With rising global inequality and environmental crises, capitalism is unable to resolve the crises and thus has become an obsolete social system – The author discusses the history and impacts of capitalism, trends in globalisation, and persisting inequality among countries and proposes that an alternative economic system should be adopted.
Since the mid-18th century, capitalism has not only shaped modern societies, but has also witnessed periodic crises that have often threatened these societies’ very existence. A number of theorists have sought an explanation at to why such setbacks to stability and growth take place. For Karl Marx, it was due to control of wealth by a privileged few and he argued that the system produces wealth at one pole and poverty at another and simultaneously becomes immensely strengthened. Rosa Luxemburg proposed that these cycles are due to exhaustion of new land for colonisation and markets; Keynes suggested the lack of demand and the saturation of markets and Kondratieff stagnation in technological development. Despite their differences they all agreed that capitalism was not a natural system and was bound to end sooner or later.
The prominent Austrian economist Joseph Schumpeter characterised the dynamics of capitalist development as displacing old equilibria and creating radically new conditions. For him, economic development is accompanied by growth, i.e., sustained increases in national income, which occurs discontinuously rather than smoothly. According to him, the immediate stimulus for development emanating in the sphere of industrial and commercial life takes place due to innovation (i.e. new products, methods of production, markets and sources of supply). The innovation process “incessantly revolutionises the economic structure from within, incessantly destroying the old one, [and] incessantly creating a new one. This process of creative destruction is the essential fact about capitalism” (Schumpeter, 1950:83). The prime motives of entrepreneurs are accumulation and enlargement of profits.
Capitalism as a socio-economic system arose in Europe initially as “merchant capitalism” and subsequently through a technological revolution which metamorphosed into “industrial capitalism”. Slavery and colonial expansion were the main forces behind the establishment of capitalism, first in Britain and later on in Belgium, the Netherlands, France, Germany and Italy. The big question is where the principal accumulation of wealth came from? Of course, slavery and colonialism played a big role. Historically, capitalism always fought for new territories and markets. It was also instrumental in imparting ‘vertical’ and ‘horizontal inequality’ in the world. However, there was a reaction to colonial capitalism which resulted in the Russian Revolution (1917) and the Chinese Revolution (1949) and decolonisation. However, unequal economic relations and Western control somehow persisted in the former colonies in the form of “neo-colonialism”.
In the West, after successive crises, capitalism has been successful in rescuing itself mainly through exogenous support. For instance, during the “Great Depression” of the 1930s, Keynes advocated in favour of increased government spending to lift the economy out of recession. When consumers and businesses slow down, the government should increase spending to increase demand for goods and services. This fiscal stimulus could take the form of public housing, healthcare, education and infrastructure projects. However, we should not ignore the role of government spending in boosting the defence sector, which is seen as a new avenue to increase profits and also creates jobs. Thus, military Keynesianism became popular among the ruling elites in the post-war period and large corporations also saw military spending as an important form of government intervention to make profits. These defence expenditures in advanced economies such as the U.S., UK and France also helped to counteract the threat of recession in their economies.
In the aftermath of the “Great Depression” and Second World War, capitalism was transformed with the increased role of government in the economy, a strong workers union and welfare state. There was a sea change from the economic system and policies which existed in Western Europe and the United States in the 1920s. After the Second World War, the social democratic governments under Keynesian economic policies were prompted, with active state intervention, to preserve economic stability and social justice within the framework of capitalism, which is known as the “Golden Age” of capitalism. Markets were brought under social control and a number of policies were designed to protect societies from the disastrous policies of the past.
About the Author
Dr. Kalim Siddiqui teaches International Economics at University of Huddersfield, UK. He is an economist, specialising in Development Economics and has written extensively on development economics, economic reforms as well as on the political economy of development.
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