A capitalist economy depends on growth

Ulrike Herrmann: "Capitalism is growth"

Ms. Herrmann, what does capitalism have to do with growth?

In essence, it is about entrepreneurs investing in technology in order to produce more goods and services afterwards. The beginning of capitalism can be dated very precisely: the "Spinning Jenny", the first industrial spinning machine, was invented in England about 250 years ago. Suddenly every worker was able to make a lot more yarn and productivity increased incredibly. With that, the economy began to grow per capita, something that had not existed in the entire history of mankind.

Why England of all places?

At that time there were the highest wages in the world. The English were therefore no longer competitive and had to come up with a way of replacing the expensive workers. Technology is not used because you have it, but because it pays off. That is still true today.

High wages are the real engine of capitalism. They have to be high so that investments are worthwhile and there is technical progress - and they have to increase so that there are enough people who can also buy the many goods. Mass production needs mass consumption.

So capitalism made us rich?

Yes, but not from the start. When the first factories were built and people moved from the countryside to the cities, the proletariat initially became impoverished. The workers were poorly paid, and children and women were exploited as cheap labor. In industrial cities like Liverpool and Manchester, average life expectancy fell to just 17 years.

It was the unions that pushed through better working conditions, so that real wages rose. And because mass production made goods cheaper and cheaper, people could always afford more. We owe our current prosperity to capitalism.

What else has capitalism brought us?

A whole lot. Just four examples: As a result of prosperity, our life expectancy has risen to around 80 years, we live in a democracy, around 50 percent of a year graduate from high school, and equal rights for women are also making progress. In feudalism, the vast majority of the population had nothing to report, and it was unthinkable that every child should go to school.

In addition, these processes are not completed. Keyword equality: only now we have a Chancellor for the first time in the history of Germany, but it is foreseeable that she will not be the last. The social dynamic of capitalism is unbroken. Prosperity is pushing backwards, so to speak, and will continue to change society.

In which direction will this change go? At the moment the crises of capitalism are increasing.

We have had three major financial crises since the turn of the millennium, which is a clear alarm signal. After the collapse of communism, capitalism was thought to be the eternal victor and it was heavily deregulated. The state withdrew; the banks could do what they wanted. What we are seeing today is the perversion of capitalism.

The gap between rich and poor is widening and wealth is extremely unevenly distributed. In order to stabilize capitalism, politicians must urgently take countermeasures and ensure that wages rise again. Capitalism only works when everyone benefits. As I said: mass production requires mass consumption.

Another problem is the finiteness of resources. Does capitalism collapse when raw materials are used up?

I think so. Capitalism reaches two absolute limits: the environment and raw materials are becoming scarce. Capitalism is a system that needs permanent growth. This expansion is only possible if you constantly convert energy and raw materials.

"Green" technology isn't really green either. However, dwindling raw materials mean that further growth will no longer be possible at some point - and with that, capitalism will unfortunately have to disappear.

Many people try to save energy and raw materials and consume them consciously. Is that the solution?

No. If we all start buying less now, demand will drop and jobs will be lost. Conscious consumption is important to set an example, but it does not free us from the central dilemma: Without growth, the system collapses chaotically because there is no consumption - and this collapse cannot be imagined as peaceful. There would be brutal distribution struggles.

It's tragic: Theoretically, there are visions of another form of economy such as the sharing economy or an ecological circular economy. But so far the bridge that leads from current capitalism to this circular economy is missing.

You have to prevent such a serious crisis from occurring along the way that many people, in their desperation, vote for right-wing populists and democracy is endangered. We have 15,400 full-time economists in Germany, but not a single one researched how capitalism as a whole system could be transformed. We hit a wall, but nobody researches the braking distance.

Why is there a lack of such transformation ideas?

Because capitalism is not just a form of economy, but a totalitarian system. It influences our whole life: how governments come about, what childhood looks like, whom we choose as partners, how recognition is organized, how we spend our free time.

We are all so much part of this system that it is very difficult for us to come up with alternatives. But who knows. Perhaps history repeats itself and a new system is emerging without our noticing it ourselves. Nobody had planned capitalism either.