The old left is smiling. It is gleeful about the economic disaster in East and South-East Asia; about the collapse of Russia; about the strong possibility of Latin America becoming the next domino. Even the USA, whose booming economy once looked insulated from the typhoon hitting global markets, is now feeling the blast: its stock markets have lost billions of dollars in market capitalisation.
Just as we expected, says the old left. We always knew capitalism was a rotten system. Maybe communism failed, it says, but capitalism has failed too, and needs to give way to a more socialist system.
In fact reports of the death of capitalism are much exaggerated. Indeed, its death has been predicted so often for over a century that it needs to be hailed as an astrological exercise of timeless popularity. I recommend an article by Prof Jerry Muller in Span magazine a decade ago, which chronicles regular predictions of the demise of capitalism, by its friends as well as foes, from the start of the century.
One and a half centuries ago, Karl Marx claimed capitalism was dying. In 1902 the German writer Werner Sombart wrote his classic Modern Capitalism, in which he opined he was living in the late stage of capitalism. Rosa Luxemburg wrote in The Accumulation of Private Capital (1913), “Though imperialism is the historical method prolonging the career of capitalism, it is also a sure means of bringing it to a swift conclusion.” Lenin harboured similar illusions: He titled his 1916 tome Imperialism: the Last Stage of Capitalism.
Between the two World Wars came the Great Depression, which provoked further predictions of capitalism’s demise. Communist parties the world over would start every meeting by saying, “Capitalism is now in its death throes.” Ferdinand Fried, a leading light of the German radical right, hit the headlines with his 1930 book entitled The End of Capitalism. In the USA, Howard Scott’s technocracy movement predicted the replacement of the price system by central planning. In Britain, sociologist Karl Mannheim asserted in his book Man and Society in an age of Reconstruction (1940) that democracy could survive only if it cut its links with capitalism.
World War II came and went, but obituaries of capitalism continued. Historian AJP Taylor declared to a BBC audience in November 1945 that “Nobody believes in the American way of life, that is, private enterprise. Or rather, those who believe in it are a defeated party, and a party which seems to have no more future than the Jacobites in England after 1688.”
Economist Joseph Schumpeter, a great protagonist of entrepreneurship, evertheless suggested in his book Capitalism, Socialism and Democracy that capitalism could die through self-inflicted wounds. Nikita Krushchev, head of the Soviet Union, was certain history was on his side. He said it really did not matter how much capitalist countries struggled to survive. We will crush you.
All capitalist nations became welfare states after World War II, devoting unprecedented sums to the sick, aged and poor. This was interpreted by some as meaning that capitalism was fading away. The stagnation of capitalist economies in the 1970s fuelled new hopes in the European Left, and Francois Mitterand came to power in France on a platform of Breaking with capitalism. He nationalised all major French industries, raised taxes, shortened working hours and lengthened holidays. He would not, he said, take the Thatcher-Reagan path to disaster. But soon France was in even deeper recession than the USA or Britain. A disillusioned Mitterand later started privatising the very companies he had initially nationalised.
Why have so many intelligent, learned people been so constantly wrong about capitalism? One reason is semantic: the word capitalism has been used by some people to mean a system with no role for governments at all, whereas modern capitalism is very much a government-business joint venture. The second reason is that critics have constantly underestimated capitalism’s ability to re-engineer itself and evolve into new forms that get rid of some of the old defects.
In the old capitalism of Karl Marx’s time, there was no universal suffrage, no income tax or inheritance tax, no safety nets for the sick or unemployed. In that sort of capitalism, little children seven to ten years old pulled coal-carts through dark mines, people worked twelve hours a day six days a week, illiteracy and lack of infrastructure deprived people of any chance to rise by seizing new opportunities.
That variety of capitalism was both inefficient and heartless, and was doomed to die. But it was doomed not by the inevitability of revolution but by the refusal of democracy to live with its inefficiency and heartlessness. When Marx write his Manifesto of the Communist Party, only propertied Englishmen were allowed to vote, and Marx believed propertied legislators would keep it that way because they were tied to their narrow class interest. Yet the propertied voted to give the non-propertied the vote. Marx was wrong: Human beings can and do think beyond their narrow class interest.
In many leading countries, democracy and capitalism developed side by side, reinforcing one another. Democracy brought about political competition, with different parties vying for the attention of voters. Capitalism brought about economic competition, with companies vying for the attention of consumers. Both democracy and capitalism had many flaws, were often perverted by vested interests. Yet the very existence of competition and free thinking ensured that every time the flaws were constantly exposed and criticised, with competitors clamouring that they could do better.
Political parties and corporations that failed to meet public needs lost out to others who did. No corporation or party, not matter how rich or well-reputed, could regard itself as safe from competition, and had to constantly evolve with the times or face extinction. This, then, is why both capitalism and democracy are here to stay, despite troubled interludes. They are not fixed systems, they are evolutionary systems capable of self-healing. By their very nature they encourage dissent, the challenging of conventional, wisdom, the blowing of whistles. Both democracy and capitalism have many flaws. Their strength lies in the fact that the know they will always be imperfect, and so invite critics to constantly voice grievances and suggest improvements.
Today’s capitalism, which defeated communism, bears little resemblance to the capitalism Karl Marx wrote about. What we have today is welfare capitalism, devoting a large proportion of GNP to education, health, and safety nets. Layfolk talk glibly about free markets in capitalist countries, but these are actually markets constrained by a huge number of regulations and enforcement agencies to ensure competition, health and environmental standards, and much else. The production of hamburgers in the supposedly free market of the USA requires adherence to over 80 rules and regulations (relating mainly to health standards).
In response to complaints in the economic and political marketplaces, old regulations are constantly abolished as misconceived, but new regulations are also constantly made to meet new felt needs (like checking gender discrimination and environmental degradation). The currency crisis has raised many questions about the capitalist system, to which nobody has good answers today.
Many countries and companies are going bust, and a global recession may soon engulf us. Never mind. In capitalism, recessions and bankruptcies are not aberrations, they are signals telling you something is wrong and needs rectification. They do not sound the death-knell of capitalism, they merely ring an alarm to signify it is time capitalism re-engineered itself once again.