The failures of current capitalism: what next?

There have been long-standing warnings that the post-Thatcher and Reagan era of free market, privatised, deregulated, and financialised capitalism was a mistake, not only because of the injustices, hardship and inequality it created, metred out and exacerbated, but also because it failed even on its own terms, which was supposedly to turn around the economic performance of the 1970s, which had been weaker than the preceding 1950s and 1960s. Those preceding decades have sometimes been dubbed the ‘Golden Age of Capitalism’, as not only was there sustained economic growth and full employment, but governments of all political persuasions generally regarded it as their duty to maintain full employment, and to ensure the economic growth thought required to sustain that.¹

While experience varied between countries, generally this involved the ‘commanding heights’ of the economy being in public ownership – the national utilities of water, gas and electricity, along with the crucial productive infrastructure of transport and telecommunications, with the remainder of the economy being regulated to various degrees. Government spending was used to maintain full employment, along with the implementation of industrial policies, regional policies, and active labour market policies. These interventionist measures generally went beyond just maintaining economic growth and full employment, to welfare state delivery, such as a commitment to public housebuilding, for the provision of flats and houses to rent.

On a global scale this was underpinned by the post-war ‘Bretton Woods’ settlement that imposed strict capital controls to prevent international speculative financial flows, the use of fixed exchange rates underpinned by the gold standard, and international institutions including the International Monetary Fund and the World Bank to help deliver this global commitment to prevent any ‘return to the 1930s’. And sure enough, global recession – where the world’s output and income actually declines, rather than slows as was the case during the business cycle troughs of the 1950s and 1960s – was avoided until the post-Thatcher and Reagan era of ‘capitalism unleashed’ created the international financial crisis of 2007–2008 and consequent global recession of 2009. This in turn led to further economic crises and disruption, including the European sovereign debt crisis, most acute in Greece but also impacting other countries – plus the self-imposed austerity policies adopted by the UK and other governments.

The warnings that a change of course was needed grew louder following the 2007–2009 crisis and recession, with calls for a ‘sustainable capitalism’, ‘inclusive growth’ and other such formulations – coming even from the likes of the World Economic Forum at Davos, calling for a ‘great reset’.²

Added to this was the widespread appreciation that action to prevent the climate crisis had proved inadequate, and that more actively interventionist measures would be required. This included questioning the previous assumption that the benefits from productivity growth should be taken in the form of working just as hard and long, with ever increased output, rather than in the form of reduced working time.

There was a recognition that the increased inequality of income, wealth, geography and power were dysfunctional – economically and socially. During the ‘golden age’ of what might be termed regulated capitalism – including, indeed perhaps most importantly, on a global scale – preventing such inequalities was regarded as one of the core purposes of government, along with maintaining full employment through fostering economic growth. Abandoning that regulatory structure, to unleash capitalism, increased inequalities. This created fertile conditions for the 2007–2009 global financial crisis, with the super wealthy demanding ever higher returns on their funds, which the deregulated financial sector delivered through ever more exotic financial products, often made up from the loans that the rest of the population had been taking out to make ends meet, and which were supposed to be valuable because the loans would be repaid, but when the loan repayments couldn’t be met and were defaulted upon, these ‘products’ were exposed as worthless, collapsing the whole house of cards.

The divisions in wealth and geography also provided an open goal for demagogues and populists, making the political system unstable in many countries.

All this led to a recognition that the free market and its ‘greed is good culture’ would not necessarily solve the world’s problems. Nor even return economic growth to that seen in the 1950s and 1960s.

The monetarist and free market medicine of the 1980s had made the patient sicker rather than healthier. Average growth rates of output and productivity – which had been the diagnosis of why ‘something had to be done’ about the economic problems in the 1970s – were lower in the subsequent decades up to the 2007–2008 international financial crisis than they had been during the regulated era of the 1950s and 1960s. This poorer overall economic performance would have made everyone worse off, had nothing been done about distribution. Something was done about distribution – not to protect the worse off, but to skew the distribution of income and wealth still further towards the already richest, making things ever worse.

1. Inequality is bad for you

This increased inequality – along with its causes and consequences – has been analysed by many, including Pickett and Wilkinson (2009)’s The Spirit Level, Piketty (2014)’s Capital in the Twenty-First Century, and Dorling (2019)’s Inequality and the 1%. Now Dorling has returned to the topic, this time with a forensic analysis of the geography of inequality within Britain – although much would ring true for readers from other countries where similar processes have been at play since the 1980s, and even more so since the 2007–2010 crisis, when far from turning away from the free market, austerity policies have been used to make the bulk of the population pay for the bailing out of the banks and the tax cuts for the rich and the super-rich – along with turning a blind eye to the industrial scale tax avoidance and evasion.

When in 2016, against the consensus, Michael Moore in the U.S. was warning that Trump would win the Presidential election, he was basing his argument on the same sort of geography of inequality as Danny Dorling describes for Britain – with deindustrialised areas voting for Trump in the U.S., and Brexit in Britain.

Dorling is a Professor of Geography at the University of Oxford, and while he is an expert in geography, he has also researched and published within the broad area of political economy. Thus, he begins his book with an observation from the British journalist and novelist John Lanchester, echoing the ‘varieties of capitalism’ literature³:

People talk about capitalism as if it were just one thing, but the truth is that we live in a global system of capitalisms plural, with a chunk of ideology in common but considerable differences in local emphasis. (Lanchester 2022, 3)

And Dorling argues that ‘In the UK capitalism has taken on a particularly cynical form’, citing as one example:

One of the first acts of the brief Truss government was to allow bankers to be paid unlimited bonuses, which only encouraged them to gamble more. (p. 10)

Dorling argues that this combination of cynical capitalism, increased inequality, and years of austerity have left the country shattered:

The key ramifications of the shattering of the UK are threefold. First, we are growing spatially and socially further apart from each other. Second, the five giants of poverty first identified in the 1940s – want, squalor, idleness, ignorance and disease – are returning in new forms. Third, we have growing internal political divisions. These spreading cracks in the social structure are all classic signs of a failing state. (p. 13)

2. The five giants of poverty

The modern-day ‘giants of poverty’ Dorling identifies as food, precarity, waste, exploitation and fear. On food, he points to the huge growth in the need for food banks across the country, with increasing numbers relying on these free hand-outs, along with the cuts to social benefits to the poor. What grabbed the headlines was the demand that for families that could not afford to feed their children, school kids should be provided with meals during school holidays. The government refused. Then the Manchester United and England footballer Marcus Rashford – from a single parent working class family in Manchester – took up the campaign, forcing the Boris Johnson led Conservative Government into a U-turn.

On precarity, Dorling documents what happened to housing, where a large proportion of the British people used to rent their flats or homes from the local council, and all political parties would fight elections with pledges on how many new homes the government would build. Thatcher reversed this, selling off the public housing. These houses were sold initially to those living in them, but often got sold onto private landlords who rented them out at higher rents than the occupants would previously have paid, along with less being spent on repairs and maintenance. Dorling argues that this Thatcherite policy should be replaced by a ‘right to sell’, where people struggling to pay their mortgages should be able to sell their houses to the local authority, with the right to stay in the house while paying rent to the council.

On waste, Dorling points to the nature of the work we do, with a growing number of jobs in sales and marketing, finance and accounting, head offices and management consulting – ‘in all manner of jobs that appear to be focused on maximising profitability’ (p. 111):

What matters is that the UK has been shifting towards spending more time engaged in activities where more money is made from exploiting each other than helping each other. That is wasted money and time, but in the accounts it can appear as an increase in productivity. (p. 118)

On exploitation, Dorling focuses on education, where university tuition fees were introduced by the Blair government, and then increased drastically by the Coalition government of Liberal Democrats and Conservatives (with the Liberal Democrats having campaigned on a platform of abolishing university fees). And on school education, the state schools have, Dorling argues, been in effect privatised, through being transferred out of local government control, into independent ‘academies’, which has led to inefficiency, ‘money siphoned off to cover the excessively high salaries of academy trust “leaders”’ (p. 154), and outright corruption.

On fear, Dorling documents the fear of ill-health and death, which is related to both geography and social class – and he shows that these fears are, unfortunately, justified. After a long period of improved health following the establishment of the National Health Service (NHS), death rates have been rising, and life expectancy falling as a result of austerity – quite apart from covid and Britain’s inadequate and corrupt response:

Physical health improved greatly in the decades following the establishment of the National Health Service in 1948, and mental health too (as fear fell). However, when economic inequalities rose in the UK from the late 1970s, people’s mental health again began to suffer and then also their physical health.

Since 2012 there has been a dramatic worsening of physical health in the UK. Life expectancy has fallen in some areas and for some social groups, and it has been rising much less than had been predicted for everyone else. It fell overall for both men and women between 2014 and 2018. (p. 163)

Dorling argues that the UK’s bad record on covid deaths was actually surpassed by the number of deaths caused by the government’s austerity programme.

He also argues that a similar process had been seen in the USA:

In the early 2000s a health gap began to widen between countries that tended to vote Democrat and those that voted Republican. Controlling for differences in age distribution, by 2019 an extra person a year was dying in Republican counties for every thousand alive, as compared to the mortality rate in Democrat counties. Had health in Republican areas improved as it did in Democrat areas, then individual mortality rates in the former would have been 11 per cent lower by 2019. There had been almost no gap between the two in the year 2000. (p. 188)

Dorling concludes that:

… the much-maligned 1970s were a time when the UK often ranked first in Europe in measures of quality of life. It had the best provision of social housing, and enjoyed (with just a few other similar states) the lowest income inequality worldwide. It had the lowest infant mortality rates, was far more progressive in education than it is today, had extremely low rates of homelessness, most of its people enjoyed good wages, and its prison population was just a third of the size it is now.⁴ (224)

Dorling’s book contains plenty of detailed proposals to tackle the problems facing Britain – which are similar to the problems facing many other countries, but his final message is that unless a change of course is made, the resulting economic and social failings will hit an ever-greater proportion of the population – the poor have already been squeezed just about as far as is practicable:

… if there is no planned progressive change – change of the kind that last began in 1942 during the Second World War – then in each year from here on there will be more crises. … Housing could become even more precarious than it already is, pension funds could fail, the health and social care crisis could deepen, education may become even more unaffordable and mental health become even worse. The people who will lose out the most – if we just try to stagger on with a few minor remedial actions – are not the poorest. They are already suffering the most. Instead, it will be you, the reader of this book, and more and more people like you. (p. 243)

3. Britain’s economic history and race

Virdee and McGeever’s Britain in Fragments: Why Things are Falling Apart covers the same ground in the sense of analysing the economic and social problems facing Britain, although through the lense of race and racism, and with a historic sweep. Their narrower focus may limit the book’s appeal; but to those interesting in this – important and interesting – phenomena, there is a wealth of material and analysis.

I was struck in particular that Trump’s election slogan of ‘Make America Great Again’ – generally interpreted by friend and foe alike as code for ‘Make America White Again’ – had been anticipated by Winston Churchill’s desire to have the Conservative Party’s General Election slogan be the rather more explicit ‘Keep England White’; they write that Churchill tried:

… to convince his cabinet to adopt the slogan ‘Keep England White’ at the forthcoming General Election of 1955⁵ on the grounds that restricting Caribbean migration was ‘the most important subject facing this country’.⁶

4. The case for capitalism

A very different analysis, of broadly the same issues, comes from the Financial Times journalist Martin Wolf. He starts by reporting on his family background, which he sees as framing his very deep commitment to both democracy and capitalism. His parents were ‘both refugees from Hitler’s Europe’ (p. xiii), hence his belief that democracy is vital to prevent a degeneration into demagoguery, racism, and all that may follow. And also his belief that capitalism – for all its faults – is better than risking the alternative, for fear that it too might degenerate into something worse. Thus, Wolf is eloquent on the failures of capitalism, particularly the era that has led to excessive inequalities, and the 2007–2009 global financial crisis and recession. And what really worries him about the failure of capitalism is that if the current failed model is all that democracy offers, there is a real and present danger that democracy will be abandoned.

Hence the title of his book referring to ‘democratic capitalism’. However, it should be noted that he does not actually advocate or even discuss democratic capitalism, in the sense of making capitalism itself more democratic, through employee ownership or other such measures. What he actually discusses is ‘democracy’, plus ‘capitalism’, both of which he thinks are independently good things. He doesn’t discuss, or even really acknowledge, how undemocratic capitalism is – nor the myriad ways in which capitalism undermines democracy.

And when it comes to alternatives to the current failed capitalism, he is cautious, lest any radical reforms might turn into steps leading towards socialism.

Instead, he lists a number of suggested reforms, such as encouraging patriotism, ‘some form of national service’ (p. 325), agreeing ‘on an acceptable compromise on immigration’ (p. 329), and using ‘citizen juries’ (p. 339). Individually – and indeed collectively – these may be sensible proposals. (My own College has conducted citizen juries successfully, working alongside the local council, on which see https://www.gchu.org.uk/street-voice/.)

Wolf also argues for ‘A “new” new deal’, including for environmental sustainability – arguing for example that:

An important element in making the energy transmission will be internalizing incentives in business decisions. Much of this can be done via carbon pricing. But transparency of the climate risks to which companies are exposed and of the consequences of their practices for the climate will also be important. The Task Force on Climate-Related Financial Disclosures under the Financial Stability Board has made some progress in this regard. The aim is to improve risk assessment, capital allocation, and strategic planning by quantifying and clarifying the situation of each business, for its own benefit and the benefit of investors, regulators, and the wider public.⁷” (256)

But there is little recognition that such measures – carbon pricing, and corporate reporting – have failed to solve the climate crisis. Full disclosure: I do have a personal interest, as Chair of the Commission on Sustainability Data, which is seeking to overcome the problem of corporate reporting having failed to solve the problem, by tying such reporting to the transactional data that does exist for all firms through the software that controls their operations, and which is used to disclose tax liabilities – see https://www.kellogg.ox.ac.uk/kellogg-centres/centre-for-mutual-and-co-owned-business/. If these data could be sufficiently standardised and reported – albeit with appropriate confidentiality – they would be auditable and thus trusted, enabling consumers and investors to punish those firms who would be seen to be failing, despite their glossy publications that claim great things.

Thus, the reforms that Wolf advocates are not on the scale of the free market ‘greed is good’ counter-revolution that jettisoned the old world to which Wolf would have us return. It is not clear whether any of his proposed reforms will be taken up, and even if they were, how much difference they might make – particularly as they would be being implemented by broadly the same post-1980s regime that has survived successive Labour, Conservative, and coalition Liberal Democratic and Conservative governments. The ‘1%’ appear to be firmly in control. So, to rephrase, it’s not clear whether they will permit Wolf’s proposed reforms to be implemented; and if they do, it’s not clear whether this would make much difference to the grip that the 1% appear to have – nor to the actual outcomes for society and the environment.

Unless these gross and dysfunctional inequalities of income, wealth, geography and power are challenged, the current economic and social crises we face looks unlikely to be solved. Dorling’s book does recognise the problem – and does propose solutions that would be up to the task. His focus is on Britain. Indeed, much of the book demonstrates how bad things have got in Britain, by comparison with other European countries where things are better, or at least not so bad.

But much of Dorling’s analysis is of wider, international significance. The free market ‘greed is good’ era launched by Thatcher and Reagan was international, imposed on the former Soviet Union and Eastern and Central Europe as much as on the UK and US – as well as across Africa and further afield. The resulting 2007–2009 international financial crisis and recession hit all economies, even though each country has its own peculiarities – Russia displaying a relatively high degree of corruption, albeit much of the proceeds being recycled through London, and exacerbating Britain’s housing problem with properties bought for investment (or to launder dirty money) and left empty, while the homeless sleep on the streets outside; Greece and other European countries suffering from the European Union’s sovereign debt crisis – and from the orthodox political responses; while the UK suffered from their self-inflicted austerity policies, resulting in a weakened productive infrastructure, and tens of thousands – perhaps hundreds of thousands – of excess deaths.⁸

The response does need to be global – not least in tackling the climate crisis. This needs to include reigning in the global speculative flows of capital, without which the inherent instability threatens to create renewed crises at any time. But that global response will only come through the actions of national governments. Here again, Dorling’s book points the way to a progressive agenda that could be applied in Britain, with national variants pursued elsewhere. Any governments pursuing these sorts of progressive agendas would be likely to wish to co-operate and collaborate internationally – on tackling the climate crisis, the industrial-scale global tax avoidance and evasion, and the root causes of international financial crises which lie in the deregulation of speculative finance and the financial sector generally. National and international action need to be seen as going hand-in-hand, and being mutually reinforcing, rather than opposites or alternatives.

Wolf is right that democracy is under threat. But more of pretty-much-the-same is unlikely to solve the problem – in the UK or globally.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. See Marglin and Schor (1992).

2. See Davos 2021: to achieve a ‘great reset’, we can’t count on the same old globalists to lead the way, by Jonathan Michie, 22 January 2021, www.theconversation.com

3. See Hall and Soskice (2001), Hancké (2009), Bob Hancké, Martin Rhodes, and Mark Thatcher (2007), and Menz (2008).

4. Georgina Sturge and Richard Tunnicliffe, UK prison population statistics, House of Commons Library, 29 October 2021.

5. Peter Hennessy, The Prime Minister: The Office and its Holders Since 1945 (London: Penguin, 2001), 205.

6. Cited in Ian Hedworth John Little Gilmour, Inside Right: A Study of Conservatism (London: Hutchinson, 1977), 134.

7. See Task Force on Climate-Related Financial Disclosures, ‘Climate Change Presents Financial Risk to the Global Economy’, https://www.fsb-tcfd.org

8. See House of Lords (2023), which reports studies that find that the deaths caused by austerity could be as hight as 335,000.