Wolfgang Streeck explains how to reform capitalism for a better 21st century

Summary: We have hundreds of ideas for small reforms of America, but few for radical reform of the capitalist system that runs it. As a demonstration of this problem, Wolfgang Streeck gives a profound critique of capitalism and Adam Tooze  one of the most powerful essays I have seen in a long time. This is part two; part one discussed how we drifted into this crisis of capitalism.

How Will Capitalism End? by Wolfgang Streeck
Available at Amazon.


A General Logic of Crisis

By Adam Tooze,
London Review of Books, 5 January 2017.

Posted with his generous permission.

Review of Wolfgang Streeck’s How Will Capitalism End?: Essays on a Failing System.

Part two of two: looking at the end of capitalism, and beyond.

The publication of How Will Capitalism End?: Essays on a Failing System thus comes when Streeck has positioned himself as the leading intellectual proponent in Germany of a Gaullist vision of Europe from the left. Now that his cards are fully on the table it is a good moment to try to answer the question: how did Streeck turn critical theory into a vehicle for the assertion of the primacy of the nation?

In one respect at least the national turn has allowed Streeck to subsume what might once have been seen as a fatal weakness in his analysis into a consistent part of the argument. A truly remarkable thing about his work is that he discusses the future of capitalism entirely without reference to the place where the future of capitalism will surely be decided: Asia. That no doubt reflects the limitations of his professional specialisation – OECD industrial relations. China and India are beyond his ken.

But given the arguments he has been making, his Eurocentrism takes on a new meaning. If you are going to articulate the basic tension of the crisis as existing between a superficial, utilitarian universality on the one hand, and a ‘grandiose jointly produced diversity’ on the other, then Europe is, indeed, the classic terrain on which to make your case. Not that there isn’t nationalism elsewhere. But nowhere else has as many different nationalisms in such a tiny space and nowhere else has tried to merge them the way the EU has. India and China never subordinated themselves entirely to the dictates of neoliberalism, nor arguably has the United States: compared to the EU, Nafta was integration-lite. So if the EU stands for a peculiarly pure form of neoliberal capitalism – a basic contention of the Lexit camp – where better to make one’s stand than Europe? In rejecting the false capitalist homogeneity of the EU, one is saving Europe’s essence, namely its diversity. What could be a better expression of that grandiose diversity, after all, than the battle of Brexit, another round in the centuries-old cross-Channel struggle?

But Streeck is a political economist, so he isn’t content with civilisational arguments. He wants to talk about nuts and bolts, the real power behind the scenes. The particular vector of globalisation that has seized his imagination since 2008 is finance. As a somewhat surprised Martin Wolf remarked in the Financial Times, Streeck worries so much about debt you could mistake him for an Austrian economist. Debt, for Streeck, is an index of the unsustainable balance between democracy and capitalism. It’s the way the system borrows time. At times he takes this metaphor quite literally, describing credit as a mechanism through which ‘not-yet-existing virtual resources … are pulled forward from the future.’ Taken at face value that would suggest a very odd view of economic reality indeed.

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Wolfgang Streeck asks “How will capitalism end?”

Summary: Lost in the trivia of the daily news, we can easily lose sight of the great issues shaping our times.  Such as the future of capitalism, tested by demographic change, slowing growth, rising inequality, and political turmoil. Here is the first of two posts with insights by Wolfgang Streeck and Adam Tooze; one of the most powerful essays I have seen in a long time. This post examines how we came to this point, on the brink of great events. In tomorrow’s post they discuss the forces that will test and perhaps break capitalism.

How Will Capitalism End? by Wolfgang Streeck
Available at Amazon.


A General Logic of Crisis

By Adam Tooze,
London Review of Books, 5 January 2017.

Posted with his generous permission.

Review of Wolfgang Streeck’s How Will Capitalism End?: Essays on a Failing System.

Part one of two: how we got here.


‘Whatever it takes.’ These words, spoken by the president of the European Central Bank, Mario Draghi, to a crowd of investors in the City of London on 26 July 2012, have come to represent the symbolic end to the acute phase of the global financial crisis. In the political sphere, by contrast, where words are supposed to be everything, we have not yet been able to draw the line. More than four years on, we know that in 2012 the political fallout was only just beginning.

It was in December 2011 that David Cameron reopened the European question by opting out of the new ‘fiscal compact’ drawn up by Angela Merkel and Nicolas Sarkozy with the aim of enforcing budget discipline across the EU. In the US in spring 2012, Mitt Romney emerged as the candidate from the Republican primaries, but the freakshow anticipated the Trump campaign to come. In Italy the ousting of Berlusconi in a backroom coup in November 2011 and the installation of the ‘unpolitical’ economist Mario Monti as prime minister set the stage for the emergence of Beppe Grillo and Five Star in the local elections of May 2012. In France as the fiscal compact began to bite, François Hollande’s presidency was dead almost before it had started.

Amid all these events, Germany can easily seem like a bastion of stability, with ‘Merkel über alles’ its anthem. But beneath the smooth surface, Merkel’s grip on the chancellorship has since she took office in 2005 been supported by three successive coalitions. And by early 2013 it was clear that her partners since 2009, the free-market, libertarian, liberal FDP, were in trouble. They were being outflanked on their right-wing by a new formation, the AfD, the Alternative für Deutschland, whose focus in 2013 was not immigration but passionate opposition to the euro. Like much of the German right the AfD was indignant not about austerity, but about the failure of Merkel to back an even harder line. The AfD didn’t break the 5 per cent threshold required to enter parliament at its first try, but it took enough votes from the FDP to drop it out of the Bundestag, leaving Merkel to form a new coalition with the Social Democratic Party (SPD).

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Sociologist Wolfgang Streeck asks if Capitalism has a future

Summary: The pace of change has accelerated since Y2k so that it’s difficult to see what’s happening. Here’s a provocative essay by sociologist Wolfgang Streeck describing an evolution almost too large for us to see as it happens — the decline of capitalism (and, though he does not discuss this, its evolution into something else).


Thou know’st ’tis common;
all that lives must die,
Passing through nature to eternity.

— Queen Gertrude to Hamlet in Act I, scene 2.

Excerpt from “On the dismal future of capitalism

By Wolfgang Streeck
Socio-Economic Review, January 2016

The writing is on the wall, and has been for some time; we must only learn to read it. The message is: capitalism is a historical social formation; it has not just a beginning but also an end. Three trends have run in parallel since the 1970s, throughout the family of rich capitalist democracies: declining growth, rising inequality of income and wealth and rising debt — public, private and total. Today the three seem to have become mutually reinforcing: low growth contributes to inequality by intensifying distributional conflict; inequality dampens growth by curbing effective demand; high levels of existing debt clog credit markets and increase the risk of financial crises; an overgrown financial sector both results from and adds to economic inequality etc.

Already the last growth cycle before 2008 was more fake than real and post-2008 recovery remains anaemic at best, also because Keynesian stimulus, monetary or fiscal, fails to work in the face of unprecedented amounts of accumulated debt.

Note that we are talking about long-term trends, not just a momentary unfortunate coincidence, and indeed about global trends, affecting the capitalist system as a whole and as such. Nothing is in sight that seems only nearly powerful enough to break the three trends, deeply engrained and densely intertwined as they have become.

… State-administered capitalism has failed — that is, was rejected by the owners of capital as too costly for them, to be replaced with free-market capitalism, which has also failed. For the time being, central banks act as regents waiting for a new ruler. But who would this be, and what would be his recipe for holding the capitalist enterprise together?

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Edward Luttwak: Why Fascism is the Wave of the Future

Summary: This morning’s post warning about the resurgence of racism — open, unabashed — was a bust, traffic-wise (we prefer not to know). Let’s look at something different, such as this prescient warning by historian Edward Luttwak. Written in 1994; reads like written today. Articles like this can entertain, but provide more value if acted upon. Elections are won by those who act; voting is not enough.

Fight fascism!


Why Fascism is the Wave of the Future

Excerpt from an essay by Edward Luttwak
London Review of Books, April 1994


That capitalism …is the ultimate engine of economic growth is an old-hat truth now disputed only by a few cryogenically-preserved Gosplan enthusiasts and a fair number of poorly-paid Anglo-Saxon academics. That the capitalist engine achieves growth as well as it does because its relentless competition destroys old structures and methods, thus allowing more efficient structures and methods to rise in their place, is the most famous bit of Schumpeteriana, even better-known than the amorous escapades of the former University of Czernowitz professor.

And, finally, that structural change can inflict more disruption on working lives, firms, entire industries and their localities than individuals can absorb, or the connective tissue of friendships, families, clans, elective groupings, neighbourhoods, villages, towns, cities or even nations can withstand, is another old-hat truth more easily recognised than Gemeinschaft and Gesellschaft can be spelled.

…In this situation, what does the moderate Right – mainstream US Republicans, British Tories and all their counterparts elsewhere – have to offer? Only more free trade and globalisation, more deregulation and structural change, thus more dislocation of lives and social relations. It is only mildly amusing that nowadays the standard Republican/Tory after-dinner speech is a two-part affair, in which part one celebrates the virtues of unimpeded competition and dynamic structural change, while part two mourns the decline of the family and community ‘values’ that were eroded precisely by the forces commended in part one. Thus at the present time the core of Republican/Tory beliefs is a perfect non-sequitur.

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Stanislav Mishin sees “American capitalism gone with a whimper”

Comment by Arms Merchant:

Here’s an interesting perspective from a Pravda editorial writer. His diagnosis of why we are incapable of self-government is It’s the Culture, Stupid. The Russians should be in a position to know, having suffered through their own experiment with Marxism.

Foreigners often have provide valuable perspectives on America, going back to Alexis de Tocqueville. Here is an excerpt from the article Arms Merchant recommends we read. Mishin writes at the blog Mat Rodina.

 “American capitalism gone with a whimper

By Stanislav Mishin
Op-ed in Pravda, 27 April 2009
Posted with the permission of the author.

It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.

True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists.

Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters.
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A different perspective on the US and China, seen by an Frenchman living in Russia

One way to compensate for America’s broken connection to reality — our defective observation-orientation-decision-action loop (OODA loop) is to seek our different perspectives.  In that light I recommend reading this excerpt from “The Wheels of Heaven Stop“, Eric Kraus, Truth and Beauty, 12 March 2009.  For more information about these things see the links at the end.  {Correction:  the title originally described Kraus as an America; he is French}

The Twilight of The Neocons — Rush, we hardly knew ya…

The backlash against the Neocon power-grab is just beginning. The “Reagan revolution” is bankrupt. The United States is a democracy – and democracies do well to create at least the illusion of an equitable distribution of wealth. US government statistics show that earnings of the middle-classes actually regressed over the past “decade of prosperity” – whilst the richest segment of society indeed prospered as never before. As policy goes, this was both short-sighted and foolish. No matter how uneducated, manipulated or obtuse it may be, the populace will eventually realize what is being done to it and – when it has the means to rebel – will do so.

For the record, the failure was not of Capitalism, but with its abuse. Since the beginning of the 19th century, the advanced, industrialized countries have been moving towards some form of moderate Social Democracy, intended to combine the incentives of free market capitalism with some measure of social equity. Sharp deviations in either direction tend eventually to result in compensatory swings back in the other.

If T&B may venture a wild guess, it is that, by the beginning of Mr. Obama’s second term – i.e. well into Great Depression II, the body politic will be ready for some fairly radical policy measures. There is historic precedent – Roosevelt’s New Deal.

Flat Earth gets Rounder

The decline of the Post-War global political structure – which was based upon the overwhelming preponderance of the sole major power to exit the Second War not devastated but relatively strengthened – began not with a defeat but with a victory: the collapse of the Soviet Union. What was not clearly apprehended at the time was that history has no patience with monopolar political systems, and thus, that the collapse of the Communist Bloc signified the atomization of the erstwhile bi-polar world into a constellation of partially antagonistic powers and regions.

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Another voice warning about the nationalization of AIG

I strongly recommend reading this, an explanation by a noted economist of why the nationalization of AIG was unnecessary — there were alternatives (which were legal, unlike the dubious course chosen by Paulson and Bernanke).  Printed in full, with permission of the author.

The transformation of the USA into the USSRA (United Socialist State Republic of America) continues at full speed with the nationalization of AIG“, Nouriel Roubini, posted at RGE Monitor, 17 September 2008 — Roubini is a professor of economics at NYU and former Treasury Department official (Wikipedia entry). Free registration required.  Headings added by me.

Last week we argued that, with the nationalization of Fannie and Freddie, comrades Bush, Paulson and Bernanke had started transforming the USA into the USSRA (United Socialist State Republic of America). This transformation of the USA into a country where there is socialism for the rich, the well connected and Wall Street (i.e. where profits are privatized and losses are socialized) continues today with the nationalization of AIG.

This latest action on AIG follows a variety of many other policy actions that imply a massive – and often flawed – government intervention in the financial markets and the economy:

  1. the bailout of the Bear Stearns creditors;
  2. the bailout of Fannie and Freddie;
  3. the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities);
  4. the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders;
  5. the use of the SEC to manipulate the stock market (restrictions on short sales);
  6. the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market);
  7. the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and,
  8. for the first time since the Great Depression, to bail out non-bank financial institutions;
  9. the recent extension of the collateral available for the TSLF and PDCF facilities to a much wider range of toxic securities including equities and thus allowing the Fed to effectively manipulate even the stock market;
  10. and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgages for banks willing to reduce their face value).

So, with the nationalization today of AIG, comrades Bush, Paulson and Bernanke welcome you again to the USSRA. At least in the case of Fannie and Freddie these two institutions were semi-public to begin with as they were Government Sponsored Enterprises (GSEs). Now we get instead the first pure case of a fully private company, actually the largest insurance company in the world, being nationalized. So the US government is now the largerst insurance company in the world. So the transformation of the USA into the USSRA goes a step further.

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