Asking the right questions

Fred Block - Research Professor of Sociology, the University of California

Since 2008 people have been asking whether capitalism can be reformed to eliminate dangerous financial speculation and the extreme concentration of income and wealth.  But, in spite of this questioning, very little reform has actually happened—almost seven years after the worst financial meltdown since the 1930s.  On the contrary, the aggressive pursuit of austerity around the world has made inequality even worse.   Maybe Pynchon is right; they have gotten us asking the wrong questions.

But wait, I am not headed where you think.  There are, to be sure, voices on the Left insisting that capitalism cannot be fixed and we need finally to abandon production for profit.   But that’s not where I am going.  I think the questions are wrong because what comes to mind now when we use the word ‘capitalism’ are ideas about the economy that are politically paralysing and deeply erroneous.

This analysis grows out of my engagement with the work of Karl Polanyi who published The Great Transformation in 1944.  In the 1930s Polanyi used a Marxist vocabulary in his writings and lectures, but in his book he barely uses the word ‘capitalism’.  I don’t think this was because of political expediency or a desire to reach a broader audience.  My view is that, even back then, Polanyi feared that the concept of capitalism fostered a deterministic mind-set that reinforced political passivity, rather than the activism that he wanted to encourage.

If anything, this problem has gotten a thousand times worse because of the success of right-wing intellectuals over the last generation.   Starting in the 1960s and 1970s, free market thinkers successfully wrestled control of the concept of capitalism from the Left and gave it new meanings.  In place of Marx’s idea of a contradictory, transitory and crisis-prone system, they insisted that capitalism is a durable and internally coherent system.  They also claimed that capitalism works best when it is purest—that is, when the market is left to be self-regulating.  Finally, following Margaret Thatcher, they have argued that ‘There is no alternative’ because socialism has been proven to be a failure.

Continuous propaganda from the Right and pro-business media means that these are the associations that are stimulated every time people now hear the word ‘capitalism’.  Ironically, the most eloquent denunciations of capitalism end up reinforcing these conservative and false ideas.    For this reason, it is now time for those of us committed to equality and social justice to discard the illusion that we live in a capitalist system.  The liberating and energising alternative is to recognise that successful market societies have gone through periods of radical reorganisation about every fifty to seventy years throughout their histories.  In the most recent of these periods of renewal, between 1933 and 1953, most market societies responded to the Great Depression by radical reforms that included a big expansion in the role of government.  At the same time, both at the national and global levels all kinds of new institutions were created, including the IMF and the World Bank.

So the actual question to ask after the 2008 crisis is: what are the radical reforms and institutional innovations that are necessary for increased equality and a new period of sustainable economic growth?    Just as in the 1930s, we need dramatic changes to assure that people around the world have the purchasing power to absorb the goods and services that the global economy is now able to produce.  But now we have the added challenge of doing this in a way that protects the planet from catastrophic climate change.

As soon as we ask this question, some of the answers are obvious.  We need a very big global green fund that would lend money at low interest rates to finance clean energy and conservation efforts around the world.  Spending to retrofit buildings and large investments in renewable energy would be a key element in stimulating global demand.   We also need reforms in global taxation that would eliminate tax havens and force the 1% to pay a larger share.  This would include a global financial transaction tax that could fund a major effort to improve health and education outcomes in the world’s poorer nations. 

But my point here is not to outline the specifics of this reform agenda.  Rather, it is to focus attention on the extreme urgency of this restructuring process.  The historical lesson is that institutional reforms – at the national level and at the global level – are indispensable for restoring growth after the bottom falls out of the global economy.  Too much time has already been wasted waiting for markets to do what they cannot possibly do by themselves.