Book Review: How Will Capitalism End?

Symptoms of Morbidity in Late-Capitalism

If we read Wolfgang Streeck’s (2016) most recent analysis, we might be inclined to think that the capitalist economy is about to collapse. The multiplicity of morbidity symptoms are too numerous to enumerate, but are well worth restating:

(1) declining economic growth

(2) rising inequality in income and wealth (as well as life chances)

(3) increases in money supply without much precedent from the central banks

(4) financial and economic breakdown as we had seen in 2008, and as becomes the norm with rising levels of overall debt

(5) decline of social democracy, i.e. collective state and trade union institutions to ensure economic opportunity to the masses, and the commensurate rise of the oligarchy, the power of the moneyed elites

(6) the rising commodification of labor, nature and money beyond what either nature or humans can tolerate

(7) corruption and associated winner-take-all rent-seeking

(8) declining public infrastructure, privatization and commoditization of public goods

(9) U.S. not providing the hegemonic world order, which creates geopolitical instability and economic uncertainty (p.15)

Post-Democratic Malaise

More depressingly, Streeck also notes that we lack the practical collective resources to mount a fightback against the current malaise (see p.20):

(1) Historically, the underdog workers would be able to strike against their employer to gain a wage increase, which was true until the mid-1970s, when the turn toward anti-inflation policies as well as capital and labor deregulation shifted the economic and political power back to the elites.

(2) The political struggle then moved from the economic to the political arena, because the European welfare state shouldered the larger social costs of international competitiveness and the growth of precarious employment (in the US, some share of the burden is carried by the criminal justice system but also a limited welfare state). People voted politicians, who would preserve the welfare state. Good old, power-resource theory (Shalev 1980; Korpi 1985). But public budget consolidation since the mid-1990s, coming on the heels of realizing rapid demographic aging, mounting public debt, joining of the European Union (and the European Monetary Union) with the cognitive turn to austerity, reduced the scope for welfare state expansion, which justifies the entire literature on retrenching the welfare state, which is still bigger than in the past, but no more growing at high rates.

(3) The rise of private indebtedness in many western countries as evidenced by rising student, car, house and general credit card loans has created substantial economic insecurity for the masses, who find themselves having to negotiate with the bank over the “fair” terms of lending, though the struggle is very much individualized and the ability for people to press their demands is substantially reduced compared to strikes and voting. That’s also the time when you see some vague attempts of general public protest, but struggles are interestingly quite local, while the locus of power is diffusely international.

(4) The latest phase of the struggle cannot even be defined as a struggle, namely with central banks. Can individuals struggle against central banks, when ordinary people have a scant understanding of what their own governments are doing, let alone their central banks? Central banks since 2008 have temporarily supplanted national governments, who were just quick to throw tax money after failing banks. Central banks did just the same, but they had way more leverage as they controlled the money supply and could endlessly expand their balance sheets via asset purchases. This so-called quantitative easing has the intent to expand lending in the real economy, as interest rates are also kept close to zero and in some cases are even negative. Savers are losing out under that model, and it is quite interesting that despite repeated calls by Janet Yellen to raise interest rate, it is still at 1%, having only been raised since late-2016. To me it seems like high debts overall make it difficult to raise interest rates, which make defaults increase, thus undermining trust in the financial system which could result in financial chaos.

I think Streeck is somewhat overdoing his emphasis on the financial overlords in the central banks, though their decision was doubtless influential in shifting a greater share of capital wealth onto the global oligarchy, who- in the minds of our wise leaders- are never supposed to lose their savings with a debt haircut. Instead, the cheap money flows shall enable them to further boost real estate speculation to line their pockets, while houses in prime real estate locations become unaffordable to the masses.

But his sentiment of the post-democratic malaise of globalized capital, who can undermine national taxation and regulation regimes, weak labor/ low wages, low growth and high profits in the monopoly sectors of industry (p.22) are absolutely correct. Specifically, the European Union is an entity that allows the unrestrained rule of the central bank and the European council, which consists of the heads of state of the countries that send them, in favor of empowering corporate interests, while neglecting a social policy agenda (p.56; p.158). Nation-states are powerless against international creditors, who demand budget consolidation on the backs of the working and middle class, even though the same creditors were partly fed by the trough of public bailout money, otherwise there will be a rise of the interest rate (p.93). A sad example is Greece, which is getting smashed with endless bailout-cum-austerity demands to pay off loans that everyone pretends to fully repay. Ironically, austerity hurts the capitalists themselves, because a lowering of social spending undermines the public legitimacy for the capitalist order and a lowering of public investment lowers long-run growth potential for the capitalists (p.137).


One might critique that Streeck focuses too much on the European example, but it would be simple to expand his crisis perspective to other countries that are also suffering from an unfavorable climate of economic growth. The Trump phenomenon derives from the dissatisfaction of the masses with a political system that is unresponsive to their needs. There is a veritable crisis of legitimation for the current economic order. It is the US, which also harbors most of the millionaires and billionaires in the world, largely because the US has become the international center of finance as well as high-tech, with the few oil magnates strewn in between. The massive ramp-up in the national fiscal deficit and debt creates the perennial call for austerity, which is made worse by the Republican agenda that illogically attempts to lower taxes on the rich, cut spending and balance the budget. Something will have to give, and I suspect that with small spending cuts (in the arts, sciences, humanities, foreign aid, environmental protection, housing and urban development etc.) and large raises in the military budget and a strong priority for tax cuts for the rich, the balancing budget agenda is out of the question, thus promoting imminent political struggles that either say to US, Chinese and other creditors that they either have to take a haircut, the US wealthy and corporations have to pay more taxes (instead of lending money to the government), or the people continue to bite into the sour apple.

The US is also unique in having the weakest collective buffers against economic insecurity for the masses, having drastically slashed the welfare program for the poorest during the conversion of AFDC to the more stringent TANF program; not indexed the national minimum wage to inflation (let alone national productivity); allowed lax regulation for financial institutions to raid businesses, lay off workers and strip their assets on behalf of a shareholder value maximization agenda; make the unionization of workers rather difficult; incarcerate a substantial portion of the poor (especially black) population; entrap countless millions of people under medical, education, consumer and mortgage debt, which even European countries are still somewhat reluctant to fully adopt.


In Japan, there is a unique combination of unfavorable demographic circumstances (declining population, rapid aging, high life expectancy, low fertility, low migration) on top of the economic and debt crisis that is engulfing the country. The Japanese have an unusually strong sense of national identity, which attributes characteristic traits to a certain group of people tied together by kinship and ethnicity (Lie 2001). The nationalist sentiment translates to a government policy that substantially restricts migration, which is unusual for a wealthy capitalist country that tends to develop labor shortage during early phases of rapid economic development. The labor shortage is apparently, in part, bridged by the overall high skills development in the Japanese labor force, which is then used to promote the export of high value-added goods like consumer electronics and manufacturing, which suggests a lesser need for lesser skilled laborers. Another peculiar feature is that the female labor force is only marginally attached to the workforce, thus allowing employers to draw on a pool of women as reserve labor.

The geographic feature of Japan being an island nation may also help the government to carry out isolationist migration policies, as migrants would have a hard time swimming across the sea to get to Japan. Of course, there are people that are flying in, but the lack of secure legal status, long-term history of immigration and good welfare benefits, there aren’t that many migrants. There are some Brazilian nationals in Japan, but most of them are of Japanese descent. There are some Southeast Asians, like Filipinos, who work as hospital nurses. The largest immigrant group are Koreans, which is a legacy from the Japanese empire, which ruled over Korea. Ethnic Koreans in Japan have not taken up Japanese nationality in large numbers and they receive employment discrimination, which suggests that there is a refusal to ensure the full integration even of immigrants that are culturally similar to Japan.

The foreclosure of the migration route increases the burden to accelerate economic development via increased birth rates, but the fertility rate has been below the replacement rate since the mid-1970s and has reached an all-time low of 1.26 in 2005, having stabilized to 1.41 in 2014 (World Bank). The expectation that women are supposed to be homemakers and raise the children cannot hold up in a world, where many men cannot secure the full-time, permanent jobs (sararaimen or salarymen) that allow comfortable, middle-class family life. Even worse, the disappearance of the Japanese salarymen is associated with a decline of marriage, household formation and childbearing, as women are unwilling to mate a man that does not bring home the bacon at a stable and high income (Piotrowski and Kalleberg 2015).

The result is rapid demographic aging, which creates practical fears for the extinction of the Japanese people. But before that happens, they will have to face constraining social and economic choices. The economic growth rate is structurally lower because of the demographic component. The Abe administration promised comprehensive economic reform, which involves further labor deregulation, fiscal stimulus (on overbuilt infrastructure) and monetary easing (very low interest rates). But there are limitations to fiscal expansion, because debt to GDP had reached 250% in 2016, though it has leveled off the last few years. There is some austerity that the government enforces via the increase in sales tax, which was hiked from 5 to 8% in 2014, which they had planned to raise to 10% in 2016, but was delayed now to 2019 because of “weakness in the economy”. It is difficult to bring the Japanese to spend more money on consumer items, as they already consume much of what people need, and the choices for greater consumption is limited already by the limited availability of good-paying jobs. But to raise the sales tax further will drag down growth even further.

How about the Emerging Markets?

It is usually much harder to prove the case that emerging markets like BRICS (Brazil, Russia, India, China, South Africa) suffer from a systemic economic crises, because their growth rates are higher, they are catching up with the west, benefiting from the demographic dividend (many young workers and few old), and receive foreign capital with their cheap labor force. But it would be erroneous to assume that emerging markets are buffered from a systemic growth crisis in the west. Let us not forget that the most successful economies are all dependent on the international flows of capital and investment.

China is the engine of much of global growth, and that was made possible by the export to western countries, especially the US. The US hegemon is no longer capable of importing all of the surplus cheap goods, as the minotaur is exhausted (Varoufakis 2013). That brings the Chinese growth model in trouble, which partially compensates by raising up ghost cities and overinvesting in fixed assets, which is enforced by the low wages, capital controls and high bank capital that administratively directs funds to state-owned enterprises and local governments to build different kinds of infrastructure projects, even at diminishing marginal returns. The rising debt of the local governments indicates a limitation to endless expansion, and the mounting oversupply of basic inputs like steel or coal already forces a cutback in investment and some limits to further credit expansion. China is, as of yet, in no position to displace the US as global hegemon, playing the second fiddle as the biggest hoarder of US treasury bonds (Hung 2017).

South Africa, Brazil and Australia are examples of countries that are highly dependent on Chinese import demand for copper, zinc, rare earth metals, soybeans, food stuffs etc. The political crisis in Brazil, where a right-wing leader displaced the ruling president, Dilma Rousseff, amid massive lack of popularity is a case in point for the economic dilemma plaguing South America. The official discourse revolves around the corruption scandal of Petrobras, the state oil company, but corruption usually is not an issue during good economic times, when everyone gets at least some bread crumbs from the generously decorated table.

Russia is also in no position to celebrate as their entire wealth is built on rising oil prices, which was capable of papering over the endemic corruption of the political class and the oligarchs that divided among each other the valuable state property in the post-Soviet era, while leaving scraps for common people. Russia is one of the few countries where male life expectancy faced reversals. People had it somewhat better under president Putin, but only because of the high oil prices. Then came the plunging oil prices, the covert wars in the Ukraine and Syria, the western sanctions and the big economic crash. Putin seems to think that military confrontation can buy continued political support, similar to what Bush had achieved at the beginning of his presidency fighting two major wars. Even the most successful emerging market economies cannot insulate themselves from what is happening in the core capitalist countries.

Conclusion: Schumpeterian Pessimism and Gramsci’s Dilemma

So what’s the conclusion? Can we expect a terminal decline of capitalism? A Schumpeterian interpretation of capitalist development allows both conclusions. Schumpeterian optimists would claim that the creative destruction of capitalism would imply that we will have new innovation, which will allow a productivity revolution, and the mass replacement of workers by robots might point us in that direction. There is naturally a limitation to such optimism, because a mass replacement of workers would reduce consumption, which feeds capitalist growth. And productivity data would suggest that the computer revolution has only briefly resulted in an increase in productivity, but this increase is fizzling off, because most businesses already have computers. Another pernicious insight is that mass labor displacement shifts the labor wage equilibrium downward, such that a growing pool of low-wage laborers successfully compete with expensive machines. If labor remains cheap because of abundance it slows down the adoption of new technology.

Schumpeterian pessimism looks more defensible to me. Schumpeter himself was quite a pessimist, because he believed that the long-term development of capitalism would be declining innovation as larger, bureaucratic businesses come to dominate the economy. In the pharmaceutical industry, it does not tend to be the big firms that are at the forefront of innovation but the smaller ones, who sell their patent to the big company that can scale production.

To return to Streeck’s discussion, he never really answers the ominous question in his title (how capitalism will end?), and that would certainly go beyond what can be expected of historical sociologists. We can predict the present malaise based on past patterns, but can’t really say much about the future. Marxism is often taken to be a faith, because there is this idea that not only is capitalism a historically-specific mode of production, but it will also end with the revolutionary takeover of the working class that will get rid of universal alienation and exploitation of man by man. Streeck is not a Marxist, but he agrees with Marxists on the decline of capitalism. Unlike Marxists, he does not believe that “no revolutionary alternative is required, and certainly no masterplan of a better society displacing capitalism” (p.13). The ruling class is confused about what to do: printing money to generate growth in the real economy; attempt to restore inflation with negative interest rates; the weakness of the US as a global hegemon (p.35), thus entrapping us in a Gramscian dilemma, where the old is dying but the new is not born.

Having been able to read Arne Kalleberg’s (labor sociologist) draft for his new book, one actually becomes even more pessimist, because he documents the rise of precarious labor. Stronger working class organization might keep this trend in check. But he does not even think that the energy for working class organization will come from within the working class, but instead comes as a result of a coalition with mass social justice movements, the street protesters and the ballot box. The foreclosure of a fight at the point of production shows that labor is structurally outmaneuvered, even though we will continue to see local insurgency on behalf of worker organizers in different parts of the world at different level of success. Michael Schwartz, another historical sociologist, told me that “the revolution is not going to happen in my own lifetime”.

I am very inclined to agree with Streeck that capitalism might implode before something new arises, because there aren’t any strong social forces that point to alternatives. History is a concatenation of improvising, muddling through, figuring things out as they come along, applying bandaids to cascading cancer and severe illness. It is the intellectual class that might recognize the dysfunctionality of the current order, but is least likely to be aligned with practical forces for social change, while the elites and the masses don’t know what they have to strive for. Bourdieu (1993), taking the cue from Weber, made us aware that history is about a series of endless struggles within the fields that we collectively create. Capitalism and its associated twin, rationalization (the growing means-ends calculation, profit orientation and bureaucratization of life), slot individuals into different ranks, and we have to live with the morbid outcomes as long as we allow it to happen and lack the vision and willpower for a different kind of future.

Streeck himself emphasized that we must not abandon concepts like socialism or communism.

“What other concept is there in any case for the more communal, more other-regarding and more collectively responsible way of life that we today seem to need more urgently than ever, a life with much less license to externalize the costs of private pleasure-seeking to the rest of the world? And how are we to name a social organization with much more shared control over the collective fate and with a strong collective capacity to avoid the unanticipated consequences of freely expanding market relations- consequences that unendingly mystify us today when as individuals we cause effects that we cannot possibly want, not just as a society but also as individuals?” (p.234)

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5 Responses to Book Review: How Will Capitalism End?

  1. smz says:

    I have to agree with the statement that the working class can’t achieve social change unless they form coalitions with other social groups. Working class-generated change seem more likely in a time before transnational capital and mass migration, because workers could homogenize themselves into a body for collective bargaining. In countries like the US with a bifurcated economy and a multiethnic population, with frequent immigration, the working class gets divided on language and ethnicity. Ethnic-based organizations and class/employment-based organizations haven’t learned to form coalitions with each other, hence the appeal of Trump’s platform.

    Interesting analysis about Japan in the book. I’m curious as to whether he discusses the role of the IMF in Asia at all?

  2. Pb says:

    And what about the rise of populism?

  3. Larry Liu says:

    To be clear, I am providing examples of Japan and other countries. Streeck does not talk about it, as he focuses on mostly western Europe and the US. As for the IMF, they did play a role in the 1997 Asian financial crisis, for which I recommend reading the Wikipedia article for a start, but not so much more recently. Generally, whenever countries could throw out the IMF and pursue their own financial and economic policies they tended to get better faster.

  4. Pingback: Book Review: The Great Leveler by Walter Scheidel (Princeton: Princeton University Press, 2017) | Mr Liu's Opinions

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