Has capitalism failed? Or is the real problem with the particular form of capitalism that has dominated Britain and much of the Western world since the 1980s?
Richard Murphy is an economic justice campaigner. Professor of Accounting at Sheffield University Management School., and Chartered Accountant, and Co-founder of the Green New Deal, as well as blogging at Funding the Future.
Cross-posted from Richard Murphy’s blog
Has capitalism failed? It’s a question that people often ask me, and my answer is, “That’s a good question, but the question may be too simple.” That’s because we need to be sure about what form of capitalism we are asking the question about.
Capitalism has never existed in isolation, and there are multiple forms of it. The form that we had when I was growing up and which existed until around 1980 was one where government and organised labour existed alongside capitalism. And in that form, capitalism very happily survived because it appeared to meet need. So what we have to really ask is: “Has neoliberal capitalism failed?” That is the question that we do need to address.
And let’s be clear, all of capitalism is about a system of economic management based mainly on private ownership. Land and productive assets are largely privately owned. Production is largely undertaken for profit, or so it is claimed, and wage labour is hired to produce goods and services. Markets in this system determine many prices and allocate many resources, and there is a problem as a consequence.
Capitalism always creates a self-serving hierarchy of power. Those with wealth can use it to generate more wealth for themselves without any obligation to share it. That’s because capitalism concentrates economic power through ownership. And what is called profit can be reinvested to generate further returns. And existing wealth therefore creates opportunities for more wealth, and economic inequality can increase as a result. The ownership and control of capital can then bring significant economic power.
This was tolerable within a democracy when capitalism chose to coexist with government and work with it, respecting the rights of others, including organised labour, to exist. Public institutions, in that case, shaped how markets operated, and organised labour constrained the power of capital in a way that was productive for everybody. And at the same time, other forms of organisation, including cooperatives, continued to flourish. That form of capitalism had the ability to work with society, and change, and so survive.
But that form of capitalism has gone. Neoliberalism changed capitalism forever from the early 1980s onwards. Margaret Thatcher introduced it into the UK, Ronald Reagan into the USA, and it spread around what we vaguely call the Western world.
Neoliberalism was a deliberately designed form of capitalism. There is nothing natural about it. It was created as a consequence of the reaction of some people to the outcome of the Second World War, which they thought would lead to socialism, and which they were determined to fight.
Its founders were Friedrich Hayek and Milton Friedman, and they created an organisation, the Mont Pelerin Society, which promoted it, and that was put in place just after World War II. It took them 30 years to achieve power, but as I’ve noted, Margaret Thatcher and Ronald Reagan did deliver it.
Their aim was to extend market logic into more areas of life. It was always a system of political, as well as economic organisation.
Neoliberalism claims markets allocate resources better than governments, and that private ownership is more effective than public ownership, whilst competition should extend into as many areas of life as possible, and regulation and trade union power should be reduced, and taxes on capital profits and high incomes should be restrained. Neoliberalism does, then, seek to constrain what governments can do.
Fiscal rules are demanded that supposedly force governments to balance their books, and independent central banks are appointed to target inflation using interest rates, whilst high unemployment can be treated as acceptable as the price of controlling that inflation.
Meanwhile, public services are outsourced wherever possible, and individuals, most particularly, are required to manage risks that were previously collectively managed. Things like pensions, social care, childcare, health, education, and so on; all of these have been subject to various forms of privatisation. And of course, all our previous utilities, which were under public ownership, are now in the private sector.
Neoliberalism shifted capitalism towards financial wealth creation. That was its goal. All of these changes were part of that process, and Thatcher began this process by destroying much of British manufacturing capacity. It’s hard now to remember just how devastating she was during her first period in office. I do remember that. It was when I was just at work, and it was almost as desperate an economic outlook as we have now. There were up to 3 million people unemployed at the time, when the workforce was smaller than it is at present, and then she deregulated the City of London through the Big Bang, and international financial flows were liberalised. Tax havens became part of the international financialised system. All of this was about creating financial wealth and not real wealth.
Money was to be made out of money. Money was not to be made out of making things that people needed. The shift in our economy was absolutely fundamental. The shift in our mindset was staggering. The idea that we all became wealthy because every month the price of our house went up became what the middle class believed, and on the basis of that, all of neoliberalism was built.
This whole idea of financial capitalism was what neoliberalism was all about. It was designed to extract value rather than create it. Rents have been increased, and we have seen that with regard to the prices paid for properties, whether that be by way of a mortgage or by way of a rent, and we can now see it in all kinds of other services where we are no longer allowed to buy an asset, but have to hire it instead. Just think about the software you use on your computer.
And privatised utilities became opportunities for private extraction. All the money that the water industries in the UK have borrowed has effectively been paid out to the shareholders of those companies by way of dividends. This is private extraction in action.
And pensions, social care and childcare were increasingly financialised. When once you could rely upon your employer or the state, now you have to go to a for-profit enterprise to find the services you desire and pay that extra price as a result.
Even education and healthcare have been opened to private provision. Your child may well be at an academy school. Call it a privatised school if you want, because that’s what it is.
Financial wealth accumulation has been the goal of neoliberalism whilst inequality and poverty have been ignored.
And there was a key economic issue in all of this. Growing financial wealth is not the same thing as increased real prosperity. A fivefold increase in a house price creates no additional homes and no additional bedrooms. High house prices just increase barriers to entry for those needing somewhere to live. Ask any young person.
The same problems can be found right across much of the financial economy. Financial wealth can increase as the capacity of the economy to deliver anything of value has collapsed, and that is what we are seeing all around us now.
But neoliberalism did something else. It removed much of the scaffolding that made capitalism tolerable. Public provision helped everyone participate in economic life. Regulation restrained some of the inequalities capitalism created. Removing those protections has made resource allocation increasingly unstable. Public services now visibly fail to meet people’s needs. Political disquiet is one inevitable consequence of that.
Neoliberalism is now threatening the social order that once supported capitalism because capitalism worked with society, but now neoliberalism works against it.
Extreme inequality concentrates wealth, markets and political power.
The needs of much of society are quite deliberately being ignored by not being met within a neoliberal society.
Populist politics feeds on the resulting anger and insecurity. There is a deep paradox in that because most of these populists promote yet more neoliberalism of the sort that has caused the problems that people are angry about. There is no solution to our political malaise in that direction.
Neoliberal capitalism has then failed because it has created instability. Financial bubbles, including the coming AI burst, make crashes inevitable. Neoliberalism simultaneously seeks to weaken government, and yet government is the only institution capable of saving capitalism from itself. One of the great paradoxes of democracy is that in a way that Marx never anticipated, government is the saviour of capitalism. The problem is now that governments that are dominated by neoliberal thinking, as so many have been and so many are, might fail to save society from neoliberal capitalism, and that is the risk that we face.
Could it be that neoliberalism is the thing that will bring society down when the need arises? That is the question we have to ask. Is neoliberalism now consuming itself, society, and the planet? Its underlying logic is based upon exploitation, but exploitation ultimately destroys the systems on which it depends, and that means government will eventually be required to intervene again.
The only uncertainty, as I’ve already highlighted, is that when this moment comes, will neoliberal governments then believe they have the capacity to act when it will be necessary to save us all? I hope they will. I hope they will rise to the challenge. I hope they will realise the errors of their past ways. I hope we’ll get new forms of government and a new form of capitalism, because I’m not saying we will not need one, but we will need one which is very different from that which we have had.
That’s what I think. What do you think? This is a contentious issue. It’s a point of danger that we must face, so you are bound to have an opinion. Please let us know what it is. We try to read your views, but when there are hundreds of them, that sometimes becomes difficult. Please do like and subscribe to the channel. And when you do, please tick that bell, because you will then be notified when we make new videos. And if you’d like to make us a donation, please do. There’s a link down below. Tom and I would be very grateful.
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