From ancient traders to the modern day, capitalism is the most enduring and pre-eminent economic system in history.
Famously illustrated in Adam Smith’s Wealth of Nations in 1776 as the ‘invisible hand’ guiding self-interested individuals to a common good, capitalism has outlasted other systems, and remains a dominant force today.
Those who have periodically celebrated its victory over other systems – usually command economies of various type – in those pinnacle moments have temporarily forgotten that capitalism has its flaws. Sometimes, rather large flaws. The cure for this amnesia is the periodic recessions we encounter, especially the deeper ones.
In the grim aftermath of the Great Depression, John Maynard Keynes struggled with capitalism’s inevitable fluctuations, and proposed an elaborate mechanism for smoothing them out.
Despite the appeal of his elegant, government-led process for offsetting the economy’s wild swings, and the manifold attempts at implementation, Keynes’ proposal has failed to achieve its chief aim. We still experience economic fluctuations with an annoying regularity, and 2008-09 proved that we can still face them on a massive scale.
In fact, if anything, globalization as we know it has increased the potential for a rapid cascade of an economic downturn to all parts of the planet. The Great Recession was, in reality, a near-death experience for capitalism as we know it.
Capitalism is still at risk
Sadly, capitalism is still at risk. The seven years that followed the most recent, and easily the most dramatic, application of Keynes’ formula have tested the general public’s faith in the post-modern version of laissez-faire economics. Millions have been cast out, or never even invited in, to the economic mainstream. Growth has been insufficient to re-absorb workers displaced by the economic crash and its wobbly aftermath, and to absorb millions of potential new yet inexperienced workers.
As their numbers have grown, their voices have been heard in the multiple large-scale uprisings that have been all too frequent in the post-2010 period.
Their voices were heard in the 2016 US election and the Brexit referendum. Although shy of forming a majority, their ranks registered alarming gains in the stream of European elections sprinkled throughout 2017. If something doesn’t change, those voices could eventually prevail.
More economic change in 2018
Is 2018 the year? An early indication may come in President Trump’s first State of the Union speech on January 30.
NAFTA hangs in the balance, and the Administration’s frequent pot-shots at globalization could turn into something more tangible.
Through the year, there is a series of key elections that may also bring change: among the large emerging economies, Russia, Brazil and Mexico all go to the polls this year. Cuba faces regime change as the economy slides, and Venezuela will decide its political future.
Among developed economies, Italy faces a significant election, and of course, there are the US midterm elections this fall.
Some of these may not generate outcomes that favour the current economic structure. But there is hope in key multilateral meetings: the June G7 summit in La Malbaie, Quebec, and the G20 summit in December.
Reviving economic growth could save the day
Behind all this buzz is an economy that’s reviving. Naysayers notwithstanding, the US economy has been gaining strength for some time, and Europe is revving up impressively.
Growth hasn’t silenced the cynics, though – many feel that this is a last-gasp, an unsustainable puff of optimism that has little staying power. Strong evidence of pent-up demand in both the US and Europe suggests they are very wrong. Capitalism is under repair.
Why are we wrangling, after centuries of experience with capitalism? Well, it’s sort of like a two-wheeled bicycle. It takes faith to believe that a rider can keep it upright in the first place. Get the hang of it, and it’s a smooth and fast way to get places. But all it takes is one nasty crash, and it’s easy to lose all of that confidence. It may take years to regain it. But once it’s back, the time-tested physics kick in again, and off we go.
The bottom line?
Is capitalism a perfect system? Far from it. To parody Churchill, it’s the worst form of economic system invented by man – except for all the other ones we try from time to time. It seems that in 2018, we are about to prove that all over again.