What changes would you advocate to replace capitalism ?
It's the neoliberal version of capitalism that's failing, one favoured by economists like Hayek and Friedman, and that came to prominence in the early 80's thanks to Reagan and Thatcher (the latter was famously entranced by Hayek's
The Constitution of Liberty). Even someone like Adam Smith would disapprove of this version of capitalism on steroids, which basically amounts to policies of deregulation and what Arundhati Roy once aptly described as 'the privatization of everything'.
A return to a Keynesian, more regulated version of capitalism is possibly what is required - though even that may not be unsuited to deal with climate change.
For more on this, read one or more of the following (both are highly accessible introductory texts):
Ha Joon Chang - 23 Things They Don't Tell You About Capitalism
Manfred Steger and Ravi Roy Neoliberalism - A Very Short Introduction
The historical background may also be of some relevance:
Chang basically demonstrates in his writing that economic growth in the advanced capitalist countries has actually been
lower over the last 40 years (when various versions of free market capitalism have held sway: Thatcherism, 'Trickle-down' Reaganomics, Clinton's Market Globalism and Tony Blair's Third Way) than it ever was between 1950 and 1970 (when 'socialist' Keynesian economics ruled the roost), or even during the previous 'winter of discontent' and the late 70's period of stagflation which resulted in the monetarist policies of Friedman and Hayek getting adopted.
Let’s run with an example: Thatcher got elected on the back of the Saatchi slogan 'Labour Isn't Working'. This is because there was, at that time, one million unemployed in the UK. For Friedman and Hayek, the focus of macreconomic theory should be on controlling inflation. So Thatcher raised interest rates. This should lower demand as it then costs more to borrow money. Unfortunately, those higher interest rates attracted foreign capital, driving up the value of the British pound and making British exports uncompetitive.
The result was a huge recession. Unemployment soared to 3.3 million people, a significant chunk of British manufacturing was destroyed, and many traditional industrial centres were devastated.
Reaganomics didn't work either. As in the UK, interest rates were jacked up in an attempt to reduce inflation. Between 1979 and 1981, interest rates more than doubled from around 10% to over 20% per year. A significant proportion of the US manufacturing industry, which had already been losing ground to Japanese and other foreign competition, could not withstand such an increase in financial costs. The traditional industrial heartland in the Midwest was turned into 'the Rust Belt'.
Neoliberals subscribe to what is known as the D-L-P formula (De-regulation of the economy, Liberalisation of trade and industry, Privatisation of state owned enterprises). Financial deregulation in the US at this time laid the foundation for the unstable and morally egregious financial system we have today, which involves hostile takeovers, asset stripping, and so on. To avoid this fate, firms at the time of Reagan had to deliver profits faster than before, otherwise impatient shareholders would sell up, reducing the share prices and thus exposing the firm to a greater danger of takeover. The easiest way for a company to deal with this was through downsizing, reducing the workforce, cutting overheads and minimizing investments, even though these actions diminish the competitiveness of the business in the longer term.
Here's a damning statistic from Chang: '...distributed profits as a share of total US corporate profits stood at 35-45 per cent between the 1950's and 1970's. Between 2001 and 2010, the largest US companies distributed 94% of their profits [to shareholders] and the top UK companies 89% of their profits.'
And here's another: '...in the UK, the average period of shareholding, which had already fallen from 5 years in the mid 1960's to two years in the 1980's, plummeted to about 7.5 months at the end of 2007.'
The D-L-P formula has also proved disastrous for developing economies too. One of the latest examples is India (often held up as a neoliberal economic success story) where 250,000 farmers have committed suicide because of it. For the back story on that, read Arundhati Roy's
Capitalism: A Ghost Story.
Let's also consider the instability of the financial markets that has been a consequence of the deregulation of them.
Start of 1990's - banking crises in Sweden, Finland and Norway
1994/95 - 'Tequila' crisis in Mexico
1997 - crises in 'miracle' economies in Thailand, Indonesia, Malaysia and South Korea
1998 - Russian crisis
1999 - Brazilian crisis
2002 - Argentina
2008 - We all know about that one
Virtually no country was in banking crisis between the end of the Second World War and the mid-1970's, when the financial sector was more regulated. Between the mid-1970's and the late 1980's, the proportion of countries who experienced a banking crisis rose to 5 to 10%, weighted by their share of world income. The proportion then shot up to around 20% in the mid-1990's. The ratio then briefly fell to zero for a few years in the mid-2000s, but went up again to 35% following the 2008 global financial crisis.
In summary, the present 'winter of discontent' has to be understood in the above context. It's been coming for a while. Brexit might also be partly seen as a reaction against neoliberalism, which requires the free movement of labour across borders.
Note that I have only looked at the emergence of our present problems purely from a macroeconomic perspective in this post and not considered the impact of Covid-19 . So its explanatory power is limited. But it is a piece of the jigsaw puzzle.
As for the selfish behaviour of people in the pandemic, it is worth noting that neoliberalism is also predicated on a flawed model of human beings as rationally self-interested creatures, one which has been conclusively demonstrated to be false in subsequent multidisciplinary research. For more on that, see Matthieu Ricard's book on Altruism.
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