2008 Financial Crisis – Warnings of what comes next
By Nafeez Ahmed (Long read – 14 mins) – The “disintegration” of global capitalism could unleash world war 3, warns top EU economist
A senior European Commission economist has warned that a Third World War is an extremely “high probability” in coming years due to the disintegration of global capitalism.
In a working paper published last month, Professor Gerhard Hanappi argued that since the 2008 financial crash, the global economy has moved away from “integrated” capitalism into a “disintegrating” shift marked by the same sorts of trends which preceded previous world wars.
Professor Hanappi is Jean Monnet Chair for Political Economy of European Integration — a European Commission appointment — at the Institute for Mathematical Models in Economics at the Vienna University of Technology. He also sits on the management committee of the Systemic Risks expert groupin the EU-funded European Cooperation in Science and Technology research network.
In his new paper, Hanappi concludes that global conditions bear unnerving parallels with trends before the outbreak of the first and second world wars.
Key red flags that the world is on a slippery slope to a global war, he finds, include:
- the inexorable growth of military spending;
- democracies transitioning into increasingly authoritarian police states;
- heightening geopolitical tensions between great powers;
- the resurgence of populism across the left and right;
- the breakdown and weakening of established global institutions that govern transnational capitalism;
- and the relentless widening of global inequalities.
These trends, some of which were visible before the previous world wars, are reappearing in new forms. Hanappi argues that the defining feature of the current period is a transition from an older form of “integrating capitalism” to a new form of “disintegrating capitalism”, whose features most clearly emerged after the 2008 financial crisis.
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For most of the twentieth century, he says, global capitalism was on an “integrating” pathway toward higher concentrations of transnational wealth. This was interrupted by the outbreaks of violent nationalism involving the two world wars. After that, a new form of “integrated capitalism” emerged based on an institutional framework that has allowed industrialised countries to avoid a world war for 70 years.
This system is now entering a period of disintegration. Previously, fractures within the system between rich and poor were overcome “by distributing a bit of the gains of the tremendous increase of the fruits of the global division of labour to the richer working classes in these nations.” Similarly, international tensions were diffused through transnational governance frameworks and agreements for the regulation of capitalism.
But since the 2008 financial crisis, wealth distribution has worsened, with purchasing power for the middle and working classes declining as wealth becomes even more greatly concentrated.
Growth in the Western centres of transnational capital has slowed, while formerly sacrosanct international trade agreements are being torn to shreds. This has fuelled a reversion to nationalism in which global and transnational structures have been rejected, and ‘foreigners’ have been demonised. As global capital thus continues to disintegrate, these pressures escalate, particularly as its internal justification depends increasingly on intensifying competition with external rivals.
While integrated capitalism depended on a transnational institutional framework that permitted “stable exploitation on a national level”, Hanappi argues that “disintegrating capitalism” sees this framework become disaggregated between the USA, Europe, Russia and China, each of which pursues new forms of hierarchical subordination of workers.
Disintegrating capitalism, he explains, will resort increasingly to “direct coercive powers supplemented by new information technologies” to suppress internal tensions, as well as a greater propensity for international hostilities: “The new authoritarian empires need confrontation with each other to justify their own internal, inflexible command structure.”
Great power conflict
Hanappi explores three potential scenarios for how a new global conflict could unfold. In his first scenario, he explores the prospect of a war between the three most prominent military powers: the US, Russia and China.
All three have experienced large increases in military spending since the collapse of the Soviet Union. Despite a dip for the US since 2011, President Trump has ushered in a new spike, while Russian spending has plateaued and Chinese expenditures are rapidly increasing. All three countries have also experienced an authoritarian turn.
Drawing on game theory, Hanappi argues that the calculus that none of these countries would be capable of ‘winning’ a world war may be changing in the perceptions of the leaderships of these countries. By one estimate, China has the highest probability of survival at 52 per cent, followed by the US at 30 per cent, and Russia at 18 per cent. This calculus suggests that of all the three powers, China might be the most inclined to escalate direct hostile military activities that challenge its rivals if it perceives a direct threat to what it sees as its legitimate interests.
The US and Russia in contrast might transfer the focus of their military activities on more covert, indirect and proxy mechanisms. In the US case, Hanappi points out:
“… the military strategy of Trump seems to include the possibility to delegate part of local operational responsibility to close vassals, which receive massive weapon support from the US, e.g. the Gulf region and Israel in the Middle East. Turkey, one of the strongest NATO branches in the area is a special case. It seems to have been allowed to destroy an emergent state of the Kurdish population, which would have been closer to the European style of governance.”
There are growing signs of heightened great power tensions which could erupt entirely by accident or unanticipated provocation into a global conflict that nobody wants.
The US-China trade war is escalating, while both powers tussle over technology secrets and argue over China’s growing military footprint in the South China Sea. Meanwhile, Trump’s massive expansion of the US Navy and Air Force point to preparations for a major potential conflict with either China or Russia.
Both the US and Russia have jettisoned a critical nuclear treaty established since the Cold War opening the way to a nuclear arms race. North Korea remains unrepentant about its ongoing nuclear weapons programme while Trump’s tearing up of the nuclear agreement with Iran disincentivises that country from complying with disarmament and reporting terms.
Early last year, a statistical study of the frequency of major wars in human history found that the so-called 70 years of ‘long peace’ is simply not an unusual phenomenon indicating an unprecedented period of peace. The study concluded that there was no reason to believe that the 70 year period so far would not give way to another major war.
Small wars, global contagion
Hanappi’s second scenario explores the prospect of a series of “small civil wars in many countries”. The ingredients for such a scenario are rooted in the resurgence of both right-wing and left-wing populism. “Both variants — sometimes implicitly, sometimes explicitly — refer to a past historical national state form that they propose to return to,” explains Hanappi.
While right-wing populism harks back to the authoritarian, racist regimes established in Germany and Italy in the 1930s, left-wing populism yearns to return to the model of “integrated capitalism” that was in place during the first three decades after the Second World War, and which reacted to the unequalising effects of capitalism through the ‘social net’ of the so-called ‘welfare state’ as well as various forms of state intervention in the economy alongside private industry.
But the challenge is that “integrated capitalism” is already engulfed with its own internal contradictions, propelling the shift toward disintegration.
This puts left-wing populism in a systematically weaker position, as right-wing populism can point to the multiple failures of “integrated capitalism”: the failure to “overcome class antagonisms”, and the failure to “fulfil the promise of a substantially better life for the majority of people.” According to Hanappi:
“The representatives of Integrated Capitalism are discredited and cannot act as leaders, the movement therefore is forced to experiment with new forms of national organization. More participatory forms of democratic organization take more time, and with multiple social groups involved this weakens this movements strength vis-à-vis right-wing populism. Furthermore, its vision of an improved national Integrated Capitalism is handicapped by the fact that many people still remember its failures, while the song of national glory that right-wing populism sings refers to an imagined far-away past that no one ever had seen.”
In this context, he argues, the potential exists for outbreaks of national civil war between emerging paramilitary branches of right-wing and left-wing populist movements, in the context of either movement adopting state power and coming into conflict with the opposition.
Hanappi warns of the possibility of a regional or global “contagion” effect, if these breakdowns occur within a similar time-scale. In that scenario:
“The fluid mobility of national ideological political entrepreneurs, the creators of populist movements, meets the rigidity of dire global economic constraints. This is the crash that provokes local wars.”
This scenario is also backed by statistical data. In 2016, a study by Lloyds Insurers found that since 1960 there has been an increasing frequency in “pandemics” of “political violence contagion” involving regional and transnational outbreaks of civil unrest within and among states.
The report said that social protest and dissent against government policies of militarism abroad and neoliberal austerity at home could act as potential precursors to “contagions” of violence, along with other risk factors, including “an increase in the share of internet users”, greater urban concentration, increases in infant mortality, and a growing young population.
Global insurgency of the poor
Hanappi’s third scenario parallels the Lloyds study’s finding that in coming years, the world is likely to face a series of “super strain pandemics” in the form of “anti-imperialist” and “independence movements”, “mass pro-reform protests against national government”, and “armed insurrection” or “insurgency” associated with two particular ideologies, “Marxism” and “Islamism.”
According to Hanappi, the plausibility of this scenario can be found in the “profoundly divergent trajectories of welfare of poor parts and rich parts of the world economy.”
While GDP has continued to grow overall, in the last three decades income and wealth inequalities within almost every country have widened, and look set to sharpen further. If this cycle continues, a coalescence of grievances among the poorest three billion, spurred on by the interconnectivity of communications in the smartphone era, is plausible.
Hanappi argues that in reality, global conditions make a combination of these three scenarios more likely than just one of them.
“Disintegrating capitalism is not a prediction. It already has arrived and shapes everyday life. The vanishing of integrated capitalism is not a forecast either. Disintegrating capitalism dissolves capitalism but to do so it first has to destroy integrated capitalism, its immediate predecessor.”
The distinguishing feature of disintegrating capitalism is its tendency to establish “nationalist and racist restrictions” designed to exclude “what its leaders define as an inferior minority” in order to protect capital accumulation for a parochially-defined narrow national identity. Old integrated capitalist institutions are abandoned, and new more coercive governance structures are introduced.
In this context, Hanappi concludes that a third world war will “not necessarily” take place, but carries “a frightening high probability.” To avert it, he suggests, requires the adoption of effective counter-strategies, such as a global peace movement.
Beyond disintegration: what comes next?
Hanappi’s diagnosis is insightful, but is ultimately limited due to his narrow focus on economics. Missing from his analysis is any acknowledgement of the biophysical crises driving the disintegration of global capitalism: the ecological and energy flows by which capitalist economies function — and thus the natural limits (or planetary boundaries) they are breaching.
However, his concept of “disintegrating capitalism” — bringing with it a heightened propensity for violent conflict — coheres well with a broader ecological concept of civilisational decline explored in a recent paper by American geographer Dr Stephanie Wakefield published in the peer-reviewed journal, Resilience.
Wakefield draws on the pioneering work of systems ecologist CS Holling, who argued that natural ecosystems tend to follow an “adaptive cycle” consisting of two phases, “a front loop of growth and stability and a back loop of release and reorganisation.”
She points out that while Holling’s work focused on the study of local and regional ecosystems, there remained the question of whether the idea of the “back loop” could be applied on a planetary scale to understand the dynamics of civilisational transition: “Are we in a ‘deep back loop’ that presents the same opportunities and crises as the regional back-loop studies that we have described?” he asked in 2004.
Wakefield explores the idea of the “back loop” of the Anthropocene, signalling a phase shift in which a particular order, structure and value system encompassing humanity’s relationship with the earth is experiencing a deep rupture and decline:
“The claims to human mastery over the world are being literally washed away by rising seas and unprecedentedly powerful storms, while terminal diagnoses of western civilisation proliferate as quickly as fantasies of the end.”
In this new phase, there is a parallel between the escalation of environmental crises and intensifying political disruption.
“The list of anthropogenic-induced tipping points crossed or neared grows: fisheries collapse; biodiversity loss; the melting of the ice caps and rising seas; 350 ppm and now 400 ppm CO2; anthropogenic nitrogen inputs; ocean acidification and coral reef bleaching; deforestation… But equally and together with these processes, since 2011 we are also in an era of riots, revolutions, local experiments and social movements from left to right that, to the front loop mind, may look insane, but that are very real.”
But the parallel between environmental and political disruption is no accident. Rather, it is a fundamental feature of what Wakefield calls the “Anthropocene back loop”, a phase of systemic decline which sees the old order unravelling — but which simultaneously opens up new possibilities for the emergence of a new system.
“In short one thing would seem clear: we are not in the front loop anymore,” writes Wakefield.
“If the front loop was the ‘safe operating space’ of the Anthropocene… this complex, nonlinear ‘post-truth’ world of fragmentation, fracture, dissolution, and transfiguration is what I propose we call the Anthropocene back loop.”
The front loop, then, is equivalent to the apex of Hanapper’s “integrated capitalism” that emerged after the Second World War and continued to evolve through a ‘golden age’ of neoliberal growth from the 1980s to the early 2000s.
Since then, we have increasingly witnessed the eruption of internal contradictions with this ‘front loop’ of integrated capitalism, in the form of a trajectory of disintegration which manifests the “back loop” of systemic-civilisational decline:
“The back loop is our present, the moment of the naming of the Anthropocene (as a failure), in which the past (front loop) has not disappeared, like points trailing behind on a line, but is erupting in unpredictable ways in the present.”
The phase of disintegrating capitalism, then, is part of a wider “adaptive cycle” of global capital which now finds itself on the cusp of protracted collapse. And yet, adopting this systems lens beyond econometric thinking in a deeper ecological framework allows us to see more than just the destruction of the old order at play, but within that very process, the real emergence of unprecedented possibilities for the emergence of a new ‘front loop’:
“Viewing the Anthropocene through the adaptive cycle lens, and in particular our threshold ‘now’ of scrambled grounds, discombobulated modes of knowing and being as a back loop, has a number of benefits,” suggests Wakefield. “Chief amongst these is the ability to see the Anthropocene not as a tragic End or world of ruins, but a scrambling where possibility is present and the future more open than typically imagined.”
Wakefield’s repositioning of the human condition within the framework of the ‘back loop’ opens up space to envisage this as part of a longer historical series of civilisational cycles of decline and renewal, in which the task before us is to embrace our role in activing and enhancing the possibilities for renewal.
This means moving far beyond conventional ‘front loop’ models of resilience — adapting stale, broken, extant political and economic structures to a world of intensifying crisis; into models of resilience aiming to reinvent and redesign ourselves and our structures from the ground up:
“Instead of accepting the end of human agency except that of managing crisis — and rather than imagining ourselves as victims or managers of the back loop — I argue that another possibility exists: deciding for ourselves, locally and in diverse ways, where and how to inhabit the back loop.”
Inhabiting requires more than “fighting against or living in fear” of the back loop. It requires a degree of acceptance of it, finding one’s own place in it: “to be familiar, comfortable, and involved with it… A habitual, everyday act of free creation and building.”
And that requires recognising that we are moving into fundamentally and literally unknown terrain, which can only be done by dispensing with the old “modes of thinking and acting from the fore loop.”
In the back loop, everything is up for grabs — not just old infrastructures, but also political ideologies and assumed philosophical realities. And so, to respond to the phase of disintegrating capitalism and the threat of a global war, more is required of us than old models like the idea of a ‘global peace movement’ — we need an entirely new ethos and practice committed to the ushering in of a new world:
“What the back loop suggests to us is that the Anthropocene is now a time to explore, to let go — of foundations for thinking and acting — and open ourselves to the possibilities offered to us here and now. This is an ‘unsafe’ operating space because we have passed thresholds already, but also because there are no blueprints, no transcendents, no guarantees, and no assurances: the only thing to do is become creators of new values and new answers.”
Wakefield’s work reminds us that while the dangers of a third world war are escalating in the Anthropocene back loop of disintegrating capitalism, the opportunities for renewal, reorganisation and revival are rapidly emerging.
These need to be grasped and activated whether or not war breaks out. Further, we need to work to sound the alarm, relentlessly, at all levels to raise awareness of the true nature of the phase shift we now find ourselves in as a species. Whatever ultimately emerges, the end is not nigh – rather, we stand at the unknown dawn of a new beginning.