On Wallerstein.

A few days ago I was asked to watch and presumably comment on an interview with Immanuel Wallerstein about capitalism and the debt crisis. Here’s part one. Here’s part two. Here’s part three.

Wallerstein had some interesting things to say about the long-run stability of systems, but I would probably disagree with most of his other beliefs. For instance, he used a much broader definition of capitalism than I would. He talked about accumulating capital instead of the far more important goal of creating capital (more on that in a minute). He claimed that the overall cost of inputs has risen steadily over 500 years, which I would argue is not true in any meaningful sense. He claimed that one day soon, capitalists will not be able to accumulate any more capital– I’d love to hear him talk more about that because it reminds me of long-dead concerns that humans were physically incapable of traveling faster than 60 mph, the long-disproven boasts from patent officials who thought that everything useful had been invented, and the apocryphal claims that no more than this many computers would ever be necessary.

I think he was slightly mistaken about the priorities of capitalism and capitalists– though I may have simply misunderstood where he was ranking “the accumulation of capital” and “profits.” Let me explain how I see it, then you can watch the video and tell me whether he agrees with me. If you’re a capitalist in the sense of being a person who favors capitalism, then earning profits is a means to an end, which is capital creation. If you’re a capitalist in the sense of being a person who accumulates or creates capital, then it’s the other way around: you accumulate or create capital in order to earn profits for yourself. You can fit one definition of capitalist without fitting the other.

Wallerstein claimed that the world will soon face a choice between capitalism, which favors the “privileged,” is “hierarchical, exploitative and polarizing”– though he is gracious enough to grant that there may be worse systems– and a system that will be “relatively democratic and relatively egalitarian; a system the world has never seen.” To me, this raises a Red flag. The uppercase “R” is deliberate. I think it is very safe to generalize that throughout history, the most hierarchical, exploitative and polarized countries have been the least capitalist countries. I don’t see that changing anytime soon. But who knows? Maybe we are at an inflection point in history. Marx has to be right eventually, doesn’t he?

Wallerstein spoke about debt problems faced in the 1980s by Poland, Romania, and eastern Europe in general, and even attributed the execution of Ceauşescu to his efforts to pay back Romania’s foreign debts. He didn’t mention the economic systems used by (or, more properly, imposed upon) Poland, Romania, and eastern Europe up through the 1980s. It’s as if they just happened to have poverty, massive debt, and poor economic growth, and it had nothing to do with socialism and communism. He’s ignoring the elephant in the room. Latin America and Africa were not exactly bastions of capitalism, either.

“Fine,” one might say, “but that doesn’t explain why capitalist countries are facing debt crises today.”

True, that doesn’t– at least not directly. I would point out that the debt crisis has grown along with the size of the welfare state within capitalist countries. In short, I think it’s being driven by the least capitalist element of capitalist countries.

There are typically three culprits blamed for the debt crisis today: massive social spending, massive military spending, and inadequate tax revenue to pay for it all. As I just said, I think that in most countries facing massive debt today, the biggest problem is the social spending– but let me address the other two factors first.

It’s possible that inadequate tax revenue is the main culprit. But I’d be willing to bet that countries with both high and low tax revenues (as a percentage of GDP) are facing debt crises today. I would also point out that the higher you have to raise tax rates to pay for whatever the government’s buying, the harder it is to call yourself a capitalist country.

It’s possible that massive military spending is the main culprit. Wallerstein strongly suggested this when he mentioned Bush, Iraq, and the fact that we spend more on our military than the next however-many highest-spending countries combined. I think he also hinted at it when suggesting that American decline began in 1970, i.e., during the Vietnam War. Big military budgets might explain the debt crisis in some countries, such as America and Greece. But what about the countries that don’t devote much of their budget to the military, such as Portugal, Japan, Spain, and Ireland? I’m not saying military spending shouldn’t be frozen or cut– just that military spending isn’t the biggest part of the problem.

I think the main culprit is the social spending. I don’t think Wallerstein would agree. Nation after nation has promised more and better social programs over the last several decades, and without major reform (which is resisted far more heavily than are cuts to military spending), these programs grow far beyond projections– sometimes by orders of magnitude.

Furthermore, “social spending as biggest factor” also fits Wallerstein’s timeline of American decline. He said the decline began around 1970? Fine. The Vietnam War was going sour, true, but the late 1960s and early 1970s also saw the creation of massive new welfare programs, the creation of a new entitlement program (Medicare), and the expansion of an old entitlement program (Social Security). Later Presidents and Congresses expanded these programs (or at least did very little to slow their growth) and added some more. The growth in social spending far and away outstrips the growth in military spending. Butter is at least as much to blame for this mess as guns.

But in fairness, I haven’t read Dr. Wallerstein’s broader body of work, in which he may have qualified and explained his thoughts in a more satisfactory fashion.

P.S. I love the concept of a “government bubble.” Wallerstein didn’t use that precise term in his list of post-1970 bubbles, but I’m going to start using it.

In my first draft of this, I wrote that the ultimate goal of capitalism is to create capital. That’s not quite right. The ultimate goal is to raise standards of living, which is made possible by capital creation. I think capitalism is historically unmatched in both regards.

3 comments

  1. “To me, this raises a Red flag. The uppercase “R” is deliberate.”

    This is one of my favorite things you’ve written in some time.

    Like

  2. I agrees with warrant that this may be my favorite post, but perhaps that’s narcissism because I get to claim inspiration.

    I’m not sure that I agree with your addendum that capitalism’s main goal is to increase the quality of life – I think that’s a bit idealistic, although I certainly can’t argue that that hasn’t been an outcome.

    I would also err on agreeing with Wallerstein on the exploitive nature of capitalism, particularly on the periphery and indeed the semi-periphery, too. Even underdeveloped countries that install capitalism can’t compete with US subsidies and even if they could, their caught in the debt trap.

    Countries like India, and China, which have adopted free markets and capitalist models are having major problems with wealth distribution for just that reason. A small percentage is able to exploit and accumulate capital while the rest remain impoverished.

    I do appreciate your post! Why take more economics class when I have viscariello.com?

    Like

  3. 1. I agree that you “err on agreeing with Wallerstein,” unless that’s not what you meant to type. But let’s assume for a second that he makes a valid point about debt traps. Why do the countries in question have debt?

    2. I may have been a bit sloppy in claiming that capitalism‘s “ultimate goal is to raise standards of living.” I meant something along the lines of, “the goal of any economic system should be to raise standards of living.”

    Let me refer back to the two definitions of capitalist. The goal of most proponents of capitalism is to raise standards of living, though there are some some who support capitalism because they consider it morally superior to other systems. The goal of most people who create or accumulate capital is to maximize their own profits, though there are some philanthropists who create or accumulate capital in order to improve standards of living.

    But whatever the goals are, intention is not achievement, and achievement is not intention. You don’t have to intend to help people in order to actually help people, and intending to help people does not automatically mean actually helping them.

    3. “Countries like India, and China, which have adopted free markets and capitalist models are having major problems with wealth distribution for just that reason. A small percentage is able to exploit and accumulate capital while the rest remain impoverished.”

    First, let’s be clear that these countries have just started to move towards free markets in some sectors of their economies in the last 20 years. China is still overwhelmingly communist, and India was heavily socialist for decades after they gained independence from the UK.

    Second, here’s a (simplistic, granted) hypothetical: Say 10 out of 10 people are poor before adopting System X, but only 9 out of 10 people are poor after adopting System X. One out of 10 has risen out of poverty. I suppose you could blame System X for the fact that “the rest remain impoverished,” but couldn’t you just as easily credit System X for the one who rose from poverty? Especially if the standard of living for the nine hasn’t dropped? And especially especially if the standard of living for all ten has risen over the last few decades, despite the wealth gap?

    4. I think Warrant meant that the “Red” line was his favorite, not that the whole post was his favorite.

    Like

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