Capitalism is Changing, but Not Done For
Although capitalism as we have known it for the last half-century seems to be on its way out, prospects for the capitalist system are not as bleak as some may argue. Despite its shortcomings, capitalism is likely to evolve into a new form – one which responds to humanity’s innate drive to amass wealth.
Does capitalism have a future? This might be one of the most frequently asked questions of our time. There are many who argue that it might not, pointing out that capitalism is exhausting its resources, destroying its labor force, and fatally polluting its environment due to cruel exploitation in the pursuit of profit. And this is all in addition to the fact that present-day capitalism has entered a period of oscillation and uncertainty.
I wholeheartedly agree that one possibility is full collapse. If the climate of our planet is disturbed to a level that we experience a sudden shift of four to five degrees centigrade, that would undermine agriculture, overwhelm our heating and cooling systems, and lead to a Hollywood-style apocalyptic ending for both capitalism and society as we know it. We could then revert to a kind of feudal struggle to survive, and it would lead to the kind of harsh hierarchy and exploitation that some experts suggest is the most negative endpoint for mankind after capitalism fails. But I dare assume somewhat optimistically that although the climate will deteriorate, it will do so slowly enough for our systems to adapt. Yet that still leaves the question of what the future of capitalism will look like, assuming it survives in some form or another.
To answer that question, we have to treat capitalism as more than just an economic system of production for profit. That is certainly part of it, but capitalist competition is also embedded in an international hierarchy of national capitalist powers. Modern capitalism also has a distinct mode of capital circulation and accumulation that has changed over time. We must recall that capitalism remains in competition with other systems in the world. And in each country, capitalism is embedded in a variety of political frameworks that also change over time.
I agree that capitalism as we have known it for the last 50 to 60 years is probably over. Many features of that phase of capitalist economies are fading out or sharply changing. But changing does not mean ending.
For example, let us look at international hierarchy. Some argue that the era of American domination of the global system lasted roughly from 1945 to 1970, and has been deteriorating ever since. I think that is exactly right: the international hierarchy dominated by the United States is fading away even as I write this. However, we have to admit this kind of deterioration is typical in the world capitalist system. The Netherlands, England, Germany, and America each had a century in which they were the dominant or hegemonic power.
We live in a world that has made a transition from mass production to custom production of goods, but it is still largely a world of mass production of services. If we move to an economy in which the type of services that are now available only for the rich (i.e., high-quality individualized services) become available to a broad market, then there will be no shortage of jobs. The real question here is that of income distribution. Will ordinary people have an income that allows them to demand personalized services that will provide work for the masses?
Some have argued that China will be the next hegemonic power. But I think that is unlikely. China’s demography probably prevents it. Due to the ‘one child’ policy, the country’s labor force has started to shrink. That shrinkage will accelerate, and by the end of the century China may have half a million fewer workers than it has today. It will be a very powerful country, but not as dominant as the US was in the years after World War II.
In fact, the world hierarchy is changing. What I see in the near future is a tripolar economy comprising the EU, North America, and East Asia. And there will probably be a dozen significant regional powers in addition to these three major economic centers.
This global economy will be quite contested and uncertain. In addition, India and Africa are the great unknowns. They have great potential for economic growth, but also a great potential for failure, and great ethnic and religious divisions. It may be that Africa will grow to be a power with 2 billion people, the same for South Asia. But they may also end up squandering their resources through a lack of investment and recurring internal conflicts.
The strength of the capitalist system in the future will depend on whether Europe, North America, and East Asia can continue to trade and prosper and whether India and Africa join in. But we could also have a scenario in which capitalism becomes much more competitive and disorderly with a breakdown of the world economy into relatively closed, competing trade blocs.
Love, security, and accumulation
But more interesting is the question of what will be the mode of capital accumulation. A popular theory is that all middle class jobs will be eliminated by technology. The chief characteristic of capitalism is to constantly revolutionize production. In the 17th and 18th centuries, capitalism revolutionized agriculture and trade; in the 19th century – mining and manufacturing; in the 20th century – services and energy. And the 21st century is likely to be a time dominated by robotics and information. So what will people do?
I believe that the future is not actually that bleak. I think we will all move to a super-services economy. The history of successful capitalism is a story of taking goods and services that were once available only to the rich and making them available to ordinary workers. If that happens in the future, what was once reserved for the rich will be available to everyone: personal trainers, nutritionists, style consultants, life coaches, plastic surgery, concierge medicine, quality dining at every meal, customer products, fine arts, craft work, experience-rich vacations, and outstanding celebrations. There is huge, untapped potential per person for custom services.
We live in a world that has made a transition from mass production to custom production of goods, but it is still largely a world of mass production of services. Fast food from McDonald’s and Burger King, which is uniform across locations, is one example; the various kinds of government services that are provided by a uniform bureaucracy are another. If we move to an economy in which the type of services that are now available only for the rich (i.e., high-quality individualized services) become available to a broad market, then there will be no shortage of jobs.
The real question here is that of income distribution. Will ordinary people have an income that allows them to demand personalized services that will provide work for the masses? Just as the industrial revolution of the 20th century was launched when the people who made cars became well-paid enough to buy them, the super-services revolution will occur when masseuses and gardeners and physical trainers make enough money to purchase the services of masseuses and gardeners and trainers for themselves as well. But income distribution depends on the type of political system in which capitalism is embedded.
Capitalism can exist in an authoritarian or a democratic political framework. And if democratic, that framework can be progressive and redistributive (i.e., the Scandinavian model) or it can be individualist with high inequality (i.e., the Anglo-American model). I believe that these patterns are cyclical. If we look at the history of capitalism, we see booms and busts, but also a tendency to accumulate capital in smaller and smaller groups followed by periods of progressive change and redistribution.
I am hopeful that at this moment in history, which is a period of very high inequality and high accumulation by the wealthy, there will emerge new progressive movements similar to what happened in the early 1900s in the US and again in the 1930s. These movements will again change the rules to redistribute income and provide the basis for the new super-services economy. I believe that if the environment survives long enough for capitalism to survive, we will see new political efforts of redistribution. ‘We are the 1%’ and ‘Occupy Wall Street’ are just the beginning of what will be a broader movement. North American political parties have already made inequality their major issue for the next round of elections. And inequality – and how to limit or reverse it – is also going to be the next major frontier of economic research.
We are probably seeing the beginnings of a movement to correct the excess of accumulation for the wealthy that occurred at the end of the last period of fading capitalism. But the new capitalism may be more contentious internationally given our multipolar world. And it will certainly involve new struggles for intergenerational justice, correcting inequality and managing resources in a more sustainable way.
Nonetheless, it is likely that despite this conflict and risk, capitalism will survive because there are no appealing competitors at present. The older aristocratic systems have faded; socialism has proven ineffective when operating in the absence of markets. At the moment, the main alternative is that of the Islamic state, which offers a Sharia command economy under religious authority. But although it might be popular among the most deprived and angry people of the Middle East and Africa, I don’t see this system having the appeal to displace capitalism in the rest of the world.
Should we possibly look at the ‘Gross National Happiness’ as a new system to replace accumulation of profit? Some reformers have argued that this is what humanity should do. Unfortunately every effort to measure ‘happiness’ has failed to persuade people – what brings happiness to some people does not bring happiness to everyone. Moreover, it seems that the drive for accumulation is innate in humanity. Whether it pertains to amassing one’s own skills, improving human capital, or accumulating various kinds of value and wealth, people respond to love, security, and accumulation.
Despite its faults, the system of capitalism will likely adapt and continue to respond to this drive. Capitalism as we have seen it for the last 50 years – dominated by the US, dominated by mass production and bureaucratic services, and piling up greater and greater levels of inequality – is probably done for. But capitalism won’t be gone; instead a different kind of capitalism is most likely to replace it.
Jack A. Goldstone is Woodrow Wilson Center Visiting Scholar and the Virginia E. and John T. Hazel Professor of Public Policy at the School of Policy, Government and International Affairs of George Mason University. He is also Director of the International Research Laboratory on Political Demography at the Russian Academy of National Economy and Public Administration and a past participant in the Moscow Gaidar Forum.