Philip Pilkington: ‘Does Capitalism Have a Future?’ – Why the Financial Times Asks All the Wrong Questions to Avoid the Real Issues

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

The Financial Times recently ran a series on the future of capitalism. The FT is usually an excellent publication – but the series came up seriously lacking.

The lack arises because of the question posed. During the Great Depression – indeed, even after WWI – there was a serious alternative to capitalism. During the depression years the Soviet economy, under Stalin’s iron fist, was moving briskly, if brutally toward development and increased growth.

Should social forces have begun to move in this direction in the West the elites had a ‘panic button’ that they could push. They could, if they were so inclined, move toward instituting a fascist system. Hitlerite economic policies – a peacetime Keynesianism never before or since matched in the Western world – were remarkably successfully and had largely warded off the German depression by 1936.

Unpalatable as it may have been to many it was certainly looming in the background in the 1930s – and should the spectre of Communism have truly risen the elite would probably have reluctantly moved in this direction rather than see themselves expropriated (and perhaps not so reluctantly, since Hitler had quite a few fans in the British upper class prior to 1939). Figures such as Henry Ford in the US were keenly aware of what might have to be done to maintain the order of things in the event of large-scale social unrest.

Yes, this was a very different time; real and seemingly viable challenges to capitalism existed. No such challenges exist today and it is this that accounts for the impoverished navel-gazing at the FT.

Various commentators run pieces that are… well… largely irrelevant. They assure us that capitalism will survive because there are no alternatives – thanks, FT, for the information, maybe tomorrow you could remind us all what colour the sky is. Some of the more ‘edgy’ commentariat even genuflect at the altar of Austrianism and libertarianism claiming that the egregious bailouts have them pining for a more morally appealing ‘purge’ of the system.

The series over at the FT is as stagnant and as lacking in dynamism as the system it describes has become in recent years. What the FT should instead be asking is: realistically where is the Western capitalist system headed? Because this is a question that is as important as it is answerable.

Let us start with a Martin Wolf piece that has been dug up from the archives and added to the series. This is Wolf writing back in 2009 and his Keynesian optimism is as interesting as it is depressing given recent events.

We can also guess that the US will lead the recovery. The US is again the advanced world’s most Keynesian country.

Wolf reckoned that the tepid Keynesianism that was the order of the day in the US at the time was the beginning of something new. He thought that this would generate a momentum that would pull the world out of recession/depression and toward a more prosperous, perhaps even more social democratic, future. His concerns were the usual.

Unfortunately, there are at least three big things we cannot know. How far will exceptional levels of indebtedness and falling net worth generate a sustained increase in the desired household savings of erstwhile high-spending consumers? How long can current fiscal deficits continue before markets demand higher compensation for risk? Can central banks engineer a non-inflationary exit from unconventional policies?

On question number two, Wolf should have known better. All he had to do was take a look at Japan’s massive debt-to-GDP ratio and measure it against their bond yields. Then, when some smartass at the back chimed in that it had to do with Japanese domestic saving he could have charted said saving against the rising debt-to-GDP ratio, noted the correlation and concluded that it was the deficits driving the savings – not the savings ‘allowing’ for the deficits. Every government deficit, after all, is a private sector asset – Wolf’s sectoral balances model could have told him that much.

Question number three appears naively optimistic. Only question one shows anything close to approximating a true concern.

What Wolf and other enthusiastic Keynesians missed back in 2009 was… well… history. There’s a myth that goes around Keynesian and progressive circles that runs something like this: In November 1932, after three years of failed austerity policies by President Herbert Hoover, Franklin Delano Roosevelt was elected. FDR increased government spending, ushered in the New Deal era of Big Government and created America’s welfare state. These developments gave rise to a new sort of mixed economy that was to prove immune from depressions until it came under stress in the 1970s thanks to Vietnam-induced deficit spending and was taken apart by Reagan and the nefarious financial industry starting in 1980s.

Nice story. Pity it’s not remotely true. If one looks at the actual history one finds that FDR’s anti-depression policies were a palliative at best. Roosevelt was terrified of unbalancing the budget too much and hostile to Keynes’ actual ideas. Indeed, after meeting FDR Keynes commented that he hoped the man would be better versed in economics. In 1937 FDR became scared of the unbalanced budget and withdrew spending – leading, predictably, to a massive recession.

FDR’s public works programs were excellent, far beyond anything a US president seems capable of today. And he took a lot of flak from the business community for initiating them. But they did not open the deficits nearly enough to pull the economy out of recession. Just look at the actual deficits run by the FDR administration in the 1930s – they were smaller than the today’s deficits!

In truth – and as the shrewd reader will already have seen clearly in the above graph – it was WWII that ended the depression. WWII gave politicians and policymakers the gall to unbalance the budget sufficiently to restore the economy. It also gave them the space to rejig the taxation system in a way that made it far more sustainable. If anyone objected, well, they were moving against the war effort, anti-patriotic and hence excluded from the debate.

What lessons should be taken from this? Quite simple ones. Democratic capitalism is a deeply dysfunctional, perhaps even suicidal system. In the good times capitalists and financiers gain ever more power to influence politicians and, after a brief retreat when crisis occurs, they continue to hold this influence when the deflationary pressures set in. Meanwhile, the policymakers convince themselves that the government budget is the same as a household budget – and in this are supported by numerous economists. This leads to a sort of ‘perfect storm’ situation where the budget deficit becomes the main issue of the day and all else is ignored, including the declining economy.

The business class, together with those elected officials who have become their representatives, feel threatened by any added government intervention. They see in it an attack on their own power. That may seem paradoxical in the case of government officials. Surely, after all, they would see their power increase with increased government intervention. In theory, yes; in practice, no. These officials are so enmeshed in the web of business and moneymaking that any increase in government intervention would appear to them threatening. This is not dissimilar to a journalist embedded with troops in a warzone. Because they become so dependent on the troops for their livelihood they tend to lose all distance from what is going on around them and become one of the gang, as it were. Ditto for the politicians.

The great Polish economist Michal Kalecki noticed this dynamic early on and rightly predicted that it would have enormous consequences for any mixed economy. In his classic paper The Political Consequences of Full Employment he wrote:

There are, however, even more direct indications that a first-class political issue is at stake here. In the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question.

Kalecki rightly noted that deficit-financed spending was in the interest of the business class. Especially in a depression, when output and hence profits were so low, it is only the government that can return capitalism to prosperity – and yet, capitalists are remarkably hostile to such action, preferring to wallow in a stagnant economy rather than accept assistance. From an economic perspective – which assumes that businessmen care about profits above all else – this makes little sense. But to Kalecki’s mind it was perfectly logical.

First he notes how this aversion manifests itself – today’s reader will be impressed to know that Kalecki was writing in 1943.

Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.

Kalecki moves from this highly illogical position to more reasonable ideas that might circulate around the business class:

The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.

The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment.

And so Kalecki suggests that the business class may then favour directly subsidised consumption. But this proves not to be the case.

[S]ubsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ – unless you happen to have private means.

So much nonsense. But what lies behind it is anything but. Because Kalecki then goes on to argue that such intervention makes the business class wary that its power might be eroded. For one, a regime in which the government could hire people to alleviate unemployment threatens the businessman’s main disciplinary measure: the sack. This could well lead to an erosion of his social power.

First and foremost, the business class – like any class – are concerned not with profits but with power; the former are merely a means to the latter. They sense that their power comes from their ability to invest as investment drives a capitalist economy. The less they invest and the more the state invests, the less social power they will have. Clearly this is a perfectly logical and consistent idea; indeed, it is almost self-evident in its truth.

Without a major war – and we’re not talking about some piddly little adventure in Iran – there is no real motivating mechanism to alleviate the business class’ fears in this regard. They would much prefer to sit around idly doing nothing than give up some of their power. And the fetish of the balanced budget serves them well to sooth the doubts of the politician who thinks that something should be done despite such action potentially offending his dining partners. And so we end up in our present quagmire.

Democratic capitalism, quite simply, is a self-destructive system. In the present crisis the business class has rejuvenated their profits through financial chicanery. But, as I argued on this site the other day, this is probably through the inflating of a commodities bubble and will likely not last long. Still, even in the event of this coming to fruition we know from history that the business class will probably prefer to accept chronically low profits than they will the government moving in on their turf.

Thus it is likely that the West is heading for a long period of stagnation and decline. Is this due to capitalism? In a sense yes, but to put it in these terms is far too abstract. This has as much, if not more, to do with our political structures and the amount of power that the business class exercises in modern democracies. It is really a problem, not of capitalism, but of capitalist democracy.

Is this to say that some non-democratic system is preferable? Certainly not. Anyone who would give up their liberty for a pay check is reprehensible. Some will say that we already live in a non-democratic system. I would reply: hold your tongues lest that come true and all your fantasies become a horrifying reality.

But even beyond such moral judgments, in reality the idea that some other system of economic governance might come to replace our own seems unlikely. Again, this is January 2012, not March 1933. We have a welfare system that allows people in even the most callous Western states to avoid starvation. In truth, the structures of power have largely solidified. Even another financial crisis and a chronic shortfall in profitability are unlikely to loosen them up much – let alone break them.

These are the real issues that we face as we move into the future. And it is these that people who try to establish a more functional economic and political system face, bravely, everyday. But these are issues that the FT – with its enlightened business class liberal readership – could not raise. Otherwise it might see its profitability decline long before the next financial crisis. Perhaps then, rather than flag-waving and posturing, the FT would have been better leaving well enough alone. Perhaps they should have stuck to what they are good at – that is, actual analysis – and put away their pom-poms.

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  1. digi_owl

    I will say that workers taking over the daily running of factories, mines and such, and run them via shop floor democracy is the way forward.

    1. F. Beard

      Logically, workers would have greater power if business was not allowed to steal their purchasing power via government backed banking.

      1. digi_owl

        If one consider a ship yard a factory, quite a few.

        Still, i guess your trying for a old school attack on the messenger.

        The reason for me thinking this way is that a factory, mine or similar has a very big effect on the local community. But once that factory is no longer owned by locals, the likelihood of the community effect being overlooked grows exponentially. There has already been cases of fully profitable factories being shut down because the distant owner can move the same production to a different nation and reap higher profits. Never mind that the work force, who has invested their lives locally, can’t uproot and move with equal ease.

  2. Mark P.

    This has been mentioned before. But for those who haven’t seen it, check out Adam Curtis on ‘THE YEARS OF STAGNATION AND THE POODLES OF POWER’

    ‘…I want to tell the story of another time and another place not so long ago that was also stifled by the absence of novelty and lacking a convincing vision of the future. It was in the Soviet Union in the late 1970s and 1980s. At the time they called it “the years of stagnation”…

    ‘Everyone in Russia in the early 1980s knew that the managers and technocrats in charge of the economy were using that absurdity to loot the system and enrich themselves. The politicians were unable to do anything because they were in the thrall of the economic theory, and thus of the corrupt technocrats. And above all no-one in the political class could imagine any alternative future.

    ‘In the face of this most Soviet people turned away from politics and any form of engagement with society and lived day by day in a world that they knew was absurd, trapped by the lack of a vision of any other way….’

    1. Dan Kervick

      Philip, this is a good analysis. But aren’t you doing the same thing that for which you are criticizing the Financial Times? You analyze some of the problems without offering an alternative, and then throw up your hands in despair.

      In the end, as your analysis indicates, the issue is power. Who will actually rule our society? The leaders of private corporations, with their characteristic manner of organizing society into hierarchical and undemocratic production units, that we euphemistically call “business”? Or will the citizenry rule our society through robust democratic institutions that wield enough economic power and social ownership to keep private enterprises in line and make sure they are operated on principles that contribute to public purposes and the common good.

      Power are wealth are inseparable. No real distinction can be drawn between who owns things and who runs things. So if political power is to be divided in a broadly equal manner among the members of a democratic society of equals, the members of that society must have a broadly equal share of the ownership of the foundations of social power.

      Just a suggestion then: If democratic capitalism is broken, but democracy should be preserved, shouldn’t we then take some steps in the direction of democratic socialism, otherwise known as economic democracy?

      Libertarianism is not a viable alternative for democratically-minded Americans. It is avowedly hostile to democracy, and is a permission slip for private owners of productive enterprises to create exactly the same kinds of concentrations of economic power that have resulted in the current capture of government by private corporate and financial power.

      I don’t know why you find Kalecki’s ideas “nonsense” and “illogical”. He seems to accurately describe the various motives private capitalists have for resisting the transfer of power back to democratic societies, even when that transfer makes short-term business sense for them.

      People have to face the fact that we are in global struggle of the hierarchical corporate form of social organization against the democratic form of organization. Corporatocracy is now winning in much of the developed world, and also in the undeveloped world to the extent they employ democratically unaccountable forms of hierarchical and authoritarian government.

      1. James

        There no longer are any realistic alternatives to the latest brand of “capitalism,” aka neo-fascism. Capitalism has morphed into state-run centralized corporate fascism, which was always the goal in the first place. “Free markets” were always just way too risky for would-be world dominionists. The “revolution” is over from their point of view and we all just didn’t get the message. Lucky for the rest of us their fantasy economy runs on an actual physical economy based on tangible resources. Capitalism’s exponential growth model fails miserably when measured in those terms. It won’t be long now. The next fascist administration – democrat or republican – will repudiate climate change altogether and double down on all their current carbon based energy bets. Pray that they do. Might as well accelerate the collapse and get on with it. Decision 2012. Just Say NO!

        1. Dan Kervick

          If you think the financial sector only blew up our economy because it is now “state run”, or that tens off millions of people are out of work because the corporations that employ people are “state run”; or that our society has failed to invest in its people and infrastructure for decades only because the corporations are “state run”, then you are fundamentally misdiagnosing the problem. These crises and inadequacies are persistent phenomena throughout the history of capitalism. Capitalism is a system whose natural tendency is toward domination, accumulation and the concentration of wealth and power.

          You’ve got it all backwards. The problem isn’t that the government runs the corporations. The problem is that the corporations have grown so powerful that they now run the government.

          The only solution to the inherently domineering, anti-social and anti-democratic tendencies of capitalism is aggressive democratic governance. Since capitalism concentrates economic poser in a few hands, its Achilles heel is that the dominated eventually far outnumber the dominators. The dominated to achieve some solidarity, work together to reconsitute broad-based democratic power, and then cut capitalism down to size and whip it into shape.

          1. craazyman

            Dan, where corporations are concerned I think the power does exist in the form of shareholder clout as vote weilding owners.

            But the shareholders generally will not exercise that clout because they are too lazy and too avaricious to implement responsible oversight. And they often deflect that responsibility under the rubric of “fiduciary duty”.

            And they are also too atomized, producing a tragedy of the commons.

            And they differ politically. Just as the electorate. As sensitive and intelligent progressives, we may think we know what’s best for the populace as a whole. But therein lies the path to an absolute tyrrany, as history has shown, when someone less “enlightened” takes over the institutions thus created. ecce homo. It’s hard, like the crows in the trees.

          2. Nathanael

            craazyman, shareholders have real power in *Germany*, but in the US, shareholder power has been deliberately broken by corporate execs with the aid of the SEC. I can go into details on exactly how if you want to know, but basically they make it impractical for any shareholder to challenge them.

            The most extreme method is by having the Board (usually CEO-controlled) simply issue piles of free stock to the CEO so he can outvote the real shareholders, but there are many subtler ones.

      2. Philip Pilkington

        Thanks. But I’m not criticising them for not providing alternatives. I’m criticising them for avoiding the real issues — which are political and not economic. If they want to understand the potential forward trajectory of the economies we call ‘capitalist’ they have to examine what’s going on within capitalist democracies.

        1. readerOfTeaLeaves

          Agreed: the underlying issue is power.

          It’s important to take a look at the industrial understory of the world that those political and economic conversations were playing out against a world where ‘power’ derived in large part from industrial power, rooted in iron and steel.

          During the 19th c, the UK was the leading producer of iron – producing half the world’s pig iron up through the 1870s, when the US and Germany became the leading producers of iron and steel.

          Even as late as 1939 – around the time that some of the quotations you include here were being written, the US, Germany, USSR, UK, France, Japan, and Belgium collectively produced 90% of the world’s iron and steel. The entire Southern Hemisphere — not notable as ‘democracies’ in all the economic theorizing — produced less than 1%.

          The US produced nearly 40% of the world’s fuel and power as recently as the 1930’s — the period in which FDR was making his difficult decisions and Congress still functioned well enough to respond to the economic urgencies of the nation.
          India produced 1.3% at that time, despite a much larger population; not surprisingly, no one was worrying about whether India would have a New Deal or not.

          The US, UK, USSR, and Germany (a mere four nations) combined produced 70% of the total world’s power and fuel in the late 1930s — notably, they all ended up at war with each other a short time later.
          But in the late 1930s, a mere 10 nations, most of them ‘capitalist’, produced all the known fuel and power in the world (data from an old US military document of early 1940s):
          US – 39.3%
          UK – 10.9%
          USSR – 9.2%
          Germany – 10.9 %
          Japan – 3.1%
          France – 2.5%
          Venezuela – 2.1%
          Poland – 1.9%
          Canada – 1.6%
          China -1.5%
          Czechoslovakia -1.4%
          Belgium-Lux – 1.3%
          India – 1.3%

          I could go on and on and on with these sorts of stats, but my point is that when one nation has almost 40% of the world’s fuel production, it would have been viewed as an economic miracle. The wealth of natural resources were taken for granted, and ‘scarcity’ wasn’t publicly acknowledged until the environmental movement in the US nearly 30 years later — in the 1970s (which Reagan and the Bushes responded to with reactionary panic and massive denial).

          But since the New Deal and the period of the quotations given in this pos, fisheries, aquifers, forests, wildlife herds have come under pressure.
          So now, ‘capitalism’ — the extraction of natural resources transformed into usable things — is in ‘crisis’.

          The problem at this point is that the political process is so sclerotic it seems doomed to produce stagnation; after all, the political enablers among economists (a la Glenn Hubbard) wield power on behalf of legacy systems.

          But I suspect that the legacy interests who have paid handsome sums to purchase the political power have ended up inadvertently degrading their political assets: they are not very adaptive, so over the long term they are doomed to believe it is still 1938 all over again.
          Thus, their ‘power’ dissolves in the face of a world of G20, $100/barrel oil, and resource pressures.

          The conditions that allowed that New Deal form of capitalism to flourish don’t exist anymore.
          The power structures still want to believe it is 1938.
          So we have a lot of political denial and sclerosis.

          We need new economic thinking, because the current political and economic theories-systems are not adapting quickly enough to new realities.

          1. spacecabooie

            Glass Steagal and a return to a Credit System can’t guarantee that New Deal form of capitalism to flourish ?

            It would not be because of a general political lack of will …

            Over the last 5 years that there has been plenty of will throughout the public and at the local and state levels for a return to Glass Steagall (and even at the Federal level, when Glass Steagall came one vote short of passing due to severe resistand and pressure from Obama, and the British (proxy for the Anglo-Dutch Finacier Oligarchy, aka City of London, Wall Street, et al, who declared that passing it would be considered a hostile act of aggression).

      3. Philip Pilkington

        Oh, and I’m not referring to Kalecki’s ideas as ‘nonsense’. I’m referring to the ideas that the capitalist class use to rationalise their desire for power (i.e. about saving etc.).

      4. Jay B

        An alternative IS emerging.

        I agree, the issue IS power. BUT, I fundamentally disagree with the idea “Power and wealth are inseparable.” I disagree because the base of power has begun a transition from money to information. Power increasingly will be based not on wealth, but the processing of information.

        Democracy, in its current form, is a reflection of the money base of power. Democratic power is accumulated by piling up the largest pile of discreet identical units, whether those units are dollars or votes.
        Accumulating information is fundamentally different; the units are far from discreet and identical.
        Information-based institutions, particularly government institutions will have to be fundamentally different. Rather than being based on an accounting function, counting the pile of discreet units, vote or dollars, they must be based on analytical functions.

        Thus we can see the executive and judicial branches of government easily can make the transition. Congress, however, is fundamentally constrained from adjusting. By design it only counts piles of discreet individual units, votes and money.

        We are starting to see the signs of an information class exercising some information-power influence. The SOPA battle is an early milestone.

        Let’s begin to think about how to accelerate the transfer of power from mindless money to an information class with information based institutions.

  3. Skippy

    Post industrialism sux and accountancy gimmickry is a poor second cousin[?] say it ain’t so.

    Skippy… how do we reinitialize a world, then reboot?

  4. Jose

    Perhaps the only event that may help break the structures of power of western capitalism will be China’s GDP overtaking America’s (and Europe’s) in the following one or two decades.

    Once (or is it if?) this happens the western elites will lose their grip on world power – and the respect of the middle classes in their own countries.

  5. Jack Straw

    This is a post that actually seems to get somewhere. Where? I’m not sure, but it doesn’t seem false, and it doesn’t presume radical reconstruction is either likely or very desirable. I think.

    And it is at least courteous in taking concerns of Tea Partiers seriously, even while acknowledging that they get very important things wrong. Or, they have a refusenik tendency that includes “thinking.” I think.

    With all due respect to Marx, I’m more of a Skippyist. I think.

    Putative members of the same elite – the financial elite – are diverse in ways that defy easy analysis, in my opinion, but they all seem to arrive at the same “kitchen-table-ist” mindset, regardless of where they start. What else explains why and how Clintonite, Obama-ist liberals and Reaganite, Bushite, Romney-ite, Ginrichian conservatives aren’t very different?

    I found this as a discussion question for THE touchstone of all white American male tea partier conciousness (but not limited to, as noted above):

    “Mario Puzo called The Godfather “a family novel more than a crime novel” yet he begins the book with the Balzac quote, “Behind every great fortune there is a crime.” How would the novel be different if the Corleones were in a conventional business together?”

    Quite possibly, not at all.

    1. spacecabooie

      You haven’t really studied what President Clintonwas trying to do, or what Hillary compaigned on doing, then did you. But yes I would place Obama in a category with the others, except for Gingrich. It seems to me that Gingrich must at least be on non-speaking terms with the Kochs.

      What an exasperating corner for an FDR democrat to find himself in.

      If Gingrich gets elected, his life insurance should certainly be paid up though he’ll probably be happy to think of comparison’s with Lincoln.

      Phillip’s points regarding the disonance between FDR and Keynes are half way accurate; FDR and Harry Hopkins believed in a return to a credit system, a la Hamilton, hoping to crush monetarist systems and colonialism across the globe. (Deficits under credit systems no doubt have a significance which is different from those of monetarist systems.)

      For the same reason FDR viewed Churchill as an even greater manace.

      (When Obama removed the Curchill statue there was some hope that the Truman induced deterioration of FDR policies would be halted, but then the multiple – sometimes almost clandestine visits to the Queen … and a position beneath her that most Republicans, including those thinking Tea P’iers seem to be knawing at the bit to ass-ume.)

      1. spooz

        dunno what Clinton was “trying” to do, but he did sign Glass-Steagall. whatever else he did pales in comparison, imo.

  6. uaretoblame

    The real question is: “Can the West surive Socialism and traitorous Meddling of Arrogant, Boomer, Tranzi Elites”.

    A secondary question is: “Can the West survive their superficial, pseudo-intellectual factors, appratchiks and useful idots like Jack Straw”.

    Seriously, “Jack”, “radical reconstruction”? Whatever are you talking about? sounds like Marixt treason to me. Sound like more COMINTERN rhetoric to me.

    And the Tea Party people do not “get importnant things wrong” (and I rather doubt that you even know what the TP people believe). They understand just what is happening.

    What arrogant piping from a self-important cipher.

    1. James

      The American right wing: still fighting an imagined cold war 20 years after the fact. Never a bunch of flaming intellectuals, were they? Couldn’t define the word socialism if their f***ing retirement checks depended on it.

    2. BenP

      “the Tea Party people do not “get importnant things wrong””

      The tea partier literally cannot spell “get important things wrong” tee hee hee

    3. Frohike

      It’s always amusing to hear the right speak of Marx and the Comintern. Why? Their “movement” is expressly based upon the Comintern model. A vast network of interconnected think tanks, magazines, writers, and front groups all coincidentally coming to the same conclusions on questions of power, allocation of wealth, race, sex, morality, and other issues of the day. It’s little more than paid propagandists preaching to the converted for a fee.

      At its heart, the modern American right is nothing but an alternative belief system meant to displace Marxism-Leninism. This is why we get never-ending discussions of politics and principles instead of policy. Their priority is professing belief in a fairy-tale system while promoting aggressive ignorance of conditions on the ground. They are no different in this from their purported adversaries, the Marxist-Leninists. Given that, the best means of defeating them might be to adapt the successful strategies used in defeating communist movements of the 20th century.

  7. Goin' South

    Here’s what Einstein had to say about the chance that democracy and Capitalism could co-exist:

    “Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.”

    And he wrote that in 1949. Smart guy.

  8. F. Beard

    The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ – unless you happen to have private means. Michal Kalecki

    The same Bible that taught that also forbids usury from fellow countrymen, theft by debasement and oppression of the poor. Yet our money system is based on all three. Furthermore, the Bible commands periodic debt forgiveness (every 7 years) and a return of agricultural lands every 50 years to the original owners.

    As for “democratic capitalism”, common stock as private money is the ideal (only?) way to implement that. However, corporations will naturally take advantage of a counterfeiting cartel (the banking system) to borrow from if one is available (as is the case).

    Also it is pointless to say there is no alternative to capitalism when banker fascism is the current system. We have not yet arrived at genuine capitalism and won’t so long as there is an alliance between the State and banks.

    1. Lidia

      Genesis 3:19 “In the sweat of thy face shalt thou eat bread, till thou return unto the ground; for out of it wast thou taken: for dust thou art, and unto dust shalt thou return.”

      The most sense I ever heard made by anyone talking about the Bible was an interpretation offered up by Daniel Quinn, in an essay I read on the Internets (sorry, no link). I have not read any of his books or anything else by him, but his interpretation made a lot of sense:

      Basically, in a book written by ancient goatherders for ancient goatherders, Cain (the inexplicable “murderer”) is a farmer, while his brother is a herder (an unlikely situation, proving these to be archetypes and not a “real-life” set of brothers). Why is Cain a murderer? Because the propertarian agriculturalists were claiming land used for nomadic, common, grazing. Note that God accepted the lamb offered by Abel, but rejected the crops grown by Cain.

      1. F. Beard

        The murder was not inexplicable. Cain was jealous of Abel.

        For certain sacrifices, produce was acceptable but for others an animal was required.

      2. Nathanael

        All the evidence indicates that the early parts of Genesis are condemning farmers and praising herders. (God rejects Cain’s sacrifice — *because it’s farmed* — and accepts Abel’s — *because it’s herded*.)

        Which makes perfect sense if you’ve ever read about the Enclosure Act fights in Britain or the rancher vs. farmer fights in the west of the US, or *any* nomad vs. agricultural fight.

        The farmers were stealing land which was formerly communal — grazed by any herder — and turning it into private, fenced property.

        This is actually anti-social behavior, when you look at it that way, so it’s no wonder a religion created by herders condemned it.

  9. Godfree

    In labelling our system “Western Capitalism” Philip certainly alluded to its oriental sibling, which is sufficient attention to alternatives given the necessary brevity of his critique.
    Singaporean/Japanese/Korean/Chinese Capitalism IS a distinctly different model, despite our Western media’s attempts to see theirs as being modelled on ours.

    Theirs, however, springs from a culture so utterly different from ours that there is little hope of our adopting the Confucian model even if we sincerely wished to do so.

    Given the problems of rising productivity and consequent concentration of wealth, our best hope seems to lie in serious experimentation with the Mondragon model–a very Western invention.

  10. Geojos

    So this is what is meant by capital going on strike, and thanks for the link to Kalecki’s paper. ( How many economic courses in this country teach his thought.)

    It makes intitutive sense, and I am in the power over profit school, but I always had problems treating a ‘class’ as one person and attribiting a motive like maintaining their power (over profit). But bear with me. I believe you just might to some degree

    You can use ‘profit’ as a motive as it derives from the logic of the system, but can you explain all their behavior by the notion that they are fearful of the state taking away their game and their power postion. Can they all think like this when they need to invest and keep up with the competition. It is also not like the ‘profit motive’, but requires another level of understanding ( profits come from their power position) or assuming it is in their CEO DNA.

    Not saying that ‘capital is not on strike’. Don’t know. There there are some ways it can be the case.’Ownership’ is now very concentrated and interlocked even internationally, inclduisng ties with the military and financial. They also have these grand meetings like “Jackson Hole”. They could think and act in unism. Then it alos may be the case they all do undersand the relationship between profits and their power postion.

    They have profits and are not investing much in U.S. but are they using that movey elsewhere or just sitting on it? There does seem to be investment opportunites, and they can get in on the cheap. But Maybe their motives are also economic- keep labor weak and powerless, thus cheap, and wait until even more bargains are out there? Perhaps some do not see ‘final demand’ But it is strange they all take the same language of defict reduction, hampered by regulations, uncertainity and no confidence. It is almost as if it rehearshed.

    The power explanation makes intutitive sense, as they want to progate the free market and private sector myhtology- including the great enterprenuer CEO-, and do not want the state appear successful, even when it comes to one like Obama who embraces the mythology except sometimes on the stump campaigning.

    I am sure the power motive is at work to some degree. Just wonder, though, about other factors.

    Phillip also needs to think about writing a book on economic theory that is put under the shelf.

  11. Jack Straw

    “And the Tea Party people do not “get important things wrong” (and I rather doubt that you even know what the TP people believe). They understand just what is happening.”

    I admit to being a pseudo-intellectual. But, as to the part of the quote above about me not “knowing” what TP people believed, you are 100% right. I literally don’t know what they believe. And they don’t, either. They think they do. But they really don’t. As to the second part, that is manifestly false. They have no idea “what is happening.”

    uaretoblame, please explain the Republican voting results so far, and tell me what their predictive value is for the next financial bailout. Seriously. I would guess that 80% of those voters are adamantly opposed to financial bailouts, yet that’s not the way they vote. And I don’t think the Ron Paul voters are any better at their solid, what, 10%? A Ron Paul presidency would be government by the veto override. (I actually do KNOW this – I was there at founding meetings for this movement). A President Paul would not be able to stop bailouts.

    Tea Partiers are abysmal dialecticians. That’s not my fault. What is perfectly clear to you is woefully contradictory to me. Tell me that President Gingrich, Romney or Santorum would react much differently than Presidents Bush or Obama.

    Tell me how a former Speaker of the US House of Representatives is an “anti-establishment” candidate. I’m interested. You seem to think that’s pretty easy. Go for it.

    1. Cogburn20

      Newt is certainly playing up his “rebel” persona and there are a lot of people falling for it. It seems that he is able to leverage his previous extra-marital dealings to demonstrate that he is a man who does things his own way. Anti-establishment candidate? Absolutely. Anti-establishment of marriage, that is.

  12. Jack Straw

    “You’re on a mission for the President
    You got to bury all the evidence
    You say you like it but you really don’t
    He said he’ll cover but you know he won’t”

    David Lindley

  13. Mark Hodgson

    There is a clear alternate to wester capitalism: China

    China clearly is no longer a communist country (if it ever was). There are however still elements of a command economy, but much loserthan previously thought. There is clearly a highly exploitative capitalist operation, with a few individuals getting rich and the masses working for $0.70 an hour at FoxConn.

    Then again there is amssive government subisy of industry and the means of production. Over the past three years there has been a massive cental government injection of money through infrastructure projects, more kenysian than Keynes.

    Overreaching Corruption and crony capitalism in very tightly controlled capital markets, with no environmental regulation allowed to stand in the way of development.

    I don’t know what you would call the present Chinese system, certainly it is not a free market economy, it is not communism, is probalby is closer to fascism but in reality is is not quite that either.

    My point is that the premise of there being no viable alternate system to a democratic free market system clealry fails to see that there is a very rapidly growing alternate.

    1. Mikey M

      you think the chinese system is a reasonable alternative?

      Frankly i rather keep the screwed up system we already have than to replace it with Chinese style crony capitalism.

    2. F. Beard

      My point is that the premise of there being no viable alternate system to a democratic free market system clealry fails to see that there is a very rapidly growing alternate. Mark Hodgson

      Cancer often grows rapidly too. The correct answer to the question “Is Chinese ‘capitalism’ viable?” is “It’s too soon to tell.”

      But I’ll cut to the chase and predict it isn’t.

  14. Mikey M

    Sorry but the journalist from Dublin who wrote this piece is about 15 years too late in his belated realisation that the FT is biased, and a propaganda tool for the eu and euro projects.

    In fact i only feel contept for his article because its just too goddam late to start being pinickity over the way the FT frames the discussion over the euro, or ignores it completely.

    Where has the writer been for the last decade? Where was he when the Irish were trounced into the euro, told to vote again after their no referendum results?

  15. don

    “Various commentators run pieces that are… well… largely irrelevant. They assure us that capitalism will survive because there are no alternatives – thanks, FT, for the information, maybe tomorrow you could remind us all what colour the sky is.”

    Thanks Pilkington, for reminding one of Jameson’s quip that it is easier to imagine the end of the world than the end to capitalism.

  16. Susan the other

    So global capitalism has reached such a level of productivity (whether democratic or not) that not even a war with Iran can bring it back from its stall mode into a forward-moving balance. The underlying irony is that both rich and poor alike want the economy to work but the economy suffers paralysis due to its own efficiency. And now the engine is flooded. What we need are inefficiencies. I can think of some: War – it is so vastly destructive and poisonous it has always been very useful. Or maybe some new insane manifest destiny, lets all go to Mars. Some new gold rush to distract us. But none of these achieves a common good. One inefficiency we have plenty of is political inefficiency which might spawn a bloody revolution but probably not. I think the answer is staring us in the face. A war on pollution.

    1. F. Beard

      but the economy suffers paralysis due to its own efficiency. And now the engine is flooded. What we need are inefficiencies. Susan the other

      The economy suffers because it is based on an unjust (and stupid) money system.

  17. Jack Straw

    “The economy suffers because it is based on an unjust (and stupid) money system.”

    Please elaborate. Has there ever been a “just” money system?

    1. F. Beard

      By means of the money monopoly for private debts some, the so-called “credit-worthy”, are allowed to steal purchasing power from everyone else.

      The Tally Stick system sounds like it was ethical. Anyone could create a Tally Stick so there was no money monopoly for private debts.

  18. Eric L. Prentis

    Keynesian economists love to talk about total amounts of increased government spending to fill in for falling consumer demand. However, the timing of the government spending is of equal importance. The real issue is structural economic reordering. This would have occurred automatically with the insolvent financial players going bankrupt in 2008-2009. Instead, by the government bailing out the Wall Street psychopaths, they remain in power and we are now stuck in zombie land.

  19. Eleanor

    Interesting essay, and a good argument for continuing stagnation. However, we need to remember global warming and evidence that the planet is reaching peak everything (oil, soil, water, fish…) at the same time that world population is heading toward nine billion. This puts a lot of stress on a stagnant system.

  20. MichaelC

    ‘Yes, this was a very different time; real and seemingly viable challenges to capitalism existed. No such challenges exist today and it is this that accounts for the impoverished navel-gazing at the FT.’

    I agree that this is a very different time, but I think a more relevant frame for exploring the difference is the similarilities/differences between the 19th and late 20-21 century gilded ages. Your piece points out different early 20th century solutions tried by individual nations, post 19 c-10c Gilded age reforms.

    The current current gilded age is dominated by a supra national plutocracy. There is no active 21st century complementary challenge to the late19-early20 c challenges to the gilded age plutocracy, hence no challenge to capitalsim more broadly.

    The NYT (of all places) has a decent piece on this in todays issue.

    Some See Two New Gilded Ages, Raising Global Tensions

  21. Diego Méndez

    I am happy to see that US/UK people start pointing out the obvious: we have a political problem, a political-system problem.

    In Spain, the indignados movement was born from a political platform called “Real Democracy Now”. Protests were not focused on inequality, but on political reform. I think that’s the (long) way to go.

  22. abprosper

    Till people understand that Capitalism is much closer to Communism than to a market society change will be difficult.

    Both the big boys concentrate wealth in few hands, the oligarchs who control the state who than end up creating something akin to central planning.

    The difference is scale of planning. In Totalitarian Communism this includes consumer goods, in Capitalism it does not.

    Otherwise both systems are inimical to human well being.

    Whats needed is some kind of economic nationalism centered around a broad distribution of wealth among citizen groups. This has some planning aspects as all economic systems do but it stabilizes societies and properly done (with minimal effort BTW) still creates incentives to produce actual wealth some thing the Two C’s do not.

    1. JamesD

      But how do the Big Boys (which are the big banks) get this concentration of power? It is through the Federal Reserve which loans them TRILLIONS at basically zero percent. The Hippo in the Bathtub that this article ignores is the banking cartel. And this cartel is not free market. It is corporatism.

  23. RanDomino

    Capitalism leads to private concentration of power, which leads to corruption of any public political system.

    The next great anticapitalist movement, which is driving the Occupy movement, is Anarchism.

  24. Jim

    What I find disturbing and depressing about this essay is its apparent endorsement of an extremely constricted political vision for capitalist democracy: “…in reality the idea of some other system seems unlikely…this is January 2012 not March 1933..In truth the structure of power has largely solidifed…even another financial crisis and a chronic shortfall in profitability are unlikely to loosen them up much–let alone break them.”

    So lets get with the “realistic” program. Lets make sure that the political debate is narrowed to an acceptance or rejection of the state as the best instrument of ameliorating gross social injustice.

    And in the process always be sure to define the present structure of power as the “progressive” state vs. evil Big Capital, and never as Big Capital, Big Government and Big Bank aligned against us.

    Apparently the constrained limits of democratic possibility which became the norm in the 20th century must be carried over into the 21st century.

    And should individuals somehow find a way to breach these narrow limits, their speculations and concrete experiments can easily be dismissed as “romantic or “utopian.”

    If we all would only have the courage to unbalance the budget to the degree that we did in WWII we would not have to think about the possible necessity of reconstructing society as a precondition for democratic renewal.

  25. Hugh

    As usual greater clarity could be achieved by looking at all this through the lens of kleptocracy. Kleptocracy is a politico-economic system of elite looting. It isn’t just about power but criminality.

    One can debate whether capitalism necessarily develops into kleptocracy, but the future of kleptocracy is kleptocracy. We really need to keep our frames straight, and separate. Reformism presupposes that the system can be changed, that its foundations are sound. We can debate whether these changes should be primarily political or economic and we can discuss its future. But kleptocracy is the system as criminal enterprise. The foundations are as rotten as every other aspect of it. You might as well talk about reforming a cancer or a gangrenous limb. Reform, or rather the prospect of reform, is just a distraction to keep the rubes running around in circles and not understanding the problem.

    The whole point of class war, what class war is, is just to keep the 99% from believing that there are alternatives. So our elites press the line that what we have now, which they call capitalism and never kleptocracy, is like some divine or natural law, that it is the way things are, that it is the only way things can be.

    If the 99% so wished it, they could rise up and sweep away the 1% today before dinner time (and I am writing in the late afternoon). So the 1% and their enablers tell us at every opportunity that this is impossible, that we have an absolute need for our elites, we could not survive without them, that elites are part of the structure of the cosmos, at least the human part of it. There are always alternatives.

    1. Nathanael

      Actually, the future of capitalism may inevitably be kleptocracy — but the future of kleptocracy is collapse, followed by something else (perhaps feudalism).

      The key feature of kleptocracy is that the kleptocrats will keep stealing right past the point at which they destroy the system which supports them, and then they will die bankrupt. Any kleptocrats who replace them will quickly face the same fate. With outside interference from a stable foreigh power — destabilizing any other form of government which arises — this can go on for a long time. Without outside interference, it can’t go on very long at *all* and pretty quickly something else arises.

      Usually feudalism. Feudalism appears to be the easiest system to build “from the ground up”, being based on personal loyalties and personal promises.

  26. Jim


    “Kleptocracy is the system of criminal enterprise. The foundations are as rotten as every other aspect.”

    In your concept of Kleptocracy what are the relationships between the economic, political and cultural spheres?

    If the foundations (I’m not sure what you mean by foundations)are as rotten as every other aspect of it, then how are alternatives ever articulated and constructed?

  27. JTFaraday

    “In your concept of Kleptocracy what are the relationships between the economic, political and cultural spheres?”

    That would be TurboTimmy, Bam, and teh Treasury Boyz from Goldman Sachs all doing smack in the Oval Office after a quick pickup game out on the court.

    What more do I need?

  28. Hugh

    Pretty much. Kleptocracy is a construction of our elites and where our elites are, there you will find kleptocracy and those who serve it. You have to remember this has been going on for 35 years in earnest and there were already plenty of tendencies in that direction even back in the 70s when all this started. So we are talking government, the Executive, its officials, politicians, and regulators, the Congress and its staffs, the judiciary, the political parties, the media, academia, and Wall Street. It is pervasive in the spheres of culture and the institutions of our society because that’s where the power and money are and, of course, our elites.

    Academics advance neoliberal theories in economics and neocon ones in politics. The 1% get oversight taken off them through deregulation or lack of enforcement and the 99% have greater oversight placed on them through the surveillance state and the War on Terror. The political parties give the electorate, the 99%, the choice between corporate candidate A and corporate candidate B. Once in office regardless of party they enact legislation that favors the rich and the corporate and disfavors the 99%. The judiciary backs them up. The media propagandize the whole operation as the best that can be done or the best the 99% can expect. Or they distract with the most recent missing white girl or celebrity breakup or scandal.

    The end product is the looting of the middle class and poor and the disempowerment of the 99%. We are at that stage in kleptocracy where it is no longer just feeding off the fat but is cutting into the muscle and bone of our society. We see this in the how the economy can’t bounce back from their depredations, in high unemployment, in flat and falling wages, in the growing numbers of poor, in the failure to prosecute at all massive fraud and criminality at all levels of the financial system, in crumbling infrastructure, in poor quality and overpriced healthcare, in a two tiered justice system, in underfunded K-12 education, in a university system that is increasingly corporatized and affordable only by the rich without acquiring crushing debt, in the continuance and multiplication of pointless, imperial wars, in the erosion of the Constitutional rights of the 99%, and on and on.

    What we are seeing is not a few people pulling the strings of a vast conspiracy in secret. Rather it is an agenda, a war of one class, our elites, against the rest of us.

    1. JTFaraday

      Yeah, but most of those elites are guilty of a lack of attention and lack of understanding, and individual careerism–which is, after all, America’s true religion.

      Most of them take part in an insidious hierarchical mindset–entirely inherent to careerism– that cultivates a sense of entitlement at the direct expense of the lesser orders and with zero concern for the reverberating social effects of their individual actions. If you told many of these people there was something wrong with this, they would be utterly uncomprehending.

      But only a relatively small portion of that culture is actually something that looks like organized crime.

      I would agree that once this fact has became impossible to miss, continuing to ignore it because they think its in their interest to do so does make the rest of elite culture culpable in organized crime.

      But I still think there’s a useful distinction to be made. At points there were a few people in a back room somewhere, making decisions that would effect everyone else.

  29. Nathanael

    The logical conclusion of Kaleci’s work is as follows.

    First, the problem is the anti-social power-grubbing behavior of the “business class”. (Veblen called them the “leisure class”.)

    Second, the obvious “solution” is to divest them of their power through direct and violent means.

    Third, the reason this is not done more often is that they have somehow deluded large portions of the population into false consciousness.

    Fourth, the moment they stretch the credulity of the people too far, people will lose their false consciousness, and the guillotines will come out.

    Well, that’s history. Wise members of the business class would make an effort to avoid it, but most of the business class are psychopaths and therefore incapable of long-term thinking.

  30. JamesD

    Hoover launched massive interventionism. Germany resorted to printing money in the late thirties as Nazism was failing. President Harding used the capitalist approach to deal with the depression of 1921. Google “1921 Depression” and read the article by Tom Woods. Here’s a snip: “The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, ***and GNP declined 17 percent***. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

    Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent ***and was only 2.4 percent by 1923***.”

    The USA is no longer capitalist. It is fascist.

  31. Ransome

    RE: Future of capitalism by Philip

    There is a series of articles and discussion at The Economist comparing State capitalism vs private capitalism. This article has all the links to other articles and to the debate section. There is a very viable contender for private, self-interested, laissez faire capitalism; the techno State corporation or Mandarin capitalism. The Chinese Mandarin organized government has been successful for centuries.

    As far as spending on employment, The New Yorker has an article on Obama and discussions on a stimulus from 2008. It gives an idea of what was predicted before Obama took office. The author posted a memo presented by Summers with a collection of inputs and advice.

    What is interesting is the reason against a large stimulus. Inflation caused by speculators (rating agencies) losing confidence. Who hates inflation? Those with idle capital. Regardless of declining business revenue, executive management gets their bonuses and dramatic pay. The financial capitalists are very protective of their idle capital. This has implication for Romney and crisis management.

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