As the world economy (ineffectively) battles multiple crises, humanity now has to reckon with the real threat of regional and even global wars, which have the potential not only to wreak enormous human and material damage, but even bring to an end the world as we know it.

It’s worth trying to understand why so many different forces, which seem to operate separately but are not unrelated, are now creating existential threats for humanity and the planet. One underlying cause is that capitalism, the economic system that now rules nearly the entire world in a way that it had not earlier, has basically run out of steam.

Instead of the pursuit of profits based on innovation, we increasingly see a focus on the extraction of rents based on ownership and oligarchic control over states. And this in turn means that fixed investment, which is the basis for any real expansion of economic activity, has largely turned stagnant or even declining in most of the world. Having run out of other avenues, the tried and tested means of warfare is once again emerging as the means for both destruction and economic expansion.

Falling investment

How do we know this? Largely because capitalism simply lacks the dynamism which is supposedly inherent in its very workings. This is evident in both slower investment and growth and greater inequality in the distribution of the proceeds of any growth that does occur.

It is generally recognised that GDP (gross domestic product, essentially the sum of all goods and services exchanged in markets, along with the imputed value of some others provided more informally) is a very inadequate and even misleading indicator of human progress. It includes much that could be socially undesirable (instruments of war and violence) and excludes much that is socially desirable and even essential (such as unpaid care work). Yet this measure survives and continues to be used so widely not only because it is there, but because its expansion is the essential raison d’etre of capitalism. For this system, aggregate economic growth — in purely monetary terms — is all that matters, and growth depends on investment.

Indeed, the most important defining characteristic of a capitalist economic system is accumulation, or investment. And clearly, it is fixed investment that matters, because ultimately financial investments only serve any “useful” purpose as enablers of investment in fixed and working capital.

So, to judge how capitalism is doing in its own terms (which need not — and generally are not — the terms that would benefit society in general) we have to look at how fixed investment patterns have played out over the past decades.

Figure 1 presents some estimates of global gross fixed capital formation, or new fixed investment, since 1980. Bear in mind that these figures (using data from the World Bank) are estimations at best, involving all sorts of assumptions, extrapolations and interpolations. Nevertheless, they do show a trend of deceleration and even stagnation of investment rates as shares of GDP, especially after the Global Financial Crisis of 2008.

However, it is striking that this global average is the result of two very different trends across types of economies. Figure 2 compares investment rates across high income countries and low-and-middle-income countries. From the mid 1990s, the latter group overtook the high income countries, with rising investment rates that continued to rise until around 2018, while those of the rich countries actually declined on average.

It’s important to remember that because of the larger base of GDP, even lower investment rates in high income countries could amount to greater absolute levels of investment. Even so, Figure 2 suggests that the locus of investment dynamism shifted, from rich to lower and middle income countries.

In itself, that could be a very positive sign for global capitalism. After all, the low and middle income countries are where the majority of the world’s population (around 85 per cent of people) actually reside, so higher investment there should presumably indicate that capitalism, in its voracious spread across the globe, is actually enabling higher investment, monetary incomes and other benefits to people in these places.

China, the outlier

However, this substantial shift is mostly due to one economy — China — which has not functioned under the rules of the capitalist game that were agreed upon by or forced upon most of the rest of the world.

Figure 3 shows the fixed investment rates of the three largest economies: the US, the European Union, and the People’s Republic of China. Both the US and the EU show much lower, largely stagnant, and recently declining rates of investment. China, by contrast, showed a dramatic rise in investment rates from the mid 1990s to around 2010, after which it has also stagnated and declined, albeit at a much higher level.

But China is a clear outlier, and it is an outlier precisely because it has been implementing a more complex and top-down version of state-led capitalism that is very different from the neo-liberal finance-driven capitalism that has marked policies and economic processes in the rest of the world.

Indeed, it could be argued that China (along with some other late 20th century and early 21st century smaller success stories) showed investment dynamism precisely because it was able to regulate and control capital — especially large and multinational capital — in ways that other countries and regions could not.

Skewed pattern

This becomes evident from Figure 4, which looks at fixed investment rates for some of the major regions: Latin America and the Caribbean, the Middle East and North Africa, Sub Saharan Africa (SSA) and South Asia. Investment rates declined in Latin America over these four decades, to levels even below those in the US and the EU. They were mostly stagnant around a low trend in the MENA and SSA regions.

It is only in South Asia (mostly driven by India) that investment rates rose significantly from around the turn of the century to just around the time of the Global Financial Crisis, but thereafter they have been falling.

What all this suggests is that capitalism is no longer inherently capable of investment dynamism unless it is controlled and regulated in ways that make it oriented towards productive investment. The past decades of “deregulation” have really not liberalised markets so much as weighted laws, rules, and regulations heavily in favour of big capital.

This has created humongously large capital that is too powerful for its own good, and therefore unable to be truly dynamic as it purports to be. The responses of states and citizens to this state of affairs should be obvious: regulate and control the activities of capital and direct them to the social good and inclusive development, before they enable not just stagnation and inequality, but absolute destruction.

Published on June 24, 2025