The building block of the post-war global economy – the USD reserve currency – is being openly challenged. Add to this two looming threats of which it is no hyperbole to say they are existential: climate change and AI.
Are these problems symptomatic of flaws in the capitalist system which need to be addressed? Or is the entire edifice so structurally challenged that these suboptimal outcomes are only the beginning of a secular downward spiral, and that the system itself needs to be comprehensively reimagined?
These are particularly critical questions for South Africa, where these symptoms of the malaise of capitalism are profoundly acute.
In this sense, the global capitalist system is much like a house that has fallen into decay and disrepair. One builder might say the problems are mostly superficial, easily fixed by a coat of paint; while another will adamantly insist the problems are structural and you are better off knocking the entire thing down and starting again.
Two influential economists have recently written books which take alternative sides of this debate. Martin Wolf, as chief economics writer of the Financial Times, could be expected to be rather defensive of free markets and the global capitalist system.
In “The Crisis of Democratic Capitalism”, he points the finger not at the failings of capitalism itself, but more on how the once symbiotic relationship capitalism used to have with democracy has come spectacularly unstuck.
He fears that capitalism may be undermining or even destroying the democracy that for so long has saved it from itself. There is nothing new in worrying about democracy – or capitalism. But, to borrow a phrase from the 2011-12 euro sovereign debt crisis, Wolf’s fear is that this once productive pairing might now be trapped in a kind of doom loop.
To Wolf, this dire situation we have found ourselves in is not just some technical error in economic policy. It was, and is, the result of “the rise of rentier capitalism”, in which inequality in many liberal democracies has grown while too much of capitalism has come to consist of creating quasi-monopoly profits, or “rents”, and then using the resulting wealth to buy the political influence needed to defend them.
This is an eerily accurate description of BEE South Africa.
As to what to do about it, his recommendations are a high-level reordering of the capitalist and democratic systems. For example, a restoration of tough antitrust enforcement (particularly for Big Tech such as Amazon and Meta, which he argues should be broken up) and for stricter financial regulation to create much bigger capital requirements (and lower profits) for banks.
Coming from Wolf, others are more surprising. He vigorously defends trade unions — “public policy should support the creation of responsible worker organisations, within the law” — and argues for higher taxes to enable states to provide the “security, opportunity, prosperity and dignity” that are, he argues, the correct aims of economic policy.
The second opinion – that the house is so structurally flawed it would be best to obliterate it and start again – is that of renowned enfant terrible University of Athens economist and former Greek finance minister, Yanis Varoufakis.
In his book “Technofeudalism: What killed capitalism?” he compares this moment to 1776 when Adam Smith published “The Wealth of Nations”. That was the moment feudalism was subsumed by the irresistible tides of capitalism. What would play out in the ensuing century was a capitalist Industrial Revolution of how society manages scarce resources, and who controls them.
In much the same way, he now argues that capitalism is being destroyed by what he terms technofeudalism; that “value extraction has increasingly shifted away from markets and on to digital platforms like Facebook and Amazon, which no longer operate like oligopolistic firms, but rather like private fiefdoms or estates”.
In 1776, as now, there was no point in having a debate about reforming a structure that is dying anyway. In a South African context, is the political economy so structurally broken that it is beyond any hope of renewal and instead needs to comprehensively self-destruct before being rebuilt?
Oddly, these two economists from opposite sides of the continuum – one a doyenne of the free market establishment, the other an inveterate Marxist – seem to concur on more things than they disagree.
Whether the culprit is the dysfunctional relationship between democracy and capitalism, or whether the entire structure contains the seeds of its self-destruction, both argue that the current system is failing us.
Furthermore, if humanity does not adequately try either to resolve the existential threats facing us or develop an alternative system, they agree that the chaotic, disorderly and anarchic consequences will be unmanageable.
Either way, the outlook for capitalism – in a South African context and globally – has rarely looked bleaker. BM/DM
Capitalism works because it understands human nature that is essentially selfish. Hard work, innovation and risk taking are rewarded. Society benefits from the fruits of this.
The trick is to use tax in a way that it does not disincentivise whilst using the proceeds to provide quality education and other social services.
Well said. IMHO you’ve put your finger on the whole ‘capitalist’ problem, and I suppose the ‘Marxist’ one, too, that human greed overtakes the positive sides of both. In fact it’s far worse in the latter because the establishment has full control, whereas at least in the former there are things like Competition Boards that can override dodgy deals and keep the innovation side of things going. But unfortunately – as seen in too many places – the crooks find ways of taking over, such as in the Western world by getting control of the media (Murdoch, I’m looking at you) and brainwash ‘the people’ into, basically, allowing themselves to be screwed with a smile on their faces (ANC supporters, I’m looking at you!).
For me, the best example of this brainwashing has to be the so-called ‘royal’ family of England and the attached ‘aristocracy’ who have shafted the English people for generations, even making them believe they should be loyal to their ‘betters’ while going off to fight and die in wars (eg the First World War) started by one of their relatives (hint: Kaizer Wilhelm).
Capitalism is not the culprit, good business is good business and profits made soundly benefit all through job creation and the tax systems. The exploitation of this free flow system is what is causing global problems. Technology and the money systems are used to great effect by criminal syndicates, drug cartels and weapon manufacturers. This is what is causing inequality around the world. The destruction of our social fabric through violence.
The world should be focusing on these 3 entities before anything else. I would start with the weapons manufacturers first. Capitalism does not need to be reinvented, how we go about fighting crime against humanity does need to be reinvented.
Funny you should say that. America is the world’s biggest weapons manufacturer, by far. They also refuse to be part of the ICC, and they deliberately lied to the world in order to go to war unilaterally in Iraq. The saying that does not need to be re-invented is this one: “War is a Good Business. Invest Your Son.” You cannot say profits benefit everyone, because the labourer is the one who gives free labour to the employer, and this is how inequality begins, and grows, and grows.
Agree with Miles – too many examples of the popular alternative ( communism ) – in fact almost all – becoming fascist states . The nefarious politically wealthy replace the greedy materially wealthy .
We need MORAL CAPITALISM ( a la writings of Joseph Stiglitz – ” The Price of inequality “) – and less capitalist greed . We should be bringing up our children with the idea of ” enough is enough ” , without killing incentives. In monotonous cycles ,”Conspicuous ( wealth ) Consumption” has been the cause of revolutions since ancient Greece – 800 BC .
Welfare state ( and more equity ) is high on the agenda of successful countries such as Scandinavians and Japan ( and others ).
Read Stiglitz book above – I think essential reading.
Thanks for another insightful piece. Many say that capitalism only needs tighter regulation, as well as a “kinder” face than today’s rogue brand. That would help, but not remedy if the fault is indeed systemic. In the middle, the milder forms of Nordic socialism s – where I have lived half my life – have seemed to offer a fairish balance between the extremes of competition and cooperation. Marxism for its part is recognised – even by people like Thatcher – to have contributed much to our understanding. Many South Africans still have a visceral hate of “the red under the bed”, and today’s ANC is, absurdly, maintaining loyalties to a Russia that no longer exists – and is much nastier. But the ideology is not, I suggest, the key. Both capitalism and communism are in theory fine ideologies, both get messed up by nasty and/or greedy human beings. The USSR followed very much the same quasi global development model of economic-industrial growth as the West – and the Nordics – and indeed China’s state capitalism. In my view the ideology is secondary: that economic growth paradigm is what inherently locks us – including the decisions of very honest people – into a path of growing environmental, economic and social crises.
Two Friends were discussing the communist philosophy, especially the point that everybody should have an equal part of everything, when one of them says: By the way, I know that you have two bicycles and as I don’t have any, you should be obliged to give me one.” and the other: “Hell no, that is MY bicycle.”
A combination of capitilism/socialism plus Moralistic laws
Capitalism, and neoliberalism, has failed. Even the World Bank and IMF have admitted it in their documents.
We do seriously need a new alternative.
It’s a truism to say that most South Africans fear socialism and its envisioned transition to communism, and that is because we were indoctrinated by fears of “die Rooi Gevaar” and reds-under-the-beds. What is never admitted is that every country that tried a socialist experiment, or to become a socialist state was subverted, undermined, destabilised or even invaded by the USA and its allies. The US was determined to stop any other ideology competing with capitalism as it saw it. The economic and ideological hegemony that that US enjoyed since WW II (and its continued military operations and interventions around the globe) is now being challenged, and the Ukraine people are bearing the brunt of America’s proxy war against Russia with the support of “the West”.
The point I want to make is that socialism is actually a much more humane system that looks after ALL the people rather than just the elites, and if we are avoid blood in our gutters, we would do well to think about how we can begin a transition to socialism.
And don’t believe anything the ANC says: they talk communism, but walk capitalism (and austerity). The DA, of course, is unashamedly, capitalist, to their everlasting shame and disgrace. The poor people will eventually save this country, when the rich have left. We’ll rebuild it, in that vision we all had pre-1994
Look to the Nordic countries and Switzerland for Welfare Capitalism.