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.
Capitalism, Communism, Socialism, Marxism, Engleism, Leninism, Stalinism, The Square Deal, a chicken in every pot, etc. etc. and buckets full of Tar and White Wash; the fact still remains there are good reasons why Twain coined the phrase, "The Gilded Age". As for our current Economic debacle, fifteen percent of the U.S. population still lives in poverty, the unemployment rate is still running high. Even when we don't count those who have given up looking for work. And reality becomes, "All I need is full time paying Job with benefits and I'll take care of the rest". The benefits of Capitalism? Where?
Posted by: Neilehat | 09/18/2013 at 08:32 AM
What sort of innovations have been produced by the NSA and other government agencies?Didn't google have the same technology 5 years ago? How they positioned in the market? All these government agencies want everyone to work for the government.
Posted by: kevin | 09/20/2013 at 08:18 PM
Bravo Dr. Becker.
WRT neilhat -- 15% of the US will always be in comparative poverty. Compared to the US median which is very high relative to other countries.
Posted by: Jdwalton | 09/21/2013 at 08:23 PM
Jd, That's like saying, "A problem is not a problem as long as we choose to ignore it". More Economics from the bucket of "whitewash"?Now what kind of Logic is that? The only real acceptable "Poverty Rate" is zero percent - coupled with full employment (which has it's own set of Democratic benefits). Unless of course you're an Ostrich...
Posted by: Neilehat | 09/23/2013 at 08:06 AM
Capitalism only 'wins' because of the undeniable benefits of the 'free market economy'. Few social democrats (not the same as 'socialists') would disagree with that.
The problem with capitalim is the entanglement between the private sector and the goverment, mutually helping each other out, at the cost of the so much desired open, accessible market place that benefits consumers. Institutions that represent the capitalist economy are the U.S. patent system, the Mexican telecommunication monopolist/grocer Carlos Slim and many others.
Government should not protect private enterprises more than it does consumers, like is the case in Mexico.
The free market with a social democratic government, like the ones found in Europe beneft consumers most. Both the European Union and the U.S. do a pretty good job in protecting consumers.
Consumers in Mexico are a lot worse of. The benefits of the free market are only available for entrepreneurs. Consumer protection has decreased under the PAN governments between 2000 and 2012. Hopfully the PRI will undo some of the damage done the past few years.
Posted by: Saskia_Software | 09/26/2013 at 01:24 PM
Philadelphia Mayor Frank Rizzo, when grilled on his open political patronage practice of handing out city jobs to supporters, retorted, "Who should I give them to - my enemies?"
Capitalism is what exists prior to all of our talk about what we should do. People want stuff, they go out and do the work to create it, and they own it. If we're talking about changing from capitalism to something else, we're talking about changing the "own" part - either eliminating private ownership or regulating it out of constructive existence. This monumental change is supposedly justified by the trivial fact that some people want more stuff than other people. I find this diversity entirely acceptable; others apparently do not. Getting to JD's point, which I believe was missed, depending how we define poverty the rate right now could be zero or it could be 100%. I'd like to see us keep our people from starving, and for the most part I believe we do. The surest way to undermine our collective ability to do that is to remove the incentive of private ownership, whence comes the excess with which we do feed the poor.
Posted by: Terry Bennett | 09/27/2013 at 06:14 AM