Wolfgang Streeck – Capitalism: Home Alone

Excerpt from Wolfgang Streeck’s book that appears this week, “Taking back Control? States and State Systems after Globalism”, London and New York: Verso, 2024, pp. 108-21 ISBN-13: 978-18397767296

Wolfgang Streeck is Emeritus Director and Senior Research Associate at the Max Planck Institute for the Study of Societies, Cologne, Germany

Capitalist crises do not necessarily come from within, from capitalism itself; they can also come from without, caused by external shocks. Today’s capitalism is being attacked by three apocalyptic horsemen: climate change, which may be approaching one or another tipping point; the global spread of a deadly disease; and the collapse in the capitalist heartlands of the post-1990 international order into war, possibly even nuclear war. Of course, while all three seem at first glance to be exogenous to capitalism, they could just as well be seen as by-products of the normal course of capitalist development: its relentless penetration of nature and its violent transformation of social life and social structures on a global scale. Be that as it may, the virus and the war have dealt a final blow to the fiat money central bank state, destroying its hope of restoring stable growth and finance to a neoliberal global economy – a hope that had already become unrealistic for some time. There is no longer any prospect of capitalist governance by central banks and their miraculous money-making powers becoming the new normal – a permanent, reliable, confidence-inspiring solution to the inherent conflicts and contradictions of capitalism as a political-economic system.

The Emergency State

If the purpose of the Central Bank State was to stabilize the financial system after the 2008 crisis, now, under what suggests itself to be called an Emergency State, what takes precedence over everything else is the stabilization of society as a capitalist society, by whatever means. What the concept of the Emergency State refers to is a state overwhelmed by unpredictably emerging disasters, events that require immediate short-term attention without allowing for attention to long-term consequences, even though they may cause damage that may be impossible to repair later. Covid, for example, deeply disrupted established patterns of work and consumption, threatening entire industries with extinction and forcing governments to compensate the losers, individuals and businesses, on a large scale. This was not only to ensure compliance with public health measures such as lockdowns or home-working, but also to preserve the possibility and promise of a full return to pre-Covid life once the virus was defeated. Packages of emergency measures were and had to be stitched together to counteract popular discontent, disregarding all other concerns, especially fiscal ones. Covid also caused widespread disruptions in international value chains, which had already become unstable in the wake of 2008, with global trade stagnating in key economic sectors due to the complexity and limited governability of finance and production on a global scale. Shortly thereafter, de-globalization was reinforced by the war in Ukraine, which turned the “re-shoring” that had been underway since the financial crisis into what came to be known as “friend-shoring”: a reorganization of the global economy into hostile political blocs, resulting in the fragmentation of the neoliberal world economy along political and geostrategic lines and, at least for an uncertain transition period but possibly for the long term, creating shortages of both outsourced components and consumer goods.

Today, it is primarily the ongoing preparations for World War III that are disrupting the supply chains of yesterday’s neoliberal one-world capitalism, including in particular the provision of cheap energy for production and consumption in the capitalist heartlands. Among other things, this has led to a rise in the cost of living that has been felt by ordinary people more than in the inflationary state of the 1970s, and in particular has severely tested mass loyalty to consumer capitalism. The new type of inflation, which originates on the supply side, combines with the hitherto hidden inflationary tendencies produced by quantitative easing and the revival of the debt state within the central bank state, and is reinforced by opportunistic profit-making. Unlike the 1970s, today’s wave of global inflation is not caused by strong trade unions representing the interests of their members. On the contrary, emaciated as the unions are after three decades of neoliberalism, they can hope for recovery by fighting for wage increases to keep pace with price increases, setting in motion a price-wage spiral, the reverse of the wage-price spiral of the 1970s. Failing that, union members and non-members alike may take to the streets and wreak all sorts of political havoc to resist their unfolding impoverishment. As with the loss of income during the pandemic, emergency state governments faced with supply-side inflationary pressures are reduced to “populist” firefighting by compensating for families’ real income losses and subsidizing the accustomed mass standard of living with cash handouts from the public purse, i.e., more debt.

Fiscal giveaways to compensate for sudden losses in real income for ordinary people are improvised responses by political elites in panic over the breakdown of political consensus and social order, with the prospect of political and social chaos. They are not the harbingers of a new version of the capitalist state: no new system of production, no new model of capitalism, as neoliberal capitalism was in relation to state-managed capitalism, or state-managed capitalism was in relation to pre-war liberal capitalism. All that exists is the desperate hope of protecting private industry from bankruptcy and private households from sudden poverty by shifting the burden of the crisis onto the public budget. As a long-term political regime, the emergency state is unsustainable: the way it uses public resources to buy political support is ultimately self-destructive. Underlying the politics of the Emergency State is a hope, both desperate and indispensable, that a return to the world before the crises will be possible, making it unnecessary to develop a new capitalist growth model or, alternatively, to prepare for a permanent downward adjustment of economic expectations. But then flooding the masses with fiat money to make them sit still cannot go on forever: something else will have to take its place when the hastily devised solutions to today’s crisis have again and again caused the next crisis, as they inevitably will. The emergency state can only be a transitional state, even more so than the other versions of the capitalist state that preceded it: not a social order, as neoliberalism aspires to be, but a state of disorder, of what the Italian social theorist and Communist Party leader Antonio Gramsci called an “interregnum,” a term that is increasingly seen as an apt description of our time: a situation, as Gramsci put it, “in which the old is dying, but the new cannot yet be born”.

Clueless

At the time of the pandemic and the war in Ukraine, there was not even a rough consensus on how to cure the disease of secular stagnation and public debt, or who should be the doctor: the nation-states, the central banks, or perhaps the G20, the G8, the US, or the EU? Should they act together or alone? With or without China? At the end of the twelve years between the financial crisis and Covid, the disputes of the wise and powerful had produced nothing to lighten the mood of depression in the centers of capitalism – neither in the US under Donald Trump, nor in the UK of Brexit, the France of the “yellow vests,” Italy with its erased political center, or Germany with the rise of the Alternative for Germany (AfD), especially in the east, where its electoral results were on the way to overtaking the parties of the old political center.

A brief look back at the various panaceas for capitalist stagnation that have been tried and found wanting since the “end of history” reveals the deep uncertainty that had gripped economic management under neoliberalism long before the collapse of the “rules-based international order”. In the 1990s, it was thought that a return to growth could be achieved by consolidating public finances, i.e. by reducing public debt and switching to restrictive fiscal policies. By the end of the second decade of the new century, however, the opposite was hoped for: increased government spending financed by increased borrowing, even though after 2008 public debt above a fixed ceiling had been declared by the economic authorities to be an insurmountable obstacle to growth. And while the eradication of inflation after 1980 was celebrated throughout the neoliberal era as an epochal achievement of economic policy – in particular, the strict separation of monetary and fiscal policy, the emancipation of central banks from government control, and the imposition on them of a firm obligation to maintain monetary stability – after the mid-2010s, every possible method was tried to bring back inflation in order to, astonishingly enough, restore economic growth.

Whereas in the heyday of neoliberalism money had to be kept in short supply to keep it stable and trustworthy, central banks were now urged to issue it in unlimited quantities (“and believe me, it will be enough”), and instead of being concerned with monetary stability and nothing else, they were suddenly expected to take responsibility for growth, employment and the environment. When inflation, now an engine of growth rather than an obstacle to it, failed to return despite unprecedented increases in the money supply, central banks threw up their hands and passed the buck back to governments, insisting on the natural limits of monetary policy as a means of restoring growth. To stay in business, growing sections of the economics profession converted to a kind of twice-bastardized Keynesianism, proclaiming that fears of inflation and government debt ruining public finances were unjustified after all; that inflation had been wiped out by low interest rates and the destruction of labor unions; and that government debt would pay for itself because central banks would keep interest rates low and “structural reforms” that increased productivity would provide stable growth above the level of interest rates. Not much later, starting in 2021 and really kicking in in 2022, inflation returned with a vengeance, but accompanied not by renewed but by further declining growth.

Macroeconomic debates among experts escape the attention of ordinary people, but one can be sure that a sense of the helplessness of capitalism’s economic wizards in the face of the mysterious end of one crisis and the equally mysterious beginning of the next will somehow percolate down and have a demoralizing effect. It is a time of uncertainty more than ever – and it is a time when the most surprising theories and therapies sprout from the most surprising soil. In August 2019, at the annual meeting of central bankers in Jackson Hole, Wyoming, the governor of the Bank of England, Mark Carney, proposed the introduction of a global digital currency to replace the US dollar as the international unit of account, with the effect that the countries of the world would liquidate the dollar reserves they had built up as insurance against fluctuations in the global economy. Here was yet another explanation for the “savings glut” and yet another solution to it.

Two months later, Carney’s predecessor, Mervyn King, lamented at an IMF conference that nothing had been done since 2008, including his time as governor (2003-2013), to prevent a repeat of the financial crisis: “By adhering to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards this crisis ….”. The Guardian report continues: “King said the world had entered and emerged from the global financial crisis with a distorted pattern of demand and output. Getting out of the low-growth trap permanently required a reallocation of resources from one component of demand to another, from one sector to another and from one firm to another. “There was too much investment in some parts of the economy – for example, the export sector in China and Germany and commercial real estate in other advanced economies – and too little in others – infrastructure investment in many Western countries. To bring about such a reallocation of resources – both capital and labor – will require a much broader set of policies than just monetary stimulus. As a therapy, King suggested secret discussions between central bankers and politicians to make lawmakers aware of their vulnerability: “Congress would be faced with a choice between financial Armageddon and a suspension of some of the rules put in place after the last crisis to limit the Fed’s ability to lend.” The helplessness of the money artists, to the extent that it trickled down in any form, and it clearly did, could have no other effect than to exacerbate the problems of pre-capitalism in terms of both industrial investment and political legitimation.

The Great Uncertainty

More than two years into the war in Ukraine, the confusion on how to manage a post-neoliberal capitalist economy is enormous, with the economic and political legacy of neoliberalism both persistent and dysfunctional. There are no signs as yet of an end of the secular tendency of declining growth in the capitalist center. Moreover, neoliberalism has left behind massive piles of public debt and a bloated global money supply, as well as huge balance sheets of the leading central banks believed in need to be cut – probably to keep capitalism capitalist – without quite knowing how without causing the next turmoil. Inflation will be around for some time, and interest rates are likely to remain volatile, the dream of a steady decline of the ‘natural rate of interest’ being dreamt. At the same time, the fragmentation of the global economy is shortening supply lines and interrupting long-distance trade routes, not as a result of politically willed deglobalisation but for reasons of both technical ungovernability and national – or better: imperial – security.

Like always in capitalist crises, the problem is not that there would not be work to be done. Demand is not what is lacking; it is only effective demand that is. This is least the case with the arms industry, which faces a glorious future although it entirely depends on orders from governments on the brink of bankruptcy. (When it comes to accumulating new means of destruction there seems to be effectively no limit to states’ ability to pay). There is also growth potential in the huge efforts, more than overdue, at mitigation of the effects of climate change, from urban renewal to dike building to reforestation. But this must be paid out of public budgets, and the way things are it can be financed only by debt, tax increases being politically impossible and technically unenforceable. New debt, however, would add to the old debt, the servicing and the rolling-over of which is becoming more expensive due to the higher interest rates, testing the limits of public borrowing as set by the confidence, or non-confidence, of private capital. In any case, high interest, inflation and interrupted supply lines add to the cost of infrastructural investment, raising the amount of public money needed. Private investor confidence is also required for the greening of energy generation, its move away from coal and imported oil and gas to renewables and nuclear. Here, too, public subsidies may be needed, and certainly reliable assurances of political resolve that cannot easily be given not just because of fiscal constraints but also because of the unpredictability of political support.

Moreover, neoliberal austerity has left deep gaps in public services, such as elder care and health care, that demand urgently to be closed. Income inequality, having increased over three decades, makes it imperative that such repair work be paid for, not by user fees or social security contributions, but by governments already suffering from an endemic fiscal crisis. In many countries, including Germany, there are now also significant skills shortages caused by decades of malevolent neglect of education. This has contributed to keeping productivity increases low, even with digitization. Demographic change – a rising number of old people and pensioners coincident with a declining number of young people due to decades-long low fertility – not just adds to the fiscal burden but has begun to cause labour shortages of a magnitude that cannot nearly be compensated by immigration. There also seems to be in several countries a tendency among workers to minimize their participation in the labour market, perhaps in response to declined career prospects, or in order better to be able to balance work and social and family life, as work outside of the household is becoming both more demanding and less rewarding. For all these reasons, hopes for a new wave of economic growth seem unlikely to come true.

Perhaps the restructuring of social and economic life in response to the climate crisis could entail major opportunities for economic growth and prosperity, much like reconstruction after the war of 1939-1945. For this, however, a large-scale redeployment of capital and labour would be needed, moving production factors out of old economic sectors into new ones, in a situation in which the fiscal capacities of the states and the monetary capacities of the central banks would appear to be already at their limits. Also, the long years of neoliberalism have shrunk the planning capacities of governments at all levels, for the benefit of the private sector, at the expense of citizens losing confidence in the technical competence of public bureaucracies. Rather than support for a collective effort, with an equitable sharing of the burden, one can more likely expect local outbreaks of discontent. Similar to the Covid crisis, they might however be dragged out over a long period of social and economic transformation when the purpose of the exercise may get out of sight while the necessary public means will be hitting their limits. Will there be a post-neoliberal state system able to project not just the appearance but also the reality of technical competence combined with social justice, demonstrated by successfully reigning in opportunistic attempts by capital to let the costs of ecological restructuring be paid by society alone? And how can there be a societal regime emerging that would end post-neoliberal uncertainty and provide the world with a less anarchic and more stable and reliable economic and political order, one in which sovereign democracies command a capacity to protect their citizens and the world from the invisible hands of blind market forces as well as the visible hands of imperial Großstaaten?

Capitalism and No Beyond

Capitalism is about the infinite accumulation of privately-owned capital for investment in its continuing infinite accumulation. All members of a society that has allowed its economy to be conducted in the capitalist way are expected to allow themselves to be enlisted for this purpose, although the results of their in principle open-ended efforts end up in the hands of a small minority, in accordance with the nature of capitalism. The cooperation of those who cannot expect to have a share in the result of society’s collective production efforts – those whose life enters as cost in the calculations of the profit of others – needs to be won through effective techniques of motivation which must be constantly adapted to changing means and relations of production. Generally speaking these take the form of ‘work incentives’, which can range from promises of religious redemption (Weber) through threats of physical punishment and prospects of economic misery (Marx) to, more recently, housing loans, consumer credit, remuneration over and above market price (the so-called ‘efficiency wages’), a social policy designed to extend the labour supply, career ladders in ‘internal labour markets’, ‘bonuses’ related to ‘performance’ and, something very important since the rise of consumer capitalism, an unending stream of mercilessly ‘improved’ consumer goods. The problem which this is to solve was identified by Marx in his inquiries into economic history in Capital Vol. 1 as, although he expresses it differently, a constant temptation among non-capitalists to backslide to a subsistence economy: to be satisfied with what they have and content themselves with a constant level of consumption defined as good enough by tradition. Traditionalism in this sense is considered also by Weber as a deadly enemy of capitalism whose flourishing depends on the members of its society being successfully socialized to squeeze out as much of their labour power as possible, instead of allowing it to rest once a given level of need satisfaction has been achieved – in short, to maximize the output of their labor power instead of minimizing its input.1 

Postwar capitalism, when it was institutionalized after the global economic and political crises of the first half of the twentieth century, gained the cooperation of capitalist society’s non-capitalist majority by a general promise of political-economic progress. Backed up by political democracy and trade union representation, this promise included constantly rising wages, participation of the labour force at the workplace and within the enterprise, full and stable employment in different national forms, a social policy which mitigated and warded off market pressures, and a range of egalitarian policies to correct the primary, market-generated distribution between capital and labour of their jointly produced social product. All of this was underpinned by a political and social contract, summarily known as the postwar settlement, which safeguarded the continued accumulation of privately-owned capital by politically mediated and guaranteed concessions to the non-capitalist majority who as such had no direct interest in the unending growth of capitalist capital.

By the 1970s at the latest, this solution of the capitalist motivation problem had proved to be counterproductive, as indicated by the crisis of the 1960s which culminated in the mass strikes of 1968 and 1969, the American equivalent being the uprisings in those years in the “inner cities”. What had originally been intended to secure growth now threatened to obstruct it: high wages expected by wage earners to get higher year by year; a ‘rigid’ employment regime in the labour market and at the workplace; and industrial citizenship rights (TH Marshall) which could be invoked to ration the labour supply by limiting the hours of work. Capital’s answer was the neoliberal revolution, directed against the democratic nation-state as the social locus of the postwar compromise and its promise of social progress, with the danger it entailed of the rise of a new subsistentialist traditionalism. The search was now on for improved motivational techniques, aimed at making the progress of capitalist accumulation more independent of politically mediated social and economic concessions. A central role in capital’s fight against the apathy of its retainers and the stagnation of capital accumulation caused by it was played by increased competitive pressures on the workers of the ‘affluent societies’ of the West, domestically by ‘deregulation’ and across national borders by ‘globalisation’, forcing them to work harder and submit themselves more obediently to unpredictably fluctuating market conditions, by developing the new kind of ‘governmentality’ that has been so strikingly portrayed by Michel Foucault.

The neoliberal revolution replaced the promise of social progress as a work incentive with a formula that became current by the end of the twentieth century: fear and greed. As Colin Crouch put it, neoliberalism set about turning what had been secure citizens of a democratic welfare state with guaranteed social rights into insecure workers and confident consumers simultaneously: on the one hand driven by existential worries to work and on the other enticed by constantly raised consumption norms to keep shopping. As time passed, however, the inherent contradictions of this project made themselves felt. Where neoliberalism’s dismantling of social protection was intended to impel the non-capitalists towards redoubled work efforts, it gave rise to an ever more unequal distribution of the social product, limiting effective demand and causing the productivity of the economy as a whole to stagnate or decline. For many of those dependent on the sale of their labour power this meant that more and more effort was required to preserve what they already had while what a given effort would gain them became less and less. Progress disappeared into a distant future or became, individualized, dependent on redoubled effort, privileged starting conditions, and the accidents of fortune. Now even subsistentialist withdrawal into a traditionalist static mode of life required greater exertion, including a watchful readiness to adapt oneself obsequiously to constantly and unforeseeably changing markets and competitive conditions, at a high risk of failure and no guarantee of a good end.

No one really knows how the current revolution of sinking expectations could be ended. To bet on promises of capitalist progress, for example in connection with the so-called digitization, seems risky to say the least; digitization is politically marketed not as a beacon of hope but as a “challenge”. Nor does a rhetoric of blood, sweat and tears, as an encouragement to what is called “painful structural reforms”, kindle any enthusiasm when there is no credible prospect of a shining future after the end of the hard times. Exhortations to the many to be satisfied with less, which may be more topical than ever against the background of the environmental crisis, but also of geostrategic deglobalisation and the present and future wars, can hardly expect to receive much of a hearing in view of increasing distributional inequality in favor of the few. The same was already true of neoliberal exhortations to join in altruistic pro-capitalist enthusiasm over calculations by the World Bank and others, according to which as a result of neoliberal globalization fewer inhabitants of the planet than ever had to make do with less than 1.90 US dollars a day, claimed to mean that they had been ‘lifted out of abject poverty’ by capitalism. Human needs cannot be determined absolutely, but only in relation to particular local conditions of life and work – not to mention that prosperity depends not only on individual income per capita but also, and perhaps predominantly, on collective goods such as access to clean water and healthcare, hygienic waste-disposal, freedom from corruption and violence, an equitable education system and the like. The dawning suspicion that the limits to growth in a capitalist accumulation economy might have drawn nearer combines for more and more people with a sense that living and working under capitalism has become ever more burdensome, restless and insecure, with continually growing effort required for continually declining returns.

Politics in stagnant neoliberal capitalism has got stuck as it no longer knows how to legitimate not just capitalism but also itself: by invoking happy prospects of renewed growth or by demanding a return to a simpler life, which in practice would mean water instead of wine for most and champagne for the happy few. Under the mixed economy of the postwar past, capitalism derived its legitimacy from a social policy promising a pacified social existence in the lee of creative destruction, untroubled by its storms. Social stability rested on widely shared “fictional expectations” (Beckert) of a state-protected life shielded against the risks and the rat race of capitalist progress, a life under a non-capitalist capitalism, or a not-really-capitalist capitalism, semi-authenticated by the soothing prospect of retirement this side of capitalism with a legally guaranteed old-age pension.

It is not for nothing that defending old-age pensions seems to have become the last form of anti-capitalist struggle among most ordinary people in the rich capitalist societies. The proletarians of today subject themselves to the iron rules of life in the service of capital accumulation until the age, say, of 62 or 65, to be from then on entitled to enjoy life at public expense in the service of themselves while still young enough to do so. It is far from surprising, then, that pensions are, in the jargon of American politicians, the ‘third rail’ of contemporary politics – the rail that carries high-tension electricity: touch it and you are dead. With the public pension system as the last remaining object of anti-capitalist desire – the last utopia of a free life in a commercialized society – capitalism had even before the latest crises that put an end to the neoliberalism of the New World Order become for a growing section of its domestic servants a capitalism without transcendence, entirely self-referential, lacking any perspective beyond itself: capitalism pure and simple, thoroughly secularized, capitalism as such.