The already substantial industry of tax evasion and illicit investment flows was dramatically heightened by the manner in which communism was replaced by capitalism in Russia. To a very large extent this involved the theft of state assets by former state agents and their transformation into a mixture of capitalist enterprise with organized crime. This helped to give rise to massive illicit trade and poured huge new amounts of money into an already thriving global network of illicit markets. Perhaps a trillion dollars worth of unrecorded capital flowed quickly from countries like Russia to tax-shelters like Cyprus and the Cayman Islands, and then in turn was invested in legal as well as illegal businesses back in Russia and around the world.
The importance of both relatively local informal sector activity and large-scale illicit capitalism reveal weaknesses in formally recorded capitalist growth. In the first place, this growth is unable to accomplish distribution necessary to sustain social life and reproduction. Formal capitalism actually depends on the informal sector to maintain the basic conditions of life in many societies—and thus the social peace necessary for prosperity of the parts of societies based on legitimate markets. This is particularly true in the parts of capitalist societies most affected by formal market failures—in slums, for example, where residents must rely largely on each other and very small-scale entrepreneurship to survive because both large-scale capitalism and the state are ineffective. But it is also true sometimes on larger scales, where corruption testifies not just to individual greed but also to institutional underdevelopment. Secondly, the large amounts of capital drawn into illicit global trade both implicitly tax or siphon funds from the formal sector and make markets and risks less predictable. Of course, capital from the illicit sector may also find its way into legitimate capital markets and into direct investment in legitimate businesses (where it may or may not be accompanied by illegitimate management tactics—like bribery or threats of violence). Informalization and corruption undercut needed state regulation and integrate legitimate businesses directly or indirectly with illegitimate ones like drug or sex trafficking.
Much of the global political economy is organized in ways that exceed the “official” world-system of nation-states and capitalism. Collusion between states and corporations, organized crime on various scales, the political power of warlords and cartels that hold no political office, and the economic power of semiautonomous parts of states including militaries all reveal a more complicated world—and one threatening to capitalism as we know it. So do cybersecurity challenges from Wikileaks to hacking, malware, spear-phishing, and other tactics deployed sometimes with state backing and sometimes by freelancers, sometimes against states and sometimes against corporations. This is part of the transformation of capitalism, not all without historical precedent, but with an unclear future.
CONCLUSION
Though capitalism seems unlikely to collapse next week, it is also unlikely to last forever. It remains unwise to imagine the future only in terms of linear projections from the present.
Capitalism could be felled by internal contradictions, including its general propensity to crises and the specific intensification of risk that has accompanied lopsided financialization in much of the world. Indeed, surprisingly little has been done after the 2008–2009 market meltdown to improve regulation or market structures; the same firms and people remain largely in charge. The same risks are therefore still with us.
Equally important, though, are potentials for external disruption, whether from environmental catastrophes, diseases, wars, or rebellions. Infrastructural systems on which capitalism depends, like communications networks or energy supplies, could also be disrupted, possibly by political actors. For all these reasons, what has been a process of ever-tighter global integration may be partially reversed. Coping with disruptions may depend on more loosely coupled systems with different bases for resilience.
Capitalism could decline without collapsing, simply organizing less of economic activity as alternative systems organize more. Growth could slow. This could happen globally or, more likely, unevenly by country and region. The ever-tighter integration of global markets that capitalism has driven might be slowed or reversed, with differently organized systems in different settings. Capitalism might be more central to some of these, more hemmed in or marginal in others. Business firms, operating in close relationship to governments, could manage economic relations more, leaving less to “free” markets. They could be organized with more attention to goals other than capital accumulation. Social and political institutions might provide stronger or weaker counterbalances to capitalism; illicit capitalism could loom larger or smaller. Capitalism could thus remain a vital part of global political economy, but be less dominant. Or a radically new economic structure could develop.
The current crisis is not the first time that capitalism has survived only because states were willing to intervene and assume enormous costs created by capitalist “excesses.” Of course, the citizens to whom these externalized costs are distributed are often unhappy. But if states aid capitalism by absorbing costs firms externalize, they also aid citizens by managing risks from unemployment to illness. So far there is little sign of social movements potentially able to topple states that impose austerity in order to defend capitalist financial institutions. This does remind us, though, that at least as important as capitalist vulnerability to crises is the likelihood that capitalism will be undermined by destruction of the political, social and environmental conditions on which it depends.
Meeting institutional deficits is a basic challenge. Of course the challenge can be met by nonstate institutions as well as states, particularly by nonprofit organizations but also sometimes by capitalist firms where they are stable enough to work as social institutions supporting their employees. Contemporary global capitalism is also buffered for many people by an informal sector that sustains populations poorly served by existing institutions but that also extends into large-scale corruption. A massive illicit sector mingles tax evasion with criminal enterprises. Both informal and illicit sectors are interdependent with more formal and legitimate capitalism. Yet they undermine institutions on which it depends, including states.
Whether states are able to continue providing operating conditions for capitalist growth is a serious question, as much in parts of Europe as in less developed countries more commonly associated with the phrase “fragile states.” Fiscal crises complement security challenges. Infrastructural and other growth-oriented investments have been hard to deliver effectively. Regulating global finance and meeting environmental challenges call for effective large-scale, transnational governance structures, but efforts to create these are relatively weak. Holding together a global world-system depends on the hegemony and disproportionate contributions of some members. The United States’ willingness to carry these burdens unilaterally is declining but neither a replacement nor a multilateral alternative has emerged. One possibility is that the world-system will lose cohesion in favor of competing regional structures—and capitalism may matter more in some than others.