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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.

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.