The Crisis of Capitalism and Its Governance Failure: An Interview with German Sociologist Wolfgang Streeck
Editor’s Note: As an economic system, capitalism is dedicated to the infinite accumulation of capital; any interruption in this accumulation triggers periodic economic crises. To cope with such crises, the capitalist world has undergone extensive neoliberal reforms since the 1970s. Capitalist states have transitioned from being "tax states" to "debt states," then to "consolidation states" (referring here to fiscal consolidation [1]), and finally to "central bank states." Particularly since the 2008 international financial and economic crisis, the stagnation of economic globalization and the spread of the COVID-19 pandemic have driven the emergence of central bank capitalism and the central bank state. Developed economies have become increasingly dependent on "political" funds provided by central banks to compensate for declining demand and to prevent deflation. As temporary solutions to mitigate crisis, these transformations of capitalism and its states cannot fundamentally overcome economic crises; instead, they have greatly weakened the basic pillars of capitalist democracy—including labor unions and collective bargaining—and exacerbated inequality in wealth and income. The decline of Western capitalism highlights the inherent flaws and failures of its governance system. Centering on issues such as the crisis of capitalism, the measures taken by capitalist states to address these crises, and the developmental trends of capitalism, our correspondent Qin Shiya conducted an exclusive interview with Professor Wolfgang Streeck in early 2022.
Wolfgang Streeck (born 1946) is a renowned German sociologist. He has served as a professor of sociology and industrial relations at the University of Wisconsin-Madison, professor of sociology in the Faculty of Management, Economics and Social Sciences at the University of Cologne, and director of the Max Planck Institute for the Study of Societies in Cologne, where he continues to serve as a Senior Researcher. He is a member of the Berlin-Brandenburg Academy of Sciences and Humanities, Honorary President of the German Political Science Association (DVPW), a member of the Academia Europaea, an honorary member of the Society for the Advancement of Socio-Economics (SASE), and a Corresponding Fellow of the British Academy. He has long been committed to the study of economic sociology, industrial relations, the political economy of capitalism, and institutional change. He has published many influential works, including Re-Forming Capitalism: Institutional Change in the German Political Economy (2009), Buying Time: The Delayed Crisis of Democratic Capitalism (2013), How Will Capitalism End? (2016), Critical Encounters: Capitalism, Democracy, Ideas (2020), and Between Globalism and Democracy: Political Economy in the Late Neoliberal Age (2021).
I. The Crisis of Capitalism and Its Consequences
Qin Shiya (Q): Hello, Professor Streeck! Thank you very much for taking the time out of your busy schedule for this interview. You are dedicated to studying the crisis of capitalism and its impact. In 2013 and 2016, you published Buying Time: The Delayed Crisis of Democratic Capitalism and How Will Capitalism End?, in which you conducted an in-depth exploration of the developmental trends of capitalism. In your view, how should we understand the crisis of capitalism and its consequences today?
Wolfgang Streeck (S): A fundamental question involved here is "What is capitalism?" We know that today, capitalism possesses different scales and characteristics in different countries and regions. Furthermore, capitalism in any given place differs across time periods; to some extent, it changes in response to, through competition with, and in cooperation with other capitalisms—simultaneously replicating and diversifying them. So, what do these different capitalisms have in common across time and space? I define capitalism as an economic system dedicated to the infinite accumulation of private capital for the purpose of accumulating even more private capital. Consequently, capitalist society makes its economic development and political stability dependent on the success of capitalist capital accumulation. From this it follows that the political economy of capitalism is, or ideally must be: a permanent expansion toward a horizon of infinite growth, penetrating horizontally and vertically deep into its society in a process that Rosa Luxemburg termed "land-grabbing" (Landnahme).
Thus, a capitalist crisis occurs when capital accumulation is interrupted, obstructed, or stagnates. A capitalist economy must maintain growth, and a capitalist society requires a growing capitalist economy. Capitalism is essentially dynamic, expansionist, and insatiable, committed to what Joseph Schumpeter called "creative destruction." In this context, it is important to recognize that the process of capital accumulation is extremely fragile and always unstable, if only because growth itself is a difficult proposition to grasp. The Marxist tradition holds that capitalism will end under the influence of periodic economic crises—for example, due to the falling rate of profit caused by the increase in the "organic composition" of capital. Had the founders of Marxism lived long enough, they would have seen other causes for capitalist stagnation: saturated markets, trade restrictions, powerful labor unions, environmental degradation, and the costs of public goods required for advanced capitalist production, such as education, public healthcare systems, and developed physical infrastructure.
If capitalism is so fragile, why does it still exist? Why do we see not its end, but its continuous transformation—from the capitalism of early enclosures and Manchester factories to consumption-driven capitalism, and now to capitalism funded by the central banks of affluent Western societies? We observe, first of all, that the successive crises of capitalism have been anything but mild, even in hindsight. While capitalism searches for new forms through which capital accumulation can persist, hunger, death, violence, and even war have emerged—at least for now. Indeed, so far, capitalism continues to prevail, even if in a new form, but this is by no means certain, and it is in any case impossible to predict how capitalism will survive going forward. Thus far, capitalism has always found ways to navigate all these turning points. In my view, this is due to the lack of effective opposition and the fact that the owners and promoters of capital possess ample resources—they are able to fund the investments required for the next transformation, and they enjoy the support of capitalist states. As I have noted, the legitimacy and stability of these states depend on the continuity of the capitalist accumulation process.
Q: Given the high fragility of capitalism, where do you believe these successive crises will lead capitalist society and the world? Or rather, how should we conceive of an alternative to capitalism?
S: What will happen if we cannot find an effective way to end the current phase of capitalist crisis? What I envision is a long period of chaos, anomie, and interregnum—a concept I borrowed from the Marxist philosopher and leader of the Italian Communist Party, Antonio Gramsci. According to Gramsci, during an interregnum, "the old is dying and the new cannot be born." Gramsci goes on to say that in such a period, terrible and unexpected things—"a great variety of morbid symptoms"—may appear, which are difficult to explain according to the known order. During an interregnum, "all under heaven is in chaos" [2]. Whether this means "the situation is excellent" [3] is perhaps another matter.
I discussed this point in my book How Will Capitalism End?. Capitalist society is disintegrating; by disintegration, I mean that the capacity of capitalism as an economic system to guarantee social stability has declined significantly. Low growth, extremely irrational inequality, and mountains of debt; the failure of democracy as a progressive driver of post-war capitalism, replaced by oligarchic neo-feudalism; and systemic disorders, such as contagious corruption in the competition for greater rewards for individual success, accompanied by a culture of moral decay and rapidly spreading international anarchy—all of these have severely undermined the stability of the post-war capitalist social way of life, with no signs of stability being restored. The capitalist social order will manifest in the form of disorder or entropy in a historical era of uncertain duration. Therefore, I also call this post-capitalist interregnum "an age of entropy." Following the disintegration of capitalist society, there will be a historical period lacking collective political capacity, thus becoming a long, indecisive transitional phase. In this stage, crisis becomes the new normal, being neither transformative nor adaptive. Profound changes will occur rapidly and continuously, but these changes are unpredictable and, in any case, uncontrollable. After neoliberal capitalism has cleared away the state, government, borders, labor unions, and other mitigating forces, society in the post-capitalist interregnum could be struck by disaster at any time due to under-governance and mismanagement—for instance, through a bubble implosion or violence seeping from a collapsing periphery into the center.
II. The Essence of Capitalist Debt and the Formation of the Debt State
Q: You have pointed out that in the neoliberal reforms beginning in the 1970s, capitalist states successively adopted illusions of wealth growth—such as inflation, sovereign debt, and private debt—to delay crises. What role do you believe debt plays in the development and crisis of capitalism?
S: Debt is the origin of capitalism. Once primitive accumulation (such as the plundering of village lands or Central American gold) can no longer be sustained, capital accumulation requires credit—in other words, debt. Debt then drives growth because you must repay the debt plus interest; this increases the value of the lent capital beyond its original value. As long as there are opportunities for growth, everything is wonderful. However, if debt cannot be repaid on a large scale, capitalist growth stops, and the capitalist economy and the society dependent upon it fall into crisis.
Because debt must be repaid, it imposes a work discipline on individuals, corporations, and states. Unless you can somehow endure bankruptcy and choose to do so—and thus lose the prospect of obtaining new credit in the future—you must work hard to satisfy the creditors. In the United States, for example, some companies only hire workers who have mortgages to clear, on the assumption that these workers will never go strikes. Furthermore, where consumer credit is easily accessible, workers can compensate for low wages by taking out loans, which compels them to work harder and longer even under sub-standard working conditions.
Q: Besides private debt, public debt has also played a unique role in the maintenance and transformation of the capitalist system. How do you view the relationship between public debt and capitalism?
S: Yes. Today, public debt is of particular interest. Public debt is the result of the widening gap between the public costs of capitalism and the declining capacity of the state to tax increasingly mobile, internationally integrated capital. The public costs of capitalism refer to expenditures on environmental remediation, healthcare, police, national defense, education, legal systems, scientific research, pensions, and so on. A state that cannot increase taxes must borrow money, rather than simply inflating the economy as in Keynesian economics. Today, this has led to a steady rise in national debt levels. Lending to a state is equivalent to investing in the rights to the entire nation’s future labor earnings, with the expectation that the government will make its worker-taxpayers work harder and longer to satisfy the country’s creditors.
Q: Is this what you refer to as the formation of the "debt state" under neoliberal reform? What impact do you think this transformation will have on capitalist society?
●: Issuing debt to pay for the public costs of capitalism is an alternative to taxation. Rather than making the beneficiaries of capital accumulation pay for their own costs—considering that an increase in these costs would make further accumulation more expensive, perhaps prohibitively so—it is better to let future generations pay for them, shifting the public liabilities of private capitalism to the tail end. Under a debt regime that I call the "debt state"—distinguished from what Joseph Schumpeter called the "tax state"—owners of capital purchase the right to enjoy the fruits of the labor of future generations. For them, this is an attractive alternative to taxation: the funds the state needs to support capitalism are borrowed from capital owners rather than levied from them. Consequently, capital owners are able to retain their capital instead of surrendering it to the state. They do not have to give their money to the state; they invest it in the state and usually receive interest in return. What is more, they can pass on the capital invested in the state as an inheritance to the next generation. Public debt thus intensifies the structural inequality of wealth distribution and, to a certain extent, the structural inequality of income. Households possessing capital profit directly from the labor power expended for capital accumulation without even having to invest that capital in factories and the like.
III. Neoliberal Reform and the Crisis of Capitalist Democracy
○: In your analysis, the major capitalist countries after World War II underwent a transformation from the tax state to the debt state and then to the consolidation state in response to economic crises. During these transformations, the relationship between capitalism and democracy moved from a "marriage" toward dissolution. Do you believe there is a necessary connection between the capitalist economic crises and the crises of democracy since the 1970s? If so, is this connection localized or global?
●: The tax state transformed into the debt state in the late 1970s, and the debt state transformed into the consolidation state in the mid-1990s. The post-war union of capitalism and democracy began to dissolve during the transition to neoliberalism, a process that accelerated with the collapse of the Soviet Union in the early 1990s and the rise of China as the "world's factory." Neoliberalism was considered the solution to the growth problems of democratic capitalism that manifested by the 1980s at the latest, which were later termed the "secular stagnation" of capitalism. To make the neoliberal therapy possible, the fundamental pillars of capitalist democracy had to be weakened, including independent trade unions and free collective bargaining. Their demise coincided with the accelerated internationalization or "globalization" of Western economies, which forced them to adapt to the conditions of international markets rather than the needs of workers and other citizens. In Europe, the European Monetary Union (EMU) took charge of monetary policy, thereby removing monetary policy decisions from the scope of national democratic politics. One result was that economically weaker countries no longer had the option to devalue their own currencies to buffer the impact of international competition on their societies. Yes, the economic crisis and the crisis of democracy are related. As mobile capital and competitive international markets control a nation's economy, the influence of mass parties and trade unions inevitably declines.
○: Against this background, do you maintain a relatively pessimistic attitude toward the collective action of workers, trade unions, and left-wing parties in capitalist countries?
●: Yes, and no. In the neoliberal era, many left-wing organizations were destroyed, either through deliberate sabotage or because they were phased out for failing to provide convincing answers to the various crises afflicted upon capitalist countries. However, overall, I am optimistic that given today's rapid changes and the pressures of adjustment and adaptation, people will not indefinitely and silently accept whatever demands the state and capital might place upon them. People are patient, but not forever, and they are not stupid: they create methods of resistance regardless of how you try to stop them. Nor are they isolated: they live here in groups, and these groups formulate their own norms and methods to defend themselves and survive accordingly. In other words, people can organize, and they always will organize, because their survival is inseparable from organization.
IV. Central Bank Capitalism under the Crisis of Globalization
○: In the current context, particularly the global spread of the COVID-19 pandemic, do you think there are new changes or characteristics in the crisis of capitalism? Correspondingly, have capitalist countries adopted any new measures to respond to the present crisis?
●: Fundamentally, I do not think new changes have appeared in the current crisis of capitalism, though they may appear so to a slight degree or phenomenologically. Some key trends that were effective for a period have accelerated, such as the piling up of public debt. Since the 2008 international financial and economic crisis, economic globalization has reached a standstill; global trade volume and capital flows are no longer increasing and have even contracted. Now, due to the COVID-19 pandemic, we see new disruptions in international value chains, accompanied by nations realizing the need to ensure the delivery of essential goods is protected from uncertain factors. This will further weaken economic globalization.
The coronavirus crisis has also accelerated a process whereby we might now see another stage of contemporary capitalist development, as the consolidation state may be replaced by a form I have tentatively named the "central bank state." Since 2008, developed economies have increasingly been funded by central banks, injecting massive amounts of new "political" money into the real economy to compensate for declining demand and to prevent deflation—specifically so-called "debt deflation" ("quantitative easing," or QE). In my view, the stagnation of demand is primarily a result of the intensification of income inequality since the 1980s, a product of neoliberal reforms. Because investable capital is concentrated in the hands of a few, demand in mass markets has decreased, and investment opportunities have also diminished. However, maintaining capital accumulation is an inherent attribute of capitalist economies and societies. To sustain capital accumulation, central banks have begun purchasing debt to rescue it from default, thereby injecting "out of thin air" [4] money into the economy in unprecedented quantities. Meanwhile, interest rates remain low; thus, if one has collateral, credit is easily obtained—and having collateral is the result of a boom in asset markets. Under "central bank capitalism," borrowed money buys assets that have appreciated in value due to the artificial stimulation of demand. Similarly, as asset prices rise, the rich become richer and wealth inequality continues to intensify; nevertheless, capital accumulation achieves continuous growth, and that is what truly matters.
○: According to your view, since the outbreak of the 2008 international financial and economic crisis, capitalist countries have increasingly mitigated crises through the massive over-issuance of currency by central banks. Does this lead to inflation, thereby triggering a new round of crisis?
●: So far, outside of asset markets, the central banks' excessive issuance of currency has not led to inflation. Proponents of quantitative easing used to reassure themselves and others by pointing to the fact that neoliberal reforms destroyed trade unions; therefore, wage settlements exceeding productivity growth might not be seen as a cause of inflation. But this may no longer be sufficient. It seems that after a long period of stable consumer prices, inflation is returning, this time caused by the crisis of globalization and the subsequent disruption of trade flows, as well as being a product of the COVID-19 pandemic. The result is that shortages drive up prices. In response, citizens have begun demanding compensation, especially for rising energy prices, and at some point, workers may wake up and demand higher wages. This could be the next nightmare or crisis for contemporary capitalism, leading to the end of the era of easy money under central bank capitalism. The old question returns: will a new trick emerge to lead capitalism into another (likely transient) future, into another quasi-solution for the next crisis, one as temporary and fragile as the earlier solutions?
○: At the conclusion of this interview, could you briefly introduce your recent areas of focus and research?
●: My current research area is crisis and change in complex societies, particularly crises and changes within today's global capitalism—a study that will likely continue until the end of my life. In my book How Will Capitalism End?, I explained why people resist the globalization of capitalism and support decentralized autonomy. Ruling solely by repression, free markets, or technocratic authority does not guarantee stability. Rather, every model of capitalist governance contains specific flaws that provoke resistance.
(Qin Shiya, reporter for this journal and Assistant Researcher at the Institute of Marxism Studies, Chinese Academy of Social Sciences, interviewed, compiled, and translated this text.)
Source: World Socialist Studies (《世界社会主义研究》), Issue 4, 2022 Editor: Huihui