structural crises

Hamilton Grimaldi's photo


We must avoid any notion that history is on our side. We must capture Fortuna, even if she escapes us.

The term 'crisis' played a central role in several national political debates during the 1970s, despite the wide variety of its definitions. In the final moments of that century, it was replaced by another, more optimistic term: 'globalization'. Since 2008, however, its somber tone has returned, and the notion of 'crisis' has suddenly come to the fore; its use, however, is much more dispersed. Questions concerning how to define a crisis, and how to explain its origins, are again at the forefront.

In the late 1960s and early 70s, both the hegemonic and generally economic cycles of the modern world-system entered a phase of decline. The period between 1945 and approximately 1970 – aptly named, in French, les trente glorieuses – marked the apex of American hegemony and coincided with the most expansive upward phase of the Kondratieff cycle that the capitalist world-economy had ever seen. The downward phases were absolutely normal, not only in the sense that all systems have cyclical rhythms – it's how they live, the way they deal with the inevitable fluctuations of their operation – but also because this is how capitalism, as a overall system, it works. There are two key questions here: how do producers profit and how do States ensure the order of the world within which producers profit. Let's deal with them one at a time.

Capitalism is a system whose purpose it is the infinite accumulation of capital. To accumulate capital, producers must earn profits from their operations, which is only possible, on a significant scale, if the product can be sold for considerably more than its cost of production. In a situation of perfect competition, it is impossible to profit on such a scale: a monopoly, or semi-monopoly, of power over the world-economy is necessary. The seller can thus charge any price, as long as it does not exceed the limits established by the elasticity of demand. Whenever the world-economy is expanding significantly, some of its 'main' products are relatively monopolized, and it is from the profit extracted from them that large amounts of capital can be accumulated. The economic knock-on effects, both forward and backward, of such products form the basis for a widespread expansion of the world-economy. We call this phase A of the Kondratieff cycle. The problem, for capitalists, is that all monopolies eventually self-liquidate, as new producers can enter the global market, no matter how strong a given monopoly's defenses are. Of course, this entry takes some time; but, sooner or later, the degree of competition increases, prices fall, and therefore profits too. When profits on core products fall sufficiently, the global economy stops expanding, and enters a period of stagnation – phase B of the Kondratieff cycle.

The second condition for capitalist profit is that there is a certain global relative order. Although world wars may offer some entrepreneurs the opportunity to do very well, they also cause enormous destruction of fixed capital, in addition to significantly interfering with world trade. The overall balance of the world wars is not positive, a point on which Schumpeter repeatedly insisted. Ensuring a situation of relative stability, necessary for profit generation, is the task of a hegemonic power strong enough to impose it on the entire world-system. Hegemonic cycles tend to be much longer than Kondratieff cycles: in a world with so many so-called sovereign states, it is not easy for one of them to establish itself as a hegemonic power. It was conquered first by the United Provinces in the mid-XNUMXth century, then by the United Kingdom in the mid-XNUMXth century, and finally by the United States in the mid-XNUMXth century. The rise of each hegemonic power has been the result of a long dispute with other potential candidates. So far, the winner has been that state that has been able to assemble the most efficient productive machinery, and then win a 'thirty-year war' against its main rival. The winner can finally establish the rules under which the interstate system operates, to ensure its stable functioning and maximize the flow of accumulated capital to its citizens and its producing companies. One might call this a semi-monopoly of geopolitical power.

The problem faced by the hegemonic power is the same as that faced by industrial leaders: their monopoly is self-liquidating. First, he occasionally needs to exercise his military power to maintain order. But wars cost money and lives, and have a negative impact on its citizens, whose initial pride in victory may evaporate as they pay the rising costs of military action. Large-scale military operations are often less effective than expected, and this empowers those who wish to resist in the future. Second, even if the economic efficiency of the one that conquered hegemony does not immediately falter, that of other countries begins to grow, making them less and less willing to accept its dictates. The victor enters a gradual process of decline from the ascendant powers. The decline may be slow, but it is irreversible anyway.

What made the moment between 1965 and 1970 so remarkable was the conjunction of these two types of declines – the end of the most expansive phase A of the Kondratieff cycle in history, and the beginning of the decline of the most powerful hegemonic power in history. It is no accident that the world revolution of 1968 (actually 1966-70) took place at this turning point, as its expression.

Chasing out the traditional left

The 1968 world revolution marked a third decline – one that had occurred only once, however, in the history of the modern world-system: the decline of traditional anti-system movements, the so-called traditional left. Composed essentially of communists, social democrats and national liberation movements, the traditional left emerged slowly and laboriously throughout the world-system, mainly during the last third of the 1870th century until the first half of the 1950th century; ascending from the position of marginality and political weakness of, say, 1945, to one of political centrality and considerable strength, around 1968. These movements reached the apex of their mobilization power in the period between XNUMX and XNUMX – exactly at the moment of the extraordinary phase A of the Kondratieff cycle and the peak of US hegemony. I don't believe this is a fortuitous phenomenon, although that may seem counterintuitive. The boom in the global economy led entrepreneurs to believe that concessions to the material demands of their workers would cost them less than interruptions in the production process. Over time, this means rising production costs, one of the factors behind the end of industrial leaders' semi-monopolies. Most entrepreneurs, however, make decisions that maximize profits in the short term – over the next three years, say – and hand the future over to the gods.

Parallel considerations influenced the policies of the hegemonic power. Maintaining relative stability in the global system was an essential objective, but the United States had to balance the costs of repressive activity against the cost of concessions to the demands of national liberation movements. Reluctantly at first, but then more deliberately, Washington began to prefer controlled 'decolonization', which had the effect of bringing such movements to power. Consequently, by the mid-1960s, traditional left movements could be said to have achieved their historic goal of taking over state power almost everywhere – at least on paper. Communist parties ruled a third of the world, social democratic parties were in power, or alternating power, in much of another third. National liberation movements had come to power in most of the former colonial world, as had populist movements in Latin America. Many analysts and activists today would criticize the performance of these movements, but that would be to forget the fear that permeated the richest and most conservative layer of the world in the face of what seemed to them a steamroller of destructive egalitarianism, equipped with state power.

The 1968 world revolution changed all that. Three themes predominated in his multiple uprisings: the first asserted that US hegemonic power was overextended and vulnerable – in Vietnam, the Tet offensive was seen as the fatal blow to US military operations. Revolutionaries also attacked the role of the Soviet Union, which they saw as a colluding participant in US hegemony – a sentiment that had grown everywhere since at least 1956. The second theme asserted that traditional left movements had failed to deliver on its historic promises. All three of its variations were premised on the so-called two-step strategy – first seize state power, then change the world. In effect, the militants said: “You took over state power but you didn't change the world. If we want to change the world, we need new movements and new strategies”. The Chinese Cultural Revolution was, for many, the model of this possibility. The third theme asserted that the traditional left had ignored marginalized populations – those oppressed because of their race, gender, ethnicity or sexuality. The militants insisted that demands for equal treatment could no longer be deferred – they were an urgent part of the present. In many respects, the Black Power movement in the United States was the paradigmatic example.

The 1968 world revolution was both a huge political success and a huge political failure. It rose like a phoenix, burned brightly across the globe, but by the mid-1970s it seemed to have burned out in nearly every corner. What had been accomplished by this great wildfire? Centrist liberalism lost its throne as the dominant ideology of the world-system, and was reduced to a mere alternative among others; traditional left movements were destroyed as mobilizers of any kind of fundamental change. But the triumphalism of 1968 proved to be shallow and unsustainable. The world right was similarly freed from any association with centrist liberalism. It took advantage of the stagnation of the world economy and the collapse of the traditional left to launch a counter-offensive, neoliberal globalization. Its main objectives were to reverse all gains made by the lower strata during phase A of the Kondratieff cycle: to reduce production costs, destroy the welfare state and slow the decline of US power. Its advance seemed to reach a peak in 1989, as the end of Soviet control over its East Central European satellites and the dismantling of the USSR itself led to a new triumphalism on the right.

The offensive of the world right was both a great success and a great failure. What has sustained capital accumulation since the 1970s has been a shift in the quest for profits from productive efficiency towards seeking them through financial manipulations, through speculation, to put it more correctly. The key mechanism was the incentive of consumption via debt. This happened in all B phases of the Kondratieff cycle; the difference, this time, was one of scale. After the biggest A-phase expansion in history came the biggest speculative mania. Bubbles moved across the world-system – from Third World and socialist bloc national debts in the 1970s to high-risk corporate debt in the 1980s, from consumer debt in the 1990s to US government debt. in the Bush era. The system went from bubble to bubble and is currently trying to inflate another one, with financial bailouts for banks and the printing of the dollar.

The decline the world is in will continue for some time, and it will be quite profound. It will destroy the last pillar of relative economic stability, the dollar's role as a reserve currency to secure wealth. When that happens, every government's main concern will be to prevent uprisings by unemployed workers and the middle class whose savings and pensions are disappearing. Governments, right now, are turning to protectionism and money printing as their first line of defense. Such measures may momentarily alleviate the agony of ordinary people, but are likely to only make the situation worse. We are entering a systemic impasse, which will be extremely difficult to break out of. This will express itself in increasingly wild fluctuations, which will make short-term forecasts – both economic and police – practically guesswork. This, in turn, will exacerbate popular anxieties and feelings of alienation.

Some claim that the considerably improved relative economic position of Asia – Japan, South Korea, Taiwan, China and, to a lesser extent, India – will pave the way for a resurgence of the capitalist enterprise, through a simple geographical relocation. Another illusion! Asia's relative advancement is a reality, but one that further compromises the capitalist system by further extending the distribution of surplus value, thus reducing overall individual capital accumulation rather than enhancing it. China's expansion accelerates the reduction in profit margins of the capitalist world-economy.

General systemic costs

It is at this point that we need to consider the secular trends of the world-system, as opposed to its cyclical rhythms. Such rhythms are common in many types of systems, and are part of their mode of operation – it's how they breathe, you might say. But B-phases never end at the point where previous A-phases began. We can understand each rising phase as a contribution to slow-moving rising curves, each approaching its own asymptote. In the capitalist economy, it is not difficult to discern the most relevant curves. Since capitalism is a system in which infinite accumulation is fundamental, and since capital is accumulated generating profit in the market, the key question is how to produce products for less than the prices at which they can be sold. We then have to determine both what is included in production costs and what determines prices. Logically, production costs are those with personnel, contributions and taxes. All three have increased as a percentage of the current prices at which products sell. This happens despite repeated efforts by capitalists to force them down, and despite waves of technological and organizational advances that have increased so-called efficiency of production.

Personnel expenses can, in turn, be divided into three categories: relatively unskilled workforce, middle managers, and senior managers. The wages of the disqualified tend to increase in A-phases as a result of some sort of union action. When these increase in a way considered excessive by certain entrepreneurs, in particular for high-end industries, relocation to areas where wages have historically been lower is the main remedy; if a similar action takes place at the new location, a second move takes place. These shifts are costly but successful; however, there is a worldwide knock-on effect – reductions never completely eliminate increases. For more than 500 years, the repetition of this process exhausted the loci to which capital can be reallocated. This is evidenced by the de-ruralization of the world-system.

The increase in the labor costs of middle managers is the result, in the first place, of the expanded scale of production units, which require more middle personnel. Second, the political risks of unionizing relatively low-skilled personnel are countered by creating a larger middle tier, politically allied with the dominant stratum and a model of upward mobility for the unskilled majority. The rising cost of senior management, however, is a direct result of the growing complexity of business structures – the famous separation of ownership and control. This makes it possible for senior managers to appropriate ever-increasing portions of firms' revenues as income, thereby reducing the portion going to owners as profit or for reinvestment. This latest increment has been spectacular over the last few decades.

Contribution costs have increased for similar reasons. Capitalists seek to externalize costs, that is, not pay the entire bill for managing toxic waste, renewing raw materials and building infrastructure. From the 1960th century to the XNUMXs, such externalization of costs was a normal practice, little questioned by political authorities. Toxic waste was simply dumped into the public domain. But the world is running out of available public space – in parallel with the de-ruralization of the world's workforce. The health consequences and costs have become so high and so close to home as to produce demands for depollution and environmental control. Resources have also become a major concern, a consequence of the sharp increase in global population. There is now a widespread discussion about the scarcity of energy resources, water, forests, fish and meat. Transport and communication costs have also risen as they have become faster and more efficient. Entrepreneurs have historically footed only a small part of the infrastructure bill. The consequence of all this has been political pressure for governments to assume even more the costs of detoxification, renewal of resources and expansion of infrastructure. To do this, governments need to raise taxes and insist on internalization of costs by entrepreneurs, which certainly cuts profit margins.

Finally, fees have increased. There are several stages of taxation, including private taxation in the form of corruption and organized mafias. Taxation has increased as the scope of global economic activity and state bureaucracies have expanded, but the biggest impetus has come from anti-establishment movements around the world, which have pushed for state guarantees in education, health and lifetime income streams. Each of these elements has expanded, both geographically and in terms of the levels of services demanded. No government today is exempt from the pressure to maintain a welfare state, however much the degrees of provision vary.

All three production costs steadily increased as a percentage of the actual selling prices of goods, albeit in the form of a AB ratchet, for 500 years. The most dramatic increases occurred in the post-1945 period. Wouldn't it be possible to simply increase the price at which products are sold in order to maintain real profit margins? This was exactly what was attempted in the post-1970 period, in the form of price increases sustained by expanding consumption, which in turn was sustained by indebtedness. The economic collapse in the midst of which we find ourselves is but an expression of the limits of the elasticity of demand. When everyone spends far beyond their true income, there comes a point where someone has to stop, and pretty soon everyone feels like they should too.

succession struggles

The conjunction of these three elements – the magnitude of the 'normal' collapse, the increase in production costs and the additional pressure on the system from Chinese (and Asian) growth – means that we have entered a structural crisis. This system is far from equilibrium, and the fluctuations are huge. From now on, we will be living in the middle of a bifurcation of the systemic process. The question is no longer 'how will the capitalist system reconstitute itself and renew its momentum forward?' but, 'what will replace this system? What order will emerge from this chaos?'

We can think of this period as a systemic crisis in the arena of struggle for the successor system. The outcome may be inherently unpredictable, but the nature of the dispute is clear. We are faced with alternative choices, which cannot be presented in institutional detail, but which can be suggested in a general way. We can collectively choose a new system that is essentially similar to the current one: hierarchical, exploitative, and polarizing. There are many ways in which this can happen, and some may turn out to be harsher than the capitalist world-system in which we live. On the other hand, we can choose a radically different system, one that never existed – a relatively democratic and relatively egalitarian system. I have called the two alternatives 'the spirit of Davos' and 'the spirit of Porto Alegre', but the names are not important. What matters is to see what are the possible organizational strategies on each side, in a struggle that has been unfolding to some extent since 1968 and may not have completely ended before 2050.

We must first note two crucial features of a structural crisis. As the fluctuations are radical, there is little pressure for a return to equilibrium. During the long 'normal' lifespan of the system, such pressure was the reason why extensive social mobilizations – so-called 'revolutions' – were limited in their effects. But when the system is far from equilibrium, the opposite can happen – small social mobilizations can have huge repercussions, what complexity science calls the 'butterfly effect'. We can also say that it is the moment when political agency prevails over structural determinism. The second crucial feature is that in neither camp is there a group at the top calling the shots: a 'ruling class executive committee', or a politbureau of the oppressed masses. Even among those committed to the struggle for the successor system, there are several actors, defending different emphases. The two groups of conscious activists on both sides are also finding it difficult to persuade the larger groups that form their potential bases about the usefulness and possibility of organizing the transition. In short, the chaos of the structural crisis is reflected in the relatively disorderly configuration of these two fields.

The Davos camp is deeply divided. There are those who want to institute a highly repressive system that glorifies the role of privileged leaders over submissive subjects. There is a second group that believes that the path to control and privilege lies in a meritocratic system that would co-opt the large number of managers needed to maintain it with a minimum of force and a maximum of persuasion. This group speaks the language of fundamental change, using slogans that have emerged from anti-establishment movements – a green universe, a multicultural utopia, meritocratic opportunities for all – while preserving a polarized and unequal system. In the field of 'Porto Alegre', there is a parallel split. There are those who crave a highly decentralized world that favors long-term rational allocations over economic growth and that allows for innovation without creating specialization cocoons that are unresponsive to society as a whole. There is a second group that is more oriented towards a transformation from above, by managers and specialists; they aim for a much more coordinated and integrated system, a formal egalitarianism without real innovation. So, instead of a simple one-on-one battle for the successor system, I envision a three-way struggle – one between the two main camps and one within each camp. It is a confused situation, morally and politically; and the outcome is fundamentally uncertain.

What are the practical gestures that anyone can adopt to move this process forward? There are no formulas, just lines of emphasis. I would put it at the top of the list of actions that we can take, in the short term, to minimize the suffering that arises from the breakdown of the existing system and the confusions of the transition. This might include winning an election to obtain greater material benefits for those who have less; gain greater judicial protection and political rights; adopt measures to combat further erosion of our planetary wealth and the conditions for our collective survival. However, these are not, in themselves, steps towards creating the new successor system we need. A serious intellectual debate is needed about the parameters of the kind of global system we want, and about the transition strategy. This requires a willingness to listen to those we deem to be of good character, even if we don't share the same opinions. Open debate will certainly build greater camaraderie, and perhaps prevent us from falling into the sectarianism that has always defeated anti-establishment movements. Finally, we must build, wherever possible, alternative, decommodified modes of production. In doing so, we can discover the limits of many particular methods, and demonstrate that there are other ways to ensure sustainable production than a reward system based on the profit principle. Furthermore, the struggle against the world's fundamental inequalities – gender, class and race/ethnicity/religion – must be at the forefront of our thoughts and actions. This is the most difficult task, since none of us is free from blame, and the world culture we inherited militates against us. Need I say that we should avoid any notion that history is on our side? We have, at best, a 50% chance of creating a better world-system than the one we live in. But 50% is plenty. We must capture Fortuna, even if she escapes us. What would each of us have the most useful thing to do?

*Immanuel Wallerstein (1930-2019) was a senior professor at Yale University (USA). Author, among other books, of Historical capitalism and capitalist civilization (Counterpoint).

Translation: Daniel Pavan.


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