Capitalism Is Self-Terminating
Just like growth, consumerist capitalism is ending slowly. It’s not a single event of course: it has been going on for decades now and will continue to unfold at an ever faster rate in the years ahead. And while it’s true, that it is easier to imagine the end of the world than the end of Capitalism, this does not mean that this political-economic system is any more permanent than anything preceding it.
Capitalism by definition is “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state”. It is very important to understand here that capitalism is not merely a legal term, referring to the private ownership of farms, mines, factories and corporations. It is literally a form of control over the state itself. A much stronger control than ‘democracy’ which has been reduced to the act of electing preselect candidates — voted into power by a heavily propagandized populace.
Lobbying — which is a polite word for legalized bribing — gives much more leverage to wealthy individuals and corporations (a.k.a. capitalists) to support the ‘right’ candidate and pass the ‘right’ laws than any normal citizen would ever dream to have. Today we have reached a state where industries can easily pass just about any law in their own defense (usually for protecting their profits, or for getting higher subsidies) while citizens can hardly defend their own rights to clean water, air or for a future on a livable planet.
Capital is power — as Jonathan Nitzan and Shimshon Bichler put it. It is an institutional act of exclusion: the legal right to sabotage. Not only to completely exclude the citizenry from decision making, but to exclude just about anyone capitalists deem unworthy from reaping the benefits of the single biggest anomaly in human history: exponential growth driven by fossil fuels.
The only thing Capitalism does not exclude the citizenry from are externalities — those negative side-effects which somehow always get out of the way of profit calculations, but have an annoying tendency to come back and cause much larger troubles down the road than any corporation on Earth could handle. Pollution. Climate chaos. Mass extinction. The list goes on.
In an ideal world — which Capitalists are very busy making us believe in — this could go on forever. The system itself will make externalities disappear magically — at least in theory. ‘Net-zero efforts will tackle global warming!’ ‘Renewables, hydrogen, fusion — our options are limitless!’ ‘Resources are not depleting, they get substituted!’ ‘Economic growth will decouple from material use!’ ‘The circular economy will make us sustainable forever!’ — thus eternal growth on a finite planet does seem to be completely possible. Should this turn out to be not the case, then ‘We shall colonize Mars!’…and so they lobby for more subsidies, tax breaks and the rest to fund even more growth and pollution — but this time with a green label on it.
There are only two things left out of the master-plan: the climate does not give a rat’s ass about capitalist magical thinking, nor do resources — the former keeps on deteriorating, while the later simply deplete or become unaffordable. The third truth, which is even more deeply buried into the subconsciousness of the average capitalist, is that none of the fancy solutions outlined above are possible without fossil fuels.
Once they are out, this civilization is out — together with its ‘clean’ energy, cheap food, high-tech gadgets and hopes for an eternal economic growth. While the process of economic depletion of resources will most probably spare us from the worst pollution and climate change scenarios — unfortunately the ones that we are left with are still gruesome and will force billions to leave their homes.
The system has become its own prisoner. In the absence of any healthy feedback mechanism Capitalism has lost all its capability to change course. It is repeating the same mistakes over and over trying to solve tomorrow’s problems with yesterday’s tools. Faced with the predicament of resource depletion and climate change — none of which it can handle properly — it is consistently making the wrong choices, making matters even worse.
Why — and most importantly how — will the combined process of depletion and pollution lead to the end of Capitalism then? I wrote the following with oil in mind (as the master resource for this civilization) but you can follow the process with your favorite resource in mind: be it coal, arable soil or potable water.
- The process of depletion is in the blind spot for almost all experts, company executives and government officials. Maybe oil execs are an exemption, but who knows? None of them are talking openly about the topic. When the problem does garner public attention it is associated with a sudden event, like one day we have all the oil / minerals / etc. we need, the next morning we run out of everything. This could not be further from the truth: depletion is a very long, bumpy road down an enormous hill. But, as the saying goes: out of sight, out of mind…
- Back in the real world, defined by the laws of physics and geology, depletion means that we are running out of cheap, easy to extract resources. This does not mean that Earth is physically running out of a certain material. It means that its extraction is becoming disproportionally more energy and resource intensive (1). It is an economic phenomenon, but not something that can be reversed at will. Once a cheap resource has been used up, it is gone forever. Depletion is thus a predicament with no solution: only outcomes to which capitalists either adapt, or not.
- This process has several major economic implications however. First, as extraction (together with discoveries of new sites) becomes ever more expensive, investors start look elsewhere for profits. This leaves capitalists with an ever smaller number of new projects, taking ever longer to complete and leading to an ever smaller overall growth in a resource’s extraction. In some places search for new sites and the implementation of ever costlier methods are given up all together. Supply of the said resource as a result becomes ‘tight’: demand gets consistently higher than supply.
- Prices increase steadily as a consequence, boosting supply somewhat (usually by turning old, polluting, previously uneconomic extraction sites back on). In some cases this is enough, but long into the process of depletion there are not enough spare capacities left to satisfy demand. Prices rise further.
- Speculators increasingly see this as an opportunity to make quick profits and start to bet on prices increasing further, then selling at the first sign of prices falling. This creates ‘volatility’: wild price swings up and down (see the case with oil at the time of writing these lines).
- Fearing that a stable return on investment is at risk (with prices up and down and all over the place), mining or drilling the next (ever more deeper, costlier, energy intensive etc.) site grinds to a halt. Only low risk, high return projects get approved. It starts to become clear, that at a certain time in the not so distant future this approach will not be able to compensate the ongoing depletion of old wells and mines, and will eventually lead to a fall in production (2).
- In the meantime wars get started to obtain more, or at least gain control over some of the resources (e.g.: Iraq). Alternatively trade sanctions get implemented to prevent opposing countries (Iran, Venezuela and now Russia) reaping the benefits of higher prices. This highlights a fatal flaw of capitalism: competition. At first it seems to help but later it reaches a point where the net result becomes negative and everybody loses. This is where we are today. The game to ‘tackle’ pollution is over — and lost. Climate change won. Now we can see the same recklessness unfolding in the fight for remaining resources.
- After a certain time there is no realistic hope left for supply ever caching up with demand. Since extraction is about to fall in the future anyway — thanks to depletion and as a result: lack of investment (not the other way around!) — why not take revenge on old enemies and blame things on the other? Blowing up supply lines, sabotaging everyone and everything all seems to be a great idea. This is an act of folly of course, nevertheless it can reach truly self-harming levels: cutting off supply without adequate fall-back options, or at least a plan on how to handle the resulting shortages. At this point extraction starts to fall faster than it otherwise would have, leaving us even less room to maneuver safely to low energy, low tech future (3).
Few months, maybe years into this madness things either escalate into a thermonuclear annihilation ending capitalism overnight, or (more likely) warring parties realize that this folly really leads us nowhere. (Of course they would never admit this openly.) Nevertheless, the world economy would be in tatters by then, or at least find itself divided into relatively independent blocks, all suffering heavy losses from the economic (and the very much real) warfare.
This is how capitalism seems to end itself: in a self-destructing competition, a scramble for the last remaining resources on Earth — climate be damned. Capitalism has grown large on ever increasing fossil fuel inputs. Now, with it’s main input waning it has entered a self-terminating phase.
An involuntary de-growth or contraction to the economy has now become inevitable: leading to a slow cannibalization of smaller economies. When the financial economy will realize that without growth there is no future for finance is anyone’s guess, but the resulting crash will be a spectacular sight for sure.
Remember: energy is everything and it is needed for every economic activity in an ever increasing amount from agriculture to mining and manufacturing. Solar panels and wind turbines are no exception to this. All of them need the same fossil fuels in every step of their lifecycle and thus are equally part of the problem as a whole.
There seems to be no way out for Capitalism from its fossil fuel addiction. It either keeps feeding the beast risking a slow heat death from its reeking breath, lest the beast eats it alive.
It is time for us to think about how shall we organize our lives once the beast has done its job.
Until next time,
(1) As cheap to operate mines and oil wells deplete, they yield less and less coal, metal ores and oil. Over time, the lost production can only be replaced with ever more expensive (energy and resource intensive) methods of extraction.
(2) Inflation has already soared to record highs before the process ran rampant, as a result of ever tighter oil, gas and coal supplies from ageing wells and mines. Costlier extraction methods were thus left on the shelf for fears of returns might never realize (see #6 above, or in the case of oil: the unprecedented restraint from shale oil companies and the industry in general from Exxon to the Saudi Aramco).
(3) Disclaimer: I’m not advocating for further expansion of resource extraction here. Quite the contrary: I believe we should leave our resources in the ground, but in a planned, organized manner.