The coming crisis of capitalism

Sometimes I wake to the feeling that the world is going to the dogs, and I have a front seat to the ensuing spectacle.

Yesterday's economic figures show France joining Germany and Italy in the League of Nations in Recession (or lurching into recession). Today, we read that South Korea, the economic powerhouse least affected by 1997, is in technical recession this quarter. In a desperate attempt to grow out of its own recession, Singapore's leaders take the extraordinary step of cutting the pension rate of its citizens.

Compounded to all this: reports that regardless of skills, efficiency, specialisation... all kinds of jobs are haemorraging from the developed world to China and India. To me, this is the biggest and most prominent sign that capitalism is once again in crisis.

Let me explain: the 'rationale' for international capitalism is 'free trade', leveraging on supposed efficiencies of production and specialisation of skilled labour. In theory, developed countries should lose low-skilled jobs to developing countries who are more efficient, cost-wise. Developing nations should technically lose out to the skill-efficient labour and higher-order services of developed nations. What should not happen is for low cost to trump over skills and technical specialisation. But it is happening.

The theory and rationale for international capitalism and free trade is unravelling before our very eyes. It is impossible for developed countries to compete on cost alone. That's why our economic leaders have always stressed that going higher-skilled will create more jobs... but the facts show their advice is wrong. We're haemorraging both unskilled and skilled labour.

Let's take a step back. Capitalism is a long tradition; it has seen several crises and remade itself several times over the course of 4-5 centuries. There was Mercantile Capitalism in the 16th century, run on equal parts free trade and the expansion of empires.

The most recent form of capitalism, "Industrial Capitalism", started during the Industrial Revolution. For a short while, it brought some progress to people. However, it soon came to a crisis: Capital had too much power over labour. Workers everywhere were genuinely exploited, with low pay, long hours, and poor, hazardous conditions. Confrontation looked imminent, and Marx became the prophet of the Communist Revolution.

Thankfully, Marx saved Industrial Capitalism. Realisation of the dangerous trends within capitalism forced everyone to reform it. Unionised labour was legalised. Minimum wage and other employment laws were drafted.

Both Capital and Labour were corporatised into the State, so much so that almost all modern democracies are actually Socialist. The state's major duty is the education of the population - so that they are employable for Capital. At the same time, it guarantees the safety of Labour in employment laws. There is Social Security, to ensure that unemployment is a temporary yet non-threatening state.

While Industrial Capitalism faced the problem of unfettered Capital, International Capitalism faces a similar crisis: unfettered free trade. 1997 was caused by the unfettered currency and investment flows. The reform? World Band and IMF agreed eventually that Malaysia's currency controls was the right step to take. However, the greatest problem still plagues us: the unfettered flow of jobs that goes against the "mutual specialisation" rationale of International Capitalism. Now that cost appears to be the ONLY factor, it makes mutual specialisation a joke.

I have no doubt that there will be an eventual crisis. I look forward to the next prophet, and the resulting reforms to the system, and the birth of a new kind of Capitalism.