Capitalism summary

While it’s true that capitalism in its modern industrial form first became fully-fledged in nineteenth-century England, its roots can be found in medieval Europe.

It’s impossible to identify a single cause behind the advent of conditions that allowed for capitalism in Europe. However, one determining factor that brought together various possible causes was the lack of a cohesive and all-dominating elite throughout the continent.

As schoolchildren, most of us learn about the progress made during the Industrial Revolution of the eighteenth and nineteenth centuries. We’re told how it was responsible for so many of the technological breakthroughs we’re completely dependent on today, such as mass transport and electricity.

But central to industrialization was the advent of industrial capitalism. And it began in England.

In the 1970s, state-managed capitalism began to run into trouble.

One of the main reasons for this was the rapid increase of international competition. The growth of free trade meant that capitalist enterprises, now faced with competitors around the world, had to find ways to further reduce costs. This involved lowering wages, outsourcing production to countries with cheaper labor costs, or replacing workers with increasingly productive machines.

As neoliberalism became the ruling capitalist model in the UK under Margaret Thatcher, the same international market forces and increased individualism caused neoliberal dominance elsewhere.

Sweden, for example, also succumbed to neoliberalism, albeit less so than in the UK.

The remarketization that took place in powerful capitalist economies such as the UK and the US changed the way capitalism in the rest of the world worked. Because of this, in addition to increasing international competition and deregulation, two other factors would come together to create the perfect storm that would be the 2007-2008 global financial crisis and subsequent Great Recession.

The first of these was the financialization of capital, constituting a shift toward capital being invested in high-risk and potentially high-profit financial contracts on the stock market as opposed to in the traditional capitalist production of goods and services.

After the collapse of Lehman Brothers, further bankruptcies followed, faith in investment banks was shattered, and credit became scarcer. The Great Recession was now truly underway – international trade, employment, wages and consumption fell all over the world.

The effects of the crisis were hard for anyone to ignore. But sadly, lessons haven’t been learned. The low interest rates put in place after the crisis, while helping to solve economic woes in western nations, have led to increased borrowing in developing countries. In China, Brazil and Turkey, for example, debt-to-GDP ratios have increased far beyond 2007 levels, meaning that something similar to the subprime mortgage crisis might happen again.