The Occupy Wall Street movement has been slowly gathering strength and similar protests are now under way in many countries. The crowds are still nowhere as large as the protests against the Iraq war; they are made up of many disparate groups and they don’t yet have specific demands or even a coherent strategy. But they have been able to tap into a deep wellspring of discontent, which is why politicians like Barack Obama have been quick to pay lip service to it.
There are plenty of reasons for protesting and it’s a wonder that it took so long for people to come out on the streets. Real wage growth in the US has been very low for decades. Inequality has increased dramatically. Labour’s share of gross domestic product has been going down in most countries. The financial crisis has exacerbated these issues, because growth in very low and unemployment is very high. Add to that the austerity programmes that governments have been imposing on their people, especially in Europe, where they can no longer support their generous social welfare schemes.
Reeling under these attacks, the man on the street is understandably angry at bankers, who were in many ways responsible for the mess in the first place, being bailed out by governments. The return of fat bonuses on Wall Street hasn’t helped. No wonder there is a revival of angst about capitalism, and especially financial capitalism, even from mainstream economists employed with international banks. More revolutionary souls, such as Immanuel Wallerstein, American sociologist and world-systems theorist, are hopeful of a repeat of the great revolutionary upheavals of 1968. As Chairman Mao once observed, “There is great disorder under Heaven, the situation is excellent.”
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The books of forgotten prophets who prophesied the end of capitalism are being dusted and re-read. Karl Marx of course is at the top of the list. But there are other well-known economists whose predictions are more to the point. Take, for instance, Karl Polanyi, who in his extraordinary book The Great Transformation, written in 1944, predicted the end of capitalism because market capitalism was incompatible with democracy. He believed the logic of the market and its insistence on converting human labour into a commodity was at odds with humanity.
While Polanyi had Marxist leanings, no such accusation could be levelled at Joseph Scumpeter, the celebrated theorist of creative destruction, who was definitely pro-capitalist. He believed, however, that capitalism’s very success would lead to its demise, as its ruthless market logic came into conflict with social and cultural norms, while the tendency towards big business led to the demise of smaller pro-capitalist groups like the petty bourgeosie. Intellectuals and the mass media, according to Schumpeter, would aid and assist the demise of capitalism.
These prophets may have severely overestimated our ideals. In reality, many of us would be quite happy to give up our cultural heritage and jettison our social outrage in exchange for money. Unlike in the West, there is no disenchantment with big business or Dalal Street in countries like India. Sure, there are all kinds of mass movements and protests, but strong economic growth has led to a large and growing middle class which is pro-market.
Ultimately, it boils down to a question of growth. If growth is strong, as it is in emerging economies, that will still leave a little extra for social programmes while taking care of the needs of capital accumulation. In any case, the welfare state in most emerging markets hardly exists while in others there’s a bare minimum of social security. Workers therefore have few expectations from the government.
Workers in the advanced economies, on the other hand, have become used to a high standard of living and the cutting back of welfare services and the high unemployment has led to a lot of resentment. The West has often said that the China needs to grow at high rates if the rulers want to avoid mass upheaval. That rule applies to their societies too—perhaps even more forcefully, because they are supposed to be democratic.
The trouble is, there’s no easy way back to growth for the West. Why has the share of labour gone down? Because globalization led to the entry of vast numbers of new workers from emerging markets and the erstwhile communist countries into the global workforce. Naturally, wages in the advanced economies were affected.
Why did the western policymakers tolerate a borrowing binge? Because that was the only way to keep the masses happy and grow the economy. Borrowing became a substitute for wage growth. And when the debt bubble exploded, it was the public sector’s turn to take on the debt burden. But even that way out is now closed and the advanced economies are now faced with the deeply unpleasant prospect, put off for long, of cutting their coat according to their cloth.
How this will play out is anybody’s guess. For the elites in the West, there’s always the example of China—proof that for capitalism to be successful, there’s no need for democracy.
Illustration by Shyamal Banerjee/Mint
Manas Chakravarty looks at trends and issues in the financial markets. Comment at email@example.com