failed and no amount of tinkering will repair a flawed system
As many saw in the New Year it was the same time in 1991 that the Soviet Union was falling apart and its ideology of Communism was failing to cater for its adherents. Numerous attempts to reform Communism and the Soviet Union did little to preserve the system of central planning. Liberals in the West argued you cannot reform a flawed system.
Fast forward to 2012 and it appears similar views now ring true for the victor against Communism – Capitalism. It would have been inconceivable just a few years ago that one of the most respected international business dailies would start a series on “Capitalism in Crisis”. However it reflects waning public opinion in the Western world for its long cherished ideology.
The first week of January 2012 has seen a plethora of statements regarding the state of Capitalism, these include phrases such as crony capitalism and moral capitalism. The dogmatic view that has dominated Western economic discourse ever since Adam Smith coined the free market is ringing hollow for many as the financial crisis that began in 2008 gets worse.
Unable to stem the descent into another recession liberals continue to churn out ‘it’s the best the world has,’ as one expert put it: “The market economy is the most successful mechanism for creating prosperity humanity knows. Allied to modern science, it has done more than transform the world economy; it has transformed the world. For the first time in history, the world’s principal states rely on the market economy to develop their economies. Almost as important, they rely on a global market economy.”
It would be more apt to call this system of economic organisation ‘disaster capitalism’ for the trail of devastation it has left in every country it touched. With a global economy of $62 trillion today half of the world’s population – 3 billion people will have nothing to eat – so much for the free market. Capitalism may generate large amounts of wealth, however it has also created history’s greatest ever wealth fault line. Whilst the majority of the world barely survives on a few dollars, the US has most of the world’s billionaires, in what is mankind’s greatest lopsided world economy.
In 2006 the World Institute for Development Economic Research of the United Nations released the culmination of a global study; a number of its findings are staggering. By gathering research from countries all over the world the study concluded that the richest 1% of the world owns 40% of the planet’s wealth and that only 10% of the world’s population owned 85% of the world’s assets.[i]
Richard Robbins in his award winning book ‘Global Problems and the Culture of Capitalism’ confirmed this when he said “The emergence of Capitalism represents a culture that is in many ways the most successful that has ever been deployed in terms of accommodating large numbers of individuals in relative and absolute comfort and luxury. It has not been as successful, however, in integrating all in equal measure, and its failure here remains one of its major problems.”
Capitalism faces a number of problems that the financial crisis has brought to the forefront, such problems however are not mere anecdotes but the bedrock of Capitalist economic thought. These include economic growth without boom and bust, economic growth decoupled from excessive debt, equitable wealth distribution and decoupling short term thinking/greed from the financial markets.
Such systemic issues however have been completely neglected and have continually been reduced to reforming excessive boardroom pay, cracking down on corporate price-fixing and reforming the banks. After the worst economic crisis since the great depression many on the right continue to call for more free market and suggest the markets should be left to self-correct. Those on the left suggest more regulation to curtail excessive greed, the restriction of corporate pay and austerity.
None of these reforms in anyway deal with debt fueled growth, bubble economies and wealth inequality. In fact the bankers, Greece and in some cases a market correction are presented as the culprits.
What is for certain is since Adam Smith coined the free market in 1777 the West has suffered a depression, recession, slump, crash and decline every decade. This is because the need for perpetual economic growth creates unsustainable bubbles which lead to boom and bust. The dogma of economic growth has created a wealth distribution fault line where a tiny percentage in Capitalist economies control most of the created wealth.
With the Arab spring reaching its first anniversary and those espousing Islam wining elections with landslide victories, 2012 is crunch year for Capitalism. Various reforms over the last century did nothing to stop the global financial crisis that began in 2008 and continues to drag Western economies down with it. The likes of Obama, Sarkozy and Cameron face the same challenges Gorbachev, Chernenko, and Andropov faced in the 1980’s and that is no amount of reforms will ever preserve a system that is flawed.