Inequality and the Crisis of Capitalism and Democracy

Part I: Structural Problems of Extreme Inequality

The great challenge of our time is not a clash of civilizations, as many advocated since Samuel Huntington published The Clash of Civilizations. Nor is the world most important challenge the revival of the Cold War in the form of a renewed US-Russia confrontation or in the forms of the evils of unconventional war that the US calls “terrorism”, a generic term governments use to label any opponent terrorist. These issues are manufactured and symptomatic of capitalist countries engaged in an intense world competition for markets and raw materials. This is not very different from the world power structure during the Age of New Imperialism, 1870-1914. The great challenge of our time is social and geographic inequality that threatens not only the system of capitalism creating inequality, but the democratic political regime under which capitalism has thrived in the last one hundred years. 

1.      Is capitalism in deep crisis because of the deepening gap between the very rich and the rest of the population, or this how the system works and society has always been organized as a social pyramid? If capitalism is creating extreme inequality what does this entail for democracy that rests on a strong middle class and all institutions on which bourgeois society his built?  Does the fact 1% of the richest people will own more wealth than the other 90% of the world’s population in 2016, and that 80% of the people on earth own just 5.5% of the wealth mean anything, or is it just numbers?

As long as capitalism is relatively stable and as long as the social structure operates fairly harmoniously under such a wide gap between the super rich and the rest of us, then the possibility of “social discontinuity” (systemic change in the social structure, and economic and political system) does not appear likely in this century. After all, throughout civilization in most societies wealth was always concentrated and social structures were always hierarchical with the elites whether secular or religious enjoying privileges.  There were always elites determining society’s institutions and direction while the poor remained helpless and the small middle class tried to exert whatever influence possible at the grassroots level. Why must we be any more optimistic today that elites will disappear when that seems highly unlikely because other elites will replace them under another system?

2.      Does the widening income gap evident especially in the US and Europe reveal a crisis in the parliamentary system of electoral politics, as people lose faith in representative government and turn either to radical left or radical far right-wing solutions? We have seen the rise of ultra right-wing political movements and parties throughout Europe and the emergence of the Tea Party as an appendage of the Republican Party in the US representing some of the most extreme policy positions. These range from anti-immigration and xenophobic agenda to advocacy for military solutions as the only way to solve foreign policy crises. These political parties have a voice in the democratic process because the conservative and centrist parties have moved very far to the right, representing essentially the rich in society rather than all citizens. As long as people equate elections with democracy and social justice, why would the political system suffer any more polarization as it did in the 1930s amid the Great Depression? In the absence of another 1930s-style Great Depression to precipitate sociopolitical polarization, the electoral system can withstand even more income inequality and injustice, more civil unrest, and more shift of government toward police-state style solutions to such problems. After all, people do not believe there is an alternative to the existing political system any more than the economic.

3.      Apologists of the status quo, from politicians to businesses from academics to the media would have citizens believe that the existing economic system is thriving and it will continue to thrive for eternity, a belief first introduced by the apostle of the capitalist manifesto Adam Smith, The Wealth of Nations (1776). In other words, it is as though capitalism transcends history and it has come to earth from the heavens. Therefore, there is no need to reform capitalism by changing policies and certainly no need to do away with it. If the system appears immersed in contradictions and anachronistic in terms of fulfilling its promise to society any more in Adam Smith’s 18^th century Europe than In 21^st century world, it is only because critics and those not deriving optimal privileges are against the system not because there is something wrong with it.

Reformist critics argue that the declining middle class throughout the Western World in the last four decades is symptomatic of an ailing economic system that must be addressed through the political process. If this is not done, then democracy itself will give way to a more authoritarian political system. On the left side of the political spectrum, critics argue that the crisis of capitalism has already given way to a form of authoritarianism with a thin veil of democracy for mass consumption. Capitalism has shown definite signs of decline and it will ultimately fall. This will take a long time, just as Rome was in decline from the death of Marcus Aurelius to the sacking of Rome in the 5^th century. Capitalism’s decline from within will come because it is serving an increasingly smaller segment of the population to the detriment of many losing faith in its promise. This means that it will take down with it all institutions, including the warped democratic political system as it will be evolving toward some authoritarian form, a contradiction in itself.

Scholars, journalists, politicians, business people and a segment of the public know that the world is experiencing a crisis of inequality. Despite the phenomenal Gross World Product (GWP) growth rising from $27 trillion in 1990 to $75 trillion in 2014, owing largely to the integration China and former Communist countries into the capitalist economy, income inequality actually grew during this period because capital remained concentrated in the hands of the top 10 percent. The inequality crisis is not just in Egypt, Nigeria, Kazakhstan and other developing nations under authoritarian corrupt regime, but in the US and Western democratic societies that go through the motions of promising equality but deliver downward social mobility for the college graduates.

With few notable exceptions among them Norway, many of the Western democracies deliver economic and social policies not much different from authoritarian countries that make no pretenses about a pluralistic society. This is not only in European Union countries undergoing austerity, but in the US as the world’s leading capitalist country where inequality is very evident. Although the US is an open society under a pluralistic system, it has been experiencing a crisis in its democratic institutions that has been going down the road of a quasi-police state ever since 9/11, considering there are glaring violations of the Constitution regarding civil rights, and of international law regarding human rights.

Things are not very different for the rest of the Western World where the rights of workers are disappearing and middle class is shrinking, while poverty is rising amid massive capital concentration. This is all justified in the name of markets that governments today equate with the “national interest”, thus redefining the social contract as understood by European thinkers of the Enlightenment as well as Thomas Jefferson and James Madison. The contradiction of democracy’s promise for equality and the downward socioeconomic mobility and rising income gap between the rich and the poor has been the subject of serious studies that ignore the populist propaganda in the media. However, such studies are hardly influential among mainstream politicians loyal to the new “market-centered” concept of the social contract that whatever is good for the rich is good for the nation – reminiscent of the 1920s thinking in America. (See Vicki L. Birchfield, Income Inequality in Capitalist Democracies: The Interplay of Values and Institutions; John Skinner, Capitalism, Socialism, Social Plutocracy: An American Crisis)

On the surface, the capitalist world economy certainly appears sound because of the fact that most people believe they have a stake in it. If they have no stake in it, they have hope for themselves and their children. Just below the surface there are very serious problems owing to a complex web of problems, most of them stemming from a political economy rooted in injustice and the source of oppression and exploitation that instead of lessening it is worsening based not just on income gaps between the rich and the “rest of society”, but on the quality of life in general for the “rest of society”. This does not mean that capitalism is coming to an end any time soon. Nevertheless, it manifests signs of structural weaknesses that will eventually undermine both capitalism and democracy from within. In other words, the real enemy that will bring down the social order is not “terrorism” or another enemy nation like Russia, but the decadent system.