Rumors of Western capitalism’s death are greatly exaggerated.
As the European Union buckles under the weight of a sovereign debt crisis and as stock markets slash billions from market capitalizations, it is tempting to profess any belief in Marxist prophecies. But aside from cheap attempts at sensationalism, these claims are hollow. What our current crisis reveals, however, is that Western capitalism is increasingly becoming incompatible with Western democracy.
The end of the Cold War was supposed to be a triumph for the twin forces of free-market capitalism and representative democracies. The dissolution of the Soviet system ushered in a second Long Boom. Globalization and the free movement of capital was the twin heralds of this age of prosperity — the “End of History”-ers were seemingly vindicated.
But then came the problems of the new millennium. The 2008 financial crisis wobbled the very foundations of capitalism and brought about the Great Recession. What began as snide schadenfreude towards the laissez-faire Anglo-Americans quickly rolled up European banks. Poor Japan began the millennium brightly but fell back into stagnation. Of the OECD, only Australia could boast robust growth. But this was mainly due to increases in raw material exports to China.
To claim capitalism is dead, however, is severely misguided. It is still doing remarkably well. Whatever chimera China is practicing still boasts impressive growth. India continues to grow its economy. Even sub-Saharan Africa, so arrogantly derided throughout its post-colonial history, has displayed energetic dynamism. The free market and private ownership of property are still clearly functioning. Trade, the lifeblood of the world, still continues to flow.
Instead, what we see is the seeming failure of the West’s version of capitalism. Starting from the Washington Consensus in the late 1980s the mantra that Washington has repeatedly bellowed has been “deregulation and privatization.” Its chief adherents (and missionaries) were the Anglo-American economies but even Europe would be eventually seduced. While such policies were usually dangerous for the developing world — where such globalizing economic trends led to a disastrous “race to the bottom” — the developed West boomed in an era of cheap imports and free capital. Even as European governments condemned American philistinism, their banks devoured cheap loans and grew richer in a “freer” world.
In terms of rude metrics, the economy of the world prospered after the Cold War. In what decade? Be specific. Productivity, growth, and wealth jumped as financial mechanisms drew increasingly arcane ways of moving money. There were some sages who warned against this abstract system but the voices were uncoordinated in their assessments.
Instead, we received a failure of governance — both corporate and public. There was a widespread lack of financial accountability and supervision; risk was left unmitigated and short-term profit-seeking corrupted long-term sustainability. And instead of owning up to prosecution, Western financial interests hid behind government bailouts. They were, as the phrase goes, “too big to fail.” Rashly accumulated private debt morphed into onerous public debt. The profligacy of the few became the burden of the many.
The forces of selfish capitalism still rally to their flag. Their interests in America and Europe blame “big government” and chide profligate governments. However, this fundamentally misdiagnoses the causes of the financial crisis (excepting, maybe, in Greece). The vast majority of sovereign debt had been accumulated upon the public’s bailout of the private sector’s foolish get-rich-quick schemes.
What we find then is an incompatibility between democratic norms and capitalist means. The public tragedy that engulfs the Western world now began as a private scheme, concocted by the financial institutions. While their contributions to the Long Boom cannot be denied, they had already been amply rewarded on their own. Their adopted “right” to be labeled “too big to fail” placed their failings at the feet of acquiescent governments. In the end, the vast majority of the population are made to subsidize for the errors of a few. These are hardly based on democratic principles of equality and point to the assumed privileges of the financial institutions.
Yet, they had no more right to the public purse than the citizens who then had austerity packages enforced upon them. And there has been no subsequent move to increase corporate governance — the mistakes of the past may be avoided today but the mechanisms by which the disaster could repeat itself remain completely unmolested. Public government has, evidently, lost the will to collect its dues. And it is the people, of current and future generations, who are left with a mounting bill.
The question is not so much if capitalism has failed: It has not. The question should rather focus on capitalism’s suddenly lopsided relationship with Western democracies – power with the banks rather than the people. Rather, we have to ask: given their influence over the public interest, who elected the bankers?
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