The Principles of Capitalism Questioned

Abstract

The story of the economy has become, increasingly, one of greed and selfishness.

1.1 Capitalism and Economic Liberalism

1.1.1 General Situation of Capitalism

The story of the economy has become, increasingly, one of greed and selfishness.¹

One of the main causes of this is the fact that the socio-economic order, over the past centuries, worldwide, has been increasingly determined by one system, capitalism.²

Grasping the essence of capitalism is no easy task. Even determining the exact starting date, or even period, of capitalism poses a great debate, on which opinions in literature are not unanimous.

Depending on the case, the inception of capitalism is situated as early as the sixteenth century, and sometimes as late as the end of the eighteenth century, with the difference in approach stemming mainly from the processes studied to situate the inception of capitalism over time.

Those who are particularly attentive to the legal and economic mechanisms underpinning capitalism (including, among other things, the emergence of the socio-economic model of organization of employment for remuneration and private money creation) may be inclined to situate the roots of capitalism as early as the sixteenth century.

Those who are more attentive to the (fledgling) economic doctrines that from the second half of the eighteenth century sought to rationalize the resulting new socio-economic processes will be more inclined to situate the emergence of capitalism in the eighteenth century.³

In his book ‘Arbeid en lust’, Jaap Kruithof (1929–2009) distinguishes between ‘commercial capitalism’, or ‘mercantile capitalism’, and ‘industrial capitalism’. In this approach, the breakthrough of mercantile capitalism is due to the rise of the so-called “third estate” (the medieval merchant class) that began to emerge as early as the twelfth century.⁴ This class then came to dominate the Western, economic system from the sixteenth to the eighteenth century onward. The driving socio-economic force in this era became the so-called ‘bourgeoisie’, (initially) led by merchants and financiers.

According to Kruithof, it involved people who placed themselves outside actual production, utilizing the work of others and essentially making commodity exchange and money trading their primary activities. Kruithof goes on to explain that this class gradually began to adopt a value pattern that was fundamentally different from traditional Christian ethics (because of the focus on the profit motive) and feudalism (because of an increasing reliance on hiring other people’s labor in return for payment), although at the same time, political power remained in the hands of nobility and clergy.

This reorientation of the value scale underlying the socio-economic order would later gain great validation in Calvinism, which in turn would become the forerunner of the rationalizing theories that saw the light, especially during the second half of the eighteenth century.⁵

In a similar vein, Kruithof refers to the economic system that prevailed in the period from ±1780 to ±1950 as ‘industrial capitalism’, in which factory production—and therefore the ownership of factories, including production processes—played a central role.⁶ A characteristic feature of this industrial capitalism is that, whereas in pre-industrial times the production processes were still very much determined by local and extra-economic conditions, e.g. of a political (feudalism) and religious (Christian) nature, in industrial society the market itself became the most decisive factor for determining economic goals. Making profit became the main motive, and this required (economic) growth. Entrepreneurs started to produce as much, fast and cheaply as possible, which naturally had repercussions in terms of employment, both in terms of working methods and conditions. In this industrial capitalism, socio-economic power shifted from the merchant to the entrepreneur.⁷

In Kruithof’s approach, industrial capitalism, at least in the West, then flowed into the ‘welfare state model’ that prevailed in the period 1950–1975 before giving way, under the impetus of economic neoliberalism, to contemporary capitalism—also referred to as the free market economy—which is not so much characterized by a focus on well-defined economic activities, but is rather ideologically driven by the intention of subjecting the entire global economy to the dictates of one system of ideological thinking.

This book deals mainly with contemporary capitalism, although, at least from an ethical point of view, the caesura between the various forms of capitalism is, in our view, much smaller than any categorization may suggest and, in reality—at least from a legal point of view and taking into account the intention to question the value choices underlying capitalism—the capitalist principles and working methods that began to dominate the socio-economic scene from the sixteenth century onwards have remained largely the same over the centuries.

This makes that, throughout the history of the West, three major systems of socio-economic order have emerged successively, namely: (1) A socio-economic model based on slavery (since Classical Antiquity until the fifth century); (2) A socio-economic model based on feudalism (±fifth century until fifteenth century), and (3) Capitalism (±sixteenth century until the present).

For the sake of completeness, it should be noted that the various levels of this classification can be further refined. Early feudalism differed from high and late feudalism, and the pre-capitalist mechanisms that contributed to the gradual erosion of feudalism already began to emerge much earlier in time (cf., for example, the rise of the merchant class and increasing urbanization from the twelfth century onwards).

1.1.2 Basic Characteristics of Capitalism

From its inception, capitalism has been a socio-economic system that has aspired, to an ever-increasing degree, to make the great masses—and by extension the Earth itself, with everything in it—subservient to the economic rationale and, therefore, to the interests of the (emerging) classes of merchants and entrepreneurs (including bankers).

This finds very strong expression in the classical hierarchy of values that characterizes capitalism. The values and interests of the merchant/entrepreneurial class—otherwise known as ‘Capital’—always prevail over the interests of the rest of the population—or: ‘Labor’—as well as over the well-being of the Earth itself.⁸

Thereby, from the sixteenth century onwards, the pursuit of profit has gradually been elevated to the central, societal value (replacing a previously prevailing goal of organizing society on the basis of the ideals of Christianity), which had a crucial impact on the development of the global economy.⁹ Out of these new values arose a capitalist economy, that does not center the equal satisfaction of the needs of all people, but has become increasingly focused on the interests of the ruling classes (of entrepreneurs and bankers). It also gave rise to an economic model of unlimited growth, as a further essential feature of capitalism.

It is also this shift in values that provides the explanation for why, within capitalism, all other values, including the wellbeing of the Earth and of the rest of the global population—as the case may be: the bottom-85%, the bottom-90%, or the bottom-99%¹⁰—have been sacrificed to the goal of maximizing wealth for the benefit of the rich.

It is these essential features of capitalism that will be subjected to closer analysis throughout this book, especially from an ethical perspective.

1.1.3 Preliminary Explanation for the Success of Capitalism

The quasi-total subordination of the world economy to the capitalist system since the sixteenth century finds its cause in a multitude of factors. However, an important culprit seems to be the misconception that there was no alternative. Especially later in the history of capitalism, much economic thought was bent on convincing everyone that socio-economic processes can rely on only one mode of functioning.

What is worse is that this approach has created an increasing multitude of societal problems for which capitalism itself fails to provide adequate solutions, even as time seems to be running out.

One of the main misconceptions on which capitalism rests, as mentioned above, is the idea that capitalist processes and methods are the only ones that are fit for shaping society socio-economically.

This misconception itself goes back to the period of Enlightenment, when the idea began to take hold that all human action, including the scientific investigation of social and socio-economic action, should rely on a so-called rational approach. This in turn, within the socio-economic domain, led to a quest aimed at finding out what socio-economic behavior was supposed to be rational.

This quest gave rise to a very successful current: economic liberalism, which took the premise that within the socio-economic sphere, everyone participating in the socio-economic process should behave as selfishly as possible. Such a ‘collective’ selfishness, would result in the most efficient use of manpower and economic resources, ergo in the most efficient socio-economic order.

From the eighteenth century onward, the economies of more and more countries, and eventually the global economy, were increasingly based on this premise. This took place partly from the conviction that by acting in this supposedly ‘rational’ manner, all involved would realize their greatest potential, and that this would make (global) society flourish.

This way of looking at the socio-economic order has become increasingly successful over the past centuries, to culminate from the second half of the twentieth century in a modern variant of this approach, namely the school of economic neoliberalism.

The currently prevailing school of neoliberalism is, in this approach, essentially a modern recasting of the eighteenth-century school of economic liberalism. Neoliberalism adheres above all to a blind faith in the operation of the free market, ergo of private initiative. The basic credo is that the entire establishment of the socio-economic order should be left to this free market, whereby any social body perceived as obstructing these free markets, especially the state, should keep as far away as possible from everything that concerns the socio-economic sphere.¹¹

This premise has determined the way in which the world, especially from the eighteenth century onward, has had to endure the impact of selfish, economic human behavior, presumed to be desirable, with numerous pernicious consequences.

1.1.4 Preliminary Questioning of the Supposedly ‘Rational’ Nature of Capitalism

Anyone willing to reflect more deeply on the issue raised in Sect. 1.1.3 will find it hardly surprising that the (neo)liberal guideline for the design of the socio-economic order could but generate all kinds of pernicious consequences.

One of the most difficult points in convincing those who are still inclined to these basic premises, despite the inherently problematic nature of this choice, is making them understand that this choice is nothing more than that, namely a (value) choice.

Indeed, human societies—or a sufficient number of them—have (at one time or another) ‘chosen’ such a system, without this being an inherent law contained in the nature of things. Even the idea that human nature is, or must be, inherently selfish is nothing more than a chosen belief system, and not an inherent law of nature.

This, incidentally, immediately touches on the essence of the human sciences in general and of economics as an academic discipline in particular, which, approached in this way, inherently rely on conventional systems, especially systems in which people themselves have made (value) choices as to how to interpret the social order in the broad sense of the word, without such an interpretation itself having the character of a fixed law of nature. However, this is precisely what the economic sciences started doing.

This obviously places an exceptionally large question mark over the very tenets of eighteenth-century rationalism, within the framework of which it was held that processes of social order could or should proceed according to laws that (would) exhibit the character of natural laws.

In all of this, perhaps one of the most serious historical mistakes humanity has made is to have opted, in order to organize the socio-economic spheres, for a conception that human nature is and should be inherently selfish and that the socio-economic order should be built around such a conception.¹²

The exploration of this starting premise and what it has led to will constitute one of the further central themes throughout this book.

1.2 Caesura with Alternative Approaches

1.2.1 General

The view, generalized from the eighteenth century onward, that the socio-economic order should be based on the premise that everyone should behave in the most individualistic/egoistic way possible and that this would result in the most ideal society, marked an important caesura with former religious and philosophical currents which, to the extent that they made any pronouncements about this kind of socio-economic ordering processes, generally defended a position opposite to the idea of extreme egotism.

Here one cannot get rid of the impression that some of these alternative approaches, like the eighteenth-century school of rationalism itself, also took as their starting point the same understanding of human nature, specifically that there are indeed impulses in human nature that tend toward selfish behavior.

However, the essential difference between the approach of eighteenth-century rationalism and certain earlier strands in philosophy and religion has been how to reason further from there.

For the school of rationalism, and certainly for the school of economic liberalism (and later, economic neoliberalism) that emerged from it, the approach became one in which these selfish impulses should be fully nurtured. In other words, the approach became one where each person is invited to live its selfish impulses to the fullest, under the guise that from this the most ideal society will emerge.¹³

In contrast, for several historically older philosophical and religious currents, the choice was completely opposite, and it was supposed that human beings would rather turn away from the selfish impulses in their nature and work for a society in which everyone is well off, based on an approach of mutual affection and assistance.

1.2.2 In Religion

When we consider the religion (or religions) of Hinduism, we find an image of man that is completely alien to the idea of selfishness.¹⁴ On the contrary, within Hinduism, the idea prevails that every human being should fulfill his ‘dharma’, by which is meant his divine duty on this earth. Such dharma is not the accumulation of wealth to fulfill of all sorts of lusts and needs, but rather concerns the striving for the betterment of the general society, within which everyone has an appropriate task. Underlying this is the further notion that each human being is an animate being and that this ‘anima’ is collective, which in other words implies that each human being is the emanation (or a part) of such a ‘one soul’, also referred to by other terms, such as Consciousness, the Self or God.¹⁵ This makes the view on the nature of man of Hinduism, of course, substantially different from that of schools such as economic liberalism, or neoliberalism, which rest on the ideas of individualism and materialism.

Similar is the approach of Buddhism, where also the idea prevails that every human being—and by extension every living being, but even dead matter (whatever these notions may mean in terms of today’s understandings of physics)—is part of a unity, in which the unity, including the growth in awareness of this unity, is the only reality, while the notion that one is an individual distinguishable or separate from this unity is the result of the experience of an illusion.¹⁶ Essential to Buddhism is that man’s life is directed toward becoming increasingly aware of the reality of which one is a part, which is also at odds with the principles of the aforementioned schools of economic liberalism and economic neoliberalism. In contemporary terms, this difference in approach offers a possible explanation of why, in countries where a large part of the population still adheres to (one of) the tenets of Buddhism, well-being is in many cases a much more important value than (economic) prosperity.¹⁷

Shifting to the West, we meet the monotheistic belief systems, such as Judaism and Christianity and Islam that grew out of it. Within these religions, among other things, there is a particular focus on the idea of charity, the notion that one’s behavior should subordinate one’s own selfish goals to the welfare of others.

This idea, for example, is very central in Christianity, which relies on the gospel value that people should love their neighbor as much as themselves, which produces an attitude to life that, again, is completely opposite to the basic views of the schools of economic liberalism and economic neoliberalism, on the contrary stating that everyone should behave as selfishly as possible. Within Islam, this has even led to very concrete guidelines on the shaping of various socio-economic processes—including the granting of credit and cooperation in the context of companies—which are just as diametrically opposed to the doctrines of the economic schools themselves.

1.2.3 In Philosophy

Various philosophers and philosophical movements have also arrived at a similar approach opposed to (some of) the working methods of capitalism. While covering all of these in extenso within the scope of this book would lead too far, it is worth noting that various leading philosophers, throughout history, have made a case for an altruistic rather than a selfish attitude to life.

Quite early in the history of Western civilization, for example, Plato warned against giving the use of money and the accumulation of wealth a central place within the social order, with the further comment that if this warning were to be ignored, society would degenerate.¹⁸

In a similar vein, Aristotle argued in favor of a just distribution of wealth, with also practical hints on the concrete socio-economic order, such as, for example, an opposition to interest levying in credit relations.¹⁹

Throughout the centuries, these views of the two Greek philosophers have continued to inspire, including in the works of the Christian school of scholastics (with, for example, Thomas Aquinas as one of the figureheads).

Even later in history than Plato, Aristotle and Jesus Christ, there were the various authors of the so-called French school of rationalism, headed by Jean-Jacques Rousseau, who questioned several of the building blocks of capitalist societies (including even private property).²⁰

We also find the same critical attitude against the principles and working methods of capitalism—especially the exploitation of the working classes and the capital accumulation that makes this possible—among the authors who are considered the spiritual fathers of communism, with Karl Marx as a figurehead.

In more recent times, one can refer to the works of Levinas, for instance, who similarly advocates a view of man based on an attitude of life in which the salvation of others must be prioritized over one’s own selfish aspirations.²¹

1.2.4 Illustration: Ahimsa

That such religious and/or philosophical doctrinal systems can still inspire current social organization can be aptly illustrated by referring to the religious concept of ‘Ahimsa’ and the role it has played during the twentieth century.

In a simple translation, this concept derived from the religions of Jainism and Hinduism can be translated as ‘nonviolence’, both in actions, words and thoughts.

Swami Sivananda has described the term as follows:²²

Ahimsa, or refraining from causing pain to any living creature, is a distinctive quality emphasized by Indian ethics. Ahimsa or non-violence has been the central doctrine of Indian culture from the earliest days of its history.

And also:²³

Ahimsa is another name for truth or love. Ahimsa is universal love. It is pure love. It is divine Prem. Where there is love, there is Ahimsa. Where there is Ahimsa, there is love and selfless service.

The impact Ahimsa has had on social processes becomes immediately apparent when we recall the role Mahatma Gandhi, on the basis of an appropriated interpretation of the concept of Ahimsa, played in the emancipation of the Indian people in its nonviolent struggle against British colonialism, but by extension also in the socio-economic and political spheres.²⁴ This in turn inspired Martin Luther King’s efforts to disengage the American black population from centuries of repression by the white population of the United States of America.²⁵

However, despite the major role that such religious and philosophical currents have played throughout history—and continue to play in the sphere of private experience of individuals and groups of people—their current impact on the organization of socio-economic order is rather minimal. In the latter domain, on the contrary, it is the currents that prioritize selfishness and greed as central values that have won the battle, especially the ideology of economic neoliberalism.

1.3 The Intermediate Stop of the Modern Welfare State

The fact that capitalism, from the sixteenth century onward, has become the defining socio-economic system on Earth does not imply that no attempts were made in the past to make corrections to it. One of the main such attempts was the establishment of so-called welfare states. It should be noted, for the sake of completeness, that this welfare state model has prevailed primarily in the Western world, so that what follows relates primarily to this Western welfare state model.

Indeed, especially in the post-World War II period, a wide range of capitalist countries—especially in the Western world—worked towards organizing the so-called welfare state model (which could be defined as the collection of government-initiated mechanisms of socio-economic planning aimed at providing certain forms of protection to the poorer/lower classes within society against the most overbearing capitalist mechanisms of exploitation).²⁶

In general, this period from 1945 to 1975 saw—as a result of numerous socio-economic factors, the discussion of which would exceed the scope of this book—considerable economic progress, characterized by high annual GDP growth rates, rising real wages, low unemployment and the absence of worrying recessions, and periods of inflation.²⁷ At the level of the organization of production, this period in history was further characterized, on the one hand, by ever-increasing differentiation and specialization and, on the other hand, ever-increasing concentration and centralization, partly as a result of which, at the international level, the era of multinational corporations emerged.²⁸

According to Jaap Kruithof, the latter has not been a coincidence, but has rather arisen from the peculiarity of capitalism itself. The reason for this is that the main thrust of capitalist entrepreneurship is to make profits, not to distribute them equitably among the members of society, but for the benefit of the shareholders of corporations (which are the main vehicles for conducting enterprises). In the period 1950–1975, much of those profits hence were reinvested in new units of production, resulting in an ever-increasing growth of the corporate sector. Such growth was also deemed necessary to cope with competition. All this had a fierce self-reinforcing effect, with the result that an ever-increasing concentration of enterprises began to occur, with the strong players absorbing the weak players. The result is that, during this period, capital became ‘big business’, increasingly concentrated in the hands of a limited number of super-capitalists (a trend that, under the banner of economic neoliberalism, has subsequently intensified).²⁹

In the period 1950–1975, capitalism further became characterized by a two-speed entrepreneurship with, on the one hand, a large multitude of thousands of small and medium-sized enterprises that remained subject to market mechanisms, and on the other hand, an industrial pattern of a number of very large enterprises that managed to evade the laws of market functioning (e.g., through monopoly positions and market and price agreements).³⁰

It is also during this period that capitalism gained technological momentum. Here, technological innovation became one of the main mechanisms for making super profits quickly. This technological innovation allowed, for example, new products to be put on the market at an ever-increasing speed to make large profits very quickly, or new production processes to be developed that allowed costs to be reduced. This explains why, since that period, an ever-greater emphasis has been placed on research and development (and, from the 1980s on, in the legal domain, the subject of intellectual rights would gain in importance).³¹ (Cf. Sect. 2.6.)

Although the basic mechanisms of capitalism in this period remained largely the same as in the previous periods (of commercial capitalism and industrial capitalism),³² they did undergo the influence of changing political conditions.

As we shall discuss further in this book (cf., in particular, Chap. 2), the basic mechanisms of capitalism itself stem from post-feudal society, through which capitalism has been expansive and aggressive from its inception and has inherently relied on an ever-increasing exploitation of the working classes. (Cf., furthermore, in Sect. 3.1.2) The period of the welfare state saw a certain reversal in this—at least in the Western world—due to, on the one hand, an increasing political emancipation for the lower social classes and, on the other hand, partly because the ruling class—those of the bourgeoisie—asserted their political impact to ensure the survivability of capitalism by setting up systems that attempted to mitigate, to some extent, the discontent of the exploited classes (hence also the term: ‘system capitalism’).³³

These efforts would lead, in several countries, to the establishment of a variety of public or public service and social security systems, both based on the idea that they should be financed by collective efforts—either through taxation or special contributions or charges—and designed to ensure that everyone within society, on an equal footing, has access to these services.³⁴

To some extent, one could even consider these welfare states as a (moderate) attempt to reconcile the capitalist economic system with the idea of a more ideal society, aimed at making it possible for everyone, not just the rich, to at least meet their most basic life needs.

In this respect, from a historical perspective, the welfare state model can even be seen as an early attempt in history to establish a soci(et)al order in which at least a (small) portion of the wealth generated by the economic system was redistributed to the entire population of a given economy (in a fairer way than happens—or does not happen—under capitalist mechanisms themselves).³⁵

However, as of the 1980s, under validation of economic neoliberalism, the welfare state model would come under increasing pressure.

Now that this term economic neoliberalism has already been dropped several times, an attempt will be made below, in Sect. 1.4, to define its peculiarities in more detail.

1.4 Economic Neoliberalism

The currently prevalent, philosophical, or ideological current, that has proclaimed egoism as the most central value that should shape the socio-economic order, is undoubtedly economic neoliberalism.

Posing as a scientific approach, economic neoliberalism essentially constitutes an ideology based on a clear hierarchy of values.

One of the central values within the current of economic neoliberalism is that society is best served when everyone is left as free as possible to pursue their selfish goals, certainly in the socio-economic realm. It is argued that if such freedom prevails, a climate of supreme productivity and innovation will emerge in which everyone will prosper.

This choice of values explains why a central role is assigned to private initiative in the free market, while states should, as much as possible, refrain from any intervention in the socio-economic sphere and may at most assume a facilitating (for the business sector) and policing (with respect to the general population, notably the working classes) role.

Especially in its early period, economic neoliberalism took shape, to a large extent, through several academic schools, each of which provided components of what later came to be known under the umbrella term economic neoliberalism.³⁶

According to Monbiot, who has aptly articulated the characteristics of economic neoliberalism—which we ourselves shall explore further, throughout this book—it concerns a doctrine that insists on the submission of politics to the (free) market, which in other words implies the submission of democracy to the power of money. Every obstacle to the accumulation of wealth on the part of the rich classes—such as government ownership (e.g., of public enterprises), taxes (to the extent that they affect the rich classes and their enterprises), regulation, labor unions and political movements—must be torn down, either quickly and loudly or slowly and covertly. It is thereby argued that, if consumer choice is not impeded by political interference, the free market will become the great engine of progress and prosperity, ranking humanity in a natural hierarchy of winners (=the rich) and losers (=the poor), such a ranking being the emanation of a natural order of things.³⁷

Especially from the 1980s, the implementation of economic neoliberalism gained momentum, with the result that various negative attributes and consequences of capitalism became increasingly magnified.

Still too few realize that todays neoliberal, capitalist world order is not so much due to a fortuitous coincidence, but to a very large extent resulted from ideological choices that—for several centuries already—have been imposed on the world by the classes of merchants, entrepreneurs and bankers, which, from the seventeenth century onwards, were condoned by Calvinism and, from the eighteenth century onwards, were further rationalized through the economic ideas of the liberal and neoliberal schools.

What is possibly even worse is the fact that even after a sequence of (severe) financial and/or economic crises in the past decades, which in essence derive inherently from the value choices underpinning the capitalist socio-economic order, neoliberal policymakers continue to seek the solutions to these crises in the systems of economic neoliberalism itself. In other words, the observation holds that, under the rule of economic neoliberalism, the cure for the disease is invariably sought in the factors that cause the disease, with a (feigned) astonishment then arising each time that the sickness is not cured, but, on the contrary, the clinical picture is getting worse and worse.

This is another theme that will be further explored and, where possible, illustrated throughout this book.

1.5 Specifically: The Neoliberal Agendas of Western Countries Since the 1980s Considered Briefly

1.5.1 General

An appropriate characteristic of economic neoliberalism is that its realization, to a large extent, has taken place by appealing to the state apparatus, so that in many cases it has been states themselves which, under the impetus of economic neo-liberal thinking, especially since the 1970s, have begun dismantling the welfare state model that had been set up in the period 1950–1975 (thereby eroding the public interest), with the intention of optimizing the playing field of the free market(s) as much as possible.

In other words, throughout the capitalist world, it has been states themselves who have worked to bring their economies in line with the ideas of economic neoliberalism, including the idea that it is best for everyone to behave as selfishly as possible in their pursuit of ever-increasing wealth accumulation, in addition to the idea that it cannot be the role of states to (help) establish counterbalancing systems of mutual solidarity—such as social security and public services.³⁸

The ultimate goal of these efforts has been to make markets as free as possible—or, put another way, to make capitalism as ‘unbridled’ as possible³⁹—through the purging of everything perceived as obstructing free market functioning, including, on the one hand, systems of social security and public services and, on the other hand, legislation aimed at protecting interests other than those of the corporate and wealthy classes. In summary, the implementation of economic neoliberalism has gone hand in hand with the dismantling of the welfare state model (albeit faster and more far-reaching in some countries than in others).⁴⁰

The approach that various Western countries have adopted to this end has also become known as the Washington consensus model, although it should be noted that certainly in the initial phase of the implementation of neoliberal ideas—say, the 1980s⁴¹—there was not yet such a blueprint-based approach; on the contrary, each country that proceeded to implement the economic-neoliberal ideas during that period acted largely as it saw fit.⁴²

1.5.2 The Washington Consensus Model in Particular

The previous Sect. 1.5.1 has already referred to the so-called Washington Consensus Model, which can be seen as a practice-based summary (and therefore manual) of the main neoliberal economic learning systems.

This Washington consensus model can be understood as the fruit of an academic thought exercise⁴³ which attempted to logically classify the most tried and tested recipes that had already been used before in the context of implementing economic neoliberal ideology, as a result of which, in subsequent implementation exercises—especially then in the context of a number of international organizations, such as the IMF, and/or of countries that only at a later stage began to adopt the ideology of economic neoliberalism—this classification could be referred to.

In terms of content, the Washington consensus model amounts to a set of ten dogmatic, economic policy prescriptions on which to fall back when implementing the neoliberal agenda. These have also come to be regarded as a standard reform set of “best practices” promoted by, among others, the major Washington, D.C.-based international organizations (hence the name Washington consensus)—such as the IMF and the World Bank—as well as by national agencies such as the U.S. Treasury Department, for example when assisting developing countries in crisis and/or in need of monetary or financial assistance.

The ten best practice guidelines cover economic policies in areas ranging from macroeconomic stabilization, economic free trade and investment policies, to the expansion of free market forces in domestic economies.

The ten precepts are as follows:

• 1. Fiscal discipline.

• 2. Reorientation of public spending in areas that may improve income distribution, such as primary health care, education and infrastructure; this reorientation has, in most cases, amounted to a contraction of public spending and a sharp downsizing of public services (to which we shall return later in this book).

• 3. Tax reform (mostly with the intention of lowering marginal rates for corporations and broadening the tax base, which has generally meant that the poor and middle classes have become taxed (relatively) more and the rich less).

• 4. Liberalization of (central) interest rates.

• 5. Competitive exchange rate policy.

• 6. Liberalization of (international) trade.

• 7. Liberalization of foreign direct investment flows.

• 8. Privatization.

• 9. Deregulation (to remove barriers to market entry and exit); and

• 10. Protection of property rights (cf., for example, the advancement of intellectual property rights).

1.5.3 Concrete Implementation of Economic-Neoliberal Ideas from the 1980s Onward

In the 1980s there have been two economic superpowers that were among the first to try to achieve the goals of economic neoliberalism.⁴⁴

These two economic powerhouses were, of course, the United States of America (where the implementation of economic neoliberalism was also called ‘Reaganomics’) and the United Kingdom (where the implementation of economic neoliberalism was also referred to as ‘Thatcherism’⁴⁵).⁴⁶

Among the main measures to which above countries began to resort in that period, were:

• 1. Applying the doctrine of consumerism (intended as a response to a then prevailing economic crisis by stimulating demand in the economy).⁴⁷

• 2. Extensive deregulation of many economic sectors, such as finance and energy.

• 3. An unprecedented stimulation of all kinds of (consumer) credit mechanisms, an approach that was in line with the goals of consumerism.

• 4. The increase in military spending (and even warfare).

• 5. Tax reforms that mainly benefited the wealthy in society (especially (large) companies/corporations and their underlying capital providers, in addition to their CEOs and other prominent executives).

• 6. The dismantling of social care systems, including access to medical care and public education.

• 7. The dismantling of public institutions, in addition to the privatization of various public sectors and/or public services (for example, the energy sector, the transport sector, the education sector, the nursing home sector, etc.).

• 8. Embracing the doctrine of ‘monetarism’ (which resulted in rampant recourse to credit financing by all sections of society).

• 9. Breaking the influence of (labor) unions.

• 10. …

Inspired by the example of these two countries, numerous other capitalist countries and jurisdictions (including, for example, the European Union) have since moved to follow suit.

This translated, gradually and globally, into a dismantling of public, socio-economic structures in areas such as public services (for example, education and justice) and social care (in the broad sense of the word).

In addition, at the end of the 1980s, the doctrines of economic neoliberalism would further triumph thanks to the fall, in the Soviet Union and its vassal states, of communism, which until then had provided at least some counterbalance to the capitalist market model. As a result, the power of capitalism would since then no longer encounter a meaningful countermovement. Especially since that period, the belief in the myth of the free market has become increasingly fanatical on a global scale, even culminating in the idea that the free market is an essential condition for establishing free and democratic societies, for individual and collective prosperity, and for soci(et)al progress.

Especially since the 1990s, the quasi-universal emulation of the doctrines of economic neoliberalism further helped pave the way for an unprecedented globalization of the world economy—to be understood as an increasing degree of mutual economic interdependence between countries, caused and accompanied by an increasing international movement of goods, services, capital and labor—based on the neoliberal principles of liberalization and deregulation.

In recent times, the efforts of neoliberal-inspired policymakers have hardly ended. On the contrary, neoliberal governments around the world continue to employ these methods and strategies to gradually dismantle what remains of the welfare state model. Although these efforts continue to vary from country to country, neoliberal reforms are, as a rule, still based on the privatization of public enterprises,⁴⁸ on deregulation and on tax cuts in favor of the rich. In this process, social services continue to be gradually reduced, based on the belief that they are too expensive and that phasing out such social services will motivate the poor to finally work harder.⁴⁹

1.5.4 Further Impact of Economic Neoliberalism on Public Finances

Over the past few decades, neoliberal ideology has had an extraordinarily strong impact in the budgetary sphere of many (Western and other) countries and their governments.

More specifically, starting in the 1980s, in many countries and jurisdictions, progressive austerity policies were implemented, including those designed to cut spending in social security and public services.

Again, the tone was set by the forerunners of these neoliberal reforms, including the United States of America and the United Kingdom.

Western continental Europe would fairly soon follow this example, especially in the run-up to the formation of the European Union, when EC member states were told that they needed to balance their public spending by aligning it with the so-called Maastricht norms.⁵⁰

Whereas this exercise was at first still rather amateurish and the EU member states were still given ample policy leeway, the European intervention would, as time went on, become increasingly authoritative, with the set of tools to measure the efforts—or (perceived) lack thereof—of member states to meet European expectations becoming more and more perfected.⁵¹

The question is whether the austerity frenzy—which has affected numerous public sectors—has achieved much, to the extent that the period during which the national governments of EU countries started to make massive cuts in all kinds of public spending has also been the period during which the national debt burdens of these countries increased massively.⁵²

We shall return to this further in Sect. 2.2.6.

In addition, the austerity drive would subsequently be further fueled by several financial (and other) crises, including, for example, the severe financial crisis of 2007–2008. Ironically, after many countries throughout the Western world, during or in the aftermath of this crisis, made significant efforts to keep the moribund financial sector afloat by means of all kinds of non-market based financial support measures, it turned out that, partly because of this, the debt burden of these countries increased even further. Then the message was sent out that even stricter austerity efforts had to be made to balance public spending, while the financial sector itself largely got off scot-free.⁵³

It is this characteristic of modern capitalism that explains why, in the aftermath of the 2007–2008 financial crisis, numerous countries worldwide reverted to a renewed austerity policy, hardly on a voluntary basis, but increasingly enforced by various international or supranational institutions, such as the IMF or the E.M.U. In the meantime, a new jargon was coined, such as the term ‘austerity’ itself, a vague buzzword that conceals a variety of measures and policy instruments through which these international and supranational institutions force their member states—especially those in financial difficulty—to make ever new savings in ever more sectors of public life.

One of the basic objectives of the modern-day economic neoliberal system is to reduce states to minimal states that are concerned only with external and internal security (to protect the interests of the rich) and to reduce the greater part of the population to a modern slave population that exists only to work ever more and longer in life in order to help create an optimal playing field for the free market. This is largely realized through undemocratic methods, since the international and supranational institutions taking the lead in implementing this policy objective have hardly any democratic legitimacy but are rather of an autocratic nature. During the past decade, the main technical method for achieving this goal has, as said, been ‘austerity’, a collective term which captures a variety of cuts in public spending and social security and which, in the words of Aditya Chakrabortty, “foreclosed alternatives to capitalism” by shutting down the public’s political imagination that there are other ways of creating a socio-economic order different from the one established by capitalism and neoliberal ideology.⁵⁴

1.6 Failure of Democracy

1.6.1 General

What is even more surprising is that the modal citizen is letting all of the above happen and that, throughout the Western world, especially political parties most inclined to neoliberal ideology remain in power.

It even seems that the average citizen lacks a sufficient understanding of the workings of the monetary-economic apparatus to see how, spurred on by the ideas of economic neoliberalism, their working methods and systems have been set up unilaterally in the interests of the rich and at the expense of the common good and of the interests of the common man.

On the contrary, in numerous countries, the implementation of neoliberalism has mostly been based on some of the most simplified beliefs of neoliberal thinking, such as the witticism that the welfare state model has led to profiteering on the part of certain stigmatized population groups (for example, immigrants and their descendants, in addition to the chronically ill).

By voting for right-wing to far-right political parties, many people may think that they are expressing their dissatisfaction with the way the world is run, but without realizing that they are lending support to the much more far-reaching ideology of economic neoliberalism itself, the implementation of which is diametrically opposed to the interests of these thus misguided voters.

Already in our book ‘De onvrije markt’ (2015), a peculiarity of the ‘neoliberalized’ (Western) political systems has been pointed out, in particular the extent to which the implementation of economic neoliberalism relies on the operation of all kinds of professional associations (national and international), lobby groups, think tanks and similar structures, through which the (large) business world and the class of entrepreneurs assert an unusually large and completely undemocratic impact on (neoliberal) governments.⁵⁵

On a global scale (including in the bosom of numerous national governments, in addition to various international organizations like the IMF and the OECD), all this continues to be done, among other things, under the pretext of sanitizing public spending, a strategy that, incidentally, is hardly successful, given that over the last few decades the public debt of most Western countries has increased dramatically (whereas, if the doctrines of neoliberalism (cf. for example Friedman) should be believed, one could at least have expected a gradual reduction of sovereign debts).

And thus, what is (by now) known as ‘austerity’ has become one of the primary, contemporary methods by which the neoliberal agenda of ever further enrichment of the entrepreneurial class and of a parallel erosion of the common good is fulfilled.

1.6.2 Illustration: The British Government Formation of September 2022

The extreme extent of this—even more extreme than we ourselves even dared to suspect in 2015—can be illustrated by referring to an opinion piece by George Monbiot that appeared in The Guardian on September 23, 2022, under the telling title ‘Has Liz Truss handed power over to the extreme neoliberal thinktanks?’.⁵⁶

In it, Monbiot details how the formation of Liz Truss’s government, in September 2022, was practically accomplished.⁵⁷

It is hereby mentioned, in a general sense, that Prime Minister Truss’ government was composed of a group of right-wing lobbyists who are themselves conscripts to (domestic and foreign) oligarchs and corporations.⁵⁸

Monbiot begins his analysis by pointing out that Truss formed her government based on instructions from the (British) Conservative party. According to Monbiot, the latter itself is composed of a disproportionate number of wealthy, white, older men, mostly residing in the south of England. However, it also concerns Conservative party members with lesser-known profiles who do not themselves live in the United Kingdom, have never been residents or citizens there, and do not even enjoy the right to vote in the United Kingdom. Amazingly (at least when the Conservative Party has a majority in the British Parliament), such foreign party members, especially since 2018 (when the by-laws of the Conservative party were in part rewritten), are allowed to help determine who becomes the British prime minister (and therefore, by extension, how the British governments is formed). The explanation for this is that the rewritten by-laws of the Conservative party are an open invitation to anyone who—in Monbiot’s words—“wants to come and mess with British politics”. There are, as a result, no impediments that would prevent agents of a foreign government or corporate group from applying to join Conservatives Abroad as a member.⁵⁹

According to Monbiot, this translates into a system of government formation in which every recent conservative prime minister has invariably placed the interests of transnational capital above the interests of the nation.⁶⁰

As a result, the government formed in September 2022 by Liz Truss herself, more than any previous British head of government, has been formed by organizations that call themselves think tanks but are better described as lobby groups that refuse to reveal who funds them. According to Monbiot, these have been at the heart of the U.K. government formed in September 2022.⁶¹

Among the specific examples cited by Monbiot is special counsel, Ruth Porter, former communications director at the Institute of Economic Affairs (IEA), an extreme neoliberal lobbying group.⁶² Monbiot mentions that when Porter was still at the IEA, she called for cutting rent subsidies and child benefit, charging patients for use of the NHS, reducing overseas (development) aid, and cutting green funds (all goals that frame extreme neoliberal policies, to which we shall return further throughout this book). Afterwards, Porter became head of economic and social policy at Policy Exchange, which has also been described as “highly opaque.”⁶³

Liz Truss herself appears to have spoken at more IEA events since 2010 than any other politician. Two of the IEA meetings in which Truss has participated were even deleted from the official record, and then reinstated after the deletions caused a public scandal.⁶⁴

More importantly, according to Monbiot, in 2011 Truss was the apparent founder of the Conservative Party’s Free Enterprise Group (=‘the Free Enterprise Group of Conservative MPs’).⁶⁵

The website https://conservativehome.com states that the Free Enterprise Group (abbreviated ‘FEG’) was formed in 2012 out of concern over the anti-free market atmosphere that had developed in previous years. The group was formed in chief order to promote free markets and free enterprise, arguing that free markets create prosperity for the entire country and that efforts should be made to make the United Kingdom economically competitive again.⁶⁶

In the past, the IEA organized several events for the FEG group and provided it with information to be handed out to the media. Twelve members of the cabinet assembled by Truss, including some of the highest-ranking figures, belonged to this group.⁶⁷

The chief economic adviser to the Truss government formed in September 2022 was Matthew Sinclair, who was previously director of a similar lobbying group, the Taxpayers’ Alliance. This lobby group is also funded in an obscure way by foreign donors. Sinclair himself is listed as the author of a book entitled ‘Let Them Eat Carbon’,⁶⁸ in which, among other things, he argued against measures to combat climate change. Said book even suggested, among other things, that while equatorial regions may suffer from climate change, it is quite possible that this will be offset by areas such as Greenland that will become more vacant or habitable. (“Equatorial regions might suffer, but it is entirely possible that this will be balanced out by areas like Greenland.”) In other words, the quality of life of billions of people on Earth could be traded for the prospects of some of the least inhabited places on Earth benefiting from climate change.⁶⁹

Truss’s interim press secretary, Alex Wild, was a past research director at the same Taxpayers’ Alliance. Her health adviser, Caroline Elsom, was a senior researcher at the Center for Policy Studies, which has also been labeled “highly opaque.” Truss’ political secretary, Sophie Jarvis, was in a previous life head of government affairs at the Adam Smith Institute (also labeled “highly opaque”), which is funded by tobacco companies and obscure U.S. foundations, among others.⁷⁰

According to Monbiot, these diverse groups from which Truss formed her government represent the extreme edge of economic neoliberalism, in which it is argued that all human relationships are entirely transactional: people are motivated in capital order by the pursuit of money that is supposed to be the measure of all human behavior.⁷¹

The underlying, neoliberal mechanism of policymaking in the UK, meanwhile, has been as follows for decades. Oligarchs and corporations fund think tanks and (sections of) academic, neoliberal schools. The last mentioned propose policies that best suit the interests of oligarchs and (large) corporations. The billionaire press—owned by the same oligarchs—invariably cites these policy proposals as brilliant insights from independent organizations. Conservative frontrunners then cite this press coverage as evidence of demand for policy adjustments from the public: In this way, the voice of the oligarchy is translated into the voice of the people.⁷²

According to Monbiot, since September 2022, think tanks and lobby groups no longer even need such detours. They no longer needed to lobby the government; they became the government. And Liz Truss was their candidate. Monbiot concludes with the prediction that, to defend the interests of global capital, Truss was expected to wage war against any common endeavor to improve the lives of average people or to protect the planet from further degradation by corporate behavior.⁷³

By the end of September 2022, the first government initiatives of the newly formed Truss administration were already asserting themselves, the notable items on the agenda being a tax reform aimed primarily at lower tax rates for the corporate sector, in addition to cutting various government expenditures.⁷⁴

In the end, it turned out that Truss’s government was not long-lived as, after only 45 days in office, she already resigned as prime minister on October 20, 2022,⁷⁵ perhaps the main reason for this early resignation being the extreme speed with which she had attempted to implement her extreme neoliberal agenda.⁷⁶

The question, however, is whether her successor, Rishi Sunak,⁷⁷ will take such a different course.⁷⁸

According to an opinion piece by Aditya Chakrabortty, Truss and Sunak are not different breeds of Conservatives, let alone rival ideologues: “They both protect the interests of the wealthy, the company bosses and mega asset-owners against the rest of us. Picture brutal metal studs embedded in the sole of a shiny black Oxford brogue: that is the form of government we face now.”⁷⁹

Also for George Eaton, the leadership contest between Sunak and Truss of the late summer of 2022 did not, as some have assumed, bear witness of a true ideological clash. Instead, the Conservative party was offered two varieties of neoliberalism: Reaganite tax cuts, as suggested by Truss, vs. more traditional Thatcherite fiscal discipline, offered by Sunak. In the opinion of Eaton, the implosion of the former paved the way for the latter, albeit the policy similarities of the two approaches are far more important than their apparent differences. What was hence to be expected from the Sunak government was, in the words of Eaton, “turbo-austerity and a sharp break with European norms”.⁸⁰

According to Eaton, this may even imply that Rishi Sunak will prove to be the UK’s most Thatcherite prime minister since Margaret Thatcher herself.⁸¹

And indeed, already in the Sunak government’s first budget (of November 10, 2022), it was clear that the neoliberal recipe most tried and tested in recent times, notably to cut public spending, would provide the tenor for the continuation of British government policy. According to Chakrabortty, through this, £50 billion to £60 billion will again be sucked out of the British economy, “the bulk of that money coming from cuts in public services”. For Chakrabortty, it moreover concerns not the second, but the third wave of austerity since 2010, with each of these austerity waves having been about disciplining people belonging to the lower classes and protecting the rich, and each coming with what Chakrabortty has indicated as “a new wave of authoritarianism”.⁸²

1.7 Further Analysis in the Next Chapters

The abovementioned has already been the subject of diverse research in some of our previous writings.⁸³

This book will expand on this from a new, central focus, specifically the ethical issues that this continues to raise.

Methodologically, this book will discuss, in eight further chapters, the main characteristics and problems of capitalism from a different angle, at the same time probing for possible, alternative solution models.

These eight (further) chapters are as follows:

• Chapter 2, devoted to the main (legal) building blocks of capitalism (partly from a historical perspective).⁸⁴

• Chapter 3, devoted to the most disastrous consequences of capitalism.⁸⁵

• Chapter 4, which will summarize a system of money creation newly conceived in our earlier work for the benefit of countries and international public institutions.⁸⁶

• Chapter 5, which will explain how, based on the new money creation system discussed in Chap. 4, countries could be transformed from so-called neoliberal punitive states to true care states.⁸⁷

• Chapter 6, in which a system of money creation newly conceived in our earlier work for the benefit of the main private sectors will be discussed, in summary^.88

• Chapter 7, which, building on Chap. 6, will outline how business practices (including the profit-maximization principle), could be profoundly altered in light of various, societal concerns and based on the newly proposed money creation models (and a further New Monetary World Order, abbreviated ‘NMWO’, based on them).

• Chapter 8, in which—especially by way of final conclusions to Chaps. 1–3—the basic features of capitalism will be summarized (with as central question to what extent the prevailing socio-economic order has continued to exhibit certain of the characteristics of feudal and slave societies).

• Chapter 9 in which—especially by way of final conclusions to Chaps. 4–7—some final reflections will be formulated (with as central question what the prospects of future societies, relying on alternatives to capitalism, might look like).

Throughout these chapters, some recurring lines of thought will be highlighted, each from different perspectives, with the aim of showing what, from an ethical perspective, is wrong with capitalism and how it could (still) be remedied.

This implies that each of the following chapters will build on the insights derived from the previous chapters, with the objective of thus subjecting the building blocks of capitalism and the ideas on which it rests to a rigorous analysis.⁸⁹

Although this methodology involves a certain amount of repetition of the material covered, it has proven indispensable for understanding capitalism, in its various aspects, indicating each time which legal methods, on the one hand, and which religious, philosophical and ideological ideas, on the other, have shaped capitalism, over the past ±four centuries.⁹⁰

A particular methodology that has been applied throughout his book has been to further illustrate our at times far-reaching positions, by relying on references to contributions in the specialized press, including opinion pieces by journalists, as well as by reputable scientists who increasingly share the findings of their research with the general public in this manner.

The further reasons for relying on this have been twofold:

• On the one hand, these press articles and opinion pieces show, increasingly, a confirmation of our positions since 2015.

  Indeed, at that time we still stood rather alone with several of our positions, which even finds its expression in a book review, dating from that time, in which we were compared to “a caller in the desert.”⁹¹ Since then, it has become apparent that more and more of our theses at the time have been endorsed by an ever-growing group of publicists, a fact that we shall further illustrate throughout this book itself with reference to direct and indirect quotations from such press articles and opinion pieces, in addition to (of course) miscellaneous, classic source material.

• On the other hand, this way of working is also of a nature to optimize the topicality of the present book.

  Indeed, the socio-economic order is clearly in transition, with numerous (often very disturbing) evolutions and events taking place at a chilling pace, making it obviously of great importance to draw attention to them as soon as possible. All this needs to be done in the further awareness that the international and national policy bodies themselves continue to put the interests of (big) capital first and foremost, and as a result remain very reluctant to address these evolutions and concerns in an appropriate manner, while the economic sciences themselves continue to cling far too strongly and desperately to the models of organizing the socio-economic order they developed in the past and which are largely responsible for the misery in which this world currently finds itself.