Many people have predicted the end of capitalism way too soon. But it’s possible that it’s true this time.
This is how capitalism ends: with an evolutionary whimper rather than a revolutionary bang. Similarly to how it gradually superseded feudalism until the mass of human relations were market-based and feudalism was swept away, capitalism is now being overthrown by a new economic mode: techno-feudalism.
This is a big claim, and it comes after a lot of premature predictions about capitalism’s demise, especially from the left. But it’s possible that it’s true this time.
For quite some time, the hints have been visible. Bond and stock prices have been rising in lockstep, occasionally decreasing but always in lockstep, despite the fact that they should be moving in different directions. Similarly, as future returns become more unclear, the cost of capital (the return required to purchase an asset) should be declining; instead, it has been rising.
On August 12 of last year, perhaps the clearest hint that something major is afoot appeared. On that day, we learnt that the UK’s national income had plummeted by more than 20% in the first seven months of 2020, far exceeding even the most severe estimates.
The London Stock Exchange soared more than 2% a few minutes later. Nothing like it has ever happened before. Finance had completely separated itself from the rest of the economy.
Do these remarkable developments, however, imply that we no longer live in a capitalist society? After all, capitalism has gone through major revolutions in the past. Shouldn’t we simply prepare for its most recent incarnation? No, I don’t believe so.
What we’re witnessing isn’t just another phase of capitalism’s evolution. It’s something more serious and concerning.
Yes, capitalism has experienced radical transformations at least twice since the late 19th century. With the second industrial revolution, electromagnetism ushered in massive networked organizations and the megabanks required to finance them, it underwent its first major change from competitive to oligopoly.
As history’s major movers, Ford, Edison, and Krupp replaced Adam Smith’s baker, brewer, and butcher. The ensuing tumultuous cycle of mega-debts and mega-returns finally led to the 1929 crisis, the New Deal, and, after World War II, the Bretton Woods system, which gave a rare era of stability despite its financial limits.
The demise of Bretton Woods in 1971 ushered in the second phase of capitalism’s evolution.
The US powered capitalism’s most energetic globalisation phase, with a steady flow of German, Japanese, and, later, Chinese profits back into Wall Street financing it all, as America’s growing trade deficit became the world’s provider of aggregate demand, sucking in the net exports of Germany, Japan, and, later, China.
Wall Street functionaries, on the other hand, needed freedom from all New Deal and Bretton Woods restraints in order to fulfill their position.
Oligopolistic capitalism became financialised capitalism as a result of deregulation. Goldman Sachs, JP Morgan, and Lehman Brothers were the new protagonists of capitalism, just as Ford, Edison, and Krupp had supplanted Smith’s baker, brewer, and butcher.
While these seismic shifts had far-reaching consequences (the Great Depression, WWII, the Great Recession, and the post-2009 Long Stagnation), they did not alter capitalism’s core feature: a system based on private profit and rents taken through some market mechanism.
Yes, the shift from Smithian to oligopolistic capitalism boosted profits astronomically and allowed conglomerates to take substantial rents from consumers thanks to their massive market dominance (i.e., their newfound freedom from competition).
Yes, Wall Street used market-based techniques of daylight robbery to collect rents from society. Nonetheless, private earnings increased by rents collected through some market—one held by, say, General Electric or Coca-Cola, or dreamed up by Goldman Sachs—driven both oligopoly and financialised capitalism.
Then everything changed after 2008. A significant schism has arisen since the G7 central banks banded together in April 2009 to employ their money-printing capacity to refloat global banking. The global economy today is propelled by the continuous creation of central bank money rather than private profit.
Meanwhile, value extraction has evolved away from markets and toward digital platforms like Facebook and Amazon, which behave more like private fiefdoms or estates than oligopolistic businesses.
What happened on August 12, 2020, can be explained by the fact that central banks’ balance sheets, not earnings, drive the economy. Upon hearing the bad news, financiers thought to themselves, “Great!” Panicked, the Bank of England will print even more pounds and send them to us.
It’s time to invest in stocks! ‘ Central banks all over the West print money, which financiers lend to firms, who then use it to buy back their stock (whose prices have decoupled from profits). Meanwhile, digital platforms have supplanted markets as the primary source of private wealth. For the first time in history, practically everyone creates huge firms’ capital stock for free.
That’s what it means to use Google Maps to post photos to Facebook or to travel about while connected to it.
Traditional capitalist sectors haven’t vanished entirely, of course. Many feudal links remained intact in the early nineteenth century, but capitalist interactions had begun to take hold. Capitalist ties are still intact today, but techno-feudalist relations are gaining ground.
If I’m correct, every stimulus package will be both too big and too small. Without causing a series of company bankruptcies, no interest rate will ever be consistent with full employment. And class-based politics, in which capital-friendly parties struggle with labor-friendly ones, is over.
But, while capitalism may come to a halt with a whimper, the bang may be only around the corner. If those who suffer from techno-feudal exploitation and mind-numbing inequity find a collective voice, it will be loud.
– Project Syndicate, Yanis Varoufakis https://kathmandupost.com/author/yanis-varoufakis
Source – The Kathmandu Post
Latest comments (0)