Hollow Bankrupt States and the Crisis of Capitalism


From JOHN ROBB Global Gorillas

Hollow, bankrupt states and crisis of capitalism is not a “dystopian future” if it is actually happening now. With almost hourly updates.

I coined the term, “hollow stateback in 2007.  The idea derived from what I was seeing develop due to open source warfare and primary loyalties.  Here’s a run down on what it means:

The modern nation-state is in a secular decline, made inevitable by the rise of a global market system. Even developed nations, like the US, are not immune to this process. The decline is at first gradual and then accelerates until it reaches a final end-point: a hollow state. The hollow state has the trappings of a modern nation-state (“leaders”, membership in international organizations, regulations, laws, and a bureaucracy) but it lacks any of the legitimacy, services, and control of its historical counter-part. It is merely a shell that has some influence over the spoils of the economy. The real power rests in the hands of corporations and criminal/guerrilla groups that vie with each other for control of sectors of wealth production. For the individual living within this state, life goes on, but it is debased in a myriad of ways. The shift from a marginally functional nation-state in manageable decline to a hollow state often comes suddenly, through a financial crisis.

This early analysis was right on. Four years on from the above and we’re seeing a rapid “hollowing out” of the developed nation-states. So much so that nearly every nation in the developed world is in a debt crisis, cutting services, and losing legitimacy.

The other idea I’m currently working on is:  “a crisis of capitalism.”  It may also take 3-4 years for people to really get that it is real.

The idea is simple. That capitalism, as it works today is failing. It lunges from crisis to crisis, each with increasing severity and duration.  Ceteris paribus, we are headed for a decade long economic depression.

Why is it failing?  Its decision making is EXTREMELY centralized.  Centralized economic deicison making (aka “central planning”), as the Soviet nomenklatura found out, doesn’t work in a complex modern economy.  Here are some signs of extreme centralization:

  • Wealth stratification. Fewer but bigger piles of liquid wealth.  Trend is accelerating.
  • To big to fail (TBTF) companies/systems.  Interconnected, sprawling.
  • The shadow banking system (a $650 trillion pile of interlinked derivatives — in contrast, the entire global GDP is $50 trillion and sinking) that sucked a sleepy US mortgage market dry.

In John Boyd’s terms (the best strategist America ever produced):  the decision making, or capital allocation, in our economic system is made by a small number of decision makers.  These decision makers, collectively, represent a very small number of decision making loops (the process of making a decision).  As in, based on the available information and previous experience:  this goes there, that doesn’t get funded, this gets the green light.

This small group, combined with adherence to a rigid ideology increasingly divorced from reality, has inevitably made bad decisions, regardless of how much technology and decision support they could afford. They were outpaced by a huge, extremely complex, and rapidly evolving environment.

Worse, these decisions have been increasingly based on flights of ideological fantasy (rather than adapt the ideology to a changing reality, they turned inward and added wheels within wheels of complexity).  Namely, our economic decision making elite built ziggurats of financial complexity and speculation to produce returns not possible in the real world.  Speculation so fantastical, that it produced some of the most grotesque misallocations of capital in history.  A profound squandering of our combined global surplus squandered on financial vapor.

These financial ziggurats are now crumbling to dust and with it our global economy.   A long and grinding economic depression and hollow states await below.  So, now we now sit on the edge of the abyss, a real crisis of capitalism.  An event potentially so momentus (worse than the depression of the 1930’s), that it has the potential to collapse the last great ideology.

NOTE:  I really don’t care if you believe in capitalism or not.  Ideologies live or die based on how they are applied in the real world and not in how they seem to work in theoretical discussions or books.  Any ex-communist can attest to that. ~~

One Comment

Though the author makes a few valid (though hardly original points) this article contains a gigantic fallacy that is often repeated by economic theorists who should know better. The author states, “Centralized economic decision making (aka “central planning”), as the Soviet nomenklatura found out, doesn’t work in a complex modern economy. Ask any ex-communist about that.” That’s like saying, “Psychotherapy doesn’t work. Just ask any person who didn’t feel better after going to a psychotherapist.” What didn’t work in the Soviet Union was not the system of central planning, but the nature of the central plans, some of which included waging a disastrous war in Afghanistan (a war that bankrupted and demoralized the nation) and spending most of the vast wealth created by communism every year on an insane arms race with the United States. Cuba, as one example, survived decades of a hermetic embargo and provided food and education and healthcare and baseball for all its citizens through a form of communism.

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