Capitalism in dire crisis?

After having remained in a state of denial since the 2007-08 financial crisis that world had reached almost the dead-end of capitalism, its proponents have begun debating alternatives. New literature is appearing on the subject as the debate enters into what seems to be top gear.
In a recent article (Capitalism needs a purpose published in the Journal of International Politics and Society on March 5, 2018) Alfie Stirling, Head of Economics at the New Economics Foundation, London, contending that the biggest problem with capitalism has been its dependency on increased spending points to a creeping stagnation in spending which in his opinion has led to capitalism's almost fatal crisis.
"The life-blood of capitalism is spending, or as economists refer to it, 'aggregate demand'. Money moves around the economy in a circular pattern: spending and investment on goods and services becomes taxes, wages and profits, before being converted back into spending again by governments, companies and families.
"From the US to Europe to Japan, central banks have gone to unprecedented lengths to keep the global economy afloat. Confidence that spending will increase encourages people to borrow and invest, moving money from the future to the present, and in turn helps make positive expectations a reality. But the reverse is also true, with concern for the future impacting spending today.
"The issue since 2008 is that for most major economies, confidence and spending have been on life support. The prescribed medicine has been record low interest rates (including negative interest rates in places such as Japan and Switzerland) to encourage households and firms to take out loans.
"For the first time though, ever lower interest rates are also losing their potency, reaching what economists call the 'effective lower bound' - a rate below which further positive effects on spending are thought to be marginal at best.
"The sticking plaster to this problem has been so-called 'quantitative easing' (QE). QE attempts to get around the problem of the lower bound by creating new money from nothing and investing in financial markets to reduce interest rates on debt. The idea is that this might simulate some of the effect that would otherwise have been achieved by a 'missing' cut in interest rates below the lower bound.
"A number of economists have pointed to a worrying trend in falling demand, stretching not just over decades, but centuries of capitalism.
"Some point to the tendency of capitalism to suck demand out of itself through rising inequality. Those on the highest incomes are least likely to spend all of their resources - what economists call a 'lower marginal propensity to consume' - so as wealth and income concentrates, overall spending falls.
"Other candidates for the cause of secularly declining demand include debt overhang in the West, a savings glut in emerging economies such as China, and an aging population in developed countries combined with the rate of population growth slowing down globally.
"The issue for capitalism is that all of these forces are long-term in nature. Their effects may have been temporarily concealed pre-2007."
As a result, some thinkers are looking to start a new programme of work that explores two related answers: repurposing the direction of growth; and better distributing the wages and profits generated from the production of growth. Each hinges on getting the economy to better serve people.
"Firstly, the idea that aggregate demand has not only a level or a growth rate, but also a direction, is largely ignored by economists and policymakers alike. Each essentially assumes that the direction of demand is singular: GDP is thought to either grow or not.
"The question of what things are being bought and sold, what is their value to society and what problems are technology and the economy solving for people, is secondary at best.
"If greater volumes of goods and services are produced and consumed locally, or at least in the same currency, then unsustainable trade surpluses and deficits are minimised internationally.
"Secondly, if capitalism is destroying its own demand from the inside, then policy makers need to tax incomes much more progressively (so that people on low incomes give back a far lower proportion of their pay in taxes than those on larger incomes), and imposing higher taxes on wealth.
"But the economy also needs to spread the rewards more fairly before taxation, with higher rates of pay relative to profits. Measures could include increased minimum wages, higher productivity and increased worker bargaining power, and distributing company ownership more evenly through the expansion of cooperatives and mutuals."
Meanwhile, Nils Heisterhagen, policy adviser of the SPD parliamentary group in Rhineland-Palatinate, in his article The liberal illusion, published in IPS Journal on April 4, 2018says that the financial crisis, the election of Donald Trump and the UK's decision to leave the EU marked a watershed.
In the context of Europe's governing parties, he says the Centre-left parties won't survive if they only stand for the status quo. They are trapped between the extremes of liberal self-satisfaction on the one hand, and populism that seeks to overturn the system on the other.
"We shouldn't pretend we don't need ideology any more. What we actually need is a new vision. We need to revisit the utopian ideals that the Marxist philosopher Ernst Bloch set out in his 1950s work The Principle of Hope.
"We need a politics that democratises the economy and puts people before markets. I envisage the restoration of the 'social democratic-corporatist consensus', as the sociologist Andreas Reckwitz recently described the economic philosophy that prevailed before neo-liberalism. I want a new, socially-harnessed industrial capitalism.
"We need a Keynesianism for the 21st century. If the left lets the financial sector carry on as before - believing Gordon Gekko's philosophy that 'greed is good' - and keep on doing pretty much whatever it wants, 'democratic capitalism' will end up being just 'capitalism'.
"The SPD Chancellor Willy Brandt as recently as 1991, said: it would 'prove a historic mistake to write-off the ideal underlying democratic socialism - the combination of freedom, justice, solidarity - as obsolete.'
"Democratic politicians should respond by imposing higher taxes on the wealthy and spending the proceeds on the less well off. The wider the income gap between the median and average voter, the higher the taxes and the greater the redistribution.
"Yet in practice, democracies have moved in the opposite direction. The progressivity of income taxes has decreased, reliance on regressive consumption taxes has increased, and the taxation of capital has followed a global race to the bottom.
"Instead of boosting infrastructure investment, governments have pursued austerity policies that are particularly harmful to low-skill workers.
"After the supply-side shocks of the 1970s dissolved the Keynesian consensus of the post-war era, and progressive taxation and the European welfare state had gone out of fashion, the vacuum was filled by market fundamentalism (also called neo-liberalism) of the type championed by Reagan and Margaret Thatcher.
"The French economist Thomas Piketty has recently documented an interesting transformation in the social base of left-wing parties. Until the late 1960s, the poor generally voted for parties of the left, while the wealthy voted for the right. Since then, left-wing parties have been increasingly captured by the well-educated elite, whom Piketty calls the 'Brahmin Left', to distinguish them from the 'Merchant' class whose members still vote for right-wing parties.
"The Brahmin Left is not friendly to redistribution, because it believes in meritocracy - a world in which effort gets rewarded and low incomes are more likely to be the result of insufficient effort than poor luck."
And according to Paul Hockenos, Berlin-based author and political analyst ('Globalization and its Discontents Revisited' published in IPS Journal on February 5, 2018) in Nobel Prize winning Joseph Stiglitz's opinion workers and citizens are missing out on the benefits of globalization.
"Those who've profited by globalization the most are the top 1 per cent, or even the top 0.1 percent of earners. They're a few hundred thousand American super-earners - the millionaires and billionaires. Firms like Apple made a mint because the financial transactions of the big multinationals were either taxed lightly or not at all. Stiglitz notes that the only other group to join this elite are the new middle classes in emerging markets, such as India and China.
"The real conflict is elsewhere, writes Stiglitz. On the one side [you have] workers and consumers -the 99 percent - in both developing and developed countries, versus corporate interests on the other.
"The populist response, namely a retreat from globalised trade through the protection of markets, is a red herring. The 'new protectionism,' argues Stiglitz, won't turn globalisation into a positive-sum phenomenon but will only make things worse. The lost jobs won't come back. Tit-for-tat retaliation and lost markets will drive up prices. Inflation will drag down economies. Living standards will fall."