Free market liberalism expanded rapidly while the state mostly refrained from intervening in the market’s structure or business cycles. As capital investment intensified while economic production and distribution grew increasingly differentiated, the need to regulate domestic capitalism became more apparent even prior to the turn of the twentieth century. In this way organized capitalism came into being; with it arose cartels, mergers, and business or professional associations. Selective intervention by the state into property rights followed, accompanied both by the notion that social obligations attach to property and by the creation of social-welfare institutions to formalize those obligations.
»For a while, society managed to rein in capitalism while enacting policies associated with ‘social democracy,’ but the stagflation of the Seventies put an end to the coexistence of those closely related accomplishments.«
After 1945 capitalism in its Keynesian, welfare-state form triumphed in a few western European countries for a brief period of roughly three decades. For a while, society managed to rein in capitalism while enacting policies associated with »social democracy« (Thomas Meyer), but the stagflation of the 70s put an end to the coexistence of those closely related accomplishments. It did not take long for the monetarist and supply-side-oriented paradigm to shunt aside (bastardized) Keynesianism. Chile under Pinochet (guided by the so-called Chicago Boys), Great Britain under Margaret Thatcher, and especially the United States with Ronald Reagan at the helm executed the supply-side paradigms and compelled the rest of the capitalist democracies to adopt a neo-liberal course as well.
Capital markets, now in a dominant position, gave neoliberal globalization an additional spin in the direction of the financialization of capitalism. It took the financial crisis of 2008 to put a stop to the trend toward capitalism’s emasculation of democracy. Even before that crisis exploded, the contours of a high-growth, autocratic model of capitalism had begun to take shape in China. Meanwhile, the collapse of the Soviet empire ushered in forms of oligarchic capitalism not only in Russia, but also in Ukraine, Georgia, and other successor states. Once again, capitalism demonstrated its enormous capacity for self-transformation. It could flourish just as well in autocracies as in democracies.
»Most of the disruptions and metamorphoses of capitalism entail serious costs to both the state and society.«
It is impossible to write a brief history of capitalism here; instead, the main point is to remember that most of the disruptions and metamorphoses of capitalism entail serious short- and medium-term transformational costs to both the state and society. As a rule, the benefits- – productivity gains, redistributive efforts, and welfare-state compensations – were delayed, if they happened at all.
Thus, when major economic and political upheavals take place, we should expect a time-lag between economic investments on the one hand, and social and political returns on those investments, on the other. That is exactly the issue to be addressed here: What political visions, strategies or schemes do we have in mind that might help us successfully achieve the »great transformation« from fossil to post-fossil modes of production and consumption? Policy proposals must adhere to three guidelines: The climate crisis must be combated quickly and effectively; democratic standards and the rule of law must be preserved; and social burdens must be minimized and fairly distributed. How can make a speedy journey through the vale of tears without feeding discontent with democracy and right-wing populist protest parties?
Scarcity capitalism: the post-growth promise
First, there is the idea of a degrowth or post-growth economy. The hope is that, by radically limiting economic growth and bearing in mind the finitude of resources, we still might generate »affluence without growth« (Tim Jackson 2017). The argument runs like this: the burning of fossil fuels accounts for about 80 % of greenhouse gases worldwide. As long as growth continues, it won’t be possible to reduce such a large quantity enough even to slow down the warming of the climate despite all the creative destruction going on. We cannot uncouple growth from emissions that harm the climate. Therefore, the global economy must be shifted down to a lower gear and organized on a post-fossil fuel basis.
But even if the idea of a post-growth society might work in an economic sense over the long haul, it would be impracticable in democracies. That is the case because switching over to a post-growth strategy would lead to considerable economic turbulence, at least in the short run. For instance, if Germany or even Europe started down the post-growth path there is no guarantee that the USA, China, India, and the rest of the BRICS countries would follow Europe’s self-congratulatory, ascetic lead in spurning greater material wealth.
Instead, demand simply would crash in the degrowth economies, and investments would be made elsewhere in the world. Deindustrialization in the post-growth economies would be the outcome. In an open world of globalized financial and commodity markets, demand would be siphoned off into pro-growth economies while unemployment burgeoned in post-growth economies. None of those results would benefit the climate.
This would be a suicide pact for political parties in competitive democracies. Voters would vote degrowth governments out of office and would keep them out of political power for years following such a losing economic experiment.
»Economic system failure also would have repercussions on the constellation of geopolitical forces.«
Furthermore, the post-growth idea forgets about the competition between the two great capitalist systems: the liberal »meritocratic capitalism« of the democratic West and the »political capitalism« of the authoritarian-Asiatic East. Neither the USA nor the EU would be able to continue advocating a zero-growth policy if the politically directed capitalism of China were delivering growth rates of between five and ten percent at the same time. An economic system failure also would have repercussions on the constellation of geopolitical forces between China and its kindred authoritarian regimes, on the one hand and the democratic West, on the other.
Quotation from John Maynard Keynes (1883-1946):
“Capitalism is based on the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all.”
Political strategies that don’t take seriously the central parameter of economic openness in a globalized economy are ill-suited for the 21st century. Once again, the big loser would be the lower half of society. So, if degrowth represents an unintended dystopia rather than a promising utopia, how might the social and ecological distortions of the neoliberal fossil-fueled economy be avoided?
Not long ago, Branko Milanović sketched out the contours of a socio-economic design that he dubbed »people’s capitalism«. In that model, the social welfare state would not wait for market failure to occur before enacting redistributive measures. Rather, it would carry out a «pre-distribution» within the market. Four adjustment levers would be available to accomplish that goal: the ownership of capital, education, the tax system, and political influence. To begin with, the ownership of capital should be more widely disseminated in society than has been the case hitherto. Among other approaches, that could be achieved by offering stock options to employees at the level of the firm. But it is not only capital that must be more broadly dispersed throughout society; its cognitive resources also must be more widely distributed.
The really existing educational systems in nearly all the capitalist countries reproduce the inequalities that pervade actual educational, occupational, and income opportunities. The countries of northern Europe constitute a partial exception to this. Still, even Germany has not been able to avoid inequality of educational opportunity, as OECD statistics demonstrate to the country every year. The solution is not simply to inject more money into the educational system. Instead, the real answer is to redirect the flow of financing, especially toward early childhood education and elementary schools. To be sure, investments in universities are indispensable, but they come too late in the educational cycle to reduce inequality and redistribute opportunities in life.
The third lever is the tax system. Effective tax incentives should be established so that the broad middle class can build wealth. In this context Milanović focuses on inheritance taxes. In particular, the inheritance of large fortunes (one million euros and up) must be subject to high, progressive rates of taxation to disrupt the temporal transfer of privileges, wealth, and status across the generations.
The fourth lever involves the nexus of money and political influence, an unholy alliance that applies mainly to the United States. The idea is to put a damper on the direct private financing of politicians, parties, and electoral campaigns. Moreover, the influence of private think tanks and political foundations should be more tightly controlled.
Although those measures are not new, they certainly make sense. Nevertheless, up to now they have hardly even been tried. That, in turn, suggests that the lower classes remain chronically under-represented in capitalist democracies. Depending on how acute it is, economic inequality undermines the democratic principle of political equality. So far, representative democracy has not found any efficacious antidote to the poison of socio-economic and political inequality. The “cultural turn” in progressive democratic politics has obscured the problem of the unequal distribution of individual life opportunities in the economic sphere. The ecological and culturally-sensitive left, oriented to the middle class, is empty-handed when it comes to the politics of distribution.
Climate capitalism: the prospect of green growth
Of course, in the third decade of the twenty-first century, more is at stake than the social question alone. The post-fossil-fuel transformation of the economy and society will be the principal bone of contention. The climate crisis calls for a transition from habits of production and consumption that deplete nature to a net-zero, resource-conserving economy. The social question must be integrated into ecological and technological issues.
»In the current decade of transformation, the social question will become more pressing.«
Technological innovations will play an important role in the »great transformation.« Yet we know from earlier technology-driven growth cycles that entrepreneurial »pioneer profits« accrue one-sidedly during the initial phase while simpler kinds of work lose value. Joseph Schumpeter’s »creative destruction« and the enormous innovative power of capitalism may contribute technologically to advancing the post-fossil-fuel transformation. However, the social question will not be solved simply en passant; it is far more likely to grow more pressing in the current decade of transformation. But if evolution toward a post-fossil-fuel economy is left primarily to the pricing of CO² emissions and the market, serious transition costs will bedevil industry and consumers. And if in response we offered to pay climate compensation, we would then also have to approve an expansion of the bureaucracy. One can certainly doubt whether the current version of our plodding bureaucracy is up to the task of managing this transformation.
A socially just, democratically grounded, and effective transformation of fossil-fuel-driven capitalism must master at least three tasks. First, it must ensure that the burdens of the impending transformation are equitably distributed. The market alone will not get the job done. Considerable fiscal redistributions will be inevitable if we are to support both the socially vulnerable lower class and the politically volatile middle class. Whether a budget generated under the harsh mandate of the German “debt brake” can manage to do that remains doubtful.
Second, citizens must be persuaded that any short-term economic burdens placed on them can be amortized in at least the medium term. If practical policymaking does not credibly reinforce that hope, then even more groups might become susceptible to the political blandishments of right-wing populist parties.
Finally, political elites must show that their efforts do not mean that the country is »it alone». They must be able to prove that other major greenhouse-gas emitting countries such as the USA, China, and India also are undertaking comparable efforts to stop climate change. Otherwise, when individual nation-states or Europe as a whole attempt to go it alone, they will not be helping the climate. They will simply be shifting both climate-damaging greenhouse gas emissions and the wealth generated by them from one region to another. The post-fossil-fuel transformational vale of tears should not become too deep and too long. This is not to say that we have to square the circle; only that the arts of governance that have been demonstrated so far will not suffice.