The End of Capitalism? Who kill bambi? + David Harvey video interview

Who would have imagined 20 years ago -- when the Berlin Wall fell and we celebrated the death of socialism -- that capitalism would begin 2009 under heavy fire. The Cardinal of Westminster, Cormack Murphy O’Connor, reportedly went so far as to say that, as 1989 marked the end communism, 2008 was the year when “capitalism had died.” What are we to make of capitalism in light of all the crises, fraud, and government intervention, when even some traditional supporters of markets are supporting bailouts and seem to have lost faith in the market order? Is capitalism no longer credible? Is capitalism really to blame for the financial woes we now face?

Before we try to answer this question, it is important to point out that the word “capitalism” is actually a Marxist term, and while we use it interchangeably with “market economy,” the Marxist view of capitalism surprisingly still shapes the way we tend to understand economics. The term capitalism gives the impression that the market is something out there: a nebulous force which can create great wealth but can also turn and harm us. This impersonal understanding can lead us to blame markets when things go wrong instead of looking for reasons that are harder to diagnose and often reveal deeper cultural and spiritual issues. Pope John Paul II specifically rejected the term capitalism and its mechanistic, amoral, and impersonal image, preferring instead “market economy,” “business economy,” or “free economy.” He did so not to be pedantic, but to illustrate the important truth that markets are fundamentally networks of human relationships. Understanding markets this way sheds light not only on many economic problems, but also on the underlying moral nature of markets. If markets are intrinsically connected to human action then they necessarily have a moral dimension. Capitalism as seen by Marxists, or even within neo-classical mathematical models, separates markets from morality—and thus from reality. This, as we have seen, can have disastrous consequences.

Markets are the combined activities of millions of individuals and families. They are not composed merely of some guys on Wall Street; they are made up by us. Like anything else run by humans, markets are not perfect and can fail. If we become overly speculative and convinced that prices can go nowhere but up so that we violate all norms of prudence and keep buying at outlandish prices—as happened in the Tulip Bubble in 1637 the dot.com bubble in 2000 and the housing bubble last year—sooner or later reality will set in.

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Despite their failures however, free markets have lifted more people out of poverty and helped create prosperity and peace better than any system ever devised. So much so that even in today’s financial downturn, as hard as it may be, very few people who live in mature market economies are completely without resources or on the brink of starvation. Notice that markets are often blamed for the downturns, yet we tend to forget the cause of the upturn.

In these days of financial turmoil, we often hear critics speaking about de-regulation or “unbridled capitalism.” Both of these are straw men. Unbridled capitalism is a myth. Try to think of one country where there are no regulations on the economy or business. For free markets to succeed and be sustainable, they require a framework built of rule of law, contracts, and secure property rights.

The real question is what kind of regulation and what level of intervention we should choose. It is important to remember that many of the contributing causes of this crisis were precisely an overly invasive government. Federal regulators required banks to provide mortgages to customers who could not pay back the loans; the Federal Reserve manipulated the money supply, exacerbating the housing boom; and politicians of all stripes promised bailouts that incentivized irresponsible behavior. These are prime examples of what Friedrich Hayek labeled “the fatal conceit”: the notion that bureaucrats and politicians have enough knowledge to plan an economy better than individuals and businesses.

At least on equal par with a juridical framework as a factor in sustaining market systems is a specific moral culture. This includes trust, diligence, collaboration, honesty, perseverance, and prudence. If this crisis has taught us anything, it is the importance of morality for a market economy. The list of the seven deadly sins comprises an outline of the crisis’s causes. How many of us out of greed, gluttony, or pride used credit cards to buy things we did not need or could not afford, just so we could have the latest gadget or keep up with the Joneses? What about Wall Street bankers who couldn’t resist the chance to make ever more and took imprudent risks with clients’ money, or out of pride bought financial instruments they hardly understood. Markets cannot succeed without a strong moral fabric among the citizenry.

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Yet instead of learning the lessons of the past, we again hear calls for increased regulation and government involvement. Some regulation is necessary, but we must not look to regulation to solve our moral problems. Here is where the realization that markets are networks of human relationships is important.

If we regulate too much, we concentrate the power of markets in fewer and fewer hands. This has led to all sorts of evil and corruption. Socialist economies, cartels, oligarchies, and union-controlled industries where the price mechanism cannot function produce stagnation and create incentives for corruption. It is a false hope to believe that regulation will make everything right. This is a utopian dream that ignores human failing and is the same promise that has been peddled by the socialists.

It is likewise delusional to believe that markets alone are enough. Markets require more than just efficiency; they require virtue. Our Founders taught us that without virtue political liberty could not long be sustained. The same holds true for economic liberty. And yet without economic liberty there can be no political liberty. Like liberty, the market must be moral, or it cannot exist at all.

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Cracks in the Foundation

The collective consciousness of the U.S. working class is on the brink of a profound transformation. We grew up being told that capitalism was the best of all possible systems, with apparent confirmation being supplied by the fall of the Soviet Union. But we are now entering a new reality that has the potential to overturn all the old, established assumptions perhaps, in the final analysis, even to overturn capitalism itself.

The U.S. government, which has been lecturing other countries for decades about the virtues of privatizing state-owned enterprises, has recently embarked on a campaign of reversing its own dictates by partially nationalizing many of the financial institutions that were teetering on the brink of disaster. In other words, the U.S. government became a stockholder in these companies, thereby ironically taking a step in the direction of socialism ¾ socializing their losses, that is, not their profits. Meanwhile, for decades, the U.S. working class has watched helplessly as public education has been defunded, the environment has been progressively destroyed, and social services in general have shriveled, all supposedly because no money was available to launch a rescue operation. Yet the breathtaking speed with which the government threw a staggering trillion-dollar bailout to the financial institutions ¾ with no strings attached ¾ has not been lost on the working class. And more is on the way: the government has thus far pledged a total of $8.5 billion to help rescue the financial institutions. Workers, too, through their unions, are now demanding bailouts.

Policies that only yesterday appeared as irrevocable as acts of nature suddenly appear as they truly are: political decisions made by the federal government where Democrats and Republicans are united in their commitment to rescue their friends ¾ the rich.

And fuel has been thrown on the fire. Recently, when asked for an account of how they spent the bailout funds, the financial institutions refused to oblige. After all, they calculated, why should they start becoming accountable to the U.S. public after all these centuries? This, too, has not been lost on the working class.

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The working class also took notice of the modest but resounding victory scored by the United Electrical workers at the small windows and doors factory in Chicago. These workers did not have the advantage of working in a key industry so that if it were shut down, the reverberations would echo far and wide, thereby providing them with bargaining leverage. But they were emboldened by the outpouring of public support from across the country, and Bank of America, one of the most powerful banks in the world, backed down.

Finally, the working class was assured that the Great Depression would never see a second coming. Lessons had been learned and mechanisms were inserted to guarantee everlasting stability, we were told. All these assurances now look like more toxic assets, and working people will begin to draw the obvious conclusion: not only are recessions endemic to capitalism, but depressions are as well. And this realization will inevitably provoke questions about the desirability of capitalism itself.

The Defense

Harboring a rather grim view of human nature, capitalism’s apologists have argued for centuries that we are incorrigibly greedy to the core, meaning that we focus exclusively on our individual self-interest, not the interests of our neighbors or the community at-large or those who are most needy, and we define our well-being principally in terms of the accumulation of material wealth. Accordingly, Milton Friedman, leading member of the notorious Chicago School of Economics, reasoned: “The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that system.”

Hence, capitalism is a system that embraces greed; its defenders insist that to do otherwise would be hopelessly naive and utopian. But, they continue, by placing certain restrictions on greed, such as rules of ownership and regulations governing production, distribution and exchange of property, capitalism succeeds in harnessing greed in order to maximize its effectiveness. In other words, greed is the fuel that energizes the system. Ayn Rand, the most virulent defender of capitalism, simply put it this way: greed is good.

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Adam Smith, one of capitalism’s earliest and most eloquent defenders, argued that when individuals are allowed to compete against one another and pursue their private self-interest, everyone’s interests are advanced by means of an “invisible hand.” For example, if two businesses are in competition, then the business that manufactures the best product for the lowest price will prevail. In this way, everyone is motivated to excel, and progress in the production of wealth seems almost guaranteed.

The Veil Slips

But with economic turmoil engulfing the world where millions of people are being thrown out of work ¾ through no wrongdoing on their own part ¾ and where homelessness and hunger are on the rise, the arguments in support of capitalism begin to lose their compelling force. As the crisis deepens, faith in capitalism will be dragged down faster than the value of a worker’s 401k. And what was considered virtuous in the past will become the vice of the future.

For example, let us consider the role of individual self-interest and greed in the current crisis. The subprime loan debacle offers an instructive example. Financial institutions engaged in a frenzied flurry of brokering loans to people who wanted to buy a house but had bad or no credit. The loans were manipulated to entice the unsuspecting house buyer by originally pegging interest rates low, but, disguised by the fine print, jumping to much higher rates a few years later. Many homebuyers were consequently duped ¾after all, we are not taught how to buy a house in school ¾ and put down their money only to discover not long afterwards that they could not afford the payments.

One might assume it was not in the financial institutions’ interests to negotiate loans that would certainly fail, but the opposite was in fact the case. Lenders were often rewarded with handsome bonuses in relation to the quantity of loans they brokered, not their quality. Moreover, these loans were routinely bundled together and sold to unsuspecting investors who had no idea what they were buying. The original lenders scored a quick profit and left the investors holding toxic bundles. It was all about greed and self-interest.

But the pursuit of naked self-interest, regardless of the misery inflicted on others in the process, surely does not represent an anomaly in capitalist society. Capitalist enterprises that are connected with fossil fuels are choosing to destroy the planet rather than curb their pollution. Clean operations cost money, and these companies would rather protect their profit margins than protect the environment. Automobile industries have vigorously lobbied against higher fuel standards, coal companies have invested millions in advertising in an attempt to convince the U.S. public to believe in the fantasy of “clean coal,” and oil companies, in a similar campaign, have tried to convince us that they are on the cutting edge of clean energy, while all of them are accelerating the destruction of the planet through the intensification of global warming. They have all carefully crafted policies in the self-interest of their particular company, and they have been willing to sacrifice everyone else’s interests in the process. This is business as usual for capitalism.

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In a recent New York Times op-ed article (December 16, 2008), Thomas Friedman, in a fit of exasperation, vilified the toxic lenders, and concluded:

The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations. I don’t want to kill the animal spirits that necessarily drive capitalism — but I don’t want to be eaten by them either.

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Slovenian philosopher Slavoj Zizek, akaThe Elvis of cultural theory, is given the floor to show of his polemic style and whirlwind-like performance. The Giant of Ljubljana is bombarded with clips of popular media images and quotes by modern-day thinkers revolving around four major issues: the economical crisis, environment, Afghanistan and the end of democracy. Zizek grabs the opportunity to ruthlessly criticize modern capitalism and to give his view on our common future.

We communists are back! is the closing remark of Slavoj Zižeks provocative performance. Our current capitalist system, that everyone believed would be smoothly spread around the globe, is untenable. We find ourselves on the brink of big problems that call for big solutions. Whatever is left of the left, has been hedged in by western liberal democracy and seems to lack the energy to come up with radical solutions. Not Zižek.

Interview: Chris Kijne
Director: Marije Meerman
Production: Mariska Schneider /Pepijn Boonstra
Research: Marijntje Denters/Maren Merckx
Commissioning editors: Henneke Hagen/Jos de Putter

The Problem

People are a social species. We need each other, not only to satisfy our basic physical needs, but also to satisfy our deep-seated psychological needs. We need to be appreciated, loved, and enjoy the pleasures of friendship. Capitalism, however, directs people to look to the accumulation of wealth as the highest good so that each of us competes against the others for “success.”

While some material wealth is obviously necessary for survival and for a comfortable life, when wealth is promoted to the supreme good -- when people are valued on the basis of their income and not on the content of their character ¾ then human needs become subordinated to the accumulation of material things. Genuine needs are forsaken for artificial substitutes. Once people accept this premise, then they embark on a lonely, futile road. When the accumulation of wealth proves unfulfilling, then these unwitting victims pursue even more wealth, but fulfillment and satisfaction always seem to recede to a more distant horizon. In short, they become more like drug addicts, always identifying happiness with a bigger fix, but becoming progressively more miserable in the process.

Capitalism has placed us at a crossroads in history. Our planet can no longer sustain the hyper consumption that this economic system encourages. 70 percent of the U.S. economy has been dependent on consumption; without it, we slip into a recession. When there is a national disaster, we are encouraged to go shopping. Meanwhile, the environment is breaking down. If these tendencies are not checked, it will suffer irreversible damage.

We are not greedy to the core; greed is not the origin of capitalism but to a large part its effect. People are placed in structures in which greed and selfishness are rewarded. Hedge fund operators have walked away with tens of millions, sometimes hundreds of millions of dollars, and then successfully used their wealth to lobby Washington for low taxes. Meanwhile, teachers who are dedicated to helping everyone achieve their full potential must struggle to get by. Artists who want to make our world more beautiful, and us happier in the process, must struggle to get by. Hard-working maids and janitors must struggle to get by. People who do not like to compete but just want to do a good job must struggle to get by. But those who are only dedicated to money and themselves can indulge in every imaginable luxury.

If the environment were healthy and the rest of us had plenty, who would care? These money-obsessed fanatics could be dismissed as immature, self-absorbed and self-indulgent degenerates. But the irrationality and injustice becomes intolerable when this rapacious greed implies that millions of others will not have their basic needs met and the environment will be destroyed.

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The greatest financial crisis since the Wall Street crash of 1929 has been met by an unprecedented set of government actions to stem the tide of destruction. But is there also a coming sea change in economic theory and practice, as well as in politics, in the shift from a free market to intervention in the market? Is this the end of 'capitalism as we know it? What are the power politics and prospects to achieve change? What are the alternatives to these catastrophically failed ideas behind the 'neoliberal globalization' and 'corporate globalisation?
TNI panelists analyse the causes and consequences of the on-going global financial crisis and discuss its profound implications for a changed world order.
Susan George, Honorary President of Attac France and Board Chair of TNI.

Howard Wachtel, Professor of Economics at American University, Washington, TNI fellow and works on world economy and international money.

Barry Gills, Professor of Global Politics, editor Globalizations journal and 'Rethinking Globalizations' book series.

Myriam vander Stichele, Senior Researcher, Center for Research on Multinational Corporations (SOMO) and TNI fellow.

About CasinoCrash.org:
Casino Crash is an initiative of the Transnational Institute in Amsterdam, Netherlands and the Institute of Policy Studies in Washington DC, USA. The aim of the blog is to provide a space for critical analysis of the financial crisis. TNI and IPS, made up of academic scholars from around the world, have long been warning of the dangers of the financial bubble. The blog hopes to bring some of these debates to the fore and answer some of these core questions: * What are the real causes of the Wall Street Meltdown? * What are the implications of the responses led by Bush, Paulson and governments worldwide? * Will bank bailouts resolve the crisis? * What will be the social and environmental impact of both the credit crunch and the different political responses to the crisis? * What are the implications of the crisis for the Washington Consensus or even capitalism? * What alternative solutions are needed to resolve both the immediate crisis and its systemic causes?

The Solution

Socialism is predicated on the premise that in order for society to operate in the interests of the majority, everyone must have both a voice and vote in democratically determining its direction. Instead of the economy being owned by a wealthy elite who run it entirely in their own interests while impoverishing billions of people around the world and destroying the environment, it would be placed in public hands. And its basic operating framework would then be determined by a public discussion, with all the relevant information available, followed by a debate and vote. In this way, the economy could be steered onto an entirely rational foundation so that its ability to serve the interests of ALL members of society would be maximized coupled with the recognition that our collective interests can only be served when the environment, which nurtures and sustains us, is healthy and vibrant.

Such a revolutionary transformation would represent a tremendous moral advance for humanity: the impulses of individual self-interest and greed would be replaced by a conscious commitment to defend the interests of everyone. Instead of the weak and frail being cast by the wayside to fend for themselves, society would redouble its efforts to ensure that their needs, too, were properly addressed. Instead of living by the uninspiring dictum, “Everyone for him or herself,” we would embrace the principle, “An injury to one is an injury to all” because, in the final analysis, the well-being of each individual is bound by millions of invisible threads to the well-being of all others.

Conclusion

The stakes are high. The U.S. working class will be reevaluating everything in these next years, and in particular the nature of the capitalist economy which runs most efficiently when wages and benefits are at rock bottom, or when workers can be replaced by machines and when unemployment is high. Although workers might not succeed in overthrowing capitalism during this profound economic crisis, their consciousness will emerge transformed. Capitalism will never again enjoy their unquestioning loyalty. If this crisis does not prove to be the end of capitalism, it will be the beginning of the end.