Democracy and capitalism are undergoing a crisis of confidence, as rising levels of inequality, corruption, and poor accountability have led citizens to seek alternatives. Free-market economies have been widely blamed for these ills, but some still argue that the free market promotes pluralism and protects civilians against authoritarian coercion.
The evidence that liberalism, which is a corollary of capitalism, is undergoing a deep crisis is overwhelming. The increasing loss of trust in basic government institutions by large majorities of the public, flagrant corruption among officeholders, and the rise of right-wing extremists are all symptoms of the crisis. At its core is the problem of inequality, where income disparities have widened in almost half of the EU Member States.
To argue that the crisis has arisen because "capitalism does not work for some people" is overly simplistic. This may be true in the US, where an alliance of politicians, ultra-wealthy individuals, donors, and business lobbies have propagated an ideology of national power, manliness, racial resentment, and anti-liberalism. However, it is not necessarily the case to the same extent elsewhere.
Anti-democratic populism has risen sharply all over the world. In some countries, pluralist democracy is being undermined in the name of "ending the era of globalist liberalism," as until recently in Viktor Orbán's Hungary. Vladimir Putin in Russia and Donald Trump in the US exhibit a still more extreme form of anti-liberalism with their cult of the strongman and messianic imperialism. These ideological aberrations are the 21st century equivalents of mid-19th century fascism.
The case against capitalism is based on two decisive elements. The first is that it relies on perpetual economic growth, fuelled by the accumulation of capital and the extraction of profit. Capitalism collapses without growth, yet perpetual growth on a finite planet leads inexorably to environmental disaster. The second element is the proposition that a person is entitled to claim the highest share possible of natural wealth, most of it in public goods. The scramble for exclusive control of scarce assets is often accompanied by violence or legislative restrictions on other peoples' rights. The economic and political power of a very small group of people is wielded to exert control over millions of people.
The supremacy of the right-wing economic agenda in the last two decades has led to a massive increase in wealth flowing to those wielding outsize political influence. The beneficiaries of this wealth manoeuvre to preserve it by keeping the government from protecting the public interest. They suck value out of the real economy, enjoy subsidies and financial incentives, and also float unsecured bonds to exploit the small savers.
Apart from being economically unproductive and inefficient, these practices yield unearned income known as "rents." According to the eminent American Nobel economist Joseph Stiglitz, rents can deepen economic inequality by concentrating financial benefits at the top, holding down incomes for those at the bottom or in the middle. Economic rents are very high in Malta.
Does this sound familiar to anyone? I think so. While there is no doubt that the high economic growth during the last decade or so was necessary to bring Malta nearer to the standard of living in the EU, it is equally crystal clear that private individuals have overly enriched themselves at the expense of the public good, have corrupted public officials, have captured or bent certain institutions to their will and are enjoying excessive rents.
The rents generated by the political privileges of the business elite not only fuel inequality but also distort the relationship between wealth and government. Both the elite and the government have compelling coinciding interests: the elite in reducing market competition between businesses, and the government in wiping out political competition from other parties. No wonder that the venture capitalist Peter Thiel declared that "competition is for losers" and "capitalism and competition are opposites."
Those who espouse unbridled capitalism have adopted the defence that, as consumption switches from goods to services in advanced economies like Malta's, economic growth can be decoupled from the use of material resources. Bonkers. Professors Jason Hickel and Giorgos Kallis of Barcellona University examined this premise and found that, while some relative decoupling took place in the 20th century, in the 21st century there has been a re-coupling. Rising resource consumption has so far matched or exceeded the rate of economic growth.
This is why Stiglitz, in an article in the New York Times, contrasted good capitalism (what he called "wealth creation") and bad capitalism (what he called "wealth grabbing" or extracting rent). It is true that capitalism, and the economic growth it drives, has improved the prosperity of vast numbers of people, but it has also destroyed the prosperity of many others.
Yet, it seems that we are all capitalists now. Even so-called "socialists" prostrate themselves before it. In "Capitalism, Alone," the eminent economist Branko Milanovic explains the reasons why capitalism is the only game in town. His conclusions are sobering, but not fatalistic.
Milanovic refers to the internal strains the system faces: economies are showing increasing income and wealth inequality, inter-generational mobility is declining, economic and social polarisation are widespread, and the elite's enormous wealth increasingly influences politics and weakens the democratic polity. Big changes in technology may well exacerbate the strains. It is not surprising, therefore, that there is a growing popular revolt across Western capitalist democracies.
What does the future hold? Milanovic says that while capitalism cannot be replaced, it can be improved by tackling the economic and political dysfunction of liberal capitalism. His prescriptions include deconcentrating capital and wealth ownership through tax advantages that give the middle class a bigger stake in financial capital, more taxation of the rich, higher taxes on inheritance, a significant boost in public investment to broaden access to high-quality education, strict limitations on donations to political parties, and higher controls on the ability of the rich to dominate the political process.
Capitalism cannot be de-invented, nor can we go back to feudalism or communism. So, what would a better system look like? I don't have the answer, but there are some very interesting concepts floating about. One of them is that of the "ecological civilisation" proposed by the author and integrator Jeremy Lent: a transformation of human society from an extractive, growth-obsessed system to one that works like a cooperative, interconnected, and life-affirming system.
Another is economist Kate Raworth's "doughnut economics." The doughnut has two concentric rings: one is a social foundation, such that no one is left behind in life's essentials; the other is an ecological ceiling, such that the life-supporting systems that sustain all life on Earth are not destabilised.
Yet another is Sir Jonathan Porritt's "The Five Capitals," inspired by the notion that money alone does not make the world go round. His model is one where financial capital is only part of the picture; the model also factors in human, social, natural, and manufactured capital. The rationale is that organisations can only operate sustainably if they maintain and, where possible, enhance these stocks of capital assets, rather than deplete or degrade them.
Other proposed systems also show a desire to expand the definition of "capital" and incorporate elements into capitalism that consider the welfare of humanity, the natural world, and the sustainability of the system itself. For example, Robert Heinlein, the science fiction writer and engineer, has proposed a Heritage Check System and Firewall Economics, both of which apply restrictions to the market economy and the control of banks and governments, with a view to steering us towards a more equitable system.
Discussion of such models in Malta is non-existent. Both main parties are happy to trade criticism and barbs on missing streetlights or road potholes but avoid serious political discussion on the corruption of democracy by capitalism. A small elite of rich people and capitalists deploy their financial wherewithal to buy politicians, political parties, mass media, lobbyists, and influencers. What started as a party is becoming an orgy.
The fact is that the relationship between capitalism and democracy is complex, often marked by both mutual reinforcement and underlying tensions. They can work hand in glove, but they also cause conflicts. The relationship tends to skew democratic decision-making toward the interests of the rich, sidelining broader public needs. Regulatory capture becomes common, as powerful people or lobbies influence the very agencies meant to oversee them. One only has to look at the incestuous relationship between the Planning Authority, the Lands Department and construction magnates in Malta.
As a result, public trust in institutions is being eroded, especially because voters feel their voices are drowned out by money. Disillusion with the economic-political entanglement challenges the foundational democratic principle of one person, one vote. Moreover, political campaigns require significant funding, creating undue dependence on private donors. Wealthy individuals or companies provide funds, objects, and services in kind to the political parties, often expecting favourable policies and contracts in return. This creates a pay-to-play dynamic in which elected officials prioritise donor interests over their constituents.
In reality, capitalism can entrench class divisions, limiting democratic participation among the disadvantaged. This creates resentment and political apathy among those who feel excluded. It is therefore no wonder that the latest State of the Nation report shows that public interest in politics has plummeted to its lowest point in five years, with just 30.8% of Maltese saying that politics is important in their lives. At the same time, a record 33.5% now say politics means nothing to them, while young people aged 16 to 25 years old are the most politically disengaged, with just 19.8% rating politics as highly important.
Many people have heard of Francis Fukuyama's declaration of "the end of history." By this, he meant that capitalism was here to stay and there was nothing anybody could do about it. There is also Mark Fisher's claim, in his book "Capitalist Realism," that "it's easier to imagine the end of the world than it is to imagine the end of capitalism." Their prognostication speaks volumes about the conclusion of the progressive Left that the chances of transforming society, let alone something as radical as ending capitalism, are minimal.
Frans Camilleri is an economist. He studied at Oxford and University of East Anglia, is a former corporate head at Air Malta, and has served on various public and private boards.