Growing inequality. An economic elite that has captured political institutions. The growth of a financial sector on the back of unsustainable asset bubbles. Increasing civil unrest and controls on individual rights and freedoms. These are all recognisable signs of the imminent decline of… market economies in 12th century Iraq, 15th century Italy and 18th century Holland.
Market economies, it seems, run through cycles. They begin with well-resourced and relatively equal economies in which people have the freedom to innovate. However, market dynamics allow the gradual accumulation of the vast wealth this generates into the hands of a small elite. To defend their interests, this elite seeks to control the political and information spheres; gradually excluding the mass of people. The result is that the innovation and dynamism that created the market economy in the first place is gradually throttled as the elites turn to financing asset bubbles rather than further innovation. In the final stages, the asset bubbles bust, the financial system collapses and the market disappears.
Our globalised market economy is unlikely to be any different according to Dutch professor of economic and social history, Bas van Bavel in his new book The Invisible Hand? How Economies have Emerged and Declined Since AD 500, the modern Western market economy is also well into the final phase of the decline cycle:
“The dynamism that results from the rise of factor markets leads to the rise of new market elites who accumulate land and capital, and use wage labour extensively to make their wealth profitable. In the long term, this creates social polarization and a decline of average welfare. As these new elites gradually translate their economic wealth into political leverage, it also creates institutional sclerosis, and finally makes these markets stagnate or decline again.”
If van Bavel is correct, then the global financial crash of 2008 marks the start of the final phase for the current US/UK/EU version of the market economy. The behaviour of the global elite in desperately attempting to maintain the failing system as it is rather than seeking the radical reform and redistribution of wealth that might save it means that our market economy is doomed to follow the same fate as all the others… it is only a matter of time.