15 March 2021
Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism’
Suggested improvements welcome at the Facebook discussion page link (available at the end of the text)
Neoliberalism offered the dream of a healthy, well-regulated market, with firms competing on a level playing field. An efficient, innovative and booming economy, free of debt and guaranteeing freedom and choice. Instead, it has produced a nightmare of insecurity, insider dealing and inequality.
Global capitalism is in a mess. Made much worse by the Covid-19 pandemic. With the exception of China, the only country to not go into a recession, 2020 was a disastrous year for the capitalist world. The World Bank reports that while China increased its GDP by 2.5%, the economies of the United States, Europe and Japan contracted on average by 5.2%. Meanwhile, international trade fell by 9.25%. These are the worst figures since the Great Depression of the 1930s.
Even before the coronavirus outbreak, the capitalist countries were moving into a recession. In fact, the capitalist world had not really recovered from the Great Recession of 2008-9. Productivity levels had failed to grow, investment remained low, and growth rates were lacklustre. The pandemic and the failure of most capitalist countries to respond effectively to it, has only served to supercharge the downturn.
In a vain attempt to simultaneously protect both their economies and public health, almost all of the capitalist countries adopted half measures to combat the pandemic. Rather than seeking to stop the virus, they only sought to slow down its spread. Thus, instead of immediately stopping flights like South Korea, Taiwan, Hong Kong, Japan and New Zealand – the other capitalist countries allowed flights to continue and the virus to be freely imported.
Once the virus had spread in their countries, only half-lockdowns were implemented to contain it. With many businesses permitted to continue in production and their workforces allowed to travel via public transport. Inevitably, the virus continued in circulation only to revive once the half-lockdown measures were lifted. In fact, the attempts to keep the economies going in the midst of the pandemic only exacerbated and dragged out the damage to them.
This was unlike China where public health was made the first priority. There the lockdown was a complete quarantine that snuffed out the virus within two months. After that China was able to rapidly reopen and restart its economy. As a result China has emerged out of the health crisis in a much stronger position . With its economy continuing to grow rapidly and its exports reaching record levels.
In the rest of the capitalist world the position is very different. After a projected bounce back, most capitalist economies are bracing themselves for years of low growth and deep public debts.
Modern Neoliberal Capitalism
The story of modern capitalism is essentially a story of Neoliberalism and the destruction it has caused (for background details on neoliberalism see our Appendix: ‘The Rise and Origins of Neoliberalism’).
Most people living today have only known capitalism through a neoliberal lens. Yet, there was a different, earlier version of capitalism in the 1950s and 1960s. This was known as the Post War Settlement. Many bourgeois economists yearn for this period after the Second World War and see it as the ‘golden age of capitalism’. Accordingly, books continuously pour out of academia praising this time, and portraying neoliberalism as a freak aberration. While neoliberalism is certainly ‘capitalism on steroids’, in reality it is only a return to the brutal face of capitalism that has existed for most of its history. Far from the neoliberal version of capitalism being the ‘new normal’ as the popular phrase goes, it is the ‘old normal’. And, instead of neoliberalism taking us forward into a new age of progress, it is actually taking us back to 19th Century levels of insecurity and inequality.
To prove the point, all we have to do is go back to how Karl Marx and Frederick Engels described capitalism in their 1848 Communist Manifesto. In a brilliant projection of the early tendencies of the newly developing system, Marx and Engels were able to lay out the core trends of capitalism:
“Modern industry has established the world market… This market has given an immense development to commerce, to navigation, to communication by land… The bourgeoisie… has resolved personal worth into exchange value… it has substituted naked, shameless, direct, brutal exploitation… The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere… In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations… The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population… Just as it has made the country dependent on the towns, so it has made countries dependent on the civilised ones, nations of peasants on nations of bourgeois… It has agglomerated population, centralised the means of production, and has concentrated property in a few hands.”
As we can see from this description from more than 175 years ago, all the neoliberal version of capitalism has done is to bring the innate tendencies of the capitalist system to the surface. In all of their contradictory and destructive glory. And like an octopus, spread them across the capitalist world.
The Negative Tendencies and Contradictions of Modern Capitalism
There can be no doubt that in the few centuries of its existence, capitalism has dramatically expanded production and wealth on a global scale. And advanced science and technology in leaps and bounds. However, along with these advances have come increased alienation, exploitation and war.
Within capitalism there are a whole range of negative tendencies. Tendencies which left to develop, lead on to increasing contradictions within the system. Over generations, laws and restrictions on these negative tendencies, while not ending them, helped reduce their worst effects. But now we are coming full circle. In the drive for more profit for those at the top, this modern neoliberal era of capitalism has witnessed the removal of many of the old protections. Protections that had lessened the impact of the negative tendencies of the system. Thus we have seen the decimation of public control through privatisation and deregulation; the lifting of government jurisdiction over exchange and interest rates; the reduction of laws governing health and safety; the weakening of trade unions; and the cutting of public services and the welfare state.
The result is that the neoliberals have succeeded in unleashing the negative tendencies and contradictions of capitalism, allowing them to rise to a dangerous and destructive level.
Growth of Insecurity and Poverty at Work
In the three decades after the Second World War, most working people in the more advanced countries enjoyed full employment and secure work. But the era of neoliberalism has increasingly turned this on its head. Nowadays, the idea of a lifetime career for most is fast disappearing. We are advised to be ready to change our vocation and retrain ourselves several times. Or face being left behind in poverty and debt.
Across the world the very nature of work is rapidly evolving. Big changes are taking place in the composition and location of work. In many countries, large workplaces are giving way to smaller operations. Or to work from home and on the street. With the rise of productivity through mechanisation etc. work is shifting from regular, reasonably paid manufacture, to poorly paid services and insecure self employment. In the less developed countries, the latter has become known as “the informal economy” with a growing proportion of urban dwellers eking out a hand-to-mouth existence selling this and that.
Even in work, security is fast disappearing. Permanent work contracts are giving way to temporary jobs. With the loss of health benefits, paid holiday breaks, and retirement pensions along the way. In many countries, minimum wages which were once meant to be a bottom floor, are fast becoming the norm.
Labour under capitalism is a commodity that is bought and sold in the market. In such a market. employers seek to pay the minimum money for the maximum output. Under the influence of neoliberalism the balance of power in this market has been decisively tipped in favour of the bosses. We are witnessing the removal of one protection after another for those in work. The trade unions are being systematically weakened. Outsourcing of work to smaller suppliers has undermined the power of employees in larger workplaces. Privatisation of jobs is removing the security and benefits previously enjoyed in the public sector.
At the same time, automation, online fulfilment, artificial intelligence and robots are being used to drastically save on labour costs. Instead of a bright prospect of common wealth, leisure time and empowerment; new technology under capitalism increasingly threatens our future security of employment.
Moreover, new technology and online communication is atomising workers and people generally. Splitting us up and isolating us from one another. Such developments are making solidarity much more difficult.
This is no accident. As an ideology neoliberalism deliberately sets out to break down the community connections that bind us together. To do away with the comradeship among working people that makes our life bearable. One of neoliberalism’s ideologues, Margaret Thatcher, speaking at the peak of her power in 1987 made clear their aim to discourage social solutions and encourage selfishness: “And, you know, there’s no such thing as society. There are individual men and women and there are families. And no government can do anything except through people, and people must look after themselves first.”
Meanwhile, the capitalist version of globalisation, by continuously seeking out the cheapest places to operate is creating competition between workers all over the world. Creating downward pressure on wages, work benefits and working conditions. Creating ‘a race to the bottom’.
All this has led to a long-running worsening of our living standards around the world. And caused a rising level of discontent in both the advanced countries and the poorer developing world. In some ways, workers in the richer countries who had it better, are reacting more strongly to this decline. It often seems worse to have had something and lost it, than to never have had it at all. Thus we see working people in America and Europe becoming ever more angry with the system. And looking for more radical alternatives to the right or the left. Thus, the tendencies of ‘capitalism unleashed’ are causing political polarisation and instability.
Privatisation & Deregulation
Two core elements of neoliberalism were a determination to deregulate and to privatise. Deregulation was supposed to release the capitalists from unnecessary fetters and leave them free to invest and produce without interference from the state. We were promised that this would liberate capital and release the creative spirit of the entrepreneurs. But in practice deregulation only meant lifting important and necessary restrictions that had been introduced over many generations in order to safeguard society and the environment. Protecting its citizens and the natural world from the most destructive results of profit-making.
At the same time privatisation of more and more of the public sector was supposed to cut back on bureaucracy, increase efficiency and produce better value for the customers. We were promised that the commercial sector and the market would be more dynamic and more directly responsive to the needs of the people. And that privatisation would generate greater investment. But in practice, privatisation delivered none of these things. Instead, it opened up with the wholesale firesale of public property. Public assets that had cost society great effort to build up. And all at knockdown prices. In many cases, the result of privatisation, as intended, was to break down the unionised power of public sector workers which had maintained their wages and security of employment. In some cases, privatisation turned into a gigantic asset stripping operation for the new owners. In others, it greatly extended opportunities for prolonged profit-taking into areas that were natural monopolies or depended entirely on political decisions. Private enterprises feeding off public bounty.
The experience of privatisation has left a bitter taste in the mouths of workers and consumers. Far from prices going down for the various targets of the great public sell off. They have shot up. Far from attracting more investment, we have seen a massive drop. With an inevitable decline in efficiency and quality of service. Nor has privatisation reduced bureaucracy. The spun off companies are as remote and unaccountable as they were in public hands. Perhaps even more so now that they only answer to their shareholders rather than elected politicians.
Privatisation has had another negative outcome. It has encouraged a parasitic mindset in which capitalists seek to cream off public assets. Or to secure guaranteed incomes from captive customers and service users. All, rather than building up genuine, solid, risk-taking businesses.
Combined together, deregulation and privatisation have resulted in a major erosion of democracy. Taking power out of the control of parliaments and handing it over to the capitalists. Allowing them to take more and more decisions on the future of the economy and people’s lives.
Moreover, by abolishing many previous government protections and eliminating much of the public sector, deregulation and privatisation has introduced yet more instability into the system. The economy and society is now even more at the mercy of the contradictions of the system. And more vulnerable to the chaos and crises of the market both at home and abroad.
Financialisation & Rent-Seeking
A key target of the neoliberal campaign for government deregulation was to remove the cautious restrictions on banking, credit and other aspects of the finance sector. These restrictions had been introduced during the Great Depression in order to prevent the out-of-control speculation of the 1920s that had helped cause the Crash. The neoliberal bought and paid for politicians succeeded in unravelling the restrictions in the 1980s onwards. Aided by the utilisation of new electronic technology, this new free-for-all environment unleashed a flood of domestic and cross-border financial transactions. Credit and debt exploded and all kinds of financial instruments were dreamed up to enable unprecedented speculation in virtually anything that moved. Banks were allowed to use their customers’ savings to gamble on the markets. Over a few decades speculation built on speculation until the spectacular collapse of the international financial sector and the consequent Great Economic Recession of 2008-9.
The rise of finance is not a new phenomenon in capitalism. Already in the second half of the 19th Century, Karl Marx was writing about the increasing role of the banks. Later, Lenin drew attention to finance capital as a decisive international factor in his First World War pamphlet ‘Imperialism, the Highest Stage of Capitalism’.
What is different about this new round of finance capital is its sheer scale. This is especially true in the most advanced capitalist countries. For example, in the United States in 2019 the financial sector accounted for 21% of the economy compared to only 2.8% in 1950. Finance plays a similar dominant role in the United Kingdom. One more reason why neoliberalism was to emerge so early on both sides of the Atlantic.
The tendency towards financialisation is an organic tendency of capitalism when left to its devices. It brings with it grave downsides and contradictions which eat at the heart of the system. Finance in capitalism is by its very nature a parasitic phenomenon. Along with landholding and the charging of rents, finance produces nothing of real value in its own account. It lives by charging interest on its performing loans and by seizing property on those that fall into default. By levying fees and capturing margins on sales of currencies and financial instruments. As such, it takes up an ever growing share of the capital accumulation process. All this represents a significant and damaging shift from production to financial services. For example, the big US traditional auto manufacturers often make more money from the loans they arrange for customers to buy their cars than from the cars themselves.
This growing financialisation of the economy and the huge profits it yields for relatively little effort is encouraging a rent-seeking mentality within capitalism. And sapping the dynamism and innovation that was the main justification of the system in the first place. Why waste time building up production or providing genuine services for customers when even more money can be made by charging fees for financial products or by manipulating markets? Why take risks inventing new products or investing in new industrial processes when there is guaranteed money to be made in the finance industry?
This process of financialisation is dragging many of the best young minds in the advanced countries away from more constructive areas of the economy. Mathematicians and engineers often end up on Wall Street or in the City of London because the incomes are too high and too tempting to pass up. Financialisation and the rent-seeking it rewards is a sure sign of the effete and rotten stage that capitalism is now reaching. It is the opposite of the lean competitive model that the neoliberals promised.
Cuts in Public Services & Welfare
Another key weapon in the neoliberal armoury was to cut public services and the welfare state. This they have been doing systematically since the 1970s. In the advanced world, New York was one of the first to adopt major cuts as one answer to a budgetary crisis. On a national basis, ironically it was a British Labour government in 1976 that first began the cutting process. Announcing that ‘the party is over’ and pronouncing funeral rights for the Keynesian state interventionist model, Labour Prime Minister James Callaghan and Chancellor of the Exchequer, Denis Healey, forced through massive cuts as the price for a large loan from the International Monetary Fund. From that point on, every crisis in Britain and the US called forth yet another round of cuts. Neoliberalism, or Monetarism as it was then referred to, was first most successful in Britain and America because of their earlier onset of economic crisis. And their peculiar winner-take-all election systems which allowed right-wing political parties to implement more extreme measures. In contrast, the countries of mainland Western Europe had different voting systems that encouraged centre-based coalitions and compromise policies. Thus, neoliberalism took much longer to officially take root there.
The continuous cuts in welfare benefits and services over decades has caused a major rise of poverty. For example, in Britain, one of the ‘richest countries’ on the planet, 15 million are in poverty including five million children. Some conditions not seen since the 19th Century have begun to reappear including child malnutrition and food banks. Charity has become a much bigger industry along with a revival of its old demeaning philosophy of the ‘deserving poor’.
In an America reeling from the Coronavirus disaster, some fifty million languish below the poverty line. But this is a severe underestimate excluding as it does costs of housing, health, transportation and basic telecoms. Moreover, according to a 2017 United Nations report by Philip Alston, its rapporteur on extreme poverty and human rights, over five million Americans live “in ‘Third World’ conditions.” A number that will be much larger now in the midst of Covid -19.
Extreme poverty in America is being directly reflected in the field of housing. Quite appropriately we now see the emergence of shanty towns ringing many US cities. Just like the barrios and favelas that surround the cities of Latin America. Alston went on to describe the US as a country of “private wealth and public squalor” – an excellent summation of neoliberalism in action.
Even in supposedly prosperous Germany retired people can be seen queuing for old bread and rooting through dustbins for useful items.
The cuts in public services have led to the development of an underclass in all the advanced countries among which we can see a serious deterioration in health and educational levels. Imagine then, what cuts are doing to the poorer countries. For example, between 2015 and 2018 the Republic of Congo saw cuts in public spending of over 50%. Nearby Chad saw cuts of 35%. More broadly, budgets for public services in the low-income countries have fallen to very low levels. For instance, annual spending per child on youth education in 2018-19 was only $48 compared to $8,501 for the high-income countries.
Decades of cuts in public services have resulted in all kinds of deterioration from worsening transportation, loosening building codes and worsening disaster protection. For example, cuts in factory inspections and enforcement of regulations have led to increased risk of fire and injury. As we saw in some terrible Pakistan and Bangladesh textile factory fires. The famous outbreak of Mad Cows Disease in Britain was a direct result of Margaret Thatcher’s cut in inspections of the meat slaughterhouses.
Even basic state functions are becoming debilitated by the cuts. Like tax collection and accurate data gathering. The steady contraction of state activities, exacerbated by privatisation, has led to a broad reduction of the state’s capacity to handle tasks and crises. This became readily apparent in the pathetic failure of western capitalist responses to the pandemic. Continuously poor advice from senior officials was compounded by incompetent execution.
There was one exception made by the neoliberals in their relentless drive to slash state spending. This was in the area of the police and the armed forces. The neoliberals recognised that they would need to maintain a ‘strong state’ by which to deal with the inevitable discontent arising from their ‘reforms’.
One of the built-in tendencies of capitalism is the ever growing centralisation and concentration of ownership into fewer and fewer hands. The end result of this is the development of oligopoly in each sector with just two or three big players cornering 80-90% of the market. In some cases, and for some periods, this concentration can even produce individual companies that hold a monopoly. Such, as we now see in a number of new technologies like the Internet. Google and Facebook are obvious examples. These winners in the market then use their prime position to entrench their commanding lead so that it becomes almost impossible for rival companies to survive. And any newcomers with potential are snapped up by the market leaders.
The manifold advantages of getting ahead of the pack in the market mean that those companies and wealthy individuals who emerge at the top of the heap are able to use their greater wealth and power to defeat their lesser rivals. From what was often a relatively even playing field of many small enterprises, a few successful companies emerge in front of the others. The front runners then gain a host of advantages which allow them to further increase their dominance. These include all the benefits of large-scale production – bulk buying and cheaper production costs; lower product prices and better product placement; greater specialisation, marketing and sales operations; increased innovation and access to capital – to mention just a few of the legal benefits. Then there are the many illegal advantages which range from dirty tricks against competitors to the use of corruption and political influence to give them an advantage in the marketplace.
To further consolidate their dominant position, the leading companies merge with or buy competitors. The result is to produce a situation where big business dominates the small.
Of course, competition does not disappear. New technologies arise and new companies arise with them. But once big business is dominant as a whole then only other big companies can make an impact. So, a small company with a new technology must rapidly become big or be taken over by an existing monster. The same is true for international competition. Foreign companies enter new national markets but they have to be very large to compete effectively.
In public, capitalists claim to welcome competition. But in reality, every capitalist seeks to defeat their competitors and drive them out of the market. Their dream is to be the only company left standing in their field so that only their products are available, and at the prices they choose. That way leads to the maximisation of profits which after all is their chief aim of existence.
This tendency in capitalism towards monopoly is one of its many contradictions. Contradictions that are weakening the system itself. For example, the increasing domination of markets by just a few giant companies undermines competition in each sector and the economy as a whole. It drives up prices and removes much of the incentive for innovation. And in doing so, it eliminates the whole economic justification for capitalism in the first place. For this reason, since the end of the 19th Century many capitalist countries introduced laws against monopolies, trusts and cartels. Laws that among other things allowed governments to investigate anti-competitive practices. And required all large mergers and company takeovers to be reviewed and prevented if they were deemed to result in market control.
However, the neoliberals have succeeded in neutering these pro-competition laws. Nowadays, such laws are rarely applied. The justification used by the neoliberals is that the dominant companies are those that have delivered the best products and services. That market winners should not be penalised. That nationally dominant firms are necessary in order to effectively compete on a global scale. All these convenient arguments naturally favour neoliberalism’s big business backers.
There was a divide over this issue in the early neoliberal movement. Hayek actually believed in competition and argued that monopoly should be actively opposed by regulation. However, Milton Friedman and the American wing of the movement favoured leaving the market to its own ends, taking a benign stance towards monopoly. It should be no surprise that the latter view which also represented that of big business easily won out. The outcome has seen the lifting of most anti-monopoly restrictions in law and in practice.
The result is that the inbuilt tendency of capitalism towards monopolisation that we saw in the 19th Century has returned apace. In Europe and North America over 90% of sales and production in most sectors is dominated by only four companies. In many cases over half of each sector is dominated by just two companies. In the United States 2% of the companies account for nearly 75% of economic activity.
The same is true on a global scale. “Modern capitalism has developed into a huge network of interlocking companies with cross-shareholdings. Researchers at the Swiss Federal Institute of Technology in Zurich developed a database listing 37 million companies and investors worldwide and analysed all 43,060 transnational corporations and share ownerships linking them… They discovered that a dominant core of 737 companies control 80% of it all. This is the concentrated power of capital.”
Indeed, according to Global Justice Now the 10 biggest corporations – including Walmart, Apple and Shell – make more money than most countries in the world combined. And their value at 285 trillion dollars, is more than the 280 trillion dollars worth of the bottom 180 countries!
Ironically, the tendency within capitalism towards larger and larger companies is taking us logically towards public ownership. And potentially making our task of socialisation of the economy that much easier.
Too Big To Fail
Another significant contradiction that flows from the tendency of capitalism to become dominated by big business is that some of these companies are now so large that they can’t be allowed to founder. The huge effect of the collapse of even one of these companies on employment and supply chains, on communities and tax income, has become socially and politically unthinkable. As we saw in The Great Recession of 2008-9, these big companies have become ‘just too big to fail’. When the whole banking system was in the process of collapsing, governments rapidly intervened to save it. Meanwhile, in the United States, the administration propped up the automobile industry which was about to file for bankruptcy.
Local and national governments feel bound to step in and save such companies. To pick up their debts and subsidise their ongoing operations. Thus, the owners of these companies find themselves in an ideal situation. In good times they are able to pocket the profits. In bad times the public is forced to cover their losses. No wonder, that the emergence of such giant companies has come to be described as ‘socialism for the rich, capitalism for the rest’.
Along with the ‘too big to fail’ phenomena, has come the ‘too big to jail’ rule. Despite the widespread corruption and illegal practices in the US financial sector revealed in the Great Recession, not a single banker went to prison. The capitalists and their politicians that rule society make sure to look after their own.
The emergence of companies that are so large and so important to society that they are ‘Too Big to Fail’ is a graphic illustration of a fundamental contradiction that increasingly develops within capitalism. Namely, the contradiction between the shrinking individual private ownership of companies and the expanding social impact on society of these companies. And between the conflicting interest of the owners to use these companies for their private gain, rather than for the interests of society as a whole. This was a key point that was made 140 years ago by Frederick Engels in his breakthrough work ‘Socialism: Utopianism and Scientific’. The more advanced a capitalist economy becomes, the less and less people determine its development. And the more economic decisions are taken for the benefit of a small minority, rather than the population in general. This process is only exacerbated by rising inequality which puts the ownership of companies in even less hands.
Another major negative tendency in capitalism is the inexorable rise of inequality. The capitalist profit system inevitably delivers a much greater reward to the owners and managers of capital than it does to the workers they employ or the customers they fleece. Left to its own devices, wealth in capitalism rises more and more to the top. To partly counteract this, the Post War Settlement greatly increased taxes on companies and the wealthy. A larger proportion of National Income was allocated for public services and social security. At the same time the trade unions became stronger and more able to fight for a better share of the profits.
In the neoliberal era, all of these reforms have been rolled back. Taxes on business and the rich have been drastically reduced, if they are paid at all. Public services and welfare have been cut back, and in many cases privatised. Last but not least, trade unions have been seriously weakened. The outcome, as intended by the neoliberals, is that the increases in the GDP of various countries and the wealth that this is supposed to represent, is not being shared out but is going into the hands of the wealthy.
The inescapable result has been the skyrocketing of wealth and its atrociously unequal distribution between a billionaire class and the rest of us. Never have we seen such outrageous levels of personal opulence. Not even at the heights of ancient Rome with its millions of slaves did individuals amass such fortunes and the power that goes with them. The rich have just got richer and richer while the rest have stood still or grown poorer. As a result, each year we see rising figures published on the incredible inequality that exists on a global scale. For example, in the 2020 annual report by Oxfam, the richest 1% have more than twice as much wealth as 6.9 billion people. And according to the Credit Suisse Global Wealth Report 175,000 ultra-wealthy people own 25% of the world’s wealth. Meanwhile, almost half of humanity is living on less than $5.50 a day. And nearly a billion barely survive in extreme poverty on less than $1.90 a day.
The Coronavirus pandemic has only accelerated this inequality. In 2020 the wealth of the planet’s billionaires shot up by 27.5. While another 131 million fell into extreme poverty. Oxfam’s new report ‘The Inequality Virus’ published in January 2021, reveals that “the wealth of the ten richest men has increased by half a trillion dollars since the pandemic began – more than enough to pay for a vaccine for all and prevent anyone on Earth from falling into poverty because of the virus.“
These shocking statistics are actually a major underestimate of global inequality. Industrial scale tax evasion by the rich elite and the corporations, which now store much of their wealth in tax havens, hides the real level of wealth held and who holds it. This includes the billionaire arms dealers, drug lords and other criminals who naturally never appear in the Forbes Rich List.
This persistent tendency towards rising inequality is creating a number of serious contradictions in the system. The continuous reduction in the purchasing power of working people leads to a fall in overall consumption and economic activity. As every study shows, poor people spend a much bigger percentage of their income while the rich tend to hoard their wealth.
Lower wage costs encourage employers to forgo investment in labour saving machinery. Why lay out money on expensive equipment when one can continue to employ cheap labour to do the job.
Growing inequality has other negative outcomes. It reduces the health and educational level of the workforce. It undermines state resources. With the rich and their companies paying less and less in taxes there is only so much that the shortfall can be made up by screwing more taxes out of working people. The inevitable outcome is that local and national state services have to be further cut back.
Huge wealth and inequality creates major barriers to advancement for everyone else in society. Money goes to money as the saying goes. Those at the top pass on their wealth and advantages to their children. Birth and connection become the key to one’s future with the vast majority remaining stuck in a furrow of tightening living standards and insecurity from which they cannot escape. The old illusion of creating a real meritocracy within capitalism with all of the benefits of efficiency and maximisation of talent that it would offer, is fast dissipating in the nightmarish world of neoliberalism.
All these negative aspects of rising inequality are leading to a growing polarisation of society and increasing political instability. Rising poverty and worsening lives are encouraging the emergence of demagogues and pedlars of fake news who exploit the accumulating anger and discontent. This is fuelling the growth of extreme right-wing and even fascistic movements. And the adoption of irrational policies and laws that damage the efficiency and future of capitalism. Thus we see a right-wing anti-globalisation movement with calls for protectionism and trade wars. Actions which run directly counter to the interests of the multinationals and the rich who rely on growing international trade to further increase their profits.
On the other side, extreme inequality opens up the possibility of new radical popular struggles and outbreaks of class warfare. And offers the possibility for the rise of a democratic socialist movement that offers a new alternative to capitalism.
The growing widening gap between the rich and the rest cannot go on forever. There will come a point at which the rubber band must eventually break. When the feeling of the unfairness of everything corrodes the bonds that hold society together. Even among the elite themselves there is a growing fear of where things are headed. All their gated mansions and separate, insulated lifestyles cannot protect them from the masses once the people have decided they have had enough. As we have seen in every popular revolution there comes a point of obscene wealth when the pitchforks start coming for those at the top.
The Rise of the Managers
The dreadful inequality that afflicts society is also being reflected in the big companies that more and more dominate the economy and the world. While the wages and salaries of the workforce stagnate or fall in real terms, the benefits for the top managers keep on going up. The directors and chief officers of big business have found one way after another to justify increasing their ‘compensation’. Their benefits nowadays include huge salaries and performance bonuses; the award of shares and stock options; insurances of all kinds and massive pensions; company limousines and the use of private aircraft. Reflecting this feathering of the nest, the compensation of Chief Executive Officers in America’s large companies has grown by a whopping 940% since 1978. This compares to their workers who only saw an increase of 12% in the same period.
The income gap between the bottom and the top inside companies in the US has grown to incredible proportions. By 2019, the ratio of CEO compensation to their workers reached a ridiculous 320-to-1. Up from 21-to-1 in 1965! And where the US companies lead the rest of the capitalist world has followed.
Even when the top executives oversee company losses they usually get golden handshakes that are enough to ensure a very comfortable retirement.
Repeated calls for the introduction of legal limits to executive compensation have been drowned in a neoliberal chorus in support of the free operation of market ‘rewards’ and against government interference.
Moreover, the introduction of share awards as a key part of executive compensation throughout the corporate world has introduced a serious conflict of interest within capitalism. All too often, company bosses are focused on raising the share price in the short term at the expense of the long-term health of the company. Many examples of this can be found. Such as in damaging cuts in staffing and research and development designed to temporarily cut costs and increase reported profits. Or in the frequent misuse of company income to buy back its own shares in order to artificially raise the share price. Perhaps worst of all, are the disastrous results of the bonus schemes for the various banking departments involved with gambling in the stock and currency markets. For instance, the 2008-9 crash was greatly amplified by the distortions and negative incentives created by these compensation schemes.
Market Chaos versus Planning
Socialists have long pointed to the massive contradiction in capitalism between the need for planning, and the actual chaos of the market system. The advantages of planning over ‘playing it by ear’ is obvious to anyone with a head on their shoulders. Every professional company department lives by the five Ps: ‘Planning Prevents a Piss-Poor Performance’. Indeed, planning is an abc rule in one profession after another. In fact, the larger companies have become, the more they are using sophisticated planning within their own operations. Today the multinationals totally rely on large-scale planning to advance in the market.
Other examples of the benefits of planning must include China’s Five Year Planning system. This has been a central factor in its astounding economic success since the 1980s. Even in the advanced capitalist countries, attempts at large scale planning in capitalism’s golden age in the 1950-70s had some considerable success. Especially in Europe where it helped give birth to the European Union. More dramatically, the growth of the East Asian developmental states (Japan, South Korea, Taiwan etc.) demonstrated the advantages that flow from government planning and its coordination of capitalist research, development and production.
But neoliberalism rejects centralised planning outright. It claims that the market is far more efficient at coordinating economic activity. But experience in the past and today belie its claims. The downside of capitalism’s lack of planning can be seen in one industry after another. How many times have we seen a range of companies chaotically acting on their own but simultaneously investing in a sector. Only to find that they have created a situation of damaging oversupply with insufficient customers to go round. And falling prices and profits in consequence. The same process happens within nations as a whole and on an international scale. That is the reason for the harmful business cycle of capitalism, its regular cycle of upturns and recessions, booms and slumps that has bedevilled the system since its emergence in the 18th century.
This tendency towards regular recessions and slumps in capitalism causes repeated and unnecessary suffering for workers as companies lay them off in the bad times and cut back their wages. It generates massive instability in society causing people to upend their lives, their homes and their future. It often provokes depression, family break ups and hardship. The neoliberals declare that such harsh outcomes are necessary as part of what they blithely describe as the process of capitalist ‘creative destruction’.
Yet another negative tendency within capitalism today is the breathtaking rise in corruption worldwide. No-one becomes a billionaire by hard work alone. It can only come about by exploiting workers and overcharging customers. And through political or market manipulation.
In the 1970s British Conservative Prime Minister Edward Heath famously called the businessman Tiny Rowlands “the unacceptable face of capitalism” for his widespread corruption of African leaders. The reality today is that corruption is the ‘normal face of capitalism’. The culture of bribery, collusion and insider dealing penetrates every aspect of business and politics. As we have seen from the widespread payoffs to politicians and the constant flow of billion dollar fines levied against all of the banks.
Corruption is built into the DNA of capitalism. As every salesperson and manager knows it is just part of the cost of doing business. But corruption under this neoliberal version of capitalism has been supercharged. It has literally opened the floodgates for bribery and insider dealing. For instance, the whole process of privatisation was run through with fraud as state firms were invariably sold off on the cheap often to friends of the politicians in charge of the procedure. Similarly, with deregulation and cuts in state spending. Neoliberal reforms replaced more and more political decision-making with the operations of the market. And introduced the amoral standards of business in their stead. Such reforms intentionally hollowed out the limited version of democracy we had in the past. The neoliberals cynically refer to their new system as ‘market democracy’.
Even where political decision-making remains, the massive rise in inequality of wealth and power we highlight here inevitably allows for ‘regulatory capture’ on a gigantic scale. ‘Politicians for sale’ is no longer the exception but the norm. The same can be said for corruption among wealthy individuals. As a result of a concerted campaign by the wealth management industry, the majority of private wealth is now held in the tax havens, illegally hidden from the tax authorities. So too with all the big companies who routinely set up paper subsidiaries in the tax havens through which they run their income and profits in order to evade paying tax on them. Meanwhile, the shadowy world of secret accounts in over 60 state and national zero tax jurisdictions are fully utilised by criminals and dirty politicians: “At least $500 billion in dirty money flows each year from poor countries into offshore accounts… dwarfing the amount those nations receive in foreign aid.”
None of this would be possible if not for the hands-off, globalised, free-for-all policy of the neoliberals. Thus, neoliberalism has turned corruption from a stream into a river.
Corruption corrodes society and damages it in a myriad of ways. As Transparency International explains: “Corruption erodes trust, weakens democracy, hampers economic development and further exacerbates inequality, poverty, social division and the environmental crisis.“
The effect of corruption damages poorer countries more than it does the richer ones. Even the World Economic Forum, a gathering place for the wealthy elite, estimates that corruption costs developing countries $1.26 trillion every year. As they put it: “Corruption, bribery, theft and tax evasion, and other illicit financial flows cost developing countries $1.26 trillion per year. That’s roughly the combined size of the economies of Switzerland, South Africa and Belgium, and enough money to lift the 1.4 billion people who get by on less than $1.25 a day above the poverty threshold and keep them there for at least six years.”
The Growing Crisis of Investment
Another major problem of capitalism is the tendency of its rate of profit to decline over the long term. As technology more and more replaces human labour, greater outlay is required which reduces the rate of return on a capitalist’s investment, making it less viable. Eventually this leads to a decline and then to a crisis of investment in the economy.
We can see this process play out in the life cycle of individual products. First there is a product’s introductory phase when it is first released on the market. At this point it is relatively expensive with a high rate of return but sells in limited quantities. Then comes the growth phase when it sells in much large quantities but being exclusive to the innovator maintains its price and maximises its return on investment. Then comes the mature phase when competitors find a way to reproduce the product and enter the market. Sales grow overall, but prices fall considerably along with the rate of return. Both for the innovator and the competitors. Finally, we enter the period of decline in which competition drives prices so low that it becomes increasingly unprofitable to produce.
This same life cycle also applies to sectors as a whole. Thus, when air travel was first introduced it was only available for the rich and for business travel. Then it became available for ordinary people but remained highly profitable which produced a massive investment drive. Later on, flights became much cheaper, profitability fell and no longer effectively justified the continuing capital investments. The result was an increasingly unprofitable airline and holiday travel business. And a stream of bankruptcies.
This process happens to one sector after another. Of course, new sectors arise but not at a sufficient rate to outweigh the older ones. Investment becomes more and more expensive and requires more long-term commitment. Investors are unwilling to take on the size and timescale of risk required for such bigger and longer-term ventures. Thus, finance and investment funds flow out of increasingly larger sections of the economy and into speculation in real estate and other less productive areas of the economy. Or even to be hoarded as we can see today where Apple, the world’s most successful company, sits on $200 billion of cash. In the UK big business now has nearly 1 trillion in cash reserves which is about 35% of its GDP!
Despite the success of the new technology sector, especially in the United States, the process described above is exactly what is happening today to the wider economy. According to Left economist Michael Roberts, the rate of profit in the American economy is now at just over 13% compared to nearly 35% in the 1950s. This decline is reflected on the US stock market. If we exclude the few star new technology companies, most companies are in the doldrums. Indeed, a large proportion of them are ‘zombie’ companies that would go bankrupt if it wasn’t for the incredibly low interest rates which are artificially keeping them alive.
This tendency for the rate of profit to fall, and the decline of investment it causes, is the explanation for the long stagnation in productivity we are seeing across the capitalist world. Companies are just not investing enough to allow for workers to increase their productive power.
The crisis of investment is also reflected in the declining infrastructure of the capitalist world. Indeed, the system becomes more and more shortermist just as economic development demands greater and longer-term investment. All this ends up in creating the basis for crises in the economy in the shape of ever deeper recessions and even slumps.
Capitalist Globalisation, a Race to the Bottom
Globalisation is not a new phenomenon in capitalism. It began very quickly after capitalism got going in the 19th century and produced among other things the scramble for colonies and the outbreak of World Wars. Today, it has reached a much greater scale helped by the introduction of neoliberal policies and various technologies in the fields of communications and transportation (such as shipping containers and air freight).
The neoliberal policies began with the lifting of exchange controls first in Britain – it was one of the first moves by Thatcher in 1979 – then across the capitalist world. This unshackling of national capital combined with the digitisation of money to immensely increase the amount and frequency of financial transactions. In the foreign currency market alone over 6 trillion dollars change hands electronically every day.
Next came an insistence that countries abolish their national partnership / ownership rules and make it more and more easy for foreign investment to flow into their economies. The aim was to create ‘an even playing field’ for companies and investors. The result was a massive rise in production in the cheaper labour countries. In some cases, production was physically transferred from the advanced countries to the poorer ones. In many others it took the form of new investment being created there. And in outsourcing services remotely to the developing world. All this is undermining the advanced economies and causing growing anger among the populations in the richer countries.
Nor is it such a gain for the poorer countries. In order to attract investment to their location, cities and countries vie with each other over who can offer the lowest cost of production. As such they offer ‘an auction in reverse’ in which they compete for investment by offering the multinationals tax free periods, cheaper wage rates, lifting of environmental restrictions and so on. So, instead of globalisation being an opportunity to raise living standards it becomes ‘a race to the bottom’ for all.
Interestingly, in a short-termist drive for lower costs and higher profits, the multinationals have radically changed their production model in the developing countries. Instead of creating subsidiaries through they organise production and employ labour, the multinationals have found it much cheaper to hire contractors. Local firms using even cheaper local labour to produce the products. But by doing so, the multinationals have been unwittingly creating local competitors who have learnt how to make their products and mastered the technologies continued within them. Such competitors have often grown to become national, regional and even global rivals offering similar designs and features but at a much lower price. Thus ‘the level playing field’ is allowing the poorer countries to get into the competitive game. An example of this can be seen in the diamond business. For hundreds of years The Netherlands was the international centre of diamond cutting and polishing, requiring a high level of skill and experience. However, much of this work has now successfully moved to the diamond mining centres in Botswana, Malawi and Angola in southern Africa.
The process of globalisation has naturally caused a strengthening of international institutions such as the G20, the World Bank, the IMF, the Asian Infrastructure Investment Bank, the European Union, the World Health Organisation, and other agencies of the United Nations. Alongside such developments we have seen a tendency towards the internationalisation of the capitalist class. A transnational elite has emerged who travel the world, hold multiple nationalities and have mansions in a whole number of countries. They meet every year in Davos. And operate through a range of elite organisations such as the World Economic Forum, the Trilateral Commission, the Group of 30, the Atlantic Council and the Bilderberg Group.
But none of these developments have seriously undermined the nation state and the ruling classes attached to them. In times of crisis the interests of the national capitalist classes quickly reassert themselves as we have seen in recent years with the revival of nationalism and protectionism. The examples of Britain’s recent exit from the EU and Trump’s clumsy but popular assertion of American interests come quickly to mind. As did the striking lack of a united international response to the Covid-19 pandemic.
There can be no doubt that globalisation and the work of the neoliberals has drastically undermined the economic power of individual governments and transferred it to international capital. Despite this, intensifying national competition and growing nationalism threatens to slow down the globalisation process.
So we are left with major contradictions within the international capitalist order. Between the need for international coordination and cooperation to solve global problems on one side. And the continuing power of the nation state and rising nationalism on the other. Capitalism needs globalisation and increasing international trade to keep delivering revenue. But it also needs to divert the public’s rising anger against worsening conditions and living standards from turning in the direction of the wealthy and corporate elites who are the real source of their problems. Far better to turn people against each other. That is why a large section of both mainstream and social media is encouraging national, religious, racial and ethnic divides. But right-wing populism has serious downsides as we saw under Trump. And other right-wing leaders like Bolsonaro and Modi.
Ultimately, rising nationalism if allowed to continue unchecked could lead us to war. Even to nuclear war.
Exploitation of Nature & Climate Change
One of the greatest negative tendencies of capitalism is its disregard for the natural world. Since the industrial revolution, most companies have thought nothing of exhausting natural resources or polluting the environment. For them it is an external cost that they rarely have to bear. However, as companies grew bigger with a greater impact on the world around them, there were growing public and legal pressures on them to act ethically and accept a set of social responsibilities for their staff, customers and the world around them. But then the neoliberals came along and argued that companies had only one responsibility. As Milton Friedman put it in 1970 in his infamous essay: ‘The Social Responsibility of Business Is To Increase Its Profits’.That profit should be businesses only concern. This became a neoliberal mantra.
But the conflict between capitalism and the planet did not go away. It just got deeper and deeper.
Just as the exploitation of mankind lies at the heart of capitalism. So too does exploitation of the planet and the natural world. Accordingly, fish stocks are being exhausted by ever larger fishing boats and more destructive methods of catching them. Forests are being destroyed by ruthless companies bent on wood and grazing land. And animals face extinction for ivory, hunting and habitat. Now with the increasingly urgent threat of climate change, humanity itself is in the firing line of environmental destruction. And the neoliberal hands-off, profit-driven policies are only making things far worse.
Future of Capitalism
Given the chaotic and unplanned nature of capitalism, it is well nigh impossible to predict its future course. All we can say is that the problems caused by modern capitalism’s negative tendencies and contradictions are mounting year by year.
Looming over everything is the ever-increasing level of debt being run up in the capitalist world in order to maintain growth and share prices. To this end, the capitalist central banks keep on buying up debt through the policy of Quantitative Easing, and thereby pumping in trillions of dollars into their economies. Ironically, this flies directly counter to neoliberal doctrine. It is a weird form of Keynesianism without any of the redeeming features of job creation and boosting of consumer demand of the old approach. A Keynesianism for the rich so to speak. Yet the neoliberals mostly are staying silent while their monetary theory is torn to shreds. It seems that as long as government economic policy favours their people anything goes.
The result of this strange and extreme pump priming of big business has meant that world debt has now reached $281 trillion dollars which amounts to 355% of global GDP. But with interest rates almost at zero, their lowest level since the early days of capitalism hundreds of years ago, there is an incentive to borrow even more. In fact, central banks are getting so desperate to prop up the stock markets and avoid a slump that they have started to introduce negative interest rates. For the first time in history, they are actually willing to pay people to borrow money! That is why shares have reached their highest levels ever.
This cannot continue forever. There must come a time when interest rates start to go up; or confidence begins to fall; or both. And the beginnings of an almighty crash start to roll out. But capitalism will not disappear of its own accord. There is no final crisis beyond which we will enter the promised land. Capitalism always finds some way out, no matter how destructive.
Given all the criticism we have made of neoliberalism and the disastrous road it is taking us on, the logical question to ask is: Is it possible to go back to the era before Neoliberalism?
Before trying to answer this, we should start by recognising that the neoliberals have shown that they have a keen grasp of how to manipulate a crisis in their favour. A task in which they are ably assisted by the capitalist media. To this end, the neoliberals have adopted the motto “Don’t let a good crisis go to waste”. We saw this most ably demonstrated in the Great Recession over a decade ago. Despite this Recession being brought on by neoliberal policies, they managed to turn it around and use it as the occasion on which to implement even more radical neoliberal measures of public austerity and privatisation. Clearly, the neoliberals have come to understand that it is in a crisis that they often make their most daring advances. When people’s attentions are most distracted and dramatic conditions appear to justify dramatic changes.
Moreover, now that the big corporations and the billionaire class have control over the economy, political institutions and the media, why would they willingly return to an era where they have to share their wealth and power with working people? And who could force them to do so?
Only working people and their organisations have the power to stop the neoliberals. But why stop there? The real alternative to the problems of modern capitalism is not to try fruitlessly to go back to an earlier version of an inherently rotten model. But to advance to a new form of society.
The reality is that the Post War Settlement, far from being a norm that we can return to, was actually the exception in the history of capitalism. It only arose because of an extraordinary combination of the Second World War; the power of the Soviet Bloc; and the postwar radical consciousness.
In truth, neoliberalism is the norm of capitalism. And has only revealed its true nature.
Whatever the stated intentions of the neoliberal movement to create a robust and competitive economy, the reality has turned out very differently. Instead of neoliberalism ushering in a new well-regulated market, it has produced a toxic combination of businesses free to run riot on one hand; and subsidised by the public purse on the other. Instead of a healthy free market of firms competing on a level playing field, we now have an ever greater concentration of ownership and monopolisation. Instead of cutting back public and private debt through fiscal discipline, we have ended up with an unprecedented debt mountain that threatens to bring down the whole system.
But capitalism will not have a final crisis. It will be a prolonged and protracted descent. Nor will capitalism collapse of its own accord. It has to be consciously replaced by an effective alternative. But where is the Left’s credible alternative to capitalism?
We have a special FaceBook discussion page for this Topic. If you would like to make any comments suggest improvements or participate in a discussion on it, please go to this FB page: https://www.facebook.com/groups/1083231248713141/post_tags/?post_tag_id=1083259088710357