Economics

What Would Karl Marx Think?


Karl Marx photographed circa 1880

Photograph by Imagno/Getty Images

Karl Marx photographed circa 1880

Remember when the global economy opened up with the collapse of the Berlin Wall and the fall of communism in the late 1980s? East Germany and West Germany were united. The Soviet empire broke up. China’s aging leader Deng Xiaoping outmaneuvered mandarins attempting a conservative counterrevolution following the tragedy of Tiananmen Square, keeping alive the nation’s embrace of freer markets. World trade has tripled from the early 1990s, reflecting the increasingly free flow of goods, capital, ideas, and people. Karl Marx’s reputation lay in ruins, smashed by the horrors of police states and the immiseration of ordinary people under communism.

Yet Marx remains incredibly relevant. Marx had a deep grasp of the inherent dynamism of the Industrial Revolution and capitalism, its promise to transform society, open up new opportunities, and create different ways of doing business. His insights are useful two centuries later for understanding another major upheaval, capitalist globalization, a catchphrase that captures the rapid integration of capital, technology, people, and information across national borders.

Here’s Marx and his co-author, Friedrich Engels, in The Communist Manifesto of 1848: “The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground—what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?”

All you need to do in 2013 is change the images, say, substituting “networks of quicksilver telecommunications” for the “canalisation of rivers.”

More important is Marx’s grappling with the dark side of capitalism. For example, he believed capitalism was a system of inherent instability. The recent global credit crunch and Great Recession set off a search for an underlying cause. Among the stories spun to explain the global downturn are asleep-at-the-wheel financial regulators, the investment madness of homeowners, and perverse government incentives. None of these reasons is satisfactory. More fundamental, sweeping research into longer-term causes echoes Marx’s perspective that capitalism and instability are two sides of the same coin. Even a cursory look at the past three decades in the U.S. alone shows “financial shocks as closer to commonplace than to exceptional,” observes David Romer, economist at the University of California, Berkeley.

The argument Marx made that is gaining adherents around the world is that capitalism has a built-in tendency toward the unfair and unhealthy distribution of wealth and income. “Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery,” he wrote in Das Kapital, Volume One, “at the opposite pole.” As J. Brad DeLong, economist at the University of California, Berkeley, puts it in a talk he gave called “Understanding Karl Marx”: “Most important, I think, are his observations that the benefits of industrialization do take a long time—generations—to kick in, while the costs of redistributions and power grabs in the interest of market efficiency and politically powerful rising mercantile classes kick in immediately.”

That’s too long to wait. Look at the popular demonstrations shaking governments in several major developing nations that clocked rapid economic growth and embraced the global economy. Brazil’s major cities have been rocked by massive protests over rising bus fares and other costs following a decade of healthy growth, with gross domestic product expanding at a 7.5 percent average annual rate from 2003 to 2007 and a 2.7 percent pace from 2008 to 2012. Street protests in Istanbul challenged the increasing autocratic government of Prime Minister Recep Tayyip Erdoğan. Turkey grew at an average annual rate of 9.2 percent from 2003 to 2007 and 8.5 percent from 2008 to 2012. Chinese citizens are voicing their anger online and on the streets, protesting land seizures and environmental damage. Over the past decade and a half, the Asian giant’s economy has grown sixfold. Growth has slowed in all of these economies with the global economic crisis of recent years.

Each of these protest movements has their local dynamic. Yet they also reflect a common concern: inequality, which has been on the rise since the early 1980s. From the mid-’80s to the mid-aughts, inequality increased in 16 of 20 rich OECD countries, calculates Branko Milanovic, lead economist in the World Bank research group. Inequality worsened in a number of developing nations such as China. Its Gini coefficient, an income distribution measure favored by economists, worsened from below 0.3 in the early ’80s to almost 0.5 currently. (The gauge ranges from zero to 1.) In the U.S., the ratio of chief executive pay including stock options to worker compensation was 29 to 1 in 1978, according to the Economic Policy Institute. The ratio peaked at 383.4 to 1 in 2000, and in 2012 it remained at a still lofty 272.9 to 1.

Those are the numbers. The hardship is painfully visible in the slums of Shanghai and the shantytowns of Rio de Janeiro. The dashed dreams of idle, unemployed youth in Madrid and Detroit. The growing fear among parents worldwide that their children won’t get to enjoy the middle-class opportunities for a good life represented by mass access to a good education, decent health care, and a reliable pension in old age. Meanwhile, the wealthy flaunt their expensive goodies, tooling around in Lamborghinis and Porsches, snapping up multimillion-dollar apartments in Manhattan and London, sending their kids to expensive private schools, and negotiating for lush lifetime pensions and health care long after they’ve retired.

In other words, Marx is a valuable intellectual resource for understanding the problems confronting the global economy, much as Adam Smith and John Maynard Keynes are. What’s different today from the global economic crises of the early 1980s, the mid-1970s, and the 1930s is that no one outside of an extreme fringe believes that capitalism is doomed and the proletariat is the vanguard of revolution. There’s nothing inevitable about the collapse of capitalism.

Instead, Marx’s core ideas are part of the mainstream conversation. For example, University of Chicago business school economists Luigi Zingales and Raghuram Rajan (the latter currently economic adviser to the Indian government) sound almost Marxist in their analysis of the main global threat to free-market economies, although their goal is to save free-market capitalism. “Capitalism’s biggest political enemies are not the firebrand trade unionists spewing vitriol against the system but the executives in pin-striped suits extolling the virtues of competitive markets with every breath while attempting to extinguish them with every action,” they write in Saving Capitalism From the Capitalists.

Marx the revolutionary prophet is dead. Marx the razor-sharp analyst persists.

Chris_farrell
Farrell is contributing economics editor for Bloomberg Businessweek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program Marketplace.

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