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The End of Capitalism?

As the financial crisis that has engulfed the world gets worse free market ideologues are finding it more and more difficult to defend Capitalism. State intervention the ultimate taboo of the free market has become their best friend throughout the crisis. As each government bailout one after the other is unable to stem the panic selling of speculators, Capitalists are falling back on some fundamental arguments to protect and defend their way of life:

1. Although the market has the periodic crash, this is part and parcel of capitalism. It is needed to bring order back into the system. It remains the best way to distribute wealth and resources across the economy and there is no alternative.

2. Capitalism has a track record of generating huge wealth. In 2007 the world generated over $54 trillion, the most in humankind. The prosperity and progress the world has witnessed in the last two centuries is unheralded in history and is evidence of Capitalism’s superiority.

There is no alternative

Capitalism has always been presented as universal by its adherents. This in effect makes all other systems of government invalid as they do not agree with Capitalism. Whilst historically this argument has been used to refute all values which do not espouse freedom, the free market has on many occasions been justified in similar vain. The boom and bust phenomena is not some event decided by nature but a direct consequence of the aims Capitalism attempts to achieve with the economy.

Perpetual economic growth is something not sustainable and will always end with financial meltdown. The problem free market economies have to decide in each economy is what growth will be built upon. The last decade saw growth built upon real estate and financial services. Prior to that growth was built upon dot.com start-ups, and prior to that the technology bubble as well as the telecom boom. Historically there was growth built upon Dutch tulips and the discovery of Latin America’s riches. Over the last 100 years capitalist economies have developed various tools to aid growth especially the development of the financial markets. The problems lies in the fact once society has spent beyond its means their will be an inevitable scale back in spending and consumption. It’s here that usually western societies then face a slump.

The current meltdown followed a similar pattern. Growth was primarily driven by the real estate sector, aided by the banking sector that made loans easily available. At its height people were being lent money more then 10 times their income. Banks then securitised such loans to make even more money. Once a large number of people defaulted on their loans – who in affect had spent beyond their means, boom quickly turned into bust. Banks, investment banks, the financial markets, timber companies, furniture companies and construction companies all collapsed as they all drove the bubble.

Capitalism’s aim of perpetual economic growth is what causes the regular crash not time and nature. Whilst growth will change from Tulips to dotcom’s, disaster and crisis is part and parcel of Capitalism and its failure. The failure of government policies in all cases means a change and replacement of the failed policy. The government will never argue time and nature decided such a policy will fail and if governments persevere in implementing failed polices then in the long term such a policy will succeed – this is what free market ideologues are arguing for the free market.
The current crisis which has placed the deposits, savings, housing and pensions of all on the line, makes such an argument difficult to justify. This is when Capitalists fall back to their final justification for free markets and that is the wealth Capitalism generates and its supposed superiority.

Capitalism’s superiority

For the West, Capitalism is synonymous to progress itself. The path the West took to achieve such grand claims is called history and everything else is considered primitive and in need of a reformation. However, the place where such a claim begins is essentially where the problem lies.

The measure of progress for Capitalists is the amount of wealth generated by the world economy – Gross Domestic Product (GDP). The invention of technology and scientific discoveries are tools to make production and industry more efficient and give the economy the ability to pump more out of less. However what has driven science and technology? It is one thing to claim ones civilisation is superior however looking at the causes highlights how such superiority was achieved. Britain is considered the world’s first nation to industrialise and this was driven by the desire to colonise the world. Britain’s advantage on the oceans led to the development of new working patterns and institutional development. The accumulation of the colonised people’s raw materials led to a huge increase in Britain’s wealth.

The development of technology and most scientific breakthroughs have to a large extent been driven by wars and especially both the world wars. It was the US civil war that led to the development of Submarines. Whilst the need to win WW1 drove the development of railways, although railways existed well before the war huge advances were made in order to transport troops during the war. Through Operation Paperclip, which was the kidnapping of Nazi scientists and technology the United States embarked upon an ambitious program in rocketry. The developments in rocketry led to the space race, the development of ballistic missiles, satellites and primitive computers. Such innovations are what allowed the development of a number of consumer items which have become common household items. The combustion engine used in both cars and aeroplanes were a result of the mobility needed in WW1. Televisions, the modern radio etc., were developed from the need to miniaturize essential information on cockpit screens and communicate with fighter jet pilots. There are only a handful of inventions that took place outside the military and were not needed for war.

Capitalism may have driven wealth creation like never before, however, there a number of developments that it should also be certified with. The world economy maybe generating record wealth with liberal democracies driving this, but half of the world’s population will not have had enough food today as they earn less then $2 a day – 95% of the world lives on less then $10 a day. (World Bank Development indicators 2008). World poverty has accelerated under Capitalism. It was Europe that scrambled for resources around the world in the past, whereas today they have been replaced by the US. All that has changed from the 19th century is the gun has been replaced by the factory, slavery has been replaced by consumerism, armies have been replaced by the media and subsistence farming has been replaced by the financial markets.

Capitalism has also created the most indebted world in history, where individuals and nations have more debt than income. The fact that the world generated $54 trillion is irrelevant when most of this has been funded by debt. The Western world has become obsessed by consuming more then it really needs and most of this is funded by debt as most of the wealth generated is in the hands of a few. The USA, the world’s superpower, the world’s largest economy and for many a symbol of Capitalism’s success is drowning in a misery of debt, which the credit crunch crisis brought to the forefront. The US generated nearly $14 trillion in 2007, however the national debt – this is money the central and federal governments owe to the US public and the world through the bonds they have sold – stands at $9.7 trillion. US citizens have a huge appetite for imports and real estate and as a result consumer debt stands at $11.4 trillion. The debts of US companies amounts to $18.4 trillion. This makes the US indebted to the tune of just under $40 trillion – nearly 75% of what the world produces. 37 million Americans live below the poverty line. Capitalism’s continued endeavour of perpetual economic growth has drowned the world in money it does not have which makes the prosperity liberals insist on reminding us, rather irrelevant.