Although, this article is focused on Greece & its financial & economic woes, I really liked the author's view on how there is an "inherent contradiction of capitalism". I, myself, don't have a problem with capitalism, but the modern capitalism in itself does have a problem of continuously trying to make profits (which are essentially, surpluses -- gross revenue less costs = profits), which are not being re-invested in the economy but are being filtered up to few wealthiest individuals. Profit then stops there & more profits have to made for the other 99% to survive. Of course, since, the other 99% are making minimum wage or barely scraping by in life, the economy will eventually grind to a halt. Paragraphs 6 & 7, in the opinion piece below, very succinctly summarize this.
Think of it like a machine (for example, your car engine). If you keep driving your car for longer & longer distances & keep trying to extract as many kilometers (or miles) you can extract out of it before you need to service your car, or try to slowly reduce your frequency of regular car maintenance, you will eventually destroy your car engine & its related machinery, because your car's machinery is working harder for fewer servicing. It's the same case for human labour.
Anyway, so then the government is faced with only 2 choices (kind of being stuck between rock & a hard place) that it either try to juice up the "dead" economy through stimulus (like US did) or try to save billions through harsh austerity programs like Southern European nations did or are still doing. These two solutions are interlinked & become sort of a catch-22 problem. Government's primary source of revenue is taxes, but it can't really tax the public which in itself is not earning enough to survive. So tax revenue falls off the cliff. If tax revenue is insufficient for the government to institute stimulus programs, then it's only option is to bring more money from outside; either print more or borrow more. Either of these options will reduce the value of the national currency (assuming it's not part of a regional monetary bloc), & the price of everything essential in the marketplace for the public will rise, which will cause the general public to save more, instead of spend, which is required to revive the dead economy. Hence, we are back at the start of the problem, where the economy is still dead, & neither austerity nor stimulus is working to their full potential.
However, while the government is either cutting social spending or reducing the value of the currency, few individuals in its country are still becoming wealthier by the minute. That's why, the recession didn't hit the hardest all those wealthy 1-percenters. Heck, in their own little world, they didn't even feel it. Their wealth actually grew multiple folds during the recent recession.
Problem is that this inherent problem of modern capitalism & the social inequality it causes is only going to grow until there's chaos & anarchy on the national & global levels. There's no way to resolve this problem since the governments are now controlled by those same wealthy individuals who love this "inherent contradiction of capitalism," since it makes them wealthier & wealthier, & frankly, why would they care if a few millions of the general public suffers because of inequality. Prepare yourself for much more pain & suffering if you are one of those 99%.
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...
For many following the crisis for ... months, it has become clear that it is not just about Greek debt. Beneath the cultural tensions & ugly stereotypes, an ideological war is taking place. This battle is happening because the current economic system has only 2 answers to debt crises, recessions & slow economic growth: stimulus & austerity.
Stimulus is about the government pumping money into the economy to encourage consumer spending, which will theoretically lead to economic growth. In recent times, stimulus efforts have taken the form of the government spending money on infrastructure & other socially beneficial projects (think the New Deal) & quantitative easing. Austerity is a set of measures that aim to cut government spending & shrink the public sector to make the economy less dependent on it, which in theory should make room for & encourage a burgeoning free market (ie neo-liberalism).
The argument against government-led stimulus asks how the economy can grow if the government has to keep expanding its debt &/or money supply in order to start new projects & stimulate the economy. Surely the stimulation it provides will never compensate for growing levels of debt? Anti-austerity advocates, on the other hand, ask how the economy can grow if people make less money & taxes are higher – people will save, not spend, & economic growth is based on consumer spending.
The issue of austerity versus stimulus is often framed as the entire debate – if you don’t support one, you must support the other, because there are no alternatives. This is the same binary debate that has been going on for more than 100 years between the state versus the market. Yet, these dichotomies distract people from thinking about what’s really important – the goal of these policies, which is to grow the economy.
No analysis I’ve read thus far has questioned the damaging role that the endless quest for economic growth plays. Neither austerity nor government stimulus will ever be able to address the debt crises & recessions of the twenty-first century because what we’re dealing with here is an inherent contradiction of capitalism.
This contradiction comes from the surplus of the system (profit) being taken out of the real economy (the economy of physical goods and services) and put into the financial sector to generate more wealth for people who are already wealthy. This requires the economy to continually grow to compensate for the extraction of profit, which is essentially the extraction of the economy’s surplus.
However, this extraction of profit is the same mechanism at the root of soaring levels of inequality. A recent Oxfam report estimates that, by 2016, the richest 1% of the world’s population will own more than the other 99%. If the average person is making relatively less every year, or struggling just to maintain the same financial state, they can’t afford to buy ever more products & services, so the economy can’t grow as it did when we had more financial equality. Thus capitalism has always carried the seed of its own demise.
We are seeing this self-destruction in Greece. The ... Syriza government wants to go back to the negotiating table & create a new bailout agreement that will cut the debt to a more manageable size & reform the public sector in ways that won’t affect the most vulnerable. This would still be austerity, albeit a much milder version than that of the past 5 years. ...
If an agreement can’t be reached, Greece might well go back to the drachma. However, the government has no clear plan for this & an unplanned exit from the euro would be painful, with the poorest hit the hardest.
In all of these scenarios, the government’s goal would still be to re-start economic growth, even at the cost of creating more inequality. None of these options gets to the roots of capitalism’s inherent contradiction. There’s no way to grow ourselves out of this crisis; not for Greece, not for the rest of the world. What we are witnessing is the beginning of the collapse of capitalism.
So what is a sustainable path forward for Greece? If the Greek government could see that it won’t be able to re-start growth, and that GDP growth is a means to an end, not an end in itself, there are steps it could take to start paving a new path to prosperity for its people.
In addition to the basics – restructuring the Greek debt, deep reforms in the public sector to make it more transparent & accountable, & the strengthening of the solidarity economy – I suggest the following:
...
2.The government should nationalise the banks & encourage people to start credit unions. This will re-align the banking sector with the needs of citizens & make the banks more resilient. Credit unions would empower people to take financial matters into their own hands.
3.Greece should keep for-profit interests from buying up its common wealth. This could be done via land trusts, not-for-profits & amending the constitution to make it unconstitutional for the government to sell off the commons.
4.The Greek government should start using a wellbeing or happiness index to measure success, as Bhutan does. In this age of inequality, working class people & the unemployed can easily slip through the cracks of GDP growth.
5.Businesses & the government should shorten the working week & encourage job-sharing, so more people can have part-time employment. This would counter the current problem of some having no work while others work 50 hours a week.
6.Finally, the government should create legislation & encourage not-for-profit enterprise in every sector to prevent the extraction of profits from the real economy & encourage social entrepreneurs & innovators to start up their own not-for-profits. These enterprises would help alleviate the humanitarian crisis in Greece, create a more stable economy & keep the financial surplus in the real economy. By building an economy around social purpose, Greece could usher in the post-capitalist era, rather than fall victim to the unavoidable collapse of capitalism we are witnessing.
Jennifer Hinton is the co-author of How on Earth: Flourishing in a Not-for-Profit World by 2050, which will be published in October 2015.
Think of it like a machine (for example, your car engine). If you keep driving your car for longer & longer distances & keep trying to extract as many kilometers (or miles) you can extract out of it before you need to service your car, or try to slowly reduce your frequency of regular car maintenance, you will eventually destroy your car engine & its related machinery, because your car's machinery is working harder for fewer servicing. It's the same case for human labour.
Anyway, so then the government is faced with only 2 choices (kind of being stuck between rock & a hard place) that it either try to juice up the "dead" economy through stimulus (like US did) or try to save billions through harsh austerity programs like Southern European nations did or are still doing. These two solutions are interlinked & become sort of a catch-22 problem. Government's primary source of revenue is taxes, but it can't really tax the public which in itself is not earning enough to survive. So tax revenue falls off the cliff. If tax revenue is insufficient for the government to institute stimulus programs, then it's only option is to bring more money from outside; either print more or borrow more. Either of these options will reduce the value of the national currency (assuming it's not part of a regional monetary bloc), & the price of everything essential in the marketplace for the public will rise, which will cause the general public to save more, instead of spend, which is required to revive the dead economy. Hence, we are back at the start of the problem, where the economy is still dead, & neither austerity nor stimulus is working to their full potential.
However, while the government is either cutting social spending or reducing the value of the currency, few individuals in its country are still becoming wealthier by the minute. That's why, the recession didn't hit the hardest all those wealthy 1-percenters. Heck, in their own little world, they didn't even feel it. Their wealth actually grew multiple folds during the recent recession.
Problem is that this inherent problem of modern capitalism & the social inequality it causes is only going to grow until there's chaos & anarchy on the national & global levels. There's no way to resolve this problem since the governments are now controlled by those same wealthy individuals who love this "inherent contradiction of capitalism," since it makes them wealthier & wealthier, & frankly, why would they care if a few millions of the general public suffers because of inequality. Prepare yourself for much more pain & suffering if you are one of those 99%.
---------------------------------------------------------------------------------
For many following the crisis for ... months, it has become clear that it is not just about Greek debt. Beneath the cultural tensions & ugly stereotypes, an ideological war is taking place. This battle is happening because the current economic system has only 2 answers to debt crises, recessions & slow economic growth: stimulus & austerity.
Stimulus is about the government pumping money into the economy to encourage consumer spending, which will theoretically lead to economic growth. In recent times, stimulus efforts have taken the form of the government spending money on infrastructure & other socially beneficial projects (think the New Deal) & quantitative easing. Austerity is a set of measures that aim to cut government spending & shrink the public sector to make the economy less dependent on it, which in theory should make room for & encourage a burgeoning free market (ie neo-liberalism).
The argument against government-led stimulus asks how the economy can grow if the government has to keep expanding its debt &/or money supply in order to start new projects & stimulate the economy. Surely the stimulation it provides will never compensate for growing levels of debt? Anti-austerity advocates, on the other hand, ask how the economy can grow if people make less money & taxes are higher – people will save, not spend, & economic growth is based on consumer spending.
The issue of austerity versus stimulus is often framed as the entire debate – if you don’t support one, you must support the other, because there are no alternatives. This is the same binary debate that has been going on for more than 100 years between the state versus the market. Yet, these dichotomies distract people from thinking about what’s really important – the goal of these policies, which is to grow the economy.
No analysis I’ve read thus far has questioned the damaging role that the endless quest for economic growth plays. Neither austerity nor government stimulus will ever be able to address the debt crises & recessions of the twenty-first century because what we’re dealing with here is an inherent contradiction of capitalism.
This contradiction comes from the surplus of the system (profit) being taken out of the real economy (the economy of physical goods and services) and put into the financial sector to generate more wealth for people who are already wealthy. This requires the economy to continually grow to compensate for the extraction of profit, which is essentially the extraction of the economy’s surplus.
However, this extraction of profit is the same mechanism at the root of soaring levels of inequality. A recent Oxfam report estimates that, by 2016, the richest 1% of the world’s population will own more than the other 99%. If the average person is making relatively less every year, or struggling just to maintain the same financial state, they can’t afford to buy ever more products & services, so the economy can’t grow as it did when we had more financial equality. Thus capitalism has always carried the seed of its own demise.
We are seeing this self-destruction in Greece. The ... Syriza government wants to go back to the negotiating table & create a new bailout agreement that will cut the debt to a more manageable size & reform the public sector in ways that won’t affect the most vulnerable. This would still be austerity, albeit a much milder version than that of the past 5 years. ...
If an agreement can’t be reached, Greece might well go back to the drachma. However, the government has no clear plan for this & an unplanned exit from the euro would be painful, with the poorest hit the hardest.
In all of these scenarios, the government’s goal would still be to re-start economic growth, even at the cost of creating more inequality. None of these options gets to the roots of capitalism’s inherent contradiction. There’s no way to grow ourselves out of this crisis; not for Greece, not for the rest of the world. What we are witnessing is the beginning of the collapse of capitalism.
So what is a sustainable path forward for Greece? If the Greek government could see that it won’t be able to re-start growth, and that GDP growth is a means to an end, not an end in itself, there are steps it could take to start paving a new path to prosperity for its people.
In addition to the basics – restructuring the Greek debt, deep reforms in the public sector to make it more transparent & accountable, & the strengthening of the solidarity economy – I suggest the following:
...
2.The government should nationalise the banks & encourage people to start credit unions. This will re-align the banking sector with the needs of citizens & make the banks more resilient. Credit unions would empower people to take financial matters into their own hands.
3.Greece should keep for-profit interests from buying up its common wealth. This could be done via land trusts, not-for-profits & amending the constitution to make it unconstitutional for the government to sell off the commons.
4.The Greek government should start using a wellbeing or happiness index to measure success, as Bhutan does. In this age of inequality, working class people & the unemployed can easily slip through the cracks of GDP growth.
5.Businesses & the government should shorten the working week & encourage job-sharing, so more people can have part-time employment. This would counter the current problem of some having no work while others work 50 hours a week.
6.Finally, the government should create legislation & encourage not-for-profit enterprise in every sector to prevent the extraction of profits from the real economy & encourage social entrepreneurs & innovators to start up their own not-for-profits. These enterprises would help alleviate the humanitarian crisis in Greece, create a more stable economy & keep the financial surplus in the real economy. By building an economy around social purpose, Greece could usher in the post-capitalist era, rather than fall victim to the unavoidable collapse of capitalism we are witnessing.
Jennifer Hinton is the co-author of How on Earth: Flourishing in a Not-for-Profit World by 2050, which will be published in October 2015.
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