Karl Marx saw every major depression in the nineteenth century as the final crisis of capitalism, due to its “ internal contradictions”, that would usher in the era of socialism and communism. Alas for Marx, each time he was proved wrong because the end of these depressions was often followed by an even stronger capitalist surge.
Something similar has taken place during the past few major world financial crises. The Asian crisis led to a book in 1998 by the eminent financier George Soros called “The Crisis of Global Capitalism”, although eventually he retracted his forecast that this was the major crisis of capitalism. The collapse of Lehman Brothers and the resulting financial crisis and Great Recession created a robust market for the collapse of capitalism forecasters. The well-respected Lerner News Hour on Public Television in 2008 posed the question whether “capitalism is dead”. The British newspaper The Guardian had an article in 2008 called “Not the Death of capitalism, but the birth of a new order. The free market model has been discredited and now its champions are panicking at what might emerge in its wake”.
In 2009 the Financial Times commissioned a series of articles with very different viewpoints, most pessimistic, on the future of capitalism in the wake of the financial crisis. Kevin Murphy and I had the most optimistic article in this series, too optimistic for its critics, with the title “ Do not let the ‘cure’ destroy capitalism”. We said among other things, “…in devising reforms that aim to reduce the likelihood of future severe contractions, the accomplishments of capitalism should be appreciated. Governments should not so hamper markets that they are prevented from bringing rapid growth to the poor economies of Africa, Asia and elsewhere that have had limited participation in the global economy”, and
“The Great Depression induced a massive worldwide retreat from capitalism, and an embrace of socialism and communism that continued into the 1960s. It also fostered a belief that the future lay in government management of the economy, not in freer markets. The result was generally slow growth during those decades in most of the undeveloped world, including China, the Soviet bloc nations, India and Africa.”
In taking stock at this point of what happened now that the crisis is over and the recovery is under way, it has become clear after considerable uncertainty that capitalism has mainly won out, and those calling for radical changes in the world economy have been defeated. To be sure, regulations of banks have increased through greater capital requirements, scrutiny of pay practices, and in various other ways formulated in the Dodd-Frank Act and other laws in Europe and elsewhere. But the main investment banks like Goldman Sachs, J.P. Morgan, and others are still big, profitable, and very active, and quasi-government companies like Fannie Mae and Freddie Mac may be forced to cut back their extensive and unwise activities.
Outside of the financial sectors in the United States and Europe, capitalism is more prominent than ever. Country after country is reducing the scale of its public enterprises and expanding the scope of the private sector. For the first time in almost 70 years, Mexico has opened it oil and other energy sectors to greater participation by private firms. The new leaders of China have expressed dissatisfaction with the performance of public enterprises, and have called for greater participation by private firms in many sectors, including financial markets.
The formerly mainly socialist government of the very poor nation Rwanda has been encouraging private companies to increase its role in the limited landlocked Rwanda economy. India is trying to reduce its many labor market and other regulations so that direct foreign investments will increase in India, and its own private firms will expand their activities. On the other side of the ledger, nations like Venezuela that has conducted a war on the private sector has seen poverty grow and its economy stagnate.
The reason behind these pro-capitalist activities is that more and more countries have realized that despite is many flaws, capitalism is the only system yet devised that brings hope of lifting the masses out of poverty and creating a robust middle class. Most people realize this, and have prevented political leaders from using the reaction against capitalism brought on by the financial crisis to try to radically transform a system that has brought so much wealth and health to the peoples of the world.