Recap
To save time I am sending a written summary of my lectures since January 11.
We reviewed the political and economic theories of capitalism from Adam Smith through John Maynard Keynes to Milton Friedman. We also reviewed the policies and practices of capitalist governments in the last 2 ½ centuries.
We have seen how capitalism has changed over time in response to technological developments, changes in management styles, and a series of crisis situations. It has survived mainly of its capacity to adjust to changing circumstances.
Adam Smith’s model of a freely competitive market (laissez faire) was steadily eroded as many players were thrown out of competition and wealth concentrated in the hands of fewer and fewer people.
Karl Marx already observed this early on – in the Communist Manifesto (1848) and especially in Das Kapital (1864). While conceding that capitalism was a free enterprise system, he said, its internal dynamics generate the opposite tendency towards monopoly.
The crisis in the late 1870s made this tendency transparent. Instead of having its powers diminished, the capitalist government became increasingly powerful; and the bourgeoisie became increasingly reliant on state support.
The period from 1880 to the outbreak of World War I is known at The Age of Empire because it was during this period the British expanded its empire (“the empire where the sun never sets”), the French grabbed colonies in Asia and Africa, and Germans (quite a late comer in the game) could only pick up what was left. Using the enhanced power of the state, the imperialists turned their colonies into new markets, new sources of industrial raw materials, and new fields for investment.
After World War I, there was again a clamour in the business circles of the victorious allies to clip the powers of government and move back to the free enterprise model.
In 1929 the world capitalist system plunged into the Great Depression, the worst economic crisis in history. To lift the United States out of this crisis, President Franklin Delano Roosevelt launched the New Deal, a series of programs designed to create jobs and thus restore the vibrancy of the market.
John Maynard Keynes came forward to provide a philosophical justification for the New Deal. In lieu of laissez faire, he urged the capitalist governments to regulate the market, manage the currency, set up public enterprises in critical areas where private capitalists are reluctant to go, and establish a network of welfare services to be financed through taxation.
World War II suspended the debate between free enterprise and state intervention. Needless to say, a country at war cannot afford free competition. Adam Smith had in mind a nation at peace. To fight Germany and Japan, the American and British militarized their economies; the government assumed full control of production, distribution and banking.
When the war ended in 1945, there was a clamour to reduce the powers of government and revert to the market system. But there was also strong resistance to laissez faire from the trade unions in Britain and the rest of Europe. The Labour Party won by a landslide in the 1945 elections. Although claiming to be socialist, the basic philosophy of the Labour government of 1945-51 was Keynesian rather than Marxist.
The Conservative Party recaptured power in 1951. While using the rhetoric of laissez faire, the Conservative government actually refrained from dismantling the Keynesian structures established by Labour. The Conservatives were not prepared for a head on clash with the trade union movement, and there was fear that the ensuing social dislocation would strengthen the communists. (During the Cold War the capitalist countries were locked in a fierce struggle with the Soviet Union.)
The newly independent nations adopted their own versions of Keynesianism. They set up mechanisms to protect the native capitalists from foreign competition. They enforced import controls, price controls, exchange controls and other regulatory devices. The Philippines briefly followed this line under Presidency Carlos P. Garcia.
As the Soviet threat waned in the early 1980s, Margaret Thatcher in Britain and, later, Ronald Reagan in America unleashed a vigorous offensive against the trade unions and dismantled the Welfare State, the structures founded on Keynesian principles.
Thatcherism thus replaced John Maynard Keynes with Milton Friedman in the pedestal of capitalism. The major capitalist powers reached the “Washington Consensus” to create a global market along neo-liberal lines. The IMF, World Bank and WTO pressured all nations to liberalize, deregulate and privatize.
Today the neo-liberal philosophy is in retreat. We have seen the failure of Fidel Ramos’ “Philippines 2000” program. The “Asian tigers” recovered from the financial meltdown of 1997 because they only paid lip service to neo-liberalism and maintained a highly regulated economy.
The most staggering blow to neo-liberal capitalism came in 2008. America, Europe and Japan plummeted into a crisis reminiscent of the Great Depression. Obama, Sarkozy and Merkel are now desperately looking for an alternative where the state is to play an active role once again.
Such an alternative can only be within the framework of capitalism. In the next series of lectures, I will discuss socialist political theory, the radical alternative to capitalism.