The Inevitable Demise of Capitalism

 

Piketty made crucial arguments to express just how much inequality has skyrocketed in our modern era. Capital has tended over time to grow faster than the overall economy. Income from capital is invariably much less evenly distributed than labor income. Together these amount to a powerful force for increasing inequality.

 nother, equally crucial, sign of capitalism's downfall can be seen in its propensity to crisis. Minsky's Financial Instability Hypothesis, rarely brought up in mainstream economics before the 2008 Global Financial Crisis, can provide us with explanations on why there will always be a tendency to crisis in capitalism. In explaining that stability in a system dominated by financial capitalism is in fact destabilizing, Minsky provided compelling reasons why crisis is an inevitable and inherent part of capitalism. There is also the fact that despite of the ruin caused by the Global Financial Crisis, the agents of Wall Street seem to not have learned from their previous blunder. The prevalence of high-frequency trading, the continuous innovation of increasingly risky financial products and derivatives, and the pervasive financialization and speculation of aspects of the real economy have all contributed to this systemic risk towards crisis. Part of the explanation for this seeming nonchalance of the financial sector is due to how the government, the actor supposed to regulate the excesses of finance have largely been impotent. Few of the Wall Street executives that were responsible for the 2008 crisis were imprisoned, and even the Dodd-Frank Act, the financial regulation law enacted to prevent the crisis from ever happening again, is currently faced with threats of rollback and alteration.

 When we relate this back to the definition of capitalism used beforehand, it is crystal clear that capitalism has in fact lost its legitimacy. Inequality and crisis has instead become a regular feature of the capitalist system.  It no longer is delivering the prosperity that it is supposed to deliver to everyone regardless of class, race, and background.

 If we are to look at history, it is quite striking how the current predicament with capitalism exhibit many parallels with capitalism pre-WW1 and the Great Depression. Inequality was skyrocketing, trust in politics was at its lowest with the elite having undue power in politics at the expense of the poor and the unprivileged. It seemed as if capitalism was well on it way to ruins, and it almost did ruin itself to an extent. The Great Depression and the World Wars brought untold destruction and suffering to many millions. Yet, capitalism back then remained resilient and adaptable and the elites at the top were willing to make sacrifices and concessions amidst the spectre of working class revolt. Franklin Roosevelt's New Deal in the United States, for example, gave new powers to the working class. The New Deal strengthened the social safety net and gave room for the interests of labor to mushroom. The next few decades until the 1980s saw the 'Golden Age of Capitalism' where growth was robust, inclusive and even the working class enjoyed newfound prosperity inaccessible to many before. Capitalism is ironically strongest when the owners of capital are at their weakest. This, of course, leads us to the natural question: will the same thing happen again in the future or is the demise of capitalism in fact inevitable? The answer is not yet clear. So far, signs still point out to the latter. The 2008 crisis has not brought forth the same kind of responses and concessions by those in power like The Great Depression did. It's no wonder then that people like Trump are in power, his rise was largely propelled by the economic anxiety resulting from inequality and crisis. Even socialism, once a taboo word and concept in American politics, is increasingly enjoying newfound support among the public. Either way, the face of capitalism will definitely change, with that change possibly leading to its demise as the supreme economic system of our day. 

In essence, Ocasio-Cortez might be right. Capitalism will not always exist in the world.

Faris Abdurrachman | Staff Kajian Kanopi 2018 | Ilmu Ekonomi 2017    

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