There was an extraordinary article this past weekend on the BBC. The thesis of the article was that Karl Marx’s analysis of the contradictions of capitalism destroying itself might have been correct after all. The very fact that this is being debated in Europe is extraordinary. People are finally starting to realize that if you point out the inherent problems and contradictions in the current system we have, that need not make you a “Marxist,” “Communist,” of any other “-ist.” No single individual could design an entire functioning economy, whether Marx, Adam Smith, Vladimir Lenin or Ayn Rand. Economies are complex and messy things, resistant to the utopian dreaming of ideologues of any stripe. Economies that work are trial-and-error and a series of compromises, not dictated by any preferred ideology, whether socialist or libertarian. The failure of Communism was in hewing to a rigid ideology that benefitted a few oligarchs at the top of society, while making the masses more and more miserable. Such a situation could not survive indefinitely. And now we’re seeing the exact same thing happening with modern corporate capitalism! My question is this - at what point can we say capitalism has failed? Mass unemployment, mass incarceration, a surveillance state, an out-of-touch corrupt oligarchy running the show, deteriorating living standards, all of these are now part-and-parcel features of capitalism as seen particularly in the United States, but also to a lesser extent in advanced capitalist nations such as Western Europe. Capitalism has peaked and is now producing declining living standards for people living under it. It is producing fewer and fewer “winners” and an ever-increasing pool of “losers”. How long can such a system last?
One of the most profound things I read, and I wish I had saved a link to it, was an observation that the reason that capitalism did not fail historically the way Marx predicted was because those at the top of society took specific steps to resolve the inherent contradictions in order to make the capitalist system work. Specifically, in the post-war, post-depression years, they created a wide social safety net, allowed unions to form and gave them a seat at the table, paid higher wages and offered reasonable job security. Government subsidized all sorts of things such as education and housing. And the worst corporate abuses were regulated away such as child labor, dangerous workplaces and environmental pollution. Marx did not predict that.
The writer then contrasted this with today’s hypercapitalists who are behaving exactly as Marx predicted! All of the above provisions are being dismantled or under attack. All forms of “socialism” are being stamped out, especially in the United States (except, of course, socialism for the rich). Clinton ended welfare as we know it. The Republican party claims we can “no longer afford” things such as Social Security and Medicare, which are derided as “entitlements” rather than programs paid for by taxes on the working classes themselves. Governments are being bankrupted coast to coast even though we as a society are wealthier than at any point in history and more money is in circulation that ever before. The Republicans held unemployment benefits hostage in exchange for preservation of tax cuts on the wealthiest Americans. Elimination of the EPA is part of every Republican presidential campaign platform. “Burdensome regulations” and “uncertainty” are touted as the reason there are no jobs. Corporations are sitting on billions in cash and refusing to hire. More and more work is being squeezed out of fewer and fewer employees. People are stuck doing alienating jobs and work that is beneath their abilities, if they can even find work. And the relentless downward pressure on wages continues. Wages are now the equivalent of what they were in 1997, while health care, transportation, education and housing costs have soared. It is this ideologically-driven hypercapitalism that is paradoxically destroying the very system it intends to celebrate. As the Communists in the USSR learned, people do not put their faith in a system that makes them poorer and poorer while giving them no control over it. If that’s not an accurate description of the US economy today, I don’t know what is. Consider:
- One in five children live in poverty.
- Fifteen percent of the population is on food stamps, including many people with jobs.
- Half of all Americans are financially fragile – unable to come up with $2,000 in an emergency.
- Over 45 million Americans lack health insurance.
- Health care and education costs have risen by over 400% since the 1970’s
- The amount of unemployed people in the US is greater than the populations of Illinois, Vermont and Wyoming combined. The “real” unemployment rate is over 16 percent.
- The US incarcerates more of its citizens than any other nation (and who are not counted in unemployment statistics). While Americans only represent about 5 percent of the world's population, one-quarter of the entire world's inmates are incarcerated in the United States.
- The richest 400 individual Americans have as much wealth as the bottom half of the entire US population combined.
I could go on. If statistics this bad had come out of the Soviet Union in the 1970’s or 1980’s, we would be quick to point them out as evidence their economic model had failed. So my question is, how bad do the statistics have to get before we say our current economic system has failed just as spectacularly as Communism did? If these statistics come from the world’s wealthiest nation and largest economy, and they are all getting worse, when do we say this system has failed? When the unemployment rate is 20 percent? Thirty percent? Fifty percent? When half of our children live in poverty? Can we agree to a number?
Of course, you will never read such an opinion in the United States where a century of propaganda has assured that even the very idea of government is vilified in favor of the “rugged individualism” sold to the masses, which in reality ends up as simply corporate feudalism. But the rest of the world is starting to ask the hard questions about where we’re headed. In Britain, books by Eric Hobsbawm, a Marxist writer, are best sellers, and sales of Das Kapital spiked in Germany after the crisis. People not under the cloud of corporate control and propaganda that we have in the United States are realizing how flawed this system is, and are looking for answers.
Written in 1867, sales of the tome rarely hit double digits but have been on the rise since 2005.
Marxist economic philosophy - and in particular its Russian Leninist version - fell out of favour with the collapse of the Soviet Union in the late 1980s.
"It's definitely in vogue right now," said the publisher's director Joern Schuetrumpf.
"The financial crisis brought us a huge bump."
He suggested that it was younger Germans who were buying the book unhappy with the direction their elders had led the country.
"There's a younger generation of academics tackling hard questions and looking to Marx for answers," Mr Schuetrumpf said.
But he doubted their perseverance: "I doubt they will read it all the way to the end, because it's really arduous."
Other publishers also print Das Kapital, and German media have reported that bookstores nationwide have seen a 300% increase in sales of the book in recent months.
And suddenly too, some of the all-but-forgotten Marxist philosophers are having their say again, such as the historian Eric Hobsbawm.
"Globalisation, which is implicit in capitalism, not only destroys the heritage and tradition but it is incredibly unstable, it operates through a series of crises, and I think this has been recognised to be the end of this particular era," he told BBC Radio 4's Today programme.
Charles Hugh Smith has been one commentator who has pointed out that one need not be a “communist” or even a “socialist” to point out that Marx’s description of the problems of capitalism seems to have been eerily accurate:
“Here's the thing about conventional economics: it cannot make sense of our current interlocking crises because it lacks the tools and perspective to do so. Conventional economics has failed on a grand scale. Not only has its policies failed, its account of what's really going on fails to explain the underlying dynamics because it is fundamentally self-referential, parochial, mechanistic, blind to broader forces of history and soaked in the quasi-religious hubris that reductionist equations and quant models can not only explicate reality, they can predict human behavior.
As I note in Chapter One of my new book An Unconventional Guide to Investing in Troubled Times, Like a creature born in the morning that has only seen daylight, conventional economics has never experienced night and so it has no conception of darkness.
The Marxist perspective has its own limitations, for example its weak purchase on the role of Peak Oil and resource depletion in the coming crises, but because Marxism is grounded in a historical and philosophic understanding rather than a reductionist, mechanistic, econometric one, it offers us the only comprehensive account of what's really going on with paper money, gold, trade and the crises of advanced Capitalism.”
He then goes on to explain:
“… Marx foresaw that mechanization/automation and the dominance of finance capital would lead to labor's share of the national income shrinking while industrial capital's factories produced ever greater quantities of goods at prices pushed down by labor-saving machinery and software (i.e. invested capital). (Marx also laid out the inevitable progression of capital to monopoly and cartel Capitalism, but that's another entry.)
This "crisis of overproduction" has several consequences. As less labor is needed for production, then the "army of surplus labor" (the unemployed) grows while wages stagnate or decline for everyone below the professional/technical Caste. As the labor component of goods and services declines, workers no longer have enough income to buy the rising output. At that point the economy collapses as demand declines to the point that nobody can make money even as production keeps ramping ever higher.
The solution is trade: dump the surplus production (the production beyond what the domestic market of workers can buy) overseas. The ideal setup is of course Global Empire, where the home economy strips away productive capacity in its colonies and essentially forces its colonial populations to buy its surplus manufactured goods in exchange for raw materials.
The second very important thing to understand is what Mish has tirelessly explained on his blog Mish's Global Economic Analysis: everybody can't have a trade surplus, as that is a mathematical impossibility. Somebody has to run a trade deficit, i.e. import others' surplus production.”
His analysis centers around why Nixon had no choice to go off the gold standard to make this system work. Read it all here:
Charles has also previously explained why the Marxist description of Capitialism’s internal contradiction is coming into play here:
Marx identified two critical drivers of advanced Capitalism's final crisis:
1. Global Capital has the means and incentive to keep labor in surplus and capital scarce, which means that capital has pricing power and labor has none. The inevitable result of this is that wages, as measured in purchasing power, fall while the returns earned on capital rise.
This establishes a self-reinforcing, inevitably destructive dynamic: once labor's share of the national income falls below a critical threshold, labor can no longer consume enough or borrow enough to keep the economy afloat with its cash and credit-based consumption.
We are at that point, but massive Federal borrowing and transfers are masking that reality for the time being.
2. The dual forces of competition and technology inevitably drive down the labor component of all manufactured goods and technology-based services. Mechanization, robotics and software have lowered the labor component of everything from running shoes to computer chips from $20 per item to $2 per item, and that process cannot be reversed. While the wage paid to the workforce designing and manufacturing the products and providing the services may actually rise, the slice of revenues given over to all labor continues shrinking.
This is what I have constantly referred to (using Jeremy Rifkin's excellent phrase) as "the end of work."
Put another way: the return on capital invested in techology greatly exceeds the return on labor. Industries and enterprises which fail to leverage capital invested in technology that lowers the labor component of their good/service eventually undergo rapid and inevitable creative destruction.
We are about to witness this creative destruction in the labor-heavy industries of government, education and healthcare.
Marx's genius was to recognize the historical inevitability of these internal forces within advanced Capitalism. He also recognized the inevitability of finance-capital's dominance of industrial capital--something we have witnessed in full flower over the past 30 years.
Finance capital now dominates not just industrial capital but the machinery of governance, rendering real reform impossible. Instead, the Status Quo delivers up simulacrum "reform" which change nothing but the packaging of the Central State/Cartel Capitalism's exploitation and predation.
Add all this up and you have to conclude the final crisis of finance-based advanced Capitalism is finally at hand. All the "fixes" that extended its run over the past 70 years have run their course. Life will go on, of course, after the Status Quo devolves, and in my view, ridding the globe of financial predation and parasitism will be a positive step forward.
What the analysis tells us is that this system will not correct itself , despite all the cheerleading from the media to “return to normal,” – the system is broken, and can only disintegrate, leading to a new dark age of barbarism that is already starting to dawn in society, human behavior and popular culture. Americans will never admit to this, and are therefore helpless to do anything to fix the situation. Only after the system completely disintegrates will something new and better be born, but that will probably not be in our lifetime. But we can begin to sow the seeds now for what will come after.
With that as the background, here is the BBC story:
As a side-effect of the financial crisis, more and more people are starting to think Karl Marx was right. The great 19th Century German philosopher, economist and revolutionary believed that capitalism was radically unstable.
It had a built-in tendency to produce ever larger booms and busts, and over the longer term it was bound to destroy itself.
Marx welcomed capitalism's self-destruction. He was confident that a popular revolution would occur and bring a communist system into being that would be more productive and far more humane.
Marx was wrong about communism. Where he was prophetically right was in his grasp of the revolution of capitalism. It's not just capitalism's endemic instability that he understood, though in this regard he was far more perceptive than most economists in his day and ours.
Furthermore (emphasis mine):
Defenders of capitalism argue that it offers to everyone the benefits that in Marx's time were enjoyed only by the bourgeoisie, the settled middle class that owned capital and had a reasonable level of security and freedom in their lives.
In 19th Century capitalism most people had nothing. They lived by selling their labour and when markets turned down they faced hard times. But as capitalism evolves, its defenders say, an increasing number of people will be able to benefit from it.
Fulfilling careers will no longer be the prerogative of a few. No more will people struggle from month to month to live on an insecure wage. Protected by savings, a house they own and a decent pension, they will be able to plan their lives without fear. With the growth of democracy and the spread of wealth, no-one need be shut out from the bourgeois life. Everybody can be middle class.
In fact, in Britain, the US and many other developed countries over the past 20 or 30 years, the opposite has been happening. Job security doesn't exist, the trades and professions of the past have largely gone and life-long careers are barely memories.
If people have any wealth it's in their houses, but house prices don't always increase. When credit is tight as it is now, they can be stagnant for years. A dwindling minority can count on a pension on which they could comfortably live, and not many have significant savings.
More and more people live from day to day, with little idea of what the future may bring. Middle-class people used to think their lives unfolded in an orderly progression. But it's no longer possible to look at life as a succession of stages in which each is a step up from the last.
Markets are a volatile business In the process of creative destruction the ladder has been kicked away and for increasing numbers of people a middle-class existence is no longer even an aspiration.
As capitalism has advanced it has returned most people to a new version of the precarious existence of Marx's proles. Our incomes are far higher and in some degree we're cushioned against shocks by what remains of the post-war welfare state.
But we have very little effective control over the course of our lives, and the uncertainty in which we must live is being worsened by policies devised to deal with the financial crisis. Zero interest rates alongside rising prices means you're getting a negative return on your money and over time your capital is being eroded.
The situation of many younger people is even worse. In order to acquire the skills you need, you'll have to go into debt. Since at some point you'll have to retrain you should try to save, but if you're indebted from the start that's the last thing you'll be able to do. Whatever their age, the prospect facing most people today is a lifetime of insecurity.
The article goes on to say that the unstable and destructive potential of capitalism is tearing societies apart:
A tiny few have accumulated vast wealth but even that has an evanescent, almost ghostly quality. In Victorian times the seriously rich could afford to relax provided they were conservative in how they invested their money. When the heroes of Dickens' novels finally come into their inheritance, they do nothing forever after.
Today there is no haven of security. The gyrations of the market are such that no-one can know what will have value even a few years ahead.
Austerity measures to reduce Greece's debt has sparked riots This state of perpetual unrest is the permanent revolution of capitalism and I think it's going to be with us in any future that's realistically imaginable. We're only part of the way through a financial crisis that will turn many more things upside down.
Currencies and governments are likely to go under, along with parts of the financial system we believed had been made safe. The risks that threatened to freeze the world economy only three years ago haven't been dealt with. They've simply been shifted to states.
Whatever politicians may tell us about the need to curb the deficit, debts on the scale that have been run up can't be repaid. Almost certainly they will be inflated away - a process that is bound to be painful and impoverishing for many.
The result can only be further upheaval, on an even bigger scale. But it won't be the end of the world, or even of capitalism. Whatever happens, we're still going to have to learn to live with the mercurial energy that the market has released.
Capitalism has led to a revolution but not the one that Marx expected. The fiery German thinker hated the bourgeois life and looked to communism to destroy it. And just as he predicted, the bourgeois world has been destroyed.
But it wasn't communism that did the deed. It's capitalism that has killed off the bourgeoisie.
By “bourgeoisie”, read “middle class”. Even many of the “winners” in this system are having to work insane hours, go deeply into debt, and live in fear of having it all be stripped away from them through some sort of unforeseen circumstances. It seems every institution in society is being corrupted by money. Around the world, resistance to this is growing. In Israel this past weekend, the largest protest ever were organized against the cost of living. In Greece, riots have broken out. Protests against mass unemployment have occurred in Spain and Portugal. Italians are on strike today to protest austerity measures. Three days of rampant rioting and looting in London made headlines a few weeks ago. Popular unrest commonly occurs in Chinese cities, despite extreme repression. The Middle East continues to be on fire, largely due to unemployment. The list goes on. And we have not even discussed environmental destruction and Peak Oil.
Even famed economist Nouriel Roubini wrote an article called “Is Capitalism Doomed?”: It seems Roubini, too, has been reading Marx:
So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.
Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.
To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken.
Roubini calls for some of the usual remedies, but I do not think he goes far enough. I believe the great struggle of the twenty-first century will be the democratization of our financial institutions. Just as there was a long, difficult struggle to overturn monarchy and institute democratic governance from the late eighteenth century through and throughout the nineteenth, so there will be a great struggle in the twenty-first to overturn the corporate/financial oligarchy and return finance and economics to popular control. This will not be Communism or Socialism. Rather, I think it will be something that has not been seen before – something that provides both open markets and social stability. The only question is how far the current system will need to collapse before that happens.
A few sources on the statistics listed above: