Low income and wellbeing

source: J. G. Speth, The Bridge at the End of the World

A recent post on Rawls's critique of capitalism closed with an intriguing mention of a contrast Rawls draws between economic growth and human wellbeing. He is particularly critical of the consumerism that is enmeshed in the social psychology of a growth-oriented market system. This point is worth focusing on more closely.

We seem to work on the basis of a couple of basic assumptions about income, lifestyle, and community in this country that need to be questioned. One group of these clusters around the idea that a high quality of life requires high and rising income. High income is needed for high consumption, and high consumption produces happiness and life satisfaction. Neighborhoods of families with high income are better able to sustain community and civic values. And symmetrically, we assume that it is more or less inevitable that poor communities have low levels of community values and low levels of the experience of life satisfaction.

All these assumptions need to be questioned. As any social service agency can document, there are ample signs of social pathology in the affluent suburbs of American cities. These suburban places aren't paragons of successful, happy human communities in any of the ways Robert Bellah talks about (Habits of the Heart: Individualism and Commitment in American Life, Good Society). And there is little reason to believe that the consumption-based lifestyles that define an American ideal of affluence really contribute consistently to life satisfaction and successful community.

But here I want to focus on the other end of this set of assumptions: the idea that non-affluent people and communities are necessarily less happy, less satisfied, and less integrated around a set of civic and spiritual values. So here is the central point: people can build lives within the context of low income that are deeply satisfying and rewarding. And communities of low-income people can be highly successful in achieving a substantial degree of civic and spiritual interconnection and mutual support. It doesn't require "affluence" to have a deeply satisfying human life and a thriving community.

There are many reasons for thinking these observations are likely to be true. One is the example of other societies. Consider village life in Spain or Italy, for example, where many families still live on incomes that are a fraction of American affluence, who incorporate gardens into their regular lifestyle and household economy, and who enjoy admirable levels of personal and social satisfaction. Or think of stable farming communities in India or Africa that have successfully achieved a balance of farm productivity, a degree of social equality, and a strong sense of community. Or consider examples of communities in the United States that have deliberately put together lives and communities that reject "affluence" as a social and personal ideal.

Of course it's true that extreme poverty is pretty much incompatible with satisfaction and community. Malnutrition, illiteracy, and untreated disease are counterparts of extrme poverty and destroy happiness and community. But "non-affluence" isn't the same as extreme poverty.

What everyone needs, at every level of income, is decent access to the components of a happy life: healthcare, nutrition, shelter, education, dignity, and security. These are what an earlier generation of development thinkers called basic needs. And it is self-evident how these fit into the possibility of a decent and satisfying life. But access to these goods isn't equivalent to the American dream of affluence.

So here is a fairly profound question: what steps can be taken to promote the features of personal wellbeing and robust community relations that can make "non-affluence" a sustainable social ideal? And how can we help poor communities to strengthen their ability to nurture these positive values according to their own best instincts?

This line of thought converges closely with the striking arguments made by James Gustave Speth in The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability. The graphs at the top represent Speth's summary of the environmental catastrophe associated with the idea of permanent economic growth. Much of Speth's critique of consumerism and growth is summarized in this account of a talk he gave at McGill in 2008. Speth argues that a radical rethinking of well-being is necessary if we are to achieve a society that is environmentally sustainable.

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Posted in: capitalism,CAT_policy,environment

Quiet politics

image: Conspiracy, Edward Biberman (cover illustration, Quiet Politics)

Pepper Culpepper's Quiet Politics and Business Power: Corporate Control in Europe and Japan sheds some very interesting light on one key question in contemporary western democracies: how do corporations and business organizations so often succeed in creating a legislative and regulatory environment that largely serves their interests?  And, for that matter, why do they sometimes fail spectacularly in doing so, even while spending oceans of money in the effort to influence public policy?

The book is a careful comparative study of the development of corporate governance laws and institutions in France, Germany, the Netherlands, and Japan.  It offers special focus on the institutions governing hostile corporate takeovers (very different across the four examples), but also takes on other issues of current interest, including executive pay.  But though the cases and issues considered in the book are fairly esoteric and specialized, Culpepper's analysis is intended to provide a broadly useful tool for understanding how corporate influence is exercised in a democracy.

Culpepper wants to know what political and situational factors explain the divergent course that corporate governance has taken in these four contemporary democracies, from more permissive to more restrictive.  Do elected officials determine the broad outlines of the governance regime?  Are differences across states the result of differences in the platforms of large political parties in these states?  Or are the outcomes driven by something else?  Culpepper thinks that it is usually something else:

In this book, I argue that the outcomes observed in these four countries result not from variations in government partisanship or from different interest coalitions, but from differences in the political preferences of managerial organizations.  In all four countries, the rules favored by the managers of large firms are those that triumphed, often against substantial political opposition. (3)

Or in other words, the outcomes are those favored by the business elites rather than elected officials or mass-based political parties.  And differences in outcomes are explained by differences in the business environment in the four countries.  This is the "business power" part of the question, and Culpepper's fundamental empirical finding is that businesses elites generally have proven successful in creating the institutional and regulatory regimes in their polities that they prefer.  But how do they succeed?

Here Culpepper's central finding is encapsulated in the other half of his title: these corporate governance issues usually fall in the domain of what he refers to as "quiet politics."  Noisy politics arise around the issues that generate significant and sustained interest by large numbers of voters; these issues have "high salience" to the electorate, and parties and elected officials find it in their interest to adjust their positions around voter preferences on these salient issues.  Quiet politics arise in the context of issues with "low salience" -- issues to which the mass of voters are largely indifferent.  "The political salience of an issue refers to its importance to the average voter, relative to other political issues" (4).  In the context of "low salience" issues that matter to the interests of high-level business managers and elites, it is possible for these elites to deploy an arsenal of influential tools that succeed very well in bringing about the legislative and regulatory outcomes that the managerial elites prefer.  Most fundamental is an information asymmetry between managers and policy makers:

The managerial weapons of choice in quiet politics are a strong lobbying capacity and the deference of legislators and reporters toward managerial expertise.  The political competitors of managers, be they liberalizing politicians or crusading institutional investors, lack access to equivalent political armaments, so long as voters evince little sustained interest in and knowledge about an issue. (4)

Culpepper unpacks the political advantage residing with business elites and managers in terms of acknowledged expertise about the intricacies of corporate organization, an ability to frame the issues for policy makers and journalists, and ready access to rule-writing committees and task forces.  These factors give elite business managers positional advantage, from which they can exert a great deal of influence on how an issue is formulated when it comes into the forum of public policy formation.  Culpepper refers to British Cadbury Committee, tasked to develop "best practices" in corporate governance (9), as an important example of an occasion where high-level managers had a very powerful ability to write the rules that would govern their behavior.  Vice President Cheney's energy committee during the Bush administration is another great example (link).  Informal working groups, containing a significant representation of managerial elites, have an ability to set the agenda for a regulatory regime that allows them to privilege positions they prefer and to protect their organizations from worst-case outcomes.

As in the case of direct lobbying, the power of managers in this context is the power to set the terms of the debate in an environment that is established with an explicit eye to protecting their interests. (9)

Here is one of many detailed examples that Culpepper studies in the book: the Peters Committee in the Netherlands in 1997, tasked to "establish a voluntary code of best practice in corporate governance" (100).  He notes that the Peters Committee was very similar in structure to the Cadbury Committee.  It was chaired by a former CEO, and had representation from the VEUO (Dutch Association of Securities-Issuing Companies), pension funds, and the Amsterdam Stock Exchange.  Unions were not represented.  And, Culpepper reports, the forty recommendations of the Committee were essentially ignored by the Dutch corporate actors.

Scholars of corporate finance point to the Peters Committee as a textbook example of the failures of self-regulation of business without any legal enforcement.  Yet from the viewpoint of the managerial interests that dominated the committee, its results were consistent with their highest political priority: to defend protection mechanisms [against hostile takeovers]. (101)

In other words: from the point of view of Dutch corporate elites, the committee was not a failure, but rather a demonstration of their ability to shape the agenda and secure a near-term environment that enabled their freedom of action.

So essentially Culpepper's empirical-institutional argument is that top business managers (CEOs and their teams) have a very powerful set of tools on the basis of which they are able to influence legislation and regulation.  This tool set leads to an impressive win percentage when it comes to legislation and regulation affecting the business environment.

But he also finds that these tools are really only decisive in the context of "low salience" issues -- issues that have not engaged the voting public with any intensity.  When a hitherto boring and technical issue of corporate governance suddenly jumps into high salience -- for example, the conflicts of interest faced by accounting firms involved in the Enron debacle -- these weapons of quiet influence essentially lose their ability to shape the outcomes.

The more the public cares about an issue, the less managerial organizations will be able to exercise disproportionate influence over the rules governing that issue. (177)

Parties, political entrepreneurs, legislative committees, and elected officials become interested in the issue; it becomes worthwhile for business journalists to learn the technical details; and the public demands solutions that may be contrary to the preferences of the business elite.  And Culpepper works through one of these examples in detail as well: the public and public policy debates that have flared up concerning executive pay (chapter 6).

In addition to its substantive political-institutional findings, the book is interesting for its methodology.  Culpepper explicitly favors the "causal mechanism" approach to social research and investigation.  He treats cases comparatively; and he attempts to "process-trace" the paths through which outcomes came about.  He depends extensively on interviews with pivotal actors in some of the cases studied.  He does a very good job of aligning his analysis against its main competitors -- median voter theories and coalition politics analysis.  Finally, the book is explicitly comparativist; he want to understand in some detail the situations and factors that lead to different outcomes with respect to corporate governance, and the rules governing hostile takeovers, in the four countries he studies.  So the book does an admirable job of sketching out some of the microfoundations of corporate influence in existing democracies.  As such, it is a very useful contribution -- it helps to connect the dots (link).

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Posted in: capitalism,CAT_institutions,inequality,power

Basic institutions and democratic equality

Modern societies seem to produce persistent social inequalities that are contradictory to many of the values we espouse when it comes to the idea of democratic equality.  We continue to find wealth and income inequalities, inequalities of educational and health outcomes, inequalities of political power and influence, and these disparities seem to increase over time.  Is this a residual defect in these specific societies, or is it rather a natural result of the logic of the institutions that define a market economy and an electoral democracy in the circumstances of extensive existing inequalities of wealth and power?

Consider these polar views:

• Modern market democracies work to narrow social and economic inequalities over time.  
• The institutions of modern market democracies work to increase economic and political inequalities; the rich and powerful become more so through their privileged positions within existing institutions.

Which of these views is correct?

We would like to think that it is possible for a society to embody basic institutions that work to preserve and enhance the wellbeing of all members of society in a fair way. We want social institutions to be beneficent (producing good outcomes for everyone), and we want them to be fair (treating all individuals and groups with equal consideration; creating comparable opportunities for everyone).

There is a fundamental component of liberal optimism that holds that the institutions of a market-based democracy accomplish both goals. The economic institutions of the market create efficient allocations of resources across activities, permitting the highest level of average wellbeing. Free public education permits all persons to develop their talents. And the political institutions of electoral democracy permit all groups to express and defend their interests in the arena of government and law.

But social critics cast doubt on all parts of this story, based on the role played by social inequalities within each of these sets of institutions. The market embodies and reproduces a set of economic inequalities that result in grave inequalities of wellbeing for different groups. Economic and social inequalities influence the quality of education available to young people. And electoral democracy permits the grossly disproportionate influence of wealth holders relative to other groups in society. So instead of reducing inequalities among citizens, these basic institutions seem to amplify them.

On this line of thought, market and electoral institutions both create and reproduce social inequalities even when they are working correctly; inequality is built into them at a very basic level.  The institutions are tilted in favor of privileged groups, and it is no surprise when corporations wield substantial influence in Washington and Paris and tax policies are enacted that favor the richest percent of American income earners.   These aren't abnormal anomalies; they are instead precisely what we should expect when we analyze the basic institutions carefully.

What remedies are available to help move a modern society towards greater democratic equality for all of society?  Several large institutional variations have been tried in the past century -- social democracy, small self-sufficient communities, local economies based on cooperatives, etc.  Jon Elster surveyed some of these alternatives in Alternatives to Capitalism over twenty years ago -- at a time when there was more openness to the idea of fundamental institutional reform.  Tamas Bauer opens his essay, "The unclearing market," with these words:

The well-functioning market of textbooks brings about general satisfaction. Under market-clearing prices, goods and factors offered for sale are sold; the demand of each agent is satisfied by supply by others.  Wage earners are paid wages that more or less correspond to their marginal contribution.  Etc., etc. ... Life is, of course, much different. (71)

The social-democratic solution to these tendencies was developed in the early twentieth century.  It was recognized that market institutions create unacceptable inequalities and leave some citizens in circumstances of insecurity, deprivation, and indignity; and it was argued that the institutions of the state needed to correct these tendencies through the establishment of a strong social safety net.  The majority of a society would have the electoral strength to create and maintain strong protections of the interests of ordinary working people through a combination of positive economic rights. (Gosta Esping-Andersen reviews this history in The Three Worlds of Welfare Capitalism.)  

The triumph of social and economic conservatism -- Thatcher, Reagan, and other conservative European leaders and their political parties -- took this theory of the role of the state off the public agenda, and the past thirty years have witnessed the systematic disassembly of the institutions of social democracy in most countries.  And the consequences are predictable: more inequality, more deprivation, more severe disparities of life outcomes for different social groups.

What is truly surprising is that there has been so little continuing exploration of alternatives in the intervening two decades.  Democratic theorists have explored alternative institutions in the category of deliberative democracy (link), but there hasn't been much visioning of alternative economic institutions for a modern society. We don't talk much anymore about "economic justice," and the case for social democracy has more or less disappeared from public debate.  But surely it's time to reopen that public debate.

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Posted in: capitalism,CAT_institutions,CAT_policy,democracy

Merchant capital

Karl Marx was very interested in capital -- an abstract concept referring to society's wealth. And he was interested in the persons who owned and controlled capital -- the capitalists. But the primary focus of his lifelong analysis was upon one particular species of capital, what he referred to as "industrial capital." This is the form of wealth involved in the production process -- factories, mines, railroads.  He had less to say about the aspect of capital that designated the exchange process -- what he referred to as "merchant capital" and finance capital. This selective focus reflected one of Marx's main historical opinions -- the idea that history moves forward through the development of the "productive forces," and that industrial capitalists (as well as the industrial proletariat) are the agents of this kind of economic change. Here is a brief description from Capital of the role of merchant's capital in his analysis.

The reason is now therefore plain why, in analysing the standard form of capital, the form under which it determines the economic organisation of modern society, we entirely left out of consideration its most popular, and, so to say, antediluvian forms, merchants' capital and money-lenders' capital. The circuit M-C-M, buying in order to sell dearer, is seen most clearly in genuine merchants' capital. But the movement takes place entirely within the sphere of circulation. Since, however, it is impossible, by circulation alone, to account for the conversion of money into capital, for the formation of surplus-value, it would appear, that merchants' capital is an impossibility, so long as equivalents are exchanged; that, therefore, it can only have its origin in the two-fold advantage gained, over both the selling and the buying producers, by the merchant who parasitically shoves himself in between them. It is in this sense that Franklin says, "war is robbery, commerce is generally cheating." If the transformation of merchants' money into capital is to be explained otherwise than by the producers being simply cheated, a long series of intermediate steps would be necessary, which, at present, when the simple circulation of commodities forms our only assumption, are entirely wanting. (Capital I, Chapter 5)

According to the labor theory of value, only the expenditure of living labor into the production process of a commodity can create new value; so only industrial capital includes a process that creates new wealth. Merchant capital plays no role in the production process, and it is therefore historically unimportant -- or so is Marx's view in Capital.

If we now look back on European history from the sixteenth century to the twentieth century, this assessment seems badly wrong as an historical observation. Merchants and their companies played key roles in the establishment of a world trading system; they actively facilitated the race for colonies by the European powers; and often they played a quasi-military role in suppressing resistance by locals in distant parts of the world. So "merchant capital" and companies established for the purpose of international trade seem to have played a key role in the creation of the modern world system.

Robert Brenner undertook to provide a detailed historical account of the role of merchants and their organizations in the sixteenth and seventeenth centuries in Merchants and Revolution: Commercial Change, Political Conflict, and London's Overseas Traders, 1550-1653 (1993). This is a departure from Brenner's important contributions to the agrarian changes associated with England's agricultural revolution in the sixteenth century (link), and it is also a much more detailed historical study than his previous works. Brenner is interested primarily in two topics: first, how did commerce evolve in the sixteenth century in England, both nationally and internationally; what were the institutions, organizations, and individuals that emerged as vehicles for pursuing individual and corporate interests by large merchants? And second, how did the emergence of large merchant fortunes and companies interact with the politics of the English state during this early modern period?

To offer a historical analysis of commerce, it is necessary to have extensive commercial data. Appropriately, Brenner's research depends heavily on good information about imports and exports throughout the period. Here is his compilation of London cloth exports 1488-1614:

So aggregation of voluminous historical economic data represents one important portion of Brenner's historical research here. The other important part, however, is at the other end of the scale -- detailed information about many of the individuals who played leadership roles in the commercial and political developments of the period.

Fundamentally the book is about the political power of the merchant class. Brenner makes the point that English commercial interests were deeply dependent upon English political and military strength in the competition for import and export markets.

English merchants found it feasible to establish the new trades in large part because of the weakening hold of Portugal and Spain over their commercial empires, as well as certain other favorable political shifts in the new areas of commercial penetration. Even so, they could successfully capitalize on the openings presented to them only because of the growing political, as well as economic, strength of English commerce and shipping in this period. (5)

The development of England's colonies was particularly important for English merchants:

During the first quarter of the seventeenth century, English traders, for the first time, sought systematically to establish commerce with the Americas. Important City merchants had opened up the new trades with Russia, Turkey, Venice, the Levant, and the East Indies that highlighted the Elizabethan expansion, and in each case, had had recourse to their favorite commercial instrument, the Crown-chartered monopoly company. (92)

This meant, in turn, that great merchants had great political interests, both in terms of military policies of the Crown and in terms of the privileges and monopolies upon which their profits depended.  And much of Brenner's narrative is a careful parsing-out of the deliberate and purposive political alignments sought out by the great merchants and their companies.

The Levant Company's privileges were indispensable for its elaborate system of trade regulation and, in turn, for the reservation of the profits of the trade to a restricted circle of merchants. As members of a regulated company, the individual Levant Company merchants traded for themselves with their own capital, but were required to adhere to rules and policies set by the corporation's general court. (66)

Political alignments were especially important during the century of conflict leading to civil war and revolution.

The political activities and alignments of London's merchant community both expressed and helped determine the character of City and national conflict in the period leading up to the outbreak of the Civil War. From November 1640, London politics and national politics became ever more inextricably intertwined, and ovesears merchants played key roles at both levels.... Civil war became inevitable when City and parliamentary conflicts became fully merged through the consolidation of alliances between the City radical movement and the opposition in Parliament, on the one hand, and the City conservative movement and the Crown, on the other. (316)

An overwhelming majority of company merchants ultimately fell into one of these two allied political categories [of royalist supporters]. But it is difficult to be sure how they were distributed between them ... because surviving evidence on the political orientation of large numbers of citizens is available only for the period beginning in July 1641. (317)

But on the other side:

The traders of the colonial-interloping leadership stood at the head of the City popular movement and played a critical role in connecting that movement to the national parliamentary opposition.  The new merchants' continuing intimate ties with London's domestic trading community (from which many of them had come) put them closely in touch with a City parliamentary movement that was overwhelmingly composed of nonmerchants. Meanwhile, their activities in the colonial field gave them pivotal links with those Puritan colonizing aristocrates who constituted a key component of the national parliamentary leadership. (317)

If we wanted a single phrase to summarize Brenner's task in this work, it is the idea that much of England's politics in the early modern period were influenced or determined by the demands of the commercial sector. The great merchants wielded great political power. And so we need to have a fine-grained understanding of these companies and their networks if we are to understand the coalitions and policies of the period. Contrary to the view put forward by Marx above, merchant capital and its associated actors and organizations were indeed a potent historical factor in modern history.

A recent book by Stephen Bown, Merchant Kings: When Companies Ruled the World, 1600--1900, picks up the story of merchant capital from a different angle and with a very different level of resolution. Bown is particularly interested in demonstrating the active (and often violent) role that large merchant companies played in the development of the world trading system and the colonial relationships that emerged from the seventeenth century forward. Bown's central focus is on the individuals and the companies that created the colonial world: Jan Pieterszoon Coen and the Dutch East India Company, Pieter Stuyvesant and the Dutch West India Company, Sir Robert Clive and the English East India Company, Aleksandr Baranov and the Russian American Company, Sir George Simpson and the Hudson's Bay Company, and Cecil John Rhodes and the British South Africa Company.

Bown opens his book with the story of the Dutch efforts in the early seventeenth century to push English and Portuguese traders out of the East Indies (Indonesia).  The central actor of this story is an employee of the Dutch East India Company and an experienced naval admiral, Pieter Verhoeven. The narrative of Verhoeven's assault on the Moluccas is a good place for Bown to begin, because it brings together the themes of armed violence and commercial interest that are the core of his book. Verhoeven's instructions from the board of directors of the Dutch East India Company were explicit:

We draw your special attention to the islands in which grow the cloves and nutmeg, and we instruct you to strive after winning them for the company either by treaty or by force. (10-11)

Bown draws out a story of global competition between nations and trading companies that illustrates the brutality and self-interestedness of colonialism throughout the three-century period he traces. And the chief victims of this violence are non-European peoples from Indonesia to Alaska to South Africa. What the book doesn't provide is what is so evident in Brenner's book -- a detailed understanding of the political and organizational relationships that underlay these military and commercial adventures.

Both books have something to add to our own efforts to understand big business in the twenty-first century. On the evidence offered here, business organizations -- corporations and companies -- have their own interests and agendas, and states have a great deal of difficulty in constraining them to the public good. This is obvious in the failures of large financial institutions to safeguard the interests of the public in 2008 -- the harmful conduct of finance capital, but it was equally evident in the behavior of the Dutch East India Company or Brenner's opening example, the Company of Merchant Adventurers. The hidden hand does not assure us that markets, commerce, and private interest will bring about the common good.

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Posted in: capitalism,CAT_history,Marx

Strategies of economic adaptation

Charles Sabel and Jonathan Zeitlin made a powerful case for there being alternative institutional forms through which modern economic development could have taken place in their 1985 article, "Historical Alternatives to Mass Production: Politics, Markets and Technology in Nineteenth-Century Industrialization" (link). In an important volume in 1997, World of Possibilities: Flexibility and Mass Production in Western Industrialization, they take the argument two steps further: first, that institutional variations were not merely hypothetical, but in fact had an extended history in a variety of industries well into the twentieth century; and second, that the current situation of pervading uncertainty about our most basic economic institutions was characteristic of the earlier periods as well.  The volume represents the work of an intensive seminar in economic history sponsored by the Maison des Sciences de l'Homme.  Contributors include a broad swath of researchers in economic history across Europe (not Asia!).  Chapters take up the processes of mechanization, specialization, and mass manufacture in a variety of industries in the nineteenth and early twentieth centuries -- silk, cutlery, watch-making, metal-working, and ship-building.  (Here is part of the very good introduction to the volume provided by Sabel and Zeitlin; link.)

Sabel and Zeitlin take the view that the history of business and technology can in fact shed quite a bit of light on the economic situation we face today -- from brand new sectors (Google, Facebook, Amazon) to the abrupt decline of old industries (the US auto industry) to speculation about the next big area of business growth (biotech, alternative energy).  They highlight a couple of features of the business and economic climate in the late 1990s that seem equally applicable today -- an acute sense of economic fragility and institutional plasticity.  They argue that these features were also the hallmarks of earlier periods of economic change as well.  So they argue that we can learn a great deal for today's challenges by considering the situation of industries like glass-making or watch-making in 1880 or 1920.

The sense of fragility goes to the once commonsensical idea that progress would lead to the gradual consolidation of particular forms of economic organization, and hence to an ever more certain sense of how best to deploy technology, allocate labor and capital, and link supply of particular products to demand. Today ... it is commonsensical to believe that the way many of these things are done depends on constantly shifting background conditions whose almost insensible mutation can produce abrupt redefinitions of the appropriate way to organize economic activity.

The second experience is one of the recombinability and interpenetration of different forms of economic organization: the rigid and the flexible, the putatively archaic and the certifiably modern, the hierarchical and the market-conforming, the trusting and the mistrustful.

...

The central theme of this book is that the experience of fragility and mutability which seemed so novel and disorienting today has been, in fact, the definitive experience of the economic actors in many sectors, countries, and epochs in the history of industrial capitalism.

...

But this double perception of mutability and fragility ... has not led them to exalt catch-as-catch-can muddling through as the organizing principle of reflection and action. What we find instead is an extraordinarily judicious, well-informed and continuing debate within firms, and between them and public authorities, as to the appropriate responses to an economy whose future is uncertain, but whose boundary conditions at lease in the middle term are taken to be clear.

...

Our purpose here is to show that most firms in nineteenth- and early twentieth-century Europe and the United States, neither mired in tradition nor blinded by the prospect of a radiant future, carefully weighed the choices between mass production and what we would now call flexible specialization. (2-3)

One of Sabel and Zeitlin's most basic arguments is the idea that firms are strategic and adaptive as they deal with a current set of business challenges. Rather than an inevitable logic of new technologies and their organizational needs, we see a highly adaptive and selective process in which firms pick and choose among alternatives, often mixing the choices to hedge against failure.  They consider carefully a range of possible changes on the horizon, a set of possible strategic adaptations that might be selected; and they frequently hedge their bets by investing in both the old and the new technology. "Economic agents, we found again and again in the course of the seminar's work, do not maximize so much as they strategize" (5).

During the eighteenth and early nineteenth centuries, for example, the silk merchants and weavers of Lyons carefully monitored but did not imitate the policies of design routinization, subdivision of labor and price competition pursued by their Spitalfields counterparts, preferring alternative strategies based on rapid style change, increasingly flexible machinery and the skillful exploitation of fashionable markets for high-value products. ... Much as they admired the efficiency of American methods, detailed accounts of the American system in trade journals and technical society proceedings typically emphasized that this efficiency depended on standardization of the product which was wholly incompatible with the current or expected organizations of their respective markets. (12)

In other words, specialized firms did not "resist change;" rather, they carefully assessed the full implications of one form of organization and one use of technology against another, and selected those innovations that represented the best match to their own business realities. 

An interesting case study of an alternative way of organizing production is provided in the chapter by Peer Hull Kristensen and Charles Sabel, "The small-holder economy in Denmark."  It was an example of cooperative-based agriculture and small-scale production that provided a durable alternative to private capitalism farming and manufacture:

Denmark was the exception.  There in the decades before World War I peasant small holders built a technologically innovative cooperative movement that outcompeted estate-owners and urban financiers in virtually every segment of the dairy, egg and pork products industries.  In so doing they created demand for particular kinds of capital goods that contributed to the modernization of the small-shop sector of industry as well. (345)

Alongside the agrarian republic there was another estate of small holders, the artisans and craftsmen.  Their property was the knowledge of tools, materials, and techniques which made them independent of any one market or employer. By the outbreak of the First World War, they too had built institutions -- particularly a network of technical schools -- which allowed them to defend their place in Danish society by constantly renewing it. (365)

The history these activities in Denmark demonstrate that it was possible for voluntary producers' cooperatives to manage the provision of specialized services, marketing services, and economies of scale to farmers and artisans that we sometimes believe can only be provided by the market.  This system did not last forever -- though it proved economically durable for half a century, and it demonstrated much of the flexibility and organizational innovativeness that Sabel and Zeitlin emphasize in their introduction.

But some fifty years later, in the late 1950s, the cooperative core of this small-holder economy was coming visibly undone.  First cooperative dairies, then the cooperative slaughterhouses began to combine into larger and larger units abandoning in the process many of their original constitutional features and becoming in fact and law corporations. The corporations in turn fought with one another and the remaining cooperative for control of their respective markets. (374)

I find the contributions to this volume interesting in exactly the way predicted by Sabel and Zeitlin in the introduction: for the models they illustrate of deft navigation of uncertain economic environments by firms, cooperatives, and individuals.  The economic and business environment in the region where I live is unforgiving for a wide range of industries; for example, job shops and tool and die shops have largely disappeared in the Detroit metropolitan area.  However, there are a number of mid-sized adaptable businesses that have continued to thrive, through exactly the kinds of intelligent, forward-scanning adaptation to new opportunities described by contributors to this volume.  These businesses are in the engineering and advanced services sector, and they are innovative in two ways: they are constantly looking for new opportunities to apply existing and new technologies to new applications; and they are looking for customers in developing countries, including especially the Middle East from Lebanon to Saudi Arabia.  Energy, solar power, building control systems, urban parking systems, and aviation maintenance can be found within the portfolio; and the leaders of these companies are systematically and strategically developing the relations abroad that are necessary to secure the next wave of contracts.

It is interesting to consider whether there is a difference between economic history and business history. One might say that the former has to do with the large features of economic organization, social regulation, and logistics that constitute an economic system, whereas business history has to do with the tactical maneuvering and small-scale adaptations that individual firms undertake within the general framework of the existing economic structure.  But I think Sabel and Zeitlin's answer would be a fairly decisive one: there is no fundamental distinction between the two levels of analysis.  They frame the distinction in terms of the ideas of "epochs" and "crises"; this language distinguishes between long periods of institutional stability, and short periods of dislocation and change -- something like the theory of punctuated equilibrium.  But Sabel and Zeitlin doubt the validity of this distinction.  "The solution, we think, is to relax the distinction between periods of stability and periods of transition in the same way and for the same reasons that we relaxed the distinction between maximizing actor and constraining context" (29).  Or, in other words, when we look closely, almost every period of economic activity is also a period that mixes elements of stability with deep and unpredictable change.

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Posted in: capitalism,CAT_misc,contingency,economic development,plasticity

Marx's relevance as a social scientist

What was Karl Marx's enduring contribution to the social sciences?  Does he deserve the status of being one of the founders of sociology, along with Durkheim and Weber?  Did he put forward substantive hypotheses about the workings of the modern world that continue to illuminate our social world?  Is there anything important for sociologists, political scientists, or economists of the current generation to absorb from Marx as they construct their own hypotheses about social processes and organizations?

Below are the concluding paragraphs of my 1986 book, The Scientific Marx.  Here I tried to assess whether the theories and frameworks that Marx advanced in Capital and his other scientific writings were of continuing relevance today.  The question for me in 1986 was this: does Marx still have important scientific and theoretical insights into the structures, institutions, and behavior of modern capitalism?  And I came to a tentative conclusion: that Marx's most important insights were about the institutions and mechanisms of capitalism (not a formal economic theory), and that these insights continue to have some validity and importance today.  Here is the conclusion:

Throughout this work I have examined the logical features of Marx's social science, not its correctness as an analysis of capitalism. In discussing Marx's use of empirical evidence, for example, I have not been concerned to discover whether the available evidence confirms or falsifies Marx's account, but rather the logical question, namely, whether Marx uses evidence in such a way as to permit him to empirically evaluate his account. Thus my primary endeavor has been to examine Marx's practice as a scientist and to determine whether his efforts at explanation, inquiry, and justification are reasonable ones within social science. It may be appropriate in closing, however, to offer a view of the status of Capital as a body of theory about a social and economic system that continues to dominate our lives in the West. Is Capital still capable of offering scientific insights into the nature of twentieth-century capitalism?

There is a sense in which Marx's own views would make him suspicious of the claim that an investigation of the social relations of production of nineteenth-century capitalism should remain valid for the social system that emerges from that mode of production over a century later. For Marx is insistent on the historical specificity of the relations that define any mode of production. He raises this point in connection with cross-modal judgments of timelessness (for example, the idea that precapitalist modes of production must "really" have been based on bourgeois exchange relations). But the point is equally valid in application to the development of a single mode of production over time. To the extent that the social relations of production that define twentieth-century capitalism are significantly different from those that defined nineteenth-century capitalism, Marx's analysis must be modified before it can offer relevant commentary on the present.

There are unmistakable differences between capitalist property relations in 1850 and in the mid-1980s. On the side of capital, at least these changes have occurred: the accelerated separation of ownership and management, the increasing role of finance and credit within capitalist enterprises, the creation of the modem multinational corporation as the basic unit of capital, and the increased involvement of the state in the affairs of capitalist enterprises. Changes have emerged on the side of labor power as well: increasing government regulation of work conditions, the shift from industrial to service employment, the creation of effective units of organized labor in all capitalist countries, the rise of mass-based socialist parties with proletarian support in Western Europe, and the emergence of much more extensive social welfare systems in all capitalist systems.  All these factors potentially may influence the dynamics of modem capitalism, and they all were of only minor importance in the economic structure Marx investigated.

At the same time there are substantial continuities between nineteenth-century and twentieth-century capitalism. (It is these continuities that justify our identification of the modern American or Western European economies as "capitalist.") The fundamental requirements of capitalist property still exist, namely, the effective separation between a minority class that owns and controls the vast majority of all productive wealth and a majority class that possesses no productive wealth and is obliged to sell its labor power. Capitalism remains a system of class power and privilege -- witness the uninterrupted power and influence of the minority class that owns and directs the productive wealth in each capitalist nation. Capitalism remains a system in which class power and privilege derive from ownership of wealth -- witness the sharp inequalities of wealth and income that persist to the present day. Moreover capitalism continues to depend on the accumulation of capital, and it continues to reflect a deep conflict of interest between owners and workers in the productive process. Finally -- in Marx's technical meaning of the term -- capitalism remains an exploitative system: The social surplus is still expropriated from the class of immediate producers by the class of owner of productive wealth.

Given these important similarities and differences between the property relations of nineteenth- and twentieth-century capitalism, it becomes a problem of continuing research -- of the sort Marx provided so extensively in Capital -- to determine whether the fundamental dynamic of contemporary capitalism should be predicted to resemble that of nineteenth-century capitalism. Only detailed empirical and theoretical analysis will permit us to determine whether the continuities are sufficiently fundamental to offset the alterations introduced by changes in the social relations of property and class. For we have seen that Marx's arguments for the "laws of motion" of capitalism depend essentially on assumptions about the details of capitalist relations of production, and those relations have not remained fixed.

This finding suggests that the application of the findings of Capital to contemporary capitalism must be somewhat tentative; it is surely not possible to derive particular laws of motion of contemporary capitalism from Marx's analysis alone. Rather, Marxist social scientists and political economists must provide the sort of detailed account of modem property relations and economic institutions that Marx provides for nineteenth-century relations and institutions. This is not to say that Marxist social science must begin de novo. The continuities between modern capitalism and nineteenth-century capitalism are crucial to understanding modem capitalist phenomena, and Marx's analysis of those basic features of capitalism remains profoundly illuminating. But it is necessary to supplement, modify, and extend his account to draw particular conclusions about the course of modem capitalism.

Significantly, contemporary Marxist social science conforms to this view of the relevance of Capital today. Thus Marxist political economists have put forward detailed studies of modem capitalist relations of production--e.g. Ernest Mandel's Late Capitalism and James O'Connor's The Fiscal Crisis of the State. Other Marxist social scientists have offered analyses of particular post-capitalist modes of production -- Rudolph Bahro's The Alternative in Eastern Europe or Donald Hodges's The Bureaucratization of Socialism, to name two. And Marxist political sociologists have refined and extended his treatment of class, property, and politics, for instance, Erik Olin Wright's Class Crisis & the State and Ralph Miliband's The State in Capitalist Society. What these works have in common is not pious deference to Marx's texts -- in Capital or elsewhere. Rather, they are unified in being vigorous attempts, using extensive contemporary data, to offer theoretical accounts of modem social institutions within a framework of analysis that is greatly indebted to Marx's treatment of capitalism. Contemporary Marxist social science is rooted in Marx's insights, but it is not confined to his conclusions or to the particular features he singled out for fine-grained analysis. Thus Marx's Capital established a research program for twentieth-century social science, and it is a program that has borne fine fruit indeed. 

So how does Marx hold up in the first decade of the twenty-first century?  And how does this assessment of my own, written almost twenty-five years ago, hold up as well?

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Posted in: capitalism,CAT_foundations,Marx

Rawls on Marx; December 1973

John Rawls taught a course on the history of political philosophy throughout much of his career at Harvard University.  The course contained his description and analysis of the most important figures in modern political philosophy, including Mill, Locke, Rousseau, Kant, and Marx.  The course evolved over time; the final version from 1994 is edited in Samuel Freeman's Lectures on the History of Political Philosophy.  I served as graduate assistant in Rawls's lectures on this subject in fall 1973, and recently reread my notes of the course.  Here are my notes of a particularly important lecture towards the end of the course: Rawls's treatment of Marx's ideas about economic justice.  This lecture demonstrates Rawls's understanding of the fundamentals of Marx's economic theories and the labor theory of value.  (I am inclined to think that Joseph Schumpeter's History of Economic Analysis (1954) was an important source for Rawls on the history of economic thought, including Marx's economics, though I can't at this moment confirm this.)  This lecture is particularly significant in that it is roughly simultaneous with the emergence of "analytical Marxism" announced by the publication of an important article by Allen Wood, "The Marxian Critique of Justice" in Philosophy and Public Affairs in 1972 (link).

MARX'S ATTITUDE TOWARDS THE THEORY OF JUSTICE 

John Rawls, History of Political Philosophy, Phil 171, fall 1973
Notes from lecture, December 11, 1973
[notes taken by Daniel Little; intended to capture Rawls's formulations of the main points presented in the lecture]

[Quoting Rawls:]

Capital seems to be a description of an unjust society. The owners of the means of production live in relative abundance and idleness at the expense of the ever-growing class of wretched laborers. But Marx doesn't make any attempt to present an argument that capitalism is unjust, nor any concept of justice which would back up such an argument. Moreover, we have vitriolic criticisms of utopian socialists who did condemn capitalism on the grounds of justice. Marx asserts on the contrary, that capitalism is perfectly fair, perfectly just.  Why so?

(a) It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

(b) It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

Here is my conjecture as to why Marx didn't judge capitalism unjust. He thinks of justice as a political and juridical conception which is associated with a particular conception of the state and society; so it belongs to the prehistory of mankind. Given his picture of human society, these political and juridical institutions belong to the superstructure, and reflect the workings of the mode of production. For each mode of production there is a conception of justice appropriate to it, at least in prehistory. A further qualification: It is worthwhile to distinguish between the high time of a form and its low period -- where the form is a progressive force and where it stands in contradiction to the mode of production.

Here is a brief discussion of justice in Capital III:

To speak here of natural justice, as Gilbart does, is nonsense. The justice of the transactions between agents of production rests on the fact that these arise as natural consequences out of the production relationships. The juristic forms in which these economic transactions appear as wilful acts of the parties concerned, as expressions of their common will and as contracts that may be enforced by law against some individual party, cannot, being mere forms, determine this content. They merely express it. This content is just whenever it corresponds, is appropriate to the mode of production. It is unjust whenever it contradics that mode. Slavery on the basis of capitalist production is unjust; likewise fraud in the quality of commodities. (Capital III, 339-40) 

Here Marx conceives of justice in terms of adequacy to the mode of production.  (1) The justice of legal forms cannot be discovered on the basis of those forms alone. Rather it depends upon their adequacy to the mode of production. The juridical institution is formal; to give it content we must look to the way of life and its requirements. A consequence: There is no universal theory of justice which allows us to evaluate generally the social institutions of any society. There is no general principle like "slavery is always unjust." There are thus no general rules of natural rights, no universal justice. (2) This adjustment of justice to the mode of production doesn't mean there are no injustices. Slavery is unjust under capitalism; wage labor is just under capitalism, provided that the worker is paid the value of his labor power.

This view seems to suggest a sort of relativism; but this would be a faulty conclusion. We have a theory matching theories of justice with modes of production, and we might at some time find a function systematically linking them.

Let's now try out this suggestion on the conception of surplus value. The utopians argued that workers ought to be paid the value of their contribution to the firm. Since they are not, capitalism is unjust. Marx rejects this view. It makes the appropriation of surplus value appear accidental -- as if the capitalists could act differently. Marx required a theory of value which made the appropriation of surplus value a necessary part of the capitalist system. On the theory of value every commodity is exchanged for a strict equivalent.

Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product. It is on this ground that he is fairly treated. Thus he is undercutting the Ricardian socialist position by rejecting and replacing the principle of contribution. It is the system itself which brings about surplus value, not the behavior of individuals who violate moral principles. Surplus value is an intrinsic part of the working of the social institutions of capitalism.

Consider the description of the production of surplus value in Capital.

Every condition of the problem is satisfied, while the laws that regulate the exchange of commodities, have been in no way violated. Equivalent has been exchanged for equivalent. For the capitalist as buyer paid for each commodity, for the cotton, the spindle and the labour-power, its full value. He then did what is done by every purchaser of commodities; he consumed their use-value. ... This metamorphosis, this conversion of money into capital, takes place both within the sphere of circulation and also outside it; within the circulation because it is conditioned by the purchase of the labour-power in the market; outside the circulation, because what is done within it is only a stepping-stone to the production of surplus value. (Capital I, p. 194)

The fact that surplus value arises is a piece of good fortune for the buyer, but no injustice to the seller.

Marx thus rejects the Ricardian principle of contribution. He finds it a bourgeois notion, basing property rights on one's labor.

Summing up. (1) Marx views the notion of justice as a virtue of legal forms and institutions, and thus perhaps it is a notion which belongs to prehistory. The state depends upon the mode of production. (2) Marx doesn't deny that the various conceptions of justice have formal features in common -- exchange of equivalents for equivalents -- but the notion of what is equivalent is determined in different ways. Marx would be prepared to admit that capitalism in its high period is just. One reason he rejects the utopian's argument is that it is misleading. It rests on a misapprehension of where the essential problem lies: not in the superstructure, but in the mode of production. He felt that the key enterprise is to give a scientific theory of the mode of production.

A second point: justice is a distributive notion. The appeal to justice suggests that we can separate the mode of distribution from the mode of production. This is for Marx incorrect. Appeals to justice are thus supposed to be superficial. Moreover, appeal to justice suggests that important social change can be achieved by legislation.

[Other relevant materials from the course:]

From the syllabus:

(a) Marx's criticism of the liberal state; (b) His attitude towards theories of justice; (c) The theory of alienation and exploitation; (d) The conception of rational human society

Final exam questions on Marx:

4. Present and discuss Marx's theory of alienation (as developed in the Economic and Philosophic Manuscripts)
5. Present and discuss Marx's theory of historical materialism (as developed in the German Ideology)
6. Present and discuss Marx's analysis of historical change in the Communist Manifesto.
7. Outline Marx's analysis of the basic characteristics of capitalism: the social relations which define it and the nature of the form of economic production.

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Posted in: capitalism,CAT_moraltheory,justice,Marx,Rawls

Fair prices?

We live in a society that embraces the market in a pretty broad way. We accept that virtually all goods and services are priced through the market at prices set competitively. We accept that sellers are looking to maximize profits through the prices, quantities, and quality of the goods and services that they sell us. We accept, though a bit less fully, the idea that wages are determined by the market -- a person's income is determined by what competing employers are willing to pay. And we have some level of trust that competition protects us against price-gouging, adulteration, exploitation, and other predatory practices. A prior posting questioned this logic when it comes to healthcare. Here I'd like to see whether there are other areas of dissent within American society over prices.

Because of course it wasn't always so. E. P. Thompson's work on early modern Britain reminds us that there was a "moral economy of the crowd" that profoundly challenged the legitimacy of the market; that these popular moral ideas specifically and deeply challenged the idea of market-defined prices for life's necessities; and that the crowd demanded "fair prices" for food and housing (Customs in Common: Studies in Traditional Popular Culture). The moral economy of the crowd focused on the poor -- it assumed a minimum standard of living and demanded that the millers, merchants, and officials respect this standard by charging prices the poor could afford. And the rioting that took place in Poland in 1988 over meat prices or rice riots in Indonesia in 2008 are reminders that this kind of moral reasoning isn't merely part of a pre-modern sensibility.  (For some quotes collected by E. P. Thompson from "moral economy" participants on the subject of fair prices see an earlier posting on anonymity.)

So where do contemporary Americans show a degree of moral discomfort with prices and the market? Where does the moral appeal of the principles of market justice begin to break down -- principles such as "things are worth exactly what people are willing to pay for them" and "to each what his/her market-determined purchasing power permit him to buy"?

There are a couple of obvious exceptions in contemporary acceptance of the market. One is the public outrage about executive compensation in banking and other corporations that we've seen in the past year. People seem to be morally offended at the idea that CEOs are taking tens or hundreds of millions of dollars in compensation -- even in companies approaching bankruptcy. Part of the outrage stems from the perception that the CEO can't have brought a commensurate gain to the company or its stockholders, witness the failing condition of many of these banks and companies. Part is a suspicion that there must be some kind of corrupt collusion going on in the background between corporate boards and CEOs. But the bottom line moral intuition seems to be something like this: nothing could justify a salary of $100 million, and executive compensation in that range is inherently unfair. And no argument proceeding simply along the lines of fair market competition -- "these are competitive rational firms that are offering these salaries, and therefore whatever they arrive at is fair" -- cuts much ice with the public.

Here is another example of public divergence from acceptance of pure market outcomes: recent public outcries about college tuition. There is the common complaint that tuition is too high and students can't afford to attend. (This overlooks the important fact that public and private tuitions are almost an order of magnitude apart -- $6,000-12,000 versus $35,00-42,000!) But notice that this is a "fair price" argument that would be nonsensical when applied to the price of an iPod or a Lexus. People don't generally feel aggrieved because a luxury car or a consumer device is too expensive; they just don't buy it. It makes sense to express this complaint in application to college tuition because many of us think of college as a necessity of life that cannot fairly be allocated on the basis of ability to pay. (This explains why colleges offer need-based financial aid.) And this is a moral-economy argument.

And what about that other necessity of life -- gasoline? Public complaints about $4/gallon gas were certainly loud a year ago. But they seem to have been grounded in something different -- the suspicion that the oil companies were manipulating prices and taking predatory profits -- rather than an assumption of a fair price determined by the needs of the poor.

Finally, what about salaries and wages? How do we feel about the inequalities of compensation that exist within the American economy and our own places of work? Americans seem to accept a fairly wide range of salaries and wages when they believe that the differences correspond ultimately to the need for firms to recruit the most effective personnel possible -- a market justification for high salaries. But they seem to begin to feel morally aggrieved when the inequalities that emerge seem to exceed any possible correspondence to contribution, impact, or productivity. So -- we as Americans seem to have a guarded level of acceptance of the emergence of market-driven inequalities when it comes to compensation.

One wonders whether deeper resentment about the workings of market forces will begin to surface in our society, as unemployment and economic recession settle upon us.

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Posted in: capitalism,CAT_policy,collective action,inequality

Polanyi on the market

Karl Polanyi's The Great Transformation is a classic statement of a polar position in the issue of the universality of instrumental rationality and market institutions in explaining concrete historical circumstances in the recent and distant past. Polanyi maintains that the concept of economic rationality is a very specific historical construct that applies chiefly to the forms of market society that emerged in Western Europe in the early modern period. Market behavior came to replace other forms of motivation within European society in this period, and individuals came to act more and more on the basis of a calculation of self-interest. However, Polanyi holds that this form of behavior, like the economic institutions of the market within which it emerged, is highly specific to a particular time and place. To make use of this model of action as though it were a universal feature and determinant of human behavior is as unjustified as it would be to extend medieval chivalry to all times and places.

No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. . . . Gain and profit made on exchange never before played an important part in human economy. (Polanyi 1957:43)

While history and ethnography know of various kinds of economies, most of them comprising the institutions of markets, they know of no economy prior to our own, even approximately controlled and regulated by markets. . . . The role played by markets in the internal economy of the various countries . . . was insignificant up to recent times. (Polanyi 1957:44)

Against the idea that it is "natural" for men and women to be motivated primarily by self-interest, Polanyi writes:

For, if one conclusion stands out more clearly than another from the recent study of early societies it is the changelessness of man as a social being. His natural endowments reappear with a remarkable constancy in societies of all times and places; and the necessary preconditions of the survival of human society appear to be immutably the same. (Polanyi 1957:46)

The outstanding discovery of recent historical and anthropological research is that man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step in that process is geared to a number of social interests which eventually ensure that the required step be taken. . . . The economic system will be run on non-economic motives. (Polanyi 1957:46)

Thus Polanyi maintains that it is socially motivated behavior -- ªbehavior motivated toward the interests of one's family, clan, or village” -- rather than self-interested behavior that is "natural" for human beings; rational self-interest is rather a feature of a highly specific society: market society. Instead, Polanyi's account urges that the analysis pay primary attention to patterns of reciprocity and redistribution, shared values, traditions, and the determining role of community and politics. And he argues that virtually every society – traditional as well as modern – depends upon these sorts of social motivations.

In place of economic rationality and the market mechanism providing the basis for organization of the premarket economy, Polanyi argues that communitarian patterns of organization are to be found in a range of traditional societies:

The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay. . . . The performance of all acts of exchange as free gifts that are expected to be reciprocated though not necessarily by the same individuals--a procedure minutely articulated and perfectly safeguarded by elaborate methods of publicity, by magic rites, and by the establishment of 'dualities' in which groups are linked in mutual obligations--should in itself explain the absence of the notion of gain or even of wealth other than that consisting of objects traditionally enhancing social prestige. . . . But how, then, is order in production and distribution ensured? . . . The answer is provided in the main by two principles of behavior not primarily associated with economics: reciprocity and redistribution. (Polanyi 1957:46-47)

Finally, Polanyi identifies the same element of materialist rationality in common among neoclassical political economists and Marx. Polanyi argues that Marxism analyzes the historical process in terms of individual self-interest, conceived largely in terms of material well-being.

There is the equally mistaken doctrine of the essentially economic nature of class interests. Though human society is naturally conditioned by economic factors, the motives of human individuals are only exceptionally determined by the needs of material want-satisfaction. That nineteenth century society was organized on the assumption that such a motivation could be made universal was a peculiarity of the age. It was therefore appropriate to allow a comparatively wide scope to the play of economic motives when analyzing that society. (Polanyi 1957:153)

All this should warn us against relying too much on the economic interests of given classes in the explanation of history. Such an approach would tacitly imply the givenness of those classes in a sense in which this is possible only in an indestructible society. (Polanyi 1957:155)

What kind of theory is this? And how should it be evaluated?

First, it is a hypothesis in historical sociology about institutions. Polanyi is asserting that history and ethnography provide a wealth of variety of fundamental economic and social institutions. Market institutions are historically specific -- there are periods of time in human history in which market institutions were barely present, and other periods in which they were essentially ubiquitous. And, though Polanyi doesn't do much with this, there is also the point that market institutions themselves show substantial variation across time and place. That said -- trade, artisanship, commodities, and production for the market appear to be activities that have very ancient roots in human societies. These kinds of economic exchanges are well documented in ancient China, Europe, and the Americas, and we can understand very well how they would emerge again and again out of ordinary human activity and interaction. So markets are surely not the nearly unique historical creation that Polanyi maintains them to be. Moreover, we can distinguish among "market" institutions (as Marx and Weber both do) according to whether they are organized around use or around accumulation; consumption or profit. (A neo-Polanyian might put forward a more limited claim: a market system aimed at accumulation is a historically recent institution.)

Second is a hypothesis about "human nature". Polanyi takes issue with a vulgar economism, according to which the most fundamental human motivation is rational self-interest. On the contrary, Polanyi maintains, this social psychology of "possessive individualism" (as C. B. Macpherson called it in The Political Theory of Possessive Individualism: Hobbes to Locke) is itself a very specific historical product -- not a permanent feature of human nature. In fact, Polanyi goes a step further and argues that the "social motivations" are more fundamental than rational self-interest. But here again, it seems likely that Polanyi puts his case much more absolutely than is justified. Being prudent and goal-directed -- paying attention to "costs" and "benefits" of various human activities -- is not simply a historical accident of the early modern period; it is a more or less permanent feature of the human species.

How should Polanyi's theory be assessed? There is an obvious risk of romanticizing human society that is implicit in Polanyi's reading of pre-modern societies -- expressing a moral preference for social cooperation and community, harmony and sharing, over competition, conflict, and self-striving. But romanticizing the past is not the same as understanding it factually and objectively. And it is my impression that anthropologists and historians would now be more inclined to find a mix of social and self-regarding motives in the contexts they study -- from contemporary Thai villages to the Greek polis to labor unions or environmental action groups. So Polanyi's black-and-white distinction between the past -- communitarian and social -- and the present -- egoistic and market-driven -- is too stark.

But at the same time, Polanyi's guiding intuition seems correct: human social behavior is influenced by more than simple self-interest, and human institutions are more varied than the vocabulary of the market would suggest. Human deliberativeness and purposiveness goes beyond maximizing rationality; it includes a broad range of "social" motivations and emotions. And a more adequate social psychology requires that we arrive at a better understanding of the motives that underlie cooperation and reciprocity. This is Amartya Sen's central conclusion in “Rational Fools" (link), and it is surely correct: "The purely rational economic man is indeed close to being a social moron”.

(The connection between Polanyi's theories and the terms of the moral economy debate are evident (discussed in prior postings).)

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Posted in: capitalism,CAT_agency,Marx,moral economy

Primitive accumulation

Marx's treatment of the "so-called 'primitive accumulation'" is one of the most historically detailed sections in Capital: A Critique of Political Economy (Volume 1). And it is one of the most interesting parts of Capital to read as a separate piece. (Here is an electronic text of the section.) It is Marx's account of the historical processes of change in rural life of the fifteenth through eighteenth century in Britain and Ireland, through which peasants were forced off their land and the commons were enclosed. Marx believes that this separation of the peasantry from the land was a necessary condition for the development of capitalism, in that it created the conditions in which there was a pliable and abundant proletariat. This "free" proletariat was needed for the creation of the factory system and the development of manufacturing cities. So the process of primitive accumulation created the changes in social relations, property relations, and the accumulation of wealth that permitted the creation of the capital-labor relation and factory-based capitalism.

Marx sometimes puts this point in a fairly teleological way, looking at primitive accumulation as a necessary step on the road to British capitalism. (For example, he refers to this process as "the revolution that laid the foundation of the capitalist mode of production.") But it is possible, and preferable, to read Marx's analysis here less teleologically, as simply a detailed account of some of the crucial but contingent changes that took place in rural social relations during these centuries, without importing the idea that these changes were functionally related to the later development of capitalism. And read non-teleologically, the section holds up fairly well in relation to modern historical scholarship.

Marx describes the basic social relations of British rural life in the fifteenth century in these terms, as a freeholding peasantry with access to substantial common lands, pasture, and forest:

The immense majority of the population consisted then, and to a still larger extent, in the 15th century, of free peasant proprietors, whatever was the feudal title under which their right of property was hidden. In the larger seignorial domains, the old bailiff, himself a serf, was displaced by the free farmer. The wage-labourers of agriculture consisted partly of peasants, who utilised their leisure time by working on the large estates, partly of an independent special class of wage-labourers, relatively and absolutely few in numbers. The latter also were practically at the same time peasant farmers, since, besides their wages, they had allotted to them arable land to the extent of 4 or more acres, together with their cottages. Besides they, with the rest of the peasants, enjoyed the usufruct of the common land, which gave pasture to their cattle, furnished them with timber, fire-wood, turf, &c.

And he identifies the crucial turn towards expropriation of the free peasant proprietor:

In insolent conflict with king and parliament, the great feudal lords created an incomparably larger proletariat by the forcible driving of the peasantry from the land, to which the latter had the same feudal right as the lord himself, and by the usurpation of the common lands. The rapid rise of the Flemish wool manufactures, and the corresponding rise in the price of wool in England, gave the direct impulse to these evictions. The old nobility had been devoured by the great feudal wars. The new nobility was the child of its time, for which money was the power of all powers. Transformation of arable land into sheep-walks was, therefore, its cry.

(It is interesting to recall that Oliver Goldsmith describes the eighteenth-century version of this process in Ireland in his poem, The Deserted Village (1770):

Sweet smiling village, loveliest of the lawn,
Thy sports are fled, and all thy charms withdrawn;
Amidst thy bowers the tyrant's hand is seen,
And Desolation saddens all thy green:
One only master grasps the whole domain,
And half a tillage stints thy smiling plain.
No more thy glassy brook reflects the day,
But, choked with sedges, works its weedy way;
Along thy glades, a solitary guest,
The hollow-sounding bittern guards its nest;
Amidst thy desert walks the lapwing flies,
And tires their echoes with unvaried cries:
Sunk are thy bowers in shapeless ruin all,
And the long grass o'ertops the mouldering wall
And, trembling, shrinking from the spoiler's hand,
Far, far away thy children leave the land.

Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay.
Princes and lords may flourish, or may fade;
A breath can make them, as a breath has made:
But a bold peasantry, their country's pride,
When once destroy'd, can never be supplied. )

And Marx emphasizes the coercive nature of this expropriation of the yeoman peasant:

Even in the last decade of the 17th century, the yeomanry, the class of independent peasants, were more numerous than the class of farmers. They had formed the backbone of Cromwell’s strength, and, even according to the confession of Macaulay, stood in favourable contrast to the drunken squires and to their servants, the country clergy, who had to marry their masters’ cast-off mistresses. About 1750, the yeomanry had disappeared, and so had, in the last decade of the 18th century, the last trace of the common land of the agricultural labourer. We leave on one side here the purely economic causes of the agricultural revolution. We deal only with the forcible means employed.

A crucial component of the "primitive accumulation", in Marx's interpretation, was the abolition of common property, culminating in the enclosure acts in the seventeenth century:

Communal property — always distinct from the State property just dealt with — was an old Teutonic institution which lived on under cover of feudalism. We have seen how the forcible usurpation of this, generally accompanied by the turning of arable into pasture land, begins at the end of the 15th and extends into the 16th century. But, at that time, the process was carried on by means of individual acts of violence against which legislation, for a hundred and fifty years, fought in vain. The advance made by the 18th century shows itself in this, that the law itself becomes now the instrument of the theft of the people’s land, although the large farmers make use of their little independent methods as well. The parliamentary form of the robbery is that of Acts for enclosures of Commons, in other words, decrees by which the landlords grant themselves the people’s land as private property, decrees of expropriation of the people. Sir F. M. Eden refutes his own crafty special pleading, in which he tries to represent communal property as the private property of the great landlords who have taken the place of the feudal lords, when he, himself, demands a “general Act of Parliament for the enclosure of Commons” (admitting thereby that a parliamentary coup d’état is necessary for its transformation into private property), and moreover calls on the legislature for the indemnification for the expropriated poor.

We even are afforded a glimpse of the economist's view of the rationality of enclosure. According to John Arbuthnot, enclosure and the creation of private farms is a more productive use of land and labor:

Let us hear for a moment a defender of enclosures and an opponent of Dr. Price. “Not is it a consequence that there must be depopulation, because men are not seen wasting their labour in the open field.... If, by converting the little farmers into a body of men who must work for others, more labour is produced, it is an advantage which the nation” (to which, of course, the “converted” ones do not belong) “should wish for ... the produce being greater when their joint labours are employed on one farm, there will be a surplus for manufactures, and by this means manufactures, one of the mines of the nation, will increase, in proportion to the quantity of corn produced.”

And here Marx describes the final stages of the "rationalization" of agriculture, in the expropriation of the Scots:

The last process of wholesale expropriation of the agricultural population from the soil is, finally, the so-called clearing of estates, i.e., the sweeping men off them. All the English methods hitherto considered culminated in “clearing.” As we saw in the picture of modern conditions given in a former chapter, where there are no more independent peasants to get rid of, the “clearing” of cottages begins; so that the agricultural labourers do not find on the soil cultivated by them even the spot necessary for their own housing. But what “clearing of estates” really and properly signifies, we learn only in the promised land of modern romance, the Highlands of Scotland. There the process is distinguished by its systematic character, by the magnitude of the scale on which it is carried out at one blow (in Ireland landlords have gone to the length of sweeping away several villages at once; in Scotland areas as large as German principalities are dealt with), finally by the peculiar form of property, under which the embezzled lands were held.

Eventually we come to the point where industrial capitalism is feasible and there is a "free" proletariat available for labor:

It is not enough that the conditions of labour are concentrated in a mass, in the shape of capital, at the one pole of society, while at the other are grouped masses of men, who have nothing to sell but their labour-power. Neither is it enough that they are compelled to sell it voluntarily. The advance of capitalist production develops a working-class, which by education, tradition, habit, looks upon the conditions of that mode of production as self-evident laws of Nature. The organisation of the capitalist process of production, once fully developed, breaks down all resistance.

And, of course, Engels picks up the story from the perspective of nineteenth-century Manchester and Birmingham, and the conditions of squalor and oppressive factory labor that resulted. (See an earlier posting on Engels's sociology of the proletarian city.)

The English Marxist historians have devoted a lot of their attention to this period of British social history. (Harvey Kaye gives a very good account of the work of this generation of Marxist historians in The British Marxist Historians.) Maurice Dobb is one of the English socialist historians who has retraced Marx's steps on this subject in some detail. One of Dobb's important books, Studies In The Development Of Capitalism (1963), treats this process of the decline of the English peasantry and the rise of the proletariat, making use of the historical scholarship of the first part of the twentieth century. Some of Rodney Hilton's research on this period can be found in Class Conflict and the Crisis of Feudalism: Essays in Medieval Social History (Rev). Several generations later, Robert Brenner gave a somewhat different interpretation of the history of agrarian change in England from the sixteenth to the eighteenth centuries; his views were developed in the splendid journal Past & Present and were separately published along with a round of critical reactions in The Brenner Debate: Agrarian Class Structure and Economic Development in Pre-industrial Europe.

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