Yves here. I resonate with Richard Murphy’s perspective that the key issue facing capitalism today is its neoliberal form. During my time in Japan, it was clear that entrepreneurs were celebrated for their role in job creation rather than merely for accumulating wealth. In the aftermath of the economic bubble, when many Japanese corporations struggled to remain viable, firms like Sumitomo Bank implemented measures to preserve employment levels. Notably, while the salary disparity between senior executives and entry-level employees was considerably smaller than in Western contexts, reductions in pay at the middle and upper levels were made to prevent layoffs.
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future
Has Capitalism Met Its Match?
The question arises: has capitalism failed, or does the fault lie with the specific version of capitalism that has prevailed in Britain and much of the West since the 1980s?
In the following video, I advocate for a distinction between traditional capitalism and its neoliberal counterpart. The post-war era of capitalism coexisted with a robust government, organized labor, public services, and regulation, supported by institutions that prevented the concentration of economic power solely in the hands of capital owners.
Neoliberalism changed this landscape. Beginning with leaders like Margaret Thatcher and Ronald Reagan, we witnessed the advocacy for privatization, deregulation, and the diminishment of trade unions while pushing the notion that markets should govern an increasing number of aspects of our lives, often eroding governmental authority in the process.
The Economic Shift
The outcome has been an economy increasingly fixated on generating money from money, rather than producing the goods, services, and public infrastructure society truly requires.
- House prices can rise dramatically without leading to the creation of new homes.
- Privatized utilities can extract wealth without enhancing service quality.
- Financial wealth may increase even as genuine prosperity declines.
The repercussions of this shift are clear: inequality, a faltering real economy, crumbling public services, financial instability, and rising political discontent.
While neoliberalism sought to undermine government, it may ultimately be the only institution equipped to save capitalism from itself.
Understanding the Crisis
So, has capitalism truly failed, or has neoliberalism dismantled the very foundations that once allowed a different form of capitalism to thrive?
This is the audio version:
Transcript
Has capitalism failed? This is a question I often receive, and my response is, “That’s a pertinent inquiry, though perhaps overly simplistic.” We must clarify which form of capitalism we are discussing.
Capitalism has never existed in a vacuum, and various forms of it have coexisted. The capitalism that prevailed during my youth, lasting until about 1980, thrived alongside government intervention and organized labor. In that configuration, capitalism was able to adapt to societal needs. Thus, our real question is: “Has neoliberal capitalism faltered?”
To clarify, capitalism operates as an economic management system primarily centered on private ownership. Resources and productive assets are predominantly privately owned, and production is ostensibly geared towards profit, with wage labor employed to generate goods and services. Consequently, markets significantly influence price determination and resource allocation, leading to inherent issues.
The Nature of Capitalism
Capitalism inherently produces a self-serving hierarchy of power. The affluent leverage their wealth to generate further wealth for themselves without any obligation to share. This concentration of economic power allows profits to be reinvested for additional returns, resulting in even greater economic inequality.
Historically, this situation remained tolerable within a democracy because capitalism chose to coexist with government, acknowledging the rights of others—including organized labor—to exist. Public institutions shaped market operations, and labor organizations curtailed the dominance of capital, benefiting all participants in the economy.
Regrettably, that equilibrium has dissolved. The emergence of neoliberalism beginning in the early 1980s altered capitalism irrevocably. Initiated by Thatcher in the UK and Reagan in the USA, its influence spread throughout what is loosely referred to as the Western world.
The Rise of Neoliberalism
Neoliberalism is not a natural occurrence but a deliberately structured system. Its inception was a reaction to the perceived threat of socialism following World War II. The architects of this ideology, such as Friedrich Hayek and Milton Friedman, founded the Mont Pelerin Society shortly after the war. It took three decades for their vision to materialize, culminating in the policies of Thatcher and Reagan.
The intention was to embed market thinking into broader societal aspects, transforming not only our economic framework but our political structures as well.
Shifting Paradigms
Neoliberalism posits that markets allocate resources more effectively than governments, asserting the superiority of private ownership over public ownership. It favors competition across various sectors while advocating for reduced regulation and diminished trade union influence, alongside constraining taxes on capital gains and high-income earners.
As a result, fiscal rules have been instituted to mandate balanced governmental budgets, while independent central banks target inflation primarily through interest rates, often deeming high unemployment an acceptable consequence of control.
Simultaneously, public services are increasingly outsourced, and individuals find themselves responsible for managing risks, such as pensions, care, and education—areas that were previously supported collectively. The privatization of essential services has become a staple of neoliberal governance.
A Focus on Financialization
Neoliberalism has steered capitalism toward wealth accumulation through financial channels. This focus began when Thatcher dismantled significant portions of Britain’s manufacturing sector. During her initial term, unemployment soared to nearly three million, an unprecedented figure at the time. Her administration’s deregulation of the City of London and the liberalization of international financial flows markedly shifted the economic paradigm, making financialization a core component of capitalism.
In this new framework, wealth is derived from financial instruments rather than from producing the goods that society requires. The emergence of financial capitalism was designed to extract, rather than create, value. Consequently, rising rents and costs associated with housing and services have amplified financial strain on individuals.
Privatized utilities serve as a case in point, generating profits at the expense of service quality. For instance, dividends paid to shareholders have often eclipsed necessary investments in infrastructure.
The Real Cost of Wealth
Financial wealth is not synonymous with growing real prosperity. A surge in property prices increases hurdles for those seeking housing without adding to the actual supply. The disconnection between rising financial wealth and the capacity to deliver meaningful value is evident in today’s economic landscape.
Moreover, neoliberalism has dismantled the structural support that once rendered capitalism viable. Public provisions facilitated broader participation in economic activity, while regulations constrained inherent inequalities. Without these safeguards, resource allocation has become increasingly erratic, leading to visibly inadequate public services and inevitable political unrest.
Neoliberalism now poses a threat to the societal structures that once upheld capitalism, working in opposition to societal needs.
Consequences and Future Outlook
Extreme inequality consolidates wealth, market influence, and political power, while neglecting the needs of a significant portion of the population. This neglect breeds political discontent and fuels populist sentiments, even as many populists advocate for further neoliberalism—the very ideology that exacerbated the discontent. This paradox offers no resolution to our political issues.
Neoliberal capitalism has created instability, fueling financial bubbles and crises. Ironically, while it seeks to weaken government, it may be the only entity capable of mitigating the detrimental effects of neoliberalism itself. One of the ironies we face is that the very force that Marx anticipated to overthrow capitalism—government—might also be its savior.
Yet, governments shaped by neoliberal ideology may lack the vision or capacity to act decisively when the moment comes to save society from its condition. This conundrum poses a significant risk for the future. Could neoliberalism ultimately lead to societal collapse? Is it now in a self-destructive spiral that threatens the essence of community and the environment? The logic underpinning it revolves around exploitation, an approach that can only lead to the degradation of the systems on which it relies.
As we confront this reality, the pressing question remains: When the time comes for intervention, will those in power be prepared to take decisive action? I remain hopeful that they will rise to the occasion, acknowledging past mistakes and collaborating to forge a new form of governance and capitalism—one that diverges dramatically from what we’ve come to know.
