Crisis of capitalism: 10 years after the Lehman collapse

Time flies, right? The collapse of the global financial services firm, on September 15, 2008, had a ripple effect — on economies and on livelihoods — around the world. Even India, which was relatively insulated, felt the impact as global trade ground down and credit lines dried up.

Right after the global financial crisis of 2008, the consensus opinion of economic historians was that capitalism was doomed. Eric Hobsbawm wrote that capitalism was “bankrupt” after the “greatest crisis of global capitalism since the 1930s”, when under the influence of the Great Depression in the US, the global economy shrank 15 per cent. In 2008-09, however, global GDP fell by only 1 per cent, but the contagion effect was widely felt.

It’s easy to mistake the runaway financial markets around the world in recent months for proof that all is well. Remember, even before the 2008 crash, asset prices, including of housing and commodities, were booming, only to come crashing down when the party ended.

Of course they are. As economists Raghuram Rajan and Luigi Zingales noted in their 2003 book Saving Capitalism from the Capitalists , efficient financial markets keep alive the process of “creative destruction” — whereby “old ideas and organisations are constantly challenged and replaced by new, better ones.” But what happened in 2008 was very different.

An asset bubble built on bankers’ avarice burst. The bankers got away with fat bonuses in good times; the banks had to be bailed out with taxpayers’ funds. It was a textbook case of “privatisation of profits” and “socialisation of losses”. Which is why there is now a clamour for an ‘overhaul’ of the capitalist economy to render it more equitable — and “accountable”. Some analysts see this as a revival of the politics of socialism.

In the UK, the IPPR Commission on Economic Justice, put together by the Institute for Public Policy Research, has noted that in the decade since 2008, the UK has witnessed stagnant wages, and rising household debts. It wants an end to the “shareholder-driven model of capitalism” and an embrace of higher minimum wages and the inclusion of workers on company boards. There’s a similar trend under way in the US.

A recent round of primaries ahead of the November mid-term elections points to the fact that the politics of the Democratic party is lurching to the left. Senator Elizabeth Warner (a Democrat from Massachusetts), who is considered a likely candidate for the 2020 presidential election, recently introduced the Accountable Capitalism Act, under which companies would have to recognise that their duties go beyond maximising profits for shareholders, and protect the interests of other stakeholders: workers, customers, and the cities in which they operate.

India is at the other end of the spectrum. Much of our polity is left-leaning; even the BJP, ostensibly a ‘right-wing’ party, is trapped in socialist policies. And for all of Narendra Modi’s proclamations that “government has no business to be in business”, his government has failed to deliver on the promise of “minimum government, maximum governance”. If anything, it’s the ‘crony capitalism’ model that has traditionally thrived in India. That too represents a failed capitalist model.

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