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