Massive disruption often happens quickly
Though no one can foretell the future, it is self-evident that the status quo -- dependent as it is on cheap oil and fast-expanding debt -- is unsustainable. So what will trigger the collapse of the status quo, and what lies beyond when the current arrangements break down? Can we predict how-when-where with any accuracy?
All prediction is based on extrapolating current trends. If we expect 'more of the same', it's not too difficult to make predictions about the near future. But history is not always simply more of the same.
Suppose we are in the midst of an era that is as monumental as the first Industrial Revolution or the fall of Rome. Suppose we're in an era that will compress a century of transformation into the ten years from 2017 to 2026. In this scenario, those who get it right will be riding the disruptive wave that is crushing everyone who blithely expected 'more of the same'.
It is especially challenging to forecast the outcome of crises that break the status quo and establish a new social/economic order.
We are carried along by the broad sweep of history with a piecemeal understanding of the larger dynamics that are reshaping our world. We discern these forces in fragments of data, but cannot predict how they will unfold, for we are constantly extrapolating trends that are rapidly evolving. As a result, our predictions fail to capture the way these dynamics will transform our world.
As Marx famously noted, "everything that is solid melts into air" as capitalism dismantles old systems and spawns new ones. These forces don't just shift the economic landscape; they also disrupt the social order, the political system, finance, family relations and our relationship with Nature -- in other words, our entire mode of production.
Our Mode of Production: Centralized, Industrialized, Globalized, Financialized, Networked, Fossil-Fuel Dependent, Neofeudal and Neoliberal
What is a mode of production? The Wikipedia entry offers a deft summary. A mode of production (in German: Produktionsweise, meaning 'the way of producing') is a specific combination of productive forces (financial capital, labor and the means of production -- tools, equipment, buildings, technologies, knowledge, resources and improved land) and social and technical relations of production -- the social, legal and political relations governing a society's productive assets.
"According to Marx, the combination of forces and relations of production means that the way people relate to the physical world and the way people relate to each other socially are bound up together in specific and necessary ways. For Marx, the whole 'secret' of why/how a social order exists and the causes of social change must be discovered in the specific mode of production."
What characterizes our current mode of production?
It is centralized (controlled by central governments and banks that hold monopolies on power and money), industrialized on a global scale (production and labor are commoditized), financialized (dependent on the processes of finance -- debt, leverage and the proliferation of financial instruments), networked (dependent on flows of information and feedback loops) and dependent on fossil fuels (roughly only 3% of total global energy consumption is currently generated by alternative renewable energy sources).
I have long argued that this mode of production is fundamentally neofeudal, meaning that the few at the top of the power/wealth pyramid benefit at the expense of the many, as the entire system is structured to create and protect privilege, which I define as unearned wealth, power and benefits.
In effect, the current structure of state-finance-capitalism is an updated version of the old feudal model of landed nobility skimming rentier wealth from serfs. In the current version, the employed serfs are fragmented and politically powerless, and the rentier skim is typically financial (hence my use of the term debt-serfs).
This is the result of the dominance of finance capital over industrial capital: state-cartels such as banking, healthcare and higher education enforce pricing that extracts profits by limiting competition, and foster a dependence on debt (for housing, higher education and consumption) that effectively enforces a financial form of feudal servitude on debtors.
In this neofeudal mode of production, central banking delivers newly created capital into the hands of the few who then buy political influence (a.k.a. regulatory capture) and outbid those without access to cheap capital to take ownership of value creation in the economy.
The regulatory/political capture secures protection from competition while ownership of value creation generates the income needed to buy protection: this state-cartel marriage creates a virtuous cycle of expanding wealth/power for those who already own the wealth.
In this system, power and wealth inevitably accumulate at the top of the wealth-power pyramid, and wealth-income inequality rises accordingly.
In terms of systems analysis, there is no other possible output of this mode of production.
This neofeudal mode of production is supported by a neoliberal set of values drawn from game theory: markets exist to maximize narrow self-interest and payoffs to participants, and these markets are the most efficient way to allocate capital and labor.
This neoliberal view gives unparalleled advantages to mobile capital that can move easily around the world, exploiting resources, cheap labor and poorly regulated markets to serve neoliberalism's sole goal: to maximize private gain by any means available.
These neoliberal values and mechanisms corrupt the political process, dissolve social cohesion (defined as the shared purpose that binds the various classes into a unified society) and distort the allocation of capital with perverse incentives.
Forces that Transform the Mode of Production
Though central states and banks appear to be in control of the political, social and economic order, history shows that the forces that disrupt or make obsolete the existing mode of production cannot be stopped or even slowed by governmental edict or financial controls.
For example, the advent of the printing press enabled mass distribution of the Bible and other books, which boosted literacy and distributed heretical ideas that soon upended the social order and the medieval mode of production. Heavy-handed efforts to suppress this technology's spread of new ideas (such as killing those caught distributing Bibles in vernacular languages) all failed.
A variety of forces can disrupt or obsolete existing modes of production and the social order they support:
Environmental: resource depletion, population exceeds the carrying capacity of the ecosystem.
Commerce: vital trade routes are disrupted or cut.
Political: mobilizing for war, reshuffling power after losing a war.
Energy: a new higher-density form of energy becomes available.
Social: rising income-wealth inequality and shortages of essentials undermines the regime.
Technology: new technologies obsolete existing profitable processes, disrupt state-cartel rentier arrangements and upend labor-capital markets.
Commoditization/globalization: new low-cost supplies destroy the scarcity value of existing products and processes, slashing profit margins.
Organizational innovation: new ways of organizing capital and labor, enabled by new technologies or social innovations.
Elite privileges: cost of protected classes/rentier skims bankrupts the system.
Complexity "tax": the diminishing returns on complexity act as a system-wide tax; benefits of complex systems no longer exceed the costs.
Clearly, these forces are intertwined. In many cases, special circumstances must be present to obsolete or fatally disrupt a mode of production. For example, an environmental crisis (poor crop yields, a scourging disease, etc.) might be survivable if the regime was otherwise sound, but combined with high inflation and a loss of social cohesion, this scarcity of food would be enough to push the regime over the edge.
In other words, modes of production with reserves of resources, social cohesion and organizational ability can weather crises that would sink more fragile, less adaptable social/economic orders. The tipping point is rarely visible; weaknesses can pile up for quite some time before a crisis triggers collapse.
Not every technological innovation triggers the dissolution of the existing mode of production. For example, the invention of eyeglasses spread very quickly around the globe, but it didn't undermine the social/political order as did the printing press.
A nation may suffer a crisis and keep its social order and mode of production intact, or it may lose a key source of income route but compensate by expanding an alternative source.
But once a nation or empire loses access to an irreplaceable food or energy source -- for example, once the Western Roman Empire lost its North African wheat breadbasket -- it can no longer support an elite-dominated social order that skims much of the system's surplus. Some re-ordering of the mode of production is required for the regime to survive.
There are many examples in history of each of these dynamics. The French Revolution, for example, was triggered by soaring prices for bread and the bankruptcy of the state.
An irreplaceable loss of income can trigger a destabilizing transition to a new mode of production. Once the East (China) lost its monopoly on silk, tea and porcelain (the French began producing silk, Britain colonized India to secure a source of low-cost tea and Europeans began making porcelain), the flow of gold/silver from the West to the East dried up and everyone who had skimmed a profit from the East-West trade saw their income dwindle.
The rise of large European merchant sailing fleets bypassing the Silk Roads to China was an equally fatal disruption, as this sea trade eviscerated profits earned by all the intermediaries on the land routes.
Crises often trigger collapse and transformation, but new technologies and discoveries can also upend the existing mode of production. The development of the steam engine and the exploitation of a higher-density source of energy -- coal -- famously drove the First Industrial Revolution.
Widespread electrification, the auto industry, the globalization of the oil industry and the development of telephony powered the Second Industrial Revolution.
Digital processors and software (computers) drove the Third Industrial Revolution, and the Internet, artificial intelligence, 3D fabrication and the expansion of automation and robotics are pushing the current Fourth Industrial Revolution.
In highly complex societies, losses can dismantle parts of the system, but gains (such as cheap energy) can grow new sectors that replace what was disrupted/obsoleted. This has been the fundamental narrative of the Industrial Revolutions: the old modes (buggy whips) vanish but are replaced by something much more powerful, convenient and productive.
But this movement to higher energy densities and technologies that enable more of everything is not a law of Nature. It can be fatally disrupted, too. Indeed, this is precisely what we will be experiencing in real-time in the coming decade.
In Part 2: Opportunity In Crisis, we explore the dynamics of the coming shift from the current mode of production to a new and as yet undefined mode of production. This transition will be experienced by many as a collapse, but this will not necessarily be so -- it's going to be more of a rapid, disorderly adaptation as the fatal paradoxes of the existing order are revealed by interconnected, mutually-reinforcing crises.
While the social class that loses their unearned privileges and wealth will likely bemoan the transition to a new mode of production as a disastrous collapse, those with productive experience will find that opportunities will abound.