Guest Post: Is This The Terminal Phase Of Global Capitalism 1.0?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The road for both global capital and the State is narrowing to a rocky trail that leads to a cliff.

We turn to cycles--business, solar, Kondratieff, etc.--to understand current events. But what if this era is not just a cycle but the terminal phase of Global Capitalism 1.0?
This heretical thought arises from the school of economic history pursued by Fernand Braudel and those he inspired. I have long recommended Braudel's three volume history of early capitalism as essential reading for anyone seeking to understand modern global capitalism: Civilization & Capitalism, 15th to 18th Centuries:
Of those continuing this "long duration" analysis, I find much of interest in the work of Giovanni Arrighi (The Long Twentieth Century: Money, Power and the Origins of Our Times) and Immanuel Wallerstein (recommended to me by correspondent Lew G.) (World-Systems Analysis: An Introduction).
This school sets the current iteration of world capitalism as beginning in the 1450s. Everything that characterizes modern global capitalism was already operational by 1500: stock and bond exchanges, hedging with derivatives and insurance, joint stock ventures, highly profitable global trade, commercial credit/paper, central States funding their wars with privately provided credit, etc.
In Wallerstein's analysis, the current form of global capitalism is running out of road. He identifies three long-term forces that are undermining capitalism's key function, the accumulation of more capital:
1. Urbanization, which has increased the cost of labor.
2. Externalized costs (dumping private waste into the Commons, environmental damage and depletion, etc.) are finally having to be paid.
3. Rising taxes as the Central State responds to unlimited demands by citizens for more services (education, healthcare, etc.) and economic security (pensions, welfare).
Wallerstein is one of the few who clearly understands the State's role as enabler and enforcer of monopolies and cartels. High profit margins are most easily maintained by persuading politicians to create and then regulate quasi-monopolies and cartels.
The State has two core mandates: enable and enforce quasi-monopolies and cartels for private capital, and satisfy enough of the citizenry's unlimited demands for more services and economic security to provide political stability and thus maintain State/cadre/Aristocratic power.
If the State fails to maintain monopolistic cartels, profit margins plummet and capital is unable to maintain its spending on investment and labor. Simply put, the economy tanks as profits, investment and growth all stagnate.
If the State fails to satisfy enough of the citizenry's unlimited demands for more of everything, it risks social instability.
That is the nation-state's quandary everywhere. With growth slowing and parasitic monopolies increasingly difficult to maintain and justify, the State has less tax income to fund its ever-expanding social spending.
In response, the State raises taxes and borrows the difference between its spending and its revenues. This further squeezes spending as the cost of servicing debt rises along with the debt.
In the conventional view, global capital lowers its costs and therefore increases its profits by shifting production to locales with lower labor costs, few environmental restrictions and low taxes (or an affordable bribe structure).
Thus the opening of China was simply the latest opportunity for global capital to shift production to lower-cost areas. Restless capital is now leaving China as its population has moved en masse to urban zones and the cost of labor has risen, and those in the traditional camp are forecasting global capital will decamp to Africa and the remaining low-labor-cost nations in Asia such as Myanmar and Cambodia.
When global capital runs out of low-cost labor opportunities, profit margins decline and the jig is up.
The rapid progress of robotics and automated, networked software is upending this conventional view of capital running into a brick wall as labor costs rise globally. It is increasingly cheaper and less risky to replace human labor with machine and computational capital, for a reason that Wallerstein does not mention: labor does not just demand more services and benefits from the State, it also demands more benefits from employers.
Global capital is thus finding its input costs rising on virtually every front: energy and resources cost more, externalized costs are coming home to roost, urbanized labor demands higher wages and benefits, and the State is raising taxes to fulfill its ever-expanding promises of more services and security.
Investing in robotics and software offers temporary respite by cutting labor costs, but as everything that can be produced by machines or software becomes abundant, margins vanish.
Reducing labor's share of production costs (and of value created) also has the consequence of reducing the total sum of wages available for consumption and taxes. This feeds the stagnation of the consumer-based economy and severely restricts the State's ability to raise wage-based and consumption-based taxes.
As this low-growth, lower-profit margin cycle tightens, there is less capital available to invest in future production, and the "highest return investment" is increasingly political lobbying/bribery to enhance or solidify profits gained from quasi-monopolies and cartels.
But the State is also running out of air: parasitic cartels skim huge sums from the economy, diverting it to the very class (the financial Aristocracy, the Party leadership, etc.) to whom the State is beholden. Since it cannot cut social spending without risking insurrection, the State is forced to borrow increasingly monumental sums to fund its dual mandate.
States that print their own currency are looking longingly at the printing press, tempted to fill the widening gap between their promised social spending and their tax revenues with phantom money. But like funding consumption with debt, this too is an end-game that leads to the same result: the destruction of the State and both its enforcement of profitable cartels and its vast social spending.
The road for both global capital and the State is narrowing to a rocky trail that leads to a cliff. Two sides of the same expansionist coin, neither can continue to expand in a world of diminishing return, shrinking margins, surplus labor, declining wages and tax base, higher input costs and a restive, entitled/high-expectations, urbanized and under-employed workforce.
The standard business cycle has no answer to these structural quandries, and even the credit expansion/renunciation Kondratieff cycle does not provide a model for the next global system, or perhaps non-system. Technology cannot provide the "solution" because technology replaces labor-intensive business models with new low-labor models of production and service.
There will be no labor-intensive technological revolutions, there will only be technological revolutions that radically reduce the need for human labor. Just as profit margins approach zero in a world of over-capacity and over-supply, so too does the the value of most labor decline.
These are not issues that are unique to capitalism; the same dynamics are pressing socialist states that own key industries and control the markets in their nations. The old ideological models of the 19th and 20th centuries are increasingly disconnected from the new realities of capital, State and labor.

We need a new model, and a re-hash of the old broken models will no longer do.

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DavidC's picture

Well I hope it gets here soon, this insanity is getting to me.


economics9698's picture

What capitalism?  Where is it?

mikla's picture


Global Fascism is not capitalism.

nugjuice's picture

Thank God someone pointed out that this isn't Capitalism.

It's Corporatism sprinkled with Socialist Democracy.

aka Gil's picture

I didn't see any suggestions for a new model. The narrowing road leads to a cliff? Perhaps chaos will spawn the new model.  

mikla's picture

The "new model" is merely the model before oligopolies "captured" governments through "partnership", resulting in fraud upon the consumer, fraud upon the electorate, and capital mis-allocation so severe as to necessitate the murder of millions -- in the name of the, "Greater Good".

trav777's picture

article was tl;dr

replace the cliff pic with one of a walk downhill

economics9698's picture

The new model is simply the old model.  Return to gold and silver, 100% fractional reserve banking, and the rest will take care of itself.

When the people control money they are in power.  When central banks control money they are in power.

Is that simple enough?

blu's picture

You have confused value with production.

We have no working model for production.

BigJim's picture

Cliff notes: Charles Hugh Smith falls prey to the lump of labour fallacy.

swmnguy's picture

Good catch.  I like Smith's writing, but when working through his arguments, I usually come to a dead end.  Digging a little further, I find an unstated assumption that fouls up his whole argument.  It's frustrating, because his arguments show a lot of promise until...they don't.

blu's picture

Not exactly. If you mean the comments about capital fleeing highly-paid national labor forces for the harbor of lesser-paid national labor forces, this has clearly happened and is a shady emergent property of the goal-seeked road to maximum quarterly returns. Corporations have been in a head-long (and it turns out somewhat self defeating) stampede to extract the last ounce of profit from the failing western economic model by turning workers into blinkered consumers, many of whom were then encented by government programs to use their homes and their childrens' futures as collateral to debt their way into temporary happiness.

But no matter. It is now doomed. Whatever happened is a question that will not endure the devouring jaws of what comes next.

dhengineer's picture

And that's the point of the article:  the pseudo-capitalist model is dropping the pretense of working as it did before WWI.  To call the banking cartel "capitalism" is to misunderstand what capitalism actually is.  And the dolts who claim that capitalism has failed probably could not even define true capitalism, since few of us have ever lived in a true capitalist society.

AnAnonymous's picture

We did not have capitalism in this country since Lincoln signed down the emancipation act.

Signed: an American.

TheFourthStooge-ing's picture

Blobbing up of Chinese citizenism shark finaticism cannot be contained by polycarbonation of the enclosing means.

Signed: AnAnonymous

smacker's picture

"To call the banking cartel "capitalism" is to misunderstand what capitalism actually is.  And the dolts who claim that capitalism has failed probably could not even define true capitalism"


max2205's picture

Really...the doom on this site is over the top, with no timing to offer.

GS must be funding Tyler.

If .05% of this bullshit came true we'd be around 800 spy.

Tyler get some timers on this site or you will be just another laughable "market" site

Me, I'll check the headlines here but not much else.

a growing concern's picture

Guess what? No one cares. And when reality finally does rear its head, SPY at 800 will seem like the laughably optimistic ravings of a lunatic.

francis_sawyer's picture

as we all know... SPY 'is' the economy... There's nothing else ~ not even God...

edwardo1's picture

Fascism is the marriage of corporate and state power, and, clearly, the author understands that very well. However, even if the present brand of capitalism, distorted as it is by its fascist aspect, were to be reformed, there are a still a host of other factors, which the author went to some pains to enumerate, that stand in the way of a capitalist revival. We have, indeed, arrived at the End of History, but not as Francis Fukuyama envisioned it. Not by a long shot.

Ghordius's picture

without taking any merit from your sentence, for many europeans that still remember fascism here this kind of talk is still a bit strange

yes, fascists themselves talked a lot of "marriage of corporate and state power", but they understood it more in the way of state power slapping corporate power (and worker's unions, btw) around as necessary for state reasons

a very, very, very oldfashioned marriage

what you are describing is corporate power getting whatever it wants from state power, which for us is a kind of reverse fascism and a reason for the rise of popular support for our dictators - the crisis of the liberal state vs the socialist alternative and the fascist "third way", with strong appeal to the conservative elements and a strong distrust of the "bourgeoisie"

I understand the ivory tower term is inverted totalitarianism

Spastica Rex's picture

At the risk of sounding sycophantic, your clarity of thought is really impressive - and that doesn't mean I agree with everything you say.

Lack of context, either by circumstance or by intent, is a big problem 'round here.


Ghordius's picture

you are very kind and I have to admit this is the result of much mulling, some homework and many lesser attempts here in ZH to express this bellyache

often it's intent - and the old adage that politics makes strange bedfellows, who then adapt their talk accordingly

Carl Spackler's picture

I do agree that state power "slapping" around corporate entities for the purpose of achieving the state's own goals, is the purest form of fascism.

However, I purport that we (depends on your collective use of the term...I'll start with the European Union or the USA, for that matter) are simply on a different path headed to that same end-state (no pun intended).

The more important questions are how close are we and at what velocity are we traveling? 

* Keep in mind that the final step to getting there will be some "crisis" situation arising, through which the state -in response- declares itself THE sole institution to be served by all others, including the corporate organizations/interests, in the name of "saving the people of the state."

Jumbotron's picture

Fascism is the marriage of corporate and state power, and, clearly, the author understands that very well. However, even if the present brand of capitalism, distorted as it is by its fascist aspect, were to be reformed, there are a still a host of other factors, which the author went to some pains to enumerate, that stand in the way of a capitalist revival. We have, indeed, arrived at the End of History, but not as Francis Fukuyama envisioned it. Not by a long shot.



Give edwardo1 a gold star and a cigar.

Welcome to Prison Planet !

tickhound's picture

More than likely gone for good.  Monopoly is a game you can only play over and over... not forever.  Or pray for destruction on a mass scale if you're that devout.

midtowng's picture

Everything you know as capitalism that has existed in history.

Granted, that is different from capitalism theory. But you can't look back at some age in the past where that theory existed as fact.

misterb4096's picture

O/T but does Tyler Durden intend to report the story of the cop going around Los Angeles killing other cops?
I'd like to see how the ZH community views this, as I think this has the potential to be the next (although far too soon) Sandy Hook like event.

eclectic syncretist's picture

Don't get me wrong, but Sandy Hook's a fucking joke the way the media and government have used it to pursue a political/bankster agenda.  There has been no real tenable solution tabled. Blame Asperger's rather than the fact that our culture promotes sociopaths being allowed to defraud the populace with impunity?  It's a joke.  A real sad joke.

misterb4096's picture

That's basically what I was getting at as well. This situation could be used to promote an agenda just like the Sandyhook shootings. I could feasibly see parts of Los Angeles being locked down over this, and in a way being treated like some psyop where they condition the rest of us to get used to boots on the ground in our own communities. This is the first situation that I can remember where someone has gone out to specifically target police officers, and it will not be good for our freedoms. In fact, two civilians have already been wounded by over zealous police officers shooting at them because their cars matched the description of the shooters car. Get used to this shit Amerika...

eclectic syncretist's picture

Agreed.  It's a very good story, but the media/government probably figures that shooting LA police officers isn't as important (i.e. politically galvanizing) as shooting kids.  Send some crazy asshole into Goldman Sachs manhattan offices upper deck and off some sociopaths and then the media/government/zerohedge ect. will be all over it like gangbusters.

Citxmech's picture

The reason this story is so buried (IMHO) is that it doesn't sell easily to the "ban assault weapons" crowd.

Here's evidence that the police can have fucked-up individuals on the force carrying the same weapons they want to deny us.  Then there's the part about nervous cops shooting innocent unrelated individuals.

Hell, this is the kind of story that makes more folks want to go home and buy an AR or two.

Citxmech's picture

FYI - check out the picture of the car that the police fired on:

Two women delivering newspapers in a different make and model pickup.  F'n LAPD's finest.


trav777's picture

there's a cop going around mudering people with asault weapons...somehow, this isn't national news.

But george zimmerman was.  sandy hook, aurora...

Do you note the difference in color between the "perpetrators"?  The media  won't tolerate negative images of black men doing what black men frequently do.

the news isn't covering that kidnap murder of the class president at UNC (eve carson) either, grabbed off the street, pretty white girl, by two black felons (one of whom had killed an indian student previously), taken to ATM, robbed, then shot 5 times and dumped out of her car.  this shit happens all the time; it's an epidemic.

Yeah, i'm the racist...

trav777's picture

his manifesto is should read it.

and not the redacted one.

He's staunchly pro obama, pro gun control, loves msnbc, hates the NRA, hates the fuck out of white people, claim he choked a fellow cop for saying "nigger" (typical race card concoction), that some guys actually sung nazi prison camp songs to a jew (how much more incredible can a made-up story be than this...fucking nazi prison camp songs??? who the fuck speaks german?), and on and on and on.

He's a typical example of the left these days, especially black.

And you racist-americans want to find common ground, bwahahahahahaha

tickhound's picture

Touted for ANONYMOUS tho??  Basically equated cop "chalk lines" to overtime pay... LOL, perfect.  Too perfect.  He had his moments. 

tickhound's picture

Any NEW ideas, bitchez?  Cuz that's what all this is REALLY gonna take.

AssFire's picture

uhh, stop the hand outs- both corporate and welfare?

maybe require work and stop rewarding irresponsible behavior?

there that was easy.

tickhound's picture

If only it was that easy.  Did you even read the article?

AssFire's picture

Well some people won't make it- that is the hard part. The breeders won't be able to eat and will need to go the the fema camps.

Beats slavery I guess. Let them die there of old age- just no more spawn from these types.

natronic's picture

Yea how about a president and congress that actually do their job instead of worry about who's playing at the next Wed. concert at the white house and has their invitation arrived.  The political class is killing us and I think it's time for a part time congress again just like most states have.  They need to serve the people instead of serving themselves.

NidStyles's picture

Yes, because lack of government action was the problem the whole time, right? They were acting the whole time, in their own self-interest. Why? Because that is what humans do.

CrimsonAvenger's picture

See now, that's a hell of a question and the key to moving forward. My wife was shocked when I told her I was no longer a capitalist, having been such a diehard business guy up to this point. But she agreed with my assessment that capitalism is based on eternally increasing expansion, which is impossible given finite resources. I don't know what the new model is, but I'd be very interested in all suggestions.

harami's picture

A near limitless supply of cheap energy for the next +100 years would be a great place to start.

blu's picture

Oh look everyone we have a techno-utopian today!

tickhound's picture

Good.  Such things shouldn't be taboo in these jonx... cutting edge and all.

NidStyles's picture

No, that is being a Monetarist. Capitalists are savers

SunRise's picture

Resources are infinite!

With a larger telescope, we can see much further, but never reach the outer limit.

With a larger microscope we can see much further, but never reach the inner limit.

Evidently, resources are fractal and continue on into infinity, so here we are positioned between 2 sets of infinite resources.

It's the same issue with human thinking about the distance around a lake:  We think it's limited, but actually it's infinite. (As an exercise, try making your steps smaller and smaller into the atomic level of grains of sand.)

The issue is with our limited thinking about infinite resources and the freedom to pursue ownership and use of such resources.

thisandthat's picture

You still can't go around profitability - if it's negative, you'd better forget about it.