What's Next for Capitalism?

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August 16, 2011
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Professor in International Relations at the University of Oxford and a Fellow of Somerville College

While summer temperatures in Europe are lower than normal, the streets of its cities – particularly in Britain – are raging hot. The riots that have beset London, Birmingham, Manchester, and Liverpool are an uncomfortable reminder of the discontent that lies below the surface in a country renowned for its “civility.”

John’s recent posting on this generation’s material advances is provocative, and is a useful companion to the alarmist commentary (especially on the BBC) about the slow-motion collapse of contemporary western societies. What he encourages us to pay attention to are not the everyday zig-zags, but rather the longer-term trajectories of growth and wealth accumulation, which – if his analysis is correct – will spell continued prosperity not only for the developed world, but for large chunks of the developing world, as well.

But while I find this argument somewhat reassuring, I cannot help thinking that something is, potentially, rotten at the core of modern capitalism. In his recent book, The Strange Non-Death of Neo-Liberalism, Colin Crouch (of Warwick Business School) takes another long-term approach to analyzing capitalist economies, but reaches quite different conclusions. Crouch argues that, despite the economic crash of 2008 and the heavy bailout burdens placed on taxpayers, the tide has not turned against neo-liberalism – the set of macroeconomic policies that have constituted the political orthodoxy of most advanced economies. Neo-liberalism will “shrug off” all of the recent challenges, he concludes, because it is, contra John’s views, no longer about free markets or free trade at all, but rather about the structurally dominant position of large corporations. Our only hope for the future, according to Crouch, is to acknowledge that corporations have distorted both markets and democratic politics, and to drag them into the full light of political controversy and accountability.

What is particularly refreshing about Crouch’s approach is that he is not simply calling for the state to come back in and claw away at the freedom of markets. Instead, he directs us to the moral assumptions underpinning modern capitalist societies, and the culture of greed and impunity that have seeped into their foundations. And this brings us back to the chaos on the streets of Britain last week. In the early 1980s, when riots raged in Britain, there were attempts to understand some of the root causes of the mayhem. Some commentators blamed moral decay and poor education. Margaret Thatcher famously stressed the weakening of respect for authority. Others pointed to the impact of draconian cuts and unemployment.

There is much less of that soul-searching today. Instead, politicians are closing ranks and chalking everything up to criminality and gang culture. There is no willingness to dig deeper, for fear of letting the perpetrators off the hook. Instead, key policymakers like U.K. Chancellor George Osborne have the audacity to proclaim (as he did last week) that the U.K.’s deficit reduction plan “has been vindicated.” Vindicated by what? He points to global economic events, but, even here, tough questions need to be asked about why growth figures are so sluggish. And what about in domestic and social terms? In the same speech, Osborne promised to “galvanize” the U.K. economy this fall with lower corporate tax rates, less regulation for small firms, and tax breaks for entrepreneurs. But he said nothing about galvanizing a divided and unsettled society.

To try to understand why the riots broke out is not to excuse the criminality of the actions, or to brush away the impact with an appeal to justified grievance. It is merely to ask, without being branded as a loony Marxist, whether modern capitalism is really working in a sustainable way, and whether its current political and economic leadership is part of the problem.

In a much-frequented blog post written last week, Peter Oborne, of the Daily Telegraph, argued that the rioters were, in some ways, following the example set by senior and respected figures in society who have descended into various forms of criminality themselves. “Let’s bear in mind,” he wrote, “that many of the youths in our inner cities have never been trained in decent values. All they have ever known is barbarism. Our politicians and bankers, in sharp contrast, tend to have been to good schools and universities and to have been given every opportunity in life.” Yet the highest ranks of British society have been rife with criminality of various kinds, too, whether it is tax evasion, false expenses claims, or – most recently – phone-hacking.

Criminality is a complex phenomenon, with multiple causes. But, at the risk of simplifying, it is plausible to suggest that greed is sometimes at the heart of it. And greed, today, seems to be a fundamental part of modern capitalism. For the vast majority, I hasten to add, that greed is not manifest in criminality; instead, it expresses itself in what John calls the aspiration to higher living standards.

This raises the question of how that aspiration is to be fulfilled in the 21st century. After all, as Crouch has pointed out, capitalism thrives upon happy workers and consumers. Indeed, it cannot function without them. In the mid-20th century, capitalism filled the pockets of its workers through the welfare state. This fuelled decades of consumption, social mobility, and, yes – economic growth. In the latter part of the 20th century, when the welfare state needed some pruning, capitalism filled those pockets through another avenue: mass lending. And so, while my parents had to save to buy the newest appliances (like a TV or dishwasher), my generation just put its cars, flat-screen TVs, and iPods on credit.

So, what’s next for capitalism? Deficits suggest that the welfare state will continue to be pruned, and the financial crises indicate that the days of easy credit are ebbing away. Perhaps the answer, as John hints, is that the developed world will need to rely on the aspirational consumption of those in the developing world. But is this really a win-win situation? The vast numbers of unemployed and disaffected youth in the developed West can be excused for thinking that something has been lost.

Photo courtesy Reuters.