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Off to New Shores? Capitalism and the Evolution of Change

Written by Helene Dötsch

Liberal democratic societies and our Nation-States are in crisis. We are managing from one challenge to another, and together those challenges have come to threaten our democratic values, institutions, and mechanisms. Visionary and forward-oriented change is often second ranked, as politicians, economic elites and ordinary citizen struggle to hold our states together, ensure basic needs and the main principles of democracy. In Europe, we have been pioneering democratic evolution for a long time and political freedoms and rights have popped up like mushrooms. But this optimistic scenario has vanished, and nowadays we feel threatened by the weakened democratic order, as well as the opportunistic behavior of political and economic elites and the emotions of the popular masses.

The crises are manifold and include exacerbating inequality, losses of personal and national security, the 2008 economic crash, the consequences of climate change, now the crisis of our health systems due to COVID-19, and above all countries face unprecedented corruption and identity politics divide us for racist and ethnocentric motives. While these problems are anchored in different spheres, especially the economic, political and societal, they are more strongly interconnected than at first sight. In fact, they are visible symptoms of a defect of the mechanisms underlying all of the aforementioned spheres: The structure linking state, market and society, and hence how their relationship to one another is organized. What we are witnessing today are not only ideological clashes on how to react adequately within each sphere, but also conflicts of interpretation on the origins of the occurring conundrums.

By drawing on the concept of Thomas Kuhn’s normal science and Peter Hall’s theory of policy change, I argue that the challenges we are undergoing right now are so drastic that they incentivize revolutionary, paradigmatic change that should end the ideological superstructure of capitalism as we know it. Different from twenty years ago, a majority has now come to question the events happening and, by consequence, understands that the underlying ideological principles of capitalism have misguided many decisions and reactions to those events. However, in contrast to those who draw on historic terminology, assuming that we are in a struggle between two systems of production, that of capitalism and communism, or between private ownership and state planning, I argue that the future is uncertain but provides new, unprecedented solutions, of which one is even closer than we think. Most importantly, being in a transition process, we are also in a position where our decisions and goals will define - now more than ever - our future path.

Paradigmatic changes and the evolution of science

What does change mean and how can we identify it? An answer to this question is found in Thomas S. Kuhn’s concept of the ‘paradigm change’ (Kuhn, 1962). His notion of paradigm includes the underlying ideas of scientific development, the methods that are used to produce discoveries and the facts that are examined to undermine a theoretical or philosophical concept (Kuhn, 1962). A paradigm lays the ground for ‘normal science’ or day-to-day work so that it does not aim to produce novelties but is merely a ‘puzzle-solving’ activity (Kuhn, 1962). The impetus for change comes from a build-up of anomalies, which Kuhn defined as the phenomenon when the empirical reality and the expectations induced from the scientific paradigm differ (1962). If anomalies reoccur, they thicken to a number of insurmountable anomalies and this process “subverts the existing tradition” (Kuhn, 1962). As a consequence, a scientific revolution is initiated and causes a shift from one paradigm to another.

Peter Hall applied this notion of scientific paradigms to explain changes in policy practice. A policy paradigm is defined as ‘a framework of ideas and standards that specifies not only the goals of policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing’ (Hall 1993). Elaborating Kuhn’s original model and its application to policy, Hall identifies first-, second-, and third-order changes. The first in policy settings, the second in policy instruments, respectively, to Kuhn’s “normal science.” If doing “normal science” means “business as usual” in policy work, then as Hall puts it, “first and second order changes in policy do not automatically lead to third order changes” (Hall 1993).

First and second order change can be seen as cases of “normal policymaking,” namely a process that adjusts policy without challenging the overall terms or the theoretical background of a given policy paradigm, much like “normal science.” Third order change, by contrast, is likely to reflect a very different process, marked by the radical changes in the overarching terms of policy discourse associated with a “paradigm shift.” If policy change follows the path that Hall suggests, what signs show the shift from policy ideas to a new paradigm, and why? He argues: “If first and second order changes preserve the broad continuities usually found in patterns of policy, third order change is often a more disjunctive process associated with periodic discontinuities in policy” (Hall, 1993). Following this argumentation, to identify a paradigmatic change, the first step is to witness that a paradigm’s suggested policy does not match or remedy the reality of an issue. Despite new policy instruments, policy problems continue to reoccur. This ultimately leads to a critical point that cannot be overcome by the usual policy-mixture. Consequently, change can be identified when revolutionary ideas on how to tackle current problematics are spread among academics, the society and the political elite.

The crisis of policy settings and policy instruments

Following this definition of paradigm change, I believe it is possible to affirm we are currently undergoing a departure from the prevailing capitalist paradigm. The anomalies of the current policy settings and the inability of usual policies to balance said anomalies follows an identifiable dynamic and can be summarised by a simple inference: Inequality has not been overcome. Actually, it has grown to unprecedented levels. While changing the conditions of labour (e.g. automatization) within the capitalist market principles (Piketty, 2013) or digitalization were seen as tools to improve democratic participation and living conditions, they are now being instrumentalized to constrain political freedoms. Furthermore, democracy is being endangered by the power of money and systemic shocks show the incommensurability of nature with capitalism (climate change, COVID-19). Those anomalies can no longer be addressed with the policy instruments that fit into the policy paradigm of capitalism without leading to new anomalies and continuous disruption. As a consequence, the policy settings stemming from our economic system have come in direct collision with the guiding principles of democratic liberalism and economic freedom. It is for those reasons that it appears necessary to look at the anomalies and the consequences they entail for enduring, paradigmatic change.

Anomaly 1: Keynesian economics

For a long time, policymakers in Europe followed the principles of Keynesian economics (Keynes, 1936). Keynesian economics were perceived as somewhat revolutionary and new instruments with which the effects of capitalism could be counteracted and the nation state’s ability to provide welfare for the majority of society ensured. Keynes’ inference was that markets are like spirit animals that need to be tamed and balanced by countercyclical state interventions. For instance, Keynesian economics favoured expansionary fiscal policies stimulating employment and increasing tax revenue. However, those instruments could not keep up with the pace of developments and failed to achieve the induced goals of the system – namely tackling inequality. Instead, our societies became less instead of more equal (Piketty, 2019). In fact, it has been suggested that Keynesian instruments have supported capitalism and financial capital while merely saving the system from its worst anomalies (Foster, 2009). As a result, Hall concluded that Keynesian policy tools and instruments are of first and second-order change, but do not constitute third order change. Indeed, despite the mobilization of Keynesian economics, 21st century Europe faces high inequality levels coupled with saturated labor supply.

In developed societies where inequality has not been as sharp, automatization and digitalization have locked out demand and supply. Digitalization in particular has altered the relationship between input and output, as computer replication pushes down input costs for capital owners almost to zero. The oversupply of labor has led to saturated markets and stagnating wages (Piketty, 2013). While for a long time only the primary and secondary sectors were affected by automatization and digitalization in developed economies, the same now accounts for the increase of demand for highly skilled labor in the tertiary sectors. However, it is important to remember that work is chiefly a societal contribution that supports the state in guaranteeing social security and welfare and thus gives citizens a way to contribute to society, fostering thereby togetherness and solidarity. In fact it is even more than that: it is also the most important way to guarantee an individual’s freedom and autonomy.

Further, private ownership, a very basic principle of capitalism, inherently poses a limit to the liberal principle of equality of opportunity. On the one hand, the ongoing relentless pace of privatization and capital transfer to the most powerful classes restricts the access to basic public goods (such as education, healthcare, living space and even water and alimentation) for the majority of people. In many places of the world, people are being displaced from and stripped of land, property and natural resources precisely for those reasons. On the other hand, the families who are systematically excluded from labor and education also lack guaranteed access to water and food or other basic goods. It then follows that, despite that the individual is supposed to thrive by reason of it being the subject of economic liberalism, an individual’s ability to surpass personal economic limits has in fact become increasingly difficult because of systematic oppression and restrictive conditions. These anomalies together endanger the principles of the third order, those of economic liberalism, because they restrain the initial moral argument of economic liberalism, namely the preservation of an individual’s economic freedom and autonomy.

Anomaly 2: Capital and political power

As Paul Collier puts it: “Inequality is neither economic nor technological, it is political” (2020). In the same vein, we came to the realization that more increasingly other forms of freedoms (political and societal) are endangered by the technologies and services that were, in the first place, supposed to give us more freedom. In fact, there is a direct link between the weakening of democratic principles and the use of technology to weaken them. A most fitting example of this permeating technology is the Chinese state’s social status system which garnered widespread criticism in Europe. This development has, furthermore, changed the way power and authority are reproduced. The allocation of financial capital allows the beneficiaries to buy political influence, as the scandal of Cambridge Analytica and the Brazilian elections in 2018 have proven. Arguably, a bloated public sector stimulates corruption, but there is enough evidence that a slim state does too. The only difference is that with a slim state, corruption is legal activity or basically the private owner’s surplus. Capitalists have thus become politicians, or have allocated economic resources to influence elections, policymaking processes, and decisions.

Anomaly 3: Systemic shocks: COVID-19 and Climate Change

As citizens, we are witnessing a decreased provision of public goods such as health and education by the nation state and high levels of corruption; factors that made citizens lose trust in their institutions and the nation state (Blyth, 2013; Carroll & Jarvis, 2015; Sawhill, 2019). Particularly, COVID-19 shows that the way we are managing from crisis to crisis has left deep scars in our systems. Our public health systems are overstrained because of the virus, and our governments have struggled to find an adequate and cooperative response in Europe. Our international and national economic systems are far from being stress-resistant, and the smallest factor, such as the lockdowns, even for a very short period of time, have initiated the biggest economic crisis in history. The capitalist system lives on the tick, and the resilience the system has shown in the 80s and 90s, and to a lesser extent in 2008, is now ultimately at the brink of the precipice. COVID-19 makes us understand that our societal systems cannot be built on capitalist ideology anymore. As a consequence, the debates in daily newspapers, among scientists and opinion leaders have changed drastically. There are already plenty of signs demonstrating this potent rethinking: policymakers finally advocate for resilient economies, sustainable development, circular investments and the use of renewable resources. This is also undergirded by a general rethinking of the relationship between nature and human life.

COVID-19 is a systemic shock, most likely caused by environmental destruction, which itself is caused by our economic system. Climate change, as an effect of relentless economic endeavour, is not only contradicting the very laws of demand and supply that economic theory is built on, but it also endangers the preservation of physical integrity, a basic right that is a precondition to all others. Some argue that only economic liberalism could ensure the preservation of our ecological resources as long as we follow the laws of supply and demand. Yet, at the same time, economic systems have built their action by privatizing a supply whose nature, being inherently limited, goes against the human logic of infinite economic growth.

In general, under capitalism, the monopoly of financial capital gains the right to own and sell products from nature and turn them into economically tradable goods. But these products, such as raw material, water and air are necessary for human sustenance, and cannot be considered a human's property. Genetically-modified (“GM”) soybeans constitute a good example, as they can reveal how a solution based on the paradigm of our economic system is limited by its own systemic rules. Indeed, while GM crops were built to increase resilience to environmental influence, industries have only been able to make them resistant to human-made fertilizers instead. But the attempted alteration of ecological systems by using GM crops threatens our physical security and the very survival of humankind. Again, those solutions are based on the current paradigm and thus on the misbelief that we can alter the system of ecology through innovation and production. Instead, science discovers that the only way to reduce the recurring anomalies is to alter the economic system in its entirety. The international lockdown at the beginning of 2020 because of the COVID-19 pandemic is the best example showing us that only drastically slowing down economic processes affects the environment sufficiently enough to counteract climate change. And we have become aware, as mass mobilization such as Fridays for Future show, that this knowledge has conquered younger generations who are ready for drastic change.

Third order change and the end of capitalism

Together, all anomalies between policy goals and reality (of which the above mentioned are only the most prevalent examples) coupled with the latest shock of COVID-19 (yet to develop its full potential) indicate a third order change. Fridays for Future, criticism of mass capital accumulation (such as Jeff Bezos) and a rethinking of economic science in universities worldwide show that we are collectively transitioning from accepting the prevailing policy paradigm to questioning it. In the old paradigm, the capitalist rule subordinates all other freedoms. Capitalism was developed as economic theory aimed at abolishing the absolutism of the state and explaining the functioning of the market, but with its expansion it has become a political, social and psychological mantra, that elites thought captured the reality. They thus erected it as rule and law of human existence. Capitalism itself is neither good nor bad – it is based on an economic theory, a scientific instrument to structure and simplify the complexity of the real world. Until only recently, the majority of people have come to misuse the theory by taking its tenets into all spheres of human-made structures; be it political, societal, cultural or ecological – and those times are over.

The basis of capitalism has long been justified with the claim that its ideological basis, economic liberalism, inherited a moral system where liberal values and the free allocation of resources was supposed to lead to the fairest system and create enough remedies for everyone (Adam Smith was first of all a moral philosopher). For quite some time, we were able to manage the imbalance between theory and reality with known policy instruments. But the world has become too complex and we lost power to adequately respond to global developments. What we are now facing goes way beyond choosing between policy alternatives: in fact, we are starting to question the nature of the problems we are facing, going to the meta-debate surrounding why these problems occurred in the first place. Among leading economists the answer is widely known: capitalism has failed and will continue to do so (Blyth & Matthijs, 2017; Fahnbulleh, 2020; Piketty, 2013; Stiglitz et al., 2020).

Off to new shores

This discovery reflects what Peter Hall suggests, as “third order change is often a more disjunctive process associated with periodic discontinuities in policy.” We are in the middle of a revolutionary change of paradigms and we increasingly acknowledge the failure of capitalism in all societal layers. Similarly, the maximization of economic output and economic, material freedoms are mantras that appear less and less attractive when weighed against the value of living together in peace, having fresh air to breath and being able to trust your neighbour, your boss, your daily newspaper and the political institutions supposed to provide justice and a social umbrella for those in need. The question we are now left with, and what leading scientists are already trying to capture is: which is the next overarching and structuring paradigm?

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