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Book Review: ‘Does Capitalism Have a Future?’ by Immanuel Wallerstein, et al.

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Capitalism is in crisis and will come to an end after 500 years of dominance some  time in the next three decades. How this development will come to pass and the possible futures it may usher in comprises this collection of perspectives, disagreements and always interesting and thought-provoking ideas (about the real causes of the Cold War, and how it could have ended as early as 1953 but didn’t because Western Allies did not want a united Germany) by five eminent scholars, including Immanuel Wallerstein, the dean of world systems theory and one of the two men who in 1980s predicated the collapse of the Soviet Union. The books is composed of five sections, each written by a leading light in the field of historical sociology, presenting an argument why capitalism is in crisis and what the crisis scenarios may be in the future.

capitalismWallerstein’s theoretical presentation of the mechanics of capitalism opens this volume. Capitalism, Wallerstein writes, is, at its most fundamental, a system of endless capital accumulation. While capitalism faced crises in its existence before, several forces are coming together now that will make a return to equilibrium impossible in the near future, ushering in a grand crisis. All of these forces involve the rising costs of doing business and the declining opportunities for their externalization.

Wallerstein uses two central concepts of Kondratieff and hegemonic cycles in his exposition of capitalism’s inner dynamics. Kondratieff cycles are cycles of quazi-monopolies of leading products. Capitalists, in order to acquire profit, must create a quazi-monopoly. Competition cuts into profits so limiting it is the essential task of the capitalist. Because competition destroys profits, there is no such thing as a free market and there never was. Nor can there ever be such as thing as a free market; if profits are to exist, markets must be controlled in some way by the government.

There are two methods for creating a quazi-monopoly of leading products: innovation and patent laws. Although innovation does not always involve government, much private sector  innovation results from spillover effects of government-sponsored research and development. Besides patent laws, therefore, government can also create quazi-monopolies by sponsoring research and development and by buying advanced technology. The iPhone is an example of a leading product and it exists as a result of a quazi-monopoly of patents. Enforcement of these patents creates a chilling effect on the competition. Protecting patents of its leading producers and intellectual property in general is one way a hegemonic state protects its hegemony.

Because leading products are so profitable, however, they eventually attract determined competition. Another cause of the self-liquidating nature of quazi-monopolies are rising costs of production. Wallerstein suggests that a typical quazi-monopoly lasts about 30 years.

When a quazi-monopoly is breached, profits decline. Producers may respond to this loss of profits by outsourcing production abroad as well by as extracting wage concessions from their employees. Another option during a terminal phase of a Kondratieff cycle is financializaiton, or the abandonment of production in favor of financial engineering and speculation as a source of profits. Finacializaiton, however, undermines demand through debt crises.

We have witnessed both a significant drive to outsource production in the last 30 years and a wave of financialiation that ended in a giant speculative bubble in the housing sector. The crash of 2007 has ended the era of financialization and ushered in an era of austerity and crisis.

Outsourcing requires a measure of global order, thus Kondratieff cycles and hegemony are related. Capitalism is not possible in a single state but can only exist in a multi-state system. If capitalism were confined to a single state, holders of state power would appropriate all profits and eliminate the incentive for innovators to develop new products. If there were not states, however, profits would be impossible due to competition. The pursuit of profit is only possible if there are a number of states in the world economy. Hegemony is the ability of one state to impose an order on the rest. Disorder hinders capitalism because it destroys infrastructure and makes trade impossible. But hegemony, like any monopoly, is self-defeating because disgruntled loser states will not accept their lot. Repressing challengers requires treasure and sometimes military interventions, which eventually lead to overextension and collapse of the hegemon. War, of course, is another way hegemonies end.

The last hegemonic struggle was between Germany and the US and lasted  from 1873 to 1945, ending with Germany’s defeat and the rise of the US to an undisputed hegemonic status. Because Europe suffered grievous damage to her industry and faced famine, US products because leading-products protected by a natural monopoly — only the US could make them.

What of the Cold War? There really wasn’t one. Although the US and the USSR appeared to be facing a bitter ideological contest that could erupt into nuclear war seemingly at any time, in reality neither power had any intention of actually fighting the other. The Cold War’s rhetoric served merely to discipline client states into toeing the line for each power within its sphere of influence. It was all a cynical game, the consequence of a secret deal Wallerstein calls Yalta. It was there that the US and USSR decided on the shape of the peace that would follow the end of the Second World War and the shape of this post-war order would divide the world between two apparently antagonistic ideological camps. One could say that the Cold War was good cop, bad cop routine write large, which made it easy to control subject states. More seriously, the two powers engaged in a standoff, each hoping the other would succumb to its contradictions.

The need to revive the economies of Western Europe and Japan, least they fall under the spell of Communism, however, resulted in increased competition, putting the profit squeeze on US manufacturers of autos and electronics. The rise of economic competition has fueled the decline of America’s hegemony.

Going forward, capitalism will find it harder to return to equilibrium now because of several factors. If outsourcing provides a temporary escape from crisis by allowing a cut in costs of production, this is also a self-limiting process: wages eventually increase in low-wage sites. If outsourcing takes place in enough places, wages will rise everywhere, cutting off the possibility of more outsourcing opportunities.

Costs that previously have been possible to externalize are increasingly becoming harder to shift for capitalists to the public. Environmental and other safety regulation increase the cost of production. Capitalists may shift such production abroad, again, to locations where regulation and environmental protection are low, but eventually, even in these locations the costs of pollution will lead to regulation.

Capitalists have been able to escape these costs in the past by playing countries desperate for investment against one another, but this will become harder in the future. Other cost drivers will include demands for more healthcare, education and infrastructure, which will be transmitted through higher tax burdens on capitalists.

Wallerstein sees no way out from these contradictions and predicts an eviction of the US dollar from its perch as the world’s reserve currency some time in middle of this century. Fiscal crisis of the US state will no doubt follow, which will probably cause America to be evicted from its hegemonic position as well.

But there is a simple policy choice that could save capitalism, and this results from Walerstein’s own analysis — to increase profits in the core states, now suffering from competition from rivals in the periphery, more trade barriers are required. Such limits on trade and financial flows will restore the quazi-monopoly in the US and EU and rise profits in those zones of the world system.

Randall Collins’ essay focuses on the effects of displacement of middle-class work by machinery, a phenomenon which by itself will cause the crisis of capitalism, regardless of any other consideration, such as Kondratieff or hegemonic cycles.

In the past, there were five escapes available for capitalist systems in the face of pressures created by the replacement of labor by technology. First, new technology often created new industries which could absorb workers from the failing industrial sectors. Typists, for example, could retrain as computer operators, secretaries as software engineers and so on. Today, however, new sectors are not generating as many jobs as technology renders obsolete. And technology is penetrating into many sectors simultaneously, removing jobs everywhere but creating few. Even low wage jobs such as those of cash register clerks are being replaced by automated check out stations. Companies such as Google, Yahoo or Facebook, however, not only do not have significant labor needs, they want uber-talented employees rather than those who are average.

Second, jobs in the information sector, as well as some white collar jobs, have also become more competitive thanks to the fact that internet has made it possible for them to be outsourced. The world is become more interconnected and this increases competition, reducing labor costs. In the future, artificial intelligence will be added to the mix, further reducing the price human workers will be able to charge  and empowers willing to pay for their labor.

Third, finance is not an escape route because it requires a certain amount of capital to invest. With falling wages and increased competition, those who will no longer be necessary to the economy will find no escape in the idea of becoming investors and live off their trading income.

Fourth, technology will also reduce the need for works in government, closing that potential escape route as well.

Finally, education will become useless as credential inflation will continue as more enter the higher education system in the hopes of earning enough credentials to qualify for an increasingly smaller job pool. Indeed, the argument for increasing higher education access is really stealth socialism: in a political climate hostile to patently socialist redistributive policies, the cause of education, often championed by capitalists themselves, who trumpet the need for higher skills and rhapsodize the meritocracy of our high tech society, serves as hidden Keynesianism of make-work for the young. But this project of educating more and more runs into the problem of money — where will the money come from to make higher education more accessible? Higher taxes and bigger government are resisted by tax conservative and libertarian demagogues bent on shrinking government into oblivion.

The real crisis will hit sometime in mid century, as technology makes many more workers, perhaps as many as 50 percent unnecessary. But Collins’ view is unwarrantedly pessimistic.

One problem that Collins’ analysis suffers from is perhaps a lack of technological imagination. Technology will no doubt evolve in unexpected ways that will create new needs and thus launch new markets and leading goods quazi-monopolies. One escape route that Collins ignores, for example, is that of humans becoming minders for the machines that do the work. Even if artificial intelligence replaces professionals, for example in medicine — and software now exists that can make medical diagnoses — human doctors may still be valuable. Such a precedent exists today in the world of airlines: pilots, though they do not actually fly the airliner, are still necessary as minders of the complex systems that do the flying. Of course, this minder work my eventually be replaced by machines, but at that point, the purpose of humans in general will come into question.

Technology will also evolve in other ways that may be hard to imagine today, for example, allowing humans to meld with the machines, thus giving rise to smarter humans.

In general, because humans are social creatures, they will always want social interaction of some kind, which will limit the inroads of technology into markets and jobs and create new jobs in a world increasingly driven by smart machines.

Collins also ignores the factor of demographics, which is not trivial to his theory. For instance, crisis would also be averted or significantly moderated if there were fewer humans around, a distinct possibility in many countries facing demographic decline, for that decline in numbers would make jobs more plentiful. There is historical precedent in the Bubonic Plague in Europe that shows that a decline in population would actually increase the survivor’s incomes and economic well being — they would take over the plant and resources of those who passed on. In a similar way, smaller populations in richer counties will inherit massive physical plant as demographic changes arrive in full force by the end of the century.

Monocausal theories such as Collins’ are generally weak in explanatory power because there are so many other variables that determine the motion of systems and this second essay seems weaker than Wallerstein’s. Many of the critical questions that arise for the reader as she considers Wallerstein and Collins are elaborated in Mann’s essay.

Michael Mann offers a powerfully reasoned critical perspective on the chapter by Wallerstein and Collins, arguing that societies are better described by overlapping networks of ideological, economic, military, political relations. Each of these may have its own inner logic and dynamics, but these dynamics do not interact with one another in a systematic way. This means that we cannot identify any large scale systems, much less speculate about their dynamics. Complexity is heightened by the fact that nation-states and macro-regions differ, and crisis plays out differently around the world with some locations being affected more than others. He considers the case studies of the Great Depression and the Great Recession to make his points: in both cases, a crisis snowballed as a result of a chain of weaknesses reinforcing failure into a catastrophe.

Yet both crises did not form a tidal wave but filtered unevenly thought the world. In both instances, the right politics served as moderating mechanism against the spread of crisis. Neoliberal policies echoing the liquidationsit mania of the 1930, where enacted, caused exacerbation of the crisis. If it problematic to talk about world systems and cycles of such systems, and it is unclear what awaits the world as a whole, Mann is, however, certain that the US will lose its hegemonic status by the middle of this century as America suffers significant weaknesses in all four aspects of power: economic, military, ideological and political. A great deal of alienation of divisiveness exists, for example, in American politics, making enacting the most optimal policies impossible.

Unless Americans can overcome their differences, decline of the dollar will make it impossible for America to borrow to finance its spending, causing a fiscal collapse of the state. Mann’s main point is, however, that even if America were to suffer economic collapse, the rest of the world would not necessarily be harmed in the same manner or to the same degree. Capitalism would, he argues, go on. Crises are more likely to announce shifts in centers of gravity of power within the world system rather than play the roles as harbingers of its doom.

Mann takes issue with the idea that markets can become exhausted: markets are nothing more than needs and new needs, some arising as a result of technological change, may arise in the future leading to the creation of new leading products. The only way crisis could come about would be if innovation stopped while stagnation griped established industries or if new industries were not yet big enough to absorb enough workers. As in the period of the Great Depression, today new industries are not yet big enough to provide new jobs as established industries are under cost pressures and shrinking. But innovation, even if it stops in one nation or region of the world, will continue on elsewhere. Mann also points out that despite the incredible technical advances, the world has seen a rise in total employment, rather than a decline, a statistical fact that undermines Collins’ argument that technology causes and will cause decline in employment. And even if employment declines in the US, it will rise elsewhere.

The fourth section shifts gears, giving us an in depth analysis of the rise and collapse of the Soviet Union. Georgi Derluguian presents a narrative of the rise and unraveling of communist states in order to explore what the unraveling of capitalist states might look like and as a way of clarifying what communism really was by placing it in a macrohistorical context.

One of the interesting ideas contained in this analysis is how the USSR was doomed after the death of Stalin — there was no one who could command the vast command economy. In the absence of such a towering figure, government bureaucracies began to drift and policy began to be negatively affected by lobbying of various interests. The command model was unsuited for peace time, if it was effective in a time of crisis, when mobilization of resources toward a single goal was required.

And the Cold War could have ended after Stalin’s death too. Beria made attempts to join the West, but his efforts came to nothing, in part because the Western Allies did not want to see a united Germany in Europe.

The main tension in the Soviet Union was that between the nomenklatura and the entrenched interests of vast and obsolescent state enterprises it represented and the young educated specialists and intellectuals who wanted to reform the system and challenged the interests of the stalwarts who saw no option but to keep it going as long as possible.

Reading Mann in the context of this analysis, one wonders if such a tension will also arise in the future in the world-system as millions of highly educated college graduates today and in the future, facing the reality that their education will not lead to better life outcomes, will become the basis of an opposition.

Unlike Wallerstein and Collins, who are working in the core, Craig Calhoun plants himself in the periphery of the world system, arguing that, even if the core powers are in crisis, the world is very different outside of it. Asia, Africa and Latin America are not in crisis. In fact, economic momentum seems to be shifting toward these regions, leaving the core Western powers in crisis. The key question, then, is whether capitalism can survive in these regions even as it may collapse in the West. In fact, the revival of the system’s core may depend on the dynamism of the periphery. But the political process of periphery will have to find a balance between social needs and the needs and desires of capitalists.

Capitalism depends on its ability to externalize many of the production costs. In the core, regulation, something that neoliberals oft complain about bitterly, has reduced the ability of capitalism to escape the costs of production through externalization, cutting into profits. Indeed, one of the reason for globalization is that countries in the periphery, such as China or India, do not have environmental or many other regulations, making them attractive sites for investment. Capitalism can continue only as long as these costs will continue to be paid by societies. To the extent that neoliberal and libertarian ideas undermine the social context within which capitalism can profit, they undermine the continuation of capitalism.  This conflict is defining today in the periphery, where capitalism is doing better and where higher growth rates exist. In China, for example, air pollution is a significant issue. Similar environmental problems have grown through the periphery where unbridled capitalism was freed from regulation.

One of the key themes in this far-ranging work is that of the declining power of state as cause of the crisis of capitalism. Weak states, weakened by narratives of neoliberalism, have been unable to moderate the destructive activities of capitalism, which, unless contained once more, will likely lead to a crisis. The inability of western states, for example, to tax the 100 trillion dollars stashed away in tax heavens is one sign of just how little power states now heave vis a vis global capital. Unfortunately, the interests of capitalism in its unbridled variety are in conflict with the idea of a strong state, for such a state means regulation, taxation, and the limiting of the flows of capital and labor across international borders. Without such limits to trade, however, competition will continue to undermine profits and crisis will continue because quazi-monopolies will be impossible to establish and defend.

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About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • Preetiinder Dhillon

    No foolproof system or ideology has been created or invented yet which can deal with or overcome all problems and crises which hit us all from time to time. Weaknesses and shortcomings of the systems and the ideologies, compounded by human weaknesses and failures become major causes of crises.
    Mankind has survived so long on Earth not because of any ideology or system but because of the “Men of Crisis” who have taken command at right moment of the crisis and led people and nations out of the crisis situations.
    Nations who can have such “Men of Crisis” to lead them would always overcome all crises and rise to lead others who fail to do so.
    Persons of best abilities and characters are always most important than any system or ideology.
    The “Men of Crisis” in war or peace, business and industry, and in all major human activities would always be the most valuable assets of any nation. The quality of individuals a nation produces would always mark its position in the world.

    • bliffle

      But all men, even “Men Of Crisis”, are the cause of societal instability. We can’t NOT go right up to the edge of disaster, thinking, in our vanity, that we can pull back at the last minute and avoid catastrophe! And then it’s too late. Don’t you think that there were Nazis who thought they could let Hitler run his course and then THEY, the wise men, could pull back at the last moment? The fault is not in our stars, but in ourselves!

  • Dr Joseph S Maresca

    First, the trades will be needed far into the future. Infrastructure decay must be addressed or significant repairs must be completed. Thus, there is a continuing need for electricians, plumbers, carpenters, welders, concrete experts etc. Any profession that needs continuing onsite involvement will thrive. i.e. Civil Engineers, Nuclear Engineers, Electrical Engineers, Actuaries etc. There will always be a need for emergency medical technicians and extensive teams of physicians. In short, the professions will always be in demand-no matter the technology.

    The Great Recession and the historic frauds in the markets demonstrate a continuing need for Accountants, Auditors (Financial,Data Processing) etc
    far into the future.

    Teaching itself can be enhanced but teachers are needed to pull together the subject and coordinate different learning methodologies like small group discussions etc. Psychologists can attest to the fact that young students still need small group interaction with peers to mature without significant problems with child obesity, depression, drug experimentation etc.

    Outsourcing is not a panacea. What happens when there is a major earthquake, flood or typhoon? The whole business just disappears overnight. In addition, language translation is only about 70% accurate. There are significant risks here too.

    I see the problem of capitalism as outreach into starving markets. Capitalism must overcome political coercion and significant goal incongruencies between and amongst the various strategic constituencies it serves. When this happens, it will flourish. The Chinese have historic problems with weatherization, sweatshops and earthquakes. The Russians have 11 time zones. The peoples
    East of the Urals are widely disconnected from Moscow. The people West of the Urals are more acclimated to Europe and traditional capitalist markets.

    How this will resolve itself will be interesting over the course of the next decades. I haven’t even addressed the Arab World and the continuing tensions between Sh’ia and Sunny Arabs.

    If I did nothing but write until the end of my life, I don’t think that I could make a dent into these problems. Nevertheless, resolution has to begin somewhere.

  • Dr Joseph S Maresca
  • bliffle

    Economists have known for 200 years that capitalism is inherently unstable and bound to swing wildly between extremes. That’s OK with capitalists because they make money both ways: going up and going down. Capitalists have no interest in a stable economy, and they control politics as well as economy, so it will continue.

    Why is capitalism so unstable? Because it has excessive positive feedback (as any control systems engineer will tell you): the rich get richer and the poor get poorer, just like the typical poker game. As marginal players are forced out power is concentrated: mathematically, it’s a non-ergodic process: once you’re out you’re out forever. Thus does power accumulate in a few, and eventually one, barring revolution and widespread murder.

    Since we worship capitalism it will continue. And we have lost the power to call it back (that was non-ergodic, too).

    In a mechanical or electrical system the end-game is self-destruction, often in big explosions, smoke and fire. There’s no reason to expect better from our human social systems.

    The asymptotic future of man is self-destruction. Of course, we’ll destroy all living organisms, too, we’re already busy doing that, and return the earth to a dead planet.

    Of course, the good news is that we will answer Enrico Fermis 1950s question: “where are the alien life forms? Why are we not run over with them?” Fermi saw that the Urey-Miller experiments showed that it is trivial to create amino acids, the basis of life, from a few chemicals and some lightning strokes. Recent science shows life forms as soon as a couple hundred million years after the earth formed, 4 billion years ago, thus attesting to the ease of life creation.

    We are not as special as our vanity prods us to believe.

    The answer to Fermi must be that life forms, all life forms, are flambouyantly self-destructive, taking everything with them. And it happens very quickly, thus leaving a very small window to communicate within or to leave a historical record. Nobody will notice we were ever here.

    Very likely many life forms and civilizations have existed on remote planets (from the Law Of Large Numbers) but they matured very quickly and destroyed themselves. The Duty Cycle of life forms is very very small because the buildup is fast and the crash is even faster.