The end of the world as we know it?

The huge impact of the economic crisis throughout the world has raised the question about whether capitalism will survive the current economic debacle.

Likewise, the question about the “end of capitalism” has been continuously present during our class discussions in Law and the Contemporary Society. The proposed idea suggests that the current crisis not only evaporated home values, but also destroyed and buried an entire economic system. The proposition also suggests that law students (as future license holders) should be prepared not for the world that they were expecting out of law school, but for an entire different world yet to come. Moreover, as young and unleveraged professionals, they should have a leading role in the construction of the new social and economic order.

Such plan sounds compelling. For those who still can travel light, the opportunity to develop a more justice and human economic system come out as a unique opportunity to engage our talents in something greater than our personal ambitions.

However, is the existing crisis a real turning point for capitalist societies? Do we face a period in which our economic system will be completely reshaped? Of course, such complex questions cannot be completely answered in the following lines, but some perspectives on this regard might be suggested.

Are we witnessing the death of capitalism?

One warning in this respect is that any categorical conclusion at this point in time might be too early. We are just beginning to suffer the cost of the crisis in the so-called “real economy” and no one knows with certainty when all this is going to end. This seriously affects the way in which we debate the problem, and therefore, any conclusion derived from it.

In fact, those who for years have been critics of the prevalent system have found a unique opportunity to attack it, without the necessity of sustain their position with strong rationales. Certainly, when people are losing jobs, retirement savings and homes, you do not need a persuasive discourse to convince them that the liberal policies of the previous years were the cause of the present disaster. Reality is enough. I am not suggesting that the unregulated framework of the United States economy is not the cause of the current crisis. On the contrary, although I believe that the unbridled financial laissez faire is probably one of the most plausible explanations for this debacle, public discussion in this regard has lacked of sufficient depth.

On the other side, those economists (Nobel prizes included) that for years defended the robustness of the economic model have kept a comfortable silence. Certainly, a reconsideration of their theories (for instance, those about perfect capital markets) under the scrutiny of reality should be a hard exercise. Moreover, those who have publicly defended free market policies have been incapable to look at the flaws of the model, reducing the whole problem to a matter of excessive governmental intervention.

Despite the confusion in the public debate, do we have some hints to measure the magnitude of this crisis and to affirm that this downturn will trigger a reformulation of the entire system?

I am skeptical in this respect. Economic fluctuations, regardless their specific causes, are recurrent in history. As well, political and economic institutions in the recent history have shown to be, as the economy itself, quite cyclical. Actually, if we look at the effects of the downturn suffered since 1929 (which hit the economy even harder), we find a cyclical behavior both in the economic ideas and policymaking trends. In the following years after the Great Depression, the significant observations of Lord Keynes influenced the way in which most of economist described the economy for decades and, even most important, the way in which governments structured the economic institutions and policies throughout the world.

However, once some failures of the Keynesian policies become more visible, the critics of such ideas (leaded by Friedman and company) gain support and a new economic model was implanted in the US and exported to those countries under the US patronage. Since then, advocates of free markets have tasted the flavor of triumph and preached the inexorable path of the world toward liberal capitalism.

And now that this model has shown (again) its intrinsic failures, why we should expect a different historic process? The american economic institutions will probably change in a similar way they did it in the past. In the 1930s we had a movement toward securities regulation and now everybody is claiming for a more regulated financial system. In the 1930s Roosevelt committed his efforts to a New Deal and now people is discussing about Obama´s New Deal. Surely the role of government in the economy will probably increase in the years to come. Yet, how we could suggest that such trend will go further and last forever?

I cannot find indications that the foundations of neoliberal capitalism will not survive this crisis, not because of its intrinsic strength and consistency, but because history, rather than a dialect movement toward human kind progress, usually moves on cyclical and pendular waves. In other words, those who suggest that capitalism is already dead might be overestimating the human ability to learn from previous mistakes.

In the present time, when confusion and outrage are present in the public debate, some consideration to our past experiences could help us to realize that this crisis, besides its particular features and causes, is a new expression of something really old. Therefore, looking at history, we might suggest that liberal capitalism is not dead, but probably will take a long nap.