Research paper: Current economic crisis and capitalism

The developing economic crisis is increasingly being compared to the Great Depression. Moreover, the current crisis is quite able to surpass the events of 1929-1933, which shook the capitalist world. The crisis of the neoliberal financial-market capitalism turned from its center and has a system cause: it was launched by the unprecedented autonomization of the financial sector, affecting other economic sectors, and by the inclusion of all social spheres into speculative financial transactions beyond the capabilities of the society or the state.

It should be noted here that, in principle, capitalism can develop not otherwise than by irregular recessions, by periodical, local, national, structural, agricultural, and finally world economic crises. The root cause of this serious capitalism’s defect is its fundamental contradiction – between the social character of production and the private capitalist form of appropriation. This fundamental contradiction raises a number of derivatives of contradictions: between various sectors of economy, between production and accumulation, between production and consumption, etc. Ultimately, the direct cause of the crisis is the contradiction between the ambition of capitalists for the unlimited expansion of production in order to maximize profits and the credit worthy demand of employees, which falls behind this ambition; this contradiction manifests as an overproduction of goods (Montgomerie, 99-107).

In the course of historical development, the general instability of capitalism is growing. Moreover, this happens not only during economic declines, but also in terms of output growth. Economic crises are a violent resolution of existing conflicts for some period of time by means of partly destruction of productive forces, in particular by means wars, till the beginning of the next cycle of capitalist reproduction.

However, the fact that economic crises are irremovable in capitalism shouldn’t be concluded as the automatic collapse of capitalism. Crisis creates the conditions for withdrawing from it. This is a mechanism of self-regulation, adaptation of to the new conditions, which is, unfortunately, just a step for preparing more and more destructive crises. In addition, the mechanisms of such crises are inherent to the very logic of the system; and they are embedded in the psychology of its participants, formed by this logic.

Thus, the disadvantages of capitalism lie in the fact that the liberal capitalist economy does not contain institutional mechanisms for the regulation of income redistribution, required for supporting the mass demand, within the sphere of private investment, which periodically generates crises as the processes of spontaneous correction of the emerging economic imbalance between the final demand and the accumulation of financial assets/liabilities. Crises aggravate the deficit of consumption, eliminate imbalances in shock mode, and restart the capitalist economy. And although the shock may be mitigated by governmental regulation, it cannot be fully avoided; all the attempts to establish a stable liberal capitalist economy failed. The latest version of such economy was until recently considered acritical on the grounds that there were attempts to turn the financial superstructure over the real sector of economics into the economic basis, arguing that it cannot fall into a crisis due to the fact that it can be managed in accordance with strict mathematical algorithms (Montgomerie, 99-107; Ticktin, 13-29).

However, the crisis is the revolt of productive forces against production relations, constraining their development. It shows that created productive forces are demanding social planning rather than market-based management; this, in turn, requires state ownership of production, strong state involvement, and nationalization as the only means of salvation (Ticktin, 13-29).


In light of the real balance of forces different ways of overcoming the current economic crisis are considered and evaluated in a historical perspective. But they all involve the active role of the state. If the crisis is interlinked with the collapse of this function, the catastrophe is guaranteed (Kuhn, 3-34). In the planned economy, capitalism’s inevitable cyclical crises of overproduction are simply impossible, because there’s no market between producer and consumer. In socialism all the produced commodities are originally owned by the society, and it can completely consume them.

Then why did the success that the USSR developed until the mid 1960-ies, result in the period of stagnation, degradation of the ruling Soviet elite, system economic crisis, which grew into a crisis of state and led to the disintegration of the socialist camp? The answer to this question is impossible without recognizing the simple truth: the theoretical foundations of socialist economy, designed to be more efficient than the capitalist economy, were generated out of the conceptual apparatus of capitalism (Kuhn, 3-34). Thus, the opposition of these two systems to each other was a fundamental mistake.

In practice, this leads to the fact that the socialist state, monopolizing the investment process and the consumption of resources throughout society, becomes a super-corporation state, in which bureaucracy starts to play the role of management and to be guided by the same capitalist logic – the logic of costs minimization, including costs on improving living standards, and the logic of maximizing investment.

That is why at the moment, when the basic socio-political problems proclaimed as obligatory goals to achieve, are solved, the state stops in its development.

The national goals are important, but their number is not really great: education, health, transport and military infrastructure, social security, housing, space, etc. The logic of unification, which is relevant for socialism even more, than for classical capitalism, is effectively addressing these issues at mass level by creating appropriate standardized industries. But after these industries are displayed at a sufficiently high level of development, when people are in general, fed, clothed, healthy and protected, the further increase of demand and, consequently, living standards can only be achieved by solving private individual issues and needs of separate groups and individuals (Kuhn, 3-34).

On this background, it is obvious that the capitalist method of production is more cost effective than the socialist one. Despite enormous efforts, socialist countries could not grade up to the productivity of capitalist states. This property result in the fact that capitalist society produces a large mass of consumer goods, i.e. has the opportunity to offer its citizens a higher standard of living.

Another extremely important feature of capitalism, demonstrated in this century is its adaptability, the ability to adequately respond to changing conditions. Above all, this refers to solving the complex problems associated with class struggle and threats of revolution. The means the transformations are conducted through, are the parliamentary system and other democratic institutions, which have become the political superstructure of capitalism. Having decided contradictions that were considered intractable by Marxism, democracy has proven the advantage of the evolutionary path of human development over the revolutionary one. In addition, one more advantage of the 21st century capitalism is the high susceptibility to technological advances and innovations. Rapid and widespread computerization of all the aspects of life today, making the routine more comfortable, is a striking example.

Socialism in its pure form is considered to be the antithesis of liberal capitalism, its dialectical reflection. Hence, the dialectical synthesis of the two systems is also possible. In order to implement such synthesis, institutional mechanisms for the redistribution of investment into long-term state infrastructure should be created in the liberal capitalist economy, instead of redistributing confiscated incomes in the form of taxes back to consumer’s pocket (Ticktin, 13-29).

Consequently, the main challenge is to find the balance between crediting in private interests and investments in the interest of the whole society, i.e. in fact, between the freedom of disposition of capital and the socialist plan of development. One of the ways to solve this problem may be the implementation of the system of incentives for investment activity, when the state works out general development strategies and the owners of capital become direct executors of projects. Tax incentives or penalties should act as stimulation tools.

Moreover, unlike the economy primarily oriented on to meeting consumer demands, (and consequently, thoughtlessly spending nonrenewable resources in hedonic heat of consumerism), social-capitalism allows more efficient development by concentrating on key directions. Powerful energetic, information, and transport infrastructure is the basis of economic growth, being a kind of resource of a higher level, than oil or gas. It is expensive and pays back relatively long, but has a very high multiplier effect, allowing economic agents exploiting it to develop freely. But this is only a part of the solution, since without a genuine democratic mechanism of social control the system will inevitably serve its own interests, merely imitating its usefulness.

Thus, social-capitalism could be considered as one of the ways out of the ideological dead end of the capitalist paradigm of “free market”, being the Brownian motion of selfish particles. In general, the proposed system can be characterized as a model, in which the main mass of welfare is produces in a capitalist way and is shared in socialist one. In other words, capitalism will prevail in the sphere of production, and socialism – in the sphere of distribution. Cleared from the typical totalitarian socialism disadvantages, such as inertia and equalization, it combines the advantages of market economy and the focus on the result of socio-oriented state. Instead of senseless and something even odious self-satisfaction of the endless consumption system, it offers a future vision and a vector development.

Leave a Reply