Has capitalism failed? Or is the real problem with the particular form of capitalism that has dominated Britain and much of the Western world since the 1980s?
In this video, I argue that we need to distinguish capitalism from neoliberal capitalism. The post-war form of capitalism existed alongside strong government, organised labour, public services and regulation. It was constrained by institutions that prevented economic power from being entirely concentrated in the hands of those who owned capital.
Neoliberalism changed that. From the time of Margaret Thatcher and Ronald Reagan onwards, governments promoted privatisation, deregulation, weaker trade unions, financialisation and the idea that markets should determine ever more aspects of our lives, not least by undermining government itself.
The result has been an economy increasingly focused on making money from money rather than on creating the goods, services and public infrastructure that people actually need.
As a result, house prices can soar without creating another home. Privatised utilities can extract wealth without improving services. Financial wealth can increase while real prosperity declines.
The consequences are inequality, a failing real economy, failing public services, financial instability and growing political anger.
Neoliberalism sought to weaken government. But government may ultimately be the only institution capable of saving capitalism from itself.
So has capitalism failed? Or has neoliberalism destroyed the conditions that once allowed another form of capitalism to survive?
This is the audio version:
This is the transcript:
Has capitalism failed? It's a question that people often ask me, and my answer is, “That's a good question, but the question may be too simple.” That's because we need to be sure about what form of capitalism we are asking the question about.
Capitalism has never existed in isolation, and there are multiple forms of it. The form that we had when I was growing up and which existed until around 1980 was one where government and organised labour existed alongside capitalism. And in that form, capitalism very happily survived because it appeared to meet need. So what we have to really ask is: “Has neoliberal capitalism failed?” That is the question that we do need to address.
And let's be clear, all of capitalism is about a system of economic management based mainly on private ownership. Land and productive assets are largely privately owned. Production is largely undertaken for profit, or so it is claimed, and wage labour is hired to produce goods and services. Markets in this system determine many prices and allocate many resources, and there is a problem as a consequence.
Capitalism always creates a self-serving hierarchy of power. Those with wealth can use it to generate more wealth for themselves without any obligation to share it. That's because capitalism concentrates economic power through ownership. And what is called profit can be reinvested to generate further returns. And existing wealth therefore creates opportunities for more wealth, and economic inequality can increase as a result. The ownership and control of capital can then bring significant economic power.
This was tolerable within a democracy when capitalism chose to coexist with government and work with it, respecting the rights of others, including organised labour, to exist. Public institutions, in that case, shaped how markets operated, and organised labour constrained the power of capital in a way that was productive for everybody. And at the same time, other forms of organisation, including cooperatives, continued to flourish. That form of capitalism had the ability to work with society, and change, and so survive.
But that form of capitalism has gone. Neoliberalism changed capitalism forever from the early 1980s onwards. Margaret Thatcher introduced it into the UK, Ronald Reagan into the USA, and it spread around what we vaguely call the Western world.
Neoliberalism was a deliberately designed form of capitalism. There is nothing natural about it. It was created as a consequence of the reaction of some people to the outcome of the Second World War, which they thought would lead to socialism, and which they were determined to fight.
Its founders were Friedrich Hayek and Milton Friedman, and they created an organisation, the Mont Pelerin Society, which promoted it, and that was put in place just after World War II. It took them 30 years to achieve power, but as I've noted, Margaret Thatcher and Ronald Reagan did deliver it.
Their aim was to extend market logic into more areas of life. It was always a system of political, as well as economic organisation.
Neoliberalism claims markets allocate resources better than governments, and that private ownership is more effective than public ownership, whilst competition should extend into as many areas of life as possible, and regulation and trade union power should be reduced, and taxes on capital profits and high incomes should be restrained. Neoliberalism does, then, seek to constrain what governments can do.
Fiscal rules are demanded that supposedly force governments to balance their books, and independent central banks are appointed to target inflation using interest rates, whilst high unemployment can be treated as acceptable as the price of controlling that inflation.
Meanwhile, public services are outsourced wherever possible, and individuals, most particularly, are required to manage risks that were previously collectively managed. Things like pensions, social care, childcare, health, education, and so on; all of these have been subject to various forms of privatisation. And of course, all our previous utilities, which were under public ownership, are now in the private sector.
Neoliberalism shifted capitalism towards financial wealth creation. That was its goal. All of these changes were part of that process, and Thatcher began this process by destroying much of British manufacturing capacity. It's hard now to remember just how devastating she was during her first period in office. I do remember that. It was when I was just at work, and it was almost as desperate an economic outlook as we have now. There were up to 3 million people unemployed at the time, when the workforce was smaller than it is at present, and then she deregulated the City of London through the Big Bang, and international financial flows were liberalised. Tax havens became part of the international financialised system. All of this was about creating financial wealth and not real wealth.
Money was to be made out of money. Money was not to be made out of making things that people needed. The shift in our economy was absolutely fundamental. The shift in our mindset was staggering. The idea that we all became wealthy because every month the price of our house went up became what the middle class believed, and on the basis of that, all of neoliberalism was built.
This whole idea of financial capitalism was what neoliberalism was all about. It was designed to extract value rather than create it. Rents have been increased, and we have seen that with regard to the prices paid for properties, whether that be by way of a mortgage or by way of a rent, and we can now see it in all kinds of other services where we are no longer allowed to buy an asset, but have to hire it instead. Just think about the software you use on your computer.
And privatised utilities became opportunities for private extraction. All the money that the water industries in the UK have borrowed has effectively been paid out to the shareholders of those companies by way of dividends. This is private extraction in action.
And pensions, social care and childcare were increasingly financialised. When once you could rely upon your employer or the state, now you have to go to a for-profit enterprise to find the services you desire and pay that extra price as a result.
Even education and healthcare have been opened to private provision. Your child may well be at an academy school. Call it a privatised school if you want, because that's what it is.
Financial wealth accumulation has been the goal of neoliberalism whilst inequality and poverty have been ignored.
And there was a key economic issue in all of this. Growing financial wealth is not the same thing as increased real prosperity. A fivefold increase in a house price creates no additional homes and no additional bedrooms. High house prices just increase barriers to entry for those needing somewhere to live. Ask any young person.
The same problems can be found right across much of the financial economy. Financial wealth can increase as the capacity of the economy to deliver anything of value has collapsed, and that is what we are seeing all around us now.
But neoliberalism did something else. It removed much of the scaffolding that made capitalism tolerable. Public provision helped everyone participate in economic life. Regulation restrained some of the inequalities capitalism created. Removing those protections has made resource allocation increasingly unstable. Public services now visibly fail to meet people's needs. Political disquiet is one inevitable consequence of that.
Neoliberalism is now threatening the social order that once supported capitalism because capitalism worked with society, but now neoliberalism works against it.
Extreme inequality concentrates wealth, markets and political power.
The needs of much of society are quite deliberately being ignored by not being met within a neoliberal society.
Populist politics feeds on the resulting anger and insecurity. There is a deep paradox in that because most of these populists promote yet more neoliberalism of the sort that has caused the problems that people are angry about. There is no solution to our political malaise in that direction.
Neoliberal capitalism has then failed because it has created instability. Financial bubbles, including the coming AI burst, make crashes inevitable. Neoliberalism simultaneously seeks to weaken government, and yet government is the only institution capable of saving capitalism from itself. One of the great paradoxes of democracy is that in a way that Marx never anticipated, government is the saviour of capitalism. The problem is now that governments that are dominated by neoliberal thinking, as so many have been and so many are, might fail to save society from neoliberal capitalism, and that is the risk that we face.
Could it be that neoliberalism is the thing that will bring society down when the need arises? That is the question we have to ask. Is neoliberalism now consuming itself, society, and the planet? Its underlying logic is based upon exploitation, but exploitation ultimately destroys the systems on which it depends, and that means government will eventually be required to intervene again.
The only uncertainty, as I've already highlighted, is that when this moment comes, will neoliberal governments then believe they have the capacity to act when it will be necessary to save us all? I hope they will. I hope they will rise to the challenge. I hope they will realise the errors of their past ways. I hope we'll get new forms of government and a new form of capitalism, because I'm not saying we will not need one, but we will need one which is very different from that which we have had.
That's what I think. What do you think? This is a contentious issue. It's a point of danger that we must face, so you are bound to have an opinion. Please let us know what it is. We try to read your views, but when there are hundreds of them, that sometimes becomes difficult. Please do like and subscribe to the channel. And when you do, please tick that bell, because you will then be notified when we make new videos. And if you'd like to make us a donation, please do. There's a link down below. Tom and I would be very grateful.
Poll
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Capitalism is predicated on unlimited growth, which is not possible on a finite planet. Planetary boundaries and available resources mean that the safe operating space for economic activity precludes a profit motive.
Sufficiency is the only mode of living compatible with a habitable planet.
Agreed
I oppose neoliberalism. It isn’t capitalism. For example, in capitalism, as I understand it and has been practiced in the past, capitalists are intended to take risks to make, potentially, large profits. That’s not necessarily a bad thing. But that’s not what we have.
At present, “capitalism” aggregates huge capital into “too big to fail” institutions, like banks (which in my view are the most pernicious aspect of neoliberalism) which then extract rents and, if something goes wrong, if they mess up, they demand bailing out. That is, welfare, or socialism, for the wealthy and penury for the poor. That’s evil.
But, if capitalism is properly regulated, if tax is progressive, if antitrust is enforced and, crucially, if government sets up public competition – like the BBC or like providing retail accounts at the Bank of England, and essential natural monopolies are nationalised, then capitalism can work. That is, essentially, a “mixed economy”. And I think it has merit.
Quite a lot in there to agree with, Tim.
George Monbiot made the point that high property and land prices or rents are in effect a private tax on existence.
Similarly much of what neo-liberal capitalism extracts from us is in effect a private tax.
So we can beat them at their own game by pointing out that they who hate public taxation are levying private taxes
Agreed
“Their aim was to extend market logic”… oxymoron, market & logic? don’t think so. The terrain which allowed Thatcherism had been laid long before. The UK motorcycle industry provides a good example starting on the mid-1950s onwards, – a total failure to invest (e.g. as the Japanese did in die-casting rather than sand casting or crank-cases). Computers, ICL, same trajectory. Semiconductors & fibre optics? same trajectory (STC, STL, Ferranti etc). Why? because the City of London has only ever acted in its own interest – not that of the countries as a whole. This is writ large with the focus of “development” on London – not the country. Thus capitalism coupled to the cancer that is the City of London has got us where we are. Corporatism is the outcome of that “coupling”.
Thank you, and much to agree with
I do not read it. But on one of the “feeds” on my smartphone, a Telegraph article was shown titled “John Healey is just another Rachel Reeves”, it’s being a paywall but the first line is shown, “Andy Burnham came into office promising to rewire the British state and reverse 40 years of neoliberalism…”. I don’t what this means, but I’m pleased neoliberalism is actually being acknowledged and discussed.
Thanks again to your team for another illuminating article.
Might “Industrial Capitalism” be better for a healthier, sustainable society than. Neoliberalism?
I like “industrial capitalism”. When considering what, if anything, is good capitalism I immediately thought of George Westinghouse who fit’s that term very well.
Neoliberalism is failing, and it is already being replaced. The far right have picked up on what’s happening, and are attracting increasing support by offering quick fixes – blame immigrants and remove them; introduce high tariffs to protect jobs, and the latest one – simply offer a $5,000 bribe! Their policies will inevitably fail and they will in due course be obliged to turn to greater state intervention to prevent capital flight and collapse, but their version of state intervention will favour elites and continue to deny climate change.
The challenge for the left is, how do we create an engaging popular message when the solutions we envisage require complex structural changes that don’t grab people’s attention in the same way.
Currently the far right is winning the race. We need to work out how to reach people.
This is why I am working on a book
I think you’re absolutely right to separate capitalism from the neoliberal model that’s dominated the last 40+ years. I don’t “hate capitalism” — I hate what neoliberalism turned it into. For me, capitalism at its best is about the use and investment of capital in all its forms: financial capital, physical capital, social capital and, crucially, human capital. It’s about deploying resources to create real value, real prosperity and real capability.
Neoliberalism did the opposite. It hollowed out the productive base and replaced it with extraction. For 47 years we’ve had a system that rewards making money from money rather than making things people actually need. Manufacturing was sacrificed, public services were fragmented, utilities were turned into rent‑seeking machines, and whole sectors were financialised. House prices soared without producing a single extra home. Water companies borrowed billions only to pay it out in dividends. Education, care and pensions became markets rather than public goods.
This isn’t capitalism — it’s value extraction dressed up as efficiency. And it’s no surprise that inequality exploded, infrastructure decayed, and political anger grew. When you remove the institutions that once balanced markets — strong government, organised labour, public investment — you don’t get a “freer” economy. You get a weaker society.
Capitalism didn’t fail. Neoliberalism destroyed the conditions that allowed capitalism to work. If we want a functioning economy again, we need to rebuild the institutions that support productive investment, human capability and shared prosperity. Only then does capital — in every sense — have somewhere meaningful to go.
Thank you
“Is neoliberalism now consuming itself, society, and the planet? ….. based upon exploitation, …….. ultimately destroys the system …… that means government will eventually be required to intervene again.”<p>
‘government required to intervene’ ?? Not sure about how that could happen. The golden age Richard portrays – of a social democratic capitalism (1945-1975?) came following the ‘great reset’ , – the cataclysm of WWII.<p>
It is argued that it was the failure of capitalism – (as well as the reparations Germany was forced to pay ) which produced the war. We don’t want another war.<p>
The system Richard portrays of the total dominance of finance capital on our economy, services, politics will no doubt collapse as it delivers less and less for the great majority of people.<p>
But the collapse could be very scary . Its not too conspiratorial in the light of the Labour Together coup (Burnham is their man – having been given his seat by Josh Simons – who tried to get journalist Paul Holden marked as a security risk) to think that the global financial elite / security services / intertwined with MI5/CIA/Mossad are the real power behind the democratic trimmings. They most likely also ensure BBC and main media continues to ‘manufacture consent’.<p>
Of your questions – ‘capitalism (with a small c) might work if constrained’ ? Yes maybe – but its not clear how it can be constrained.
I have long thought this is the situation -how could I not after years of following this blog?
There is an American commentator Richard D. Wolff who is a Marxist economist and often shares a platform with Michael Hudson. He described Keynes as ‘the man who saved capitalism.’
I think he has a point. Keynes wrote for a different era and his ideas need updating for the modern era. MMT may be implicit in Keynes but not explicit. ( It is some time since I read him )
In 2018 I attended this conference and had coffee with a chap wearing a tie. ‘You must be a speaker.’ I said. He was indeed, Daniel Stedman-Jones who wrote Masters of the Universe. For those not among the unemployed like me, there is a shorter version of his talk which some may find useful. It is called ‘how the market became the answer to everything’ and in fact is not.
https://www.youtube.com/watch?v=QEHJlvbdQIk
We are in a posat-Ketnesaian era without a doubt.
We seem to be nearing the end of yet another 40yr political cycle, only this time with more serious planetary global complications – (historically, think mini ice-age, Krakatoa, Siberian meteors, Plague, Black Death – but now the potential for irreversible climate collapse and possible human extinction.
Our civilisation can now choose what political system it wants for the next +/- 40 years. If we choose “more of the same”, that will actually give us fascism, acute misery, then global collapse. Or – we can dump the last remnants of democracy, & go straight for fascism, acute misery & global collapse.
Or, we can reject neoliberalism, AND reject fascism, and the household analogy, fiscal rules, and the dominance of finance, and try a version of the “politics of care”, which might give us 40 years of working together to reduce human suffering and create the possibility of our planetary ecosystem lasting a bit longer. It won’t be easy, but it beats the alternatives IMHO.
Getting that clear and stark choice across to the wider public, and through them, to the venal appetites of our ruling political class, is the task in hand. Burnham has a VERY LONG way to go.
They (the political class) can either choose persuasion NOW, or pitchforks, black balaclavas, wildfires and floods later.
If all this sounds a bit Old Testament prophet-like, it’s meant to, those guys and gals knew a bit about social justice – even if the kings and priests were always having them thrown in dungeons, or worse.
KUTGW!
🙂
The UK state is failing us. Let’s take back control of our lives, schools, public utilities, health services, public housing and run them for the benefit of the majority.
Let’s create long term decently paid jobs for the majority.
Let’s control financial services so that they benefit the majority and not make the rich richer.
Don’t be fooled by the claims of “we can’t afford it” or ” we must raise taxes, cut benefits to pay for our services”.
We can afford it and benefits do not have to be cut.
Shoshana Zuboff mentioned something Piketty’s writing, about capitalism being a raw sausage, needing ‘cooking’ by a democratic society and its institutions, to stop it making us sick. And I’d add, only as part of a balanced diet….
🙂
calling the pre thatcher system capitalism is poor taxonomy. pre thatcher britain was a MIXED ECONOMY it had heavy elements of socialism. Capitalism cannot function without socialism – and the reverse is likely true as well.
https://docs.google.com/spreadsheets/d/10lZa1B1kVWWZP_2SYcPBrqYhyO-RTP7yc5ntXsAC-Ak/copy
I think I make that very clear,
Real capitalism is something the Puritans had a stake in at one time I believe – it was about building things and sustaining communities and other people’s lives with work – it was probably the mills of Robert Owen and other far-sighted industrialists in the UK too (Joseph Rowntree). These people seemed to me to be capitalist and also moralist in their attitude. They seemed to realise too in their limited way that they were taking as well making. They also had a sort of self awareness about how lucky they had been too and if religious, were prepared to live as guided by Jesus as much as the markets, lest they be judged. Some might call this a paternal attitude to capitalism but I look back at it fondly. Who doesn’t want a good Dad, let alone a good Mother?
Neo-liberalism – or North American Capitalism is extreme capitalism and purely acquisitive in nature and pleonexic – it is not enough to have enough, it is the pursuit of more and everything. It is designed to monopolise power and give none away; it is designed to crush competitors. It is to make gods out of mere men and women who were lucky or decided to break rules or natural laws to get what they wanted. So that the first would be first and they defiled religion and human developmental history to make it so.
And for every problem it makes, it offers solutions that only satisfy itself. So when wages are not paid anymore, it will offer you debt to purchase it’s wares; as it pollutes, you will get carbon credits and die choking anyway. North American Capitalism is an obscenity and an abnormality. And it is done.
You describe what I might call Quaker capitalism, of which there was quite a lot, along with Quaker banking and even Quaker railways (the NER in the 19c).
In the US, the thread of civil rights was also woven with the pitch of neo-liberalism. Pat Buchanan and other mouthpieces for the Heritage Foundation – and all those that followed – gently at times, wickedly at other times, pushed the ‘they’ into the conversation. I understand that their brag was that they got Reagan to enact 1200 of the 1600 proposals that they wanted to push into the stream of deregulation and acceptance of greed as good.
[…] Cross-posted from Richard Murphy’s blog developing a fairer and sustainable economy […]
“A fivefold increase in a house price creates no additional homes and no additional bedrooms.” Point taken but not entirely true. As the cost of moving to a bigger house increases the option of expanding and otherwise improving your existing home is economically favoured. This is why so many streets are constantly busy with builders, skips, etc. Meanwhile builders land bank and restrict supply of new homes to maintain dizzying profit margins. Stamp duty is of course another disincentive to moving house. Solutions? Break up the house builders’ vertical monopoly, require that half of large consented land blocks are released to self builders and small companies, replace stamp duty (and a large element of inheritance tax) with an annual land value tax, which is levied in full on undeveloped consented land after a few years have elapsed
Noted, but I really do not think that changes my argument.
Do you believe that good governments can constrain the excesses of capitalists then Richard?
We need to get them and their dirty money out of politics altogether first…
Then we need to limit the size of corporations because they tend towards monopolies as they grow…
Then we need to regulate them properly, etc.
All of which will be blocked by an all too powerful private sector.
Can we overcome them before they steal our democracy completely?
Regards…Bob
Yes…but maybe that will be the book after the one I am working on
Yes to developing a mixed economy, and government using MMT for public investment. However we need to rethink ownership, for example protecting public assets and land for enduring community benefit, as we have done in small ways with the community land trust movement; protecting companies like Ove Arup by putting their capital into a foundation; nationalisation and mutualisation eg of water; setting up public benefit bodies like the Norwegian Pension fund with £2trillion assets; employee ownership; governance of company reform to protect the capital built up in a business from private extraction…. As a Quaker business person and social business developer, I believe we have many ownership solutions to action research, build on and test out?
Much to agree with
Something that hasn’t been mentioned is the impact of digital technology, and how it has facilitated neoliberal economics. For example, the Big Bang you mentioned could only have been implemented after the development of desktop computers. Conversely, digital technology is an embodiment of neoliberal economics due to technology being dominated by a small number of mega corporations, many of which, verge on global monopolies.
The era of controlled capitalism from the 1950s to the 1970s was essentially an ‘analogue’ era. Civilian technology from this era generally benefited everybody. Digital technology developed since the 1970s has not. It has exacerbated inequality; destroyed more jobs than it has created; and resulted in a concentration of wealth and power.
It has also created a situation where less developed countries are held to ransom by western technology mega corporations because high costs and complexity mean that it’s virtually impossible to establish competitor industries.
A very good point.