Can capitalism be saved, or should it be saved?

Tetsunori Koizumi, Director

Shocks and disturbances are the facts of life in capitalist economies. For one thing, shocks and disturbances come from the fact that in capitalist economies production and consumption are not coordinated activities but are disjoint activities conducted by different groups of individuals with different goals and motivations. These shocks and disturbances, which stem from mismatches between supply of, and demand for, goods and services, are, in a way, normal shocks and disturbances inherent in the way capitalist economies operate as a system. Besides these normal shock and disturbances, capitalist economics are occasionally hit with abnormal shocks and disturbances, the Great Depression in the 1930s being an outstanding example of such major disruptions in the world economy.

What took place in the global economy in 2008 is another example of major disruptions in the world economy that was far beyond normal shocks and disturbances, prompting the International Monetary Fund (IMF) to call it “the most dangerous shock in mature financial markets since the 1930s”. Indeed, this was the most serious economic crisis since the Great Depression of the 1930s, as exemplified by the stock market crush of October 2008, with stock market losses estimated to be $6.5 trillion on October 6 and 7 alone, according to Standard & Poor’s BMI Global, an index of major markets worldwide. As the title of a featured article, “The Meltdown Goes Global”, in the October 20th issue of Time illustrates, the crisis of 2008 would soon to be called as “The Global Economic Meltdown”.

The Global Economic Meltdown reflects a fundamental shift that has taken place in the world economy from the era of the “goods-and-services-based economy” to the “information-based economy” in which trade between nations has become mostly trade in financial services and information-related products and services. The new era of “information-based economy”, which is said to have emerged around 1990s, requires new thinking about the way it works and the way it is to be managed. This is so because the “information-based economy” is new in the sense that the products and services transacted are financial and information products and services, most of which are non-excludable like public goods. As a matter of fact, it is not often transparent what are actually transacted in the new “information-based economy” when customers’ private information, for example, is sold on the Internet from one company to another.

While private economic activities know no national borders, economic policies are mostly conducted by national governments to stabilize their own economies and very seldom, if ever, done to stabilize the world economy. We are caught in a fundamental dilemma here, for, while financial and information products and services transacted in the global marketplace today require non-market regulations by concerted efforts of national governments, the national government has become powerless as it, too, has to live by the rules of the global marketplace if it wants to keep its national economy competitive in that global marketplace. This is one reason why income disparity between rich and poor has dramatically expanded, for the national government that conducts redistributive economic policies must do so at the risk of financial capital of rich people leaving the country for greener pastures elsewhere in the global marketplace.

The global financial market—and the world economy for that matter—is driven by one logic, that is the logic of the marketplace, in which capital always seeks the most profitable place, irrespective of its geographical location. While this logic has been the driving force behind capitalist economic development, its impact on the world economy has dramatically expanded with the swiftness with which capital moves from one place to another, thanks to the development of information technologies. The world economy has indeed been turned into a gigantic casino, with millions of investors participating in the game of financial gain and loss 24 hours a day, seven days a week.

Global capitalism that surrounds us today is a new phase in capitalist development in which the conventional wisdom concerning the role of the national government in managing the economy formulated during the Great Depression is no longer relevant. While both represent great shocks and disturbances in the working of capitalist economies, the Great Depression and the Global Economic Meltdown reflect the fundamentally different characters of the world economy in the twentieth century and in the twenty-first century. This is the reason why we need fundamental rethinking about capitalism. While capitalism in the twentieth century was saved by the Keynesian intervention in the national economy, that kind of intervention is no longer effective to manage the world economy in the twenty-first century. Indeed, the question we need to be asking is not whether capitalism can be saved as it was but whether it should be saved in view of the fundamental change in its character in the last few decades.*

*Two books published in 2015 offer two opposing views on what we should do with capitalism today. While Robert Reich, in his Saving Capitalism: For the Many, Not For the Few (New York: Knopf, 2015), argues for saving capitalism despite its apparent drawbacks, Paul Mason, in his PostCapitalism: A guide to Our Future (Bristol: Allen Lane, 2015) argues against it on the ground that capitalism today is saddled with the contradiction between network and hierarchy.