Life for us if capitalism fails

My carefree daughter zipped past him on her trottinette. She was eager to get to the playground that Saturday morning. As always, I trailed behind her, running at full pace, trying to keep up.

“Slowdown” I yelled.

He looked down at us, frozen in his motionless, but reverent pose. His statue, towering down at Geneva’s inhabitants in Parc des Bastions, goes largely unnoticed these days. But, it still traps a rich piece of Geneva’s history, now partly lost in the modern world.

Back in 1555, this man known as John Calvin, gave a sermon that defined the Protestant Virtues: hard work, self-denial, patience, honesty and duty. During his life he encouraged his followers to never indulge and instead put their surplus income back into their business as an investment.

It wasn’t this Protestant reformist’s spirituality that interested me. But, I have to confess, even as a catholic, that I was lured by his really good business advice.

You see after Calvin, greed was no longer “the root of all evil”. He explained that working hard and being an honest businessman was not just good for the soul, but benefitted mankind by enriching us all.

Thus, his sermon had inadvertently laid the first foundations for capitalism to flourish centuries later. Eventually, German sociologist and economist Max Weber wrote a now famous book in 1905 on this subject, called The Protestant Ethic and the Spirit of Capitalism.

Capitalism came into force fully during the Industrial Revolution. Unfortunately, the virtues of good business were often cast aside, so since then it has often received a lot of bad press.

Famous author Charles Dickens hated capitalism so much he even wrote a book called Hard Times: the protagonist Mr Gradgrind, lived in the fictional city Coketown wherehe abused his workers and made children work in the mines. Dickens portrayed capitalism as a culture that supported appalling conditions for its workers.

Interestingly, Adam Smith – the grandfather of modern day economics – had a very different view of capitalism before the Industrial Revolution had fully developed.

When he published the Wealth of Nations back in 1777, he was deeply concerned about slavery. The oppression and cruelty it delivered was detrimental to the advancement of mankind. Moreover, it made little economic sense. Maintaining slaves exceeded the cost of providing wages. The lack of liberty was also a lousy incentive to work compared to money.

For him, capitalism was what allowed the law of supply and demand to function properly. He painted the image of an invisible hand, guiding producers to deliver goods and services where there was the greatest need.

Here, the free market alone controls the production of goods and services. There is open competition. There is also a profit motive for those who produce. And, as was later define by other economists, this pivoted strongly on the concept of ownership, creating a system of ‘natural liberty’.

On the whole it did make society wealthier. For instance, two hundred years ago 85 percent of the global population lived in extreme poverty. Today, this has fallen to just 16 percent.

There have of course been some serious negative side effects. For instance, despite improved living standards, a huge amount of capital is owned by a very small wealthy elite.

The problem is that those who win under the free market model often gain leverage: the first million might be the hardest to make, but then money acts like a magnet to new opportunities and connections. Under such conditions, wealth builds up quickly in the hands of the few. This gives this minority immense power and influence, and the desire to remain where they are, which can remove some of the liberty enjoyed by ordinary people.

Adam Smith even warned about this. He explained that their “interest is never exactly the same with that of the public” and that they “have generally an interest to deceive and even to oppress the public”. It’s pretty harsh and it runs against conventional wisdom that the wealth from the rich, trickles down through the creation of jobs thanks to them. Whatever your view, maldistribution of wealth does exist.

Another problem with our modern day interpretation of capitalism is that it doesn’t factor in the cost to future generations. For example, there is the toll it has taken on the environment, such as the acceleration of global warming. It’s also helping deplete the world’s resources by supplying the immediate demands of present-day society. 

The free market mechanism – the invisible hand – is designed to meet the current demands of the economy and is based on natural competition and profit making. So perhaps it’s not designed to support the common good or help future generations. These are what we call in economics, negative externality.

Now let’s be clear – I am a capitalist. It’s not that I don’t care about all of the above. It’s just that I believe that what the modern world is applying is a sub-optimal version of capitalism, born from the dirty bowls of the Industrial Revolution.

Capitalism can have a conscience because helping mankind and creating a better world for future generations will ensure its survival. However, for some reason this has been lost and this is why I want to be bold and discuss life after it’s “game over” for capitalism.

It sounds dramatic, but I think it’s a concept worth exploring. Economists rarely talk about it because capitalism has been so successful in terms of its collective wealth creation and the vastly improved living standards it has helped create.

So if we do see an end to capitalism, we will need to think seriously about what changes will be needed for the long-term survival of the human race. It sounds dramatic, but these days we take mortality less seriously, thanks to the such great living standards we enjoy now. Afterwards, once our survival needs are met, we need to also think about what we will do with the surplus wealth left over.

Perhaps what we will need to think about in this new world, is caring for the gifts nature gives us as we consume. We may need to also think about how we can curate the collective intellect of the human race so future generations can also benefit – it not just about protecting tangible resources.

There is an interesting idea from Jeremy Rifkin, the author of the book Zero Marginal Cost Society. He believes that some time in the not so distant future, there will be a trigger that leads to the collapse of capitalism. This is likely to occur when technology and the flow of information will move us to a zero-margin cost society.

Marginal cost is what is needed to produce an extra unit of a good or service, once fixed costs are met. If technology can push marginal costs to zero, it essentially makes extra units of these goods and services free. We are already seeing this happen with the rise of the internet, which has made access to a lot of information free.

Jeremy Rifkin goes one step further by applying this concept to the future “internet of things”. Here the internet of information will expand and allow us to share other resources, such as energy through smart grids and raw materials for production in a much broader internet. In his end game, the economic problem of finite resources is replaced in a caring and responsible world of abundance, where everything is shared for free.

It sounds like heaven. I’m a little skeptical. But perhaps John Calvin would have approved.