Is capitalism over? Who would ask such a thing? Given our slowly accelerating economic disintegration, and the attendant political firestorm regarding who is to blame for it all and who has the best ideas to fix things, the question hasn’t come up. Bet the question is hanging around in the background. It’s just not a political question – yet. People prefer to discuss the specific political issue of the moment, not theory. And they have their reasons for that. Some follow politics because they are, simply, political junkies. They love the daily who-said-what and all the clever maneuvering, and the cutthroat competition – it’s all a mix of something like sports, where you root for your team and jeer the other guys, and one of those pleasant murder mystery evenings at the local dinner theater, where everyone gets to guess who done it.
Others follow politics because they’re policy wonks – they like to think about structure and focused action on certain aims. For them it’s not just what’s best, but what is the best way to get to the most efficient and equitable solution to any given social problem. They love process, and they know their history. Most people avoid them as they’re not much fun. Others are fascinated by power, and when you know that you’re essentially powerless, power is fascinating – it’s like watching Fred Astaire dance in the old black-and-white musicals. It has nothing to do with you, but it’s very cool.
Most everyone else follows politics half-heartedly, and only because of that constant, low-level dread that things haven’t been going well, and seem to be getting worse, and we’re heading for disaster. They follow the people who have been elected to be in charge of things, hoping for the best, but settling for undifferentiated and free-floating despair. They tend to think about other things as quickly as possible.
And of course there are the ranks upon ranks of experts who speak to all four groups – the cable news channels and major newspapers and magazines assemble teams of these folks and deploy them, as there’s money to be made here. It’s just that these experts are usually wrong, as Nicholas Kristof explains, again, in the New York Times, where he trots out Philip Tetlock, the Berkeley professor who documented that expert predictions weren’t much better than throwing darts:
Indeed, the only consistent predictor was fame – and it was an inverse relationship. The worst performance came from experts who provided strong, coherent points of view, who saw things in blacks and whites. People who shouted…
Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.
This was the distinction that mattered most among the forecasters, not whether they had expertise. Over all, the foxes did significantly better, both in areas they knew well and in areas they didn’t.
Kevin Drum is having none of that, as a key difference between the two types, as he sees it, is respect for history and broad trends:
That is, Tetlock’s foxes understand that if you want to know what’s going to happen in the future, you should pay attention to what’s happened before. If simpleminded data says there’s a housing bubble, there’s probably a housing bubble. If foreign occupations usually turn into guerrilla wars, then your occupation is probably going to turn into a guerrilla war. If tax cuts usually reduce government revenues, then your tax cut will probably reduce government revenues.
The problem, as Drum sees it, is that most people don’t find that kind of thinking persuasive:
If somebody gets on TV back in 2005 and explains in detail why this time it is different and high housing prices are completely sustainable, it all sounds vaguely plausible. The skeptics don’t believe it, but they don’t have fancy arguments. They just point to a chart and say that the numbers look really high by historical standards, and whenever that’s happened in the past there’s been a crash. So there’s probably going to be a crash this time too. And they’re duly ignored.
Details are important for operational planning, but they mostly just blur things at a broader level. Even in my own areas of expertise, I’ve usually found that to be true: if the broad trends point in a particular direction, odds are that’s what’s going to happen.
“This time it’s different” is probably the most dangerous phrase in the world. It’s especially dangerous because every once in a while it’s true.
But it isn’t often true. It’s hardly ever true. We just want it to be true. And that leads to another category of people who follow politics. These would be anti-ideological skeptics who look for patterns in what has happened before in relation to what is happening now, to see if we can have some idea of what is going to happen if we do this, that or the other thing, or do nothing at all. Sometimes this is called political science, but the term is too snooty. It’s just paying attention to how things seem to work out.
But, as with Rodney Dangerfield, you don’t get a whole lot of respect for paying attention. You know how it goes. Some of us thought the Iraq War was a stunningly bad idea from the get-go, but not because we were anti-war hippies left over from the sixties, nor because we thought we had a better and more comprehensive plan for the new century than the neoconservatives did, with their carefully constructed and elaborate reasoning for imposing democracy and free-market capitalism everywhere, by war when necessary, to keep us safe here at home and achieve world peace and prosperity. We didn’t have a master plan for changing everything – we weren’t that presumptuous. And it’s not that we loved Saddam and were fine with him in power. He was a murderous jerk. It was just that there was a history of doing this sort of thing – see T. E. Lawrence – and it had never worked out well. On being told that this time it would be different, well, we were skeptical. There were alternatives. But saying that made us, at best, timid killjoys, and at worst, traitors. You get used to it.
But we’re still fascinated by how things have worked out in the past, so we can guess reasonably well what will happen in the future – not because we have an axe to grind or a team we support and cheer, or a comprehensive ideology about how things should be in this sorry world, if everyone would just think what we think. It’s more mundane than that. We’re just curious about what will happen next. Politicians – leaders, of you want to call them that – will do this or that, or do nothing, and it is best to know what to expect next.
And that leads to Geoff Mulgan – Director of Policy at 10 Downing Street under Tony Blair, who once, curiously, trained as a Buddhist monk in Sri Lanka. But that is neither here nor there. Mulgan has the cover story in the latest issue of the UK magazine Prospect – and it is titled After Capitalism. He’s not for or against it – he just sees things happening, and senses change is in the air. It’s a matter of spotting trends, and with the US banking system facing losses of over three trillion dollars and Japan in a depression and China headed for zero growth he acknowledges that “some still hope that urgent surgery can restore the status quo.” But he suspects nothing will be the same again.
But he knows his speculation about what comes after capitalism will be scoffed at:
Only a few years ago that question had been parked – deemed about as sensible as asking what would come after electricity. Global markets had pulled China and India into their orbit, and capitalism’s triumph appeared complete, with medievalist Islam and the ragged armies that surround the G8 summits jostling to be its last enfeebled competitor. Multinational companies were said to command empires greater than most nation states, and in some accounts had won the affiliation of the masses through their brands.
But he suggests there are as many forces that undermine capitalism as there are forces that carry it forward – you just have to drop your ideologies and preferences and think about it. He doesn’t see resurgence or collapse, but things are changing. That just happens:
In the early decades of the 19th century the monarchies of Europe appeared to have seen off their revolutionary challengers, whose dreams were buried in the mud of Waterloo. Monarchs and emperors dominated the world and had proven extraordinarily adaptable. Just like the advocates of capitalism today, their supporters then could plausibly argue that monarchies were rooted in nature. Then it was hierarchy which was natural; today it is individual acquisitiveness. Then it was mass democracy which had been experimented with and shown to fail. Today it is socialism that is seen in the same light, as a well-intentioned experiment that failed because it was at odds with human nature.
Things just don’t last. Monarchies didn’t – hierarchy was, as he argues, replaced by democracies, and there is no reason to think that a system based on individual acquisitiveness will do any better. And here is the gist of that:
Complex, interconnected market economies will continue to generate huge surpluses, fuelled by the continuing flow of new scientific knowledge. But just as monarchy moved from centre stage to become more peripheral, so capitalism will no longer dominate society and culture as much as it does today. Capitalism may, in short, become a servant rather than a master, and the slump will accelerate this change. Past depressions were cruel but they also hurled ideas from the margins up into the mainstream, speeding their motion through the three stages that Schopenhauer described happening to all new truths, being first ridiculed, then violently opposed, then treated as self-evident.
What is interesting is that Mulgan refuses to fall into the trap of oversimplifying capitalism, as it is not simple at all:
Capitalism includes a market economy, but many traditional market economies are not capitalistic. It includes trade but trade, too, long precedes capitalism. It includes capital – but Egyptian pharaohs and fascist dictators commanded surpluses too.
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 characterized 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.
There have been more embedded versions of capitalism too on the path to today’s hedge funds and derivatives. They have included close alliances with the state (40 per cent of the investment in Silicon Valley came from government), the rule of great industrial combines (as in Korea), and the strange hybrids of mercantilist communist capitalism in China and tycoon-led capitalism of Southeast Asia. There have been buccaneering free markets – like the US in the 19th century – and highly socialized ones like Switzerland in the 20th.
And capitalism is expansive:
19th-century capitalists bought politicians, art collections, landscapes and universities with equal relish. Contemporary capitalism is at ease with corporate sponsorship, diamond skulls and old masters, as well as software programs and space travel. Its methods have spread into healthcare, land management, and charity (though “philanthrocapitalism,” the idea that the rich can save the world, may not survive the crisis). Anything can be turned into a commodity to be bought and sold – from sex to art and religion – and capitalism has been nothing if not inventive. Even climate change has turned into a potential boom for capitalism, with taxpayers subsidizing new waves of R&D, and governments persuaded to sponsor carbon markets which give traders, brokers and investors yet another way to grow rich.
And he argues that capitalism has a somewhat complicated relationship to politics – “sometimes constrained and tamed by it, and sometimes seeking to dominate it.” Yeah, you buy influence and complain about the damned rules and regulations. He notes on this side of the pond both parties are enmeshed in Wall Street – “one reason why they have found it hard to respond to a crisis that has so challenged their assumptions (Obama’s early steps have sometimes seemed less assured and less radical than Roosevelt’s in part because whereas FDR used comparative outsiders for advice, Obama has opted for insiders like Larry Summers and Tim Geithner).”
And of course Big Capitalism is even more entwined with politics and culture:
At a time when seven year olds were being recruited to sell Barbie dolls on commission to their friends this view seemed plausible. Through everything from mind-changing drugs to computer games and extreme sports, capitalism seemed to be reaching into deep human desires as only religions had done in the past.
And you cannot fight it. People tried:
…only a few decades ago there was great interest in what would supersede capitalism. 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 … is that they offer little account of how their visions might be realized and how powerfully entrenched interests would be overcome.
But maybe Marx was onto something and capitalism is a system that was bound to destroy itself. Perhaps Marx should have been more patient, as it didn’t happen on his watch. Mulgan notes that twenty years ago the American social scientist Daniel Bell wrote of the “cultural contradictions of capitalism.” The idea there was that capitalism “would erode the traditional norms on which it rests – willingness to work hard, to pass on legacies to children, to avoid excessive hedonism.” Japan in the nineties may have shown that, or so Mulgan argues.
And it seems Marx missed another issue with capitalism, demography:
Capitalist materialism has undermined the incentives for people to have children, sacrificing income and pleasure for the hard grind of family life. (And meritocracy further encourages parents to lavish their ambitions for advancement on just one or two children.) Hence the sharply reduced birthrates across Europe and among white Americans. At some point the resulting demographic imbalances threaten to undermine the generational contract which any society depends on, with a growing group of the elderly demanding ever more from a shrinking group of younger workers. The collapse of the savings rate – to around zero by 2007 in the US when it needs to be closer to 30 per cent to cope with ageing, is a stark symptom of a capitalism that has lost the ability to protect its own future. (Ironically, China despite its high savings rate may be even more at risk, as the one-child policy transforms it from a young to an old country faster than as ever happened before in human history.)
And then its own success may be killing capitalism:
Having successfully met people’s material needs, capitalism is threatened if they then lose interest in working hard and making money, turning instead to new age counseling, mid-life gap years and three-day weekends. Capitalism’s only response is to invest ever more in creating new needs fuelled by anxiety about status, or beauty and body mass, a perverse result that may make developed capitalist societies more psychologically troubled than their poorer counterparts.
So Mulgan says forget Marx. Try the up and coming 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 realized, but only once new institutions come into being which are better aligned with the characteristics of the new economy. Once that has happened economies then go through surges of growth as well as social progress, like the belle époque or the postwar miracle.
Before the great depression the elements of a new economy and a new society were already available – and encouraged the speculative bubbles of the 1920s. But they were neither understood by the people in power, nor were they embedded in institutions. Then, during the 1930s, the economy transformed, in Perez’s words, from one based on “steel, heavy electrical equipment, great engineering works and heavy chemistry… into a mass production system catering to consumers and the massive defense markets. Radical demand management and income redistribution innovations had to be made, of which the directly economic role of the state is perhaps the most important.”
What resulted was the rise of mass consumerism, and an economy supported by new infrastructures for electricity, roads and telecommunications. During the 1930s it wasn’t clear which institutional innovations would be most successful (fascism, communism and corporatism were all contenders), but after the second world war a new model of state regulated capitalism emerged characterized by suburbs and motorways, welfare states and macroeconomic management, which underpinned postwar growth.
So the Great Depression was both a disaster and “an accelerator of reform.” And that may be coming:
One of the oddities of the contemporary economy is that the systems of capital allocation have become so divorced from the real economy. Most funding for new scientific knowledge comes from governments, not markets, and most funding for the big companies producing goods, technologies and services is internally generated, rather than coming from stock markets. Meanwhile most of the work of financial markets has involved finance capital taking positions against itself, hedging and betting with instruments of ever greater opacity.
Even before the crisis there were many counter tendencies, all trying to re-establish capital as a servant of the real economy and to force greater transparency. They had both practical justifications (market risk is amplified the more degrees of separation there are between prices of financial assets and underlying value), and moral ones (the more degrees of separation there are, the less possible it is for markets to act with moral responsibility).
And consumption itself is changing:
In the high debt countries (including the US and Britain) there will simply have to be less of it, and more saving. It’s an irony that so many of the measures taken to deal with the immediate impact of the recession, like VAT cuts and fiscal stimulus packages, point in the opposite direction to what’s needed long term. But 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 mayor of Sao Paolo, Gilberto Kassab, banned all billboards in 2006. David Cameron has railed against toxic capitalism corrupting young children, as well as toying with the idea of personal carbon accounts to limit high carbon lifestyles. Reinforcing these trends are shifts in the balance of the economy away from products and services, towards a “support economy” based on relationships and care (from nurseries and therapy to weekly organic food deliveries).
And he goes on. That’s just a taste of it. Mulgan sees “a large political space is opening up.”
In the short run it is being filled with anger, fear and confusion. In the longer run it may be filled with a new vision of capitalism, and its relationship to both society and ecology, a vision that will be clearer about what we want to grow and what we don’t. Democracies have in the past repeatedly tamed, guided and revived capitalism. They have prevented the sale of people, of votes, public offices, children’s labor and body organs, and they have enforced rights and rules, while also pouring resources in to meet capitalism’s need for science and skills, and it has been out of this mix of conflict and co-operation that the world has achieved the extraordinary progress of the last century.
Of course, along with the anger, fear and confusion, that space is also filled with nonsense, for the political junkies, and endless policy suggestions, for the policy wonks, and soothing words for the panicked masses. But in this political space there are also those who claim that what we have now is the best thing, and the only natural thing, selected by trial and error after long years – and this is the end of history itself:
What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.
Some are saying not so fast, Sparky. This time it’s not different. It never is. Drop the ideology and cheering for your team. Things change. People said the same thing about monarchies. People said the same thing about communism. Western liberal democracy and the free-market capitalism that underpins it did great things – the verb form is past-perfect.
If you want to know what’s going to happen in the future, you should pay attention to what’s happened before. Yes, that’s not very exciting. It’s only useful.