Challenges of Decentralized Capitalism

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When the Soviet Union collapsed in 1991 it could do so because the command economy relied on the directives from Moscow and with the takeover of Gorbachev’s government that was committed to liberalization, privatization and decontrolling prices there is no way that the communist system could survive. A second example is Deng Xiaoping deciding to decentralize the Chinese economy after the death of Mao Zedong. Mao centralized the economy via five-year plans, and Deng did the opposite by permitting farmers to sell their crops for private profit after delivering a minimum of grain to the central state. He designated several coastal cities as special economic zones with low taxation and investor-friendly regulations. The Chinese economy decentralized, created super-wealthy entrepreneurs and became the second-largest global economy.

It is possible to go from centralization to decentralization. The opposite movement from decentralization to centralization is much more difficult if not impossible.

Experts of political science have long observed the disputes across different levels of government in a federal system. If the federal government wants to provide a health care program, but mandates the states to implement the program there is firstly going to be variation about how the policy gets implemented, and there is a dispute about who funds it. If the federal government becomes impatient and sees the states as an obstacle to carry out policies that the federal government wants to see implemented, the federal officials want to centralize competency, but that is nearly impossible because the state officials have developed their fiefdom and are unwilling to surrender their power. The state officials might conspire against the federal state, which convinces the federal officials to abandon centralization attempts in frustration.

If we translate the social dynamics in a political system to the economic system one finds the very same complication to centralize the decentralized capitalist economy. Marx had pointed out that the cheap commodities of the capitalist are irresistible and “all that is solid melts into air”. The bourgeois capitalist society which values wealth, savings, investment, frugality (and in the late-capitalist version spendthrift, credit-addiction) prevails against the feudal lords, the church and religious institutions, and against the few bands of hunters/ gatherers that still roam the remote corners of the world.

Friedrich Hayek, the father of neoliberalism, argued that bourgeois society has to be scared of the state deciding to take over more functions and gradually squeeze out and “crowd out” private capitalists such that we are in a “road to serfdom”. He published his work in the 1940s, when Stalin consolidated communist power in the Soviet Union and the Nazis instituted a semi-controlled armament economy in Germany. But what is remarkable is quite the contrary, i.e. once bourgeois society has been put into place a centralized socialist economy does not prevail. The communist systems were implemented in quasi-feudal and peasant societies, but the old bourgeois societies like France, UK and US never introduce a centralized command economy. Nazi Germany was, indeed, a totalitarian political state, but economically it left the private property structure in place, even though the state favored certain private industries over others. The private armament industry, especially Thyssen Krupp, benefited like bandits from Hitler’s world conquest plans.

After the fall of the Nazi regime, the East Germans introduced socialism, but only under the external duress of the Soviet Union, which was also true in the other eastern European countries. East Germany and Czechoslovakia had fairly developed bourgeois societies prior to the Soviet takeover of their political realm, which might explain why there were attempted uprisings in 1953 and 1968 respectively (which the Soviets crushed with tanks).

The US-occupied countries West Germany and South Korea were able to develop under capitalist premises, although it was easier in Germany where bourgeois capitalism already had an extended history. In South Korea, the creation of bourgeois society was favored by the Confucian ideology focused on hard work and the US -the richest world economy- providing an easy export market. North Korea, in contrast, became a centralized communist state, and has been the only truly committed communist regime to this day.

During the Cold War, Soviet leader Nikita Khrushchev tried to impress Richard Nixon in the 1950s in the “kitchen war”, showing how well off the Soviets apparently were compared to the Americans, proving how superior communism was to capitalism. It was all for show. The capitalist west offered a greater variety of commodities than the communist east, and the evidence is that there have been many documented cases of East Germans fleeing to West Germany but almost no cases the other way round. The permanent comparison between the rich capitalist West and the poor communist East undermined the legitimacy of the communist regimes.

By the 1980s, the Soviet foreign debt to the capitalist west made it clear to the Soviet leadership that their dependence on the capitalist west made the inefficient communist economy unsustainable. Perhaps, if communism or feudalism were the only game in town, the autarkic Soviet Union could persist for many more years, but it wasn’t so. Marx was right: decentralized bourgeois capitalism arrives, comes to dominate society and pushes out alternative socio-economic systems. Hayek was mostly wrong. In some limited cases, you can point to a turn toward centralization (as under external duress), but the overarching movement is toward decentralized capitalism.

The benefit of decentralization is the bourgeois promise of individuality and doing what one wants in private life. The Chinese Communist Party, which has been overseeing economic decentralization, now realizes that economic individualization creates a middle class, which in turn has higher demands on political decentralization, including democratization. These demands become more acute as economic growth is declining and the old social contract between party state and citizenry is fraying, thus challenging the party state. The CCPs pre-emptive response is to use surveillance technology to create a social-credit scheme, which lowers citizens’ scores for criticizing the state while raising it for being obedient. It isn’t clear whether China is going to decentralize, and the party state is putting up the fight of their life to remain in power.

Decentralized bourgeois society offers (though does not guarantee) social progress in the form of better treatment of women and racial minorities. It is true that the capitalist order can inscribe domination to the detriment of women and racial minorities, but capitalism pulls more and more people, including women and racial minorities into wage labor. If they organize and resist mistreatment they can take on high positions in society, which some white men regard as threat to their high social status.

So it sounds like decentralization is the greatest thing in the world, but the truth is that it is only better than the old systems it defeated (communism, feudalism etc.), but has some inherent flaws. Firstly, despite the decentralized economy there is a movement to centralize economic and political power in a few organizations and individuals. There are a few big corporations such as in the technology sector (Google, Facebook etc.), who dominate the economy. The movement toward automation, which is encouraged by international competition (who will dominate AI? China or US?), eliminates jobs and pushes more people into low-paid gig work or unemployment, while benefiting the owners of technology and robots disproportionately.

The social costs of automation can be felt in capitalist societies with poor welfare redistribution such as the US, where life expectancy in the countryside is declining. That is where most of the manufacturing jobs had been lost due to automation. Immobile individuals can’t find equivalent employment, become depressed, the family abandons them and they commit suicide or take drugs/ alcohol. The political effect of automation is the rise of right-wing populism, where economic anxiety gets channeled into hatred against foreigners, who are blamed for things they are not responsible for. In the midst of economic plenty, western societies degenerate into tribalism, anti-liberal values and rage because of the pockets of perceived and real material deprivation among segments of society. We can only turn away from a mindset of scarcity, not by looking for new sources of economic growth, but by systematically redistributing existing wealth.

The second externality of bourgeois capitalism is ecological disaster, because of climate change, i.e. rising temperatures due to carbon emissions. Even an aggressive movement to eliminate carbon emissions now does not reverse the impacts of climate change. A related problem is the issue of depleting natural resources like ground water or forests. We need a radical reconfiguring of social priorities away from economic growth, otherwise it will be difficult to reduce human carbon footprint.

An end to economic growth is a frontal assault on capitalism and the bourgeois values that carry the present political economy. In western countries, economic growth isn’t high enough to maintain full employment, which suggests that in the present economic regime social stability via full employment can only be purchased by ever more growth. We can’t afford to abolish growth, because the loans and debts we have taken out as households, corporations and countries have to be repaid, and a debt is a promissory note that in the future, I will produce added economic output (i.e. present output plus some more) in the future. One might argue that we should be content with buying social peace with endless economic growth, but the ecological boundaries imposed by planet earth both regarding the availability of scarce natural resources and the deleterious effects of climate change negate the endless growth logic if what we care about is long-term human survival. (In the case of “fuck future generations”, carpe diem, I guess climate change should not matter, but most people don’t take these fatalist views. And Greta Thunberg and her fellow activists won’t allow political leaders to be fatalist in the first place.)

The smashing of the endless growth logic, which implies a smashing of the capitalist economy, i.e. an economy based on the accumulation of capital, and the bourgeois values of Puritanism (work hard or starve!), are only possible if economic controls centralize toward the state at a global level (yes, that means a powerful United Nations), i.e. political power returns back to the center to deliver economic goods as a social utility and entities no longer rely on debt-financing given the nationalization or high taxation of private wealth, which forms the basis of debt-funding in the present political economy. The provision of economic goods as a public utility and the elimination of debt-funding is the only way to ensure an economy that produces exclusively based on need rather than profit. The central planner would have to figure out how to avoid the brutal dictatorship and the inefficiency of prior communist regimes.

The anti-capitalist sociologist Wolfgang Streeck argues to the contrary that to free ourselves from the shackles of the neoliberal global regime that is destabilizing local societies is a return to the local. Why? Because only the local state can dictate all the rules toward the social actors by manipulating rules/ regulations, fiscal policy, state enterprises, central bank/ money printing, and thereby constraining the private corporations, investors and workers, thus allowing for a balancing of interests between capital and labor and perhaps even humanity and nature. In the context of Keynesian economics and the Bretton Woods system this made a lot of sense, and it also sounds reasonable because the nation-state is a late nineteenth century product, i.e. it doesn’t have to be invented again. But a central state system in a decentralized world system makes it very difficult for some countries to resist the temptation to open up to global capital and attract investors, who are not happy enough with the low returns offered in their home country. Streeck’s approach could work if all 200+ countries in the world agree simultaneously to transition to state socialism, but that is an unrealistic assumption.

I am not saying that a UN world government is any more realistic, at least not until we have fought World War III, including with nuclear weapons (yikes!). The political elites of the big states are unwilling to surrender power to the center, which we already see with the disintegration of the EU and Brexit. The broader challenge is that decentralization and the lure of bourgeois capitalism is like water flowing downstream, following the laws of gravity; while centralization, which could effectively address human alienation (consumerism, workaholism, inequality, poverty amid plenty) and alienation from nature (resource scarcity, climate change), is like water flowing upstream, thus defying the laws of gravity.

Among the two great German sociologists, Karl Marx and Max Weber, perhaps Weber was right and Marx was wrong. In Marx, one had the hope that the working class will take over the means of production, smash bourgeois capitalism, introduce luxury communism and get rid of human alienation. In Weber, the logic of rationality, i.e. bourgeois capitalism, the pursuit of profit, efficiency and calculability of all aspects of life, forms an iron cage that no one can escape. The genie of rationality is out of the bottle. Good luck pushing it back into the bottle. For the sake of human freedom and ecological sustainability, we’ll have to keep trying.

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1 Response to Challenges of Decentralized Capitalism

  1. Pingback: Book Review, “Crisis and Choice in European Social Democracy” by Fritz Scharpf (1987, Ithaca: Cornell University Press) | Mr Liu's Opinions

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