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Guest Post: Is This The Terminal Phase Of Global Capitalism 1.0?
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:
The Structures of Everyday Life (Volume 1)
The Wheels of Commerce (Volume 2)
The Perspective of the World (Volume 3)
The Wheels of Commerce (Volume 2)
The Perspective of the World (Volume 3)
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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The money wasn't debt then, so there is a distinctive difference. Sure it was still State Controlled Markets making a Command economy, which translates now into Fascism, but at least the money wasn't debt.
Listen - I'm no big fan of debt, and hold none myself.
Thanks for all your insight. You seem to be able to sum up the totality of society, history, and economics in a sentence or two. It's amazing. That kind of confidence must feel like being on drugs.
Henry Ford and the generation after the industrial revolution practiced capitalism...
---------------------
Aint the 'american' relationship to time, chronology and the rest wonderful?
Henry Ford and the generation after the industrial revolution...
My, my, my, 'Americanism' all the way...
The new Henry Ford in fact exists: Elon Musk
He founded PayPal.
2012 was notable for him for two reasons:
His Dragon cargo module became the first private craft to dock at the International Space Station.
His Tesla Model S sedan won Motor Trend's Car of The Year ... all-electric and almost flawless, with a plan to counter range anxiety as well through fast, free charging stations being built throughout California.
Yes, things suck.
No, they're not hopeless.
The future is actually quite bright for a certain percentage of humanity. Globally, it's a small percentage. In the U.S., I don't know - maybe 15%? 20%?
The rest of us will eventaully FOAD.
This is corporatism not capitalism. This wouldn't be happening in a free market.
What's truly horrible is that this collapse will be sold as capitalism's fault and the sheeple will scream for more government control and cement their own doom. I believe this is called Stockholm Syndrome.
If you raise your hand and try to plead the contrary you will be sent to the Camp of Education for the Greater Good to have your thinking corrected.
All this would not happen if we had true Americanism.
Signed: an American, a true American. Not a fake, like the fake global economy we have now. Which is really true when it comes to be a fake global economy. Well, you see what I mean here, bro...
Americanism forever!
“The current form of global capitalism is running out of road” because it is not capitalism.
“Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management.” Ludwig von Mises
The Free Market’s Slow Death by Alisdair Macleod -- Excerpts:
The idea that we have a capitalist economy, where assets are priced on the basis of their productive value is untrue…
“Prices are no longer simply set by buyers and sellers but are manipulated by governments and central banks. The system that is failing is not capitalism, but price-rigging by government…
“Outrage focuses on the activities of avaricious bankers, which is why the connection never gets made between relatively minor manipulations of credit pricing by banks and far larger manipulations by central banks.
“It is the latter that should really concern us
“It is now impossible for any business to rely on market pricing, which is why there has been explosive growth in derivatives… the bulk of these derivatives only exist to hedge market uncertainties that are the consequence of government interventions…
“We should extend our condemnation of government intervention from interest rates to government-issued money itself…
“We face the economic calculation problem identified by von Mises. It was the eventual undoing of the Soviet Union, and we have fallen into the same trap.”
http://lewrockwell.com/orig13/macleod1.1.1.html
www.mises.org
...hate that word, "terminal"...it sounds so, so....final.
This 'american' propagandist must run out of material to be forced to include some facts about Smithian economics.
Woooo, outsourcing, a natural consequence in a Smithian economics environment due to concentration of wealth? Must have been a pain to admit that point or simply run out of propagandist ideas?
This said, as the 'american' propagandist is stuck with his 'american' way of thinking, he has to rely on propaganda to make it.
At present point, there is not end to global stuff.
This 'american' guy had this 'american' perception of China.
China was the peeble in the shoe for long because China managed to trap activity for some time. Which this 'american' exploited as a sign of low cost labour shortage.
Wrong.
On the very contrary, the downfall of China will increase the turnover among low cost areas.
An area is selected, hosts for some time an activity. But due to concentration of wealth (workers consume both by their work and needs), the area grows more expensive. Pooof, the activity is moved elsewhere.
In the meantime, as this area is now deprived of activity, it goes down, taking a new position in the queue waiting for the activity to be shipped once again to it.
There will be no shortage of low cost labour areas.
'Americans' have planned for long a world tour of misery in order to satisfy their consumption.
The Chinese for some time delayed the plan but now it is over.
I'm telling you, it's going to play out exactly as portrayed in The Running Man, Cadre Cola and all.
Who loves you, and who do you love!?
Funny how this 'american' loves to pander to his audience.
So he sells the idea that the 'american' global economy is about to end.
Certainly not. Far from it.
But people who will have a benefitial access to it will change.
Certainly, the number of 'americans' who took so much from the global economy is going to shrink.
They are now going to be trapped in a local level of the economy. Which is going to be ugly.
This 'american' also eludes the point that the State in 'american' societies exist to serve the King class aka We The People aka the american middle class.
And 'american' servant elite figured a long time ago that for saving the 'american' middle class a part of it has to be sacrificed so the other part can endure.
Therefore the burden of the State will mechanically diminish, less and less 'american' entitlement mindset middle classers to satisfy.
The remaining access to the global economy will be largely enough to go along with the decreasing number of the master race, aka the 'american' middle class.
Despite how annoying some of your posts read, you are starting to make sense.
Zerohedge is not a blog as much as it is a labyrinth of ideas.
Between the many of us, we hold a clue.
That's a pun. Ariadne I'm sure would approve.
In short,
if I understand the gist of your comment,
the USA will more and more be subject to the same treatment
as any other province of the global and globalist empire.
At its core, what we call the capitalist system rests on the belief (not shared by all cultures) that the world, and all that exists, can be owned, or privatized.
It is a system which operates by:
1) privatizing the natural wealth of the world, all its species, even the activities of its human and other denizens.
The privatization necessarily includes “rights” of individual ownership.
2) The rights of ownership are used to channel power and wealth to the owners. Owners compete to own more, and to prevent what they own being taken away. Monopolies and owner institutions are established.
3) A money system is developed to facilitate the exchange of property and as a means for property owners to extract wealth and services from the non-owners of property. (Imposing a tax on natives has been a traditional colonial method of forcing natives to work or trade in order to get the money to pay the tax).
4) Everything privatized is treated as a commodity and becomes priced. The competition between owners, and the collective actions by owners force every “property” to be valued monetarily, and ultimately by its functionality in obtaining more property and services ( profit in money-measured terms).
Privatizing, gaining control of the world and others is built into the “capitalist” world-view.
Conquest for ownership of the world is its ultimate logic.
The so-called capitalist economy is centered around profits.
All “capitalist” profit is based on one form or another of limited access, whether to markets, resources, or labor.
It is the ability to turn a good or service into cash flow. And this, in turn depends upon the power to exclude - the power to deny customers a valuable product , rivals from a market.
Without property “rights”, patents, licenses, captive markets, or captive labor, profits diminish. There is a built-in bias toward monopolization of resources and production, and labor arbitrage - and the symbioses with government, … all done to establish and protect privileged access.
Profit is a man-made concept. It is a limited concept. Profit does not and cannot measure the worth of every and all things and be the ultimate guide to human conduct. The concept nonetheless underpins the whole notion that the pursuit of micro self interests will result in the best of all possible worlds. And it is that mistaken notion which is often used to justify the worst of all outcomes, and pronounce that the solution to our miseries is to increase business profits.
Never mind the profits made by ruining forests, rivers, and oceans. Never mind the profits from destroying the fisheries and polluting the air. Never mind financial parasitism. Never mind sweatshops, child labor, and poisoned foods. Micro profit, it seems, does not measure the environmental losses to society, nor the debilitation and destruction of human beings. But yet, under capitalism, profit is to be the ultimate arbiter of human conduct. Or so we are told.
Sadly, Mining may be one of the worst environmental disasters.
You have the mind of a child; I suppose you think that the world at large should be fair and that without profit we would live in harmony and peace for all time as you suppose "nature" does . If you look closely at nature though you will not harmony but rather chaos as each plant or animal strives to live another day in order to share it's DNA even at the expense of it's own kind. No living thing does anything for nothing. I will not let my family suffer for the "greater good" because some elitist told me it was the "right thing to do". Sharing is an assinine concept in that it breeds resentment on the part of the giver and a sense of entitlement on the part of the receiver. One helps others because of the sense of good that it instills within us, or for some a simply a tax deduction.
So you do not deny how profit capitalism operates, or to what it leads.
Instead, you assert that seriously entertaining any other form of societal organization would be “child“-like. And that because “sharing is asinine” except of course when done for “family, the sense of good, or a tax deduction”.
So,
You're going after that bear with your hand made bow and arrow?
Have a nice lunch.
Recipe for a Crumble (cake, that's CAKE):
a large amount of Corporate Fascism (let this sit for about 75 yrs)
sprinkle in some Socialist Demo[no]cracy
add Drone, chop finely.
for more constitution to this mixture, you would add inalienable rights-- but no, do not do that, this is a crumble!
for any improvements to this, feel free.
sliced banksters
brazed politicians
diced central bankers
Oh, thats a different recipie, sorry.
Individul freedoms in every sense of the word are proportional to the available resources in the world. As populations grow freedoms shrink its that simple. Ultimately the game turns to the one that has been going on since the dawning of time which is natural selection, evolution and a balance in the natural world. We are coming to the point in human evolution where mother nature prunes the human population on earth. This will be in concert with humans pruning each other. I am sure we most of us reading this will live to this great turning point in human history.
"mother" nature?
really??
from so-called science to mother nature in one sentence! Wow, how many other gods do you have, pantheist?
By the time the "cheap labor" is exhausted abroad, wages in the U.S. will have declined to the levels we currently see in the 3rd world shitholes, and the jobs will ultimately come back to the peasant class here in the U.S. and the whole thing will cycle around again.
Or maybe not.
Capitalism is just missing the next world war.....Destroy have of civilization every 50 years or so and capitalism does just fine!!
Dronen just doesn't get the job done!!
go to a museum and look at the solar sytstem in motion, or better yet, build one. What is a resolver?
I see that CHS finally mentions something about energy and resources in today's article but its kind of done just in passing. He should look in greater detail for insights there. That's where the story gets interesting.
"Global capital is thus finding its input costs rising on virtually every front: energy and resources cost more"
It's amusing that most around here still maintain that the debt being accumulated is in anything so abstract as money.
The debt was then, is now, and shall forever remain a debt to entropy.
Notice it is a debt that cannot be paid off by any earthly means. But it will be paid nevertheless.
This is the original Faustian bargain. I find the topic endlessly fascinating.
I read somewhere, it might have been Michael Hudson that by 1940 the US industrial capacity could have provided all the material needs and products for all families in the United states. Excluding the need for capital destruction through war, which serves the betterment of the owners, the notion that 1940 industrial capacity could serve all human needs throws into question the need for Capitalism or even a further extreme, the need for currency itself. Of course that industrial capacity would have created a wide spread equality that wouldn't suit the entitled few owners. However, the thought of a society 70 years in the past producing everything that a society needs points to a potential new human economic model.
Sounds like Star Trek.
And I'm not being a dick.
Kondratief winter is coming with just a touch of terminal frost:
http://www.youtube.com/watch?v=ef7_H4VGuIw