In the UK, the oldest of the developed economies, the picture is particularly striking. From a peak of around 4% in 1968, the trend growth in labour productivity had already fallen to less than 1% before the financial crisis in 2008. In the aftermath, its descent continued. In the years before the coronavirus crisis, there was virtually no growth in labour productivity at all. Sometimes – most strikingly through the pandemic – productivity growth went into reverse. Labour productivity declined in absolute terms across the economy as a whole.8
These trends matter. It’s only possible to squeeze GDP growth out of an economy with stationary or declining labour productivity by increasing the hours spent working there. Either more people must work or else each of them must work longer hours. Neither of these things is consistent with the promise that capitalism held out to us. Once labour productivity growth goes into reverse, in fact, we are already to all intents and purposes living in a postgrowth world. Figuring out how to survive – let alone flourish – under these circumstances is no longer trivial.
For the most part, economists don’t try. They either deny the reality of these trends or else they assume we can somehow turn the ship around and return to the good old days. A sense of anxiety pervades this denial. Davos was full of it. ‘Deep new rifts are tearing apart the fabric of our societies,’ warned the development economist Paul Collier, because ‘Capitalism’s core credential of steadily rising living standards for all has been tarnished.’ The very next day, it was the turn of billionaire Marc Benioff, Chair and co-CEO of Salesforce. ‘Capitalism as we have known it is dead,’ he lamented.9
The air of bemusement was palpable. Not that long ago, things were going so well. Living standards were rising; democracy was thriving; freedom – the buzzword of western liberalism – abounded. And with the fall of the Iron Curtain, political opposition to the dominant economic model seemed to have faded away. Capitalism could deliver all the progress we ever needed. The political scientist Francis Fukuyama was even persuaded to declare that we’ve reached ‘the end of history’: the pinnacle of humanity’s ideological evolution.10
A representative state; a market economy; a consumer society: this was the recipe for social progress. Governments across the world were content to follow its rubric. And yet the formula had evidently failed. So what exactly happened? How did it all go so wrong? Who killed capitalism?
Crime scene investigation
The most obvious answer to this question is: no one. Capitalism is alive and well, thank you very much, and living the high life in New York and Dubai and London. Beijing, even. And Davos, certainly. Despite their anxiety, no one at the World Economic Forum was seriously about to give up on capitalism. The introspection was an elaborate show. In fact, the principal outcome from the surprising self-flagellation was an all-too-familiar refrain: capitalism is dead; long live capitalism!
Stakeholder capitalism; capitalism with purpose; ‘woke’ capitalism, as the New York Times amusingly called it. These were to be the new incarnations of an old regime. They were paraded almost daily by those who, sometimes by their own admission, had benefited most from the old regime. (Why should we not entirely trust them? I couldn’t possibly imagine!) But beyond the sometimes distasteful rhetoric, and the unmistakable impression of power clinging on to power, lay the dawning realization that something extraordinary had happened to the foundational narrative on which social progress depends. So the question remains. Who or what was responsible?11
For a while now, the most convenient suspect has been the global financial crisis. I’ve lost count of the number of attempts I’ve seen to compare the average growth rate before 2008 with the average growth rate in the years that followed. It’s so easy to conclude that the problems arise from the continuing ‘headwinds’ caused by the crisis. These commentaries miss the point completely. The decline was already happening decades before the crisis struck. The peak in labour productivity growth in most advanced economies was more than half a century ago.
Every now and then, a suspicion has caught hold that the problems are more deeply rooted. In November 2013, five years after the collapse of Lehman Brothers, the former World Bank chief economist and US Treasury Secretary Larry Summers gave a speech to the International Monetary Fund which sent something of a shock wave through the audience. The continuing uncertainties of the post-crisis years were not just temporary after-shocks. ‘The underlying problem may be there forever,’ he said. Low and declining growth may just be the ‘new normal’.12
Summers was certainly not the only, or even the first, but he was certainly the most well-known economist to make such a claim. The repercussions were profound. For a while, it became acceptable to ask previously unthinkable questions. What if there just isn’t so much growth to be had anymore? What if sluggish demand is here to stay? The term ‘secular stagnation’ – first coined in the 1930s – was revived to describe a phenomenon that was becoming too obvious to miss: an increasingly visible long-term decline in growth rates, particularly in the mature economies of the West. As the futurist Martin Ford pointed out: ‘There are good reasons to believe that the economic Goldilocks period has come to an end for many developed nations.’13
The reputation of the economic system (and of economics itself) certainly took a pretty heavy beating during the financial crisis and has struggled to regain its mojo in the intervening decade or so since. But to attribute capitalism’s woes to that time and that time alone is certainly wrong. The cracks were already visible beneath the shiny surface long before the crisis ‘made them manifest’.
Fargonomics
Another common suspect is the economic shift that took place in the 1980s. The economics of ‘monetarism’ heralded a radical agenda of privatization and deregulation. Today’s predominantly neoliberal, free market policies stem from that time. They had a profound impact on society. It’s since that time in particular that inequality has risen, debt has expanded, anxiety and suicide rates have multiplied, obesity and lifestyle disease have accelerated.
‘In America, the emblematic core of capitalism, half of the 1980 generation are absolutely worse off than the generation of their parents at the same age,’ reveals Collier. In the intervening decades, capitalism has ‘continued to deliver for some, but has passed others by’.14
That’s a kind interpretation. Less kind is Noah Hawley’s black-comedy crime series Fargo. In the second season of the show, set in 1979, a local family in Fargo, North Dakota, goes head to head with the infamous Kansas City Crime Family and comes off worse in the conflict. In the final episode of the season, one of the Kansas gangsters, Mike Mulligan (played by Bokeem Woodbine), arrives at the syndicate’s headquarters expecting promotion for his part in the downfall of the Fargo family. He’s shown to his new office in an unremarkable building and told by his manager that he’ll be ‘working closely with the accounting department, looking for ways to optimize revenue.’ Mike is mystified. ‘This is the future,’ his manager explains. ‘The sooner you realize there’s only one business left in the world – the money business, just ones and zeros – the better off you’re gonna be.’
Hawley’s message is clear, right down to the time the story took place: 1979. It was the year that Ronald Reagan announced his Presidential campaign and Margaret Thatcher came to power in the UK. Monetarism announced an era in which, as the Chicago School economist Milton Friedman infamously declared: the business of business is business. Social responsibility was irrelevant. The ethics of the city became virtually indistinguishable from those of organized crime. Charles Ferguson’s 2010 documentary Inside Job and Adam McKay’s 2015 comedy-drama The Big Short – two films about the financial crisis – make the same point.15
