Social Contract: Capitalism Promises Much, Guarantees Little

Author: Donatella Pauković

September 12, 2024

From a collection of various crises linked to experience-suppressed inflation, we have forgotten that we have been continuously living a crisis economy since the last financial crisis. At that time, the small cracks in the globally prevailing economic system, that of capitalism, became somewhat more visible. The fact is that we are living a reset of the globally prevailing socio-economic system. Those of us who have emerged from a system of opposing ideas know that it had an embedded calculation: you have one party, one leader, one thought; in return, a job, salary, housing, education, pension, healthcare, and peaceful Bosnia are guaranteed. All ‘for free’. So, do we have the right to expect some minimum from capitalism (which)? Or is everything just based on merit?

That the re-examination of capitalism, what it delivers to the inhabitants of the globe, with certain expectations, was conceived in 2008 is confirmed by Kristijan Kotarski from the Faculty of Political Science.

– In the greatest crisis since World War II, it was shown that the financial system is untouchable, that profits are private, and losses are national. In addition, a huge amount of money was injected into the system, at the expense of rising public debt, with the level of debt starting to grow faster than GDP, and this trend has remained to this day. The inflation of the financial bubble began with mortgage loans, indirectly with the real estate market on which everything broke. Today, even in the bastions of capitalism, trends that undermine faith in the system are being re-examined, especially among Generation Z and millennials. Housing is becoming increasingly inaccessible to young people, which strengthens the feeling that capitalism has betrayed them. What they do not see is that it is not capitalism that has betrayed them; rather, it is the interference of the state that has let them down – explains Kotarski.

The system has moved far from the form it had in the 1970s, as Viktor Viljevac from the Zagreb Faculty of Economics reminds us. At that time, productivity growth led to wage growth and the prosperity of ‘capitalism’s inhabitants’.

– The prosperous period of the Golden Age of capitalism, which began after the end of World War II in 1945, ended in the early 1970s when the gold standard was abolished and when there was a sharp rise in oil prices following the outbreak of the Yom Kippur War (the first oil shock). This was a period of rapid productivity and GDP growth in Western Europe and the USA, where wage growth followed productivity growth. This is important because it means that the growth of labor productivity did not lead solely to greater enrichment of capitalists but also spilled over into an increase in the standard of living for workers. However, this is not a universal economic rule. Trends such as the weakening of unions and globalization in recent decades have increased the power of companies over workers and contributed to the decline of labor’s share in GDP in the USA and Western European countries – specifies Viljevac.

So, do we have the right today to expect some minimum from the most market-oriented economic system? Read in the new printed and digital issue of Lider.

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