The end of capitalism?

Immanuel Wallerstein, a sociologist and prolific author who is a Senior Research Scholar at Yale among his other positions and accomplishments, has recently written The End of the World As We Know It, and The Decline of American Power. Both are well worth reading, though not as light reading. And both cover a wide spectrum of subjects

In particular, I find interesting his argument that the world is entering a period of fundamental transition from its current equilibrium capitalist system to some unknown new system, which he doesn’t pretend to be able to predict. His argument, in sum, runs like this:

The world’s current capitalist system depends on accumulating capital from profits. Profits come from the difference between the cost of production of an item and its selling price. Now in the absence of monopolies or other market distortions, selling price is capped by the effect of competition. If the price is set too high (too much profit) it encourages competitors to come in and sell at a lower price, driving the price back down again.

So the main way producers increase profit is by reducing the costs of production. There are three main ways of doing that:

(1) find sources of lower cost labor, by moving (outsourcing) production to rural third world countries with lower wages and little or no worker organization,

(2) externalize some production costs by passing them on society at large (like dumping waste products into the air or ground water, or using up non-renewable natural resources), and

(3) externalize some production costs by riding free on existing infrastructure, largely by finding ways of avoiding carrying any of the costs (taxes) to build or maintain that infrastructure.

Wallerstein argues that we are rapidly exhausting these three modes of reducing costs. (1) We are rapidly running out of low-wage countries we can outsource to, so wages are becoming an increasing proportion of the production cost, (2) we are rapidly reaching ecological exhaustion and depletion of cheap natural resources (like cheap oil), and (3) the spread of democracy is increasing demands for public expenditures on health, education, pensions and the like, and so increasing the tax burden on the costs of production.

So, he argues, the system is putting an increasing structural squeeze on profits, which will eventually make it unprofitable to be a capitalist. Some (as yet unknown) new world system will have to evolve, which may be better or may be worse.

Interesting theory! Not a common view, and there are some strong counter-arguments, but his fundamental thesis is interesting and worth considering.