The end of capitalism

Are the latest market gyrations in response to the slowdown in China more than a stock market “correction”? Could we be edging closer to the end of Industrial Capitalism?

Looking at last week’s stock market “correction” (the first since 2011) through my former CNBC correspondent/bureau chief glasses, I could believe that things will go back to “normal.” Take, for example, comments from a finance professor based in Singapore who said in an email to me, “Stock market is fine for now, it can’t just keep going up hitting record highs given the state of the world economy. We only erased gains for the last 12 months it (the index) has still easily doubled over the last five years.” Or Raymond James Investment Strategist Jeffrey Saut, speaking on CNBC’s Squawk Box on Friday: “I’ve been in this business for over 45 years and I’ve seen this act before. It’s kind of like pornography. You know it when you see it.”

The problem is, “normal” isn’t the same as it was before the 2008 economic crisis – the stereotype of what we’ve come to think of as “Capitalism” since World War II. Call it “Industrial Capitalism.” So when I take off those financial-reporter glasses, I start to wonder if these market moves – triggered essentially by a slowdown in China’s economy and therefore consumption – are not part of an economic GSM directing us along the road to the Post-Capitalist world, where even Communist China will have citizenship.


This may be a question the answer to which can only be found in the detritus of that Post-Capitalist world some 50 years hence, but the demise of Industrial Capitalism has been spoken of since the turn of this century.

Headless Chicken

“Capitalism is like a chicken with its head cut off,” NYU professor of politics Bertell Ollman told an audience in Shanghai some time ago. “The chicken doesn’t know it’s dead; it just keeps running around, causing damage to everything that comes within reach. What is absolutely impossible is the continuation of capitalist relations of production and exchange very far into the next century.”

The octogenarian specialist in Marxist theory was addressing the International Symposium on Socialism in the 21st Century in October of 1999. That is, well before the 2008 economic crisis which – no one will dispute – has knocked Industrial Capitalism on its head if not out cold.

It must have been tempting at the time to chalk Ollman’s comments down to oft-repeated Socialist rhetoric, predicting the downfall of Capitalism in a global class struggle. Except that by that time, the main competition – Communism – had all but disappeared as the world force foresworn to triumph over Capitalism, and Capitalism seemed to be on an irreversible upward spiral.

Instead, the intervening crisis years between Ollman’s speech and today make his predictions at the dawn of the 21st century seem prophetic if not downright predictive. At least half a dozen banks that were “too big to fail” did, while those remaining grew to hitherto unfathomable proportions. There were deep financial crises in Spain, Sweden, Finland, Norway, Japan. Global production dropped 13%, global trade by 20%. No country escaped a rise in unemployment as one large company after another collapsed under the weight of debt and bled from the lack of customers, who had themselves been put out of work due to the financial crisis.

What Was Different About 2008?

What shocked less-leftist observers was the huge difference between the crisis of 2008 and the 18 other banking crises in individual countries since World War II.

Economists in the run-up to the 2008 crash were not overly worried about escalating individual, government and corporate debt. The thinking was that flexible economies and the innovation brought about by technology would sustain superior productivity growth for decades – especially in the U.S., where “superior American know-how would bring about higher returns on physical and financial investments,” according to the National Bureau of Economic Research.

When the day of reckoning came, economists confidently predicted the 2008 financial glitch would follow previous trajectories: real per capita growth would drop by about 2% and would be back on track after two years. That tune changed when sub-prime mortgages began to go bad, disintegrating the asset value on which complicated international financial investment products had been constructed, and global markets crashed simultaneously – by as much as 30-40% from mid-September to mid-October, 2008.

Today, seven years after the crisis began, it is difficult to say recovery has truly arrived, thanks to three persistent issues which persist despite market “corrections”: lower growth, higher debt (private and public), and rising income and wealth inequality – not a sustainable formula in anyone’s economic lexicon.

How and why did this happen?

If indeed “the business of business is business,” and the goal of Capitalism is to maximize profits, then there is a case today for having produced too many goods for a shrinking customer base, at such a low cost – thanks to technology – that markets can no longer perform their function of setting prices; prices then plummet, and the lack of income dissipates throughout the structure, weakening the profit-motive core. It takes deep pockets – be they corporate or personal – to survive such a tumultuous change. The depth of these pockets is being tested yet again as stock markets roil from China’s (consumer-demand-led) slowdown. We have not yet been able to calculate completely the global cost to raw materials or to the environment spawned by the rampant production of the past 70 years.

Not Necessarily Socialism

However, the collapse of Industrial Capitalism as a way of life does not mean the rise of Socialism. Far from it. Out of chaos there arises opportunity, created in the wake of the wreckage of Industrial Capitalism. What we have today is something more dynamic, born of the spontaneous production of goods and services on collaborative platforms that no longer have to pass through managerial administrative barriers before reaching the public, the customer base. It is a world in which creativity counts, and the risk-taking entrepreneur has a chance to become king. “Imagination,” as Einstein said, “is more important than information.” It’s not how you collect Big Data but what you do with it. For the moment, like Industrial Capitalism at the dawn of the 20th center, this new economy is very much a new, unregulated frontier.

Take Uber: they are responding to a (demonstrably growing) customer base that wants reliable, cheap, just-in-time transport. Its drivers could be a collection of students in search of supplemental income; or they could be desperate white collar workers unable to find jobs since the 2008 financial crisis. So is this opportunism, wildly unregulated business or the cutting new edge of a “collaborative commons?” There will be localized protests for some time as drivers demand better working conditions and taxi companies seek to retain their stronghold, but trying to reverse this global collective trend is like trying to de-electrify a city or hold back the tides.

Other examples of the tenuous arrival of the Post-Capitalism way of life: Amazon recently surpassed Walmart as the world’s largest retailer by market cap. Companies raised some $3-Trillion last year through crowd and cloud funding, rather than through the traditional banking system. It would seem that money itself – the very cornerstone of Industrial Capitalism – is being disrupted. Leaders will be pondering what value to place on labor and on the goods and services this Uber-like distributed tech-driven labor creates in the Post-Capitalist world.

Post-Industrial Capitalism

What today is commonly referred to as “disruptive technology” is actually the entrepreneur’s answer to a new way of making money, created at what appears to be the dawn of a Post-Capitalist world. The two worlds can and will co-exist for years to come – think of the horse and buggy sharing the street with the Model T Ford just a century ago. Entrepreneurial companies grown to juggernaut proportions such as Amazon will face scrutiny from shareholders, stakeholders and customers expecting evidence of social concern from its leadership rather than simply a relentless pursuit of profits.

Market correction or the dawn of a new age? We shall have to see who and what emerges from the rubble, and how.

http://www.forbes.com/sites/shelliekarabell/2015/08/22/market-correction-or-nearing-the-end-of-capitalism/
Shellie Karabell

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