The following essay is a reflection on the past three decades after the fall of really existing socialism. Based on the historical developments and the broken promises made by the neoliberal elites, I criticize global capitalism and its supporting ideologies.

What’s gone wrong with capitalism?

After the fall of the Berlin Wall and the successive collapse of the USSR and the Eastern Bloc in the early 1990s, free market economy or capitalism was declared as the ultimate principle of organizing society. It seemed that the ideological battle was over; socialism had failed and capitalism won. There would be no alternative; there would be nothing new at least in the arena of ideologies. As declared by Francis Fukuyama, the human history, as a history of ideas, seemed to have ended. Free market economy or capitalism would be dominating the world. It was promised that everyone’s life would be improved under global capitalism. The era of prosperity would come. That was the official story. Three decades later it is certain that the promise has not been fulfilled. Majority of the world’s population are suffering from poverty or living nearly in poverty. And the future of younger generation does not look so bright. So what’s gone wrong with capitalism?

Some conservatives argue that the world is actually getting better under global capitalism. Despite growing inequality, they claim, people have improved their life throughout the world in many aspects since early 19th century. It is true that ordinary people in modern society have access to resources that ancient people could not even imagine. These days even a poor family in the US can afford more chicken than a rich French family could in the 17th century, for example. Thanks to medicine and better working conditions, people live very much longer now than ancient or medieval people did. Obviously, there has been major progress made. However, the fact that our life is better than in the past does not necessarily mean that we should not question or complain about the current system. We should raise questions about the cost of the progress made under capitalism. How many people were and are being decimated? How many resources on this planet are being wasted? Last but not least, progress does not mean the end of conflicts or antagonisms in society.

To understand precarious situations of current capitalism, one needs to delve into the root cause of growing inequality. That brings us to Karl Marx. According to Marx, only human labor creates surplus value or wealth. The owner of the means of production, or capital, appropriates the wealth created by labor. The more productive the labor forces are, the more wealth are transferred to the capitalist, hence impoverishment of working people. That is exactly what has happened for decades under global capitalism. Despite rapidly rising productivity, a vast amount of wealth has shifted to a few billionaires, while wages have stagnated. The level of inequality is so obscene that angry people call for an explanation. To meet the difficult situation, many politicians are readily turning to distractions such as demonizing immigrants and refugees. But one should never forget that as long as the exploitation of labor remains in place at the core of the system, capitalism is far from being just or fair.

One interesting justification of inequality recently drawing attention attributes it to nature. Jordan Peterson explains that enforcing equal distribution of income results in catastrophe because it is against law of nature. He claims that Pareto’s law holds true across nature or even the universe. For example, 20 percent of planets in solar system account for 80 percent of the total mass. Likewise, 20 percent of workers in a company represent 80 percent of performance. He offers a lot of examples of Pareto’s law applied. He even warns that ignoring Pareto’s law to achieve equal distribution of income will lead to mass annihilation that happened in Mao’s China as well as Stalin’s Soviet Union. The problem with applying Pareto’s law is that it can be arbitrarily applied to anything to explain everything. For instance, one can use Pareto’s law to explain the situation where 20 percent of population who owns the means of production takes 80 percent of wealth produced by labor. The point is that whatever is true of nature, such as lobsters’ horrible struggle to outrival competitors, is not necessarily true of humans.

As is well known these days, despite remarkable growth of productivity due to the development of information technology, the gap between the rich and the poor is undoubtedly widening under the current system. One simple specific explanation presented by Thomas Piketty is that return on capital or return on investment by far exceeds the growth rate of economy in general. It can be interpreted like this: whatever growth or progress is made in an economy, shareholders and property owners take the lion’s share of the outcome in the form of interest, rent, and profit. There is not much left for actual producers in the economy at the end of the day. This happens at every phase of production under capitalism on a worldwide scale: a day, a week, a month, a quarter, a year, and so on. Hence, accumulation of wealth on the one hand, accumulation of poverty on the other hand. Now, according to today’s Wall Street Journal, jobless rate hits a 50-year low. It seems that more people are working harder handling multiple jobs than ever before. Other things being equal, then surely the rich will get richer and the poor will get poorer in the end.

American economist Michael Hudson addresses the role that the rentier class play in the shrinking economy in current capitalism. Rentier class are defined as property owners including intellectual property. They do not produce anything; however, they charge whatever amount they possibly can to producers in the economy. The problem is that the income of rentier class or financial sector in other words makes up part of the gross national income such that it looks as if they contribute to  a national economy by financing. Following the tradition of classical political economy including Karl Marx’s, Hudson does not see the financial sector as part of the real economy, which is made up of production and consumption. Usually Marxists call financial sectors ‘fictitious capital’ to separate them from real capital which is used to organize real production. The real economy, Hudson claims, gets into trouble with financiers demanding ever more increasing shares in the form of rent, fee, interest, and so on. That is to say, the more expanding fictitious capital, the more shrinking real economy. One can expect to see the bitter end of this cycle; the host will die.

Michael Hudson and Richard Wolff rightly point out that historically the free market has never been free. In other words, the free market is constructed and imposed by nation states; state intervention is a kind of precondition of free markets in the process of capitalist development. When the US was rising in late 19th century and early 20th century rapidly replacing the British Empire in the global economy, there was massive investment by US government in infrastructure like transportation, housing, education, and so on. Lowering the cost of production thanks to beneficial interventions of US government in almost every aspect of economy, US manufacturers could effectively beat foreign competitors in an ever more expanding global market developed under capitalism, making America the most powerful country in the world. In contrast, US as well as other developed economies are now pitching into privatizing the public sector in the false belief that private businesses are more efficient and bring more benefits to society in general with the result of increasing the cost of living and doing business. Yet again we end up with a shrinking economy in real terms and rising poverty in most part of the world.

This brings us to the question of China. Obviously, China is running capitalism and has become the engine of global capitalism while the rest of developed economies are falling behind. What makes the case of China different? The answer is massive state intervention. As other developed countries did, China built their economy by way of government planning and huge public investment in infrastructure. Unlike in western economies, public investment is still larger than private investment in China. While western capitalism was obsessed with free market dogma that would be eventually hurting their economy, Chinese state-run capitalism was prospering and effectively producing a new rich class and middle class who were going to lead its domestic consumption. Not just China, but also other Asian economies such as South Korea and Singapore began with government intervention into economy, creating conditions for free market and a strong middle class. The secret to their success was not to listen to Western economic advisors.

Then what is the idea of neoliberalism that modern capitalist countries are so desperately sticking to? Basically, neoliberalism is not a new idea, but a reassertion of 19th century ideas associated with laissez-faire economic liberalism and free market idea. So, it is kind of a joke to say that neoliberalism is neither new nor liberal. To understand neoliberalism is to see what its policies are intended to achieve. Without exception, neoliberal economic policies throughout the world are intended to empower property owners and businesses on the one hand, on the other hand to weaken or destroy unions and the social security network that had empowered working class after the second world war. Arguably, neoliberalism can be viewed as complete reversal of socialism. Neoliberals argue that businesses are creators of markets and jobs, so governments should not hurt businesses by intervention into economy or rather should provide businesses with as many benefits as possible. It is well known how Ronald Reagan could not wait to offer tax cuts to business owners to compensate for their ‘hard’ work. On the contrary, the working class demanding social security are attacked as parasites of society. Margaret Thatcher’s slogan ‘There is no alternative’ has been conventionally used by neoliberals.

In his 2006 movie ‘Children of Men’, the director Alfonso Cuaron successfully depicted a horrible dystopian world where there is no alternative; there are no new births, so mankind is facing extinction. Can this dystopian world in the movie not be seen as parallel with the deadlock of global capitalism since 2009 global economic crisis and successive long depression? Obsessed with neoliberal dogma, most governments and international financial institutions are imposing harsh austerity that will ultimately threaten the survival of our own species and finally this planet. Simply put, austerity is intended to protect the rich at the expense of the poor, the most vulnerable. The only possible solution away from this deadlock is to escape from the infertility of neoliberalism and open up space for new ideas and new attempts. We should find it easier to imagine the end of capitalism than the end of the world.

One ominous sign of the end of capitalism can be seen in the contradiction of technology under capitalism. Karl Marx already expected that rapid development of technology would ultimately hasten the demise of capitalism. Capitalism, as Marx explains, is a system of exploitation of labor for surplus value or profit. So, as more machines replace human labor for more profit, less surplus value remains for exploitation. What does this contradiction imply to humans? Obviously, the situation will be a disaster to capitalists, but on the flip side for the first time in human history completely new society will open up where humans are liberated from labor. Hence there will be a kingdom of freedom. And this is all that Karl Marx and later revolutionary socialists envisioned. The dream will come true? The answer is that no one knows for sure. It depends on our collective decisions.

Now we get back to the question of history. Francis Fukuyama was wrong when declared the end of history. What came to an end was the Cold War, that is, a certain phase of history. Fukuyama misinterpreted Hegel’s philosophy. When Hegel talks about ideas, he considers material reality that produces the ideas at the same time. According to Hegel, ideas or philosophy always come to arrive after material developments are already achieved. So, when Hegel implies the end of history, he means the end of a phase of history that he is a part of. Following Hegel, we can dare to declare the end of liberal democracy now. What we find rising is a new form of capitalism, authoritarian capitalism or capitalism without democracy. And it has become clear that we can’t have both democracy and capitalism. The only hope remains that history never ends as long as we can try again.

References

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Fukuyama, F. (2006). The end of history and the last man. New York, NY; London: Free Press.

Harvey, D. (2011). A brief history of neoliberalism. Oxford: Oxford University Press; New York.

Harvey, D. (2015). Seventeen contradictions and the end of capitalism. New York: Oxford University Press.

Hudson, M. (2015). Killing the host. Dresden: Islet-Verl.

Marx, K., Fowkes, B., & Mandel, E. (1990). Capital: a critique of political economy. Volume 1. London: Penguin Books In Association With New Left Review.

Piketty, T., & Goldhammer, A. (2017). Capital in the twenty-first century. Cambridge Massachusetts: The Belknap Press Of Harvard University Press.

The Radical Revolution. (2019). Slavoj Zizek — China and the Future of Marxism & Democracy. Retrieved from https://www.youtube.com/watch?v=jVsLGiXGQn0

True North Strong. (2018). Jordan Peterson & Bret Weinstein: Why Socialism Fails & Capitalism Works. Retrieved from https://www.youtube.com/watch?v=JTwiEGoaAI4

Truthspeak. (2019). Jordan Peterson & Slavoj Zizek- “Happiness: Capitalism vs. Marxism.” Retrieved from https://www.youtube.com/watch?v=pT1vutd4Gnk

Roberts, M. J. (2016). The long depression: how it happened, why it happened, and what happens next. Chicago, Illinois: Haymarket Books.