Capitalism in crisis

Capitalism has dominated societies for the past three to four decades. In much of the Western world, this form of liberal  capitalism relied on a creed built on faith in free markets, deregulation and small government. Even economists in some  non Western countries, like the Philippines have embraced this ideology. 

This longstanding economic belief was severely  criticized in the aftermath of the 2007-2008   global financial meltdown and the global recession that followed. While liberal capitalism has brought economic growth, its benefits have been felt by only a miniscule number of persons. Even among developed member countries of the Organization for Economic Cooperation and Development (OECD), economic growth over the last decade ceased to benefit most people. Miatta Fahnbulleh, chief executive of the New Economics published a report that even in OECD countries one out of three people are economically vulnerable, meaning they lack the means to maintain a living standard at or above poverty level. In those countries in North America and the European Union, income inequality is higher than at anytime in the past half century, the richest ten percent holds almost half of total wealth and the bottom 40 percent hold just three percent.

Branko Milanovic of the London School of Economics says: “...the setup of liberal capitalism has the consequence of at once deepening inequality and screening that inequality behind the veil of merit...the wealthiest today can claim that their standing derives from the virtue of their work, obscuring the advantages they have gained from a system and from social trends that make economic mobility harder and harder. The last 40 years have seen the growth of a semipermanent upper class that is increasingly isolated from the rest of society. The ruling class is highly educated, many of its members work, and their income from that labor tends to be high. They tend to believe that they deserve their high standing.

These staggering figures of income inequality are in developed countries which are supposedly economic models for liberal capitalism. Fahnbulleh says: “Inequality has always been a feature of capitalist societies and people have been willing to tolerate it as long as they felt that their quality of life was improving, their opportunities were expanding and their children were expected to do better than them – that is, as long as all the proverbial boats were rising. When that stopped happening in recent decades, it fed a growing perception that the system is unfair and is not working in the interest of the majority of people. Pent-up frustrations have led to clamor for change – including a new receptivity to socialist ideals that have long been sidelined or even considered taboo.” There has also been a noticeable rise in populism all over the world primarily fuelled by resentment toward income inequality and the rise of elitism. 

 The other alternative to liberal capitalism has been described as political capitalism. According to Professor Branko Milanovic, London School of Economics, this is a “...state led, political model of capitalism which is exemplified by China...This system privileges high economic growth and limits individual political and civic rights.” 

Milanovic says both types of capitalism – liberal and political – face inevitable problems. He says: “Liberal capitalism has many well known advantages, the most important being democracy and the rule of law. These two features are virtues in themselves, and both can be credited with encouraging faster economic development by promoting innovation and social mobility. Yet this system faces an enormous challenge: the emergence of a self-perpetuating upper class coupled  with growing inequality. This now represents the gravest threat to liberal capitalism’s long-term viability.

At the same time, China’s government and those of other political capitalist states need to constantly generate economic growth to legitimize their rule, a compulsion that might become harder and harder to handle. Political capitalist states  [i.e.China] must also try to limit corruption, which is inherent to the system, and its complement, galloping inequality. The test of their model will be its ability to restrain a growing capitalist class that often chafes against the overweening power of the state bureaucracy.” 

What is the future of capitalism? If it continues its present path, the forseeable result will be more income inequality which means the people will turn to populism unless there is some other remedy. 

The best people to solve the issue of income inequality are the wealthy elite. However, will the elite be willing to accept that charity, philanthropy and even corporate social responsibility will not be enough to change the existing economic and power structures that led to this growing inequality? Anand Giridharadas in his book Winners Take All: The Elite Charade of Changing World says that “...the rich and powerful fight for equality and justice any way they can – except ways that threaten the social order and their positions atop it.”

We need a new economic order that will regulate the market economy and require businesses to serve a social purpose beyond just increasing profits and shareholder value and commit to giving their workers a voice. We need a “third way” between the paths of capitalism and socialism.

Creative writing classes for kids and teens

Young Writers’ Hangout on Feb. 22 (1:30 pm-3pm; stand-alone sessions) at Fully Booked BGC.   For details and registration,  email [email protected].

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Email: [email protected]