Michael Roberts Blog

Will capitalism end or can it be reformed?

Two new books on capitalism have arrived this month.  The first is by Wolfgang Streeck and called, How will capitalism end?  Wolfgang Streeck is the Emeritus 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 European.  Streeck’s views carry some weight, indeed sufficiently to be reviewed by Martin Wolf in the Financial Times.

Streeck’s thesis, as the title implies, is that capitalism is a system that is going to end and its demise is not so far away. He opens by reprising another book that covered the views of five other social scientists, called Does capitalism have a future? That contains contributions by the likes of Immanuel Wallenstein, Randall Collins, Michael Mann, Georg Derluguian and Craig Calhoun.  As Streeck says, all these scholars agree that capitalism is heading for an ultimate crisis, although each has different reasons why.

Wallenstein reckons that capitalism is at the bottom of a Kondratiev cycle from which it cannot recover (for a multitude of reasons, mainly to do with the decline of the world order under US hegemony).  Craig Calhoun, on the other hand, reckons capitalism will give way to state-directed economies that might restore capitalism but in a new ‘non-market’ form.  Michael Mann reckons also that US hegemony is over and capitalism will become an unpredictable platform for struggle among various capitalist rivals, while working class struggle is splintered.  The only hope is that social-democratic forces of compromise will triumph.  Randall Collins offers the closest to a Marxist perspective, according to Streeck.  Capitalism will increasingly resort to dispensing with human labour and replacing it with robots and AI.  This will create severe class conflict and underconsumption, because most workers will not have enough income to buy the products of robotisation.  Although Collins’ analysis is not Marxist (in my opinion), he does conclude that the only hope is a socialist transformation.  Finally, Derluguian argues that the demise and collapse of the Soviet Union suggests that capitalism will not give way to socialism, but instead to a post-capitalist fragmentation.

After this account, where does Streeck stand?  He thinks that capitalism will die “from a thousand cuts” and will not be saved by Mann and Calhoun’s alternatives.  With no proletariat as a force for taking society forward under socialism, capitalism will collapse under “its own contradictions” to be followed, not by socialism, but by “a lasting interregnum”, a “prolonged period of entropy” where ‘collectivism’ does not emerge but instead there is a disparate ‘individualism’.

Streeck’s account of the current state of capitalism follows in the book and provides an excellent narrative, particularly his critique of Keynesian and reformist responses (although chapters are somewhat repetitive).  He sees a systemic disorder revealed by first, rising inequality (where the top 400 taxpayers in the US get over 10,000 times more income than the bottom 90% and the top 100 American households have 100 times more wealth!).  Then there is the rife corruption by the rich and powerful, as exhibited in the role of the banks.  And the growing power of finance capital, a totally unproductive and damaging sector of capitalism.

All this has been described by many, including by me in this blog.  But Streeck sees these forces as the ones that will end capitalism, rather than as part of reoccurring crises of slumps in capitalist production.  Capitalism is more unfair and corrupt than incapable of meeting people’s needs.   But because there is no positive force in society that can replace capital, capitalism “will go to hell but for the foreseeable future will hang in limbo, dead or about to die from an overdose of itself.”

For Streeck, it is a “Marxist prejudice that capitalism as an historical epoch will end only when a new or better society is in sight and a revolutionary subject ready to implement it for the advancement of mankind”.  In a way, Streeck predicts a new stage of barbarism after capitalism collapses, similar to what happened to the Roman Empire after its collapse in the 5th century.  Then a sophisticated slave-owning economy gave way to tribal states; cities gave way to small villages; landed estates gave way to small groups; technology was left idle and forgotten.

In my view, Marx did and would recognise that barbarism could supersede capitalism.  There is no guarantee that capitalism is followed by socialism. He would also argue that without a “revolutionary subject” (i.e. the working class) carrying through political action to end the capitalist mode of production, it can stagger on.  Streeck’s is right that capitalism has no long-term future, but is he right that there is nothing to replace it to take human society forward?

Streeck’s view is the cynicism of the academic divorced from the working class and seeped in the experience of the reactionary neo-liberal period (a very short time in human existence and capitalism).  In my view, the (Kondratiev and profit) cycles of capitalism will eventually create new forces for change – a new more confident working class as the agent for change.  But if not, … then.

Naturally, Martin Wolf’s critique of Streeck is different, coming as it does as a defender of capitalism.  Sure, says Wolf, Streeck is right that no stable equilibrium exists in any society. “Both the economy and the polity must adapt and change.”  But only a market economy can deliver “democracy”.  The danger now is not the end of capitalism but the end of democracy.  So Wolf says, that democratic governments must cooperate to ensure that they “manage the tensions between the democratic nation state and the market economy”“Is the task possible?, Wolf asks and answers “Absolutely, yes” – although he does not really say how.

This optimism and wishful thinking of ‘social-democratic’ solutions to capitalism’s ills remains dominant in leftist media.  It is again revealed in another new book by Dean Baker.  Baker is co-director of the American Center for Economic Policy Research in Washington and a regular broadcaster and writer on economics and economic policy, often speaking at labour movement meetings and writing for the likes of the Guardian newspaper in the UK.  Baker was one of those few economists cited as forecasting the global financial collapse, basing his view on the credit-fuelled housing bubble in America, creating financial instability a la Minsky.

His latest book is Rigged: how globalisation and the rules of the modern economy were structured to make the rich richer (the book is available in pdf here rigged).  The title has now become a familiar theme among leftist, (post?) Keynesian economists.  Namely, it is not capitalism or the market economy that is the problem, but the way the modern economy is structured, particularly since in the neo-liberal period after the 1980s, i.e. rigged to change ‘the rules of the game’ in favour of the rich and away from the majority.  This is the theme presented to us by Joseph Stiglitz, that other economist and hero of the left and the labour movement, in his latest book.

Baker shows how the distribution of income in our society has little to do with merit and how the postulates of neoclassical economics are selectively invoked to prevent any actions that do not benefit elites. Interventions that promote upward distribution of incomes are never criticized, while inequality and unemployment are left for the invisible hand to fix.

Baker points out that “neither God nor nature hands us a worked-out set of rules determining the way property relations are defined, contracts are enforced, or macroeconomic policy is implemented. These matters are determined by policy choices.”  In the modern economy, banks are bailed out in crises but people are not.  Trade deals are imposed that lead to the loss of jobs for the majority but more profit for corporations.  Full employment could be achieved but it is against the interest of the big corporations because it would mean rising wages and labour costs that squeeze profits.  So what Marx called “a reserve army of labour” is maintained as a matter of policy.

He identifies five areas in which the “upward distribution” induced by policies should be reversed: macroeconomics that focus on low inflation only; asymmetric treatment of privatized gains and socialized losses in the finance industry; heavy protection of patent rights at home and abroad; protection of high-skill occupations from foreign competition; and out-of-bounds CEO pay.

Baker says this policy ‘rigging’ of the economy shows that the ‘free market’ does not operate.  Here he seems to be implying that, if it did, then all would be well and fair.  Because the market is ‘rigged’, not because a market economy exists, we need government to intervene to correct inequalities, injustices and apply policies for the majority not for the few.

Baker fails to explain how the market got ‘rigged’.  Did this just happen? Why was the policy choice for the rich not the majority?  Was it not ever thus?  Baker is looking at the symptoms not the causes.

Marxists like me would say the policies that led to rising inequality and the growth of finance capital came about because the Golden Age of capitalism, with its decent pensions, public services and benefits and full employment, could no longer be afforded by market capitalism as profitability of capital plunged.  So the ‘rigging of the rules’ was necessary for the saving of the capitalist market system.

Extreme inequality of wealth and income has always been the norm for capitalism, not just a product of the ‘modern economy’.  It was the short Golden Age after 1945 that was special, not the neoliberal period since the 1970s.  If that is right, then Bakers’ demand that ‘progressive governments’ intervene to create a level playing field and end ‘upward distribution’’ is just wishful thinking.  The social democratic compromise of the 1960s is not going to return in the capitalism of the 21st century.  Streeck is closer to the truth than Baker.