Even if we agree that the system is in a downward spiral, it may be just a phase, not necessarily the sign of a terminal decline. The end of capitalism has already been prophesied many times (arguably rivalled only by predictions of the Second Coming of Christ). So what is the difference this time? Why can this period be legitimately called the final stage of capitalism? Almost everybody agrees that another crisis is inevitable. Every crisis is serious and affects many lives, but most of them are not detrimental to the system itself. That requires a perfect storm that leads to a domino effect. The condition for a perfect storm is created by a triangulation of these factors:

  1. a) The system being pulled apart from within. This happens when the aforementioned separations and imbalances go too far. As with a piece of fabric, if you keep stretching it, it will eventually snap. Stitching the split back together is possible, unless two other factors conspire against it. These are:
  2. b) Hitting the ceiling or reaching the limits.
  3. c) The human or psychological factor is no longer favourable to the system (this is an essential, but often neglected ingredient).

Let’s look at these in more detail.

a) Exponential separations and imbalances

As we have already seen, some degrees of separation enabled the fast rise of capitalism and were, by and large, positive developments. However, a strength can become a weakness if pushed too far. We suggest that this is what is happening now with those six defining features of capitalism, as they have entered the uncharted territory of exponential separation.

Money and value

At the exponential degree of separation between money and value, money has become a numeral that is linked to the real world or the value of anything real with an increasingly slender thread. Banks are nowadays creating almost all money by lending and borrowing. In fact, about a third of the money created by banks is simply loaned to other banks (in Dietz & O’Neill, 2013, p.105). Only a fraction of the total is in the vault as reserves. To make matters worse, the financial sector can create and destroy money without direct action by the central bank. Every time a loan is made, the supply of money increases. And when loans are repaid or there are defaults, the supply of money contracts. Hence, the private sector has a great deal of control over money supply, which in effect means that the global money system is getting out of control. As the distance from the underlying assets increases, it becomes harder and harder to price the asset accurately. In their book, The New Economics, Andrew Simms and David Boyle succinctly summarise the situation:

Money has cast itself adrift into an imaginary world where anything is possible, but unrelated to the real wealth of people and resources. (2009, p.56)

This, of course, has consequences for society at large:

…the money system is no longer designed for the use of ordinary people. Only about 5% of daily money flows has anything to do with the facilitation of goods or services. Money is designed for the money markets, and it therefore carries within it the familiar faulty measurement of value. (ibid., p.53)

It is not surprising that we don’t know what to do with money any more: if you try to save money, you are actually losing it as the interest rate on savings is lower than the real rate of inflation; however, if you borrow money, the interest rate is substantially higher, making repayments difficult; if you spend it, you worry about the uncertain future, and if you invest it, the risk of losing it is ever greater.

Individualism and the common interest

The contribution of individualism was truly fantastic in the first stages of capitalism. However, since the 1980s (partly as a reaction against the perceived collectivism in the Soviet Union), individualism has moved outside the healthy range. Self-interest was ‘liberalised’, as captured by the famous sentence in Oliver Stone’s movie Wall Street: “Greed is good”. This exponential degree of individualism is different from previous instances, as it is not primarily against some social norms. Rather, it reflects indifference (an ‘I don’t care’ attitude) to wider society or anything other than oneself. The only thing that matters is satisfying one’s own immediate desires and interests – society, often including even those one is closest to, is treated instrumentally (that is, again as a means to fulfil one’s own ends). At this stage, society is no more. In the words of Margaret Thatcher, “There is no such thing as society. [There are individual men and women, and there are families]”.

The trouble is that when individualism is pushed too far and is reduced to possessive individualism (to use the Canadian political scientist C.B. Macpherson’s term) it eventually turns against itself. This is because individuality and communality are not opposites; they are the two sides of the same coin. If there was no-one else, you wouldn’t even know that you have individuality. Also, the communal cannot survive without individuality. Even ants show some individuality when they wander around looking for food. So, when individualism goes over the top, it doesn’t only have a negative effect on the communal but on individuality too. When individuality and individualism walk together, it serves capitalism pretty well. However, when individualism eclipses individuality, it sooner or later ends in a particular form of conformism: such individuals identify with and conform to a group that is perceived to protect their interests and is against everybody else. This individualism no longer respects the individuality (difference) of others, and could easily sacrifice democracy in favour of a dictatorship (if it perceived that it would serve its self-interest better).

Let’s not forget that individuality can only thrive if there is some level of trust between people (including people you don’t know). This requires a common interest – shared grounds and bridges between individuals and groups. Exponential individualism burns these bridges and tends to insulate itself – as exemplified by the wave of right-wing populism on which Trump rode into the White House and the UK rode out of the European Union. The political structures in most of the Western world are powerless to prevent it because they have been encouraging it in recent decades. In his second inaugural address in 1937, Franklin Roosevelt said, “In our personal ambitions we are individualists. But in our seeking for economic and political progress as a nation, we all go up or else all go down as one people”. Churchill had nothing to offer but ”blood, toil, tears and sweat”, while John Kennedy exhorted Americans to “ask not what your country can do for you but what you can do for your country”. Can you imagine any American or British leader since the 1980s saying something like that?

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Investment and production

An exponential degree of separation means that investment has an exponentially remote connection with production (currency trading is a case in point: nearly 90% of dealings boil down to speculations on foreign exchange markets). When this happens, the correlation between production (or services) and investment becomes very slender indeed. To borrow an analogy from a Cambridge economist Ha-Joon Chang, it is like creating an increasingly tall building on the same foundation (the same size base) with increasingly worse-quality materials. This is exactly what has been happening in recent years. The implementation of monetarist economics by Reagan and Thatcher in the early 1980s did not work well (as already mentioned, their first years in office were disastrous, economically speaking). So, they played a trump card – the ‘Big Bang’, a massive deregulation, primarily of the financial market. Financial markets could make quick money and this is what the monetarists needed! But this led to the exponential degree of separation – in effect, it paved the way for financial engineering, where investors could make plenty of money regardless of the state of the underlying economy. For example, derivative markets were not very significant until the early 1980s. Then, in 1982, two key US financial regulatory bodies –the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) – agreed that the settlement of a derivative contract does not have to involve the delivery of the underlying goods but can be settled in cash. This enabled the proliferation of derivative contracts that are derived from ‘notional’ things, such as the stock market index, which can never be physically delivered. From then on, your imagination was the limit to what kind of derivative contract you can create.

But, one may ask, why does it matter so much? Focusing on speculation rather than production prices production out of existence. The financial sector should help companies to expand and diversify through its ability to turn illiquid assets, such as buildings and machines, into liquid assets, such as loans and shares. However, there is a relational tension between production (the real economy) and the financial market: the speed gap. You can make a buck from financial speculations in a month, a week, a day, an hour, in fact a nanosecond nowadays. Making profit from real production takes time – sometimes years. The whole point of finance is that it can move faster than the real economy; a financial market that is too slow is useless (remember, it is about the future). However, one that is too fast can be corrosive and derail the real economy – in effect, cutting off the branch it is sitting on. This is why regulations are necessary – to keep that gap within the ‘Goldilocks zone’. Those deregulations (which went even further during Bill Clinton’s presidency) allowed that gap to be widened freely. Financial value and economic reality are being driven further apart for years now. As Chang puts it, “More and more financial claims were being created for each underlying real asset and economic activity” (2010, 238). Between 1980 and 2007, the ratio of the stock of financial assets to world output rose from 1.2 to 4.4. In the UK, it reached 700%, or by some estimates 1,800% by 2009; in the US, the ratio of around 500% between the 1950s and the 1970s went to over 900% between the 1980 and early 2000s.

Naturally, if share values are only loosely related to company performance then investment does not serve its original purpose, namely to facilitate the production. In fact, it is often toxic to production, destroying even viable and successful businesses – as in the case of hostile takeovers. You may be running a productive business, but if your shareholders think that they would make profit quickly by selling the assets of your business, they will do it. It will destroy your business and will make your employees unemployed. This, of course, undermines any long-term goals, but the shareholders don’t care about that because they can move to another company, do the same and make another quick profit (while you, as a producer, can’t). This is what, for example, Lord Goldsmith did in the 1980s and 90s, first in the UK and then in the US. He made himself enormously rich by effectively destroying some companies that were languishing but also some that were flourishing. Ironically, even he, later on, thought that things had got out of hand, and he was not alone. Another veteran investor, Warren Buffet, described derivatives and other investment vehicles, used by hedge funds and the like, as “financial weapons of mass destruction”.

Still, making money quickly is very seductive. Under the new regime, the financial sector has become much more profitable than the non-financial sector (which had not always previously been the case). This financialisation made even non-financial corporations more dependent on their own financial activities and more short-term oriented. Such practices left very few resources with which the company could invest in things like machines, R&D and training, reducing its long-term productivity. The focus of corporate funds use has gravitated away from organic business expansion towards the prospect of deriving higher returns from financial engineering and from investment in the shares of other companies (sometimes even their own competitors). It is not surprising that in countries where the financial market plays a big role, such as the UK and the US, real production and non-financial industries are in decline. Keynes prophetically warned: ”When enterprise becomes a mere bubble on a whirlpool of speculations, the job of capitalism is likely to be ill-done.”

Consumerism and needs

Essentially, there are four ways of increasing profit: expanding the market; increasing efficiency (usually by squeezing the workers by making them do more in less time or reducing their wages; innovation; and creating or increasing the demand for one’s product. The first three have existed since the beginning of capitalism, but the fourth developed only gradually, leading to the exponential degree of separation between our wants (what we buy) and our needs. Even before the neo-liberal counter-revolution, mass production was already scraping the barrel – most real material needs were more or less satisfied, at least in the Western world.

So, rather than the needs shaping the market, the market started shaping, in fact, creating new ‘needs’. Need creation took precedence over need satisfaction and fulfilment for the mass of the people (Harvey, 2014). Mass production and mass consumption is dominated by products that are loosely related, not related, or negatively related to our real needs. Fashion is one example. We all need clothes, shoes and bags, but we certainly don’t need to change them as frequently as dictated by fashion. Furthermore, a label becomes more important than the product, and consumers become walking adverts themselves. They wear the product with a visible label as a badge of honour – showing that they proudly allowed themselves to be ripped off (all logo products are vastly overpriced). In the words of US businessman, author and financial broadcaster Dave Ramsey, we buy things we don’t need, with money we don’t have, to impress people we don’t like. Junk food is another example. Not only does it fail to properly satisfy one’s real nutritional needs but it is positively damaging. Yet, consumers (seemingly) freely buy and pay for it[1]. However, junk food benefits not only the food industry, but also the health and pharmaceutical industries – they all make profit out of it. Religious and other festivities (such as Christmas and Valentine’s Day) have also been turned into spending sprees of largely unnecessary and unwanted goods and services (as convincingly argued in economist Joel Waldfogel’s book Scroogenomics).

This is, in effect, a ‘top-down’ approach to selling and buying and is actually adverse to the ‘invisible hand’ that is so dear to those who advocate the ‘bottom-up’ approach (perfect competition would require no advertising beyond informing). It is also enormously wasteful. For example, many companies nowadays spend more money on marketing their products than on actually producing them! However, that marketing inevitably adds to the cost of the product, but other producers, who may have a better-quality product, may not be able to afford similar marketing and are thus effectively excluded from the competition. Could anybody not indoctrinated from the childhood really think that Coca-Cola is the tastiest and most refreshing drink in the world? Or that a MacDonald’s hamburger is the best way to satisfy your nutritional needs? And yet, they sell far better than other products due to social engineering through advertising. While economists were banging on about informed consumers making rational choices and acting in their self-interest, the system was steadily moving in the direction of creating uninformed consumers who make irrational choices and act in the interest of the system itself. Liberating the market in the name of the ‘invisible hand’ actually ended up twisting it hard. In effect, the ‘invisible hand’ has now been largely replaced by the very visible hands of a few mega-corporations that dominate the market. The fact that the neo-liberals have done very little to address this shows that their allegiance to promoting corporate interests has been greater than to their ideology, and if the latter needs to be sacrificed for the sake of the former, so be it. When, for example, Milton Friedman advocated seeing the power of a monopoly as a reward for efficiency, Adam Smith was, no doubt, turning in his grave.

There are other serious consequences of an exponential degree of separation between consumerism and needs that will be discussed elsewhere, but we can already conclude that such a degree of separation may bring short-term benefits to those on top of the food chain, but long term it is deleterious to individuals, humankind, the environment – and ultimately to the system itself.

We can see that all the above dynamic forces are pulling the system apart all the way to breaking point. But what about the tension between capital and labour? Is this not a major factor that also threatens to tear apart the system, as predicted by many critics of capitalism, such as Marx? Actually, no. Marx was mistaken about it, as all revolutions in the name of socialism have shown. None of them have led to the end of capitalism. This is not to say though that this issue is not significant – it has created an increasing imbalance in recent years, and it is worth addressing.

Competition and cooperation

Competition is usually hailed as a driving force of capitalism, and rightly so. However, it is often forgotten or neglected that cooperation is also necessary. By far the most important form of cooperation is between the workforce and capitalists. If they do not cooperate in one way or another the system cannot function. So, competition and cooperation need to be balanced. Broadly speaking, we are talking here about the balance between productivity (conducive to competition) and wages (conducive to cooperation). This balance was not always easily achieved in the past. When it wasn’t, strikes, fights, riots and even revolutions ensued. By and large though, a sort of equilibrium had been reached in the West by the mid-20th century. However, since the collapse of the Soviet Union and the neo-liberal counter-revolution, the imbalance between competition and cooperation has increased rapidly. Professors John Bellamy Foster and Fred Magdoff write in the final chapter of their 2009 book The Great Financial Crisis: Causes and Consequences):

It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Riccardo Bellofiore and Joseph Halevi have recently emphasized, that led to the emergence of ‘the new financialized capitalist regime,’ a kind of ‘paradoxical financial Keynesianism’ whereby demand in the economy was stimulated primarily “thanks to asset-bubbles.” Moreover, it was the leading role of the United States in generating such bubbles—despite (and also because of) the weakening of capital accumulation proper—together with the dollar’s reserve currency status, that made U.S. monopoly-finance capital the ‘catalyst of world effective demand,’ beginning in the 1980s. But such a financialized growth pattern was unable to produce rapid economic advance for any length of time, and was unsustainable, leading to bigger bubbles that periodically burst, bringing stagnation more and more to the surface. A key element in explaining this whole dynamic is to be found in the falling ratio of wages and salaries as a percentage of national income in the United States. Stagnation in the 1970s led capital to launch an accelerated class war against workers to raise profits by pushing labour costs down. The result was decades of increasing inequality.

The pattern was very different from 1948 to 1973, when the hourly compensation of a typical worker grew in tandem with productivity. Since the late 1970s, wages have become detached from productivity – in the US, productivity in the economy grew by 80.4 per cent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 per cent. Almost all the gains from growth have gone to the top. A number of means have been used to achieve this. The wealth already accumulated was used to reduce workforces as much as possible and to break up the unions, as well as push through trade agreements that made it easy to outsource work to developing countries. Much has also been done to make sure that low-paid workers in those countries never become unionised and have their conditions and wages improved. This has all created an imbalance between competition and cooperation that is only kept in check by cooperation among big businesses and ensuring the cooperation of the political establishment.

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Quantity and quality

We have already seen that capitalism was always in favour of quantity over quality. By providing a rationale for taking people out of the equation (or reducing them to numbers), economists dehumanised not only economics but the economy itself. This ever-increasing imbalance between quantity and quality has grown even further since the 1980s in terms of services, products and quality of life.

Workers, job-seekers and public services of every kind are subject to a pettifogging, stifling regime of assessment and monitoring, designed to identify the winners and punish the losers. The arguments put forward by economist Ludwig Von Mises in his book Bureaucracy that meant to free us from the bureaucratic nightmare of central planning, instead have contributed to creating such a nightmare. Tony Blair, the British Labour prime minister (1997–2007), was particularly in favour of introducing ‘the market’ to public services, which in practice meant internal competition was measured by ticking boxes. With the usual mantra of a ‘drive to increase efficiency’, public services (including health care and education) were massively quantified in this period. In order to increase the quantity of service with a decreased cost, everything had to be transformed into numbers, and what could not be was simply ignored or banished. The consequences were disastrous and not dissimilar to the consequences of the quantification (targets) in the planned economies of the Soviet Union and Mao’s China. For example, NHS hospitals were postponing or cancelling difficult and lengthy operations in order to meet their targets, schools were trying to get rid of ‘underachievers’, and so on.

It was realised early on that producing high-quality goods does not always pay off. Such items tend to last a long time which, in effect, decreases the demand. This can be compensated for by high prices, but at a certain point producing large qualities of cheap products that don’t last long becomes more profitable. The Chinese economic miracle was based on that principle. It is not so much that a profit created in this way was greater, but it was made quicker – an approach favoured by the stock market. Not surprisingly, nowadays we generally get high-quality products from countries where the financial sector does not dominate. By and large though, this became a race to the bottom. An increase in this imbalance is deliberately and actively pursued in order to force people to buy new products. Fast fashion is an obvious example, but there are others. Discontinuing the production of spare parts and accessories (for bicycles or mobile phones, for example) is one example. This can even be speeded up by so-called planned, or built-in, obsolescence: incorporating into the product a component that will not only fail but will also make sure that the whole product will fail with it. With IT technology even this is not necessary – you just need to make a new operating system for mobile phones or a new version of Windows to encourage or force replacements. It hardly matters if the old ones were better. You remove technical support and the ability to download some apps or programs, and that’s it. All change.

Quality of life, too, has not been spared in this respect. Even if there were many initiatives to change it, Gross Domestic Product (GDP) is, by and large, still seen as the sole measure of a country’s success. This is the case not only because it is easier and less messy, but also because it is open to manipulation. You can take out of the equation anything that you don’t fancy and use fanciful terms such as collaterals and externalities to write off the damaging results of the system upon quality of life and the environment. When everything, including people, is seen instrumentally (as the means to an end) and through the prism of monetary value (‘human capital’), there is very little room left for quality of life.

b) Hitting the ceiling or reaching the limits

The above exponential degrees of separation and imbalances are only a part of the problem. Even if somehow, miraculously, we managed to slow down the runaway train that capitalism has become, we could never go back to ‘the golden age of capitalism’ as circumstances have changed. Resources (and not just natural ones) were not depleted then. Now, we are scraping the bottom of the barrel. In other words, these six factors are not only accelerating, but also reaching their limits.

Money and the debt ceiling

In 2009, the National Bureau of Economic Research published a working paper authored by Moritz Schularick from the Free University of Berlin and Alan Taylor from the University of California. It showed that credit-to-GDP ratios have been increasing sharply over the last third of the 20th century and the start of the 21st, doubling their pre-WWII levels by 2008 (to visualise the chart, imagine a hockey stick with the short part turned up). This rise to previously unseen heights is likely to continue. Since loan recipients must pay back more money than they borrow, the total money supply must expand over time to avoid defaults. This additional money can only come from one place: more loans. As a consequence, the total amount of debt must increase over time for the financial system to continue functioning under its current conventions (Dietz & O’Neill, 2013, p.104). Even if, somehow, businesses, states and individuals start repaying a substantial amount of debt, this will simply decrease the amount of money, therefore making it more difficult to repay the remaining debt. To put it bluntly, the debt cannot be and will never be repaid. Furthermore, when people (and even whole nations) stop believing that they will be able to repay their debt, they may even accelerate their spending as there is no hope of paying it off anyway. This is exactly what those who can get away with it do. In the decade since the financial crisis, the total value of global debt, in both the public and private sectors, has rocketed to reach in 2018 an all-time high of $182tn, about 225% of the world’s GDP. In 2020, global debt hit a new high of £281tn – 335% of the world’s GDP. An increase of over 50% in only 2 years! About two-thirds of this debt, amounting to roughly $100 trillion, consists of private sector liabilities, which can carry greater risks. So, why don’t the investors pull the plug? It is because interest repayments are sufficient to keep them afloat, and if they do pull the plug, the whole system will collapse (which is also why banks had to be bailed out in the 2007–8 crash). Everybody knows that this cannot go on forever, but as nobody knows exactly when things will hit the fan, everybody turns a blind eye and carries on business as usual. This situation is made even more precarious by other factors that are also coming to the end of the road.

Individualism and the privatisation ceiling

Throughout the history of capitalism, individualism has gradually become synonymous with private, which in economic terms means only one thing: private ownership. Ever since the writings of John Locke (1632–1704), private ownership has been guarded as one of the greatest values – and, of course, this hasn’t just referred to cars or houses but to businesses as well (the so-called private sector). In the 1980s, individualism, private ownership and the private sector were aggressively promoted and even imposed on the unwilling. Margaret Thatcher privatised many social services in the UK (from the rail network to telecommunications). Since then, privatisation has been exported and imposed internationally by organisations such as the IMF and the World Bank. This has created a new breed of oligarchs from Russia to Mexico, but has also had, by and large, a negative overall effect on the economy and society. One stark example is the private health system in the US: it is worse by almost any measure and more expensive than national health services in comparable countries, and even in incomparable ones such as Cuba. Not surprisingly, the resistance to privatisation is growing, and at the same time the expansion of private ownership is reaching the ceiling too. What could have been privatised already has been. Big corporations such as Nestlé have been testing the water in more than one sense to see if they can get away with privatising water itself[2]. What will be next, the air we breathe? There is not much left to be privatised and the accumulation of private property, especially land, is another global crisis in the making.

The ceiling of investment

Investment is in a similar predicament. There is simply too much money to invest. The 2008 crisis is often blamed on the housing market and irresponsible borrowing and lending. But this irresponsible borrowing and lending was triggered, at least in part, by cheap money (money that is desperate to be invested) flooding the market. That money came mostly from exporters to the US, such as Germany and China. In the current system you lose money if it stands still. So, you must invest: investment is increasing rapidly, while opportunities for investment are shrinking. Despite ever

more creative types of investment policies and occasional bursts of (not always successful) investments in new technologies, possibilities for investment has been reduced to a trickle in comparison to previous stages of capitalism. This means that greater risks need to be taken for lesser returns. Especially with very low interest rates, a lot of big money is floating around trying to find a home. Of course, we could have massive public projects that would require much investment and reduce unemployment. But such projects are usually long term, and as already discussed, almost nobody is interested in them anymore (with the possible exception of China – and, interestingly, the president Biden, although his proposal is bound to be watered down). The future itself may be infinite, but how far we believe in the future (which is what matters here) is not – and is rapidly shrinking. There is a ceiling to it too.

Consumerism and the resources ceiling

Many systems throughout history have been wasteful, but capitalism beats them all by a large margin (for example, in the West, we actually throw away nearly 50% of the food produced). A whole chapter later on will be dedicated to resources and wastefulness, so for now let’s just briefly point out the obvious: we have limited resources on this planet and it is certain that we will soon reach the ceiling of consumerism as we know it.

Competition and the monopoly ceiling

Monopoly maximises profit, so it is the logical (and desirable) conclusion of competition for capitalists. The winner takes it all – as in the game Monopoly. Indeed, when competition is allowed to get out of control, it ends in its antithesis – monopolies. This was a problem in the time of Adam Smith and it remains a problem now. In 2016, The Economist published three cover stories on America’s monopoly problem. The magazine reported that two-thirds of all corporate sectors have become more concentrated since the 1990s, that corporations are far more profitable now than at any time since the 1920s, and that an inordinate amount of profit goes to a very few immense investment funds. Just three asset managing corporations (Black Rock, Vanguard and State Street), all from the fast-growing index-funding sector, are the largest shareholders in 40 per cent of all publicly listed firms in the US and  the largest single shareholders in almost 90% of the 500 largest listed companies in the US, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola. In April 2016, the White House Council of Economic Advisers concluded that the US has a ‘concentration problem’ that is manifested in many ways. These include the declining fortunes of rural America as farmers struggle against agricultural conglomerates. It adds to the fading of heartland cities like Memphis and Minneapolis, as corporate giants in coastal cities buy out local banks and businesses. It includes plunging rates of entrepreneurship and innovation as concentrated markets choke independent businesses and new start-ups. It is implicated in declining real wages too, as decades of mergers have reduced the need for employers to compete to attract and retain workers. Monopoly is also a main driver of inequality, as profits concentrate more wealth in the hands of the few. Monopoly affects almost every aspect of day-to-day lives, as people (as well as hospitals) face the sky-high prices set by drug-company cartels and the abuses of cable providershealth insurers and airlines. It also provides much of the funds the wealthy use to distort (in particular) American politics. The situation in the US may be the most acute, but monopolies go far beyond. A very small number of big corporations (mainly, but not exclusively, financial institutions) control most of the world’s economy and the flow of money. When you look at the Forbes list of the richest people in the world, many of them are actually monopolists. This, of course, means reaching another ceiling, as competition is the backbone of the capitalist system.

Quantity and the ceiling of growth

Capitalism cannot survive without growth. Because any money borrowed needs to be paid back with interest, it is necessary for the economy to grow faster and faster, just to keep still. But perpetual growth is simply unsustainable. A legend tells of an Indian king who wished to reward the inventor of chess. The inventor asked for one grain of rice on the first square of the chessboard and that the amount be doubled from one square to the next until all the squares were covered. The king readily agreed, since it seemed a small price to pay. The trouble was that by the time it came to the twenty-first square more than a million grains of rice were required, and after the forty-first square, there simply was not enough rice in the world to cover the remaining squares (so, in one version, the inventor had to be beheaded instead). Let’s see at which square on the global growth chess board we are now. A 3% growth rate, which is typical of the rate of a developed economy, leads to a doubling time of just over twenty-three years. The 10% rates of rapidly developing economies double the size of those economies in just under seven years. These figures come as a surprise to many people, but the real surprise is that each successive doubling period consumes more resources than all the previous doubling periods combined (e.g. 8 exceeds the sum of 1,2 and 4; 16 exceeds 1,2, 4 and 8, and so on). As professor Smith points out, “This little-appreciated fact lies at the heart of why our current economic model is unsustainable”. Some claim that the above can be somehow overcome by increasing efficiency, innovation, and the focus on non-material growth based on knowledge and information. These factors may indeed alleviate the situation to some extent, but they all have their own limits:

  • Just as the second law of thermodynamics constrains the efficiency of an engine, efficiency in production or in other economic activities has limits too. Pushed too far, the effect is the opposite of that intended – it starts generating more ‘heat’, or waste. Moreover, the effects of efficiency are also diminished by the so-called ‘rebound effect’: savings (in money or energy) are at least partly eaten-up by additional consumption. When efficiency savings are passed to consumers, the saved money is spent on buying more of the same thing or other things, which increases the use of resources and energy. For this reason, even clean and cheap energy would not solve the problem of growth as the system would encourage consumption that would preclude growth levelling out.
  • Regarding innovation, previous waves of innovations have actually been much stronger than the most recent one. The current wave has been weaker in its effects than is generally supposed, and this is not an accident. Barring extra-terrestrial or time travels, there is arguably hardly anything that could, even in theory, reverse this trend (development in the AI sector are particularly overhyped – sex-robots could not even come near to electrical lights, radios, washing machines, or more recently, mobile phones as a world-changing innovation).
  • Knowledge and information are extremely important but in themselves contribute little to the growth – their application does, but applications also require resources.

Sustaining unlimited growth is simply an impossible task and it looks like we are already on the forty-first square of the growth chessboard. It is hard to imagine anything that can help us move to the next one under the present conditions.

You may ask, “but wouldn’t these two factors, exponential separations and reaching the limits, cancel each other out? Wouldn’t the ceiling slow down the separations?” It might, if they were on the same dimension, but they are not. Rather than using diagrams, let’s use the metaphor of the runaway train again. The same dimension would be something like an uphill stretch, so the train would slow down simply because it is going uphill. Unfortunately, a more accurate representation would be a wall on the tracks (a different dimension, perpendicular to the tracks). So, slowing down and changing tracks is required, but what is happening right now is that the train is continuing in the same direction and speeding up.

There is also a third dimension, the human factor, that could play a crucial role, but it is, by and large, excluded from any serious considerations. It is not surprising, then, that more and more people would rather jump out of the train than make further sacrifices to save it. Let’s see how this is manifested.

c) Psychology (the human factor)

The human factor or psychology has been wilfully neglected in economics and other areas. And yet, as we saw above, psychology plays an instrumental role. The success of capitalism has been and still is dependent on a number of psychological elements. Six are highlighted here, loosely corresponding to the six features of capitalism above (psychology can never easily be boxed in):

  • Trust (in people you don’t know)
  • The sense of individual freedom
  • Belief in the future
  • Fairness (belief in meritocracy, that hard work pays off)
  • Knowledge (as opposed to ignorance)
  • Motivation (the drive that comes from believing in the system)

We argue that they are all now being eroded and are turning into their opposites.

Trust turning into mistrust

As already discussed, trust (in people you don’t know, in financial, political and legal institutions) is essential for capitalism – otherwise we would not use fiat money, for example. We still trust the system enough to continue using money, but in many other respects trust has been eroded, particularly in the leading neo-liberal countries – apparent, for example, in a massive drop in voluntary investment into pension funds. From the beginning of the counter-revolution, this mistrust was encouraged in order to weaken the state and reduce resistance to the change. Furthermore, financial institutions in particular have, by and large, discredited themselves by their irresponsible and unethical behaviour. So now, many people no longer trust political institutions (the state), financial institutions and corporations, or even unions. The most obvious consequence of this is a rise in populism and political and economic fragmentation (such as Brexit).

The sense of freedom is turning into the sense of servitude

Any system initially serves the people (this applied to so-called communism too). A fledgling system of any colour survives only if it has mass support. Later, a point of equilibrium is reached where the system and the people are in a mutually supportive relationship. In the final stage, people start serving the system (the rationale being that this is less costly than the collapse of the system). At the moment, life is still not too bad for many people. However, just about everybody may feel that the system no longer serves them; rather, they are expected to serve the system. This change of tide is palpable. An accountant addressing the staff at a UK university summarised this well: ”The government is imposing market forces on us. I personally don’t like it, but we have to go along with it. We have no choice.”[3]

Belief in the future is turning into short-termism

In the early stages of capitalism, thrift (or saving) was considered one of the greatest virtues as it was necessary for investment. However, only a very few can be capitalists, even in extreme capitalist societies such as the US. Most people just work for them (about 70% of the work force; the remainder are in the public sector or are self-employed). For capitalism to function, the masses must be encouraged to spend and buy – otherwise what is to be done with the produced? So, in a way, there have always been different sets of values for different strata of capitalist society, creating an uneasy balance. What has changed in recent years is that thrift is no longer deemed necessary or valued – even the Chinese government started to encourage its citizens to stop saving and spend more. Short-term investment and the expectation of instant gratification are now the norms. Economists call this form of myopia temporal discounting: people will pay a premium for immediate, rather than future, rewards. But this means that long-term investments are dwindling at the individual level and at the social level, as well as in the economy. The most important psychological component on which the stock market is based, belief in the future, is diminishing, leading to increasingly short-term investments. Rising uncertainty leads to the taking of ever-greater risks with short-term investments, as they are perceived as still smaller than the risk involved in long-term investments. So, not only do stockholders want a quick return because they are greedy, but also because of the perceived risk. Consequently, long-term projects chase investors, while the investors look for short-term ones. Where previously people were cautious about short-termism, in the neo-liberal era it is recognised that short-termism offers a competitive advantage. Sure, this may not be good in the long run, but people care less and less about the future anyway. Just when we ought to be thinking long term more than ever (due to the aforementioned exponential separations and approaching various limits) short-termism is promoted instead. This not only leads to stagnation but to actual regression. Societies that mainly focus on short-term goals and consume more than they invest, go into decline – throughout history, this seems to be a common factor among great civilisations that have perished, such as the Roman Empire, post-Columbus Spain, the late Chinese Empire and the Ottoman Empire, to name but a few. This is exactly what is happening in many parts of the world right now.

‘Work ethic’ has flipped to ‘I don’t care’

One of the central beliefs on which capitalism was built was the so-called ‘work ethic’, meaning that hard work is intrinsically virtuous and worthy of reward. In other words, if you do a hard and honest day’s work, you shouldn’t need to worry about anything else, you should be fine. After the turmoil of the 19th century, WWI and the Bolshevik Revolution in Russia at the beginning of the 20th century, the social contract between capitalists and the workforce was established. Work was for life, and people cared, not only about their job but about the company they worked for and its future. However, this social contract has been broken in recent years. It has become clear that speculating and renting pays off far better than hard work. As a result, management is remote from the workforce, and the shareholders are even more remote. The employees are separated from the end goal of their work to that extent that they often don’t know the purpose of what they are doing. It is not surprising that many think something like this: “if a kid on the other side of the globe can sell the company I work for, and I may lose the job irrespective of the quality of my work, why should I care?” This attitude is even more widespread among white collar than blue collar workers. Understandably, any mention of work ethic is nowadays met only with cynicism.

The sense of fairness is turning into the sense of unfairness

Capitalism is often credited for creating a system based on merit, in which abilities and effort are fairly rewarded. Indeed, in comparison with previous social structures, it made significant strides in that direction. This is the essence of the American dream, popularised in the 1930s, and embraced with renewed enthusiasm in the early days of neo-liberalism. However, creating the conditions for equal opportunity was never seriously on the cards. If it were, no-one should have the unfair advantage of inherited wealth or one’s education should not depend on the wealth of their parents. Neo-liberalism has only made things worse, in this respect, by reducing taxes of the super-rich and making it easier for them to take further advantages that are denied to most others (such as the use of tax heavens). This all adds to a sense of unfairness and cynicism about the prophesied meritocracy. Most people no longer believe that the system is fair, and even though the sense of fairness has long-since been banished from economics books. Psychological research shows that the enduring assumption in the main stream economics, that people always act rationally in their self-interest, is simply wrong, at least when fairness is in question. In one experiment, two people were given $10 to share. One of them was asked to split the money between them. If the other agreed, they took the money, but if the other disagreed, they both received nothing. If people thought that the money was split unfairly (e.g. the one who divided the money gave them one dollar and kept nine for himself), they would disagree. For the sake of fairness, they did not act in their self-interest – forfeiting their gain! The lesson here is that even if people get a few crumbs from the rich man’s table, they will not support the system that they perceive to be unfair.

Love of ignorance is replacing love of knowledge

Capitalism was built on knowledge. The invention of the printing press, the Enlightenment and, of course, the scientific and industrial revolutions, were all instrumental to the appearance and growth of the new system. The value of knowledge used to be well recognised. Knowledge was revered. Mass education was by and large readily embraced. Scientists, mathematicians and philosophers were stars just as actors and sportspeople are nowadays. But then, it all started to change. In the late 1960s and 70s, some mostly left-wing intellectuals (mainly but not exclusively from France) began to challenge, often with good reason, the orthodoxy and the perceived solidification of knowledge. But, in their fight against ‘–isms’, they created another –ism: post-modernism for which, in a nutshell, knowledge and all truths are relative. Ironically, the proponents of the neo-liberal revolution embraced selectively some elements of this essentially left-wing movement to their advantage. This was necessary, as knowledge at this point became dangerous. In the West, brute force still worked to some extent (as in crushing the labour movement in the UK) but its power was limited – people had a chance to vote once every few years – and they needed to be coaxed to vote no less but against their own interests! It was obvious that facts and reasoning would not do, so reducing their value and appealing to emotions instead, was considered more profitable. The first thing that Thatcher did when she took power was to slash benefits and other financial support to students, who since the 1960s had been perceived as troublemakers. In the US too, derision of learning and knowledge was on the cards. Knowledge and education became largely instrumental, a means to an end (getting jobs and serving industry). Young people who loved learning were scorned, teased and bullied. Experts, intellectuals, and scholars were publicly lampooned as ‘elitists’ who are not in touch with ordinary people. If there was a grain of truth in this, it was hugely exaggerated. Eventually, the combination of crass relativism and the strip-down education led to a fundamental reversal: ‘I believe what is true’ has changed into ‘whatever I believe is true’. This ignorance nowadays results in ‘alternative truths’ and the rise of populist demagogues who can ignore facts with impunity. Brexit agitators publicly called for the boycotting of experts, climate change deniers and anti-vaxxers ignore the vast majority of the world’s scientists, while Trump calls facts ‘fake news’ and asks you to rely on his tweets. In short, ‘ignorance is bliss’ rules.

To summarise, people are by and large, becoming disillusioned with and tired of capitalism – the system no longer has wide support. A YouGov poll in 2015 found that 64% of Britons believe that capitalism is unfair and makes inequality worse. Even in the US, according to a Harvard University survey, 51% of Americans between the ages of 18 and 29 reject the capitalist system and only 42% support it. In Germany, a solid 77% are sceptical of capitalism. Three-quarters of people in major capitalist economies believe that big businesses are corrupt. Even the-then British chancellor, Philip Hammond, admitted at the Conservative Party conference in 2018 that “a gap has opened up” in the West ”between the theory of how a market economy delivers… and the reality”. He went on: “Too many people feel that they are working for the system, but the system is not working for them.” The rise of ‘outsiders’ on both sides of the political spectrum (such as Trump, Farage, Sanders and Corbyn) speaks for itself. Raghuram Rajan, a former governor of India’s central bank and chief economist at the IMF, told the BBC:  “I think capitalism is under serious threat because it’s stopped providing for the many, and when that happens, the many revolt against capitalism”. People may not be starting a revolution, but they may not be enthusiastic about saving the system either. And yet, to survive in a time of crisis, capitalism will need the support of the people. Coercing them by force (as was experimented with in countries such as Chile) is unlikely to work in the major Western countries. Cajoling them by the prospect of a brighter future will not do either, as such promises have been broken too many times, benefiting only a few. Securing internal disunity but tacitly fuelling group divisions (based on ethnicity, nationality, sex, or religion) and the sense of being under threat externally (from China, Russia, Iran, North Korea, terrorists, or whoever else fits the bill) are more likely strategies to continue being used, and extremely risky ones. In any case, it can only blind some people temporarily, but in the long-term it will not make them keener to support the system that has betrayed them.


All of the above matters, and not just because it predicts another crisis (after all, capitalism has survived many of these). More importantly, it indicates that even a small crisis can now cause a domino effect and the unravelling of the whole system. In other words, these three factors together conspire to create a perfect storm. To use the metaphor from the beginning of this section, the train is falling apart, heading towards a brick wall and the passengers no longer believe it is taking them in the right direction. Even the IMF questions its direction, as exemplified in a 2016 article, Neoliberalism: Oversold? One may wonder though, why the Covid-19 pandemic hasn’t triggered a crisis yet. Paradoxically, the pandemic may have as well delayed a crisis, because it slowed down the runaway train – and did so fairly equally across the board (although countries with populist neo-liberal leaders, such as Trump, Johnson, Bolsonaro, and Modi were hit most). But this cannot last long. The global economy in the post-COVID world will become less integrated as a result of trade barriers, reshoring of supply chains, and reduced labour migration and foreign direct investment. These changes are likely to have macroeconomic implications: global business cycles could become less synchronised, while growth and inflation could become more volatile again. In other words, we can expect a crisis after, not during the pandemic. But we are getting ahead of ourselves. Perhaps the system can still be saved. After all, it has some mechanisms that work well and taking control of a runaway train may be preferable to the possible chaos that may ensue if it crashes. It is reasonable to consider whether we can repair, change the direction of, and restore the faith in the system, as it were, from the inside.

[1] ‘Seemingly’ is inserted as many junk food or tobacco companies have been engaged for decades in quite effective social conditioning campaigns, so even if many consumers believe that they are making their own choices, these choices may be a result of this conditioning.
[2] Peter Brabeck-Letmathe, the then Chairman of Nestlé, hinted at that in an interview which appeared in the We Feed the World documentary. After a massive backlash, he retracted the ‘privatising water’ suggestion and claimed that it was taken out of context. Nestle too disassociated itself from it and Brabeck-Letmathe stepped down as its CEO 3 years later.
[3] All-staff meeting, University of East London, 2017.

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