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
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
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
Immanuel Wallerstein is Distinguished Professor Emeritus of Sociology,
State University of New York at Binghamton. Among his numerous books
are The Modern World-System (1974, 1980, 1989), Unthinking Social
Science (1991), After Liberalism (1995), The End of the World As We
Know It (1999), and The Decline of American Power: The U.S. in a
Chaotic World (2003). This commentary was published on 15 October
2008. (c) Immanuel Wallerstein