What is wrong with capitalism, Aleksi Neuvonen?

Increasing inequality, environmental catastrophe, fluctuating stock market. Global, critical rise in consumer prices and immoral power of corporate giants. Kylteri’s reporter Siiri Varis asked an expert of future’s societies: Can we trust in free markets anymore?

‍Aleksi Neuvonen, who has studied philosophy and afterwards, for instance, taught future studies in Aalto University, has a bright look in his eyes when he starts talking. “Free market economy was developed based on the idea of inexhaustible resources of the planet Earth,” he tells. The economic system, which is the current mainstream, arose from the will to model transfer and logics of resources in an environment where efficiency, labor force, and amount of resources could increase ad infinitum. “Our understanding of markets and economy rely on these narrow, history-based presumptions and now we are suffering the consequences of this error,” Neuvonen notes.

Neuvonen is known especially as the founder of think tank Demos Helsinki and a dependable expert in the field of societal change. He describes the present situation as an unpresented one, since digital goods have enabled truly global actors to be built up. However, recent crises have shown that smooth operability of physical trade has its value as well, for instance regarding food prices. “It is important to notice that we don’t have the tools to fully understand the changed economy,” Neuvonen reminds. In practice, we can’t model all the consequences of the crises, even though they can cause massive drawbacks.

Regardless of its imperfections, free markets also have positive effects. Open markets and mobility of goods and materials increase equality and create incentives in societies where liberties and responsibilities distribute evenly. In “fairly organized societies”, free markets enhance the distribution of wealth. Neuvonen mentions Nordic countries as a good example of societies of this kind, because here the investments in development work and education have been persistent. Citing economist Amartya Sen, flourishing society is the one in which individuals have the chance to build and use their skills, since it can lead to common good. Reasonable redistribution of wealth led by politics can enable this progression.

However, these societies have signs of the defects in the economic system as well. Burnouts distressing the labor force is one of these reflections. “The needs in societies are different than they used to be in the early days of capitalism. For instance, well-being does not necessarily increase hand in hand with economic growth anymore,” Neuvonen explains. When people have some prosperity, like they usually do in modern societies, they are not led by scarcity as they would be by living closer to subsistence income. To reflect needs truthfully, the economy and economics should address so-called soft values, like the factors affecting mental well-being.

Incorrect pricing system is not an issue only regarding mental health. Values supporting peace and environment are also excluded from prices. Nevertheless, the Reports by the Intergovernmental Panel on Climate Change and Russia’s invasion of Ukraine have aroused heated discussion on the role of economy and politics in the changed situation. It seems that it required a crisis to start the discussion aiming to reform the economic system.

“Undeniably, the economic system develops step by step,” Neuvonen states. Economy is a man-made system and humans prefer routines. Both national and international decision-making institutions are complex, but their actions become more straightforward under a crisis. When things don’t flow the same way they used to, discussions on strengths and weaknesses in the current system are forced to begin: “Naturally, these discussions do not ponder whether to shift from system A to B. Instead, there might be indicators or their reasonable interpretation methods on the table.”

Still, it is possible to prepare for a crisis. “Ability to imagine a future which does not follow the ongoing trend increases flexibility in surprising situations,” Neuvonen advises. Outlook on the future guides our present actions. From the economical viewpoint, political principles are based on the assumption of specific trends of markets, employment, and economic structure, even though the reality is not stable. “The more future scenarios we perceive, the better we can prepare for those,” Neuvonen concludes. “Everyone can read future scenarios, but should horizon exploration be included in the actions of every company and ministry?”