Transformations of entrepreneurial capitalism, crises and the need for a radical change in economic policy

The 2007 economic and financial crisis is by many measures the most serious since the 1930s. It cannot, however, be analysed as an isolated event separate from the series of crises that has characterized the capitalist system. Indeed, even though the current crisis shows some specific characteristics, its main causes are similar to those that triggered previous crises. In this study, we argue that we are experiencing a generalized economic crisis, as opposed to a financial crisis whose impact is felt on the real side via the traditional Keynesian transmission mechanism. As such, we identify the development of a number of both real and financial factors, whose combination should be recognized by any astute observer as a recipe for financial turmoil and recessions. In particular, we consider two parallel and ongoing practices that have transformed the entrepreneurial capitalist system and rendered it much more fragile and prone to crisis: (i) the financial deregulations-cum-innovations since the late 1970s have fundamentally changed the basic role of banks and financial institutions and created the possibility for financiers to (artificially) increase their wealth independently of the real production sector thus resulting in financial bubbles; and (ii) at the same time, prolonged austerity measures in most advanced capitalist economies have kept the productive capacity of these economies below full employment and therefore directly contributed to engineering recessions. We conclude that there is a need to rethink not only the type of economic policies in place but also the economic model.