Is capitalism spinning out of control, like a funfair roundabout?
Max Planck social scientist analyzes trends, says Yes.
Without regulation, no system limits to greed, exploitation and implosion
The New School, home of economists who have a moral dimension as well as practical, has been lucky, judging from a recent class, to host Wolfgang Streeck, the German director of the Max Planck Institute for the Study of Societies in Cologne, in recent months as a guest lecturer Yesterday he gave a rundown on his latest paper to a class at the school.
“Has Capitalism Seen Its Day?” was the pertinent topic, one being widely discussed by the imaginative seers on the cutting edge of political economy.
The crisis carousel
Is Capitalism on its last legs? Are we all heading to an economic hell in a handbasket, stuck on a whirling roundabout that, like the carousel in Hitchcock’s Stranger on a Train, is going faster and faster out of control, one which will fling us all into the unknown as it finally leaves its axle bearings, ploughs into the ground and grinds to a halt in a disintegrating, destructive catastrophe?
Looks like it, if you believe social scientist Professor Streeck’s global analysis of capitalism and its flaws. Like many economic futurists, he cannot now see an end to the huge negative trends of the last thirty years without it all ending in a total collapse of the current social structure.
Five horsemen of the Apocalypse
Wolfgang Streeck sees five “incurable disorders”:
*Stagnation – widespread failure of economies to regain robust growth after 2008
*Oligarchic redistribution – the rich getting ever richer while the middle class sink to join the poor
*The plundering of the public domain – corporations and other actors in the private sector evading taxes while muscling governments for subsidies
*Corruption – the elite stealing money from shareholders, workers and public
*Global anarchy – societies boiling worldwide as people resist dictatorship and exploitation
“We are desperately looking for brakes” said Streeck, but he hasn’t found any so far. The shape of national economies and the way they work has radically changed since 1970. Debt is rising. In the US the ratio of public debt to GDP has zoomed since the crisis five years ago, after having risen substantially from 1980 to the mid nineties, yet with little effect on growth. “Keynes would have been concerned, since he would expect a countercyclical effect.” Total debt has risen from 4 1/2 times GDP in 1970 to double that in 2010.
Negativity times three
Global inequality has risen rapidly since the 1980s, according to the OECD, and the now celebrated French economist, Thomas Piketty, author of the current best seller “Capital in the Twentieth Century”.
This leave far behind the post WWII world when the claims of returning soldiers for education and housing were undeniable. Pay has stagnated since 1970 and now growth is stalled, which may be reinforcing inequality, since employers are less willing to make concessions when business is lacklustre With a high cliff of debt overhanging them both government and households tend not to consume, worsening the situation.
In other words, the trends seem to be mutually reinforcing: declining growth, rising debt and increasing inequality are intertwined. “What force could disentangle these trends,” asks Streeck. He says he can’t see it. “But I am a sociologist, not an economist”.
So what can we expect? “The possible end of capitalism as we have known it,” says Streeck.”Capitalism as a functioning socio-economic regime.” The working system, “where as Adam Smith defined it, the side effects of profit maximization, the private vices, led by an invisible hand to public benefits”, is now being destroyed.
What is need is containment, he said, referring to the work of the economist and radical critic Karl Polanyi. Polanyi held that labor, land or nature, and money are all “fictitous commodities” which are not really governed by laws of supply and demand, and if all restraint is withdrawn, their increasing commodification destroys their utility.
Polanyi said, past a certain point you have to protect these three resources, since beyond that point, where we overdo their commodification, in other words, allow market forces unrestrained influence over them, it causes great difficulties for the capitalist regime. “You need forces of opposition or containment to protect these three resources from total commodification”.
Unfortunately today the regimes which hitherto controlled all three markets for labor, nature and money have been destroyed. ” The institutional safeguards which prevented full marketization have been eroded.”
Where in the seventies we used to limit the time demanded of labor since then the hours worked per family has inexorably risen unchecked, with great effects on the family structure. “In France in the eighties, for example, there were many tools to achieve a 35 hour work week, and now that exists only on paper. In fact, we now have the French president assuring investors that they don’t have to worry about the 35 hour work week at all,” said Streeck. “The days when husbands and wives would each go to work only four days, with three days at home, are long gone.”
(What the clearheaded professor said rang true with this lapsed economist, who remembers coming to the US in the sixties just when academics at his Scottish university were confidently expecting a 30 hour work week in the US soon enough. Instead, the US work week seems to have expanded to double the time allocation per typical family, since wives now work full time just to make ends meet.
Another example might be the almost endless hours demanded of executives in the US who work via smartphone, with no respite even in bed.)
Markets out of control
Similarly market forces out of control have upset the energy regime needed to make sure that land use doesn’t destroy nature: we don’t know how to ration land use to make sure we don’t cause catastrophic global disturbance.
And of course as everyone now appreciates we have the disastrous lack of a stable financial regime imposing regulation on the production and ownership of money, credit and other financial instruments. Here the deregulation of the turn of the century led to the worst crisis since the crash of 1928, from which growth hasn’t yet recovered.
Instead of limits we have the unfettered “logic of expansion”, for which Streeck produced the resonant German word “Steigerungslogik”. Thus “a limitless supply of cheap credit was transformed into ever more sophisticated financial “products” and gave rise to a real estate bubble of hitherto unimagined size.”
Similarly the capitalist creed of limitless expansion runs head on into the finite supply of natural resources in nature, and overlooks the fact that with all the technology currently in the world the energy consumption of the US can’t be extended to the rest of the world without destroying the essential preconditions of human life.”
Will technology outrace the “advancing exhaustion of nature”? Streeck questions whether societies of “possessive individualism” can come up with the collective resources needed, or with the leaders and institutions needed in a “world of competitive production and consumption.”.
A car with no brakes
The world of money is now global and “there are no brakes any more,” said Streeck. Any problem such as the collapse of the US housing market is instantly transmitted to the rest of the world, as in 2008. Like labor and land, the money market is now international where it used to be national, ruled under national and regional regimes. “There are no boundaries any more, and there has been very, very little progress since 2008 in establishing regulation. Kyoto disintegrated, and international labor organizations are getting nowhere in limiting hours”.
The great economist Joseph Schumpeter once remarked that “capitalism is a car that has only an accelerator, and no brakes”, said Streeck, “and that is what we have. We are desperately looking for brakes.”
As the system undermines itself, we have no replacement, he said. “Larry Sommers last year told the IMF that we could expect continued stagnation. “We have fooled ourselves for thirty years,” he said. He may be right”.