Since this blog was initiated in 2012 it has made frequent reference to the many and growing economic distortions and perversions resulting from a) destructive and anti-social actions undertaken in the name of boosting corporate profits or the market value of assets, and b) wasteful over-investment and over-production undertaken in an attempt to maintain the level of economic activity as well as the market value of assets. This is not exactly a new phenomenon in the history of market capitalism, which has always depended on ensuring continual expansion of demand for capital to maintain the system’s health; systemic crises such as those of 1929 and 2008 can invariably be attributed to the periodic failure of markets to maintain sufficient demand for capital on the part of investors.
What is arguably new, compared with previous phases of the capitalist epoch, is the sustained effort, in which corporate interests have been substantially supported by the state, to provide artificial support for market demand and thus the rate of economic growth – defined as the growth of Gross Domestic Product (GDP) – a target barely considered by policy makers before the war. This had the twin objective of a) sustaining the level of employment – regarded as a political priority after World War II – and b) trying to keep asset prices rising – an ultimately indispensable requirement of system survival. This was perhaps the most important lesson drawn from the teachings of Lord Keynes: that markets cannot be relied on to deliver adequate levels of growth without some degree of market-distorting intervention, official or otherwise.
In truth, however, experience has shown that there are limits to how far such intervention can be effective in sustaining the level of economic activity or asset prices. Thus since the 1970s levels of GDP growth in the industrialised (OECD) countries have generally stagnated at around 2-2.5 percent annually, compared with 3-4 per cent for much of the post-war period up to 1973. The failure of “Keynesian” strategies of fiscal expansion to stimulate faster growth was for long a puzzle to many economists, although it is now clear – if only with hindsight – that the main source of macroeconomic dynamism in the post-war period was in fact a) the huge amount of pent-up / unsatisfied demand stemming from both the stagnation of consumption in the 1930s and enforced war-time austerity and b) the stimulus provided by the post-war reconstruction effort. Thus the relatively slow growth of GDP recorded from the late 1970s onwards must be attributed to the inevitable fading of such sources of growth, although this is still scarcely recognised by many economists.
In the absence of such continued sources of dynamism it was obviously necessary to seek out others, bearing in mind the absolute imperative of sustaining economic growth, although this compulsion was seldom if ever spelt out in analysis or debate over how to ensure continued growth. Rather it remained the unspoken assumption that growth could and would resume / occur at sufficiently high levels provided the right policies, particularly macroeconomic, were pursued. In reality since the war it had never ceased to be a central feature of official policy to promote strategies based on support for certain sectors which were seen to be vital to sustaining demand in the economy as a whole. Foremost of these were the defence industries, which had since World War II been regarded, particularly in the United States, as requiring to be maintained at a certain level of activity in order to avoid economic stagnation or even contraction, as had occurred after the First World War. This principle was implicitly enshrined in the US National Security Act of 1947, which created the superstructure that was to underpin support for the military – and thus for the “defence” industries.
This establishment of what has been called the “National Security State” has been widely recognised as creating distortions not only in economic strategy but in foreign policy as well, leading to generally uncritical US support for states such as Israel and Saudi Arabia, with what many have reasonably viewed as dangerous consequences for regional and world peace – and ones which may by extension have contributed to the currently unfolding global disorder. Yet many other economic sectors have been encouraged or enabled by governments to promote activities which are highly questionable in their social or economic consequences even though they may provide a limited boost to corporate employment or profits. These include:
Production and distribution of goods and services that are known to be harmful to public health. The growth since the 1970s of harmful industries such as pornography and gambling, which were previously severely restricted activities, but which now cause untold social damage all over the world;
The ever more pervasive professionalisation and commercialisation of competitive sport. This has reached the point where, for example, the amateur ideal originally enshrined in the founding principles of the modern Olympic Games has by now been totally abandoned. Likewise the swelling flow of funds coming into the sector has led to the spread of corruption visible in an epidemic of cheating (also driven by gambling incentives) in many sports – including football and cricket – and has risked destroying the reputation of cycling as well as the World Anti-Doping Authority for a generation.
Wasteful construction of unnecessary infrastructure such as the HS2 railway and London Olympic Park in UK and the monstrous construction of 5 new football stadiums for the 2022 World Cup in Qatar, a country of only 2 million people with no domestic need of such facilities, not to mention tens of millions of empty dwellings in China.
The continuing encouragement of investment flows into pension and mutual funds even though it has become obvious that these can no longer deliver gains to savers – and in fact are just as likely to lead to crippling losses for savers and investors. In theory such flows are meant to provide the capital for new productive investment, but by now are for the most part purely speculative, only serving the interests of fund managers and the rest of the otherwise increasingly redundant financial sector – once described as “socially useless” by Lord Adair Turner, former Chairman of the Financial Services Authority.
The West’s progressive trashing of its own values
For much of the period since 1945 the leadership of the Western world has proclaimed its commitment to universal values – human rights, the rule of law and democracy – as embodied in the Universal Declaration of Human Rights (1948). Indeed throughout the Cold War (up to around 1990) Western propaganda contrasted the so-called liberal values espoused by Western democracies with the totalitarian tendencies of the Soviet Union and other communist countries. At the same time countries were barred from full participation in the institutions of the international market economy if they did not comply with certain minimum standards of economic liberalisation – such as openness to foreign investment – and democratic government. It may be said that this principle was never consistently applied. Thus Japan was admitted as a full member of the Organisation of Economic Cooperation and Development (the club of “free-market” industrialised economies) despite applying some restrictions on access to its market. On the other hand South Korea was denied membership until it ceased to be a military dictatorship after 1988.
Over time, however, it came to be recognised that restrictions on doing business with illiberal regimes and “non-market” economies were acting as a hindrance to economic expansion, just as curbs on gambling and pornography had done. The first major breach in the wall of supposed ideological purity was the launch of the “ostpolitik” of West German Chancellor Willi Brandt around 1970, which facilitated trade with and investment in the Soviet bloc countries in spite of the lack of commitment by the latter to a market economy ideology or political pluralism. Equally, there can be little doubt that the Nixon administration’s historic overture to the People’s Republic of China in 1972, after decades of mutual hostility since the Communist revolution of 1949, was motivated to a significant extent by consideration of trade and investment opportunities, although naturally this was never stated to be a reason for the change in policy.
These developments may be seen as the start of the progressive abandonment by Western democracies of their claim to uphold the principles of human rights, the rule of law and democracy in international relations on a consistent basis. In fact it could be said that their approach to China following the Tienanmen Square massacre of 1989 marked the watershed moment in this decline, when, following their initial horrified reaction – expressed in gestures suchas barring China from hosting the 2000 Olympics – the Western establishment rapidly relented and allowed Beijing to host the 2008 Games. Since then Western governments and corporations have made no serious attempt to hold China to either established human rights norms or open market standards of economic conduct, while allowing its admission to the World Trade Organisation in 2001.
At the same time the West has promoted the creation of the G20 (Group of 20) – comprising what are deemed to be the world’s 19 most economically important nations plus the EU – in 1999, to sit alongside the much older G7 grouping (dating from 1975) and ultimately, it is supposed, to supersede it as a forum for global economic policy coordination. The significance of this move is that, whereas the G7 comprised only industrialised countries fully accredited as upholders of human rights and free-market standards, the G20 includes a number of countries with a highly questionable – if not non-existent – commitment to such standards, particularly in respect of human rights and the rule of law, notably China, Russia and Saudi Arabia. The inconsistency of this change, which has been widely criticised in the West, was brutally exposed when Russia, which had also been admitted to the G7 (thus forming the G8) annexed Crimea (part of Ukraine) in 2014, whereupon it was expelled from the G8, though not from the G20.
Taken together, all the developments described above can be said to constitute a steady crumbling in the commitment of nations of the “free world” to upholding the ideological principles on which they themselves had led the world in insisting that the post-war world order should be founded. It is perhaps obvious that this decay in moral leadership provided by the Western powers has not been confined to the narrowly economic sphere, even if that provided the main motivation for such a deviation from established standards. Thus the US and its allies have increasingly resorted to a) open flouting of the UN Charter in defiance of international law – most notably in their invasion of Iraq in 2003 – and b) increasing disregard for legality in selectively allowing or encouraging political abuses, including electoral malpractice, in different countries.
It follows from our earlier analysis that the roots of this moral degeneracy of the West lie largely in chronic economic and market failure – in particular the need to feed the insatiable hunger of the capitalist god for ever more unattainable levels of growth and investment. Hence the need to convert as many activities and assets as possible – including most public services as well as previously amateur sport – into profit-yielding businesses. As noted in another recent posting – What Hope for a Lawless World? – the desperation to keep the profits machine going is such that blatantly wasteful, anti-social and even downright criminal behaviour is more and more being treated as acceptable or even positively commendable. Thus the phrase “greed is good” is not simply an example of poetic hyperbole from Hollywood.
It is important to try and understand how this obsession with the search for profit feeds through into disregard for moral standards more generally. Naturally the determination to subordinate traditional activities and values to profit seeking – as, for example, in the new permissiveness towards pornography – tended to loosen people’s commitment to upholding such values. But the sector with the biggest propensity to subvert received moral principles is clearly that of defence and armaments – given that it has an inherent tendency to promote or perpetuate conflict in pursuit of enhanced profits.
What should alarm citizens of the Western world is that the apparent progressive decline in their adherence to moral standards – while still trying to present themselves as model exponents of the rule of law and democracy – means that this self-image has now turned into its opposite in the eyes of many in the rest of the world, particularly in the light of such manifestations as the continuing atrocity of the Guantanamo Bay detention camp 17 years after it was opened and egregious unpunished breaches of international law such as the US / UK invasion of Iraq in 2003. Instead leaders of these countries and their mainstream media devote much energy to denouncing the multiplying threat of terrorist attacks from Islamist and other groups who they claim despise Western values – without allowing for the possibility that they might actually be an expression of contempt for the sickening hypocrisy of Western nations in trampling on their own supposed values. A conspicuous example of this was the refusal to recognise the plausible evidence that the 7/7 suicide attack on London in 2005 – resulting in 52 dead and over 700 injured – was viewed by its perpetrators as in part a response to Western attacks on Muslim peoples such as the Iraq invasion of 2003.
If it is true, as we have suggested is clearly the case, that such perverse tendencies are ultimately the consequence of the pressure to find outlets for capital investment in a world where the genuine economic need for it is progressively dwindling, this clearly points to the need for a radical reorientation of our present economic model if even more serious damage to society is to be avoided. Above all this would point to the need to end the present fatal emphasis on profit maximisation by enterprises, which currently drives their efforts to nurture the acquisitive tendencies of consumers. This in turn indicates the importance of revising key features of the present economic order – notably limited liability – which now serve to exacerbate economic instability rather than preventing it, as was originally intended.
Hi Harry thanks for your post excellent observations. Here is an alternative viewpoint.
GDP is a physics based variable. The economy is a physics based system. Limits to growth are because of physical limitations. The world economy is already in overshoot. Capitalism is no longer a relevant term. When the economy approaches limits supply and demand no longer function as expected. Lack of affordability reduces commodity prices even when they are scarce. More relevant is debt based asset inflation substituting for real growth. The effects of asset inflation are:
>market distortion from lack of price discovery
>Modern Monetary Theory
>collapse of the trust horizon ending democracy
>collapse of capital demand and the end of traditionally understood capitalism
Thanks for your comment, which seems to suggest you are in much the same place as myself. However to enable me to comment further you would need to spell out your argument a bit more clearly – e.g. “Limits to growth are because of physical limitations.”