What Is Happening to Capitalism?

Geoff Mulgan has an interesting article in the April 2009 issue of Prospect magazine, entitled 'After Capitalism'. It begins: 'The US banking system faces losses of over $3,000bn. Japan is in a depression. China is headed for zero growth. Some still hope that urgent surgery can restore the status quo. But more feel that we are at one of those rare points of inflection when nothing is the same again.'

Meanwhile the Spring issue of RSA Journal is concerned, in the words of its editorial by Matthew Taylor, with the question of 'whether the economic collapse is an accident or a revelation,' and wants to take the debate to a new level.

Market globalisation, turbo-consumerism, the fetishising of economic growth, indifference to inequality, scepticism towards the state and even the very idea that human beings are best understood as rational, self-interested, individuals: all these aspects of what some in the UK might loosely call the neo-liberal inheritance are now subject to a concerted attack.

The first article that follows this RSA editorial, by Oliver Kamm, argues that we are facing not a 'crisis of capitalism' but 'a severe malfunctioning of one part of the capitalist economy, its financial sector' - to be corrected not by increased protectionism and state control but by openness and regulation (and in the short term by injecting money, purging bad debts and writing down assets). Pete Lunn writes of the rise to prominence of the 'behavioural economists' who argue that human beings function economically in a much less 'rational' manner than neo-liberalism assumes. We behave as a herd (even experts and CEOs), we often make worse decisions the more information we are given, and we act on the basis of trust and a sense of fairness, rather than as 'independent, rational economic agents out to maximise their own self-interest'. An article by Jonah Lehrer then examines the psychology of spending, and the way credit cards lead us into temptation, bypassing the normal inhibitions that constrain desire, and he applies this principle to the subprime mortgages that triggered the present crisis. Finally, Barbara Taylor asks the question whether men are to blame for the crisis more than women, pointing out that in Iceland the male bosses have now been replaced by females. This leads into a fascinating discussion of the differences between men and women and the history of feminism.

Back at Prospect magazine, Geoff Mulgan wants to look at how things might change for 'capitalism'. But what does this ubiquitous word actually mean?

The French historian Fernand Braudel offered perhaps the best description of capitalism when he wrote of it as a series of layers built on top of the everyday market economy of onions and wood, plumbing and cooking. These layers, local, regional, national and global, are characterised by ever greater abstraction, until at the top sits disembodied finance, seeking returns anywhere, uncommitted to any particular place or industry, and commodifying anything and everything. Capitalism became an “ism” when the vigorous banking and trade of Genoa and Venice, London and Bruges, combined with inventive manufacturing to create a world where the holders of abstracted capital became dominant, displacing the many other contenders for pole position, from warriors and scholars to bureaucrats and makers of things.

He goes on to talk of various versions of capitalism that have flourished at different times and in different cultures, and then about alternative utopias that have been proposed relatively recently:

The answers ranged from communism to managerialism, and from hopes of a golden age of leisure to dreams of a return to community and ecological harmony. Today these utopias can be found in the movements around the World Social Forum, on the edges of all of the major religions, in the radical sub-cultures that surround the net, and in moderated form in thousands of civic ventures across the world. They are bound to find new adherents. But their weakness and the weakness of much contemporary anti-capitalist literature (from David Korten, Wendell Berry, Alain Lipietz or Michael Albert) is that they offer little account of how their visions might be realised and how powerfully entrenched interests would be overcome.

Daniel Bell and others have spoken of the way capitalism tends to erode the traditional ethical and social norms on which its success depends. Others point out that as populations become older in the developed nations, a growing number of elderly will need more and more support from a dwindling group of youngsters. Even the success of capitalism works against it, forcing it to 'invest ever more in creating new needs fuelled by anxiety about status, or beauty and body mass'. But for a deeper insight, Mulgan turns to Venezuelan economist Carlota Perez:

Perez is a scholar of the long-term patterns of technological change. In Perez’s account economic cycles begin with the emergence of new technologies and infrastructures that promise great wealth; these then fuel frenzies of speculative investment, with dramatic rises in stock and other prices. During these phases finance is in the ascendant and laissez faire policies become the norm. The booms are then followed by dramatic crashes, whether in 1797, 1847, 1893, 1929 or 2008. After these crashes, and periods of turmoil, the potential of the new technologies and infrastructures is eventually realised, but only once new institutions come into being which are better aligned with the characteristics of the new economy.

Here is the relevance to our present situation:

Perez suggests that we may be on the verge of another great period of institutional innovation and experiment that will lead to new compromises between the claims of capital and the claims of society and of nature. In retrospect these periodic accommodations are as integral to capitalism as financial crises—indeed it’s only through crisis and institutional reform that capitalism adapts to a changing environment and rediscovers the moral compass that is so vital for markets to work well.

'If another great accommodation is on its way,' he adds, 'this one will be shaped by the triple pressures of ecology, globalisation and demographics.' However:

Forecasting in detail how these might play out is pointless and, as always, there are as many malign possibilities as benign ones, from revived militarism and autarchy to stigmatisation of minorities and accelerated ecological collapse. But the new technologies—from high speed networks to new energy systems, low carbon factories to open source software and genetic medicine—have a connecting theme: each potentially remakes capitalism more clearly as a servant rather than a master, whether in the world of money, work, everyday life or the state.

This sounds nice, but what could it mean? He talks about the pressure for increased regulation and accountability, the rise of social and ethical investment, and various forms of mutualism.

Even money itself may be rethought. The privileges that accompany the ability to create money will come in future with more responsibilities, but we may also see more enthusiasm for alternative currencies that are more embedded, like the local currencies in Germany or timebanks.

There are already 'strong movements to restrain the excesses of mass consumerism: slow food, the voluntary simplicity movement and the many measures to arrest rising obesity, are all symptoms of a swing towards seeing consumerism less as a harmless boon and more as a villain.' The evolution of low-carbon production methods, and the success of open-source software, cooperatives and employee-owned firms like John Lewis, point towards the new types of capitalism Mulgan has in mind, although here, he says, the decisive issue 'is whether capitalism can find a new accommodation with the family'. He concludes that there is

no inherent contradiction between capitalism and community. But we have learned that these connections are not automatic: they have to be cultivated and rewarded, and societies that invest large proportions of their surpluses on advertising to persuade people that individual consumption is the best route to happiness end up paying a high price.

I hope it is clear why I am summarizing all this material on a blog about Catholic social teaching. It is not that any of these authors are Catholic (as far as I know), but it does seem to me that the new ideas thrown up by the crisis and new approaches being suggested in mainstream journals do dovetail quite nicely with CST. The teaching of the Popes and other religious traditions has inevitably appeared of marginal interest to a civilization secure in its own liberal ideology. But that security has vanished, and a deeper wisdom is being sought.

See also Democratic Capitalism, Adrian Pabst on Karl Polanyi, the Progressive Conservatism project, Proutism, Allan Carlson's Third Ways, an online book on Subsidiarity, Distributist Perspectives, and John Zmirak on Wilhelm Roepke