The "final crisis" of capitalism, again...

The Left is trying to say that turmoil in the Arab world and in our financial markets heralds the end of capitalism. When will they ever learn?

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It's socialism that isn't working
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Fabio Rafael Fiallo
On 7 August 2011 12:54

The left, in particular its radical wing, has long shown itself to have a very particular problem with reality. It relates to its critique of capitalism and it dates back to the end of the 19th century, with Karl Marx’s prophecy that capitalism brings about the “pauperization” (impoverishment) of the working class.

This phenomenon, the argument ran, would impel workers to rebel and provoke a final, terminal crisis of the system.

The prediction was contradicted by events. Throughout the 20th century, the living standards of the working class in Western industrial countries rose markedly. Thus, instead of trying to precipitate the fall of capitalism, workers have aimed at increasing their purchasing power and improving their living conditions within the consumption society that capitalism has managed to create.

Believers in the “final crisis”, however, were not about to give up. They found a new source of hope during the 1970s with stagflation holding sway over the world economy. Radical left journals and reviews abounded in articles that explained how and why capitalism had entered its death throes.

Once again, of course, their dream fizzled out.

Stagflation was stamped out in the 1980s through a policy mix that combined higher interest rates -- set by Fed chairman Paul Volcker to tame inflation -- with market-friendly, supply-side measures implemented by Ronald Reagan in the US and Margaret Thatcher in the UK to encourage private investment and job creation through lowering taxes.

These policies represented a major departure from State interventionism, and in particular Keynesian public spending (the “stimulus packages” of the time), which were not producing the expected results.

Concomitantly, trade liberalisation (removal of protectionist barriers) and financial deregulation propelled all sorts of international exchanges to unprecedented magnitudes, bringing about a phenomenon of historic significance: globalization.

What ultimately did go through a cataclysmic crisis at that time was socialism, which, with the collapse of the Soviet bloc, lost whatever appeal it may have still had.

This cascade of developments, significant as it was, still didn’t persuade the believers in the final crisis to surrender to reality and abandon the prophecy.

It is in this context that Leonardo Boff, an emblematic figure of Latin American Marxism in the 60s and 70s, has recently proclaimed that capitalism has entered into a “terminal crisis” – without specifying what it would be substituted for.

He advances two reasons to support his proposition. One: capitalism has “exceeded the limits of the Earth”. Two: the revolt in “several European and Arab countries” is “an expression of a rebellion against the current political system, controlled by the markets and the logic of capital”.

Assertions that the limits of the Earth are about to be exceeded started in the 19th century with Malthus’s prediction that the economy would not be able to feed a world population growing in exponential proportions.

More recently, the report of the Club of Rome, entitled “The Limits of Growth” (1972), warned that economic growth would ultimately be brought to an end by the scarcity of the Earth’s resources.

What Malthus’s epigones do not realize is that the market, and capitalism for that matter, has a built-in mechanism to expand the availability of resources as needs arise.

Indeed, when a resource grows scarce, its price goes up, prompting the market to: (a) exploit fields that hitherto were not profitable because the price of the resource was not high enough for the exploitation cost to be fully covered by the sale price; and (b) look for alternative resources or develop techniques of production that make the economy less dependent on the resource that is becoming dearer.

The present controversy over global warming is a case in point. Let’s put aside the fact that global warming is not yet a settled science. The relevant issue here is that techniques and devices, grouped under the name of “geoengineering”, are being developed so as to “capture” carbon emissions – as opposed to restricting such emissions, as the state would like.

So, as carbon emissions expand, “capturing” them will become a profitable activity and the world will be able to handle global warming without impairing economic growth.

As to the protestors in North Africa and the Middle East, to argue that they are fighting against “the markets and the logic of capital” looks like a somewhat forlorn attempt to breathe life into the same old redundant political yearnings.

In what sense could it be said that Bashar al-Assad and Muammar Gaddafi, against whom protestors have stood up, are representatives of the “logic of capital”?

Is it really possible to forget that these two despots come from left-wing anti-capitalist movements, and that radical left heroes such as Fidel Castro and Hugo Chávez have gone public in Gaddafi’s defense?

What men and women fighting in Syria and Libya are seeking is not to get out of capitalism, but to enter the realm of freedom and representative democracy.

The demonstrations taking place in the streets of Athens and Madrid, for their part, are evidence of the failure of the Welfare State put in place in Europe after World War II on the basis of a left-leaning economic vision.

Indeed, because of the resources it drains and the labour-market rigidities it creates, the European welfare state forms the origin of the industrial hollowing out, the capital flight and the colossal magnitudes of sovereign debt that are seriously impairing Europe’s economic dynamism.

No wonder that the younger generations lack a challenging and rewarding future perspective.

The solution to Europe’s problem does not lie in a hypothetical disappearance of capitalism (again, to be replaced by what?), but in job-creating, market-friendly policies – like those that rescued the world economy in the 1980s.

Nothing on this earth is eternal. And capitalism is no exception to the rule. Yet, what will in all probability pass away well before capitalism – by exhaustion and disrepute – is the fad of prognosticating “final crises” that each and every time fail to materialize.

Fabio Rafael Fiallo is a Dominican-born economist and writer and retired official of the United Nations Conference on Trade and Development (UNCTAD). His latest publication, “Ternes Eclats” or “Dimmed Lights” (L’Harmattan), presents a critique of the conventional wisdom of international organizations.

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