Collapse of Capitalism and collision of high-speed trains on Beijing-Shanghai track….

Is the Capitalism heading towards a collapse as already predicted by many but most predominantly by Karl Marx? If yes, what are the catalysts? Not the Communist Russia or the ideology it stood for because USSR itself has already collapsed at the hands of a combined force of Capitalism and Islam. The former invested its capital and latter sacrificed its youth and the future of its coming generations. The collapse of USSR drained economic resources of the West and took away peace, reason and sanity from the Islamic world.

Karl Marx believed that the collapse of capitalism was inevitable because it had within itself the flaws that would destroy itself. The basic flaw was that the type of capitalism that modern industrialization created causes two separate warring social classes; the bourgeoisie, who were the owners and controllers of the means of production, and the proletariat, who were the common workers. These classes were naturally at odds with one another and as capitalism grew, it would create more and more common laborers until they would so outnumber the bourgeoisie and be so tired of oppression that it would revolt against the bourgeoisie and overthrow it as the dominant class. Marx felt this would happen no matter what was done to stop it. He was wrong.

But the things are not happening the way Karl Marx saw them.

According to an article in Foreign Policy, the crisis of capitalism that erupted with the 2008 financial bust has very much to do with all of seemingly disparate events like the Arab Spring, intensification of Western economic crisis, rise of the Tea Party and the growing ascendency of China. During the long boom period from 1980 to 2008, mainstream thinking ignored the principles of political economy laid out by Adam Smith, Karl Marx, and John Maynard Keynes. Instead, we got monetarism, free market ideology, Alan Greenspan’s facile notions of a “new economy,” and even the often self-serving hype about China’s ability to rule the world and sustain global prosperity. Today, we can see better how the crisis of 2008 and 2009 marked the end of one era and the start of a new and still very uncertain one.

Smith, widely seen as the father of modern capitalism, had been convinced that public institutions were essential to a well-functioning market economy. But Marx in particular resonates today — not for his predictions of capitalism’s collapse, but for his analysis that “contradictions” between capital and labor would lead to recurrent economic and political crises, and social conflict. And Keynes continues to loom larger than life as a reminder that crises in capitalism need not be terminal.

The 2008 eruption demonstrated the hollowness of claims made by economists and politicians in the 1980s and thereafter that lasting stability and prosperity would be assured by low inflation, free markets, and unfettered globalization. The last quarter-century of faulty economic thinking has left us with a sour and acrimonious legacy, including the need to reduce the dead weight of 25 years of accumulated debt; the loss of credit creation, housing, and financial services as leading drivers of growth; rising income inequality; and a populist backlash against political and financial elites. The crisis shocked the pre-existing economic and political order on a scale unseen since the 1930s. The fabric of globalization, which had been stitched together around the so-called Washington Consensus, began to fray.

If you look at the 2011’s international developments from a proper perspective, everything will start falling in place. It was perhaps inevitable that the weakest links, the Middle East, in the global system suddenly became much more vulnerable. There is little question that the crisis has drained U.S. economic power and legitimacy, a dynamic that has been aided and abetted by a rising China. As the United States confronts economic, demographic, budgetary, and populist constraints over its global role and power, “American decline” has gone from fringe theory to conventional wisdom in a few short years.

The United States is on its back foot and under increasing pressure to readjust its global position  like its withdrawal of support to Egyptian dictator which emboldened opponents of regimes elsewhere — for example, in Bahrain, Tunisia, and Yemen — to call for their rulers’ overthrow. But the conditions for the Arab Spring already existed long ago and the spark for these conditions to explode into a revolution came with soaring food and energy prices. Here, too, the fingerprints of the beleaguered and debt-ridden Western economies can be found. The reaction of the U.S. Federal Reserve and other central banks to the aftermath of the financial crisis by adopting emergency stimulus measures known as “quantitative easing,” contributed to the rising food prices that proved decisive for the revolutionary movements.

Printing money undermines confidence in paper currencies, including the U.S. dollar, and prompts investors and companies to buy real or physical assets, including metals, energy, and agricultural commodities, as a hedge against currency losses and fears of rising inflation.  The consequences of the crisis in Western capitalism are also having repercussions in China, which was the biggest beneficiary of the pre-crisis political and economic order. Political unrest in China has so far remained manageable: The country’s “jasmine” human rights protests earlier this year proved ineffectual, and food price-related disturbances have also fizzled out. Much bigger matters of economic stability and political legitimacy are stalking China, however.

According to the report, China’s capitalist model has delivered unprecedented economic success over the last quarter-century. But it is a model that is now flawed. The slump in Western demand caused China’s export industries to shudder in 2008 and 2009, with exports declining by over a third in the year to the first quarter of 2009. Thousands of factories in the Pearl River Delta shut down, and 20 million migrant workers were reportedly forced to return to rural areas for lack of work. China recovered quickly due to a stimulus program worth about 14 percent of its GDP and the global economic bounce last year, but exporters now face a very different world dictated by anemic Western consumption and growth prospects. Moreover, the explosion of credit creation since 2008 and the unsustainable rise in investment and residential real estate spending are sowing the seeds of rising inflation.

In some ways, this July’s high-speed rail tragedy on the newly opened Beijing-Shanghai line serves as a metaphor for China: It’s a high-speed economy with (capitalist) design faults that, sooner or later, will result in an accident. There are already strong signs that the quality of investment, and of investment financing, is deteriorating. Left unaddressed, these trends might well validate Marx’s prediction that investment booms, endemic in capitalism, end up in overproduction and under consumption, and then social conflict.

China has limited time to effect a radical political and economic shift. It has to take power and privilege away from state-owned companies, coastal regions, and regional party elites. It must also de-emphasize capital investment, which currently accounts for an unprecedented 50 percent of GDP. And it has to prioritize a bigger economic weight for household consumption, which accounts for a mere 35 percent of GDP, a fairer income distribution, better employment for China’s annual flow of 6 million graduates, the rights of rural migrants, and the neglected countryside.

If this shift doesn’t start in earnest soon, the Chinese economy will succumb to a credit and investment bust from which significantly slower growth would follow. This will be especially sensitive in a China where incidents of social unrest are increasing significantly in number, intensity, and breadth. In the absence of the rule of law and other critical social institutions, the state’s assurance of steady and persistent annual growth of 8 to 10 percent represents a social contract. If it is broken, China could suffer significant political repercussions.

Rebalancing in China promises to be an intensely political, as well as economic, process. There is great uncertainty as to whether the Communist Party’s reputation for pragmatism will stand up to this challenge, especially if China’s “princelings,” the children of the revolutionary leaders, increase their influence in the new leadership. Should China fail, its economy is at risk of stalling out in a few short years — a development that would make this tumultuous year appear to be the calm before another storm.

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