Fred Block’s Capitalism: The Future of an Illusion (University of California Press, 2018) has a very clear objective—to challenge market fundamentalism by exposing its fundamental assumptions, which Block calls “illusions”. It is useful to situate this book in a broader context. Block’s book comes in the footsteps of his own earlier work (e.g., The Power of Market Fundamentalism, 2016) as well as a stream of other books (some of them analyzed in this blog, such as Yascha’s Mounk People Vs. Democracy and Paul Collier’s Future of Capitalism, among others)that are inspired by a strong sense of an intensifying crisis of the capitalist system. Whether indeed capitalism is in crisis or not, is to a large extent a matter of opinion. Branko Milanovic whose excellent book Capitalism, Alone I also reviewed in this blog, believes that there is no crisis of capitalism. On the contrary, it is the only game in town and there are no signs of any challenger on the horizon. According to Milanovic, the “doom and gloom” sentiments that we observe in the West are a specifically Western phenomenon caused by the stagnation or decline in the living standards of the Western middle class due to the effects of globalization, which lifted out of poverty millions in the poor countries.
Fred Block however believes that capitalism is in crisis and blames for this market fundamentalism, which according to him prevailed in the late 1970s-early 1980s in the US and UK coinciding with the decline in the living standards in the developed world. The book’s central thesis is quite straightforward: there is nothing like a coherent and cohesive, immutable, self-regulating and autonomous capitalism system, which proponents of market capitalism hail. These capitalist myths are, as Block argues, “burned into the consciousness of both elites and publics” making it more difficult to identify the changes in institutions at the local, national, and global level that could help us address multiple crises that we face.
Block starts with analyzing the thesis of market autonomy, which is one of key arguments of market fundamentalists against state intervention and state regulation. According to this viewpoint, any state intervention would lead to a second-best outcome inferior to the best outcome and the attempts to introduce correcting measures will only make things worse. Block argues that markets are part of social institutions and do not exist an isolation—a rather obvious point, in my opinion. The field of institutional economics (of which Douglas North’s institutions, Institutional Change and Economic Performance is a fine example) have been arguing for the past 30 years plus that economic decisions of individual actors are shaped by political, social and cultural institutions and are not necessarily the most optimal or rational decisions. Block quotes the example of Russia in the 1990s as a laboratory experiment of unbridled capitalism, showing that a totally free capitalism is nothing but a Russia of the 1990s with its explosion of criminal activities, rampant disorder, and an economic decline.
Interestingly however, Block blames Marx for original sin of “economic determinism”, which allowed market fundamentalists to “stand Marx on its head” and appropriate this thesis. This is where Block underestimates Marx. Whereas Marx had no doubts about the “end of history” as communism and was convinced that the social institutions are ultimately defined by the system of ownership and relations to the means of production, the word “ultimately” is critical. Engels explained this very clearly in a letter to the German socialist Bloch (not Block!) of 21 September 1890, which is worth quoting at some length:
“… the ultimately determining element in history is the production and reproduction of real life. Other than this neither Marx nor I have ever asserted. Hence if somebody twists this into saying that the economic element is the only determining one, he transforms that proposition into a meaningless, abstract, senseless phrase. The economic situation is the basis, but the various elements of the superstructure — political forms of the class struggle and its results, to wit: constitutions established by the victorious class after a successful battle, etc., juridical forms, and even the reflexes of all these actual struggles in the brains of the participants, political, juristic, philosophical theories, religious views and their further development into systems of dogmas — also exercise their influence upon the course of the historical struggles and in many cases preponderate in determining their form.“
The argument of social embeddedness of market institutions allows Block to speak forcefully in favor of social reforms to improve capitalist institutions. He quotes Thomas Piketty’s Capital in the 21st Century to demonstrate that within the same capitalist system (without any changes in the system of ownership) inequality may differ greatly, from 50% to below 30% percent for the top income decile (below is a chart from Piketty’s latest book, Capital et idéologie demonstrating the changing levels of inequality in Russia, US and Europe in 1900-2015). Moreover, the share of the top 1% as Piketty demonstrates may drop from 70% to 20% without affecting economic growth.
The corollary of the argument of malleability and mutability of the capitalist system makes Block argue forcefully the compatibility between capitalism and democracy. He claims that democracy has been instrumental in ensuring high rates of economic growth in the West by limiting the capacity of the economic elites to command a disproportionate share of resources and increasing public investments in infrastructure and social services. Of course, one can ask whether Western democracy is indeed as democratic as the author believes. Both Mounk and Milanovic, for example, are critical of the democratic potential of liberal democracies. Milanovic, in particular, claims in Capitalism, Alone that the democratic process in the US is being hollowed out and captured by plutocratic elites.Be as it may, Block puts his trust in the ability of democratic forces to change the status quo and calls on political forces on the left to adopt a social reform agenda and replace the thesis of the futility of social reforms under capitalism “with the political equivalent of agnosticism”, meaning a frank acknowledgement that we cannot know in advance what reforms may or may not be winnable without a radical transformation of the economic system.
Yet, this call, albeit practical in many respects, is significantly weakened by the author’s refusal to recognize the limits of the reforms feasible under a capitalist system and ruling out any other possible socio-economic systems. Surely, an agenda of economic and social reforms should be pursued under capitalism, and its results may be impressive. However, we know from the history of modern capitalism that limits to how much social inequality may be reduced exist (despite the variations already discussed). History provides many convincing examples that a system dependent on profit maximization and exploitation of labor by capital can be reformed only to an extent that it does not affect the fundamental interests of the ruling capitalist class. The period of the 1950s-1970s considered the golden age of capitalism and called “trente glorieuse” in France, appears so great only in retrospect in comparison with the present. Anyone who lived through that period (or part of it) knows that life was not in fact so glorious and knew unemployment, homelessness, public unrest and workers’ strikes. Furthermore, it would be fair to consider this relatively well-off period in the context of the post-war competition between socialism and capitalism (as a number of other authors do, including Milanovic and Piketty). In fact, Block himself recognizes that the “deeply erroneous” free market ideas became gain prominence with the fall of the Berlin Wall after communism and socialism stopped presenting a real threat to the market system. Furthermore, capitalism has a tendency (clearly demonstrated by the growing inequality trend) to redistribute wealth towards capital and socialize negative externalities. The latter is exemplified by the history of the modern financial sector, which successfully fought prudential regulation protecting consumers such as the Glass-Steagall Act and later the Dodd-Frank Act in the US (vividly described by John Kay in Other People’s Money). (Incidentally, Block is not oblivious to this characteristic feature of capitalism. He makes a very relevant qualification of Adam Smith’s “invisible hand” principle. Block argues, quoting Smith’s Theory of Moral Sentiments, that the proverbial “butcher, brewer, and the baker” are implicitly considered by Smith as self-interested but morally upright members of their community who would not try to sell rotten meat, stale bread or sour bear to their customers, not least because community-grounded businesses can be so easily sanctioned. This advantage does not work with respect to larger firms with no immediate connection to local communities, particularly multinationals.)
The argument that there is no cohesive and uniform capitalist system (Block highlights the differences between various strands of capitalism, e.g., its Anglo-Saxon variety versus the Scandinavian social capitalism) leads Block further to a rather questionable conclusion that the concept of capitalism has stopped to be meaningful and there is no capitalism at all. Unlike the agricultural and industrial societies of the past, he defines modern society as “habitation society” arguing that the central economic activity of our society is “creating, maintaining, and improving human habitation, or the social and physical environments in which most people live”. It is not clear how much this definition adds to our understanding of modern society. After all, neither agriculture nor industry were ends in itself. Rather, the objective has always been to create the best conditions for human existence (such as they were understood in various historic periods). In this respect, definition of our society as “habitation society” does not seem to sufficiently differentiate it from other types.
But what this definition does (similar to the concept of postindustrial society) is to completely eliminate capitalism from the socio-economic equation. Not only capitalism appears almost indefinitely malleable but in fact there is no capitalism and hence there is no social conflict. This is probably one of the biggest illusions that capitalism has managed to burn “into the consciousness of both elites and publics”, and Block’s book falls short of exposing this illusion. There are very interesting and substantive deliberations of the type of ownership relations, power dynamic and ownership distribution through cooperative arrangements, co-management, self-management, information societies and even reversal of the relationship between labor and capital that may replace in the future the current exploitative relationships (see, for example, Manuel Castells’s The Rise of the Network Society, 2011; Paul Mason’s PostCapitalism: A Guide to our Future, 2015 or, again, Capital et ideologie, to name just a few). This is almost completely absent from the book, which is a big disappointment.
Shutting the doors to considering alternatives to capitalism kills the future vision (however unrealistic it may appear now) and hence reduces the mass mobilization potential, which is critical to the program of socio-economic reforms for which the author is advocating. Block recognizes the challenge of creating the broad democratic movements necessary to address the economic, political, and environmental challenges we face. But all those challenges have a class dimension (which the author does not recognize), and removing a visionary foundation from underneath those challenges, makes building effective movements and coalitions to effect the reforms (even within the capitalist parameters) even more challenging.
For Block, the alternative is an improved version of the capitalism today. The specific measures would include increased investments in public infrastructure (facilitated by the current low interest environment and a global saving glut); and more fair domestic income redistribution mechanisms including a guaranteed income system. Internationally, the author calls for a “dramatic expansion” of lending by global investment banks and changing the global and investment rules to allow developing nations to protect infant industries and erect barriers to expensive foreign luxury goods that drain valuable foreign exchange. He also proposes a global income guarantee to provide everybody with enough income to survive hard times so that richer nations would contribute to support these payments in the world’s poorest nations.
Sure, we will live in a better world if all (or even some) of these proposals are implemented. But how and why? Of course, if you agree with the author that capitalism is infinitely malleable, then everything is possible. But the history teaches us that the logic of power relations under capitalism sets its limits on what is feasible. Probably, no issue demonstrates it better than the efforts to combat the climate change. Despite multiple international agreements (most notably, the Paris Agreement of 2015), a sense of urgency inspired by eco-activities, such as Greta Thunberg, and well-publicized commitments by business leaders like BlackRock CEO Larry Fink, the results are not very impressive. Despite the 2015 agreement, global carbon emissions increased 1.7 percent in 2017 and a further 2.7 percent in 2018; it has been estimated that the rate of increase in 2019 will be among the highest on record. The private sector has so far resisted the efforts to reduce their carbon-emitting activities if the result was a dent in their bottom line.
Recognition that the current systems places limits on what can be achieved and those interests are determined by vested class interests has nothing to do with defeatism as Block claims. On the contrary, an understanding that to achieve the set goals requires going beyond the present arrangements that exist today is a powerful mobilization tool to achieve a better vision for the future, not just partial improvements that will be forever in peril of being reversed at the slightest opportunity as the history of capitalism demonstrates.
I believe there is a big lesson here for us who work in international development. We work within certain constraints—national, organizational, cultural and so on. But we should be on the watch for the sprouts of trends and initiatives that can challenge the status quo and create a brighter future for the people in the countries where we work. Rather than following the same neoliberal prescripts, we should argue with the partner governments for piloting, replicating and disseminating such initiatives. We should try to mobilize broad stakeholder coalitions around such initiatives and identify the national champions who can take it forward. Developing a bold vision for the future together with our partners is an important mission which must not be lost behind a multitude of daily concerns and activities.