It’s beyond ripe and starting to smell. This recent form of capitalism is past its due date.
Not all versions have been so bad. The preceding “Golden Age of Capitalism” started after the Second World War brought general prosperity to all. Its guru was John Maynard Keynes who made stimulus spending an engine of growth. That cycle saw the formation of unions, growth of wages, construction of public infrastructure, improvements to social security and — a novelty today — reliable governments. It ended with the stock market crash of 1973-74, followed by a decade-long recession.
This round of capitalism has been called many things. Naomi Klein, the author of The Shock Doctrine, calls it “disaster capitalism.” She describes it from the perspective of developing countries as characterized by war, torture, disaster and political upheaval. With a country in ruins, First World multinationals move in and exploit the turmoil, take over services once controlled by government, and sustain the systemic instability in order to profit from it.
Murray Dobbin of the Canadian Centre for Policy Alternatives calls it “savage capitalism” or “extreme capitalism.” The Chicago School economist Milton Friedman is the guru. Unlike the Golden Age, this round is characterized by decaying infrastructure, attacks on social security, stagnation of wages and governments in disrepute.
Its been golden for only a few. The middle class has been hard hit. A report commissioned by Finance Minister Jim Flaherty revealed that after-tax income increased an insignificant 0.2 per cent annually from 1976 to 2010. Savage capitalism has not been kind to full-time workers who saw wages increase $2 a year over decades.
Considering the increase in labour productivity over this period, you would expect that workers would have received a bigger slice of the pie. Productivity increased by 37 per cent. If labour had received their fare share, median average wages would be $15,000 more annually says Dobbin. So who reaped the rewards of productivity? The capitalists, of course.
Ironically, the tenets of Keynes’ Golden Age were invoked to save us all from the excesses of Friedman’s deregulation.
However, instead of the stimulus money going into job creation in building infrastructure and saving homeowners from mortgage defaults, it went into the very pockets of racketeers who caused the mess.
While some of the stink from savage capitalism is unique, it assumes the classic features of all cycles. Capitalism increases productivity by reducing input costs, including labour, so that eventually there is a surplus of goods that fewer people to buy because of stagnant wages. Less consumption results in fewer jobs and inevitable downward spiral of recession.
But this round is complicated by cheap Chinese goods and the growth of credit to buy the goods. Canadian debt is perilously high. For every $100 of income, Canadians owe $163.
Money borrowed against home equity is 12 per cent of our GDP (4 per cent in the U.S.).
How savage capitalism will end is anyone’s guess. “Nothing in nature or economies stays the same for long,” warns Dobbin, “and these two factors (cheap goods and cheap credit) can no longer save extreme capitalism from its crisis.”