Just Above Sunset
Volume 5, Number 10
March 11, 2007

Capitalism in Trouble

 The world as seen from Just Above Sunset -

"Notes on how things seem from out here in Hollywood..."

The News from Lake Wobegon is Discouraging

Anyone who holds the Order of Merit from the Czech Republic and has won the George Orwell Prize can't be all bad.  That would be Timothy Garton Ash - a mere youngster for all that (he was born in 1955). You can bop over to his website - TimothyGartonAsh.com - and read about his books, eight in English and "Und Willst Du Nicht Mein Bruder Sein... Die DDR Heute" (Rowohlt, 1981).

He does political writing, or what he calls "history of the present" - mostly about the transformation of Europe over the last quarter-century.  A little web research shows he's Professor of European Studies at the University of Oxford, Director of the European Studies Centre at St Antony's College, Oxford, and a Senior Fellow at the Hoover Institution, up at Stanford University. His essays appear regularly in the New York Review of Books and he writes a weekly column in the Guardian (UK) that is widely syndicated all over - even the Los Angeles Times buys one of them now and then.

How did he get where he is?  He studied modern history at Oxford - then his research into the German resistance to Hitler took him to Berlin, where he lived for several years, in both the western and eastern halves of the city.  That explains the German title. Then he plunged behind what used to be the Iron Curtain - and all his stuff on the emancipation of Central Europe from communism followed.  He was the Foreign Editor of the Spectator, editorial writer on Central European affairs for The Times (London) and a columnist on foreign affairs for The Independent. In the mid-eighties he was a fellow at the Woodrow Wilson International Center for Scholars in Washington - but, since 1990, he has been a Fellow of St Antony's College, where he directs the European Studies Centre and is Gerd Bucerius Senior Research Fellow in Contemporary History. He became a senior fellow at the Hoover Institution, out here at Stanford, in 2000.  He hardly needed a second job, but who can pass up all-expense-paid trips to California? Oh yeah - in 2005 he was on a list of one hundred top global public intellectuals - chosen by Prospect and Foreign Policy, and not by People Magazine - and he's on Time magazine's list of the world's one hundred most influential people. He's no slouch.

So why is he now saying global capitalism could very well destroy itself?  That is his latest column, from Thursday February 22, 2007.

A central precept of all we are and all we do, in the United States and pretty much in the western world, is that capitalism is the best system devised by man for making the most of this sorry world, and, in an oddly Darwinian way, the only economic system that works - it survived and nothing else did.  That's just a given, and central to the neoconservative way of thinking of course (we need to make sure it spreads everywhere). Francis Fukuyama built his career on that premise - people ate it up. It was supposed to be true.

And it should be true -

    What is the elephant in all our rooms? It is the global triumph of capitalism. Democracy is fiercely disputed. Freedom is under threat even in old-established democracies such as Britain. Western supremacy is on the skids. But everyone does capitalism. Americans and Europeans do it. Indians do it. Russian oligarchs and Saudi princes do it. Even Chinese communists do it. And now the members of Israel's oldest kibbutz, that last best hope of egalitarian socialism, have voted to introduce variable salaries based on individual performance. Karl Marx would be turning in his grave.

Or maybe not.  The contention here is that Marx's fix for things -communism - was a crock, but the problems with capitalism that he delineated are becoming more and more obvious every day.  In short, Marx got the diagnosis right - he just had no good fix for the illness itself.

Here's Ash's quick take on the illness -

    With the unprecedented triumph of globalised capitalism over the last two decades come new threats to its own future. They are not precisely the famous "contradictions" that Marx identified, but they may be even bigger. For a start, the history of capitalism over the last hundred years hardly supports the view that it is an automatically self-correcting system. As George Soros (who should know) points out, global markets are now more than ever constantly out of equilibrium - and teetering on the edge of a larger disequilibrium. Again and again, it has needed the visible hands of political, fiscal and legal correction to complement the invisible hand of the market. The bigger it gets, the harder it can fall.

So much for Adam Smith and that "invisible hand" business - unregulated competition providing the greatest good for the greatest number is an elegant theory.  It's quite a marvelous idea.  It just doesn't have much to do with the real world where things can get out of whack in a hurry - and someone has to step in, as much as the free-market conservatives scream. You'd think we'd have learned that in 1929 with the stock market collapse. That's why we now have a Securities and Exchange Commission - and why a good friend makes a fine living as an attorney on Wall Street, practicing "Blue Sky" law, telling this client and that there really are rules for issuing and registering securities and you really do have to follow them, as this isn't the wild west any more. It's a matter of protecting us all from disaster.

Ash provides a metaphor -

    An oil tanker is more stable than a sailing dinghy, but if the tanker's internal bulkheads are breached and the oil starts swilling from side to side in a storm, you have the makings of a major disaster. Increasingly, the world's capital is like oil in the hold of one giant tanker, with ever fewer internal bulkheads to stop it swilling around.

Things then are close to being out of control - our securities laws do not apply everywhere. Things could get ugly fast.

Then there is inequality, and that is no small matter -

    One feature of globalised capitalism seems to be that it rewards its high performers disproportionately, not just in the City of London but also in Shanghai, Moscow and Mumbai. What will be the political effects of having a small group of super-rich people in countries where the majority are still super-poor? In more developed economies, such as Britain and America, a reasonably well-off middle-class with a slowly improving personal standard of living may be less bothered by a small group of the super-rich - whose antics also provide them with a regular diet of tabloid-style entertainment. But if a lot of middle-class people begin to feel they are personally losing out to the same process of globalisation that is making those few fund managers stinking rich, while at the same time outsourcing their own middle-class jobs to India, then you may have a backlash. Watch Lou Dobbs on CNN for a taste of the populist and protectionist rhetoric to come.

Add to, the logic of where all this new worldwide, internationally distributed wealth leads -

    Above all, though, there is the inescapable dilemma that this planet cannot sustain six-and-a-half billion people living like today's middle-class consumers in its rich north. In just a few decades, we would use up the fossil fuels that took some 400 million years to accrete - and change the earth's climate as a result. Sustainability may be a grey and boring word, but it is the biggest single challenge to global capitalism today. However ingenious modern capitalists are at finding alternative technologies - and they will be very ingenious - somewhere down the line this is going to mean richer consumers settling for less rather than more.

There's a dead-end ahead.  Resources are finite. The new Golden Age may have to do with some other metal, or with burlap.

Ash doesn't mention the Lake Wobegon effect, but it is clearly in play -

    The Lake Wobegon effect is the human tendency to overestimate one's achievements and capabilities in relation to others. It is named for the fictional town of Lake Wobegon from the radio series A Prairie Home Companion, where, according to Garrison Keillor, "all the women are strong, all the men are good-looking, and all the children are above average." In a similar way, a large majority of people claim to be above average; this phenomenon has been observed among drivers, CEOs, stock market analysts, college students, police officers and state education officials, among others. Experiments and surveys have repeatedly shown that most people believe that they possess attributes that are better or more desirable than average.

Here the idea is that, one day, with the spread of global capitalism everywhere, we'll all be well-off, all of us, and doing better than the other poor suckers - everyone will have an SUV and no one will be a mechanic, or something.  It's a bit crazy, but people do have their hopes. Marx is giggling from the great beyond.

The problem is, however, as Ash notes, Marx was wrong in his prescriptions, and there are no good alternatives -

    Hugo Chávez's "21st century socialism" still looks like a local or at most a regional phenomenon, best practiced in oil-rich states. Islamism, sometimes billed as democratic capitalism's great competitor in a new ideological struggle, does not offer an alternative economic system (aside from the peculiarities of Islamic finance) and anyway does not appeal beyond the Muslim umma. Most anti-globalists, altermondialistes and, indeed, green activists, are much better at pointing out the failings of global capitalism than they are at suggesting systemic alternatives. "Capitalism should be replaced by something nicer," read a placard at a May Day demonstration in London a few years back.

What if there's nothing nicer?

Anyway, what we really have isn't really pure capitalism.  We get versions of "nice enough" -

    Is what Russian or Chinese state-owned companies do really capitalism? Isn't private ownership the essence of capitalism? One of America's leading academic experts on capitalism, Edmund Phelps of Columbia University, has an even more restrictive definition. For him, what we have in much of continental Europe, with multiple stakeholders, is not capitalism but corporatism. Capitalism, he says, is "an economic system in which private capital is relatively free to innovate and invest without permission from the state, green lights from communities and regions, from workers, and other so-called social partners." In which case most of the world is not capitalist. I find this much too restrictive. Surely what we have across Europe are multiple varieties of capitalism, from more liberal market economies like Britain and Ireland to more coordinated stakeholder economies like Germany and Austria.

And it gets complicated -

    In Russia and China, there's a spectrum from state to private ownership. Other considerations than maximizing profit play a large part in the decision-making of state-controlled companies, but they too operate as players in national and international markets and increasingly they also speak the language of global capitalism. At this year's World Economic Forum in Davos, I heard Gazprom's Alexander Medvedev defend the company's record by saying that it is one of the world's top five in market capitalization and constantly looking for value for its shareholders - who happen to include the Russian state. At the very least, this suggests a hegemony of the discourse of global capitalism. China's "Leninist capitalism" is a very big borderline case, but the crab-like movement of its companies towards what we would recognize as more rather than less capitalist behavior is far clearer than any movement of its state towards democracy.

So then, we don't have capitalism, but what we do have may be secure for now - whatever it is.

No -

    Marx thought capitalism would have a problem finding consumers for the goods that improving techniques of production enabled it to churn out. Instead, it has become expert in a new branch of manufacturing: the manufacture of desires. The genius of contemporary capitalism is not simply that it gives consumers what they want but that it makes them want what it has to give. It's that core logic of ever-expanding desires that is unsustainable on a global scale.

The bottom line here - a good capitalist term - is that we have what we have, and we can hardly abandon it now.  It's just that we'll all be poorer, actually -

    We may be happy to insulate our lofts, recycle our newspapers and cycle to work, but are we ready to settle for less so others can have more? Am I? Are you?

No, not at all.  Not here in Lake Wobegon.

That's a good name for the place, our world of delusions.

This item posted - in its final version - February 24, 2007

[Capitalism in Trouble]

Last updated Saturday, March 10, 2007, 10:30 pm Pacific Time

All text and photos, unless otherwise noted, Copyright © 2003, 2004, 2005, 2006, 2007 - Alan M. Pavlik