Capitalism in Crisis? Peril, Prosperity, and Global Risk

Is capitalism in crisis?

I. 

David Pilling had an interesting article for the Financial Times Sunday discussing problems with global capitalism and seeking economic prosperity while analyzing possible risks and perils with the capitalist system. The article portends that as economies in the West are sinking, economies in the East are soaring. Pilling: "The implosion in 2008 of the financial system in the US and Europe and last year's European sovereign debt crisis have accelerated the shift of economic momentum to Asia."

While the US and Europe attempt to stave off recession in 2012, Asia's economic prospects are much better. Pilling: "Barring a hard landing in China, Asia-ex Japan should continue to clip along nicely at around 7 per cent, according to most economists." Pilling discussed that according to London School of Economics professor Meghnad Desai, "There's no crisis of capitalism. There's a crisis of western capitalism, which has gone geriatric. The dynamic capitalism, with its energy, innovation and sheer greed for growth has moved east."

Pilling discussed that Asian countries including China and South Korea have "plotted a path towards future prosperity via the adoption of progressively more 'capitalistic' policies -- opening their economies to market forces by loosening the state's hold over banks, interest rates and currency movements." Even so, according to Pilling, "that path to prosperity now looks more perilous than before, prey to boom and bust and to financial castrophe."

Pilling's analysis suggests systemic problems with Western capitalism may be at Asia's doorstep even while Asia has for the most part transitioned to free-market capitalism. Even worse, the West may be seen as "hypocritical at best" given the course of global capitalism. Pilling used the examples China and Japan in attempting to balance interventionist means and monetary policy with economic growth. Pilling boldly wrote, "Economic textbooks contain no answers to capitalism's current woes."

With respect to capitalist problems in the West affecting Asia, Pilling used two analogies: one of a boat and one of a fire. Donald Tsang, chief executive of Hong Kong: "If part of the boat has a hole in it, you cannot stay afloat." Even further, Pilling commented, "If western capitalism is ablaze, the flames will sooner or later lick at Asia's door."

Pilling continued, "The crisis of capitalism in the west poses many questions for the proper stewardship of Asian economies." Thus, the crux goes back to the question of a government's role in managing an economy. Will Eastern capitalism then suffer the same fate as Western capitalism? Will Eastern capitalism go geriatric one day as well? What will we have if or when capitalism passes on from old age? Even in light of income inequality and global risk, Pilling's analysis appears to suggest that the temporal advantages of capitalism for economic actors outweigh the risks -- at least in the short run. Or at the very least, Asian governments have not found an alternative to capitalism for economic growth. Pilling cited Chinese dean Yao Yang in that perhaps the Nordic model with high taxes, a strong middle class, and "less boom and bust" may be better than the Anglo-Saxon model with strong individual liberties and fostered innovation.

Pilling concluded that, "In the absence of anything better, Asian governments that want to raise their people's income will have to fall back on some flavour of capitalism." Changyong Rhee, chief economist of the Asian Development Bank: "Some elements of capitalism are clearly necessary." Even so, the question of state intervention remains, and Pilling commented that such policy alternatives are up for debate in Asian countries. For Asia it appears that capitalism "remains the worst possible economic system -- except for all the others."

II. 

Pilling's discussion brought to mind the Benzinga article written by Charles Hugh Smith from August 2011 entitled, "Marx, Labor's Dwindling Share of the Economy and the Crisis of Advanced Capitalism." Smith wrote, "All attempts to reform the status quo of advanced finance-based capitalism will fail, as its historically inevitable crisis is finally at hand." Smith argued that despite attempts to retain capitalism, entities can no longer save capitalism. Smith discussed attempts to maintain the advanced capitalist system including consumer credit, increasing consumption, expanding the labor force, and exploiting speculation in the market so as "to create phantom wealth".

Smith tied in Karl Marx's discussion on inherent problems with capitalism into the contemporary financial crisis. Smith wrote, "Marx's genius was to recognize the historical inevitability of these internal forces within advanced capitalism." Thus, with the exhaustion of consumer credit, a falling share national income for labor, concentration of capital, and a collapse in labor, "you have to conclude the final crisis of finance-based advanced capitalism is finally at hand" -- but capitalism has weathered storms before, is this crisis really different because it is global? Is capitalism truly in crisis, and what does the future of humanity portend economically?

On the topic of problems with capitalism, we need to separate "theoretical capitalism" from "historical capitalism". As for thinkers like Ayn Rand, Adam Smith, Ludwig von Mises, and Friedrich Hayek, it may be helpful to frame their ideas in the scope of "theoretical capitalism". Theoretical capitalism is still alive and well; for all intents and purposes, there is no crisis in theoretical capitalism. The problem is that what should work in theory often does not work in reality. Whereas theoretical capitalism may sound nice, historical capitalism is what we have to work with. And the crisis is with historical advanced capitalism.

While discussing capitalist crises, it is also helpful to separate historical Marxism from the writings of the philosopher Karl Marx. For all intents and purposes, historical Marxism has overshadowed the ideas of Karl Marx. One might even say that historical Marxism and its accompanying emotional sentiments have severely clouded and distorted Marx's theories. I myself have fallen a bit into this trap from an Austrian School perspective given the gravity of the Soviet Union. To be fair, part of this is owing to the fact that we in the US do not normally study Marx outside of the context of the Soviet Union, and perhaps limiting Marx to the Soviet context is not fair. Even so, I don't think it's always fair to judge a philosopher on the basis of the horrific acts of those who claim to follow the philosopher. In due fairness to the thinker, it may be better to group Karl Marx along with Spinoza, Hegel, and Kierkegaard rather than with Lenin, Stalin, and Mao.

For those in the United States, with economic thinking steeped in neoclassical traditions, it may be difficult to separate the philosophical system as it has been historically practiced from the thinker himself. Per Richard Wolff and Stephen Cullenberg: "Unfortunately in the United States marxism's rich diversity of theories has yet to be understood or debated well enough...to warrant most of what may be called post-marxism." It is as if the evil deeds of individuals like Stalin and Pol Pot poisoned Marx's own personal ideas. Nevertheless, I think if we can separate Marx from those who attempted to put his ideas into practice, we may be able to gain some insight into capitalist crises.

As Adam Fishwick wrote in the book "30-Second Economics", "If we look beyond the legacy of dictatorship offered by the Soviet years, Marx's critique of capitalism can provide one starting point for understanding the inequities that still persist." In the common conception of Marx in the Anglo-Saxon world, as Matthew Bishop wrote in "Essential Economics", "Marx thought that [his] version of history was inevitable. So far, history has proved him wrong, largely because capitalism has delivered a much better deal to the masses than he believed it would." In light of the global financial crisis, income inequality, and global protests, might history surprisingly vindicate Marx?

III. 

Going back to Pilling's insights in conjuction with Smith's article, though theoretical capitalism (as a survival-of-the-fittest economic system) may be desirable, historical capitalism is what Marx criticized. In this way, I think a major problem for global capitalism rests in the fact that the globe could be exploited for limited resources and capital at the expense of the planet itself. In theoretical capitalism, the crux is growth and expansion; in theory, we should find a way via capitalism to develop lightspeed or slipstream travel in order to expand, but alas, we lack the technology. As Pilling eloquently asked, "Can Asians enjoy western standards of living [from capitalism] without destroying the planet?" Pilling's discussion highlights the concern later that Asians are "being sold to a capitalist fantasy" and that given a planet with finite resources, maybe "there's not enough to go around." Whereas theoretical capitalism can assure human survival via the market, historical capitalism cannot; if capitalism truly is about the survival-of-the-fittest economically, then the idea that capitalist growth would eventually destroy the planet is a problem.

The cardinal issue of capitalism in terms of global sustainability goes back to the possible destruction of the planet. Some futurist theorists might even see the development of dangerous nanotechnology as being a possible threat. In light of climate change, from smog in China to Arctic ice melting, if capitalism contributes to the eventual destruction of the planet, then the system is inherently flawed. Even capitalism-in-theory cannot avoid dense smog in Beijing. Theoretically, if humans are unable to expand the real estate market into outer space, the planet could find itself in an "Easter Island" scenario. An Austrian School thinker might contend that prices should keep the market in balance, but we don't have capitalism-in-theory, we have capitalism-in-practice. With all the world consumed in advanced capitalism with massive credit, Marx today might think the world is ripe for an inevitable "final crisis" that causes the capitalist system to collapse in on itself; threats to global sustainability could be a catalyst to such a crisis -- driving humanity away from capitalist growth.

It is as if humanity is running out of -isms to save itself. We no longer can afford expecting utopian ideologies to face the world's financial struggles. Given the global climate, even young people have become disillusioned with ideological struggle. With the specters of overpopulation and resource wars, one has to wonder what the future holds. Kalle Lasn and Micah White wrote in the recent issue of Adbusters Magazine: "While we all assumed that big ideas would keep flowing hard and fast forever, in the last few years it seems that the wells of inspiration are running dry. There is a dawning realization that truly novel, creative ideas have suddenly stopped coming. Nobody knows why." With the looming prospect of global catastrophe, "We've not only run out of ideas; we're running out of time. Now more than ever we need the creative breakthroughs and outlier brainstorms that can shift the terrain of thought, revealing exits, opening possibilities, potentially saving us all."

Marx saw a future crisis dismantling capitalism from within as inevitable...fated to occur. Is that where we are now? Marx's theory of history viewed humanity as progressing through a series of stages: First, primitive communism, then a slave society, then feudalism, then capitalism, then socialism, and then communism. One has to wonder what Marx's conceptions of his theory would look like in practice, but so far history suggests that Marx was wrong.

In light of Pilling's discussion, it may be time for Western philosophy to take another look at different economic thinkers like Marx for example, Marx's critique of capitalism, and a viable perspective on the course of humanity. Contrary to some of my previous sentiments, maybe it's time to think in terms of individuals and not merely ideologies. Whereas Western philosophy has focused on finding "the perfect economic system" or "the perfect form of government", I think philosophers in the future are going to eventually find that it's not the system's form that makes a system good or bad, but rather the individuals within the system. It is not a nation's form of government that makes it good or bad, but rather the behavior of the individuals within the nation that makes it good or bad. Far from gold or land, on both material and spiritual levels, a region's true economic wealth is in its individuals.

For me and I think for many others, this change in perspective is really coming from reading about instances like Easter Island and the possibility of global environmental catastrophe; our common reality with limited resources and limited space cannot seem to afford capitalism-in-theory anymore; the threat of global extinction from artificial means given the reality of economic and military competition is a serious problem for theoretical capitalism. Historical capitalism has enveloped the planet, and per Pilling's article, what occurred with Western capitalism might occur with Eastern capitalism -- economic old age -- thereby further threatening the environment & humanity and leaving no card left for the global financial system. Then again, even if capitalism is in crisis, maybe possible solutions are hiding in plain sight. If the global economy gets worse, we will probably be hearing more on these issues in the years to come.