How Will Capitalism End?: Essays on a Failing System Hardcover – November 29, 2016

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 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:1. 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. 2. Calhoun sees the possibility of a large-scale collapse of capitalist markets followed by centralized socialist economies or Chinese-style state capitalism, although intervention by enlightened capitalists is still possible. 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 still jeopardized by unsustainable consumption and possibly even catastrophic change like escalating climate change or nuclear war. 4. Collins sees automation as having destroyed the manual working class in the twentieth century and about to destroy the middle class in the twenty-first century with unemployment of 50-70% finishing capitalism by mid-century and probably leading to socialism with or without violent social revolution. 5. Derluguian sees 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, stagnation, oligarchic redistribution, plundering of the public domain, corruption, and global anarchy have befallen capitalism. 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 long 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 are listed below:1. How Will Capitalism End? 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. The capitalist victory over democratic oversight is Pyrrhic because it has destroyed the only agencies that could save capitalism by limiting its excesses.2. The Crisis in Democratic Capitalism. Neoliberal 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. Today’s democratic states are being turned into debt-collecting agencies on behalf of a global oligarchy of investors.3. Citizens as Consumers: Considerations on the New Politics of Consumption. Neoliberal capitalism makes 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.4. The Rise of the European Consolidation State. In the 1990s, neoliberal politics cut taxes and the state by offering citizens private credit as a substitute for previously free public services. This was facilitated in the US due to powerful anti-taxation politics and a constitutional commitment never to compromise its “full faith and credit.” Consolidation in Europe had the additional disadvantages of continued popular support for distributive democracy and the lack of a hegemonic currency.5. Markets and Peoples: Democratic Capitalism and European Integration. Globalization, financialization, and European integration (the EU) have strengthened authoritarian market liberalism so that it is now entirely shielded from democratic pluralism.6. Heller, Schmitt and the Euro. In this system, multistate authority protects markets from state-level egalitarian-democratic infringement. Consequently, the European Central bank is the most independent central bank in the world, and egalitarian redistribution has been replaced by stronger incentives for the winners and more severe punishment for the losers.7. Why the Euro divides Europe. When the Euro replaced national currencies and the EU replaced national governance, southern countries were no longer able to deal with inflation and budget deficits by occasional devaluations. Instead, northern countries that controlled the EU imposed austerity in the name of reform. Natural laws of the economy cited in the north are in reality nothing but projections of social-power relations which present themselves ideologically as technical necessities.8. 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. As it recovered, capitalism broke through this democratic containment. In a 2014 essay, Merkel identifies many problems which could be addressed by re-embedding capitalism in democracy and de-globalizing capitalism, such as by fixing the EMU.9. How to Study Contemporary Capitalism? An understanding of both sociology and economics is required. An extensive discussion notes capitalism’s instability, dependence on expansion, overly simplistic rational action theory, and competing social and market justice. Fear and greed in capitalism lead to continuous uncertainty, which in turn leads citizens to demand political intervention for stability and 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.10. On Fred Block, “Varieties of What? Should We Still Be Using the Concept of Capitalism?” When social constraints led to the profit squeeze of the 1970s, political control over capitalism began to decay. Democracies at the level of the nation state were helpless against capitalism’s new international opportunities for evading those constraints. Fred Bock’s relatively optimistic 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 search for reasonable ideas to repair democratic capitalism or instead begin to seriously think about alternatives to it?11. 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 market-liberalism over the market-correcting capacity of popular democracy has had disastrous results, including unprecedented financial uncertainty, soaring inequality, and threats to the global commons. 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 models, unrealistic assumptions, lack of empiric validation, and 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.

Comfortably the most provocative thing about this book is its title.Away from that, this collection of twelve essays on the decline of the market economy is very sober and sedate. It’s certainly no call to arms! Neither its content nor its style relate in any way to the sundry cod-revolutionaries who endorse it on the cover; Streeck, a serious sociologist, is nothing like them!His answer to the question he asks on the cover of the book can be summarized in a rather apologetic “we don’t know for sure that capitalism will end, we just know it’s in trouble.”He does not foresee a new world order and he does not propose an alternative system. He merely predicts that the current struggle between what he calls “democracy” and “market forces” will remain unresolved, leading to permanent instability and unpredictability, with all that entails.The basic assumption in the background of the book, never fully articulated (the best effort to do so is in Chapter 8), is that the capitalism system as we know it (the kind that 1. helps us best to decide where to allocate our marginal resources and the kind where 2. democracy and market forces have worked in relative harmony) is a special type of system that can only thrive if it is hosted and supported by strong institutions, including a government that sets and enforces basic rules and regulations regarding what it is we’re allowed to own, whether we’re allowed to transfer ownership, how much market power businesses are allowed to exercise, what happens if we fail to stick to our side of a bargain etc. etc. This not being a naturally-occurring system, its institutions need continuous support from society, and the support has (perversely) often come via the resolution of internal or even external conflict. Conflict that has certainly been absent since the “end of history” in 1989, for example.In the author’s own words, capitalism “was always a fragile and improbable order and for its survival depended on ongoing repair work. Today, too many frailties have become simultaneously acute while too many remedies have been exhausted or destroyed. The end of capitalism can then be imagined as a death from a thousand cuts.” (p. 13) He goes on to state the main theme of his book as follows: “For the decline of capitalism to continue, no revolutionary alternative is required, and certainly no masterplan of a better society displacing capitalism.” (p. 14) Between now and the “end of capitalism” Streeck basically predicts a Dantean purgatory: “A society in interregnum would be a de-institutionalized or under-institutionalized society.” (p.14)The most dire prediction you will find here is that “the social world of the post-capital interregnum, in the wake of the neoliberal capitalism having cleared away states, governments, borders, trade unions and other moderating forces, can at any time be hit by disaster.” (p. 14)My favorite essay is not the one that gives the book its title. Comfortably the most lucid piece here is chapter 9, “How to Study Contemporary Capitalism.” It is in this well-considered chapter that the author best summarizes his (perforce, in a collection of essays, oft-repeated) narrative that takes us from the apogee of the system around 1970 to its near-death experience in 2008:“After the end of post-war growth, governments in the ‘free world’ avoided conflicts with strong trade unions over wage increases and unemployment by allowing for high rates of inflation. Inflation, much like credit, served to pull forward in time as yet non-existing resources, enabling employers and workers to realize in nominal money terms claims whose sum total was in excess of what was in fact available for distribution. While workers believed they were achieving what they perceived to be their moral-economic right to a steadily rising living standard combined with secure employment in their present jobs, employers were able to reap profits in line with expectations of a proper return as established in the decades of post-war reconstruction. As inflation continued, however, it devalued accumulated savings and increasingly distorted price relations. Its conquest in the early 1980s, in the course of the ‘Volcker revolution, did not bring stability, however. Instead, it ushered in a period of rising government debt as electoral politics substituted for collective bargaining as the political-economic mechanism of the time for mobilizing surplus resources to pacify otherwise disruptive distributional conflict. When this, too, became unsustainable in the 1990s, consolidation of public finances could be undertaken only by giving households access to deregulated private credit, allowing them to compensate for stagnant incomes and rising inequality by borrowing on their own account.” (pp. 214 – 215)The essays in the book take turns in looking at the events of this period through a number of the favorite “lenses” of socialist theory.Chapter 3, for example, expounds the well-worn theory that for the longest time Soviet communism and American capitalism were busy delivering pretty much identical outcomes to their citizens. It was allegedly only at the point where every Russian household and every American household alike were equipped with (for example) a washing machine that the outcomes bifurcated. Capitalism at that point stopped fulfilling “needs” and moved on to “wants” and became a mechanism to create new consumerist “wants” for its citizens who would not have felt the urge to buy these goods and services if they had not been prodded to do so.With only 2% of the US workforce working in agriculture today managing to not only feed the entire US population, but also rendering the US the largest food exporter on earth, I think the argument is stale. Pakistan has 70% of its population working in agriculture and my home country of Greece is at the geometric mean of the two at 12% and I’ll tell you people are applying for green cards from both (and both countries, unlike the US, are net importers of food too!) The fact that the US has 98% of its workforce to spare after it’s grown its food does not strike me as a failure. Neither do I think the work they do is inferior in interest to that performed by the guys who work at Monsanto or the sundry mercantile exchanges, to say nothing of the 0.6% of the US population that actually gets dirt under its fingernails. The argument extends even better in my view to manufacturing, Donald Trump’s (and presumably Wolfgang Streeck’s) objections notwithstanding.Similarly, the book laments the fact that women have been forced to join the workforce (allegedly so the family unit can keep spending –the author refuses to acknowledge that they may get positive utility from working) and even hints that people today are acquiring education as a means to an end (spending) rather than because they want to. All a matter of opinion, of course, but mine differs rather vehemently form Wolfgang Streeck’s. I did a math degree at the age of 31-33 and God knows I had nowhere to go with it. I just loved doing it. I’m 100% sure I was not alone and 99% sure I’ll never use the stuff I learned and have already forgotten. It was consumption, alright, but my brain was doing the consuming and I had a ball.There is a collection of chapters (four in total) that concern themselves with the situation in Europe. The European bureaucracy, chief among its institutions the ECB, is correctly identified as the ersatz European government and is accused of putting the interests of capital ahead of the interests of the citizens.The author is exactly correct to say that the European institutions tend to identify more with the lender (typically a northern European bank or pension fund) than with the borrower (typically a Mediterranean government). He is equally correct to identify that democratic process was suspended when the elected governments of both Italy and Greece were supplanted by banking-friendly technocrats.He fails, however, to observe that when push came to shove, the ECB used all its authoritarian independence not to enforce rules, but to pander to the sundry borrowers. It did so, moreover, in a manner no sovereign government could ever hope to emulate. For all of Wolfgang Streeck’s protestations, the institutions he decries (perhaps in self-preservation) have printed trillions of EUR, precisely to allow the struggle between “democracy” and “market forces” to remain unresolved. That’s what “kicking the can down the road” has been all about, and it’s the most august of institutions to whom this has been delegated.The role of the objectionable institutions at the center of Europe has thus been dual:1. First, a mechanism for sovereign EU governments to avoid political accountability to the individual electorates when passing tough measures, a way indeed to bypass the democratic process.2. Second, a mechanism for sovereign EU governments to avoid political accountability to the individual electorates when letting off the hook those who cannot pay. Germany would never have bought Italian bonds. Along the same lines, the UK would never have sent money to Ireland, much as that was necessary to end the era of IRA terrorism. All that money has been channeled through the institutions of the EU.The failures of the ECB have in my view not come from its mandate or from its attitude to state borrowers. The ECB has actually failed in a much more fundamental role, that of keeping its eye on the banking system: it let German and Dutch banks gorge on both US subprime and Mediterranean govvies, while allowing the Spanish and Italian banking system to take full advantage of the “exorbitant privilege” to create EUR.In what has to be the most unsung string of financial crimes in history, we ended up with Spanish owners for companies as diverse as Hochtief, all of the UK’s civilian airports, the Argentinian phone company etc. etc. all while the Spanish banking system defaulted on hundreds of thousands of depositors whom it duped into buying its subordinate debt. Similarly, Michele Ferrero (purveyor of fine chocolates to the ambassador’s reception) died in Monte Carlo and the Agnellis have moved their partying to New York and their holding company well clear of Italy, all while the Italian banking system is dying under a mountain of loans that will never be repaid and derivatives deals that nobody ever questioned. That’s what Streeck ought to be complaining about in my view. Not about authority that was never really used, other than to help kick the can down the road.But enough about that. A truly fantastic chapter (chapter 8) follows, which laments the displacement of the discourse that has taken place in our democratic societies:You cannot but agree with Streeck that, rather than seek to address THE basic issue, which has to be redistribution, the “progressive” side in politics has abdicated its responsibility and prefers to talk about non-issues: “Culture wars, ‘family values,’ lifestyle choices, ‘political correctness,’ the age and sex of politicians, and the way they dress and look and speak deliver an unending supply of opportunities for pseudo-participation in pseudo-debates, never allowing for boredom to arise: whether the foreign minister should or should not have his male companion accompany him to a state visit to the Middle East; if there are enough women cabinet members, and in sufficiently powerful positions; how female ministers attend to their small children, too little or too much; whether the president of the Republic should use a motor cycle when visiting his lover; and how often the minister of economic affairs takes his daughter to Kindergarten in the morning.” (p. 189)This, of course, mirrors the way the Democratic party in the US has refused since 1976 to engage in anything resembling redistribution, has refused to contain the market power of emerging monopolies from IBM through to Microsoft and onto Google and Uber, has allowed (alone with New Zealand among advanced countries) big pharma to advertise on TV, came down in favor of Angelo Mozilo and “sanctity of contract” rather than the evicted subprime borrower, all while of course espousing Romneycare, pretending to shut down Guantanamo, pretending that sticking “record fines” on people like Steve Cohen is comparable to how we treated Boesky and Milken three decades ago, trying and failing to sign the odd treaty on non-proliferation, paying lip service to global warming, making nice with Fidel Castro and more recently espousing separate toilets for transsexuals and shouting “Putin” whenever it feels it’s been cornered on the issues.The less-developed theme in the book, still present in quite a few of the essays, is the idea that in the course of the past forty years capitalists have gathered enough power to work around the restrictions imposed by the state, but that this has actually served to threaten capitalism, because it has led to excesses that are provoking an angry reaction to the status quo.In my view that’s a pity, because if there is a threat to Capitalism that’s precisely from where it comes:Streeck has the pieces, but he fails to put them together, basically. The American more so than the Western European, is first and foremost a consumer, and he’s been getting killed:1. The crisis of 2008 has thrown in the microwave oven the hitherto slow process from “perfect competition” to “oligopoly” in so many markets (example: two companies sell baby formula in the US, only one sells chewing gum, your cable TV typically comes from one source and the two biggest mattress companies have merged) that the supply curve on tons of products and services has wildly curved upwards, squeezing output downward and price upward, not only causing the sluggish growth the economy has been experiencing (including to the market for good jobs), but also keeping prices elevated in the face of crappy demand.2. Just as this phenomenon is starting to consolidate (it had a one-time effect on the speed of growth and had a permanent one-time effect on inequality), another very sinister effect is taking hold: a large number of markets that used to clear at a single price for everybody is with the help of the Internet converting business model to perfect market segmentation. Think of how you don’t dare go back to a website and reprice plane tickets because the engine knows you just asked for that ticket, for example. Market segmentation allows for perfect price differentiation, which converts the whole of the consumer surplus into economic rent for the seller.The shift of power from the consumer (the customer who used to be “king”) to the producer has not gone un-noticed. The American people did not vote in their first black president, a man promising to deliver “change,” because they were pining for a Harvard-educated member of the establishment who’d go on to sell his White House memoirs for 60 million dollars.They firmly believed they were voting in a Hugo Chavez. An Andreas Papandreou. Somebody who might cost them, but would cost the emerging plutocracy even more.The very same public that once simultaneously voted in Clinton, Blair and Schroeder (all of them "third-way" social liberals / nouveaux fiscal conservatives) to protect its newly-acquired middle-class savings from the idle recipients of welfare, the very same public that once hung by Greenspan’s every word, because he was the man to preserve those savings and protect them from the ravages of the market, has discovered that the powers-that-be have taken the mandate it gave to them to such an extreme that now it finds itself unable to hand over to its children the same status it was accorded by its parents.And that is the biggest threat to capitalism.The public is mad and second time round it’s taken no chances. The crazier the politician, the more insane he sounds, the likelier to bring down the temple, the better. We’ll deal with the consequences later!Where does that leave us with Streeck’s opus? Well, it kept me good company, it taught me some stuff and it sure made me think. So I’ll round up its 3.5 stars to four, much as I disagree with most of what the author has to say. Also, it’s fantastic to hear from a socialist who is not shouting from the rooftops.

I expected that this book would be a kind of Marxian appendix in the spirit of dooming capitalism to hell as expropriation of the proletariat. But no, it was not. Instead, it gave a completely satisfactory answer to a question that has haunted me for decades: what is capitalism? About forty years ago I asked a Soviet exchange delegate this same question adding: Is it a mere Marxian mocking word instead of the proper one 'market economy'? No, was the answer, it is a technical term, completely free of valuation. Ok, but until today capitalism has in my ears remained an unfair term and sounded a pejorative expression of entrepreneurship based on a free-market economy. But not anymore, thanks to this book by Wolfgang Streeck.Capitalism is not a unilaterally economic concept, but a term of the economical part of sociology. Very versatilely founded in this book. As also the whole relationship of sociology and economics. Capitalism is a social phenomenon with aspects outside the sphere of economics, thus a wider concept of society, economics being narrower and concentrated to phenomena measurable by money.Myself being a strictly professional economist, as an econometrician even emphatically concentrated to observing measurable aspects of the economy. No wonder being troubled by the term capitalism, something beyond the measurable phenomenon of capital as such.What made this book a hard nut to be cracked was just this sociological aspect as the hard stuff of crust to economics. Opened my eyes and widened my view of the whole human society. Self-evidently five stars.

Man merkt beim lesen, dass Streeck kein Ökonom ist und nicht verstanden hat, wie uns linke Wirtschaftspolitik (sic!) kaputtmacht. Trotzdem gut geschrieben und lesenswert.

Un gran libro

Livre complet et enrichissant sur le sujet

Wonderful insight into how Capitalism that has indoctrinated each generation as the ONLY economical system that works, by our educational system that in turn is run by Capitalists. How Governments of most nations of the world have been taken over by the Powerful Capitalists pushing aside the citizens who now have very little or no say in how their governments, which are touted as being of the people and for the people is run.

o k