--Joseph Shumpeter, Encyclopedia Britannica, 1945
Capitalism survived its crisis and went on to great successes. But the capitalism that survived and succeeded was not the capitalism of 1929.
--Herbert Stein, The Triumph of the Adaptive Society, 1989
Is Capitalism Sustainable? is the title of a much-discussed article by economist Kenneth Rogoff, author of This Time It’s Different: Eight Centuries of Financial Folly (with Carmen Rienhart). That book’s title says it all - it documents how the financial system has consistently been crashing for 800 years! Despite this, the economists somehow fail to draw the obvious conclusion: Something that’s been consistently failing for eight centuries isn’t due to folly – it’s inherently unstable! But, of course, no ‘conventional’ economist dares to admit this.
Rogoff’s central point is the same as that of the quotes above and bears repeating: there is no one form of capitalism. Capitalism has changed and transformed over the years. Rogoff points out that the only thing waiting in the wings to replace capitalism is another form of capitalism!
...The truth of the matter is that, for now at least, the only serious alternatives to today’s dominant Anglo-American paradigm are other forms of capitalism. Continental European capitalism, which combines generous health and social benefits with reasonable working hours, long vacation periods, early retirement, and relatively equal income distributions, would seem to have everything to recommend it – except sustainability. China’s Darwinian capitalism, with its fierce competition among export firms, a weak social-safety net, and widespread government intervention, is widely touted as the inevitable heir to Western capitalism, if only because of China’s huge size and consistent outsize growth rate. Yet China’s economic system is continually evolving...Perhaps the real point is that, in the broad sweep of history, all current forms of capitalism are ultimately transitional.
It brings up a valid point – the term ‘capitalism’ is actually rather meaningless. There have been many forms over the years. When I criticize capitalism, I am criticizing specifically the current form of winner-take-all capitalism that we see today. I use the term as shorthand, but if I want to be more specific, I sometimes add what I believe to be the most salient features of the modern toxic form:
- Globalized – Capital moves anywhere around the world to seek the highest returns, lowest labor costs and weakest regulations. Capital is able to escape taxation through “offshoring” and other loopholes.
- Corporate – Dominated by large multi-national corporations that control essentially the entire global economy. Fifty-one of the world’s 100 largest economies are corporations, not nation-states.
- Monopoly – A slight exaggeration in most instances (not in all). A small handful of corporations control entire markets and suppliers. These operate under various names and shell companies to conceal that fact. See Barry Lynn’s book Cornered for a detailed description. Technically, the term is oligopoly.
- Rentier – Money is made from owning things and charging fees for access to them, rather than by providing new or improved products and services.
- Finance – A small handful of banks and financial firms, not governments, control and manipulate the money supply for their own benefit. Money is made from speculation, not actual productive endeavors. The “market” is essentially a casino for the wealthy to make outlandish bets and strip the productive capacity of the real economy to cover their bets. Debt is used as a weapon and a means of control.
- Crony – Capitalism preaches an anti-regulation and anti-government gospel while being totally dependent on governments for cheap access to natural resources, educated labor, research and development, infrastructure, military protection, bailouts, guarantees, patent protection, etc. Political campaigns are funded by corporations in exchange for favors. Competitors to big business are harassed or regulated out of existence.
But globalized corporate monopoly rentier finance crony capitalism is too much of a mouthful to say (or type).
Rogoff identifies five major problems emerging from capitalism. In brief (read the article for further elucidation):
First, even the leading capitalist economies have failed to price public goods such as clean air and water effectively. The failure of efforts to conclude a new global climate-change agreement is symptomatic of the paralysis.
Second, along with great wealth, capitalism has produced extraordinary levels of inequality.
A third problem is the provision and distribution of medical care, a market that fails to satisfy several of the basic requirements necessary for the price mechanism to produce economic efficiency, beginning with the difficulty that consumers have in assessing the quality of their treatment.
Fourth, today’s capitalist systems vastly undervalue the welfare of unborn generations.
Financial crises are of course a fifth problem, perhaps the one that has provoked the most soul-searching of late. In the world of finance, continual technological innovation has not conspicuously reduced risks, and might well have magnified them.
Of course, that’s just the tip of the iceberg of what’s wrong with capitalism as currently constituted. Nothing about how it elevates the needs of capital over community, how it requires scarcity, how it manipulates our desires to make us buy, how it uses control systems like vendor lock-in and economic rent, how it promotes shoddy, disposable goods, how it wastes resources in competitions to produce the same goods, etc, etc,. But that’s too much for one blog post. Entire books have been written on this stuff; we need not reiterate here.
The article is notable not for anything in it that’s revelatory, but that such a high-ranking “elite” economist is actually questioning some of capitalism’s failings. That alone is extraordinary. Of course capitalism is not sustainable as Rogoff’s own book documents in exhausting detail. Debts always grow faster than the ability of the underlying economy to repay them. Markets are always based on greed and fear. Economists from Keynes to Soddy to Minsky to Kondratieff have explained why boom and bust is inherent in the financial system. Rogoff’s book seems to confirm these analyses, yet he cannot bring himself to the obvious conclusion: finance is just a Ponzi scheme subject to boom and bust forever. But the use of the word sustainable is particularly interesting, since one of the main criticisms of capitalism is its relationship to the environment. Yet Rogoff says absolutely nothing about this in the article! In fact, he says:
In principle, none of capitalism’s problems is insurmountable, and economists have offered a variety of market-based solutions. A high global price for carbon would induce firms and individuals to internalize the cost of their polluting activities. Tax systems can be designed to provide a greater measure of redistribution of income without necessarily involving crippling distortions, by minimizing non-transparent tax expenditures and keeping marginal rates low. Effective pricing of health care, including the pricing of waiting times, could encourage a better balance between equality and efficiency. Financial systems could be better regulated, with stricter attention to excessive accumulations of debt.
Too bad there’s no chance in hell of any of these reasonable reforms being implemented. Former Vice President and Presidential candidate Al Gore published an essay in the Wall Street Journal (!!!) with David Blood, describing how a sustainable capitalism could be implemented. Many of the suggestions were, in essence, the same:
A Manifesto For Sustainable Capitalism
If you think there’s even the remotest chance capitalism will reform itself by choice, I invite you to read the comments to Blood and Gore’s (the irony was not lost on WSJ’s commenters) article, which I think are pretty typical of the mindset of the one percent. Read all the disdain, vitriol, and naked scorn heaped upon even these common-sense reforms. For the Jacobins of capitalism, all the failings we currently see are caused by government (Fannie Mae!, Freddy Mac!), the market is self-regulating, government is a dictatorship, regulators are Fascists, taxation is theft, there are no limits to growth (the government and environmentalists won’t let us get the oil!), economic growth will bring environmental benefits (see how it’s working in China). Many of the commentators joked that the Journal must have added a humor section!
See, these would-be reformers assume that there is something “over” capitalism that will tame its rapacity. Often that’s considered to be government of, by, and for the people, i.e. popular democracy. But as we’ve documented on this very site, popular democracy is no more. Banks run the government, not the other way around. Look to Europe right now to see that. Capitalism is “over” government, so how can government impose reforms on its master? It can’t. There was a time when this could have happened, as it did to an extent in the 1930s, but that time has passed. It’s game over – capitalism as seized all the levers of control. Even if such reforms were implemented, they would be effectively sidelined, sidestepped and eventually dismantled. Capitalism has become simply a religion to rationalize rapacity more than anything else. As we discussed at length in this post, utter collapse and an economic reset are the only chances of reform. As a commentor posted on Marginal Revolution (!!): The global economy is an amoral beast incapable of planning beyond the next rip-off of the increasingly hollowed-out nation states.
And the fundamental assumption of capitalism – that growth can continue forever – is demonstrably false. Infinite growth is impossible on a finite planet. Can a steady-state economy be called capitalism? Probably not – the term capitalism was actually bestowed on the system by its critics – Marxists – and the idea was that capital always needed to seek ways to grow. Thus eternal growth is a defining feature of the system. Now, if we mean capitalism to mean things like open markets, real trade (not labor arbitrage) and private ownership, sure it can continue. Those are all parts of capitalism that work, and should be sustained. Their suppression in Communist economies was a big reason for the downfall of those systems. Nonetheless, Schumpeter’s quote above bears remembering. But long before the environment collapses, we will run into these problems:
- Capitalism (remember the above terms!) is as centrally planned as Communism was!
- Artificially dividing society into owners and workers (patricians and plebeians) means there is every incentive to pay workers less than they produce, and for owners to pay themselves vastly more than they’re worth. The top one percent control almost half of all financial wealth in the U.S.
- Large scale globalized industrial capitalism displaces workers faster than it can create new jobs. Increasing numbers of workers have no way to participate in the global economy (since the means of production are monopolized by the ownership class). This is a recipe for social instability.
- If everything is based on you’re a priori ability to pay, including education and health from birth (i.e. no provision for public goods), there is no class mobility. This is the real Road to Serfdom.
Of course not. But don’t take my word for it – just look around you.