[OPE] Wallerstein, "The Depression: A Long-Term View"

Commentary No. 243, Oct. 15, 2008

"The Depression: A Long-Term View"

by Immanuel Wallerstein

The depression has started. Journalists are still coyly enquiring of
economists whether or not we may be entering a mere recession. Don't believe
it for a minute. We are already at the beginning of a full-blown worldwide
depression with extensive unemployment almost everywhere. It may take the
form of a classic nominal deflation, with all its negative consequences for
ordinary people. Or it might take the form, a bit less likely, of a runaway
inflation, which is simply another way in which values deflate, and which is
even worse for ordinary people.

Of course everyone is asking what has triggered this depression. Is it the
derivatives, which Warren Buffett called "financial weapons of mass
destruction"? Or is it the subprime mortgages? Or is it oil speculators?
This is a blame game, and of no real importance. This is to concentrate on
the dust, as Fernand Braudel called it, of short-term events. If we want to
understand what is going on, we need to look at two other temporalities,
which are far more revealing. One is that of medium-term cyclical swings.
And one is that of the long-term structural trends.

The capitalist world-economy has had, for several hundred years at least,
two major forms of cyclical swings. One is the so-called Kondratieff cycles
that historically were 50-60 years in length. And the other is the hegemonic
cycles which are much longer.

In terms of the hegemonic cycles, the United States was a rising contender
for hegemony as of 1873, achieved full hegemonic dominance in 1945, and has
been slowly declining since the 1970s. George W. Bush's follies have
transformed a slow decline into a precipitate one. And as of now, we are
past any semblance of U.S. hegemony. We have entered, as normally happens, a
multipolar world. The United States remains a strong power, perhaps still
the strongest, but it will continue to decline relative to other powers in
the decades to come. There is not much that anyone can do to change this.

The Kondratieff cycles have a different timing. The world came out of the
last Kondratieff B-phase in 1945, and then had the strongest A-phase upturn
in the history of the modern world-system. It reached its height circa
1967-73, and started on its downturn. This B-phase has gone on much longer
than previous B-phases and we are still in it.

The characteristics of a Kondratieff B-phase are well-known and match what
the world-economy has been experiencing since the 1970s. Profit rates from
productive activities go down, especially in those types of production that
have been most profitable. Consequently, capitalists who wish to make really
high levels of profit turn to the financial arena, engaging in what is
basically speculation. Productive activities, in order not to become too
unprofitable, tend to move from core zones to other parts of the
world-system, trading lower transactions costs for lower personnel costs.
This is why jobs have been disappearing from Detroit, Essen, and Nagoya and
factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in
them. But speculative bubbles always burst, sooner or later. If one asks why
this Kondratieff B-phase has lasted so long, it is because the powers that
be - the U.S. Treasury and Federal Reserve Bank, the International Monetary
Fund, and their collaborators in western Europe and Japan - have intervened
in the market regularly and importantly - 1987 (stock market plunge), 1989
(savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long
Term Capital Management mismanagement), 2001-2002 (Enron) - to shore up the
world-economy. They learned the lessons of previous Kondratieff B-phases,
and the powers that be thought they could beat the system. But there are
intrinsic limits to doing this. And we have now reached them, as Henry
Paulson and Ben Bernanke are learning to their chagrin and probably
amazement. This time, it will not be so easy, probably impossible, to avert
the
 worst.

In the past, once a depression wreaked its havoc, the world-economy picked
up again, on the basis of innovations that could be quasi-monopolized for a
while. So, when people say that the stock market will rise again, this is
what they are thinking will happen, this time as in the past, after all the
damage has been done to the world's populations. And maybe it will, in a few
years or so.

There is however something new that may interfere with this nice cyclical
pattern that has sustained the capitalist system for some 500 years. The
structural trends may interfere with the cyclical patterns. The basic
structural features of capitalism as a world-system operate by certain rules
that can be drawn on a chart as a moving upward equilibrium. The problem, as
with all structural equilibria of all systems, is that over time the curves
tend to move far from equilibrium and it becomes impossible to bring them
back to equilibrium.

What has made the system move so far from equilibrium? In very brief, it is
because over 500 years the three basic costs of capitalist production -
personnel, inputs, and taxation - have steadily risen as a percentage of
possible sales price, such that today they make it impossible to obtain the
large profits from quasi-monopolized production that have always been the
basis of significant capital accumulation. It is not because capitalism is
failing at what it does best. It is precisely because it has been doing it
so well that it has finally undermined the basis of future accumulation.

What happens when we reach such a point is that the system bifurcates (in
the language of complexity studies). The immediate consequence is high
chaotic turbulence, which our world-system is experiencing at the moment and
will continue to experience for perhaps another 20-50 years. As everyone
pushes in whatever direction they think immediately best for each of them, a
new order will emerge out of the chaos along one of two alternate and very
different paths.

We can assert with confidence that the present system cannot survive. What
we cannot predict is which new order will be chosen to replace it, because
it will be the result of an infinity of individual pressures. But sooner or
later, a new system will be installed. This will not be a capitalist system
but it may be far worse (even more polarizing and hierarchical) or much
better (relatively democratic and relatively egalitarian) than such a
system. The choice of a new system is the major worldwide political struggle
of our times.

As for our immediate short-run ad interim prospects, it is clear what is
happening everywhere. We have been moving into a protectionist world (forget
about so-called globalization). We have been moving into a much larger
direct role of government in production. Even the United States and Great
Britain are partially nationalizing the banks and the dying big industries.
We are moving into populist government-led redistribution, which can take
left-of-center social-democratic forms or far right authoritarian forms. And
we are moving into acute social conflict within states, as everyone competes
over the smaller pie. In the short-run, it is not, by and large, a pretty
picture.

by Immanuel Wallerstein

[Copyright by Immanuel Wallerstein, distributed by Agence Global. For rights
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These commentaries, published twice monthly, are intended to be reflections
on the contemporary world scene, as seen from the perspective not of the
immediate headlines but of the long term.]

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Received on Wed Oct 15 09:38:29 2008