Contemporary capitalism faces a legitimacy crisis: it has failed to keep its promises.
One promise was that, with capitalists in control, the economy would avoid a crisis. That certainly didn’t work. In fact, the decisions of capitalists—over the past 30 years and in the run-up to 2008—were directly responsible for taking the world economy to the brink of disaster. Only massive intervention on the part of the U.S. government saved capitalists from themselves.
The second promise was that, if a crisis occurred, it would be relatively mild and short-lived. That didn’t work either. While the recession was declared officially over in mid-2009, capitalists’ decisions since then mean that profits are soaring while wages stagnate and tens of millions of people remain jobless.
In both senses, then, capitalism faces a legitimacy crisis: a society in which capitalists control the appropriation and distribution of the surplus has led to an economic disaster whose effects will be felt for years, if not decades. Capitalists were given responsibility for the direction of the economy and they failed.
Where I see a legitimacy crisis, Joseph Stiglitz sees an ideological crisis. He had hoped that
the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case. On the contrary, a resurgence of right-wing economics, driven, as always, by ideology and special interests, once again threatens the global economy – or at least the economies of Europe and America, where these ideas continue to flourish.
And Stiglitz’s preferred alternative?
an economic-growth strategy supported by the European Union and the International Monetary Fund. Growth would restore confidence that Greece could repay its debts, causing interest rates to fall and leaving more fiscal room for further growth-enhancing investments. Growth itself increases tax revenues and reduces the need for social expenditures, such as unemployment benefits. And the confidence that this engenders leads to still further growth.
The problem Stiglitz refuses to face is that both ideologies of capitalism have failed: the ideology of private capitalism—of free markets and deregulation—and the ideology of state capitalism—of government expenditures and regulated growth. His view is that the failure of the former should move the pendulum back toward the latter.
But both ideologies of capitalism leave control in the hands of capitalists. And it is that control by capitalists that is being called into question. It failed to prevent an economic crisis from occurring in the first place, and it has failed to lead to a sustained recovery for the majority of the population, whether in the United States or Western Europe, since then.
That’s why capitalism today, just as it did after the Panic of 1873 and during the Great Depression, faces a crisis of legitimacy.