Marx predicted that Capitalism would be buried by its own gravediggers; will it still happen?
If it can continue, what will the new era of capitalism look like?
Nearly 250 years ago, the economist and philosopher Adam Smith wrote “The Wealth of Nations.”
He described the birth of a new form of human activity: Industrial Capitalism, the result of which would be the accumulation of wealth unimaginable by his contemporaries.
Capitalism drove the industrial, technological, and green revolutions, reshaped the natural world, and changed the state’s role in society.
Over the past two centuries, it has lifted countless people out of poverty, dramatically improved living standards, brought innovations that radically improved human well-being, and made moon landings and reading articles on the Internet possible.
However, there is also a dark side to this story.
The shortcomings of Capitalism have become increasingly apparent in recent years.
Prioritizing short-term personal interests sometimes means compromising the long-term well-being of societies and the environment—especially as the COVID-19 pandemic and climate change challenge the globe.
Political unrest and social polarization worldwide show growing dissatisfaction with the status quo.
According to a 2020 survey by marketing and P.R. firm Edelman, 57% of people globally believe that “today’s capitalism is doing more harm than good to the world.”
If you measure things like inequality and environmental damage, “Western capitalism has had serious problems with its performance in recent decades,” economists Michael Jacobs and Marianne Mazu Mariana Mazzucato write in their co-authored book Rethinking Capitalism.
That doesn’t mean there are no solutions, however.
Jacobs and Mazzucato argue that “Western capitalism is not necessarily doomed, but needs to be rethought.”
So, will Capitalism continue to exist in its current state in our minds? Is it possible?
It contributes a lot to human well-being, but it is far from perfect.
Will Capitalism as we understand it and know it remains the status quo for long?
Or is there another future that evolves into a new state?
The Past Of Capitalism
There are so many books and texts on Capitalism that it is difficult to cover everything.
But what we can do is explore and predict the future direction of Capitalism based on the rise of Capitalism.
Obviously, Capitalism didn’t always work the way it does today, especially in the West.
During the 9th to 15th centuries, the West was under absolute monarchy and ecclesiastical rule.
Such institutions began to decay as the struggle for individual liberties grew, and this gave rise to a more personally oriented economic system – Capitalism, as it allowed for private property rights, individual choice, entrepreneurship, and flexibility for innovation.
It also supports democracy that focuses on individual political freedom as a system of governance, a social system.
This current shift towards greater individual freedom changes the social contract.
Previously, many resources (land, food, and protection) were provided by those in power in exchange for significant contributions from citizens (e.g., slave labor, low-wage hard labor, high taxes, and absolute loyalty).
Under Capitalism, expectations are lowered from the ruling authorities in exchange for greater civil liberties, including personal, political, and economic liberties.
However, Capitalism will undergo major changes over the next few centuries, especially in the second half of the 20th Century.
After World War II, the economic policy think tank, the Mont Pelerin Society, was established to address the challenges facing the West.
Focusing on defending the political values of open societies, the rule of law, freedom of speech, and free-market economic policies, these form the core tenets of classical liberalism.
Classical liberalism eventually gave birth to the “supply school.”
This is the economic idea that tax cuts and minimal regulation of the free market result in maximal economic growth, thereby raising the standard of living for all.
In the 1980s, the politically emerging neoliberalism and the economic supply school were given priority in the United States and many European countries.
This emerging capitalist pressure has fueled accelerated growth in the global economy and has also lifted many people out of absolute poverty.
But at the same time, critics point out that dogmas such as tax cuts and business deregulation have done little for political investment in public services such as refurbishing crumbling public infrastructure, improving education, and reducing health risks.
Perhaps most importantly, late 20th-Century Capitalism in many developed countries led to a wealth gap between the rich and the poor, measured by the Gini coefficient.
The gap between rich and poor is growing in some countries, especially in the United States.
Real incomes for the poorest Americans have not increased since 1980, while the incomes of the super-rich at the top have risen by about 6 percent a year.
Nearly all of the world’s richest billionaires live in the United States, where they have amassed staggering wealth.
In contrast, median household income has only risen slightly since the turn of the Century.
The gap between the rich and the poor may have more impact than some politicians and business elites would like to believe.
Capitalism may have lifted millions of people worldwide out of absolute poverty, but inequality could erode society.
Even if the economy continues to grow, income inequality and stagnant wage growth can make people insecure because it can lead to a decline in their relative status in economic life.
Behavioral economists have shown, “Our social status, our happiness, comes more from relative measures and wealth distribution than from absolute measures, compared to other people.
If this statement is correct, then there is something wrong with Capitalism.
According to the Edelman report, rising inequality leads to “lower trust in institutions and experiences of injustice,” with potentially deeper impacts on people’s lives.
In their book Death of Despair and the Future of Capitalism, economists Anne Case and Sir Angus Deaton argue that Capitalism in its current form is destroying the lives of many in the working class.
They wrote, “During the past two decades, the death toll of despair from suicide, drug overdose, and alcoholism has risen sharply and now claims hundreds of thousands of American lives each year.”
The financial crisis of 2007-2008 exacerbated these problems.
The crisis has hit the working class particularly hard in developed countries, triggered by excessive deregulation.
Richard Cordray, first director of the U.S. Consumer Financial Protection Bureau (CFPB), said the government’s bailouts of big banks in the aftermath of the crisis sparked dissatisfaction.
“Contributing to what we’ve witnessed over the past decade. … the rise of political polarization”.
He is the author of Gatekeepers: Saving Our Families, Economy, and Democracy by Protecting Consumers.
In The 21st Century
Liberal democracies may be at an inflection point right now; globally, citizens challenge existing capitalist norms with greater political power.
For example, J Patrice McSherry, a professor of political science at Long Island University in New York, observed this change in Chile.
“Social mobilization started when subway fares rose in October 2019, sparking widespread protests that drew more than a million people to the demonstrations,” she said.
“The social movement in Chile has exposed the deep roots of discontent: deep-seated and growing inequality, rising living costs, and extreme privatization in one of the world’s newest liberal countries.”
These grievances can be traced back to the late 20th Century, when Chile’s authoritarian government attempted constitutional reforms to “institutionalize the economic and political domination of dictatorships.
Establishing a new era that eliminated the state’s role in the social and economic spheres.
Liberal framework limits political participation, empowers [political] rights disproportionately, and sets up a guardian role for the armed forces.”
McSherry wrote in an article for the nonprofit Latin American Congress, pointing out that; the organization tracks the current situation in Latin America.
Likewise, the “yellow vest” movement that emerged in France in 2018 was initially sparked by rising fuel costs for commuters.
But quickly expanded to Chile-like social grievances, rising living costs, rising inequality, and urging governments to stop ignoring the ordinary demands of citizens, etc.
In the United States, the political movement that spawned Trumpism is arguably driven by economic inequality and ideology.
Among voters lost to globalization, the Trump administration’s more closed trade policies have won broad political support.
Including withdrawal from the Trans-Pacific Partnership and restrictions on imports to China, India, Brazil, and Argentina, and services levied retaliatory tariffs.
Even traditional U.S. allies such as Europe, Canada, and Mexico have been targeted by this agenda.
Anahita Thoms, head of international trade at Baker McKenzie in Germany and Young Global Leader at the World Economic Forum, said that while one response to the headwinds of Capitalism in its current form is for countries to take a defensive stance, seeking to protect themselves by reducing external links, but protectionism “is short-sighted, especially in the area of trade.”
“While it may provide some temporary benefits, in the long run, it jeopardizes the entire global economy and has the potential to undermine decades of economic progress.
It is critical to maintaining investment-friendly open markets,” Thomas said.
A central challenge facing governments in the 21st Century is how to balance the long-term benefits of global trade with the short-term damage to communities caused by low wages or unemployment due to globalization.
In a democracy, the economy cannot be completely divorced from the needs of the majority, such as jobs, affordable housing, education, health care, and a clean environment.
As Chile, the Yellow Vests, and the Trumpist movement have shown, many call for changes to the existing system to meet these needs, not just for more private gain.
In conclusion, perhaps it is time to rethink the social contract of Capitalism – only so that it can be more inclusive of wider interests beyond individual rights and freedoms.
It’s not impossible. Capitalism has evolved in the past, and it can continue to evolve in order to survive into a longer future.
The Future Of Capitalism
Various ideas and proposals have emerged to rewrite the capitalist social contract in recent years.
They have one argument in common that business success requires more than just profit and growth.
In business, the so-called “moral” brand derives “Conscious Capitalism”; in terms of policy, both the Bank of England and the Vatican advocate “Inclusive Capitalism.”
Advocating the use of “capitalism to good”; in terms of sustainability, there is the concept of “doughnut economics,” a theory developed by economist and author Kate Raworth.
That can be done without breaking social and planetary environmental boundaries while maintaining economic prosperity.
There is also the “five capitals” model proposed by Jonathan Porritt in his book Capitalism As If The World Matters.
He advocates combining the five pillars of human capital— — Natural, human, social, manufacturing, and financial — integrated into existing economic models.
Businesses began to embrace the “five capitals,” a specific example being the “B-Corporation Movement.”
Accredited companies sign up under a legal obligation to make decisions that consider “the impact of their decisions on company employees, customers, suppliers, communities and the environment.”
Large companies that have joined the ranks include Danone, Patagonia, and Ben & Jerry’s (owned by Unilever), among others.
This approach is becoming mainstream.
In 2019, the CEOs of more than 180 companies issued statements redefining their business purpose.
For the first time, CEOs of major corporations such as Walmart, Apple, JPMorgan Chase, and PepsiCo have acknowledged the need to redefine the role of business in society and the environment.
Businesses must take responsibility not only to generate profits for shareholders but also to invest in their employees and contribute to driving improvements in the human, natural and social elements of the Polite Capital model, not just financially, the statement said.
In an interview with Yahoo Finance about the future of Capitalism, Hubert Joly, executive chairman of Best Buy, said: “For 30 years, from the 1980s to 2010, we were all focused on profit.
The only focus, the undue focus, and many of these problems.
If a business can be rebuilt, it is possible to rebuild Capitalism.
I think it can be done, and it must be done. “
More than three decades ago, the U.N.’s Brundtland Commission wrote in a report entitled “Our Common Future” that there is ample evidence that social and environmental impacts are related and need to be incorporated into development models.
Clearly, these issues must also be considered in the social contract that underpins Capitalism to make it more inclusive, holistic, and aligned with fundamental human values.
Ultimately, it should be remembered that citizens of capitalist liberal democracies are not helpless and powerless.
As a group, they can support companies that align with their beliefs and continually demand new laws and policies to drive changes in the competitive landscape of companies, thereby driving them to improve their business practices.
When Adam Smith studied the nascent industrial Capitalism in 1776, it was impossible to foresee how much it would change our society today.
Therefore, we may equally be unable to foresee what Capitalism will look like two centuries from now.
But that doesn’t mean we shouldn’t ask the question: how can Capitalism evolve better in a short period of time.
The future of Capitalism and our planet depends on it.