Sunday, November 23, 2014

Life after Capitalism

LONDON – In 1995, I published a book called The World After Communism. Today, I wonder whether there will be a world after capitalism.

That question is not prompted by the worst economic slump since the 1930’s. Capitalism has always had crises, and will go on having them. Rather, it comes from the feeling that Western civilization is increasingly unsatisfying, saddled with a system of incentives that are essential for accumulating wealth, but that undermine our capacity to enjoy it. Capitalism may be close to exhausting its potential to create a better life – at least in the world’s rich countries.

By “better,” I mean better ethically, not materially. Material gains may continue, though evidence shows that they no longer make people happier. My discontent is with the quality of a civilization in which the production and consumption of unnecessary goods has become most people’s main occupation.

This is not to denigrate capitalism. It was, and is, a superb system for overcoming scarcity. By organising production efficiently, and directing it to the pursuit of welfare rather than power, it has lifted a large part of the world out of poverty.

Yet what happens to such a system when scarcity has been turned to plenty? Does it just go on producing more of the same, stimulating jaded appetites with new gadgets, thrills, and excitements? How much longer can this continue? Do we spend the next century wallowing in triviality?

For most of the last century, the alternative to capitalism was socialism. But socialism, in its classical form, failed – as it had to. Public production is inferior to private production for any number of reasons, not least because it destroys choice and variety. And, since the collapse of communism, there has been no coherent alternative to capitalism. Beyond capitalism, it seems, stretches a vista of…capitalism.

There have always been huge moral questions about capitalism, which could be put to one side because capitalism was so successful at generating wealth. Now, when we already have all the wealth we need, we are right to wonder whether the costs of capitalism are worth incurring.

Adam Smith, for example, recognized that the division of labor would make people dumber by robbing them of non-specialized skills. Yet he thought that this was a price – possibly compensated by education – worth paying, since the widening of the market increased the growth of wealth. This made him a fervent free trader.

Today’s apostles of free trade argue the case in much the same way as Adam Smith, ignoring the fact that wealth has expanded enormously since Smith’s day. They typically admit that free trade costs jobs, but claim that re-training programs will fit workers into new, “higher value” jobs. This amounts to saying that even though rich countries (or regions) no longer need the benefits of free trade, they must continue to suffer its costs.

Defenders of the current system reply: we leave such choices to individuals to make for themselves. If people want to step off the conveyor belt, they are free to do so. And increasing numbers do, in fact, “drop out.” Democracy, too, means the freedom to vote capitalism out of office.

This answer is powerful but naïve. People do not form their preferences in isolation. Their choices are framed by their societies’ dominant culture. Is it really supposed that constant pressure to consume has no effect on preferences? We ban pornography and restrict violence on TV, believing that they affect people negatively, yet we should believe that unrestricted advertising of consumer goods affects only the distribution of demand, but not the total?

Capitalism’s defenders sometimes argue that the spirit of acquisitiveness is so deeply ingrained in human nature that nothing can dislodge it. But human nature is a bundle of conflicting passions and possibilities. It has always been the function of culture (including religion) to encourage some and limit the expression of others.

Indeed, the “spirit of capitalism” entered human affairs rather late in history. Before then, markets for buying and selling were hedged with legal and moral restrictions. A person who devoted his life to making money was not regarded as a good role model. Greed, avarice, and envy were among the deadly sins. Usury (making money from money) was an offense against God.

It was only in the eighteenth century that greed became morally respectable. It was now considered healthily Promethean to turn wealth into money and put it to work to make more money, because by doing this one was benefiting humanity.

This inspired the American way of life, where money always talks. The end of capitalism means simply the end of the urge to listen to it. People would start to enjoy what they have, instead of always wanting more. One can imagine a society of private wealth holders, whose main objective is to lead good lives, not to turn their wealth into “capital.”

Financial services would shrink, because the rich would not always want to become richer. As more and more people find themselves with enough, one might expect the spirit of gain to lose its social approbation. Capitalism would have done its work, and the profit motive would resume its place in the rogues’ gallery.

The dishonoring of greed is likely only in those countries whose citizens already have more than they need. And even there, many people still have less than they need. The evidence suggests that economies would be more stable and citizens happier if wealth and income were more evenly distributed. The economic justification for large income inequalities – the need to stimulate people to be more productive – collapses when growth ceases to be so important.

Perhaps socialism was not an alternative to capitalism, but its heir. It will inherit the earth not by dispossessing the rich of their property, but by providing motives and incentives for behavior that are unconnected with the further accumulation of wealth.

Read more from our "In Keynes's Footsteps" Focal Point.

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    1. CommentedStamatis Kavvadias

      "growth ceases to be so important" ???

      What? No growth? And what about progress??? Also, what about all that debt that is *more* than existing money? Obviously, the author does not understand that money is 97% private credit at interest, with *nothing* backing them (I've read him again)! And who said it's greed and usury only? If you are not a vulture, you are little people, by definition!

      OK now, lets be serious. Does the author really think that it is ethics that drives the legitimacy of such visions, or, reversely, that ethics is just the cultural result of a successful social model (especially in the 21 century)? If such a less antagonistic world, as the one described in this article, is something we really want, we better start looking for what in our lives we can exchange for a specific better aspect of society, and try to propose it and, even better, try to make it real in social practice. That would be my take...

    2. CommentedCarol Maczinsky

      In the 20th century we also had power centric / expansionis conceptions and war economy. Capitalism is not the only model and priorities may shift quickly. The free market did not get us on the moon nor did it build the atom bomb.

    3. CommentedCox Andy

      You're wrong Eric. The so-called 'free market' is simply a variant of capitalism as is what you choose to call the 'socialist experiment' in Sweden. Ask yourself: What is capitalism? It's a system in which goods and services are produced with a view to realising a profit and where the means of production are owned/controlled by a minority, whether you're talking about 'bucaneering' entrepreneurs, or members of the nomenklatura in Soviet style economies. Any economy in which there exists money, wages and profits, by definition, cannot be deemed 'socialist' or 'communist'. As Marx himself said:'Capital therefore presupposes wage-labour; wage-labour presupposes capital. They condition each other; each brings the other into existence'. Consider this, before unthinkingly applying the labels 'communist' or 'socialist'

    4. Commentederic j rhoades

      I think it is of importance to distinguish between capitalism and free markets. It is possible to maintain the efficiencies of free markets without engaging in the power struggle over "capital" which marks capitalism.
      Socialism ultimately fails because it has to request that people perform in ways which many may not wish to, free economies work because they give people the impression that they are able to choose their destinies. Even probably the most successful socialist experiment, Sweden's Social Democracy movement only achieved about a 50% popularity rating.
      As for the greed element that is mainly a function of money itself. Cultures worked on informal credit markets, (you do a favor for me I will do one for you), quite well prior to the advent of money, but once a medium was introduced that could be exchanged for anything the desire to accumulate it was inevitable. This is evidenced by the existence of black markets in socialist systems.
      Capitalism is doomed as the focus on profits over equitable distribution ultimately strangles demand which is the lifeblood of free markets.

    5. CommentedCox Andy

      The only feasible and desirable life after capitalism is a technologically advanced gift economy in which people freely access all goods and services and in which they voluntarily contribute towards the common good. This, incidentally, is what I understand ‘communism’ or ‘socialism’ to be. As these terms have been cynically and unjustifiably appropriated by quasi-fascistic state capitalist regimes bearing all of the hallmarks of capitalism; viz money, wages, profits, property and so on (as well as by their fellow travellers), Skidelsky’s scepticism about ‘socialism’ is simply directed at a variant of capitalism. For more on this, see

    6. CommentedShane Beck

      Most Western Democracies are hybrid socialism-capitalism in various degrees- Europe having a greater amount of socialist activity than the United States. But even the United States was forced to adopt socialistic policies with the New Deal to deal with the exigencies of the Great Depression and the Cold War. The value of Communism was not whether it worked or not, but that it gave people and indeed countries an alternative paradigm. In this way it mitigated the excesses of Capitalism that have brought about the GFC and the resulting Austerity campaign which at it's heart is all about unraveling state socialism and government programs. The problem is that high unemployment in the West is likely to produce a post Capitalist disenfranchisement. Europe, United States, China and India can't all be middle class consumer economies; something has to give.