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Davos: We Must Replace Unfettered Market Capitalism With A 'Human Economy'

The spread of unchecked market capitalism has only reproduced inequality and the concentration of power in the hands of the 1%. Time to rethink the model.

19/01/2017 04:59 SAST | Updated 19/01/2017 04:59 SAST
Ruben Sprich / Reuters
Klaus Schwab, Founder and Executive Chairman of the WEF (L) shakes hand with Chinese President Xi Jinping during the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 17, 2017.

Presenting a united front, the South African government delegation cut a dapper figure as they landed in cold Switzerland for the World Economic Forum (WEF) Annual Meeting in Davos-Kloster to be held this week. The theme of this year's gathering being 'responsive and responsible leadership'. An interesting choice, in the face of numerous challenges, and in a world that many suggest, is shifting away from the impulses of 'globalisation', towards a more insular and nationalist sentiment. The cause of this, according to the WEF founder, Klaus Schwab is the 'genuine frustration of people left behind by globalised market capitalism'.

The words of Klaus Schwab ladies and gentlemen, not Jeremy Corbyn, Irvin Jim nor Floyd Shivambu, but Klaus Schwab! That the 'host' of the world's business and political elite for the next week in the Swiss Alps can acknowledge the role of an economic model that has produced frustration and inequity is nothing short of surprising.

Who are those 'left behind' that Schwab is referring to? A report released by Oxfam International this week suggests that eight men own wealth equal to the bottom half of the world's income distribution. This list includes the who's who of the wealthiest; Bill Gates, Warren Buffet, Jeff Bezos and Michael Bloomberg to mention a few.

In South Africa, three white males own wealth equal to the bottom half of the distribution. This shouldn't be surprising, as a World Panel Income Distribution study conducted by Christoph Lakner and Branko Milanovic in 2013 indicated that the richest 10% in South Africa's income distribution captured 64% of the total income growth between 1993 and 2011.

So the frustration that Klaus Schwab refers to is a reality that the bottom 50% in South Africa have always known, of life in a society that has normalised the concentration of wealth and market power in the hands of a few. A wide array of factors and developments have gotten us to this point. The Oxfam report suggests that corporate strategy (in particular those of multinational corporations) and a neoliberal public policy agenda have reproduced inequality. Moreover, the report suggests an alternative, which is a human economy, which is one that prioritises the interests of the 99%. Inequality is an outcome of a certain kind of structuring of market relations, with a cause and an associated set of assumptions and 'beliefs' that ensure its reproduction.

The economy and its associated polity is not governed exogenously by some universal rules that govern the interactions of 'nature', but by subjective human choices and decisions.

In a book about the unfolding events that led to the Great Depression in the late 1920s, Liuaqhat Ahamed argues that it was the decisions of four central bankers that were the primary cause of economic meltdown. Interestingly, it was this economic meltdown and uncertainty that set the stage for World War 2 and the subsequent Cold War.

This is a reminder that the economy and its associated polity, is not governed exogenously by some universal rules that govern the interactions of 'nature', but by subjective human choices and decisions. Ahamed recalls the ardent belief in the perfect functioning of the 'gold standard' as one of the key economic assumptions of the time: "Among bankers, whether in London or New York, Paris or Berlin, it was revered with an almost religious fervor, as a gift of providence, a code of behavior transcending time and place."

The same kind of fanatical and cult-like belief in the workings of the market and 'price' as the best and most efficient allocator of resources is a major contributor to income and asset inequality. The about-turn of the likes of the International Monetary Fund (IMF) and the WEF is a recognition of the role of the 'recurrent crises' of unfettered market capitalism in getting us here.

It is also an acknowledgement of the 'political and social price' of neoliberalism as an unnerving reality, as British writer George Monbiot observes: "An economic model based on perpetual growth continues on its own terms to succeed, though it may leave a trail of unpayable debts, mental illness and smashed relationships. Social atomization may be the best sales strategy ever devised... It is a general social affliction, visited upon us by government policy, corporate strategy, the collapse of communities and civic life, and our acquiescence in a system that is eating us from the inside out."

How do such models and their disastrous social and economic consequences come to pass? Much of it has to do with the intellectual 'cover' that certain ideas have enjoyed. Take for instance the often-implied idea that the market is the most important institution in any given society. The market is viewed by investors and policymakers alike as a yardstick of a nation's social health and progress. Our politicians in the wake of adverse events or developments, are often quick to reassure the marketplace that everything is under control.

Our politicians in the wake of adverse events or developments are often quick to reassure the marketplace that everything is under control. However, as Mahmood Mamdani reminds us, the market is one of the oldest institutions in society, but seldom in history have we witnessed a situation where we often think that the 'market' and the 'economy' are the same thing.

However, as Mahmood Mamdani reminds us, the market is one of the oldest institutions in society, but seldom in history have we witnessed a situation where we often think (and the scholarship and teaching of economics has a hand here) that the 'market' and the 'economy' are the same thing.

He wrote: "Markets have coexisted with different kinds of economies and societies: capitalist, feudal, slave-owning, communal, all of them. The distinguishing feature of all previous eras has been that societies have always regulated markets, set limit on their operation, and thus set limits on both private accumulation and widespread impoverishment. Only with capitalism has the market wrenched itself free of society."

The Oxfam report identifies this prominence of the market alongside another related development, that of a state that plays a minimal role in the economy. What Malawian economist Thandika Mkandawire calls, 'watchdog states'. This is at odds with what the Oxfam report proposes as a solution to the market and policy induced inequality that we see.

The report argues for a 'human economy' on two fronts. Firstly, in its recommendations it suggests a combination of public service provision of essential services, inter-state co-operation on tax and labour issues, a focus on enabling alternative governance and ownership structures of production (worker-owned enterprises and co-operatives for example) and ending extreme wealth differentials through regulation (wealth tax or target pay ratios) and significant asset transfer (most notably in South Africa, the transfer of the land).

It bears mentioning that nations like Brazil, China and many others which have seen an improvement in their absolute poverty and inequality over the last decades have done so as a result of a strong state intervening in the market and in social life for optimal outcomes.

Secondly, the human economy also must confront our markers of economic well-being and how we calibrate social progress and health. Two examples are worth mentioning here. Firstly the policy focus on improving output or GDP growth in economies characterised by severe inequality presents significant limitations. It stands to reason that the benefits of GDP growth would actually accrue to top earners and those with ownership of assets in a country as unequal as ours, rather than 'trickle down' as the 'theory' suggests. So even if we did achieve the 5% growth targets of the National Development Plan, it wouldn't radically alter the employment and distributive profile of our growth; much like the growth spurt South Africa witnessed in the 2000s prior to the financial crash in 2007-8.

The other example relates to the 'uncompensated' role of women in the work of social reproduction (household work, raising children and care work for the young, disabled and elderly) that prepares the labour force. Much of this work is not factored into the total cost of production, nor considered as a factor in production. A human economy is one where such work and its value is quantified in a manner that values the work of women in our society and their true contribution to the economy. Without such an acknowledgment, even in measurement, we will continue to reproduce a society wherein rural and township women, with their bodies, continue to 'subsidise' the production of businesses and organizations; large and small.

The acknowledgment by many multilateral institutions such as the IMF that the 'social and political price' of inequality outweighs the short-term benefits that are concentrated among a few, is welcome. However, it is a moot point whether or not this acknowledgment will translate to key policy shifts.

It bears mentioning that nations like Brazil, China and many others which have seen an improvement in their absolute poverty and inequality over the last decades have done so as a result of a strong state intervening in the market and in social life for optimal outcomes. China has been able to take more than 300 million people out of poverty through a state driven programme of land reform (with small§-scale farmers at the centre), industrialisation and regulation. Brazil on the other hand, has managed to improve its inequality measures over the last decade or so largely as a result of progressive social investment and welfare transfer policies under the presidency of Luiz Inácio Lula da Silva. The latter example stands threatened after the conservative palace coup that removed Dilma Rousseff last year.

So if the world's elite are to spare some time to reflect, amidst their 'hobnobbing', on what responsible leadership is about, in our contemporary reality such a reflection is incomplete without an assessment of policy measures that confront the 'political and cost' of inequality and the (patently erroneous) assumptions about how economies operate.

More importantly the Oxfam report coincidentally reminds us that it is not only our material prosperity and social purpose that is under attack, but our own democratic impulses, as states under the existing system often mirror the activities of crony elites, as Mamdani notes: "Not only has the market wrenched itself free from society, the state is trying to do the same. Not only do market forces threaten to colonise society, the state too threatens to devour society."

A crucial task then emerges for ordinary people and the organisations that they create and those that represent them, to not only hold the market and big business to account, but also to extend the same vigilance to the state.

We will do well to draw this important lesson in what promises to be a tumultuous and exciting year for the political economy of both South Africa, the continent and the entire world.