Capitalism is an economic system characterized by (i) ownership of the means of production by a small number of people called capitalists, (ii) production of goods to make profit, (iii) sale of goods on competitive markets, and (iv) (usually but not always) extensive use of wage labor.
Capitalism was born in 15th century Europe, and by the 20th century had penetrated most of the world. Capitalism has existed in variety of different forms, some of which are named mercantile capitalism, industrial capitalism, corporate capitalism, and finance capitalism. Capitalism has generated more growth than any previous economic system, but it has also induced great inequality, frequent economic crises, and serious environmental destruction.
The most recent form of capitalism (since about 1980) is called neoliberal capitalism. A more accurate name would be neoliberal corporate capitalism because the decisive economic agents are giant corporations. Five essential components of neoliberal capitalism are described as ideology, role of government, labor relations, finance and global economy (see David Kotz, The Rise and Fall of Neoliberal Capitalism).
Ideology: Neoliberal ideology is often named market fundamentalism. Market outcomes, the ideology maintains, are superior to any political decisions. Therefore markets should be allowed to proceed without government regulation. Furthermore, market processes should control most social institutions including education, health care, criminal justice and even the family.
Role of government: Government interference in the economy is considered unnecessary and often dangerous. In the recent past, the role of government in the economy has been excessive and must be sharply reduced. Under neoliberal capitalism corporations are deregulated and anti-trust laws are ignored or abolished. Consumer and environmental protections interfere with efficient markets and hence must be weakened or entirely disregarded. A neoliberal government protects giant corporations, but does not try to manage the overall economy.
Labor relations: Under neoliberal capitalism labor unions are attacked and collective bargaining is discouraged. The state practices so-called “economic austerity.” Social welfare programs are cut back or eliminated (but U.S. military expenses typically increase). Public goods and services are contracted out or fully privatized. Taxation of the wealthy is sharply reduced.
Finance: Financial institutions are deregulated under neoliberal capitalism, and financial activities generate an expanding share of capitalist profits. Finance previously served households and the productive economy, but under neoliberalism profit rates from financial manipulation exceed those from the productive economy. Consequently deregulated financial institutions engage in numerous speculative and highly risky activities.
Global economy: The rules governing the global economy are revised to enable movement of capital, goods, and services across national boundaries. However, barriers to the movement of labor remain in place. These changes enable corporations to export of jobs to places with low wages and lax environmental protections. The neoliberal rules also allow capital to flee countries when threatened by economic crisis. Such capital flight further destabilizes already vulnerable developing economies.
Three major consequences of neoliberal capitalism are accelerated economic inequality, debt explosion and environmental destruction. Inequality accelerates because corporate power increases while working class power is decimated. Many new avenues for capitalist profit making are created. Today top U.S. corporate executives earn about 400 times as much as the average fully employed worker.
Debt explodes under neoliberal capitalism because (a) ordinary people must borrow to make ends meet, (b) unrealistic asset bubbles (like housing or security bubbles) induce debt financed consumer spending, and (c) financial speculation motivates excessive borrowing.
Extreme debt is a sign of economic weakness and often destabilizes the entire capitalist system. Indeed, extreme debt was the principal cause of the Great Recession of 2007-9. Capitalism has always harmed the natural environment. But market fundamentalist, deregulated, and profit obsessed neoliberal capitalism assaults our life-sustaining environment even more ferociously than previous versions of the capitalist system.
Whether human life on planet Earth can survive the ordeal of neoliberal capitalism remains an open question.
The Rocky Mountain Peace and Justice Center’s “Peace Train” runs Fridays in the Colorado Daily.