Is this the end of capitalism?

Neil Faulkner puts the current global crisis into historical context.

8 April 2020.


There are three kinds of crisis under capitalism – cyclical, structural, and systemic. To operate effectively in the period ahead, we need to understand which sort of crisis we face.

Crisis is intrinsic to capitalism. It is not anomalous. It is inherent in the contradictory process of capital accumulation.

Cyclical crises

Cyclical crises typically occur every ten years or so. They happen because capitalism is a system of blind, anarchic, unplanned growth. Every boom ends in a bust.

But the bust, by driving many firms out of business, prepares the ground for a new boom. The effect of the bust is to choke back supply and clear clogged-up markets. The firms that survive can then start a new round of expansion.

Cyclical crises have been compared to the ‘breathing’ of the system – a recurring pattern of expansion and contraction by which capitalism, in its anarchic way, periodically brings supply and demand back into sync.

A structural crisis is much more serious and intractable. It is a sustained period of sub-optimal growth when surplus capital builds up inside the system because there are insufficient outlets for profitable investment. The result is protracted stagnation, mass unemployment or underemployment, and austerity cuts.

The Long Depression

There have been three earlier periods of structural crisis in the history of the system. The first lasted from 1873 to 1896. It was triggered by a financial crash, but what followed was more than two decades when growth rates were barely half what they had been in the preceding period.

This structural crisis – the Long Depression – led to major changes in the way capitalism operated. Smaller firms went to the wall. Big firms became dominant and formed cartels or trusts to fix prices and protect markets. Banks, heavy industry, and the state formed a tight economic alliance, with major firms buoyed up by bank loans and state contracts.

Because home markets were depressed, the imperial powers used their military might to build overseas empires and provide the big firms with new outlets for capital investment.

Because this process was competitive, international tensions rose, an arms race kicked off, and the world finally exploded into war in 1914.

So the structural crisis which began in the 1870s led to a remodelling of capitalism, aggressive imperialism, and, eventually, the industrialised carnage of the First World War, in which 15 million died.

The Great Depression

The second great structural crisis was triggered by the Wall Street Crash of 1929. This plunged the world into the Great Depression, with unemployment close to one in three in both Germany and the United States in the early 1930s.

This story is familiar. The Great Depression polarised politics, but fascism triumphed across much of the world and eventually plunged humanity into the Second World War, when 60 million died, the majority of them civilians killed in the genocides implemented by the German Nazis (in Eastern Europe) and the Japanese Militarists (in China).

Again, capitalism was restructured by crisis. A new form of state capitalism emerged. In its most extreme form – Stalinist Russia – the entire national economy was controlled by a party/state bureaucracy. Elsewhere, state infrastructure and arms expenditure meant lucrative contracts for private corporations and provided a basis for economic recovery.

State capitalism underpinned the war economies of 1939-45, and then, after the war, the state-capitalist model became the basis of reconstruction, a new boom, the building of welfare states, and the advent of a ‘consumer society’.

The Neoliberal Counter-Revolution

The third great structural crisis began in 1973 and continued through most of the 1980s. The system was again afflicted with stagnation, falling profits, and rising unemployment. The Right – led by Margaret Thatcher in Britain and Ronald Reagan in the United States – went onto the offensive against the unions, the welfare state, and the working class.

The aim of the ‘neoliberal counter-revolution’ was to reverse the trend towards greater equality and restore the rate of profit by smashing strikes, breaking labour organisation, driving down wages, cutting welfare payments, and slashing and privatising public services. Wealth was to be redistributed from working people to private capital.

So a third structural crisis led to a third remodelling of the system. Neoliberalism has meant deregulation, privatisation, globalisation, corporate power, and an economy dominated by finance and debt. It has also meant a huge shift in wealth from working people – as wages, benefits, pensions, and public services are cut – to the corporate rich.

Neoliberal capitalism, however, was built on foundations of sand. It was underpinned by vast amounts of debt and ‘fictitious’ capital, and characterised by a huge shift from productive investment to financial speculation.

One statistic illustrates the scale of what has been called ‘the permanent debt economy’. In late 2008, the value of the world derivatives market – essentially the trade in repackaged debt – was estimated at $791 trillion, or eleven times the value of the entire world economy.

In 2008, of course, the speculative bubble burst, and private banks were then bailed out by the state. This led immediately to a second phase of the crisis – a sovereign debt crisis (i.e. a crisis of government debt) – and the imposition of ten years of austerity. In this time, the wages, benefits, pensions, and public services of the working class were squeezed, while the rich got even richer.

According to Oxfam – which has been monitoring growing global inequality in the neoliberal era – the world’s 2,153 billionaires own as much wealth as the poorest 60% of humanity (4.6 billion people). This level of social inequality is without historic precedent.

Financialisation – the buying and selling of debt – remains the primary mechanism by which wealth is hoovered upwards. The debt mountain is today bigger than ever – an estimated $253 trillion, compared with $173 trillion at the time of the 2008 crash.

Coronavirus and the Permanent Debt Economy

The coronavirus crisis is set to trigger a new crash and topple the world into a new great depression. Governments have again borrowed or printed vast amounts of money in an effort to prop up the system.

They are already threatening a new decade of austerity to pay these debts. Bosses have started imposing 15% pay cuts on workers – and threatening them with the sack if they don’t accept.

Austerity cuts living standards and shrinks demand. That deepens the stagnation in the system and increases its dependence on rising levels of debt. A vicious cycle.

The profound pathology of neoliberal economics – the financial bubbles, the growing indebtedness, the relentless austerity, the soaring inequality – is unsustainable. So, too, is the stampede towards climate catastrophe.

This grinding devastation of both human society and the planet’s ecosystems underlies other features of the global crisis – rising arms expenditure, endless wars and mass displacement, growing authoritarianism and police repression, a tidal wave of nationalism, racism, misogyny, homophobia, and fascism.

Without question, we have entered capitalism’s fourth great structural crisis. But all the signs are that it is also a systemic crisis.

A systemic crisis of world capitalism?

In each of the previous three structural crises, the system remodelled itself and entered upon a new phase of sustained capital accumulation. The cost to humanity in each case was exceptionally high. But the system survived.

This time, the structural crisis of neoliberal capitalism looks like it might also be a systemic crisis of capitalism. A systemic crisis arises when no solution to the contradictions of the system can be found within the framework of the system itself.

Capitalism has existed (in parts of the world) for about 500 years, and industrial capitalism has existed (in parts of the world) for about 250 years. In the last 150 years, we have seen three major structural crises that have led to wholesale remodelling of the system – imperialism resulted from the Long Depression, state capitalism from the Great Depression, and neoliberalism from the crisis of the 1970s and 80s.

But what comes after neoliberalism? It is almost impossible to imagine any way in which capitalism could be reconfigured and enabled to enter upon a new epoch of economic growth, social stability, and political order.

The system appears to be so sick, so pathological, so riddled with contradiction, so inimical to human welfare and ecological survival that one has to assume that the crisis this time is systemic and terminal.

The following contradictions seem to me to be insoluble within the framework of capitalism:

1. The ‘metabolic rift’ between humanity and the ecosystems on which we depend. Capitalism is a system of ‘self-expansion’. Capitalists invest to make profit, and no profit can be made without growth. A fairly minimal 3% annual growth rate means the world economy doubling in size every quarter century. This is unsustainable.

2. The social crisis. Global inequality is at unprecedented levels and getting worse all the time. Billions of lives are blighted by poverty, hunger, and disease, while a tiny minority becomes ever richer and more powerful. The coronavirus – spreading like a plague through the slums and ghettoes of global mega-cities where public-health provision is minimal or non-existent – is a perfect illustration of a world being torn apart by growing class inequality.

3. The permanent debt economy. The widening gap between rich and poor means growing dependence on debt to sustain demand in the global economy. The world economy has become hopelessly skewed towards debt, arms expenditure, and moronic consumerism. This contradiction will be exacerbated by a new round of austerity – already being imposed, but set to get far worse – which will both shrink economic demand and increase social inequality.

4. Creeping fascism. Increased exploitation, falling or stagnant wages, cuts in welfare, and decaying public services mean that the system lacks a broad base of support in society. Because of this, two things have happened: a) the state has become more repressive and militarised; and b) a proto-fascist ideology of nationalism, racism, misogyny, homophobia, and scapegoating has taken root. The state-capitalist model of the post-war period enjoyed a broad measure of consent because living standards rose, public services improved, and millions of working people felt they had a stake. The neoliberal model means austerity and decay at the base and grotesque greed at the top. It cannot secure popular support. It therefore offers repression and fascism. We learn from history that this is the road to the barbarism of Stalingrad, Auschwitz, and Hiroshima.

If the system is doomed, the choice is simple. Either we allow it to drag us into the abyss – into a dying, dystopian world of fascism, war, pandemic, mass impoverishment, and ecological breakdown – or we fight to take over the world and create a mass people’s democracy committed to human need and planetary survival. It is that simple.

Neil Faulkner is a revolutionary socialist activist and author of A Radical History of the World.

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