The Capitalist Car Crash
The Warning Signs
Markets: It has seemed self-evident to me that, for every year that passes, the odds stacked against capitalism grow longer. At the largest scales – national economies – capitalism is a paradigm of boom and bust whose unreliability is quite surprising.
Long-term data for 30 countries up to 2006 reveal 232 stock-market crashes (multi-year real returns of -25% or less) and 100 depressions (multi-year macroeconomic declines of 10% or more), with 71 of the cases matched by timing.
We are all aware of global crashes, but I was shocked to discover quite how many localised events – crashes and depressions – had occurred over the last 150 years. This doesn’t sound to me like a very good system: when something breaks down this often, it suggests that the system is highly unstable, something that recent decades have revealed all too clearly with four large-scale market failures in the last forty years.
Iniquities: while advocates of global trade tout the benefits of capitalism to the developing nations, it is hard to ignore the profound disparity between rich and poor. Capitalism depends for its profits on two important principles; pay as little as possible for resources, and as little as possible to its work-force. Capitalism is not a pardigm in which fairness is a guiding principle.
Competition: the nature of capitalism is to compete for resources. Ultimately, this can lead to war, but outside of conflagration, the way resources are traded and contracted means that developing nations are always struggling to get a fair share of those resources, be they energy, metals, water or land.
Corruption: another facet of rampant capitalism is the way the rich will pervert national economic interests to suit themselves. Since the advent of colonialism, puppet regimes have been propped up by any number of rich countries, with the explicit understanding that the support – economic and military – required to keep dictators in power is contingent on the preferable terms given to those providing the support.
Pollution: it has become clear, especially in the latter part of the 20th century, that profit is being made at the expense of the environment. The true, long-term costs of capitalism are not reflected in consumer prices, but this is an illusion where later generations will be paying a high price for the goods consumed by their forebears.
Climate Change: while this issue could be considered a subset of pollution, it is worth mentioning separately because it is one of the few global threats to confront capitalism. If the theory is correct, the paradoxical nature of endless growth is stymied by nature itself.
Energy: this is the other sweeping global issue. The link with climate change is irrelevant in some respects, because even if climate change were not occurring, there is still a finite amount of fossil fuels, they are running out, and there is as yet no replacement that will sustain a world civilisation dependant on such profligate use of oil, gas, coal and the electricity generated from them.
Growth: capitalism seems convinced it must forever grow. There appears to be no solution to the paradoxical demands of a rapidly increasing global population for more of everything, and the diminishing energy and material resources all countries must now compete for. Global economic growth depends on a foundation that is rapidly falling apart.
Entanglement: another unfortunate by-product of globalisation is loss of control. At the national level, it is hard to say if any government of a developed nation really controls its country when so much of its industry and employment (and the taxes derived from both) depends on trans-national enterprises, markets and values. It is increasingly difficult to tell who actually owns what, or where the real influences on national policy are being exerted. (I often use the ‘butterfly’ analogy: a trader on the floor of the Hang Sen catches a cold and an engineering firm in Bolton goes to the wall.) It is also the case that much of what we consider a measure of the fabric of social quality – stable employment, healthcare, education, pensions – are now dependant on hands unseen, on institutions unknown, and those hands reach across oceans to tug on the levers of power in any country beholden to global market forces.
Speed of change: efficiencies promoted by technology are desirable since they increase profit. Less desirable is the concomitant speed at which changes take place. Social stability is threatened when change is so rapid it creates a sense of perpetual anxiety. As commerce speeds up its product development cycles – e.g. computers used to invent better computers – industry has no option but to bombard us with ever more strident exhortations to replace the old with the new, for if we do not the market stagnates and new products will not sell. This is, strangely, despite the fact that many consumer durables are now considerably more reliable than ever before, yet we are urged to dispense with the in pursuit of novelty.
Administration: globalisation produces a merger of interests we could call Earth plc. Unfortunately, while the size of the enterprise may produce many economies of scale, it is managed in the least efficient way possible – by ‘regional offices’ (nations) that employ different currencies, accounting methods, social and political values, diverse religious influences to a greater or lesser degree, varying skills and educational standards, military ambitions and capabilities and so on. This is, from a business perspective, the least effective way of managing a large enterprise. The solution, however, seems equally undesirable: cultural homogenization, loss of individual identity and a world administration (an economic paradigm) although this should not be confused with a world government (a political paradigm). However, the distinction is hard to make and it seems inevitable that the two would be conflated, more out of expediency than desirability.
Doesn’t look good, does it? Everywhere I turn, every sign I see, indicates that capitalism is failing. It’s too big to manage, too volatile to trust, too interlinked to allow for damage limitation when one part fails, for the collateral damage is too often far-reaching and increasingly unpredictable. Greater parts of the world, depending on promises made over two centuries or more that if they acquiesce to the demands of those more powerful, eventually they too would reap the benefits, are now being told they cannot have their cake after all – not enough energy, raw materials, too much CO2.
It must be evident to the developing world that the iniquities visited on them are entrenched and for the majority, the promised good times are simply no longer possible unless the developed world accepts that equality requires a redistribution of wealth where the people in developed countries must willingly sacrifice to some extent that which they now consider their birthright, the measure of their success and standard of living. I do not believe for one moment that we in the west will be prepared to accept that sacrifice in the name of fairness, a concept for ever at odds with self-interest.
I do not have an inherent dislike for capitalism based on ideology. I admire some aspects of socialism – health care, education, protection of the vulnerable and aged – but capitalism at its best has provided the stimulus and environment for much discovery, improvement and meaningful growth. My background has often been connected with engineering, and my views of capitalism are those of a man looking at a machine that is not fit for purpose, is increasingly unreliable, and ever more dangerous. To return to my opening analogy, if we don’t replace this vehicle with something new, and better designed, I believe we are heading at full speed for the most monumental crash of all time.