Capitalism used to promise a better future. Can it still do that?

The greatest challenges to capitalism come when that promise begins to be questioned

By Richard Reeves | The Guardian | May 22, 2019

apitalism is intrinsically futuristic. The ideas that underpin market economies – growth, accumulation, investment – express an unspoken assumption, that tomorrow will be different, and probably better, than today. The question that murmurs through markets is not “What is good?” or “What is fair”, but: “What’s new?”

This future orientation is one of the most striking hallmarks of modernity. Pre-capitalist societies looked to the past – to founding myths, old religions and ancestral lines. Capitalist societies look to the future – to new inventions, broader horizons and greater abundance. “Oh, the places you’ll go!” is an ur-text of market capitalism.

Change is of course a mixed blessing. Opportunity and uncertainty go together. Critics of capitalism sometimes point out that it creates an uncertain future. Economic growth requires change and disruption – Schumpeter’s “creative destruction”, which can impose some immediate social costs. This is true in the details – nobody knows where market dynamics will lead us. Nobody predicted Facebook and Twitter. But it’s false for the overall picture. If the economy grows, as a result of market capitalism, we can predict with confidence that the future will be better than the present.

Capitalism has kept this promise quite well over the broad span of history. Compared with earlier periods in history, the material conditions of life have improved dramatically since the birth of capitalism. For the 500 years up to around 1700, economic output per person was flat. In other words, the median person in 1700 was no better off, economically speaking, than the median person in 1200. Work by the team at The World in Data, led by Max Roser, makes the point visually – and dramatically.

The idea of economic improvement is now so culturally embedded that even half a decade of no progress sends alarm bells ringing, let alone half a millennium.

“The past is another country”, is the opening of LP Hartley’s 1953 novel The Go-Between. “They do things differently there.” Hartley’s is a deeply modern though now uncontroversial sentiment. In previous eras, the past was almost exactly the same country, at least in economic terms, where they did things pretty much the same as now. In a feudal or agricultural economy, things today were likely to be quite similar to things a century ago, as well as to things a century later.

‘What will the US economy be like in 2020, or 2050? What jobs will it contain? A great deal of time and money is spent, both by governments and companies, trying to answer these questions, as well as they can.’

‘What will the US economy be like in 2020, or 2050? What jobs will it contain? A great deal of time and money is spent, both by governments and companies, trying to answer these questions, as well as they can.’ Photograph: Bilawal Arbab/EPA

But once the capitalism engine revved up, the future entered our collective imagination. Novels began to be set there. “Science fiction” was born. More practically, economic forecasting became an industry in its own right. What will the US economy be like in 2020, or 2050? How big? Growing how fast? What jobs will it contain? How many? A great deal of time and money is spent, both by governments and companies, trying to answer these questions, as well as they can (which is, inevitably, not very well).

For 99% of human history, a belief that life is going to get better – on earth, not just in heaven – would have been considered eccentric. Maybe my children would have more than me; maybe not. Either way, the condition of the future was unlikely to have much to do with human activities. This is why pre-capitalist societies tended to be deeply religious; a good harvest was in the hands of weather systems, which in turn meant it was in the hands of the Gods.

If the promise of a better future starts to fade, a vicious cycle sets in. Why save? Why sacrifice? Why stick at education for longer?

Marx accused religion of being the opium of the masses, distracting them from capitalist exploitation. But capitalism has steadily undermined religion by reliably promising that the future will in fact be materially better, and not because of divine intervention but because of the manmade market.

The greatest promise of capitalism is that each generation will rise, on the shoulders of the one before, as a result of the natural workings of a market economy. It should be no surprise that the greatest challenges to capitalism come when that promise begins to be questioned. If capitalism loses its lease on the future, it is in trouble.

Markets run on psychology. We work to live (see my previous essay in the series on work). But we also work in the reasonable hope that it will allow to us live better in the future, by getting more rewards out of the market as we grow in experience and skill, and by saving and so through what Keynes described as the “magic” of compound interest benefiting from general economic progress. At an individual level, we might say we are saving for a rainy day. But collectively, savings allow for capital accumulation, for investment, which spurs growth. As a result of these processes, we may even look forward in our later years to another modern invention: a “retirement”.

Economic progress spans across the generations, too, as parents see their children’s standard of living surpass their own, and then their children in turn. The basic human instinct to see our children flourish has been powerfully channeled through market-led growth. We work not only for ourselves, but for our children. We might invest in their education, so that their enhanced skills will mean a better life.

People will invest in a better future if – and it is a very big if – there is a good chance that it will pay off, that the system reliably delivers that better future. Capitalism not only produces a society focused on the future, it requires it. If the promise of a better future starts to fade, a vicious cycle sets in. Why save? Why sacrifice? Why stick at education for longer? If doubt creeps in, people may work less, learn less, save less – and if they do that, growth will indeed slow, fulfilling their own prophecies. The biggest threat to capitalism is not socialism. It is pessimism.

Right now, there are three big challenges to the capitalist promise of a better tomorrow: slower income growth for many across their own working lives and into retirement; diminishing odds that children will, economically, do better than their parents; and a deepening climate crisis.