Let the third crisis of capitalism concentrate our minds

The confluence is unfortunate, but most of these crises can be addressed with an existing toolbox. Other than climate change, they can be expected to dissipate over the short to medium term. However, some fundamental structural problems within capitalism await denouement.

Adam Smith and Karl Marx, products of the European Enlightenment, had described and analysed this system. Both pointed to its strengths and downsides. For Smith, its gains outweighed the disadvantages, whereas Marx foresaw major problems and peered ahead to see how it could be radically restructured. His remedies were utopian. He did not lay down a practical roadmap of how to get to the desired end point. His followers, such as Lenin and Mao, prescribed means by which the end point became even more elusive.

Humans are imperfect and cannot be expected to design a perfect society. Progress is nevertheless possible through identifying unintended consequences and piecemeal social engineering. The impulse to view such consequences as a failure of social institutions and signal for revolution usually leads to totalitarian regimes. On all major parameters —longevity, infant and maternal mortality, average prosperity, political freedoms, scientific and technical skills, etc—we are far better off than 100 or 25 years ago. In retrospect Marx asked the right questions, but we still don’t have satisfactory answers. Social democratic and neoliberal variants of capitalism were tried and found wanting. Social democracy put unsustainable pressure on tax systems. Neo-liberalism worsened inequality.

Democracy arose on the back of a rising new middle class. The same class tends to turn its back on it and enable right-wing demagogues when it finds its economic prospects dim, as in Europe during the Great Depression, an inter-war period that saw the second major crisis of capitalism, and also after the Global Financial Crisis of 2008, which marked a third major crisis that’s still on.

While long-term trends are a cause for optimism, the resurgence of a counter-revolutionary right that rejects Enlightenment values is on account of the kind of problems with capitalism that Marx foresaw: Rising inequality and popular disaffection. Populist right-wing leaders in many parts of the world should alert us to the urgency to get a fix on escalating inequality and growing popular discontent arising from it. Universities, business schools and thought leaders must engage with this failure, as it favours the rise of demagogues seeking to roll back the values on which modern civilization rests, such as democracy, humanism, individual liberty, rationalism and religious universalism.

In several ways, the polycrisis is reminiscent of the early crisis of laissez faire capitalism in the 19th century that fired romantic poets like William Wordsworth, William Blake, and novelists like Charles Dickens. This was an existential crisis deriving from the loss of a way of life (Wordsworth’s “The world is too much with us”, and Blake’s “dark satanic mills”), and absolute impoverishment of the new working class (Dickens’ Hard Times). This crisis was resolved through a greater role assumed by the state through regulation and social welfare, and greater democratization through universal suffrage and labour organizations that provided correctives to capitalism.

The second crisis was resolved by the stimulus of a war economy and because Western societies were young with good growth prospects. Right-wing militias also met their match on the streets in strong left-wing parties. In the third crisis, the long-term prospects of growth in aged industrial economies are poor and the Left is in disarray.

Unlike the first two, this third crisis is not one of scarcity, but policy. There is a ‘glut’ of supply over demand. The speed of technological change holds the promise of a sustainable solution for climate change, while democratic values are also proving resilient in ageing societies, which are causes for optimism. However, the commitment of the middle class to liberalism and values of the Enlightenment in the world’s younger fast-growing major emerging markets is unclear. They are set to play a bigger role in global affairs, but also seem more susceptible to demagoguery.

As citizens of one of the world’s biggest emerging markets, we in India should be clear about the kind of values we wish to embrace, those of the forward-looking Enlightenment or a counter-revolutionary reversion to some elusive golden past. With the hope that we will resolve to always choose the former, here is wishing all readers a merry Christmas and happy new year!

Alok Sheel is a former civil servant.