Why is the next stage of capitalism approaching?

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It has contributed significantly to human well-being, but it is far from perfect. Will capitalism as we know it become obsolete?

The economist and philosopher Adam Smith wrote The Wealth of Nations nearly 250 years ago, in which he described the birth of a new type of human activity: industrial capitalism. It would result in wealth accumulation far beyond what he and his contemporaries could have imagined.

Capitalism fueled the industrial, technological, and green revolutions, reshaped the natural world, and altered the state’s role in society. Over the last two centuries, it has lifted countless people out of poverty, significantly raised living standards, and resulted in innovations that have radically improved human well-being, as well as making it possible to travel to the Moon and read this article on the internet.

The story, however, is not universally positive. Capitalism’s flaws have become increasingly apparent in recent years. Prioritizing short-term profits for individuals has sometimes meant sacrificing the long-term well-being of society and the environment, especially as the world has dealt with the Covid-19 pandemic and climate change. And, as political unrest and polarisation around the world have demonstrated, there is growing dissatisfaction with the status quo. According to a 2020 survey conducted by the marketing and public relations firm Edelman, 57% of people worldwide believe that “capitalism as it currently exists does more harm than good in the world.”

Indeed, according to economists Michael Jacobs and Mariana Mazzucato, “the performance of Western capitalism in recent decades has been deeply problematic,” as measured by indicators such as inequality and environmental damage.

That is not to say that there are no solutions. “Western capitalism is not doomed to fail; but it does need to be rethought,” Jacobs and Mazzucato argue.

So, will capitalism as we know it survive in its current form, or will it have a different future?

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Capitalism has spawned thousands of books and millions of words, making it impossible to explore all of its facets. That being said, we can begin to understand where capitalism may be headed in the future by looking at where it began. This demonstrates that capitalism did not always function as it does today, particularly in the West.

Autocratic monarchies and ecclesiastical hierarchies dominated Western society between the ninth and fifteenth centuries. As people asserted their right to individual liberty, these systems began to crumble. This push for a greater emphasis on the individual favoured capitalism as an economic system because of the flexibility it provided for private property rights, personal choice, entrepreneurship, and innovation. It also supported democracy as a form of government. It also supported democracy as a governing system because of its emphasis on individual political freedom.

The social contract was altered by the shift toward greater individual liberty. Previously, those in power provided many resources (land, food, and protection) in exchange for significant contributions from citizens (for instance, from slave labour to hard labour with little pay, high taxes and unquestioning loyalty). People expected less from governments in exchange for greater civil liberties, such as individual, political, and economic liberty, under capitalism.

However, capitalism would evolve significantly over the following centuries, particularly in the second half of the twentieth century. Following WWII, the Mont Pelerin Society, an economic policy think tank, was founded with the goal of addressing the challenges that the West faced. Its specific focus was on defending the political values of an open society, the rule of law, free expression, and free market economic policies – all of which are central tenets of classical liberalism.

Its ideas gave rise to “supply-side economics.” This was the belief that lower taxes and minimal free market regulation would result in the most economic growth – and thus better lives for all. Supply-side economics became a priority for the US and many European governments in the 1980s, coinciding with the rise of political neoliberalism.

This newer strain of capitalism has resulted in increased global economic growth while lifting a significant number of people out of absolute poverty. However, critics argue that its tenets of lower taxes and deregulation of business have done little to support political investment in public services such as crumbling public infrastructure, improved education, and health risk mitigation.

Perhaps most significantly, late-twentieth-century capitalism in many developed countries has contributed to a significant disparity in wealth between the richest and poorest people, as measured by the Gini Index. And in some countries, the disparity is widening. It’s especially pronounced in the United States, where the poorest people have seen no real income growth since 1980, while the ultra-rich at the top have seen their income grow at a rate of around 6% per year. The world’s richest billionaires are almost entirely based in the United States, where they have amassed staggering fortunes, while the median US household income has risen only modestly since the turn of the century.

The inequality gap may be more important than some politicians and business leaders believe. Capitalism may have lifted millions out of absolute poverty around the world, but inequality can be corrosive within a society, according to Denise Stanley, an economics professor at California State University-Fullerton. “Absolute poverty is basically folks being able to get… $4 per day per person, which is a threshold measure,” she explains, but relative poverty can unbalance a society over time. Even if the economy is expanding, income inequality and stagnant wages can cause people to feel less secure as their relative position in the economy declines. According to behavioural economists, “our status in comparison to other people, our happiness, is determined more by relative and distributional measures than by absolute measures. “If that’s true, capitalism has a problem,” Stanley says.

Long-term inequality can unbalance a society.

According to the Edelman report, rising inequality has caused “people to lose trust in institutions and to feel a sense of injustice.” However, the impact on people’s lives may be far-reaching. In their book Deaths of Despair and the Future of Capitalism, economists Anne Case and Sir Angus Deaton argue that capitalism in its current form is destroying the lives of many working-class people. “Deaths of despair from suicide, drug overdose, and alcoholism have risen dramatically over the last two decades, now claiming hundreds of thousands of American lives each year,” they write.

The financial crisis of 2007-2008 exacerbated these issues. Excessive deregulation precipitated the crisis, which disproportionately impacted the working class in developed countries. According to Richard Cordray, the first director of the US Consumer Financial Protection Bureau (CFPB) and author of Watchdog: How Protecting Consumers Can Save Our Families, Our Economy, and Our Democracy, the subsequent bailouts of big banks fueled resentment and “helped fuel the rise of the… polarised politics we’ve seen over the last decade.”

Liberal democracies may now be at a tipping point, with citizens contesting today’s capitalist norms with greater political fervour around the world.


J Patrice McSherry, a political science professor at Long Island University in New York, has observed this shift in Chile, for example. “Social mobilisation began in October 2019 with an increase in subway fares, sparking broad-based protests that mobilised more than one million people in demonstrations,” she says. “The social movement in Chile has exposed the deep sources of discontent: entrenched and growing inequality, ever-rising living costs, and extreme privatisation in one of the world’s most neoliberal states.”

Those grievances can be traced back to the late twentieth century, when Chile’s authoritarian government implemented constitutional reforms that “institutionalised the dictatorship’s economic and political dominance and enshrined a neoliberal framework that erased the role of the state in social and economic areas, restricted political participation, gave the [political] right disproportionate power, and installed a tutelary role for the armed forces,” writes McSherry.