Why There Is No “Crisis of Capitalism”

Western dissatisfaction with globalization is wrongly diagnosed as dissatisfaction with capitalism, when in fact it is the product of the uneven distribution of the gains of globalization.

 

 

 

There has recently been an avalanche of articles and books about the “crisis of capitalism,” predicting its demise or dépassement. For those old enough to remember the 1990s, there is a strange similarity with the literature that argued the Hegelian end of history has arrived. The latter has been proven wrong. The former, I believe, is factually wrong and misdiagnoses the problem.

 

The facts show that capitalism is not experiencing a crisis. On the contrary, it is the strongest it’s ever been, both in terms of geographical span and expansion into areas like leisure time, or social media, where it has created entirely new markets and commodified things that historically have never been objects of transaction.

 

Whether in Sweden, where the private sector employs more than 70 percent the labor force, the United States, where it employs 85 percent, or China, where the (capitalistically-organized) private sector produces 80 percent of the value added, capitalism is now the dominant (or even only) mode of production all over the world. This was obviously not the case before the fall of communism in Eastern Europe and Russia, nor before China embarked on what is euphemistically called its “transformation,” but was, in reality, the replacement of socialism by capitalist relations of production.

 

In addition, thanks to globalization and technological revolutions, a number of new, hitherto non-existent markets have been created: a huge market for personal data, rental markets for owned cars and homes (neither of which were capital until Uber, Lyft, Airbnb, etc. were created), a market for housing self-employed individuals (which did not exist before WeWork) and a number of other markets, such as those for taking care of the elderly, of children, or pets, a market for cooking and delivering food, a market for shopping chores, etc.

 

The social importance of these new markets is that they create new capital, and, by placing a price on things that had none before, transform mere goods (use-value) into commodities (exchange value). This capitalist expansion is not fundamentally different from the expansion of capitalism in 18th and 19th century Europe, the one discussed by both Adam Smith and Karl Marx. Once new markets are created, there is a shadow value placed on all these goods or activities. This does not mean that we would all immediately run to rent our homes or drive our cars as taxis, but it means that we are aware of the financial loss that we make by not doing so. For many of us, once the price is right (whether because our circumstances change or the relative price increases), we shall join the new markets and thus reinforce them.

 

Adam Smith statue in Edinburgh’s High Street. Photo by Charles Clegg [CC BY-SA 2.0]

These new markets are fragmented, in the sense that they seldom requite a sustained full day of work. Thus, commodification goes together with the gig economy. In a gig economy, we are both suppliers of services (we can deliver pizza in the afternoons) and purchasers of many services that used to be non-monetized (the already mentioned: cleaning, cooking, nursing). This, in turn, makes it possible for individuals to satisfy all their needs through the market and in the longer term raises big issues, such as the usefulness and survival of the family.

 

But if capitalism has spread so much in all directions, why do we speak of its crisis? Because we confound the malaise in the rich Western countries, which is the product of the uneven distribution of the gains from globalization, with a global crisis of capitalism.

 

When this new bout of globalization began, it was politically “sold” in the West—especially as it came on the heels of “the end of history”—on the premise that it will benefit disproportionately rich countries and their populations. The outcome was the opposite: It benefited Asia, especially populous countries like China, India, Vietnam, Indonesia. It is the gap between the expectations entertained by the Western middle classes and their low income growth, as well as their slide in the global income position, that fuels dissatisfaction with globalization. This is wrongly diagnosed as dissatisfaction with capitalism.

 

There is also another issue. The expansion of a market-like approach to societies in all (or almost all) of their activities, which is indeed a feature of advanced capitalism, has also transformed politics into a business activity. In principle, politics was not regarded as an area of market transaction any more than our leisure time was. But both have become so. This has made politics more corrupt. It is now considered similar to any other activity, in that even if one does not engage in explicit corruption during their political tenure, they use the connections and knowledge acquired through politics to make money afterward. That type of commodification has created widespread cynicism and disenchantment with mainstream politics and politicians.

 

The subsequent crisis is not a crisis of capitalism per se, but a crisis brought about by the uneven effects of globalization and by capitalist expansion to areas that were traditionally not considered apt for commercialization. In other words, capitalism has become too powerful and has, in some cases, come into collision with strongly-held beliefs. It will either continue with its conquest of more, yet non-commercialized, spheres, or it would have to be controlled, its “field of action” reduced to what it used to be.   

 

Branko Milanovic is the author of Global Inequality: A New Approach for the Age of Globalization and Capitalism, Alone, both published by Harvard University Press. He is a senior scholar at the Stone Center on Socio-Economic Inequality at the Graduate Center, City University of New York. An earlier version of this post has previously appeared in Milanovic’s blog.

 

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