Harry Geels: Current system is more socialist than capitalist

December 5, 2023

_{This column was originally written in Dutch. This is an English translation.}

By Harry Geels

Capitalism is regularly blamed for all crises – a point that is often illustrated by questionable diagrams. However, for many years we have arguably had more of a socialist than a capitalist society.

I regularly see the image at Figure 1 (or variations thereof) on social media. It presents capitalism as the root of all evil: the climate crisis, social and economic inequality, the problems on the housing market and so on. Even democracy is said to be under pressure from capitalism. These kinds of sometimes very creative diagrams could come straight from the Communist Manifesto. However, they are incorrect for various reasons.

Figure 1: Capitalism as the root of evil

What is Capitalism?

The first problem we encounter with such pictures is the definition of the concept of capitalism. The original definition contains a number of important conditions, for example that production resources are privately owned, that companies create added value under competitive market conditions, and that there is a high degree of legal freedom to dispose of (production) resources. The more freely markets can function, the more efficient and innovative a society becomes. The government is important, for example to guarantee ownership rights and keep markets competitive.

Over the years, capitalism has changed, as beautifully argued here by Emeritus Professor Lex Hoogduin. Especially since the 1930s, when Keynesian and neo-Keynesian theories increasingly gained a foothold. 'The thesis was that the government can and must ensure (restoration of) full employment through monetary and budgetary policy.' From then on, governments and central banks started to play a much larger role in economic life.

Previously, I claimed that other systems have emerged partly because of this. Today we have a diffuse system that is more corporatocratic or oligarchic. We have drifted far from the original 'laissez-faire' capitalism. A perhaps even more appropriate name for the current system comes from professor Arnoud Boot, who speaks of 'sunflower capitalism', in which everyone (consumers and companies) looks like a sunflower at the sun, or the government, in order to give them a bail-out. when there is a crisis.

Alternative view

During a lecture by the American economist Brian Wesbury, which took place last week in Amsterdam, it was stated that according to libertarian ideas, the free market is abandoned - and we end up in a socialist world - if the government receives roughly 15-20% of GDP will matter. Figure 2 shows, for a selection of ten countries, that, after an outlier in government spending during the First World War, the government has taken on an increasingly dominant role since the 1930s, with the introduction of (neo)Keynesian thinking.

Figure 2: Government expenditure as % of GDP

Source: IMF (edited)

There have been two periods since then in which the government took a step back. After the Second World War, when the business community in particular took up reconstruction, and during the 1980s and 1990s, when Reagonomics – a policy of mainly less government intervention – became dominant. Since the credit crisis, the government has again taken heavy control. In many developed countries the government is even larger than 50% of GDP. If we include the banking sector (semi-government), we reach well above 65%.

Even if we double the libertarian limit of a maximum of 20% government in GDP to 40%, almost all developed economies still fall into the 'socialist zone'. Many markets are (government-protected) oligopolies. Many companies are also (partly) owned by the government, such as KLM, ABN AMRO, Gasunie, Port Authority, Holland Casino. If we can even speak of capitalism, it is embraced, almost hugged to death, by socialist thinking. Placing capitalism as the cause of all problems is therefore, to put it politely, misleading. It is a fallacy of false cause-effect relationship.

Voters adrift

After two previews, I actually didn't want to say anything more about the election results, because the one-dimensional left-right thinking makes me sad. It has once again become apparent that a large part of the electorate has become adrift, especially the originally socialist voters. This is not only the case in the Netherlands, but in almost all Western countries. Many people do not understand (unconsciously) that there are so many crises in a society in which socialist thinking has taken on an increasingly dominant role. Because indeed there are. Inequality is too great and the climate is changing too quickly.

As has been written so often, a new system must be introduced. And that is not a system with polarization, of capitalism versus socialism, or growth versus degrowth. We need to do a deeper analysis of what is happening. As I wrote last week about the climate crisis: we must move beyond growth or degrowth. Unfortunately, a call to look for shades of gray is not a message that is quickly picked up by the binary thinking dominant in social media. But it is one we should listen to.

This article contains a personal opinion from Harry Geels

More columns of Harry Geels