The South African Civil Society Information Service

Is This the End of Capitalism?

By Glenn Ashton · 15 Oct 2008

Picture: artemuestra

The time has come to shift towards a more equitable society.

The present disruption in the marketplace will continue to rock the global financial system for years. This economic shake-out signals many things, perhaps even the end of capitalism as we know it. After all, free market capitalism is meant to stand on its own two feet, independent of state interference. It was never meant to have been rescued by taxpayers funds, as is now the case. The average citizen was never consulted about this bailout and by all accounts is none too keen to prop up a financial pyramid scheme that nobody really understands.

This economic turmoil further signals the end of unregulated 'free' markets. What was portrayed as free market trading was simply a free for all of the greedy. Globalisation has been shown up as a dangerous beast, likely to bite the hand that feeds it. Perhaps most importantly neo-conservative capitalism is about to be shown the door. 

Hopefully the changes perpetuated by this tumult can usher in a new dawn, signalling a more humane financial system. And there is every reason for it to become more humane. This most recent cycle of market growth has boldly highlighted the poverty of vision of the free marketeers. The theory of trickle down economics, espoused even by our government, has been demonstrated to be a lie. Instead we have experienced a gush upwards, where the  generalissimos of capitalism have grown obese on profiteering. 

These uncontrolled financial markets were valued by the  Bank of International Settlement, the clearing house for this reckless speculative activity, at around US$ 1.14 quadrillion (1140 trillion) in June 2008. This dwarfs the US$ 700 billion bailout that is merely a ruse devised by Wall Street insiders to protect its own and has little chance of ultimate success. Other bailout schemes in the developed world equally have provided good money to chase bad.

To demonstrate the insanity of this market in exotic financial instruments, it is estimated that around 120 times the annual global GDP is traded on these markets annually. This means that the total value of global GDP is traded every three days. Clearly this demonstrates a system out of whack with reality. 

It is widely recognised how the rich have got richer whilst the poor have at best languished in stagnancy or grown significantly poorer in recent decades. In some regions, such as sub-Saharan Africa, real wealth has dropped precipitously over the past half-century. The poor have been forced to adapt to ever more brutal standards of living while bright young university graduates sitting on the trading floors of the world have morphed into the modern equivalent of feudal lords.

It is a general rule of economics that expansion in the money supply inevitably causes inflation. Whilst the beast of inflation has not yet reared its head in developed nations it has long been a reality in developing countries that are prey to conservative economic market models. These models, foisted upon developing regions by bodies such as the World Bank and the International Monetary Fund, have forced fiscal discipline on those least able to afford it whilst failing to follow precisely the same precepts with those causing the problems in the first place – the lenders and developed markets. Let's not even inject mention of corruptors and the corrupted into this discourse – these are simply symptoms of the malaise. 

So how do we deal with these massive challenges facing us as a relatively small, developing nation? 

At the birth of the new, democratic South Africa an economic system that was meant to benefit those historically excluded from the real economy was instituted, called the Redistribution and Development Programme (RDP). This was swiftly cast aside in favour of the far more economically conservative and mainstream Growth, Employment and Redistribution (GEAR) programme, under the centralist Mbeki vision. 

Whilst economic growth has occurred, the employment and redistribution aspects of the policy failed to materialise to any significant degree. In fact employment fell sharply as the policy was instituted. This was one of the primary criticisms of the Mbeki legacy by the left – that the rich were continuing to get richer and that few besides the 'black diamonds' saw any meaningful improvement in their situation. 

In fact it has been argued by forward thinking economists that GEAR and its offshoots like ASGISA (Accelerated and shared growth initiative for South Africa) have served to even further isolate the most marginalised in society to suffer in continued penury. Certainly social subsidy programmes have improved the lot of those most in need but handouts are not the same as assistance to improving ones lot in life. A handout is not a hand up, as the saying goes.

Progressive economic instruments like the Basic Income Grant (BIG) have been rejected out of hand by the government of the day, possibly because it was championed by the primary opposition, the Democratic Alliance. Even though the DA was not the originator of the concept, its public ownership of BIG in political and economic debates undermined the role of more progressive, leftist organisations like the South African New Economics Network, which has been instrumental in developing and fine tuning the concept of the BIG.

Socially minded economists around the world are shifting rapidly in favour of a far more Keynesian approach than has been followed over the past quarter century. This shift must inevitably be accelerated by the present global financial turmoil. The hands-off policies pursued by conservative economic models – based on approaches by Friedman, Lucas and others - have demonstrably created more problems than they have solved. Keynes on the other hand suggested that state intervention should be activated in times of economic trouble. It would seem that we are presently entering a propitious time to follow such precepts. 

What Keynes would probably suggest today, with the collapse in confidence in the developed world economic model, is that there is a need for massive state intervention. Not in propping up the banks and institutions that caused the problems, as is presently occurring with bailouts and rescues, but instead in injections into infrastructural projects, poverty alleviation projects, into supporting developmental banking models such as the Grameen Bank that has proven so successful in Bangladesh and elsewhere in making finance available to those who most need it. 

South Africa has massive unemployment-related problems that lie at the heart of many other secondary problems – crime, health, social disruption and so forth. If mechanisms are activated that enable the poor and unemployed to manage their own fundamental needs – food and housing being primary – instead of relying on industrial agricultural models and centralised housing infrastructural programmes, significant opportunities must emerge for a comprehensive, bottom-up reinvigoration of the economy. 

We know for instance that local agricultural models, based on modern agro-ecology are far better suited to open up the sorely neglected demand for food security and local farming markets. Such local markets will in turn encourage local trade, promoting regional and eventually national trade in the staff of life. 

These systems will need both state and civil society assistance through agricultural education, infrastructural inputs and expertise. This would initiate a radical and immediate shift away from the de facto privatisation of this facet of primary production, where transnational seed monopolies such as Monsanto have shifted aggressively into agricultural schemes based on industrial agricultural systems. It would be far more constructive to promote diverse farming practices that concentrate not on industrial mono-cropping systems, but a wide variety of products and farming methodologies which produce staple foods, vegetables, fruit, etc. that are able to supply a healthy, diverse diet.

Following from this, regional infrastructure such as rail networks must be reinvigorated, local roads and transport nodes must be improved so that the movement of food within local regions, urban and rural can be facilitated. This would at least put the means of food production and marketing within reach of those who most need it while at the same time encouraging the national security prerogative of local food security and sovereignty. 

It is also high time that the left – particularly the labour movement – remove their blinkers and cease objecting that participation in food production by individuals is in some way offensive. The reality is that even middle class families are increasingly shifting towards growing their own food, improving their health and  providing a broad range of home grown food. Excess food is shared amongst neighbours and communities. The present economic crisis threatens to exacerbate the global food crisis. It not so much that we should shift towards local production of food, it is that we must.

Likewise a shift away from uniform, corporate built townships with awful build quality, climate unfriendly architecture and high input building models should be encouraged and supported. This would provide significant benefits to communities by enhancing skills and innovation and give visible, tangible control of lives and community back to the people, as set out in the Freedom Charter. 

When South Africa attained democratic freedom, the brief flirtation with individual freedoms and autonomy was rapidly devolved into conservative economic models which centralised control of the economy and replaced individual rights for collective rights. 

Just as unfettered economic growth has been demonstrated to have been an unmitigated disaster for the global economy, so too the solution to the challenges we face in kick-starting growth and prosperity lie in projecting a kinder face of economic development, one that will benefit the broadest possible swathe of the people. This need not take the form of unfettered communism or even socialism but it needs to embrace socially aware policies that take cognisance of the realities of life as experienced by the majority. 

Such a path of economic growth will not only help build a more resilient, inclusive economy but will also build upon tried and tested economic models able to shift us away from the chaos of uncontrolled 'free markets', towards a more sustainable and practical economic system designed to benefit the widest possible sector of society and to narrow the divisive and broadening income inequalities.

Should you wish to republish this SACSIS article, please attribute the author and cite The South African Civil Society Information Service as its source.

All of SACSIS' originally produced articles, videos, podcasts and transcripts are licensed under a Creative Commons license. For more information about our Copyright Policy, please click here.

To receive an email notification when a new SACSIS article is published, please click here.

For regular and timely updates of new SACSIS articles, you can also follow us on Twitter @SACSIS_News and/or become a SACSIS fan on Facebook.

Read more articles filed under Economic Justice.

Read more articles tagged with: global financial crisis, economic justice, capitalism, inequality, recession, Wall Street.

You can find this page online at http://sacsis.org.za/site/article/179.1.