3.1. Financialization and total corruption of the elites
3.2. Globalization and supranational institutions
3.3. The great convergence
3.3.1. Population explosion
3.3.2. The trap of debt and economic corruption
3.3.3. Peak energy and resources
3.3.4. Side-effects of Modernity
3.3.5. Societal atomization & loss of societal cohesion
3.4. A collapsing Modernity
3.5. A painful transition
3.5.1. Facing a new economic reality
188.8.131.52. The population time bomb
184.108.40.206. Making do with the available (peak resources)
220.127.116.11. Integrating the cost to fight climate change
18.104.22.168. Integrating the cost of land, water, and air poisoning
22.214.171.124. Humanity in necessity of healthier food
3.5.2. Adapting the political decision making process to that new economic reality
126.96.36.199. Faced with the urgency for answers democracy takes second stage
188.8.131.52. Impossible solutions to the intractable problems inherited from modernity
3.5.3. A cultural shift a cultural shift
184.108.40.206. Under economic, social, and environmental stress the urge for societal cohesion grows exponentially
220.127.116.11. Societal fragmentation and atomization
18.104.22.168. Individuals search for sense and the comfort of belonging it provides.
22.214.171.124. Competition for eyeballs between worldviews
126.96.36.199. Visual art in search of meaning and societal sense
3.5.4. A painful transition
188.8.131.52. Redistribution of economic might in the new “economy-world”
184.108.40.206. Radical reshaping of the economic working of societies
220.127.116.11. World population peaks in the next decades then dwindles
18.104.22.168. Emergence of the building blocks of the future worldview
22.214.171.124. Elimination of societies that can't adapt to the coming changes
126.96.36.199. From decadence are popping the first sprouts of Artistic Renewal
To limit the size of my postings I'll deliver the total content of this section about Late-Modernity in 4 or 5 installments. The table of content relating to the present post is given in purple.
Late modernity is our present age when, in advanced countries, the dream of High-Modernity fades away and confusion sets in regarding what the whole enterprise of Modernity has been all about. It's as if there were an air of end of times about Late-Modernity that brings the elites in Western countries to rush grabbing whatever financial resources they can before “the music stops”. All this happens in the open and full knowledge of astute observers but their critiques have no reach because the institutions of power seem to close their eyes or to look the other side as the police in Beijing when a car with military or government plate makes an illegal move.
The financial meltdown of 2008 resulted as a direct consequence of illegal and immoral acts executed or condoned by the top management of Western biggest financial institutions. Six years have passed and nobody has been brought to justice. The justice system nowadays appears to apply only to 99% of the population. The 1% clique seems out of reach as if it had bought the political system to work exclusively at its service. It's no wonder that anger is growing in the kitchens.
While Western elites are looting the national assets of their countries, including the pensions of future retirees, the income of the population at large has been sinking since the last 3 decades. To make matters even worse the resulting economic suffering from falling incomes takes place in a fragmented societal environment where all past certainties are dissolving and forcing the individuals to retreat inside themselves. The resulting societal atomization has destroyed any remnants of a shared societal worldview and the individuals are at a loss to make sense of the reality around them. Western societies have lost their cohesion and seem unable to organize their future. Meanwhile the economies of the South have been steadily growing and their populations are optimistic that their future will be ever better. The contrast between the North and the South could not be starker.
This is a time when greed and the search for fame take central stage when looting the national assets is practiced on a large scale with no fear of sanctions and when the artwork is a luxurious commodity promoted through noise and scandal. All this takes place in a fast restructuring international environment. Western hegemony is crumbling and some Southern countries grow into the beating heart of the new economy-world in the making.
In the West Late-modernity corresponds to the awakening from the dream of modernity while in the South it is the dream to catch up with Western standards of living. But that Southern dream unfortunately refers to a physical impossibility. The availability of energy and resources to power such a dream is rapidly declining and to make matters worse the side-effects of Modernity are increasingly developing as a threat of ever more important human catastrophes. Climate change will soon impose that we forgo the use of fossil fuel. That's when the music of Modernity will definitely stop to play imposing on all of us, on earth, to live with a whole lot less than we do now and, by necessity, we'll then enter into the era following modernity.
3.1. Financialization of everything and total corruption of the elites
In Western countries the transfer of the workforce from the agricultural sector to the industrial sector was nearly completed by the end of the sixties beginning of the seventies. This is when the profits from the investment of capital ceased to grow and big capital holders grew restless and they impulsed a strategy to boost a new phase of growth in returns. Theirs was a double headed strategy:
What strikes me is that this whole double headed strategy has been like an extension of what had been going on in New York City's art market since the fifties. It looks like the ways that had been implemented so successfully in the art market, for the benefit of their financial promoters, had served as a testing ground for finance to take over the economy at large at a later stage. Testing ground or not it makes no doubt that the surprisingly successful financialization of the art market has been an eye opener for bankers and it should thus not come as a surprise that they expanded that strategy to all economic sectors around the whole world.
Implementing such a brazen strategy successfully implied two things:
With the advent of the strategy of financialization spreading all around sometime during the seventies one sector after another of the real economy was overtaken by finance. The engineers and managers were replaced on the boards of directors and at the helm of management by guys who have been brain washed in elite universities and decorated with MBA's. The whole management of production companies was thus radically transformed. It was not any longer finding ways to produce quality goods at the lowest cost that counted it was the price of the companies' stock and the size of the quarterly results that counted now.
What ensued should have been evident for all to know but only a few souls stood up and spoke. It did them no good. They were not heard and worse they were rejected as trouble-makers and thus marginalized. Indebtedness took root and increased at staggering annual rates while real productions faltered at similar annual rates of decline. So while real productions supplying really good paying jobs were decreasing as they were delocalized by our MBA financial managers to Southern countries consumers were attracted to our MBA financial managers' new financial instruments of credit that circumvented the fact that revenues were stagnating and declining but nevertheless rendering possible an increased consumption. Western countries GDP's continued to grow albeit at anemic rates. The layering of statistical tables - of increasing indebtedness - over yearly GDP clearly shows that since 1980 economic growth has been financed by debt exclusively. Our MBA financial managers have succeeded blinding almost everyone to the true economic nature of their actions. It was all bling but no substance. The following charts illustrate my point.
But why should managers have ruined their countries? Were they not conscious about what they were doing? Were they not conscious about the consequences that they were inflicting upon their societies and upon the future of their kids and grand-kids? It's really difficult to believe that they didn't know about the coming crashing of their models but who is to know for sure? Perhaps they were simply blinding themselves under the illusion of their god-like importance. Did Lloyd Blankfein the President of Goldman Sachs not state that the bankers were executing “god's will” after the crash of 2008?
Whatever the truth about the matter two things are certain:
Faced with this reality j. Bradford DeLong asked: "Why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends?" (1). Well the response to that question should be known by now. The 1% got the entirety of the dividends of financialization while, over the last 30 years, the incomes of 99% of the population declined.
In the end extracting growing incomes for themselves has been the crux of the matter, for capital holders and financiers, and that explains what has been happening along these last 30 years. Once their companies succeeded to extract a growing share from the real economy the managers gained the upper hand in the decision making on their boards of directors. What director would indeed oppose managers who increase the benefits of their companies?
This was when managers were set free to increase their own annual income at will by inventing always newer strategies that were good at accelerating the generation of ever higher surpluses in the short term by shifting the risks on others later on and in the last instance on society at large by arguing that they were “too big to fail”.
3.2. Globalization and supranational institutions
The internal financialization of Western countries would have been inconceivable if it had not been accompanied by globalization. “It was not any longer finding ways to produce quality goods at the lowest cost that counted it was the price of the companies' stock and the size of the quarterly results that counted now.” Putting such a strategy in place was indeed only possible because globalization allowed for the delocalization of real productions in countries offering political and social stability while requiring very minimal production costs in the form of low wages, the absence of social protection policies, and the absence of environmental regulations. Productions realized at a cheaper cost enabled:
In parallel to those advantages of delocalization the financial operators saw an opening for a whole new set of services supplying loans to finance an increase in consumption while real incomes were falling. Any sane reasoning person would have thought that increasing consumption while real incomes fall is a recipe for disaster but it seems that there were not many sane reasoning persons standing after the ideological onslaught of this “new economy”. Those who succeeded keeping their minds in working order knew that the principle of reality was going to re-impose itself one day. That day has now come and there is simply no avoiding the cleaning up of inventories in the books.
Total national debt as a percentage of GDP has to come down at levels that are compatible with historical averages at around 160%. That implies that a country such as the USA has to process a reduction of its total national debt by a value of more than 200% of GDP. The same goes for European countries and Japan. Wow!
Such an important deleveraging is a gigantic task that unmistakably will leave many scars on Western nations and the process is going to take many years. There is no way to avoid the conclusion that time is of the essence in this deleveraging task and the longer it takes to start, in earnest, the greater the pain will be for the good reason that in the meantime total debt continues to grow. When interest rates start to climb the writing will be on the wall without any escape routes.
The decade or two necessary for Western countries to deleverage was paralleled by Southern countries going forward at full speed on the road of their industrialization. The outcome of this process appeared to be earth shattering. The population in the North that enjoyed what appears to be an excessive life style advantage during the last century is going to lose that advantage. The whole world is indeed undergoing a radical rebalancing:
The whole process is fraught with serious risks of conflict. How is the North going to take a decline in its life conditions? I bet it will never accept it. In the South things appear easier. In the initial phase of globalization life conditions go up and everybody is happy. But what happens when the music stops? Exports to the North dry up, foreign debts have to be serviced and repaid, economic growth falters and the side-effects on Modernity start to eat GDP? How will Southern populations take the slowdown and eventual contraction?
The South is pointing at the responsibility of the North in the crash of 2008 and starting to set-up response policies in the form of transnational institutions to protect itself from those controlled by the North and one of its main aims is to circumvent the role of the dollar as world reserve currency.
But how is the US going to take the loss of its exorbitant privilege? Not well apparently. All countries that, along the last decade, schemed to by-pass the dollar in the payment of their energetic or other resources have had to suffer the wrath of US furry. Military interventions multiplied and the neocons state without any ambiguity, since 2006, that the US is on a path to secure a first strike nuclear capability to impeach the rise of any competing hegemon. Since Edward Snowden lifted the veil on the activities of the US Homeland security institutions we know for a fact that spying on the activities of all individuals on earth and hacking in other countries IT systems is being practiced on a scale that the Nazis could only have dreamed about. In sum observing the present worldwide economic rebalancing is not for the faint of heart.
While finance imposed a rapid globalization of mankind's activities it makes no doubt that the best outcome would be for supranational political institutions to negotiate a lock out of violent physical conflict and then to drive humanity on the chaotic road of what comes after modernity. But have supranational institutions any chance?
The danger now is that big capital holders and their client financial institutions will resist letting go their control over the political decision making process of nation-states. The loss of that control would indeed spell trouble for their managers who could fall under the hammer of a recovered justice system. But this is nevertheless the prime condition to let supranational institutions manage the transition peacefully. If nation-states proved unable to wring back the control of the political decision making process from big capital holders and their client financial institutions the transition most probably would end up being settled through armed conflict. Seen the lethality of contemporary weapons systems this prospect bodes ill for humanity's future.
The most urgent task today is for Western political systems to regain their democratic nature and mandate supranational political institutions to find a negotiated path through the transition. This implies that people coalesce to re-impose a democratic decision making process within their nations in order to take the lid off the coup operated by capital and finance that stymies the execution of popular will while imposing a permanent state of media brainwashing that supplants reality by propaganda.
I'm afraid that re-imposing popular will can't possibly happen through the electoral system as candidates are bought by the financial contributions of big capital and its client financial institutions. The street will thus have to impose a re-appropriation of the electoral system as a precondition for democracy to have a chance to work. The only conceivable way to neutralize the financing of electoral campaigns is to make the tax collector, I mean the state, the ultimate payer and rule maker of the electoral game. TV advertisement time should be given free to candidates by broadcasting stations in return for their use of the public wave spectrum and each candidate should receive equal access and broadcasting time to present his program to the citizens. Once TV advertisement costs are subtracted the total bill for financing electoral campaigns is going to fall dramatically and once each candidate has equal access and broadcasting time the level playing field for representative democracy to operate shall be re-established.
But this presupposes a political decision to change the electoral system in accordance which will never occur within the present settings. That's why only the street could possibly change the present settings. But a question arises here about people's preparedness to take to the street. Societal atomization, consumerism and ideological brainwashing, have been so thorough these last 30-40 years that it is doubtful that people could still stand up to defend an ideal of a better tomorrow. The fact is that humanity has no shared vision of what a better tomorrow could look like. Furthermore societal atomization would soon be spun by capital holders and their lackeys to grind to pieces any alternative that was sticking its head forward rushing into the fray.
So, unfortunately, it looks less and less probable that supranational political institutions or a return of democracy will have any chance to lock out conflict from our future. It looks indeed like US neocon (republicans as well as democrats) are not prepared to let go the idea of US exceptionalism. Their internal documents show for example that they want their country to dispose of a first strike nuclear capability and they want to use such a first strike capability to ensure further US hegemony along the 21st century. This position has increased the risk of nuclear annihilation to a higher level than it ever was during the cold war.
But any speculation about such a possible future is just speculation. By mentioning the existence of such a risk I simply want us to remain conscious about it. Perhaps that consciousness will give us the fortitude to stand up and break the spell of the reason of capital, greed and individualism that keep us from following our natural tendency to cooperate.
3.3. The great convergence
Financialization and globalization conclude with:
The Northern countries' debt crisis and the worldwide redistribution of economic power that ensues is unfortunately not happening in a vacuum. We assist indeed at the convergence of a series of crisis that are unmistakably going to interact and throw humanity in the midst of a maelstrom of devastating and painful changes. Decisions will be fraught with consequences and humanity could easily be losing its grip over the conditions of its survival.
3.3.1. Too successful: the population explosion
What is striking in the visualization of demographic statistics is what appears like a 'last minute' kind of explosion of the world population. I mean, seen from the long haul history, the last few centuries appear as an anomaly. The world population doubled on average every:
Graphs from Wikipedia: World population
The reason of capital has been too successful for its own good and that of humanity. It is simply out of the possible to supply the whole world population with the same kind of standard in material possessions that the population in the North grew accustomed to. That's why the rebalancing we assist at is going to be stabilized at a lower level than what is the actual norm in the North:
But this rebalancing is not going to be realized fast enough and at a level that is sustainable in terms of its economic inputs of energy and resources. Nature is going to do the hard work for us and it will not be pretty because nature does not care about human sentiments.
3.3.2. The trap of indebtedness and the corruption of the establishment.
The principle of reality impressed on us the hard truth that debt to finance growth is not a workable principle. If it can work to correct a momentary decline it assuredly can't be the norm. Keynes' budgetary principle says that surpluses have to be generated during fast growing cycles to be disbursed during lean cycles. The economic reality is simply that economic growth over the long haul can only be generated by investments that have been accumulated as the result of hard work generating surpluses. Such surpluses are surpluses in value generated by productive activities that means by activities generating real goods. Service activities are not by themselves generating surpluses in value. They are at best helping productive activities generate such surpluses. Credit issued by financial institutions is such a service put at the disposal of production activities. Credit left on itself is immobile it can generate absolutely nothing. It is captive of capital in the case of a productive enterprise or of work in the case of an individual or a family.
That's why in 2007 the reason of capital triumphed over the shenanigans of finance. But while the responsibility of finance was been recognized it was imperative that it be held accountable. Unfortunately, for reason of corruption and also for reason of belief in the illusion of the “god-like” powers of finance, Western political elites did all they could to protect the financial world from the reason of capital. But doing so was only going to prolong the agony and thus inflict so much more social pain than what would have been necessary. In the end the books of financial institutions, of private citizens, and of states have to come clean for giving a chance to economic activity to pick up steam. In other words debts have to be dealt with one way or another. It makes just no sense continuing to hide their levels in the hope that with time they will disappear. This is a recipe for immobilism to be followed by catastrophe. What is necessary today is a great dose of voluntarism in shaping the conditions of a future sustainable economy and handling the debt problem 'prompto' is of first concern.
Absent such a voluntarism we soon risk to observe the street propulsing cabals of opportunists into power.
3.3.3. Peak energy and resources
The world is finite and its resources are so too. The industrialization of the West has been powered along the last century by very cheap oil. But the increase in demand has obliged producers to target more difficult to access reserves. Costs of extraction are thus climbing and with an ever increasing demand from the 90% of the world population producers are confronted with ever rising costs to exploit ever more difficult reserves. At the end of the day they experience much difficulty to increase total daily extraction and capacity is stagnating. This is what is called peak oil.
Conventional oil production appears to have peaked in 2006 at some 76 million barrels a day. To counter the peak of conventional oil production companies have been reduced to exploit ever more difficult to exploit non-conventional fields deep in the oceans or expansive to treat such as fracking wells and tar sands. But the financial crisis puts a brake on economic activity and the offer succeeds to satisfy demand. In reality the offer is presently marginally higher than current demand (2-3 million barrels a day) and this explains why prices are falling in reality. But what of tomorrow? New investments in exploration and well drilling have been stopped for lack of available investors. The production of existing conventional wells is in contraction of some 7% a year and newer ones have thus to be drilled to replace the loss of capacity. In fracking the depletion reaches on average 70% by the end of the first year of pumping so new wells have to be dug at an accelerated pace to keep production levels. It will barely take a year for the offer to come down under the levels of present demand. It is thus not difficult to forecast that demand will finally overshoot the offer within 1 to 2 years when prices will sky-rocket before new investments push up production.
The theory of peak oil is not really contested but what is contested is when the peak really occurs. Is it 2006 or will production in the future years surge at higher levels? Conventional oil peaked in 2006. When will non-conventional oil peak? Whatever the outcome of this debate it makes no doubt that when the peak of 'all oil' is reached there will be less oil available and this is going to provoke increasing frictions between countries in their search for supplies.
In their haste to answer coming shortages scientists and industrialists are frenetically searching for new ways to extract the last drops of oil as well as gas that was out of reach for technological reasons. We are now being bombarded with triumphal statements from gas drilling companies and their financial backers who promise that fracking is bringing us a new area of energy independence. But what about the present drying up of new investments? No new wells will be drilled and the total production from fracking is going to come crashing down. At a rate of depletion of 70% by the end of the first year what will remain of the fracking production within the next 12-18 months? Not much indeed! And many of the companies in that sector could be belly-up by that time. Financial debts of fracking companies are nearing one trillion dollars but the risks are further extended multiple times by derivative bets on that principal. All in all economists now expect that the blow-up of the fracking industry could eliminate 7-8 trillion in assets. Will the tax-payer again be put to the contribution to maintain in life what will surely be presented as a sector that is too big to fail. Furthermore what about the poisoning of the aquifers that supply drinking water to the populations and what about the earthquakes that are provoked by the fracking process?
It makes no doubt any longer that the urgency of renewable sources of energy is upon us. But contrary to our best hopes renewables will never make more than a very small percentage of all the energy produced today and so replacing oil and coal sources of energy is not in our near future. But our need for renewables is now or tomorrow morning! Out of extraordinary circumstances, like in the present, energy prices have only one way to go in the future and that is up. But this seems to directly impact the level of economic activity. Some economists are indeed correlating our latest economic downturn to the recent high price of oil. From their research they conclude that when oil reaches approximately $100 a barrel of crude the economy starts to suffer and goes into recession.
The same kind of arguments can be applied to raw materials that are also announced to be peaking by geologists and people involved in the business.
1. from “Metal minerals scarcity: A call for managed austerity and the elements of hope” by Dr. A.M. Diederen. in The Oil Drum Europe. May 4, 2009. (Compiled from "United States Geological Survey (USGS), Mineral commodity summaries 2008")
2. from "Earth's natural wealth: an audit" 23 May 2007 in NewScientist by David Cohen
The logic here is identical as for the constraints on energy production. The lowest hanging fruits have been been plucked first so time passing the extraction becomes more difficult and thus more costly. “The highest ore grades have already been depleted or are already being mined. Because of energy constraints, the largest parts of mineral deposits are out of reach for economically viable exploitation. The trend of geologically and physically based minerals scarcity will be further enhanced by other factors. Global (‘average’) shortages will most likely be preceded by spot shortages because of geopolitics and export restrictions, as many important metal minerals are concentrated in just a few countries, often outside the western industrialized world (e.g. China)” (2). This forecast has now been proven to be very prescient. China has indeed started to limit its exports of Rare Earth while controlling 97% of their extraction worldwide.
So the trend in metals and minerals extraction is one of ever lower grades in the deposits that has to be answered with higher inputs of energy and capital. Having seen that the world has already or is soon going to reach an energetic bottleneck the need for more energy in metals and minerals extraction is only going to amplify our energetic constraints by reducing the size of the neck of the bottle.
The net result of peak energy and resources is to render world economic growth ever more problematic in the near future and this is the benign version of what could possibly be a vastly more devastating scenario possibly concluding in societal collapse. It takes thus no shaman to visualize the economic damages that the scarcity of energy and other resources is going soon to inflict on societies around the world.
3.3.4. Side-effects of modernity
While modernity has been overly successful in terms of creating the conditions that unleashed fast population growth and in terms of supplying the goods for consumption it also has generated a cascade of negative impacts that can be summed up as follows:
1. In “America’s Financial Leviathan” by j. Bradford DeLong.
DeLong concludes: “Overall, however, it remains disturbing that we do not see the obvious large benefits, at either the micro or macro level, in the US economy’s efficiency that would justify spending an extra 5.6% of GDP every year on finance and insurance.
Why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends? There are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money. Are we sure that most of the growth in finance stems from a rising share of financial professionals who undertake the former rather than the latter?”
2. United States Geological Survey (USGS), Mineral commodity summaries 2008.
Video of the week
Articles of the week
"Pour la beauté du geste" par Joaquim. in The French Saker
"L’effet Manet" par Pierre Bourdieu, Le Monde Diplomatique. novembre 2013
"Infrastructure Trumps Militarized Capitalism" by Norman Pollack
"Answering for America’s Madness" in Naked Capitalism by Yves Smith
"Postcard from the End of America: New Orleans" by linh dinh
"Lonesome Yanks" by linh dinh
Artist of the week