How Will Capitalism End? Wolfgang Streeck. 2016.
Professor Streeck, Director of the Max Planck Institute for Social Research in Cologne, begins with a review of the 2013 book Does Capitalism Have a Future? He notes that post-World War II democratic capitalism was based upon the shotgun marriage of markets to pursue economic growth and democracy to prevent market excesses, such as soaring inequality, financial crises, hardship of market losers, and externalities like pollution. Since the 1970s, the reasonable balance between these contradictory forces has shifted to market dominance that has resulted in decreasing legitimacy and increasing inequality and distributional conflict. Consequently, the five authors of the book share the conviction that a structural crises bigger than the recent Great Recession looms for capitalist society, and each presents his view of how it may come about:
- Wallerstein sees resource depletion, growing need for infrastructure, and demise of centrist liberal dominance as causing the final decline of the US-centered world order followed by a global confrontation between defenders and opponents of capitalism to determine what comes next. 2. Calhoun sees the possibility of a large-scale collapse of capitalist markets followed by a centralized socialist economy or Chinese-style state capitalism, although sufficiently enlightened capitalists could still intervene to save capitalism. 3. Mann sees US weakness leading to a shift of economic power from the West to the rest of the world with a move toward more statist economies that are jeopardized by unsustainable consumption and possibly even catastrophic change like nuclear war or escalating climate change. 4. Collins sees technological displacement of labor as having destroyed the manual working class in the twentieth century and about to destroy the middle class in the twenty-first century leading to unemployment of 50-70% finishing capitalism by mid-century and probably leading to socialism with or without violent social revolution. 5. Derluguian sees parallels with the decline of Communism due to internal political dysfunction from institutional and economic decline leading to fragmented social movements pitted against economic elites in the transition to post-capitalism.
The author sees all of these scenarios as contributing and reinforcing each other as capitalism collapses from its own internal contradictions. He suggests that what comes after capitalism in its final crisis, now under way, is not socialism or some other defined social order, but a lasting interregnium. This is defined as a breakdown of system integration that deprives individuals of institutional structuring and collective support and that shifts burdens for security and stability to the individuals themselves. Neoliberal ideology glorifies this breakdown of structured order and de-institutionalization as the arrival of free society built on individual autonomy. This neoliberal narrative neglects the very unequal distribution of risks, opportunities, gains, and losses that comes with de-socialized capitalism, including the “Mathew effect” of cumulative advantage. When this narrative no longer works, perhaps some crisis in middle class employment, as predicted by Collins, or some other wide-spread disorder will bring about the end of the post-capitalist interregnium and the emergence of a new order.
The trajectory toward financial crisis began in the 1970s, after three decades of successful democratic capitalism, when the profit-dependent classes reacted to declining post-war growth by rejecting the redistribution that provided the system with its legitimacy. With the loss of sufficient taxation, costs of dealing with the resultant distributional conflict were projected into the future, first by inflation in the 1970s, next by rising public debt in the 1980s, and then by increased private debt (with increased financialization) in the 1990s and 2000s, until the crisis of 2008. This was followed by central banks turning private debt into public assets, while overall indebtedness remained higher than ever.
Thus the post-war standard model of democracy transitioned to the neoliberal Hayekian model that substituted economic discipline for political legitimacy. This process was augmented by globalization that undermined labor’s bargaining power, increased the difficulty of taxation of mobile capital, and limited state control of finance. Consequently, five systemic disorders have befallen capitalism, including stagnation, oligarchic redistribution, plundering of the public domain, corruption, and global anarchy. With respect to oligarchic inequality, some of the rich already consider their fate as independent from the fates of the societies from which they extract their wealth. Hence, they no longer care to contribute to those societies. The ratio of average income between the top 400 taxpayers and the bottom 90% is 10,327 to 1, and the ratio of wealth between the top 100 households and the bottom 90% is 108,765 to 1. Corruption extends beyond the legal definition to gross violation of rules, systematic betrayal of trust, and monopolization of political power by extreme wealth.
All of this is discussed in the introduction of How Will Capitalism End? The following chapters are separate essays that considerably enlarge on these subjects and others, such as the European Union, the Euro, and the views of other authors. Selected excerpts from these chapters that are listed below will generally be limited to new or incidental concepts rather than restatements of the main points already discussed in the introduction:
- How Will Capitalism End? The “Matthew principle” governing free markets: “For unto everyone that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath.” Crisis symptoms for the industrialized countries featured slowing growth, rising debt, and rising inequality. Increasing government debt was related to declining overall levels of taxation rather than excess redistributive democracy, since it occurred during declining unionization, welfare-state cutbacks, and exploding income inequality. The capitalist victory over democratic oversight is Pyrrhic because it has destroyed the only agencies that could save capitalism by limiting its excesses.
- The Crisis in Democratic Capitalism. Standard economics is basically the theoretical exaltation of a political-economic social order serving those well-endowed with market power, in that it equates their interests with the general interest and hides the fact that the economy is also a moral economy. The average citizen will pay for financial stabilization in this system with his or her private savings, cuts in public entitlements, reduced public services, and higher taxation. Today’s democratic states are being turned into debt-collecting agencies on behalf of a global oligarchy of investors.
- Citizens as Consumers: Considerations on the New Politics of Consumption. The sustained growth after World War II was fueled by Fordist consumerism, which was satisfied by the mass production of standardized consumer durables like cars and refrigerators. By the 1970s, this market was saturated, and growth slowed. Capital attempted to restore growth by making goods less standardized and by developing new markets—essentially commercializing social life from supplying needs to supplying wants. Neoliberal capitalists have advocated this individualistic approach for politics, with the claim that privatization is superior to standardized collective action by government. However, collective goods like distributive justice and general rights are indivisible and cannot be commoditized, particularly for people with limited purchasing power. Citizenship demands generalized support to the community as a whole, particularly in paying taxes.
- The Rise of the European Consolidation State. The growing state debt of the 1980s resulted from a general decline in progressive taxability rather than from increased citizen entitlements. Nevertheless, the fiscal consolidation state of the 1990s was inspired by neoliberal politics to cut taxes and the state in favor of the private sector by offering citizens private credit as a substitute for previously free public services. Thus, the state shifted from protecting society from the vagaries of markets to protecting markets from the vagaries of democratic politics. This was facilitated in the US due to powerful anti-taxation politics and a constitutional commitment never to compromise its “full faith and credit.” Compared to the US, the European consolidation state has the disadvantages of continued popular support for distributive democracy and the lack of a hegemonic currency.
- Markets and Peoples: Democratic Capitalism and European Integration. The democratic states of the capitalist world have not one sovereign, but two: their people, below, and the international “markets” above. Globalization, financialization and European integration have weakened the former and strengthened the latter. Authoritarian market liberalism is now entirely shielded from democratic pluralism and can only act as the guardian and guarantor of a liberal market economy.
- Heller, Schmitt and the Euro. The European Union has moved the governance of the political economy to a multinational level where state democracy cannot follow. In this system, multistate authority protects markets from egalitarian-democratic infringement. Consequently, the European Central bank is the most independent central bank in the world with a mandate to protect the currency but no mandate for full employment. Hence, growth through egalitarian redistribution in the Keynesianism social welfare state has been replaced by growth through stronger incentives for the winners and more severe punishment for the losers in the Hayekian system.
- Why the Euro divides Europe. In Northern Europe, particularly Germany, growth came from exports, so those countries were wary of inflation and debt and had no need for currency devaluations. Indeed, the German economy has thrived despite numerous revaluations by competing on quality rather than price. In Southern Europe, growth and social peace were driven by domestic demand supported by inflation, budget deficits, and labor unions at the cost of decreased international competitiveness, which was occasionally made good by devaluations of national currencies. When the Euro replaced national currencies, southern countries acquired excessive debt but could no longer resort to individual devaluation. Consequently, the European Union, controlled by northern countries, had the power to impose punishing austerity on southern countries, particularly Greece, in the name of reform, although neither side had a claim to superior economic morality. This is in keeping with the finding of political economy that natural laws of the economy are in reality nothing but projections of social-power relations which present themselves ideologically as technical necessities. Thus monetary systems, as in the European Union, conform first to power and only secondarily to the market.
- Comment on Wolfgang Merkel, “Is Capitalism Compatible with Democracy?” Post-World War II democratic capitalism came about as a historical compromise between a then powerful working class and a then weakened capitalist class to restore markets and private property in exchange for steady economic improvement and social security for all. As capitalism recovered, it broke through this post-war democratic-institutional containment and gained primacy over the citizens it was supposed to serve well on the road to a “Hayekian dictatorship of the market.” In a 2014 essay, Merkel identifies many problems, including privatization, deregulation, growing neoliberalism, financialization, retrenchment of the welfare state, and the victory of shareholders over workers. He finds adverse consequences of asymmetric political participation by lower classes, rising inequality, financial pressures to turn countries into “market conforming democracies”, and transfer of power from parliaments to executives. Professor Streeck adds to this list declining growth, decreasing concessions from the rich to the poor, and ease of tax evasion by corporations and the rich. To restore democracy as a meaningful corrective to capitalism would require the daunting tasks of re-embedding capitalism in democracy (instead of the other way around) and de-globalizing capitalism, such as by finding a less destructive monetary regime than the EMU.
- How to Study Contemporary Capitalism? Modern society is capitalist society; hence an understanding of both sociology and economics is required for its study. The extensive discussion of this interaction that follows is briefly summarized here according to four points: 1. Capitalism is a dynamically unstable social system driven by and dependent on expansion and accordingly often in critical condition. 2. Conceiving of capitalism as a regime of rational action in response to material scarcity underestimates the role of socially generated imaginaries, expectations, dreams, and promises. 3. Capitalism is a political system driven by tension between a moral economy (social justice) and an economic economy (market justice). 4. Capitalism is a way of life shaped by interactions between market expansion, collective social values, and government social policy.
Capitalism legitimizes competition that deprives one’s peers of their livelihood by outbidding them and that has no ceiling for legitimate economic gain. The resultant fear and greed provide superior motivation for innovation that leads to continuous uncertainty, which in turn leads citizens to demand political intervention to stabilize their social existence against market pressures. This conflict is the very substance of politics in contemporary capitalism. Social justice claims that workers should have recourse to due process and should receive a good day’s wage for a good day’s work and that nobody should starve, be unattended when ill, live on the streets, or be poor because of old age. In recent decades, these claims have been trumped by market justice claims based on marginal productivity that has led to soaring inequality and undermined social justice. A key concept is “investor confidence” which is capital owners’ pronouncement of their self-diagnosed psychological condition to signal whether expected returns conform to what they feel entitled to. Political economy should be able to expose the market mechanism for what it is: the outcome of a struggle between conflicting concepts of and claims to justice, rather than between subjective morality and objective laws of what is technically possible.
- On Fred Block, “Varieties of What? Should We Still Be Using the Concept of Capitalism?” Post-war democratic capitalism with democracy to contain the excesses of markets was fragile from its beginning. Capitalism is powerfully capable of protecting and extracting itself from political control. When social constraints led to the profit squeeze of the 1970s, political control over capitalism began to decay with increasing globalism because democracies at the level of the nation state were helpless against capitalism’s new international opportunities for evading those constraints. Fred Bock’s view of capitalism as embedded in democracy and subject to its political control is not supported by the experience of the last four decades. This raises the question of whether intellectuals should spend their time developing reasonable ideas for governments to repair democratic capitalism or to cease looking for better varieties of capitalism and instead begin to seriously think about alternatives to it.
- The Public Mission of Sociology. The author believes the moment is approaching in which the foundations of modern society will again have to be rethought, like they were in the New Deal and after the Second World War. Since the 1980s, the victory of advocates for market-liberalism over the market-correcting capacity of popular democracy has had disastrous results. Financial deregulation has exacerbated distributional conflict and imposed unprecedented uncertainty. Consumption and destruction of nature in service of capital accumulation have threatened the global commons that is the very basis of life on earth. The political defeat of labor by capital has resulted in growing polarization between a large, impoverished surplus population of losers, overburdened middle class families, and a small elite of winner-take-all super-rich whose greed knows no limits.
The issues of democratic capitalism discussed in this book represents a blend of social and economic concerns. Yet sociology remained on the sidelines while market-liberalism economics (that happened to serve elites) dominated policy with the claim that it was a skilled trade like dentistry with a toolkit of proven techniques. Sadly, this brand of economics lacks concern for the social impact of its policies and overstates its status as a science, given its simplistic rational choice theory, unrealistic assumptions for models that lack empiric validation, and almost complete inability to foresee the 2008 financial crisis. Obviously, a balance must be struck between the needs of people and the needs of capital. Sociologists and political scientists, in alliance with heterodox economists of different stripes, have begun working on a new sort of political economy, a socio-economics that would again make the economic subservient to the social rather than vice versa. It is high time for the mainstream of the discipline to remember its roots and join the battle.