Spotlight on Geopolitics

At the latest annual forum in Davos, someone came up with the bright idea of including inequality, a growing concern in the west, on the agenda of the gathering. Naturally, the subject stood no chance of being discussed, as participants claimed to be haunted by the spectre of uncertainty and economic stagnation instead (Time).

The issues of inequality within the western world and of the current state of the capitalist system have been dealt with in The Economist ‘s October 13th, 2012 Special Report. The conclusion of the report was that inequality, as measured by the Gini coefficient, has not only increased at alarming levels over the past 30 years, but that delaying measures of reversing this trend would impair the performance and stability of western countries for decades to come. The policies recommended – providing better education for the poor, ensuring a more efficient allocation of welfare resources, means testing welfare recipients, dealing with crony capitalism – are the hallmarks of progressivism.

The same month in Florence, a gathering of economists from Spain, Italy and France has founded the European Progressive Economists’ Network (E-PEN). The new association is open to economists from all EU member countries and is lobbying for an end to the austerity measures that are ravaging the old continent, for the generalisation of the Tobin Tax and the urgent adoption of policies aimed at kick-starting economic growth. Some progressive economists are calling for the reintroduction of progressive taxation, deeming as optimal an 80 percent rate for the top income bracket.

To be sure, the economic and social climate have deteriorated over the past 5 years to levels not seen since the Great Depression. After 30 years of neoliberalism, most western countries including the United States have turned into industrial wastelands and are affected by stubbornly high unemployment rates, anaemic growth and a sharp fall in the incomes of workers and middle classes alike. While the coffers of many corporations are bulging with liquidities, most long-term investments for developing new products are shelved in favour of financing innovations in labour-saving devices, a fact that could only aggravate unemployment. As a result, the reputation of capitalism as a system is now in tatters. In a December 2010 IFOP survey, only 15 % of the French, 25% of Italians, 40% of Germans and 45% in Britain have expressed support for capitalism.

A mere two decades after the fall of communism, capitalism itself is being exposed as obsolete and, to a large extent, harmful for humanity’s current and long-term development prospects. Its decline has become evident in the 1970’s – today it is proving irreversible. Sure, the conservative revolution begun in the ‘80s – that engendered the mass privatisation of state assets, deregulation, outsourcing, offshoring, downsizing – has, for a while, looked good on paper and exponentially increased the incomes of the global 1 percent, though at the expense of everyone else. To defend these policies on a global scale, David Rockefeller founded in the 1970’s the Trilateral Commission, a kind of Opus Dei of the capitalist system. As history accelerates itself, however, just as it had taken Catholicism a few centuries to lose its power after the Reformation, a few decades of steep decline seem to have done the job for capitalism. The fact that it is still touted as “the end of history” or “the only possible alternative” has to do with denial, inertia, fear of the unknown and a certain laziness affecting our political and intellectual elites.

On the other hand, the working classes have for a long time accepted a flawed vision of capitalism. According to the supporters of the Marxist-Leninist vision, every shopkeeper, every owner of a piece of land, a small factory or a restaurant is, necessarily, a capitalist, when in actual fact they are but minor players of the exchange economy:

“Every day and every moment, small-scale production gives birth to capitalism and to the bourgeoisie, in a spontaneous manner. […] Capitalism appears where small ownership and the free exchange of goods still survive. […] Capitalism starts with the rural markets.” (Lenin, Selected works)

This confusion is largely responsible for the mass tragedies that accompanied the implementation of the Marxist theories in practice within the communist world, until the Chinese experiment.

As Fernand Braudel’s three-volume opus on the history of capitalism demonstrates, the exchange economy precedes capitalism. According to him, only a small number of market players deserve the label of capitalists, or have any real power over the economic system:

“Capitalism is increasingly viewed as a superlative [F.B.] . Who is popular revolt aimed at in France ? Against trusts and multinational corporations. […] The stand I buy my newspaper from is not capitalist-related. […] Nor are artists’ workshops capitalist, or the small independent enterprises – what we in France call the ’49ers’; these enterprises do not want to reach the ominous number of 50 employees, because of the tax and union implications that entails.” (Fernand Braudel, Les Temps du Monde, p.545)

Braudel’s analysis also proves that modern states, bare a few exceptions, have not been mere instruments in the hands of the affluent. Moreover, history proves the existence of a love-hate relationship between the two, which since the 1980’s has steadily tilted towards hate, directed against the state administration and its powers of taxation. (Strangely enough, this is a sentiment that capitalists share with communists, whose founders, as we know, had proposed abolishing the state altogether…)

Braudel’s work is equally important in other respects, for it implicitly disproves capitalism as an evolutionary system. Thus speculating in shares, of Goldman Sachs notoriety, or the betting for and against the same shares by the same operators , as well as recurrent financial crises, had been standard fare during the 17th and 18th centuries on the Amsterdam Stock Exchange . The tax avoidance industry, as well, has been a hallmark of capitalism from its early days, as is the propensity of states to shift the burden of taxation on the working classes via levies on consumption .

As inequalities between states have diminished over the past few decades, they have increased internally within each state, especially in a number of leading western countries. Accordingly, the adoption of policies capable of arresting and reversing such trends is needed and should go beyond band-aid measures aimed at ensuring the survival of the capitalist system.

Update* Lexington’s column published by The Economist on February 23rd, 2013 on page 38 illustrates the inability of western political elites to deal with the current economic stagnation: ” Today, honest politicians feel something closer to impotence: they are unable to bring the old economy back, and have yet to figure out a sustainable replacement. That leaves much of Washington haunted by a guilty dread of voters, and of the populists who successfully channel the public’s anger, fear and disappointment […] Voter anger fuel the tea-party and anti-government groups thatdrag the Republican Party to simplistic solutions on the right. On the left, voter expectations tempt Democrats, starting with Barack Obama, to pander and hint thatonly modest adjustments are needed to entitlement spending. ” QED …

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