What we now call economics was once referred to as
political economy. This latter term
recognized the fact that the activities we associate with economics today
should be considered
in the context of the overall performance of
society. It was assumed that healthy
economies, in terms of production and trade, should be coupled with cultural,
legal, and national constraints to produce a healthy society. Political economy then becomes a domain
consisting of social scientists as well as those devoted to studying the flow
of money and product. Over time, the
discipline of economics has grown apart from this coupling with sociology. In fact, the neoliberal uprising in the
latter half of the twentieth century has resulted in the near elimination of
social issues except to the extent that they support neoliberal capitalistic
models.
Wolfgang Streeck seems a throwback to an earlier time in
that his primary background is in sociology, and he views economic antics in
the context of their interaction with society in general. This perspective produces a rather jaundiced
view of the path down which neoliberal capitalism is taking us. His views are summarized in a collection of
essays in his book How Will Capitalism End?: Essays on a Failing System.
Streeck is the director of the Max Planck Institute for
Social Research in Cologne and Professor of Sociology at the University of
Cologne. He is an Honorary Fellow of the
Society for the Advancement of Socio-Economics and a member of the Berlin
Brandenburg Academy of Sciences as well as the Academia Europaea. Although Europe is his home base, his view is
relevant to all. His reference to
capitalism as a failing system refers to all advanced Western economies. The United States, as the biggest and most powerful
economy, is also the baddest of the bad actors.
Streeck sees capitalism as a highly unstable construct
that is incapable of self-regulation and must be continually forced to remodel
itself as society and stakeholders, such as its needed workers, constrain its
behaviors.
“Capitalism has always been an
improbable social formation, full of conflicts and contradictions, therefore permanently
unstable and in flux, and highly conditional on historically contingent and
precarious supportive as well as constraining events and institutions.”
“In fact, the history of modern
capitalism can be written as a succession of crises that capitalism survived
only at the price of deep transformations of its economic and social
institutions, saving it from bankruptcy in unforeseeable and unintended ways.”
Early capitalism savaged itself and society with wild
periods of boom and bust as it was unable to live with unmanaged
competition. It moved on to forming
monopolies to control competitors and stabilize (maximize) profits. Society had to move in and apply constraints. It struggled for decades with labor movements
which eventually forced it to change its mode of operation and cede more of its
autonomy to social forces. In the early
twentieth century it was essentially ruled by government decree as it was used to
support two world wars. In the period
between the wars, capitalism failed to lead to stable societies in many
countries and succumbed to either fascism or communism. After the second war capitalism had generally
been left in a highly-controlled mode by governments following Keynesian
economic principles.
“Out of this grew the democratic
welfare-state capitalism of the three post-war decades, with hindsight the only
period in which economic growth and social and political stability, achieved
through democracy, coexisted under capitalism, at least in the OECD world where
capitalism came to be awarded the epithet, ‘advanced’.”
From about 1970 on, this equilibrium would dissipate
under a surge in neoliberal thinking and the combined effects of a series of economic
and social crises. Streeck highlights three
economic crises that followed this transition point.
“To be precise, three crises
followed one another: the global inflation of the 1970s, the explosion of
public debt in the 1980s, and rapidly rising private indebtedness in the
subsequent decade, resulting in the collapse of financial markets in 2008….This
sequence was by and large the same for all major capitalist countries, whose
economies have never been in equilibrium since the end of post-war growth at
the end of the 1960s.”
During this post-war period the acceptance of neoliberal
principles produced profound changes in capitalist societies.
“While in the 1970s governments
still had a choice, within limits, between inflation and public debt to bridge
the gap between the combined distributional claims of capital and labour and
what was available for distribution, at the end of inflation at the beginning
of the 1980s the ‘tax state’ of modern capitalism began to change into a ‘debt
state.’ In this it was helped by the
growth of a dynamic, increasingly global financial industry headquartered in
the rapidly de-industrializing hegemonic country of global capitalism, the
United States.”
The financial burden of debt would cause yet another
transition to what Streeck refers to as the “consolidation state.” If the level of debt was deemed to be
insupportable, then the only way to keep indebtedness in check was to scale
back government expenditures. This trend
was encouraged by the neoliberal crowd who believed that a strong market
economy and a strong society were one and the same. However, by diminishing the capabilities of
government and virtually eliminating any possibility of collective action on
the part of wage earners, capitalism weakened the sources of power that had
kept it from running off the rails in earlier times.
“The advance of neoliberalism
coincided with steadily declining electoral turnout in all countries,
short-lived exceptions notwithstanding.
The shrinking of the electorate was, moreover, highly asymmetrical:
those that dropped out of electoral politics came overwhelmingly from the lower
end of the income scale—ironically where the need for egalitarian democracy is
greatest. Party membership declined as
well, in some countries dramatically; party systems fragmented; and voting
became volatile and often erratic….Also declining is trade-union membership—a
trend reflected in an almost complete disappearance of strikes, which like
elections have long served as a recognized channel of democratic participation.”
In addition, the continued accumulation of wealth in the
hands of a very few that is an intrinsic property of market capitalism has
supported a herd of oligarchs who use their money to influence political
policies, and they use their philanthropy to recast society in a form with
which they are more comfortable. Streeck
quotes a conclusion reached by Jeffrey Winters in Oligarchy and Democracy.
Winters constructed a Material Power Index to assess the degree of
influence which the very wealthy possessed in comparison to the bottom 90% of
the population. Winters produced an interesting comparison. If one takes the wealth provided power of the
top 100 households and compares that to that of the bottom 90% (excluding home
equity) the ratio is 108,765 to 1.
“….this corresponds roughly to
the difference in material power between a senator and a slave at the height of
the Roman Empire.”
Is capitalism really heading toward some ultimate crisis
that will finally break its hold on society, or are we just moving towards
another transition point? Streeck points
out three trends that have been running in concert over several decades that
suggest the problems with capitalism are long term and intrinsic. He focuses on lower growth, increasing
inequality, and ever larger levels of both public and private debt. These are long-term global trends. The three feed off each other. For example, low growth justifies wage
stagnation, but wage stagnation and the inability to accommodate more debt
limit aggregate demand, leading to continuing low growth.
“….low growth contributes to
inequality by intensifying distributional conflict; inequality dampens growth
by restricting effective demand; high levels of existing debt clog credit
markets and raise the prospect of financial crises; an overgrown financial
sector both results from and adds to economic inequality etc., etc. Already the last growth cycle before 2008 was
more imagined than real, and post-2008 recovery remains anaemic at best, also
because Keynesian stimulus, monetary or fiscal, fails to work in the face of
unprecedented amounts of accumulated debt.”
Extreme inequality and low demand, which seem to be
coupled, leads the wealthy to seek essentially nonproductive ways to increase
their wealth. This is likely a source of
the extreme risk taking that has permeated financial markets. Wealth, with nowhere productive to go, bids
up asset prices and leads to bubbles and crashes.
There is certainly danger in the power of oligarchs to
influence society and government policy, but Streeck points out an additional
aspect of extreme inequality: the tendency of the very wealthy to view
themselves as above or at least separate from society. In fact, a new term has been conjured up to describe
such a situation: plutonomy. We have this definition from Wikipedia.
“Plutonomy is a term that
Citigroup analysts have used for economies ‘where economic growth is powered by
and largely consumed by the wealthy few’.”
A society in which a few extremely wealthy people
continue to make money while everyone else treads water and watches cannot go
on forever.
Capitalism has also created problems for itself by moving
market solutions into areas that should, and ultimately, must be controlled by
society. Following Karl Polanyi, Streeck
mentions the three “fictitious commodities” of “labour, land (or nature) and
money.”
“A fictitious commodity is
defined as a resource to which the laws of supply and demand apply only
partially and awkwardly, if at all; it can therefore only be treated as a
commodity in a carefully circumscribed, regulated way, since complete
commodification will destroy it or make it unuseable….Unless held back by
constraining institutions, market expansion is thus at permanent risk of
undermining itself, and with it the viability of the capitalist economic and
social system.”
Advanced nations are all struggling to deal with capitalism’s
commodification in these areas as they increasingly impinge on and alter the
nature and stability of societies. As
low growth persists in the economies, ever more complex and risky methods of
gaining profits are being pursued.
“….we may note that it was an
excessive commodification of money that brought down the global economy in
2008: the transformation of a limitless supply of cheap credit into ever more
sophisticated financial ‘products’ gave rise to a real-estate bubble of a size
unimaginable at the time. As of the
1980s, deregulation of U.S. financial markets had abolished the restrictions on
the private production and marketization of money devised after the Great
Depression. ‘Financialization,’ as the
process came to be known, seemed the last remaining way to restore growth and
profitability to the economy of the overextended hegemon of global capitalism.”
Streeck lists a number of predictions on how capitalism
might ultimately fail and require a reimagining of how societies must work in
the future. The two most compelling
thoughts involve inevitable crises involving land (nature) and labor. In the former case, global warming has the
potential to impose catastrophic changes on climate and the environments in
which nations must exist. This will
require advanced planning and resource allocation on a broad scale. Will states weakened by generations of
neoliberal market-driven propaganda have the strength to counter the profit-driven
oligarchs and their legions of lobbyists?
Can profit-driven capitalists be expected to come to their own rescue?
The world must also deal with an ever increasing
population with ever increasing demands on the earth’s resources. As more nations increase in wealth and demand
the right to have a lifestyle similar to that in the advanced countries, the
impact on resources will worsen. Again,
will profit-driven capitalists contribute to wise discourse on allocation of
critical resources, or will they counter any attempt to limit their profits?
The excessive commodification of labor may force society
to rise up and demand a new societal approach before climate change becomes
critical. Capitalism has brought increased
wealth to nations, but its decision to not share that wealth has led not to
increased prosperity and improved lives for the majority, but rather the
opposite.
“Deregulation of labour markets
under international competition has undone whatever prospects there might once
have been for a general limitation of working hours. It has also made unemployment more precarious
for a growing share of the population.
With the rising labour-market participation of women, due in part to the
disappearance of the ‘family wage,’ hours per month sold by families to
employers have increased while wages have lagged behind productivity, most
dramatically in the capitalist heartland, the U.S. At the same time, deregulation and the destruction
of trade unions notwithstanding, labour markets typically fail to clear, and
residual unemployment on the order of 7 to 8 percent has become the new normal,
even in a country like Sweden.”
The combined impact of automation and artificial
intelligence has yet to be fully felt.
There will be very few jobs for which human interaction is absolutely
required. It is the duty of a market-driven
capitalist to replace all humans with more reliable and cheaper options
whenever possible. Some sort of
intervention in the system will be required by society through its agent, the
government. Will profit-driven
capitalists be willing to address the problem by limiting their freedom of
operation or by limiting their profits?
Or will they fight against any such resolution? Who will win the day?
Streeck believes capitalism as we know it must eventually
disappear, but he does not profess to know exactly how or when it will
happen. And he does not expect the
transition to a new economic model to be quick or easy. Part of the problem will arise because there
has been, up to this point, no serious and credible proposal for how to replace
our current form of capitalism.
“Not just capital and its
running dogs, but also their various oppositions lack a capacity to act
collectively. Just as capitalism’s
movers and shakers do not know how to protect their society from decay, and in
any case would lack the means to do so, their enemies, when it comes to the crunch,
have to admit that they have no idea of how to replace neoliberal capitalism
with something else….”
“Before capitalism will go to
hell, then, it will for the foreseeable future hang in limbo, dead or about to
die from an overdose of itself but still very much around, as nobody will have
the power to move its decaying body out of the way.”
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