This dissatisfaction is especially strong among millennials. Never exposed to the chill of the cold war, many now support the agenda of self-proclaimed socialists like Bernie Sanders and Jeremy Corbyn. Long out of favour, the ideas of socialism are now being revived.
"For Marx, like the many economists before him, the growth of the capital stock would be accompanied by a continual decline in the return on capital.”
Perhaps 1989 did not mark the end of history after all as Francis Fukuyama once argued in making the case for socialism's final extinction.
Capitalism, claims US politician Alexandria Ocasio-Cortez, “has not always existed in this world and will not always exist in the world”. Against this backlash, defenders of capitalism have parried with two arguments. But, in misunderstanding the nature of capitalism, neither quite succeeds.
The first is to highlight the ability of the market to satisfy consumer desires, especially compared with the inevitable queues and shortages arising from centralised planning.
Undoubtedly markets are unparalleled in matching the supply with demand for goods and services. But by confusing capitalism with a market economy, this argument fails to hit its target. Even communist countries such as China take advantage of the superior capabilities and efficiencies of markets.
The second response is to point to all the great technological advances and unimagined improvements in living standards accompanying capitalism. For proponents of this thinking, socialism can only mean a drab, colourless existence, since socialist thinkers like Karl Marx did not predict the effects of innovation and productivity. Nor could he foresee the benefits these would bestow on the downtrodden worker.
Again, the target is missed.
Full steam ahead!
Rather than failing to predict unprecedented advances in human productivity, Marx marvelled at the “application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground”.
Marx observed - even in the 1800s - capitalists creating “more massive and more colossal productive forces than have all preceding generations together”. The results were astonishing: “what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?”
Capitalism is a powerful system for recycling the ‘technical surplus’ - output beyond what society needs to live comfortably - into creating the means of producing even more output. The ‘accumulation of capital’ - investment into new productive assets – by private individuals propels economic growth.
For Marx, like the many economists before him, the growth of the capital stock would be accompanied by a continual decline in the return on capital. In the meantime, capitalism’s historical task was technical development by accelerating the accumulation of capital. Then, once this accumulation is complete, socialism would be the natural successor.
Clearly this has not happened.
Instead we have seen a form of ‘socialism’ imposed on agrarian societies which had not previously passed through the necessary capital accumulation phase. These instances are better described as ‘bureaucratic’ capitalism – where accumulation is controlled, not by individuals with private property rights, but by a bureaucratic elite with state-sponsored force.
Tragically, the attempt to rapidly industrialise newly post-feudal societies came at huge human cost.
No jobs on a dead planet
John Maynard Keynes was no fan of Marx’s “dreary, out-of-date, academic controversialising”, yet even he daydreamed about capital so abundant its rate of return would collapse. The transitional role of the ‘rentier’ would be redundant and disappear.
Right on cue, research from the Bank of England shows the current situation simply to be the continuation of a long-run decline in interest rates. Rather than facing a temporary ‘secular stagnation’ or ‘savings glut’, they suggest negative rates could be here to stay.
Many now question the link between economic growth and human happiness and accuse the system for generating the very desires it claims to be fulfilling. As John Kenneth Galbraith put it: “One cannot defend production as satisfying wants if that production creates the wants.”
If economic growth is geared toward creating stuff we don’t really want at the expense of the planet, then has the accumulation phase outlived its purpose?
James Culham is Director, Institutional Portfolio Management at ANZ