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Is the End of Capitalism Imminent?


From: Christ in der Gegenwart, 7/2012, P. 75 et sequ.
webmaster's own, not authorized translation


    Criticism of capitalism at the World Economic Forum in Davos: Even the economic elite seems no longer unreservedly believe in the self-healing forces of the free market. But what are the alternatives?


In its present form, the capitalist system is no longer appropriate for today's world. This statement by Klaus Schwab, president and cofounder of the World Economic Forum in Davos, suggests that now also at this annual meeting of the international economic and financial elite, the question of what sort of system we need is discussed with the politically powerful people. After the U.S. housing crisis had developed into a banking and financial market crisis in 2008, in which the States were forced to rescue banks from bankruptcy by taxpayers' money, economy and politics are kept in permanent commotion by the not only European sovereign debt crisis. Reports on ever growing multi-billion bailout funds, which are to save Greece and others from insolvency, cause more and more people to doubt the promises of growth and the assertions of self-regulating free markets.

"It is a market and government failure, when - as it happened in the banking crisis - profits are privatized and losses socialized. This undermines the foundations of capitalism. Entrepreneurship must be worthwhile but must also be liable for risks," the 'Neue Zürcher Zeitung' sums up the situation at the turn of the year. The liberal-conservative Swiss daily newspaper sees democracy at risk, "Where in democracies the middle class gets the impression that a small elite lives increasingly disconnected from reality in its pain-free world, there is easy game for advocates of statist socialism, governmental sanctions, and unreasonable redistribution mechanisms. The excesses of some individuals jeopardize the market economy as a whole."

But how can we cope with this self-indulgence? Up to now, we relied on the market forces of supply and demand. Competition, so the theory, guarantees better than state authorities that from those companies which live beyond their means orders are snatched away by emerging competitors or that they are replaced by the latter. It is exactly along the lines of this logic, namely that the market punishes exaggerations, that the question is discussed of whether the euro countries should according to their common currency also jointly raise loans. If Germany or other countries with a 'sound economy' step in and help Greece, Portugal, Spain and others, the latter will also in future not economize but continue spending money that they do not have. The financial market has therefore to put immoderate countries in their place, with the result that the interest rates on their bonds raise, and bets are made: which country will as next take refuge to the EU bailout or go bankrupt.


And who Rules the Money?

The valuation of credit default swaps on government bonds of a country, as e.g. currently in the case of Portugal, is meanwhile seen as an important indicator for the creditworthiness of a country. These credit default swaps should, so their original objective when they were invented in the eighties, spread the risk of a loan default, put it on several shoulders, and thus mitigate it. In fact, however, they were traded or, to put it bluntly, bets were made on them, in order to make the highest possible profits. They are regarded, if not as trigger, at least as an extreme accelerator of the financial crisis of 2008. When in the U.S. the housing bubble burst, most banks did not know which loans on homes were contained in their bad debts insurance, because those loans had first been fragmented and then recomposed into securities. The papers were regarded as toxic. Trading with them was out of the question. Politicians of all parties in Europe wanted to prohibit such financial products.

Until today, this prohibition has come to nothing. The description of the "credit default swaps" (CDS) in the "Spiegel" cover story "Money makes the world ... and who rules the money?" shows how crazy it is to judge a country's creditworthiness by them. "There is no stock market for credit insurance, there are no rules, no supervision, no regulations. Suppliers and customers define the details of their contracts in direct negotiations. That's why nobody, not even the banks among themselves, knows exactly how large the net liabilities from CDS contracts are; nobody knows exactly the number of CDSs in the books of others. If large loans burst, bankruptcies grow into a major crisis ... In the worst case, CDSs have the effect of adding fuel to the flames."

As currently doom (and destruction) is prophesied, Portugal is in danger to become a second Greece, although the two countries cannot be compared seriously in any way. In this case, Germany and the other euro countries will pay for the fact that they, instead of introducing solid political rules, rather allowed the speculators at the financial markets to assess the future viability of the economy of one of their member countries. But with every billion of taxpayer money, which after the rescue of the banks has now to be spent on the rescue of entire countries, the discontent with the European integration is growing. What is long since forgotten is the fact that Germany as an exporting nation, which lives on selling more goods abroad rather than importing them, benefits from a stable euro that is favourable compared to its own currency.


Even the Apostles would be Helpless

A huge national debt can by no means be noticed only in southern European countries. With their accumulated liabilities, also Germany and France do not meet the standards that were once set in Maastricht. And it is as unclear as in the case of Japan how the United States of America, which currently criticize sharply the European Union because of the crisis, will be able to pay back their debt of fifteen trillion, i.e. fifteen thousand billion dollars. There is still the confidence that today's debts will be redeemed by future growth. This is the easier way to 'finance' public expenses, as e.g. infrastructure, social services or economic promotion.



The welfare state does not only live on the redistribution from the rich to the poor, as it is often asserted, but at the expense of future generations and the middle class.

Criticism of a policy running up debts seems therefore to be as reasonable as criticism of an economy that is only growth and profit-oriented. "It is not the fault of people that everything went wrong" said the Czech economist Tomas Sedlacek in the "Frankfurter Rundschau" about the European, as he underlines, rather than Greek, Irish or German debts. "Even if the twelve apostles personally had been the guardians of the euro, the same would have happened as now. It is not a question of personal morality. It is a question of the system. It is not allowed to print money. That's good. But we need a system that excludes even the printing of promissory notes. Otherwise, the temptation is too great. Even for a saint. It makes no sense to wait for a political Messiah, the great Mister Clean. We must change the system."


What do the 99 percent want?

Sedlacek's call for "a policy of minimizing the debts" seems to admit that Germany's insistence on a fiscal pact is right. Against the opposition of almost all euro-zone countries, Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble pressed for the mandatory introduction of a so-called debt brake, as it is valid in future in this country. In the next few years, however, this only means that not any debts but only less debts are allowed. Only in a few years, the federal states are prohibited running up debts, whereas the federal government is only allowed to contract small debts. It remains to be seen whether they stick to it.

It is likely that such an austerity policy has a rather unfavorable impact on emerging and developing countries, because then the economy is shrinking, as already now in those States which have to comply with the rigorous saving measures. This also reduces demand for raw materials, the main source of income for developing countries. They have already suffered particularly badly from the financial crisis in 2008. The poor countries had opened their markets to global trade - as it had always been demanded by the Western-dominated International Monetary Fund. Now they are dependent on it, i.e. on the rich countries' willingness to buy their products. Another problem is that development aid, as experience teaches, belongs to the first expenses which are reduced, and that foreign investments are cancelled in the first place by European companies.

Is therefore a very different system necessary? At the World Social Forum, created in 2001 as a counterpart to the World Economic Forum, this year in the Brazilian city of Porto Alegre, non-governmental organizations, environmental organizations and social movements met again, in order critically to examine the one-sidedly economically determined globalization. In a first draft of an alternative concept, the common goods, as e.g. air, energy, land, water, forests and biodiversity are contrasted with private ownership. The participants demanded a radical democratization of economy and politics. "Instead of the monopoly status of private property, we propose social forms of ownership, in order to ensure the control, use and preservation of resources." It has to be secured that "markets and finance capital have no access" to them.

These are understandable demands, in a world where more and more people have no clean drinking water, where land is bought increasingly by large corporations, small farmers are expelled, forests destroyed, and huge plantations are used for the industrial production of meat and biofuel. But even among globalization critics the views widely differ regarding the road to more justice. "Today, we all complacently agree here in all respects. But we need to start thinking about how we can reach the 99 percent who disagree with us," said Francisco Whitaker Ferreira. The founding member of the World Social Forum alluded with it to the 'Occupy Wall Street' movement, which emerged in response to the financial crisis. With its slogan "We are 99 percent" it intimates that it represents those 99 percent of the population which do not enrich themselves by stock market speculation. Some of the participants of the World Social Forum had dismissed this movement as an ideology-free spontaneous movement. Also representatives of "Arabellion" or of Spain's "Outraged" movement were hardly found in Brazil. Juergen Riedel, member of the "Evangelischen Entwicklungsdienst" asked self-critically, "Have we become too slow and ponderous?"

While uncertainty prevails everywhere, the certainty of a message of the "Katholischen Nachrichten-Agentur" makes the public take notice. According to the Cardinal of Munich, Reinhard Marx, "the financial crisis would have been avoidable if the Christian social teachings had been observed." Apart from the fact that this hypothesis can no longer be verified, it must be admitted that Marx's view is correct: the basic principles of Christian social teaching are "critical of capitalism". A "casino capitalism" that only revolves around investment returns cannot be justified from a Christian point of view. But can the return to the Christian social teaching become a "source of renewal" in a world that is multi-religious, and partly dissociated from religion?

Due to the principle of personality, in the Christian social teaching all economic considerations focus on the working people, without limiting them to this area of their life. The principle of solidarity excludes concepts that idealize the outright conflict between people as a particularly efficient form for the promotion of progress and profit maximization. Moreover, this solidarity is understood for decades as going beyond national and continental boundaries. The principle of subsidiarity is usually only emphasized for the purpose of helping individuals or small groups to obtain their rights. According to it, higher-level institutions should intervene only if a regulation at the lower level is not possible.


Competition needs Regulations

But this also means: In matters which cannot be regulated by the smaller unit, the larger has to step in and to help out. At present, it becomes apparent that the nation states are overtaxed with adopting binding regulations for a globalized economy and the financial markets. Governments and parliaments are simply played off against each other by globally active groups. This is confirmed by the relocation of companies to countries with lower labor costs and missing regulations on environmental protection as well as by the often expressed fear that a minimum tax on financial transactions in Europe alone would have as result that business is done no longer in Frankfurt or Paris but elsewhere. If politics wants to regain the primacy, i.e. the supremacy over economy as it was demanded in 2008 by politicians of all parties and all Western countries, this can happen only globally in a global economy.

In this matter there is no contradiction between the Christian social teaching and the ordo-liberalistic economic theory, as it was developed by the Freiburg economist Walter Euken, and to which business leaders are so prone to refer. According to it, it is precisely the fixed, statutory framework, which makes competition and free market possible. Currently, there is no comprehensive framework but many different legal regulations and requirements - across their borderlines is traded. The companies may then, depending on their taste, select that national "law" which suits them. Another problem is the governmental interfering in individual economic processes: If e.g. a large, possibly nationally important company is faced with bankruptcy or a takeover by another company, politicians of all parties are prone to intervene: they use guarantees and other assistance, in order to save publicly jobs, but in fact they want to secure national interests or their own re-election. This became recently apparent again when the drugstore chain Schlecker filed for bankruptcy and at the same time guarantees of the country were at least put into play by Baden-Württemberg's Minister of Finance and Economics Nils Schmid. This includes also tax breaks, as they were e.g. granted hoteliers by the FDP shortly after coming to power - contrary to its liberal, mantra-like declarations. The bank bailout is probably the most expensive example of such a political interference. It is contradictory to the principle that companies and banks must shoulder not only successes but also risks - if necessary also the collapse, which strengthens others in the competition and creates there new jobs.

It remains the question of how the reform of capitalism could succeed - both along the lines of Christian social teaching and of ordo-liberalistic principles. A concrete step would be the development and implementation of a global eco-social market economy (see CIG 29/2008, p. 319). European companies e.g. accept from suppliers - regardless from which States - only products that were manufactured in accordance with the technical standard ISO 9001. This could be introduced also for environmental and social standards. Currently, the environmentally destructive production of raw materials, food, and ancillary products is preferably relocated into so-called low-wage countries in Asia, Africa and South America. The exploitation of nature, workers and children makes the products available at unusually low prices in this country. At the same time you needn't look at the dirt and the violation of human rights at your doorstep. This situation could be changed if Europe, which is still the major economic power, stipulates that only goods and services are imported which were produced or done in accordance with the respective social and ecological minimum requirements. After the experience with the financial crisis, appropriate certifications must be introduced also for the traded financial products. That would certainly not be the end of capitalism. But it would make it difficult that a few people ruthlessly maximize their profit by the exploitation of many people (99 percent).


Link to 'Public Con-Spiration for-with-of the Poor'