Towards the End of Capitalism 

By Rafi Moor

2006

The collapse of the communist regimes in the soviet block left capitalism as almost the only socio-economic system in the world. But is capitalism really the best possible socio-economic system? Is it a stable system that can last? This article tries to answer these questions.

The biological background

Selfishness is an important property for the survival of a living creature. Any creature that puts its own interests first has better chance to survive. Therefore, evolution and natural selection make sure that all creatures have this property. Living in a group can serve the interest of an individual. It can help protecting him from enemies and can make hunting and getting food easier. Many creatures adapted themselves to life in groups such as pods, flocks, herds, tribes, communities, and peoples. But living in a group requires some level of cooperation and some restrictions on one's freedom, for the safety of other members of the group and for the interests of the group as a whole. Life in a group would not be possible if individuals would be busy fighting each other for their own interests all the time.  Members of a group must obey some social rules that limit their freedom to act for their own interests. Every social creature has an internal conflict between these two opposite needs – the interest of himself as an individual, and the interest of the group. It must find a compromise between them. These conflicting needs can be balanced at an optimal point that is best for the survival of the group. Eventually, evolution brings every population to this optimal point.

For more primitive creatures like fish, birds and beasts, these social rules are controlled mostly by innate instincts. But human beings are not driven by instincts only. We have also higher level mechanisms that control our acts and behavior. In addition to instincts we are also driven by emotions and reason. Social rules must be established in all three levels to enable the existence of a human society. Preliminarily we are fitted up with the instincts that all social creatures have. Instincts that cause our need for a society and make us obey its rules. In the emotional level we have feelings like pity, mercy and generosity, that make us want to help others and prevent us from damaging them seriously. In the rational level we can understand the necessity of such rules; we define rules for our community, obey them (usually) and try to make others obeying them too.

A human society has usually three kinds of social rules at the rational level: laws, social norms, and moral rules. The difference between them is in the way by which they are defined and controlled. Laws are formal rules and are defined and controlled by the formal institutes of the society. Social norms are conventions of society and are controlled by society by informal means. Moral rules are usually also conventions, but the final judgment and the choice to follow them are of each individual alone.

Capitalism and Socialism are ideas that represent these two opposite biological needs. Capitalism stands for the right of an individual to fight for his own interests. Its concept is to minimize the social limitations and maximize the freedom of an individual to compete within his society. Socialism on the other hand, is based on moral ideas (that are, as said, social rules). Its concept is to completely eliminate the competition between individuals within the society and share the resources equally between all members of it. This would be the best for the society as a whole were there not a little problem – it just doesn't work.

Why has socialism failed?

People in the western world like to hate socialism; but without the linkage to this antagonism-arousing term, ideas like equality, sharing, cooperation and altruism are considered rightful and beautiful moral values by most people. "Contribute to the community according to your capabilities and get all your needs from the community." It sounds so good and so right.

Then why has socialism totally failed in practice?

Socialists believe that since humans are inherently social creatures, a society with strong social rules is both necessary and natural for them. Early socialists, called utopian socialists, and also later socialists of the evolutionary socialism stream, believed that natural development of the human society will lead to socialism. Marxists, on the other hand, thought differently. They believed that the unjust structure of the capitalistic society is a catch: Exploitation and oppression produce evil that leads to more injustice. The only way out of this loop is a revolution that will bring about the rule of the working class by force. The working class people understand the meaning of being exploited and are also experienced in cooperating on collective missions. This will be reflected in the society under their rule that will be just and equalitarian. Later, when the principles of equality are penetrated and accepted, this system will be replaced by a communist society that will be equalitarian but also free and democratic. As we know, none of this has happened.

The reason for the failure of socialism was that its ideas were too good to be implemented by human beings. Socialism looks only at the moral aspect of things. It ignores the other side of the picture. It ignores the uglier face of human beings. It ignores the unpleasant fact that people are motivated by selfishness, by desire for wealth, power and honor. It ignores laziness, jealousy and egoism. All these properties are regarded as bad, but they really are an expression of the interests of the individual. We must remember that good and bad, right and wrong are moral terms and as such they are social concepts. Socialists thought that rationalism can override these properties and society can be established on moral foundations alone.

But ignoring things that we don't like does not eliminate them. It just makes us unprepared and unprotected against them. Therefore, socialistic societies did not develop mechanisms that deal with them. These bad sides of humans emerged in every possible way everywhere in the communist countries. Without restraining mechanisms, the desire for power brought leaders to take unlimited control, what led to totalitarian regimes. Without the necessary limitations, the desire for wealth brought about corrupted governments and parties. Without the stimulation of competition and private profit, laziness brought on inefficient and unprofitable economic systems.

These bad seeds that sprouted all over the fertile ground of the socialistic societies grew quickly, cracking the foundations of the society. The cracks grew wider and wider and eventually the whole system collapsed.

Is capitalism moral?

The collapse of the communist world brought most people to believe that capitalism is the best form of a human society. The economic success of the western countries, the wealth and the easy life of their residents, make people believe that every country in the world can reach the same state just by adopting the principles of the capitalism - a free market and free competition. But if we look deeper we see that capitalism is not a balanced system either. It is the opposite extreme of socialism. It is problematic in every possible aspect. It has problems that raise questions about its stability and its ability to exist in the long term.

First, there is the moral aspect. There are some common mistakes about capitalism and morality. The first one is the idea that freedom – the most important value of capitalism - is a moral value. We have defined morality as a collection of social rules, rules that limit the freedom of individuals. Freedom itself cannot belong to this category. This might be a bit confusing; preventing freedom from people is obviously immoral, how does this settle with saying that morality is a limitation of freedom?

The answer is simple: Morality does limit the individual's freedom, but it does so just to protect the interest of others in the society. It only restricts individual's freedom so that it doesn’t conflict with the freedom and the rights of others. Limiting an individual's freedom beyond that, for the interests of another individual or a group of people, is immoral. Morality, here, set limits to the limitation of freedom.

Another common mistake is the idea that "equal opportunities" is a better moral concept then equality, or at least a proper substitute for it. The idea is that free competition gives everybody the same chance. People are rewarded according to their efforts, ambitions and abilities. Seemingly, it is a fair game.

But the truth is that capitalism cannot really give equal opportunities. Unlike what is written in some known paper, men are not created equal. Some are born strong and some are born weak, some are born healthy and some are born ill, some are born rich and some are born poor. Putting an athlete and a disabled man on a running track and tell them to compete freely is not a fair game and is definitely immoral, and this is just what capitalism does.

Let's look again on what a social rule is. It is an agreement between all the members of the group that says: "I treat other members of the group in the same way that I want others to treat me." No one would like society to abandon or neglect him when he is weak and helpless. A society must support its weaker members, not only for the human ideas, but for its own sake. Without supporting the weaker people no one can feel secure and a society that its members do not feel secure cannot be a strong, healthy and stable society.

I am not saying, of course, that capitalistic society is completely immoral and has no social rules at all. Every capitalistic democracy has a lot of laws, regulations and rules that are aimed to protect its citizens. But these rules deal mostly with physical security. They limit physical aggression and violence among people. They put only minimal limitations on economic or social struggles between them. This is not enough. This level of limitations is way below the optimal point for a balanced and stable society.

Is capitalism efficient?

Another mistake is the idea that capitalism is an efficient economic system. This idea is supported by facts: A private business is almost always more efficient than a government institute. A business under competition is always more efficient than a monopoly. No doubt that free competition does improve economic efficiency.

But this is not the whole picture. Efficiency is not only about making the most out of given resources. Efficiency, by definition, means minimize waste, and capitalism is an extremely wasteful system. The concept of the capitalistic economy is making as much money as possible, independent of needs or goals. The more, the better. Increasing profits again an again can be only achieved by increased consumption. So the interest of companies is to make people buy as much as possible – much more then they really need. The interest of companies is that we waste as much as possible and they successfully act to making us do so.

Since there is no limit on the amount of money that people and companies want to make, it is not enough anymore to have a constant profit. A constant growth is demanded. A company that doesn't show a constant growth is not regarded successful, even if it is profitable. A constant earning is a failure. Moreover, this growth is measured by percentage, so that a linear growth is also not enough. Keeping the growth percentage constant means exponential growth.

The main reason for this demand is the crooked system of stock markets. The original idea of a stock market is reasonable: A company raises money by selling part of its ownership in exchange to a share of the profits. But the capitalistic concept about earning money turned it to a tool for people to manipulate each other and earn money on each others account. Many companies don't bother anymore sharing their profit with the owners of their stocks. The only profit of the shareholders is the growth in the share price. This demands a constant growth of the company profit.

Keeping consumption high and growing is not only the interest of individuals and companies. A capitalistic economy is considered "healthy" only if it is in a process of growing. So governments and global economic organizations are also trying to keep consumption and waste growing exponentially. We live in a society that spends a significant percentage of its earning for marketing and advertising, that is, to manipulate and convince people to buy things they don't need, so that other people will have more money to spend on things they don't need…

Exponential growth is not something that can last. The physical resources that are available to humanity are not unlimited. A "healthy" growth of 4 percent a year in the gross product means doubling it every 20 years, multiply it by 50 every 100 years and by 2500 in 200 years. If we keep this rate of growing we will very soon find our natural resources being exhausted. Things can be even worse if the expectation for the percentage of growth will increase as time goes by, what is likely to happen. Then, a whirl of the economic activity might start and cause an immediate collapse. We have seen a small scale example of it as the Hi-Tech bubble burst.

Economists believe that everyone benefits from high economic activity. When the economy grows, they say, the product grows and so does the amount of money and everyone get his share. In order to stimulate the economy, governments reduce the restrictions over the economic activity and increase competition. Balancing mechanisms that support equality within the society, like progressive taxes and welfare services are reduced and neglected. It results in a widening socio-economic gap. The consequences of this ongoing process is that though the gross income increases with time, due to the widening of the socio-economic gap only the higher class and part of the middle class benefit from it and the disadvantaged remain poor.

The structure of the capitalistic society has also major negative psychological influence on its members. On one hand society fail in its main role – providing security to its members; on the other hand, society is very demanding: People live their life in a ceaseless race. There is always more to achieve, there is no time to rest. Every goal that is achieved is only a starting point for the race to the next goal.

People in such society are both alienated and stressed. In extreme cases it gets to mental disorders like depression and anxiety that are so common in the modern western civilization. Alienation means people who don't identify with society and have no will to act for it. When society doesn't contribute to its members, people don't feel obligated to invest in it. When everybody acts for his own sake only, competition gets destructive and society becomes inefficient. The role of society is decreased and the advantages of social life disappear. Stress causes personal damage to everyone, but also to society as a hole. It reduces the efficiency of people at work, it causes morbidity, absence from work and high medical expenses. It reduces the economic efficiency of the society.

Another problem of the capitalistic society is the growing fortune that is concentrated in the hands of the richest people. The lack of restrictions on the amount of money that a single individual can possess already made some people so rich that they own more money then the five year budget of a small state. This gives these people tremendous power, especially in a society in which so much importance is ascribed to money and almost everything and everyone can be bought by the right amount of it (forgive me, the Beatles). This situation endangers democracy and the freedom of people.

How will capitalism end?

All these things mentioned above make capitalism highly unbalanced and instable system. It cannot exist in its current form much longer and will sooner or later be replaced by something more stable. It is hard to predict how capitalism will end. There are too many ways and too many causes that might bring its end, and it is hard to foretell which will come first.

It is hard to believe that it will be a revolution carried out by the lower class; this an old trick that has been used before and not many feel nostalgic to its consequences. It might be a democratic evolution. The lower classes have a great electoral power and can make significant changes in a democratic society.

But the vote of people of the lower classes is mostly affected by frustration and disappointment from the present government. They usually vote to the opposition no matter what their ideology or opinion is. This brings only occasional political fluctuations that cannot make any significant change. Yet, this behavior might be changed as the socio-economic gap is widening and more and more people from the middle class, that sometimes vote more rationally, will find themselves lower in the socio-economic scale.

Another cause can be a shortage of natural resources that will undoubtedly come as a result of the exponentially growing exploit of these resources. Though the advancing technology opens new ways to produce energy end finds artificial substitutes to traditional natural materials, all our resources are based, after all, on the existing material on Earth, and this is naturally finite. The growing exploit of the natural resources must end sooner or later. This might also be a gradational change if we will be rational enough to start it on time (right now). Otherwise it is going to be a tremendous crash of the global economy.

Another possibility is that few very rich people will try to take control over countries and parts of the world and will try to run it according to their will. This might bring people to rise up against them and change things, democratically or by force.

There are already movements that act against capitalism, though not everybody is aware of it. People and organizations that fight against globalization are actually fighting capitalism. Globalization itself is but a historical fact. The technological development made communication and transportation fast enough to allow organizations grow to be world-wide. It is a natural continuation of the scale-up of the society organization through history: The transition from tribal society to city-states and then to national-states and federations of states. What the globalization opponents are really against is the increasing effect of the capitalistic society illnesses. Inequality, exploitation and centralization get more painful when they are done on a global scale.

Capitalism is also the main enemy of the ecology movements and the green parties. Though the continuing damage to the environment caused by mankind is now known to everybody, a little is done to stop it due to the price it requires. The capitalistic ideas, its list of priorities and the political power of the rich, bring the decision makers to put the narrow, short term economic interest before the broader long term interest of society.

What will the replacement be?

Capitalism will not be replaced by socialism. This has been already tried and found even more instable than capitalism. The new social system must be something between the two ends of capitalism and socialism. What will replace capitalism must be closer to the optimal point - the point of balance between individuals' interest and society interest. It will be a society with enough freedom and competition to make economy work and enough limitations to keep society healthy and stable. Competition must be free enough to make it worthwhile to work, to initiate and to invest efforts in productive busyness, but limited enough to make everyone feel secure and to avoid concentration of too much power in the hands of individuals.

Such a society will limit the economic gap between its members. It will support its weaker members, and put a limit to the amount of property that a single person is allowed to possess. It will develop mechanism that will assure efficient and sensible use of natural resources and will see that economical interest will not damage the long term interests of society.

But wait! This is just a social democracy. This is very much like the Scandinavian model. This has also been tried before. If this is the balance point, how comes that the former communist countries have moved to capitalism and not to social democracy? How comes that even those countries that were already there, like Sweden and Denmark are now drifting towards the American model of total capitalism? This requires an explanation.

I believe the world is now in a phase of overshoot due to the sudden change that came with the collapse of the communism. This is a known phenomenon in certain systems. We can think of the following physical model:

A spring hangs from the ceiling with two weights attached to its end. The whole system is at rest. Suddenly, one of the weights is cut off and drops.  The system has now a new balance point with the remaining weight higher than it was before. Eventually the system will get to rest at this point, but what happens right after the cut-off is that the weight jumps up and overshoots the balance point. It is then oscillating several times around the balance point before it comes to rest.

This happen due to two pairs of opposite forces that act on the system. The first pair is gravity that pulls the weight down, and the stretched spring that pulls it up. These two forces are balanced at a certain point. At any other point the force that pulls it towards the balance point is stronger. The second pair is the inertia that tends to keep the weight moving in its current direction and friction that tend to stop the movement. These latter two forces cease to exist when the system comes to rest.

In a human society there are similar pairs of forces: The first pair is the interest of the individuals and the interest of society. As said, these interests can be balanced somewhere between socialism and capitalism. The second pair is trends and conservatism. Trends and fashions are the tendency of people to want more of the same. When a change is considered successful people tend to continue with changes in the same direction. An example for this is the privatization of government properties and services. Western economists are now getting eager for privatization and are trying to find more and more things that can be privatized. Conservatism, on the other hand, is the tendency of people to stick to the familiar and avoid changes. Like friction in the spring model, this is the force that prevents the system from oscillating forever and eventually makes it stabilized at the balance point.

With the existence of these four forces we can expect society to react to sudden changes in a way similar to the spring model, that is, that there will be a number of fluctuations before society will be stabled at its balance point.

When will the change come?

Unlike with physics, for society we don't have sufficient data and mathematical tools to calculate its behavior. It is thus hard to predict when this change will happen. I don't expect that it will be in the next few decades; on the contrary, I believe that in the near future the trend towards more extreme capitalism will continue. But I think it would be safe to predict that capitalism will not last much beyond this century. (It is especially safe because I will not be around to stand by my prediction.) All the reasons I have listed above will not let capitalism last that long.