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.
Wallerstein’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.