Capitalism's not what it used to be

The New York Times recently ran a symposium about whether Marx was right about capitalism and its eventual and inevitable demise.

Specifically the symposium was designed to address Marx’s theory that as capitalism matured, there would be an increasing concentration of capital in the hands of fewer and fewer people. As a result, the working masses would be impoverished, demand for goods and services would collapse and capitalism would be rendered unsustainable.

It would be fair to say that the balance of the debate in the Times was with those economists and political scientists who reckoned that Marx got it wrong. They argued that Marx could not foresee that a market-based system of economic organisation was capable of producing rising living standards for the industrial working classes over a sustained period of time.

But the fact is that a debate about whether or not Marx was right about the inevitable demise of capitalism would have been unthinkable in the pages of the Times even a decade ago. The overwhelming view of most economists and political scientists for at least a half a century if not longer was that Marx was wrong about capitalism and its adaptability -- what the economist Joseph Schumpeter called the “perennial gale of creative destruction”.

I do not pretend to be any sort of expert on Marxism but it does seem significant that the Times would run a debate now about Marx and specifically about whether capitalism in its mature 21st century form can survive.

There is a growing debate in the United States about the relentless and long-term growth in inequality, with capital concentrated in fewer and fewer hands and with wages stagnant at best since about 1980 and falling in real terms for the past couple of decades, more or less since the beginning of the Clinton presidency in 1992.

At the same time, full employment, which once meant an unemployment rate of under 4 per cent, is no longer considered by many economists to be a real prospect any time soon.

There is an increasing disconnect between economic growth and the growth not only in wages and salaries, but in actual jobs.

From Washington this week, Treasurer Joe Hockey said Australians were lucky, that unlike in the United States, real wages had actually grown over the past couple of decades albeit modestly. The unspoken warning from Hockey was that we could not expect real wages growth as some sort of inevitability into the future.

In the United States, both liberal and conservative economists accept that the threat of instability and social unrest in a liberal democracy as a result of growing inequality is a real one, though of course there is no consensus about what should or could be done to address the problem.

It is clear however, that mainstream conservatives -- not the Tea Party Republicans or their spruikers on Fox News -- do not believe that the market, left to its own devices, will ‘solve’ the problem of growing inequality. 

They accept that some of sort of government action is needed, but that action cannot be simply to spend more money on what they describe as 20th century programs that are entirely inappropriate for the 21st century.

In the Washington Post last week the economic columnist Harold Meyerson, who is a centrist on economic policy and economics, argued that the US was in the midst of a jobs crisis.

This crisis, he argued, was due to a combination of factors including technological change and the concentration of the ownership of capital in the United States -- not to mention to the export of more than 2 million jobs in manufacturing since 2000 as a result of a trade deal with China.

“…As computers pick up more and more skills, we will have to embrace the necessity of redistributing wealth and income from the shrinking number of Americans who have sizeable incomes from their investments or their work to the growing number of Americans who want work but can’t find it,” he wrote.

“That may or may not be socialism; it’s survival.”

Meyerson is by no means an outlier in the debate about inequality and its consequences amongst US commentators and economists and even politicians. And the debate is becoming mainstream in a way that perhaps suggests where the debate about economic policy might head in Australia in the not too distant future.

The Abbott government and Joe Hockey in particular are on about what Hockey calls an end to the age of entitlement and the need to cut expenditure, but this does not even begin to address the multitude of issues raised by rising inequality and the possible end of the era of full employment.

Perhaps the May budget will begin to address some of the issues raised in the US debate about the causes and consequences of the long-term rise of inequality -- Hockey after all has just been in Washington and must be aware of how passionate that debate has become. We shall see soon enough.

At the same time, when he is not repeating mantras about Labor’s commitment to saving manufacturing jobs -- a forlorn hope surely -- Opposition Leader Bill Shorten intends to focus his attention on party reform, reform designed to sever Labor’s close ties with the trade unions -- that’s what all the talk of increased democracy is all about -- and to somehow increase party membership from the paltry figure of 44,000 to over 100,000, though Shorten, wisely, has not said when that goal might be achieved.

All of this may be laudable but it is putting the cart before the horse so to speak. The most pressing challenge for Labor is to work out what it means to be a social democratic party in the second decade of the 21st century, at a time of major technological and economic change.

What’s the point of democratic reforms that are designed to make Labor attractive to new potential members when it is entirely unclear just what this newly democratised Labor party stands for?

This is a rhetorical question, but one, nevertheless, that Bill Shorten needs to be able to answer.