A Historical Outlook on Capitalism Development

A Historical Outlook on Capitalism Development

By Prof. A. Contu

Historically the world has seen many forms of socio-economic formations with specific processes of accumulation: feudalism, mercantilism, laissez fair, regulated/protected capitalism, neo-liberalism.

What is the foundation of what we now know as capitalism? How was the capital needed for the investments generated in the first instance? Capital accumulation was favored by many factors. Here are some of them: i. legal solutions like property rights and contracts regulations; ii. technological changes and inventions, which for example allowed for the creation of mechanized systems of production – the factory; iii. by explorations for exploitations and conquest (i.e. from Europe to Africa, Asia and America); iv. by absolutist (or close to absolutists) nation states with wealthy aristocracy, created/supported by enclosing the common land and concentrating it in the hands of the few; v. by colonialism that enabled a minority to enrich themselves by plundering the resources of the colonized; vi. by slavery an institution by which millions of people were bought and sold, systematically raped and subjugated into submission to become mere hands to work in fields. Of course, other ideas were also important, vii. religion played a role in it; viii. misguided scientific notions of superiority, racial or ethnic purity; ix. patriarchy, etc. also were instrumental to the constitutions of original capital accumulation.

Neoliberal Capitalism is just the latest formation. During the industrial revolution in Europe and America (1700-1800) we had a form of mercantilism where nations were struggling against each other protecting their own productions and trading (or colonizing) to accumulate precious metals and goods; and selling goods produced internally (e.g. textiles, machinery, agricultural goods, etc). The development was uneven. In other words not everyone everywhere in Europe or in America worked in cities and in factories.  There was still a huge reliance on agriculture as the main sector of the economy and a lot of land was still in the hands of the old or new aristocracy (like the old families who had moved to the colonies). Then a form of laissez fair, liberal capitalism started to take hold until the Great Depression of 1929-39, where unfettered market forces eventually injured the global economy. Lives were ruined, jobs were lost and an army of unemployed and impoverished people had nowhere to turn.

If one looks back can see that it too enormous tragedies for nations to start changing direction. It took the October Revolution, the rise of the Soviet Union, the rise of Nazi and Fascism and the death of over 62 millions civilians and 15 millions military killed in two World Wars, the struggles and killings of workers to change strategy and work towards a new socio-economic formation. This new formation had as a main ideal that of producing prosperity for the majority of the population – regulated capitalism. Many institutions were then created: voting rights were extended to women in many countries; some countries abolished slavery, struggles for independence started to be successful in Africa and Asia; new agencies were created to support a new vision of the world, the United Nations, and then the World Bank, the IMF etc. The 50s and the 60s became an era of growth and wealth for many in the European countries and the United States.

It was not all rosy. The world was divided in two blocs and the tension was always very high. Internally, the USA was a wealthy but deeply divided country. The fear of communism, ‘Jim Crow’ laws, lynching and violence in the South; and de-facto segregation and oppression in the North did not allow for a shared prosperity. It took again the struggle of massive number of people to push for changes that would guarantee at least by law rights for all: the civil rights movement of the 50s and 60s. Then in the 70s for a number of reasons the system started to show some problems. There was a decline of the rate of profit for capitalists, extensions of regulations to protect labor rights and the natural environment were seen by industrialists as pushing far too much power on the working people and the government, record high prices of energy and especially oil, inflation, wars in the Middle East and in Vietnam are some of the most significant reasons for economic unrest. Many roads were open on how to re-structure the economy but the industrialists of the era, which by now had much more voice in government through lobbing and presence in various committees etc.  supported policies to restructure the economy in the direction of free-market with the specific features of neo-liberalism described on Week 1. The basic promise was this  “free-market theory claimed deregulation of business and markets, privatization, and tax cuts for business and rich “investors” would benefit everyone. These measures would unleash saving and investment, creating jobs and leading to faster growth. Everyone would benefit.” (Kotz, 2015).