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Globalization and theories of regulation
Michael DunfordSchool of European Studies
University of Sussex, Falmer, Brighton BN1 9QN Tel : (44)
(0)1273 606755
Email : [email protected]
IntroductionThe ambition of theories of regulation is to explain
the trajectories of capitalist economies. Theobject of analysis is
not the political economy of the international system, though, as I
shallexplain, these theories have had to address phenomena
associated with processes ofglobalization, and as a result do
intersect with the literature on global political economy. Theaim
of this chapter is to outline the main characteristics of
regulation theory, to explain whyhistorically it operated with a
conception of the world economy as a mosaic of national
socialformations, and to outline the ways in which it has sought to
explain the trajectories of capitalistsocieties since the crisis of
the Fordist model and in particular how it seeks to
analyseglobalization. I agree that insufficient attention is paid
to the nature and role of internationalinstitutions (Palan, 1998).
I shall suggest however that the insistence on the centrality
ofnational economies in the post-war 'golden age' and the addition
of a concept of insertion ofnational social formations into an
international order were largely warranted. I shall also arguethat
the more recent transition to a new global-finance dominated regime
of growth raises anewthe core questions that theories of regulation
seek to answer concerning the speed and regularityof growth and
social progress. This transition also requires, however, a
fundamental re-assessment and revision of earlier ways of analysing
the role of the international order andimplies an
internationalisation of the mediation mechanisms that are essential
if accumulation isto be reconciled with social progress.
Theoretical foundationsAt the outset regulation theory rested on
a critical assessment of Marxist political economy.More
specifically, it grew out of a critique of the empirical and
conceptual adequacy of someaspects of Marxist theories of value,
distribution and growth and, in particular, of the view thatthese
theories were incompletely specified, over-generic and
insufficiently concrete. MichelAglietta's Rgulation et crises du
capitalisme (1976), which founded this approach, rested on
arecognition of the fact that capitalist economies sometimes
function well, in particularreconciling capital accumulation with
rapid growth and/or social progress, and sometimesexperience phases
of turmoil and crisis. The fundamental question that Aglietta asked
was whydo capitalist economies sometimes function well and why are
they sometimes crisis-ridden. The
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essence of the answer is implicit in the title of his study.
Capitalism functions effectively whena set of mediations, called a
mode of regulation, is put in place which ensures that
thedistortions and contradictions created by competition and the
accumulation of capital are keptwithin limits that make them
compatible with social cohesion and growth in each nation state.As
the sets of mediations and the trajectories that reflect the
compatibility/incompatibility ofaccumulation and social and
economic progress are context dependent and specific to
particularplaces and particular historical moments, the analysis of
social change requires the inclusion ofintermediate determinations
excluded from more abstract economic theories.
As Boyer (1996) has indicated in a paper entitled 'The seven
paradoxes of capitalism', theunderlying question is one with deep
roots in social, political and economic thought. For
severalcenturies social scientists and philosophers have asked a
simple question: why do societiesfounded on competition and
conflict not lead to chaos? Essentially there are two sets of
answersto this question.
The first is rooted in the work of political philosophers who
concentrate on the role of the statein governing the interaction of
human individuals. Hobbes, for example, argued that humanbeings
were naturally selfish and self-interested. In their quest to
acquire new power andprestige and to guard what they already
possess, he argued, they would do anything. The 'stateof nature' in
which human life is not guided by external authority is a 'state of
war', a 'war of allagainst all', in which life is 'solitary, poor,
nasty, brutish and short'. These precepts underpinHobbes'
justification of the 'great Leviathan' or omnipotent state :
individuals must transfer orgive up their liberty to a 'sovereign'
which will guarantee social and economic order. Hobbesalso felt
that nations were selfishly motivated and were in a constant battle
for power andwealth. This conception of the state of nature was
taken up by Kant in his essay on Perpetualpeace in which he seeks
to identify the nature of the national and international
frameworknecessary for the attainment of perpetual peace (though
states in a state of nature with eachother differ from individuals
in a similar situation).1 In a similar way Locke argued that
humanbeings start in a state of nature in which all are equal. A
competitive struggle for existencesubsequently gives way to the
creation of a civil society (a social contract) to 'protect
unequalpossessions, which have already in the state of nature given
rise to unequal rights'.
In the political economy tradition the answers were somewhat
different. Adam Smith starts withthe view that human
acquisitiveness entails a propensity to truck and barter and that
in thepursuit of their own interests individuals are led by the
invisible and anonymous hand of themarket to contribute
unintentionally to outcomes which are mutually beneficial and in
the socialinterest. Subsequent economic theorists have addressed
Smith's proposition by asking whetherand under what conditions a
competitive equilibrium exists, is stable, is unique and in
particular
1 There are counter views. In Modernity and the holocaust, for
example, Baumann (1989)argues that civilisation is the way human
beings organise themselves to commit massviolence, and not the way
they organise themselves to contain it.
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is Pareto efficient. If a competitive equilibrium is Pareto
efficient, there is no reallocation ofresources and goods that can
make one individual better off without making someone elseworse
off. (This definition of welfare does not permit increasing the
welfare of the poor bytaking resources away from the rich). Modern
microeconomic theory shows that the conditionsrequired for this
welfare theorem to hold are extremely restrictive. These models
suppose thatall information about prices and the quantities of
resources and goods offered and demanded iscentralised, and
equilibrium prices, which set all excess demands equal to zero, are
establishedby an omniscient Walrasian auctioneer, implying that
perfect competition prevails. Marketsmust exist for everything
(current and future goods, services, risks and so on), and there
are nocollective goods or non-pecuniary externalities.
(Traditionally the existence of externalities andcollective goods
was seen as creating a case for collective action). All
technologies, finally, arecommon knowledge and exhibit constant
returns to scale.
In real life these conditions do not prevail. First, as Kaldor
(1972) showed in a paper entitled'The irrelevance of equilibrium
economics' increasing returns are pervasive. Second, marketsare far
from universal. Markets are therefore not necessarily efficient at
solving coordinationproblems. Collective action taken in the face
of market failure may, however, introduce newdistortions, so there
is often not a first best solution. Critics of interventionism
argue thatgovernment action to correct distortions may itself lead
to political and governmental failure.2What is important, however,
is the fact that real markets do not satisfy the conditions
requiredto make sustainable the claim that competitive markets are
self-equilibrating and efficient.
At the same time neoclassical concepts of market adjustment and
their presupposition that thereallocation of factors of production
and the creation of net gains is automatic areunsatisfactory. As
Keynes showed, in money economies the initial response to a decline
indemand which increases unemployment is not a price adjustment but
a quantity adjustment. Thereason why is that an excess supply of
some factors of production will not correspond to aneffective
excess demand for other goods and services as effective demand is
constrained byrealised current income: excess supply in the labour
market - involuntary unemployment -diminishes effective excess
demand elsewhere.3
2 As Boyer (1996) points out these counter views include the
arguments of the Austrian Schoolof economists such as von Hayek for
whom any move beyond a minimum role forgovernment is the road to
serfdom and the theories of public choice economists such
asBuchanan who argues that politics fails as benevolent sovereign
and the minimal state havegiven way to self-interested bureaucrats
and electorally-conscious politicians.
3 A consequence is the existence of sharp cyclical movements in
which phases of rapid andsometimes unmanageable growth alternate
with cyclical downturns caused insufficienteffective demand.
Excessive saving also contributes to these movements. As Kalecki
argued'workers spend what they earn', while ' capitalists earn what
they spend'. Capitalists andrentiers earn what they spend as their
incomes are sufficiently high to save. Savings are only
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Theories of regulation seek to answer similar questions. These
theories start with the view thatindividuals and groups have goals,
that these goals are expressed in their pursuit of
individualinterests and that these interests may be antagonistic or
may complement and reinforce oneanother, depending on the social
relationships that underpin them (as humankind is viewed
asnaturally social). Capitalism has enormous potential to mobilize
human energy and translate itinto economic growth. Capitalism
cannot however create all the preconditions for its emergenceand
reproduction. As it develops, it generates conflicts and tensions
which can obstruct itsfurther development. Capitalism lacks 'the
capacity to convert the clash of individual interestsinto a
coherent global system' (Aglietta, 1999: 49), and 'is a force for
change which has noinherent regulatory principle' (Aglietta, 1999:
62). Capitalism can destroy the conditions onwhich it depends, as
the 19th and 20 centuries have demonstrated so clearly. Capitalism
musttherefore be hemmed in by constraining structures, which are
not a product of rationalindividual calculation or competition, but
which 'emanate from the creation of socialinstitutions, legitimized
by collective values from which societies draw their cohesion.
Thiscohesion is the product of social interactions that take a
variety of forms : conflicts, some ofwhich may be violent; debates
that find their way into the political arena; associations that
lendcollective strength to groups of employees; and legislative
provisions that institute and enshrinesocial rights' (Aglietta,
1999: 50).The underlying view that capitalist economies while
potentially dynamic are also potentiallyself-destroying is rooted
in an analysis of its fundamental social relations: the
commodityrelation, and the wage relation. In the rest of this
section I shall ask what is the nature of theserelationships, in
what ways do they lead to conflict and how are they mediated? At
the end Ishall identify a role of the state and of the
state-citizen and state-economy relations consideredin the
political science tradition which has also addressed the question
why societies founded oncompetition and conflict do not lead to
chaos.
1 The role of payments system
In market economies money is main link between individual and
society. Individuals do nothave to coordinate their actions through
the establishment of equilibrium prices but can pursue
spent if they are lent to enterprises and invested. If
investment does not take place, salesdecline, stocks increase and
output declines. As a result the income saved and not invested isno
longer created but is subtracted from the income enterprises can
hope to earn. Capitaliststhus earn what they spend where what they
spend comprises expenditure on consumer goodsand those savings of
capitalist households that were spent (invested) by
capitalistentrepreneurs. A consequence of this situation is the
existence of economic cycles. If profitsare high, capitalist
incomes are spent and invested, economies boom and this growth
ensuresthat investments yield a good rate of return. If there are
doubts about growth prospectsinvestment declines, saving increases,
and there is a decline in the desire to spend. The resultis falls
in output that correspond to their initial expectations.
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their own ends.4 To act, individuals must draw on social
resources to invest, creating a debt orobligation to society.
Through their activity the same individuals can earn an income
which theycan use to settle their debts and to pay for the goods
and services they need. The settlement ofdebts and credits
presupposes the existence of a system of payments (see Figure 1). A
credit andmonetary system comprising a series of commercial banks
and a central bank to compensate forrecurring disequilibria among
commercial banks is therefore the first requirement of a
marketeconomy.
Money is also, however, a measure of value. Value is the
anonymous judgement of social worthpassed by all the members of a
market society on the economic actions of each individual.
(Thissocial expression of the value of an individual's contribution
to society, which is ratified by thesystem of payments, may however
differ quite significantly from individuals' judgements oftheir
contributions).
4 In a Walrasian world the auctioneer centralizes all of the
information about the quantitiesindividuals will purchase/sell at
different prices. The auctioneer uses this information todetermine
equilibrium prices. The prices are communicated to market
participants, andtransactions take place. In a decentralized system
a system of payments made up ofcommercial banks and a central
clearing bank settles the debts that stem from a series ofbilateral
exchanges. Insofar as market institutions are established to
communicate informationabout prices the heterogeneous prices that
will exist for the same good of the same quality in aworld of
bilateral transactions will tend towards a single price no matter
who is the buyer orseller. Boyer (1996) reiterates Benassy's view
that one of the nearest real-world instantiationsof the Walrasian
auctioneer was paradoxically GOSPLAN.
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Figure 1 Walrasian and decentralized markets (Source: based on
Boyer, 1996)
AGENT i AGENT j
CENTRAL BANK
BANK A BANK B
mijmij +mij
AGENT k AGENT l
mkl
pkijqk
pkklqk
MARKET: pkij pkkl
A DECENTRALIZED MARKET A WALRASIAN MARKET
AUCTIONEER
AGENT i
AGENT j
AGENT k
pkipkj
pkk
pmi
qkiqkj
qkk
qmi
AGENT i
2 The role of the market information system
To limit compatibility problems in such a system of
decentralised exchanges, a market must beconstituted to centralise
information about demands and supplies and to enable assessments
ofthe quality of goods, the creditworthiness of customers, the
efficiency of delivery, etc. (seeFigure 1). Market competition also
depends on a framework of rules governing conditions ofentry, rules
of competition policy, and so on.
3 The role of the financial system
Individually capitalists compete with each other. Competition
involves attempts to reduce costsbeneath the social avearage to
earn surplus profits, to open up new markets or to invent
newproducts. Increased competitiveness can therefore involve an
intensification of work and relatedstrategies of cost reduction, an
extension of an enterprise's geographical field of operation,
andproduct and process innovation. Expansion into new areas and
innovation often require accessto sources of credit and imply
investments in projects whose outcomes are uncertain. Thesefacts
renders the financial system a fourth (alongside the payments
system, the marketinformation system and the nexus of
employer-employee relations) critical structure ofmediation.5 As
Aglietta (1999: 49 ) argued: 5 The finance system has three
functions: first, it produces and circulates information (or
rather
information about information with all the risks of speculation
and instability it entails);second, it plays a central role in the
evaluation of financial assets, determining the direction
ofaccumulation through its effects on the allocation of savings
(self-financing), credit and newshare issues; third it supervises
the use of savings on behalf of creditors.
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'the debts incurred by capitalists are wagers on the future
which are not mutually compatible.... To accumulate capital each
capitalist tries to [modify] .. the existing division of
labour,[making} ... capitalism a dynamic force. ... As it takes
some time for society to validate orinvalidate these wagers, the
evaluation of capital at any given moment includes a
specificprocess of buying and selling debts and rights to
capitalist property. The capital owned byindividual capitalists is
evaluated by financial markets. The evaluation amounts
tospeculation on the future [:] ... wagers on the success or
failure of the gambles taken by eachindividual capitalist. [This]
... financial evaluation of capital introduces the
ambivalentsolidarity between industrialists and financiers ... The
incoherence of the capitalists' wagerson the future [lead to] ...
doubts about solvency [, and] ... drastic revisions in
theseevaluations of capital, which trigger financial crises.'6
4 The nexus of employer-employee relations
A second fundamental feature of capitalism is the wage relation
and the associated socialdivision between those who are able to
advance money as capital with a view to theaccumulation of money
wealth and those whose access to money depends on the sale of
theircapacity to work. Capitalists cannot accumulate without
incurring debts and without submittingthe results of their
initiatives to the judgement of society. Wage earners are free to
changeemployers and spend their income as they see fit. Nonetheless
the employer-employee relationis a class relation. On the one side
it makes it impossible for a group of free individuals lacking
6 The petroleum market, which has changed profoundly since the
second oil crisis, illustratessome of these principles. Sources of
supply have multiplied, and the market went worldwide.A 'spot'
market, located on the major financial marketplaces (New York,
London, Singapore,and elsewhere) and on which transactions are
carried out nonstop, cargo by cargo, everywherein the world,
increased in importance at the expense of long-term contracts.
Actors on the oilscene constantly seek to optimize their sales and
purchases. In this new global environmentthe prices of crude oil,
of refinery products (gasoline, naphtha, bitumen, or others), and
of thedollar, fluctuate constantly and unpredictably, generating
considerable financial risks. Due tomarket fluctuations, for
example, the time that elapses between the purchase of the crude
andthe sale of finished products can cause very high losses or very
high gains. Petroleum 'traders'hedge against the associated
financial risks by making time settlement operations.
Theseoperations, which are traditional and common in the stock
market, but have developed onlyrecently on the oil markets, consist
of placing orders for the purchase or sale of 'paper' oil,very
little of which (about 5 per cent) will lead to an actual cargo
delivery. The principle is tocompensate a real operation with an
inverse 'paper-barrel' operation under the sameconditions: a
negotiator buys a cargo of oil and sells the equivalent 'paper
barrels' on the spotmarket at the same time. So, if the price of
crude drops and the negotiator loses money on theresale of the
physical oil, the negotiator buys back the 'paper' oil at a lower
price than s/hesold it for, and thus makes a profit that
compensates her/his loss on the real market.
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sufficient property rights and money wealth to become private
producers in a market economy.On the other wage earners must accept
the hierarchical authority of their employer in return fora wage.
The wage labour nexus is therefore a second fundamental
institutional form governingwage setting and the organisation and
intensity of work.
To settle their debts to society and earn profits, capitalists
collectively depend to a significantbut varying extent on the
consumption expenditure of their employees. The wages
capitalistspay to their employees are simultaneously a cost and an
element of the income on which thesales of their products and those
of other capitalists depend. The ideal solution for anyindividual
capitalist is to pay wages that are as low as possible to his/her
employees, whilst allother capitalists pay high wages to sustain
high levels of income and demand. The implicationis that the
individual interests of capitalists and their collective interest
differ. As Aglietta(1999: 47-8) argues, the conflict inherent in
the wage relation can be resolved if the capitalaccumulation also
improves the living conditions of labour force and furthers the
socialdevelopment of a wage society. Its resolution depends,
however, on the on the putting in placeof mediation mechanisms that
place constraints on the cost reduction strategy.
5 The role of the state
Could all these institutions and systems of mediation be self
implementing. Some economistssay yes. Most accept that a political
and legal order is required to establish the underlyingconditions
for accumulation and to establish these institutions. Up to this
point in time, viablemonetary regimes, rules of competition and
market discipline, effective financial systems,functioning labour
markets and the establishment and protection of capitalist property
rights alldepend on the actions of public authorities. At present
it is therefore impossible to conceive of acapitalist economy
without an explicit role for state.
The state also acts to define citizenship and to enacts the
legislation that institutes and enforcessocial rights, in the
recent past through the creation in advanced countries of a welfare
state andits tax and expenditure programmes.
6 The international regime
The legitimacy and coercive power of state is however confined
to a particular territory. Thecontemporary nation state is defined
by internal political processes associated with the creationof a
domestic constitutional order and its external recognition and
establishment of relationshipswith other nation states. Each nation
state is therefore inserted in an international regime
orconfiguration.
Conjunctural, cyclical and secular phases in the development of
capitalismTheories of regulation draw on these underlying ideas to
explain the trajectories of capitalistsocieties.
Historically, the development of industrial capitalism has been
punctuated by three or four
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enduring crises. The first occurred after the Napoleonic Wars
and saw, depending on theindustrial or agrarian character of the
country, the first crisis of industrial capitalism or the
last(Malthusian) crisis of the ancien rgime. The second occurred in
the Great Depression of thelate 19th century. The third occurred in
the period between the First and Second World Wars.The fourth
started at the end of the 1960s.
Throughout the long periods between these phases of turmoil,
developed capitalist economieswere reasonably dynamic and stable.
At the root of stable growth was, it is argued by theories
ofregulation, the emergence of a sequence of new development models
often centred onfundamental transformations of the preceding
economic and social order.
These new development models took shape in phases of crisis when
older socioeconomic ordersfailed on the economic front and were
rejected on the political and social fronts. At the root ofthese
phases of regular macroeconomic development were regimes of
accumulation7 whichinvolved the establishment of a significant
degree of compatibility between accumulation andsocial progress due
to the implementation of evolving institutional architectures and
systems ofmediation (also called modes of regulation) that managed
temporarily to regulate the conflicts,tensions, imbalances and
contradictions capital accumulation unleashes and to
translateaccumulation into social and economic progress. The
development models that underlie phasesof growth depend on a
political compromise between social forces and on the
widespreadacceptance of particular world views. Thus, the roots of
the Fordist model lay in the inter-warstruggle between social
democratic and New Deal politics, Stalinism and Fascism each
ofwhich sought to resolve the contradictions of a liberal order
that had failed. (The dominance ofmarket rationality was, as
Polanyi (1944) argued in The great transformation: the political
andeconomic origins of our time, one of the major causes of the
savagery characteristic of the firsthalf of the twentieth
century).The capacity of mediation mechanisms (structural and legal
constraints, collective agreements,and systems of values, shared
expectations and rules of conduct) to regulate contradictions
andstabilise development is however limited for several reasons.
'First, the effectiveness oforganisations lies entirely in the
stability of their internal rules, but these [rules] allow
themlimited scope to respond to variations in the conditions
governing the accumulation of capital'.
7 A regime of accumulation is a systematic organisation of: (1)
processes of production andvalue creation; (2) income distribution
involving the division of value added among differentclasses and
social groups; (3) exchange of the social product on which the
validation ofproduction capacities depends; and (4) consumption on
which economic reproduction and thereproduction of different
classes and social groups depend. With the materialisation of
aregime of accumulation, economic development is relatively stable:
changes in the amount ofcapital invested, its distribution between
sectors and departments, and trends in productivityare co-ordinated
with changes in the distribution of income and in the field of
consumption(see Dunford, 1990).
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Second, the institutionalised compromises between interest
groups ... only reduce uncertainty byvirtue of their rigidity'
(Aglietta, 1999: 62). The stability of regulation presupposes a
certaininertia of structures and institutional arrangements. But
stability is only relative. The process ofregulation itself
engenders permanent movements which continually modify the
character ofsocial relations, the intensity of conflicts, and the
relations of strength. A critical moment canarrive when these
institutions and modes of conduct associated with the existing
regulatorysystem are no longer able to at regulate the changes in
structure of accumulation and growth.Constraints formed to channel
growth can become fetters, opening up the question of new formsof
overall reproduction.
In the 1970s there was a crisis of Fordism/Keynesianism. This
crisis was a crisis a particularcompromise and of the ideologies
and social forces that underpinned it. Similarly, subsequentdebates
about the restructuring of economic and political life are aspects
of a search for a newcompromise as elites and their supporters seek
to establish new world views and developmentmodels capable of
securing wide acceptance.
The Fordist modelAt the root of the Fordist model was the
diffusion of a new techo-economic paradigm centredaround the mass
production of standardised industrial goods and services and the
associated riseof a range of new consumer and producer goods
industries. The core of the regulation mode waswas the
reconciliation of the increasing returns and the rapid increases in
productivity, whichthe resulting productive principles potentially
permitted, with the growth of real income andstability in its
distribution. First, real wages and consumer demand increased
regularly, as realwage growth was linked to productivity growth.
Second, the division of value added into wagesand profits remained
stable as increases in money wages were linked to the general level
ofprices. As the efficiency of capital was relatively steady,
improvements in the standard of livingof the workforce were
reconciled with a steady rate of profit and a rapid rate of
accumulation ofcapital (see Figure 2).
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Figure 2 Trends in profitability: the French case
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990
140
120
100
80
60
40
20
Rate of profit
Efficiency of capital
Profit share
Index, 1924=100
At the root of the connection between the growth of income,
demand and productivity were thecore elements of the wage-labour
nexus and state economic management. Nationallydifferentiated
collective bargaining arrangements ensured that wages grew in line
withproductivity and the cost of living. The redistributive
functions of the welfare state, comprisingthe social security and
taxation systems which redistribute wealth and income and
financecollective services, helped achieve greater social justice
and granted nearly everyone thepossibility to consume, even in
cases of temporary or indefinite incapacity to earn money fromwork
due to illness, unemployment or retirement, without encroaching too
far on the market-determined hierarchy of wealth and incomes.
Keynesian macroeconomic management gave thestate active
responsibility for fine-tuning economic expansion and ensured that
incomes anddemand grew in a regular manner. In these ways the
proto-socialist elements of the post-warsocial compromise
paradoxically created the conditions for the most successful phase
ofexpansion in the history of capitalism.8
8 All the problems that had haunted capitalism in the 1920s and
1930s appeared to have beenresolved. As Crosland argued in The
Future of Socialism: 'Traditionally socialist thought hasbeen
dominated by the economic problems caused by capitalism, poverty,
massunemployment, squalor, instability, and even the possibility of
the collapse of the wholesystem ... Capitalism has been reformed
out of all recognition. Despite occasional minorrecessions and
balance of payments crises, full employment and at least a
tolerable degree ofstability are likely to be maintained.
Automation can be expected steadily to solve any
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In this context inequalities diminished (see Table 1). Equity
was an important dimension of thereconciliation of capitalist
interests with social progress. On the one hand it increased the
shareof the population enjoying sustained increases in standards of
living. On the other it encouragedthe widespread adoption of modern
lifestyles and the development of markets for massconsumer goods,
which served as an engine of accumulation. Alongside the growth of
theconsumer goods sector, there was also, however, in several
countries (especially in the USA andUK but also in France) a
parallel growth of a warfare state underpinned by state expenditure
onsubstantial defence programmes. Interestingly productive
performance was most impressive inthose nation states that
committed fewer resources to defence programmes (Kaldor, 1990).
Table 1 Trends in US inequality : cumulative growth of average
annual real income by quintilein the US, 1947-92 Source: Council of
Economic Advisors, 1994
Quintiles Average annual percentage growth of mean family
income
1947-73 1973-92First (lowest quintile) 2.99 -0.69Second 2.65
-0.18Third 2.76 0.19Fourth 2.79 0.50Fifth (richest) 2.46 0.93
To this first pillar, connected essentially with the
distribution of wealth, was added another. Therapid rate of
accumulation and investment led to steady increases in the size of
the employedpopulation, relatively stable employment structures and
low unemployment rates. On the onehand new activities were created
to absorb the wage earners made superfluous by productivitygrowth
and shifts in the sectoral profile of employment. On the other the
expanded reproductionof capital permitted and required the
large-scale movement of people from agriculture toindustry, of
women into the workforce and of migrants from less developed
countries intoemployment in the core metropolitan areas of the
world economy. The consequence was atransformation of the structure
of employment involving the movement of increasing shares ofthe
workforce into paid employment and a stratification of the
workforce into socio-professional categories often within large
organisations. (Continued growth depended, however,not just on an
elastic supply of labour but also on the continuing availability of
cheap rawmaterials and energy, especially oil and gas).
remaining problems of under-production. Looking ahead, our
present rate of growth will giveus a national output three times as
high in fifty years' (Crosland, cited in Hobsbawm, 1995:267-8)
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As Aglietta (1999: 58-9) has recently indicated, the financial
system and government monetarypolicies were 'a second line of
defence to guarantee the durability of growth. ... banks
couldadminister interest rates so as to safeguard their profit
margins ... [and] competed with eachother over credit volumes. The
credit system was a buyer's market with rigid interest rates
andhigh elasticity of supply ... [enabling] companies to invest in
growth and technical progress atminimum financial cost'.
The economic and institutional configurations differed
significantly from one country toanother: economic structures and
mediatory institutions took on national hues, allowing
thedevelopment of national varieties of Fordism. Boyer (1999:
26-9), for example, identifiesmarket-led, meso-corporatist,
state-led and social democratic variants of Fordism,
whichthemselves reflected different economic and political cultures
and varying national politicalcompromises.
The general result, however, was growth that was self-sustained
and subject to relatively smallcyclical fluctuations. G7 growth
rates averaged 4.8 per cent per year in 1960-73, whilemanufacturing
productivity increased at 5.2 per cent (see Table 2). In contrast
to the pastdomestic markets for consumer goods constituted the
engine of growth : in OECD countries in1960-73 exports accounted
for 10.8 per cent of GDP compared with 15.0 per cent in 1974-9,15.5
per cent in 1980-89 and 1990-95. Comparable figures for imports
were 10.2, 15.0, 15.8and 15.4 per cent (see Table 2). Figures on
the importance of trade for the individual EU15economies were
significantly larger.
13
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Table 2 Output, employment and productivity growth in the G7,
USA, EU15 and Japan:average annual percentage rates of growth
(Source: elaborated from OECD (1997) Historicalstatistics 1960-95,
Paris, OECD and OECD (1995) Historical statistics 1960-93, Paris,
OECD)
1960
-73
1973
-79
1979
-89
1989
-95
1960
-73
1973
-79
1979
-89
1989
-95
1960
-73
1973
-79
1979
-89
1989
-95
1960
-73
1973
-79
1979
-89
G7
US
EU15
Japa
nR
eal G
DP
4.8
2.8
2.6
1.7
4.0
2.6
2.4
1.9
4.7
2.5
2.2
1.5
9.7
3.5
3.8
Rea
l GD
P pe
r hea
d3.
82.
12.
01.
02.
71.
61.
50.
94.
02.
12.
01.
18.
42.
43.
1Ci
vilia
n em
ploy
men
t in
man
ufa
ctur
ing
1.3
-0.
3-0.
4-1.
911.
51.
1-0.
4-3.
110.
5-1.
0-0.
9-3.
013.
3-1.
31.
1
Civi
lian
empl
oym
ent i
nse
rvic
es2.
42.
62.
21.
312.
83.
22.
51.
311.
81.
82.
01.
112.
72.
21.
9
Rea
l GD
P pe
r per
son
empl
oyed
3.7
1.5
1.5
0.7
2.0
0.2
0.7
1.31
4.4
2.3
1.7
0.7
8.2
2.8
2.6
Rea
l val
ue a
dded
inm
anufa
ctur
ing
per
pers
on e
mpl
oyed
5.2
3.8
2.6
1.9
3.3
0.3
2.3
5.9
3.7
2.5
1.8
10.3
3.8
3.4
Rea
l val
ue a
dded
inse
rvic
es p
er
pers
on e
mpl
oyed
2.8
1.3
0.8
0.4
1.6
0.5
0.4
3.3
1.9
0.7
0.4
6.3
2.5
1.9
Expo
rts o
f goo
ds a
ndse
rvic
es a
s ape
rcen
tage
of G
DP
10.8
15.0
15.5
15.5
5.5
8.5
8.6
10.5
19.6
25.4
27.9
27.3
10.2
12.6
12.9
Impo
rts o
f goo
ds a
ndse
rvic
es a
s ape
rcen
tage
of G
DP
10.2
15.0
15.8
15.4
5.1
9.0
10.6
11.6
22.9
26.2
29.3
29.7
9.4
12.2
10.9
1 19
89-9
32
1989
-94
14
-
Growth was therefore to a significant extent internally-oriented
in the more advanced countries.Of course there were significant
exchanges of goods and factors across national boundaries,
andnational economies were parts of a hierarchical international
order involving a stable set ofintergovernmental institutions that
had emerged out of the General Agreement on Trade andTariffs (GATT)
and the Bretton Woods fixed exchange rate system. The modesty of
the shareof trade in GDP, the limited degree of financial
integration that stemmed from restrictions oncapital movements, and
the capacity of nation states to devalue their currencies in a
system offixed but adjustable exchange rates nonetheless permitted
a significant degree of nationalautonomy. Aglietta (1999: 60) has
argued that the national institutions and in particular thenational
wage relation and wage standard in their dual role as determinant
of nationalproduction costs and domestic consumer spending power
were the lynch-pins of the Fordistmode of coherence. For all of
these reasons national economies were viewed as the buildingblocks
of the international order into which they were integrated through
their participation in arange of international institutions.
The crisis of Fordism and afterIn the 1970s there were
increasing signs of an exhaustion of the Fordist growth regime.
Thesesigns of a growth slowdown heralded the start of a new period
of uncertainty, crisis and change.Amongst the first symptoms was
the sharp downturn in rates of profit itself stemming from thefall
in the efficiency of investment and the increase in the share of
wages in national income(see Figure 2).9 These signs suggested the
existence of malfunctions in the core systems ofmediation (the
relationships underlying the wage relation, and the market, money
and financialsystems) and in particular in their capacity to absorb
and regulate the effects of change in theunderlying structure of
accumulation and growth. What were these changes in the
underlyingstructure of accumulation? In this section I shall
consider five : the slowdown in the growth ofproductivity and the
efficiency of capital; the internationalization of production;
financialglobalization; the increase in individualism and the
associated erosion of solidarity; and theerosion in the autonomy of
nation states. These five changes were connected with what I
shallcall the dual crisis of Fordism.
The crisis of the Fordist economic order was twofold. In the
first place, there was a 'supply-side'crisis of the Fordist wage
relation (which involved a combination of Taylorist principles
ofwork organisation, centred on the separation of intellectual and
manual work, and rigid forms ofemployment and wage determination,
which underpinned the regular growth of income anddemand). In the
second place, there was an acceleration of the globalization of
economic life9 The rate of profit is equal to profits divided by
the capital advanced. This ratio is also equal to
the product of the share of profits in output (profits divided
by output) and the efficiency ofcapital (output divided by the
capital advanced). The efficiency of capital is also equal to
theratio of the productivity of labour (output per person employed)
and the capital advanced perperson employed.
15
-
which added a 'demand side' crisis to the earlier supply-side
crisis.
At the root of the supply-side crisis there were two factors.
First, the diffusion and deepening ofTaylorist principles reached
certain social and technical limits, narrowing the scope for
furtherinnovation and intensification of work which together
contributed to the significant slowdownin rates of productivity
growth and the efficiency of capital (the value of output divided
by thevalue of plant, machines and equipment). Amongst the social
limits was a popular revolt againsthierarchies, against the
alienation of work and against 'wasting one's life earning one's
living ina one-dimensional society' (Lipietz, 1989). Second, the
rigidity of wage contracts andsubstantial increases in the share of
wages in national income squeezed profitability (at thesame time as
inflation made real interest rates negative). This second factor
was related to thefirst in that the increase in the wage share also
stemmed in part from the combativeness oftrades unions and a range
of other social movements active in the late 1960s and 1970s.
In the face of the crisis of Taylorist productive model,
capitalist enterprises responded in severaldifferent ways. On the
one hand, there was an acceleration of automation and a
rapiddevelopment of information and communication technologies
(ICT). Subsequently this ICTrevolution was seen as heralding a
third industrial revolution, involving a Schumpeterianprocess of
replacement of one productive system by another. On the other,
there were a range ofexperiments with new principles of work
organisation and wage determination (variouslyreferred to by the
phrases job enrichment, flexible specialisation, lean production
and dynamicflexibility), new intra-firm organisational arrangements
and management models, and aredefinition of relationships between
firms and their subcontractors and markets. These newtechnologies
and new principles of work organisation were often put forward as a
way out ofthe crisis of Taylorism and as the foundations of a new
productive order (Boyer and Durand,1993). To others these new
technologies were less radical. For these critics the
newtechnologies and management principles permitted an adaptation
and refinement of theprinciples of Taylorism rather than their
replacement, and involved in particular an increase inthe ease and
speed of reaction to firms to changes in their external
environment, an emphasis onthe mass production of quality goods at
low cost and the widespread use of informationtechnology and a
reinforcement of the control of capital over production rather than
an increasein the autonomy of the workforce and a humanisation of
work (Boyer and Durand, 1993).10
10 Durand (in Boyer and Durand, 1993) argues that a major aim of
the contemporaryreorganisation of work is greater production
flexibility which itself involves greatercoordination/integration
of the system of production as a whole and the creation of
networksof systems, operations and production sequences including
relation to markets and suppliers.Examples include: the integration
of Research and Development and product manufacture;the integration
of marketing, design, manufacture and management; the integration
ofactivities in 'extended firms'; a reliance on greater
organisational productivity and automationto improve the
responsiveness of manufacture and assembly to variations in the
volume of
16
-
These innovations did not, however, stem the decline in the
efficiency of investment. Thereason why lay in part in the fact
that the investments that firms undertook in automatedmachines were
expensive relative to the increases in output they yielded. The
high costsassociated with the design and development of new systems
was in turn a consequence of thefact that their development
involved the employment of large numbers of well-paid engineersand
technicians.
The increase in the wage share was a further constraint on
competitiveness, profitability and thefinancing of investment. To
reduce costs and restore profitability, companies sought
torationalise employment, increase employment flexibility and
reduce the share of wages andsalaries in value added.11 As Figure 2
shows, in the French case it was the reduction in the wageshare,
rather than increases in the efficiency of capital, which resulted
in a restoration in the1980s of profit rates to their 1960s'
levels. Throughout the period after 1965, the efficiency ofcapital
fell. Overall it declined by 45 per cent. This restoration of the
rate of profit was thereforeto a significant extent a consequence
of a sharp increase the share of profits and a dramaticreduction in
the share of wages in national income permitted by a combination of
increasing thework done and paying less for it. As Lipietz (1996)
points out, French workers produced moreeach year. Indeed,
productivity increasing by 30 per cent in 12 years. Yet their hours
of workremained the same, and their real wages hardly increased. In
France, however, as in a number ofother continental European Union
Member States, unemployment rose sharply. In the US and toa lesser
extent the UK the fear of unemployment and weak social protection
enabled employersto chart another course involving much greater
wage flexibility. In the US annual hours of workincreased by one
month since start of 1970s, while for manual workers and clerical
andsecretarial staff the average real wage fell by 10 per cent
since 1973. To maintain his/her 1973standard of living an American
worker must do an additional 245 hours work per year.
The restructuring of productive activities that stemmed from
this crisis also involved anaccelerated internationalisation of
production and markets, at first as runaway industries soughtto
reduce wage costs through investment in low wage locations. The
fact that this process ofinternationalisation was designed to
escape national wage bargaining systems and took place
demand without adversely affecting the commitment of workers;
and an increase in the skills,learning capabilities, functional
flexibility and involvement of the workforce in the strugglefor
improved productivity and quality. The objective is, first, to
accelerate obsolescence andto track shifts in fashion in order to
speed up replacement, and, second, to increase varietyand/or
improve the quality, price and performance of normalized products
to gain marketshare at the expense of rivals.
11 To some extent there was a trade-off between the two
responses to the crisis. Companies hadto choose either to produce
high-value added goods and services with skilled, well-paid
andinvolved workers, or lower quality products with less skilled,
less well-paid and moreinsecure workers.
17
-
without an international harmonisation of the Fordist wage
compromise added a second'demand side' to the crisis. With
internationalisation, cost competitiveness emerged as theoverriding
concern of governments and elites.12 Yet, as attempts to increase
competitivenessinvolved reducing the rate of growth of the mass of
wages and salaries, there was a decline inthe rate of growth of
domestic demand, of domestic markets and of economic growth. A
keydeterminant of this slowdown was the internationalisation of
government austerity programmes.As Lipietz (1989) has argued, in
order to reduce its balance of payments deficit, each nationstate
sought successively larger wage reductions than its rivals. In
order to improve its capitalaccount, each nation introduced yet
higher interest rates to attract international deposits.
Wagereductions and increased interest rates had depressive effects
on aggregate demand andinvestment. Accordingly, the growth slowdown
spread and was reinforced in a war ofcompetitive recessions.
To the earlier supply-side problems were accordingly added the
demand-side difficulties of the'double-sided' crisis of Fordism.
This demand-side crisis generated further difficulties.
Slowergrowth tied up large sums of money in stocks of goods and
materials. In addition, instabilityincreased, making it difficult
to adjust output to changes in the composition and level ofdemand,
and giving further importance to production flexibility.13
Greater internationalisation of production and international
interpenetration of national capitalsin industry, finance, services
and commerce reduced national economic independence andsovereignty.
One consequence was a decline in the scope for Keynesian reflation;
any increasein national demand not matched by corresponding
increases in demand in other countries wouldlead to a large inflow
of imports and balance of payments deficits as the initial
economicpolicies of the first Mitterand government in France (June
1981-82) showed. Any sustainedreflation, it seemed, would have to
be organised at an international level. As this experienceshowed,
the scope for the implementation of effective systems of mediation
at a national scalewas far more limited than in the past.
12 An awareness of the organisational and technical limits of
the Fordist productive order wasdelayed by the emphasis on
defensive relocation strategies aimed at increasing the
flexibilityof labour markets. In the United States, for example,
employers chose to struggle againsttrade unions and to relocate
plants in states where management was stronger and wages werelower.
Their successes on this front reduced the incentive to innovate
that stems from highwages. The runaway industries phenomenon
associated with the transfer of production to lowwage countries had
similar effects.
13 In the influential The second industrial divide, Piore and
Sabel (1984) argued that there was astagnation of the consumption
norm : high rates of ownership of consumer goods, increasedthe
importance of replacement demand, while international inequalities
were too wide topermit the integration of less developed countries
in circuit of mass production-massconsumption.
18
-
Globalization and post-FordismIn the years since the start of
the 1980s there have been profound changes in the structure
andtrajectories of the advanced capitalist countries and in their
relations with the rest of the world.Included were a sharp increase
in the degree of global economic integration and the
rapiddevelopment of a new international division of labour, a
radical financial markets regimechange and a major restructuring of
the scope and limits of state action.As far as the economic
trajectories of advanced economies was concerned, the sluggish
growthof the domestic market was associated with a much greater
orientation towards external marketsand externally-oriented models
of development. As paid employment spread and as
capitalismpenetrated formerly Communist and Third World societies,
trade and international investmentwere increasing seen as a source
of profit and an engine of growth. A consequence was theemergence
of a new international division of labour, increased rivalry
between the majoreconomic blocs (North America, Europe and East
Asia) and an associated redefinition of thestrategic and security
interests of the most advanced capitalist countries. (The
expansionist andimperialist impulses of the late nineteenth and
early twentieth centuries seemed to reassumetheir earlier
significance as the advanced countries set out unchallenged to
mould emergingmarkets in their own image and as the collapse of
Communism seemed to permit a much moreaggressive international
stance). The initial driving force was an internationalisation of
virtually all of the activities ofmultinational corporations. There
was an internationalisation of processes of production, ofmarkets,
as attempts were made to sell similar products throughout the
world, of the sourcing offinance, which was raised increasingly on
global markets, of research and developmentactivities, which were
located in a greater range of countries, and of management, with
therecruitment of managers of many nationalities to create a
worldwide management system.Different countries nonetheless played
different roles in this new international division oflabour. In the
developed world, in those sectors producing traded goods and
services, there is anincreasing specialisation on the skilled,
intellectual work performed by what Reich (1991) callssymbolic
analysts or problem solvers who work on ideas, concepts and symbols
and whoseactivities (design, technical and financial consultancy,
information and communication,marketing, advertising, accountancy
and legal services, etc.) involve the appropriation of largeshares
of the value added created in global production chains. In
developing countries,increasingly called emerging market economies,
the scale of capitalist activity is increasing withthe production
of capital and intermediate goods, the growth of a range of
processing industriesand the expansion of financial and other
market services.14 To paraphrase Morgan and Sayer(1987),
development is occurring in these countries, without necessarily
promoting a
14 Aglietta (1999: 63) points out that another dimension of the
future international division oflabour will involve the exchange of
the savings of the ageing populations of the developedworld for
goods and services produced by the younger labour forces of the
developing world
19
-
development of these countries.
Associated with this process of internationalisation were a
decomposition of a number ofnational oligopolies and an
internationalisation of the spatial arena in which competition
takesplace, though it was not the case that markets were made more
competitive, as there is a wave awide range of agreements,
partnerships, mergers and takeovers whose result was the creation
oftransnational oligopolies. An important component of this aspect
of the restructuring processwas the internationalisation of
privatized enterprises operating in areas of economic life thatwere
traditionally a part of the public sector, including public
transport, telecommunications,television and the media, and energy.
In the Fordist era, these enterprises were largely shieldedfrom
international competition, but in the 1980s and 1990s they were
often sold off to privateowners, usually for sums that fell well
short of their economic value, opening up new areas forprofitable
investment, shifting the dividing line between markets and public
services, andaltering the status of their employees.
Taken as a whole this new phase of globalization has
significantly weakened the connectionbetween corporations and their
territories of origin. In the Fordist era,
internationalisationamounted principally to the international
exchange of goods. The exchange of the products ofone country's
labour for those of another did not have a significant impact on
domestic pricesystems, permitting the setting of national wage
profiles in national systems of bargaining.'Cyclical adjustment of
economic policies, discretionary devaluations and exchange
controlswere sufficient to reconcile the national autonomy of ...
[the collective bargaining systems] withinternational trade'
(Aglietta, 1999: 66). The internationalisation of production and
theestablishment of globally integrated production chains alter
this situation in several ways.Collective bargaining is no longer
the linchpin of developed wage societies. The connectionbetween
corporations, their structures of production and the distribution
of value added andtheir territories of origin weakens, as
capitalist enterprises more generally have escaped fromthe national
constraints that formerly shaped the path of accumulation, and
increasingly are ableto set the agenda, 'without any longer being
subject to the constraints that formerly channelled... capital
accumulation in the direction of social progress' (Aglietta, 1999:
67). As Agliettacontinues, their fundamental concerns are with
their overall competitiveness, their globalprofitability and the
global centralisation of finance. Their competitiveness and
profitabilitydepend on their capacity to organise flows of
resources, knowhow, finance and goodsthroughout the world. Strict
financial criteria compel them to maximise short-term equity
valuesand to bear down on employment and wages. In these
circumstances, the setting of wages takesplace in the light of
supranational market conditions.
The restructuring of work and employment and wage setting that
result are creating a newdivision of the workforce in developed
economies (see, for example, Lipietz, 1996). At the topof the
hierarchy lies a modern petite bourgeoisie, made up of executives
and managers or cadrescomprising Reich's (1991) class of 'symbolic
analysts'. In the middle are found two groups.
20
-
First, there is a group of secure workers, made up middle
managers, technicians and publicservants, that includes welfare
professionals, Second, there is a group made up of clerical
andmanual workers that includes personal service sector workers and
operatives in the servicesector and whose employment is insecure
and low-paid. At the bottom lies a fourth groupcomprising those who
are excluded from the workforce. The first group gains
fromglobalization, whereas the fourth group tends to lose. What
happens to the second and thirdgroups depends on whether they can
gain from the prosperity of the first group or suffer fromthe
deflationary competition from the fourth.
In the Fordist era there was a hierarchy, yet society was held
together as the individualisticpursuit of social advancement,
social distinction and wealth took place on a social escalatorwhich
guaranteed a steady increase in each individual's real income and
low levels and shortdurations of unemployment. To describe this
situation and in particular its characteristicdistribution of
income Lipietz (1996) coined the term 'hot-air balloon society'.15
Globalizationand the weakening of systems of collective bargaining
along with an associated reinforcementof individualistic attitudes
has ruptured the solidarity on which this model rested.
In the western half of Europe the European Union has sought to
channel these processes ofglobalization by increasing the degree of
economic and financial integration (first, with theestablishment of
the Single Market and, second, with the steps towards economic and
monetaryunion). Fundamentally, the aim was the creation of a
unified economic space as a platform forthe reinforcement of
European companies in European and global markets and not the
creationof a set of mediation mechanisms (other than those of the
market) capable of channelling
15 The distribution of income could be represented by a floating
spinning top or strobiloid withdisposable household income measured
on the vertical axis and the frequency in each incomecategory on
the horizontal axis assumed the form of a 'potbellied hot-air
balloon'. The imageis appropriate for several reasons. First, it
depicts a world in which there were few richhouseholds, few poor
households and a lot of households with incomes in the middle of
thedistribution. Second, it reflects the way in which the incomes
of all households rose steadilyand together as the hot-air balloon
rose up off the ground: movement upwards occurredbecause of
expansion of demand associated with the almost immediate
expenditure of theincreasing incomes of in particular the swollen
middle of the distribution, while the shaperemained steady due to
the fact that the wage distribution was hemmed in by
collectiveagreements and welfare redistribution. Third, it
suggested that the rich, middle and popularclasses would
successively attain the same or similar consumption patterns and
ways of life.At any point in time the lifestyle of an engineer
foreshadowed by some years that oftechnicians. Fordist societies
were escalators in which the social distances between socialclasses
remained constant, but in which everyone rose including migrants
moving from thecountryside to the city or immigrants moving from
former colonies to the metropolis whosearrival involved stepping on
to the bottom step of the escalator.
21
-
accumulation in directions compatible with universal social
progress. At the same time as therewas no intention to create a new
Europe-wide welfare state model, European economicintegration added
to the destabilisation of an economic framework made up of
relativelyautonomous national systems of prices reconciled with one
another by means of exchange rateadjustments. The aim of the
integration project is to replace this system with a set of
relativelyhomogeneous national price systems constrained by fixed
exchange rates. Adjustment in such aframework could occur either
through a European system of fiscal transfers, through high ratesof
workforce mobility, or through wage flexibility. As there is strong
resistance to the idea of aEuropean welfare state and the
establishment of social rights as constituent elements ofEuropean
citizenship, and as workforce mobility in the EU is relatively
limited, only wageflexibility remains. At present wage flexibility
is weakly developed due to the persistence ofearlier principles of
wage bargaining in many Member States. In the short-term the
outcome is adeeper unemployment crisis. In the medium term wage
flexibility is a likely area ofconfrontation between governments
and trade union movements and is indeed one of thereasons why some
fractions of the European class of employers favour the current
model ofintegration.
Alongside and stemming from the globalization of capital and the
increase in the degree ofglobal economic integration, financial
deregulation and financial innovation permitted aglobalization of
financial markets. Two groups of factors explain this trend. The
first is themobilisation of global financial resources by
international enterprises on the one hand, and theincreasing
disconnection of national savings and investment on the other. The
former was aresult of the internationalisation of activities, while
the latter stemmed from differences innational growth trajectories
and associated differences in the demand for and supply of
savings,with, for example, the US emerging as a net borrower
(debtor) and Japan as a net lender(creditor). Together this group
of factors contributed to a dismantling of controls on movementsof
capital. The second group was associated with the relative decline
in the role of bank depositsand banking oligopolies and the rise of
a system of market finance dominated by institutionalinvestors.
Institutional investors insist, on behalf of their investors, on
the satisfaction ofambitious performance criteria set and evaluated
by financial markets. The aim is to secure highreturns involving
the maximisation short-term equity values, one of whose
consequences is anobsession with cutting wage costs and shedding
jobs to boost share prices (Aglietta, 1999: 67-9). In contrast to
the bank oligopolies, which usually held claims until they fell
due, this newmarket finance system introduced innovations in the
management of risks leading to a dramaticexpansion in the trading
in securities and currencies and the explosion of markets
forderivatives. As Aglietta (1999: 69) indicates, the outcome is 'a
complex web of financialinterdependence ... woven through arbitrage
of interest rates, currency speculation andinternational creditor
and debtor positions'.
This restructuring of the financial sector was accompanied by a
major shift in economic policiesin favour of creditors and the
holders of financial wealth, creating a new set of financial
22
-
constraints which had a profound impact on national state
action. In the 1970s, to encourageeconomic growth, real interest
rates were allowed to fall (as the rate of inflation was allowed
toexceed the nominal rate of interest). To protect the real value
of the financial assets of creditorsand rentiers, the financial
sector developed a range of new investment instruments to
counterthe effects of inflation. As a result new financial markets
developed in which interest rates weremore sensitive to inflation
rates (Aglietta, 1999: 75-6). It was in this context that, at the
end ofthe 1970s and start of the 1980s, there was a much more
forceful switch to a monetarist agenda,involving the introduction
of extremely restrictive monetary policies in the United States
andthe United Kingdom. This reinforcement of a course of action
already observable in the mid-1970s led to a dramatic increase in
interest rates, a deep recession that spread throughout theworld,
sharp increases in unemployment and a profound debt crisis in
developing countries thathad borrowed recycled oil revenues in the
1970s to fund industrial investment programmes.(Developing
countries borrowed to fund industrial investment expecting exports
of the resultingindustrial products to enable the repayment of
debt. Monetarism forced up interest rates,reduced the rate of
growth of demand for industrial output and encouraged protectionsim
inadvanced countries, crippling the debtors).By the middle of the
1980s inflation rates had subsided, yet real interest rates
remained high,often exceeding the rate of growth. High interest
rates, combined with the need to adapt quicklyto a rapidly changing
economic environment, encouraged investments in liquid
assetsguaranteeing high short-term returns, such as currencies,
shares, land and real estate.Conversely, these conditions
discouraged productivist strategies which tied up wealth in
fixed,productive assets whose use could not easily be switched from
one set of ends to another.16
16 There is a significant degree of tension between productivist
strategies and rentier typestrategies. As Keynes clearly indicated
in the inter-war years, productivist strategies are long-term and
depend on low interest rates and economic stability, whereas
commercial andfinancial strategies are often short-term,
speculative and centred on the acquisition anddisposal of assets,
dealing in land and property and trading in currencies, stocks and
shares,debt and commodities. Of course in market societies
commercial, logistic and financial actorsplay an indispensable
role: commercial and logistic activities play a crucial role
asintermediaries between producers and between the owners of
resources and the consumers ofthe goods and services made with
them, while financial institutions perform a critical functionas as
providers of credit money and the buyers and sellers of debts and
capitalist propertyrights. Commercial, financial and speculative
activities do not create wealth, however, anddepend for their
remuneration on their capacity to secure a part of the wealth
created by theproductive sector or from other spheres of life
(through exploitation of the domestic economy,the informal economy,
drug dealing, corruption, crime, long-distance trade in
agriculturalsurpluses and the scramble for the spoils of the
fragile economies bequeathed by the collapseof Communism in
East-Central Europe. Palloix (1993) argues that in recent years
productiveinterests have been subordinated to commercial and
financial interests. First pseudo-
23
-
As indicated earlier, the productivity, profits and investment
slowdowns of the 1970s and early1980s entailed a reduction the rate
of growth of output and value added, which the pursuit
ofrestrictive monetary policies and increase in interest rates
reinforced. Slower growth putdownward pressure on public fiscal
revenues and social transfers, as did competitive downwardpressure
on tax rates. At the same time the transfers required under
existing welfare statearrangements increased due to the increase in
unemployment and poverty, along with the ageingof the population
and the increasing real cost of collective services. Governments at
all levelsconsequently faced mounting financial pressures and
difficulties in raising the revenuescommensurate with the
increasing demands for public services. A combination of
downwardpressures on revenues and constant or increasing
expenditures creates public sector deficits andincreases public
debt and debt-GDP ratios, while higher interest rates raise the
costs of debtservice. (Governments are encouraged to offset these
unfavourable trends through asset sales).The more restrictive
monetary policies are and the longer restrictive policies last, the
greater,other things being equal, the increase in debt. As
financial markets 'dislike' public sectordeficits, the credibility
of public policy declines, and long-term interest rates go up
toincorporate a risk premium (increasing the attractiveness of
state debt as profitable placementsfor financial wealth). Combined
with the increase in individualistic values, these powerful
financial constraints havereduced the capacity of governments to
finance public services and have provoked a crisis ofthe welfare
state, threatening the cohesion of advanced societies.17
Essentially, the universal
productive capital has used its control over the access of
productive capital to markets to shiftdecisively the distribution
of value added in its favour. Second the squeeze it has applied
tothe productive sector has increased competition, reduced wages
and prompted a strong drivefor productivity growth. As productivity
growth occurs without output growth, theconsequence is the
exclusion of a large and growing section of the population from the
worldof paid work and from the world of consumption of commodities.
Finally through itsdominant role in the restructuring of global
cities and metropolitan economies, pseudo-productive capital has
created new urban hierarchical systems and new orderings
ofgeographical space which raise its status and profile at the
expense of the productive sector.
17 Short and long-term real rates of interest have been at
unprecedentedly high levels for morethan a decade often exceeding
the rate of growth with profoundly negative consequences
forsolidarity, investment, employment and income distribution,
while the globalization offinancial markets has seen a remarkable
scaling down in the rates of taxation on capital(Fitoussi 1995).
Two examples will suffice. First, fiscal constraints and real rates
of interestthat are high relative to the rate of economic growth
have an adverse impact on the degree ofco-operation between the
public and private sector. In particular the deterioration in
thefinancial position of the public sector constrains public
investment for economic developmentin education, health, transport
and other infrastructures and in research and development. One
24
-
welfare state was developed to cope with low rates of
unemployment and not the massunemployment of the late 1970s and
1980s with its repercussions in the shape of lost output, anarrower
tax base and greater social security expenditures. The consequence
is an erosion of theprinciple of social insurance, changes in
eligibility, a reduction in the real value of welfarebenefits, and
a move to more selective modes of intervention. An important aspect
of thisreform process is the increased role of new non-governmental
organisations which step into thebreach to mend some of the
fissures in the social order. Necessarily, these associations
abandonthe principle of universality, exercise discretion in
choosing who to help and who not to helpand function as competitive
interfaces and lobbyists between funding agencies (the WorldBank,
national Ministries of Housing and Health, the European Commission,
Charities, etc.)and poor people. The result is a slow transition to
a national/international neo-liberal social statein which social
entrepreneurs organise the people they serve as groups of clients
and engage ina struggle with other associations for support from
potential financial backers (see Lipietz,1996).
Economic performance: growth and inequality In the last section
I identified a number of inter-related processes that are
transforming thesocieties of the developed and developing world
(the globalization of production, theglobalization of finance and
the erosion of the capacity of nation states to secure
socialcohesion) and I suggested that so far there has been a
failure to develop new mediationmechanisms capable of channelling
growth along lines compatible with universal socialprogress. The
new trajectories of capital accumulation and the new international
division oflabour are, in other words, neither self-regulating nor
hemmed in by the type of mediatingmechanisms capable of
establishing a new regime of growth. In this section I shall seek
todefend this argument by outlining some of the repercussions of
the resulting developmenttrajectories. Three phenomena will be
briefly highlighted: the degree to which globalization hasled to
economic convergence of less developed countries with more
developed; the growthrecord of the more developed world; and the
inequality crisis in advanced countries.
To appreciate the impact of the new international division of
labour on relative living standards
of the risks of a failure to give priority to such investments
is that the private sectorexperiences what it sees as a decline in
the quality and usefulness of public services and isreluctant to
finance it which in turn contributes to the financial pressures.
The decline may bereal, but its roots lie in large measure in a
restrictive economic environment. Second, if therate of interest is
smaller than the rate of growth individuals who pay taxes to fund
old agepensions will do so in the knowledge that the same amount of
redistribution will provide themwith a higher standard of living
when they themselves reach retirement age than the retentionof
their taxes and investment in a financial fund at current rates of
interest. Once real rates ofinterest exceed the growth rate, the
situation changes. A financial investment will yield agreater
return than a share proportional to the sum invested of future
GDP.
25
-
throughout the world it is important to place global development
in its longer-term perspective(see Table 3). Table 3 shows GDP per
head in a number of countries in each of a series of worldregions
relative to that of the United States: it shows how the US and
other new countries(Canada, Australia and New Zealand) pulled ahead
of the rest of the world until 1950, thoughthe Soviet Union did
close the gap somewhat in 1929-1950. As this table suggests,
internationalinequality is largely a result of this concentration
of nineteenth and early twentieth centuryindustrialisation in the
western half of Europe and the new countries settled by Europeans.
Inthe period from World War Two until 1973, Western Europe, Eastern
Europe and from the1960s Southern Europe and Asia experienced rapid
catch-up. The group of Latin Americancountries that had adopted
strategies of import substituting industrialisation also closed the
gap,while Africa stood still in relative terms. In short, the
post-war golden age was a period ofsignificant decreases in
international inequality. After the mid-1970s Asia continued its
rapidcatch-up until the recent currency crisis, and Western and
Southern Europe continued to closethe gap on the United States but
at a much slower rate. Conversely, Eastern Europe fell behind,with
its slow relative decline turning into a calamitous collapse with
the start of the transitionfrom Communism in 1989, as did Latin
America and Africa. Catch-up was, therefore, faster upto the
mid-1970s, and in the past twenty-five years a number of parts of
the world have failed toparticipate further in the catch-up
process. Africa is the most striking case,18 though in manyother
countries there is evidence of an economic crisis on an
unprecedented scale leading torapid impoverishment of large
sections of the world population and sharp regional conflicts.
18 Cohen (1998) argues that the poverty of Africa can be
attributed to the exploitation and self-perpetuating poverty of
women, mercantilist policies that depress agriculture in favour
ofindustry, and the corruption of elites. The answer, he argues, is
to strengthen are democracyand education in a context of free
trade.
26
-
Table 3 Comparative economic development : arithmetic average
real GDP per head atPurchasing power standards as a percentage of
US (Source : elaborated from data in Maddison,1995, 110-266)
GD
P pe
r hea
d as
per
cent
age
of U
SG
DP
mul
tiplie
r18
2018
7019
0019
1319
2919
3819
5019
7319
7919
8919
9218
20-
1913
1913
-19
5019
50-
1973
1973
-19
92W
este
rn E
urop
e98
186
7670
6377
5474
7678
810.
710.
771.
381.
09N
ew c
ount
ries
982
9998
9996
9797
9797
9797
1.01
0.98
1.00
1.00
Sout
hern
Eur
ope
673
563
303
3331
3121
3636
3638
0.49
0.64
1.72
1.06
East
ern
Euro
pe55
439
523
524
623
3212
2735
3431
210.
431.
141.
270.
62La
tin A
mer
ica
407
228
2829
2832
2729
2425
0.72
0.96
1.05
0.86
Asia
419
2210
1611
1412
1114
810
6914
1315
0.34
0.54
1.33
1.49
Afri
ca31
351
38
86
61.
710.
930.
80
1 Ex
clud
ing
Switz
erla
nd2
Excl
udin
g N
ew Z
eala
nd3
Excl
udin
g G
reec
e an
d Tu
rkey
4 Cz
echo
slova
kia
and
futu
re U
SSR
5 Cz
echo
slova
kia,
Hun
gary
and
futu
re U
SSR
6 Ex
clud
ing
Pola
nd an
d Ro
man
ia7
Braz
il an
d M
exic
o8
Arg
entin
a, B
razi
l and
Mex
ico
9 Ba
ngla
desh
, Chi
na, I
ndia
, Ind
ones
ia an
d Pa
kista
n10
Chi
na, I
ndia
, Ind
ones
ia a
nd T
haila
nd11
Exc
ludi
ng B
urm
ah12
Exc
ludi
ng B
ulga
ria13
Egy
pt, G
hana
and
Sou
th A
frica
14 Ja
pan
27
-
Without doubt there are striking recent cases of catch-up. The
most remarkable examples areJapan and, more recently, Hong Kong,
Singapore, South Korea and Taiwan (see Table 4). AsTable 4 shows,
however, Asian growth in the twenty years up to the early 1990s was
a productof 'perspiration' (a high savings rate and increased
capital and labour inputs) rather than'inspiration' (technological
progress). Nonetheless, in the light of this experience it is
frequentlyargued that these economies illustrate the ways in which
investment in education and capitalequipment in a context of global
free trade can lead to strong convergence. What is more, it
isclaimed that the accomplishments of the Asian NICs can be
replicated, opening up thepossibility of catch-up and reductions in
global inequality on a hitherto unparalleled scale.
As I have suggested, however, the recent past is characterised
not by generalised catch-up butby the existence of winners and
losers and by sharply differentiated development records. Thereare
differences within the group of semi-industrialised Third World
countries, with relativedecline in Latin America, and South Africa,
and advances in East Asia. There are differenceswithin the group of
non-industrialised Third World countres, with advances at some
points intime in OPEC countries, yet decline in sub-Saharan Africa.
There are also differences within thegroup of former socialist
countries, with advances in China, and decline in the former
SovietUnion (see also Becker 2001). Most of the dynamic East Asian
economies have howeversuffered dramatic recent reversals in their
economic fortunes with the financial crisis, initiatedin mid-1997
with the collapse of the exchange values of their currencies.
28
-
Table 4 Growth and its determinants in East Asia19 (Source :
computed from data in Young,1995: 657-61)
Annual percentage rate of growth ofOutput Weighted
capitalWeighted labour
Total factor productivity
Hong Kong (1966-91) 7.3 3.0 2.0 2.3Singapore (1966-90) 8.7 5.6
2.9 0.2South Korea (excluding agriculture, 1966-90)
10.3 4.1 4.5 1.7
Taiwan (excluding agriculture, 1966-90)
9.4 3.2 3.6 2.6
So far the developed world has largely insulated itself from the
effects of the instability ofglobal financial markets. Over the
last thirty years, however, its growth record has fallen a longway
short of that of the 'golden age' that followed the Second World
war. In the period since themid-1970s there was a spectacular fall
in output and productivity growth rates, especially inEurope. Table
2 records growth rates. In the EU15 average annual rates of growth
were just 2.5,2.2 and 1.5 per cent per year in 1973-79, 1979-89 and
1989-95 respectively. Manufacturingproductivity increased at just
3.7, 2.5 and 1.8 per cent.Alongside the accelerated development of
some developing economies and the growthslowdown in the developed
world there have been dramatic increases in inequality.
Theinequality crisis within advanced countries assumes two
different forms. In the United States itassumes the form of wage
inequality and the rise of the working poor (what Krugman
calls'moneyless America') and in continental Europe it assumes the
form of unemployment ('joblessEurope'). In each case the main
victims are those people who lack skills. In the US the realwages
of the unskilled fell by 30 per cent in 1973-93. Indeed in that
period just 20 per cent ofpopulation gained from an increase of
nearly one-third in the wealth produced (see Table 1). InFrance, to
take just one European example, unskilled unemployment has risen
from 3 to 20 per
19 In this growth accounting scheme, economic growth depends on
capital investments (adjustedfor depreciation and obsolescence),
labour time (adjusted for educational attainment) andtechnological
progress, called total factor productivity which measures
efficiency with whichcapital and labour are combined but which is a
residual to which is attached whatever part ofgrowth quantities of
labour and capital accumulation do not explain. Total factor
productivityusually accounts for about 50 per cent of growth. The
contributions of capital and labour arecomputed by multiplying the
rate of growth of capital/labour by the share of capital/labour
innational income, implicitly assuming that the profit/wage share
reflects the marginalproductivity of these factors.
29
-
cent in 1970-90.
As indicated earlier, the erosion of collective bargaining and
of the stable wage structure andregular wage growth it promoted, a
decline in unionisation and the deregulation of job marketall
weaken the capacity of unskilled workers to secure high wages. Most
economists argue,however, that this increase in inequality is a
result of a fall in the demand relative to the supplyof unskilled
labour and an increase in the demand for skilled labour.
Of the factors that reduce the demand for unskilled labour,
globalization and increased trade andcompetition from developing
countries are frequently identified as prime causes. As Cohen(1998)
has argued in The wealth of the world and the poverty of nations,
however, there arestrong reasons for not attributing the inequality
crisis in developed countries to trade. Trade candamage those
sectors in which the advanced world ceases to specialise,
substituting imports fordomestic production. At the same time,
however, there are gains in those sectors which makeintensive use
of skilled labour and in which the advanced world specialises.
These gains accruefirst and foremost, however, to 'symbolic
analysts' who figure prominently in these sectors. Ifthe losses and
the gains are compared, it is clear that $100 of extra exports
creates fewer jobsthan $100 of imports, as the traded goods sectors
in which advanced countries cease tospecialise are relatively
labour intensive. Most economists argue, however, that just 2-3 per
centof the labour force is affected by competition from poor
countries: in France 300,000 jobs wereperhaps lost due to
trade-related factors, yet there are 3 million unemployed (see
Cohen, 1998).On the supply side immigration increases the supply of
labour and the competition for jobs andmay harm unskilled workers,
but its scale is limited and is far from sufficient to account
fortheir recent relative impoverishment.
To explain the increase in the the demand for skilled labour
(which is outstripping the increasein the supply of skilled labour
as a result of mass education) and the fall in demand for
unskilledlabour there is a second explanation : an upgrading of
production tasks in every sector, itselfreflected in increases in
the proportion of expert or managerial occupations. To explain
whythere have been such marked changes in the importance of skilled
labour, Cohen (1998) focuseson changes in industrial organisation,
drawing first on Kremer's O-ring theory which suggeststhat the
strength of any activity is equal to the strength of its weakest
link and that as aconsequence economic activities will increasingly
be organised into smaller, more professionaland mostly more
homogeneous entities.20
20 Identifying at the core of the O-ring theory tendencies
towards greater associative matching,i.e. selective association
among homogeneous individuals, Cohen (1998) argues that the
sameprinciple is at work in education, the domestic order and the
nation. In the case of the nation,for example, the advantage of a
large market is no longer primarily an advantage of largenation
states, as the market is global, while the latter are disadvantaged
by the heterogeneityof their populations, which forces large-scale
redistribution, debt and inflation. Economicintegration is, it
seems, leading to a reduction in the size of political communities
and a
30
-
A further important implication of recent trends in economic
organisation is that theperformance of most enterprises is to a
significant extent a a result of the cooperative efforts ofskilled
collectives. In this situation the contribution of individual
members of each collectivecan seldom be identified separately, and
there is often no common yardstick with which tocompare collectives
in different spheres of activity. Any link between the productivity
of anindividual and individual earnings is increasingly tenuous
leading to a disintegration of salaryscales. At the same time the
deep-seated uncertainty and changeability surrounding the fate
ofcompanies and of particular innovations and strategies cause
sharp oscillations in the demandfor labour, in wages and in the
career paths of individual employees. As Aglietta (1989: 72)argues
'employees who have undergone identical initial training may end up
with entirelydifferent pay levels and careers, depending on the
companies or collective activities into whichfortune or misfortune
has led them.' Fractal inequality is affecting every occupational
group.'No longer do qualifications, seniority or hierarchical
responsibility guarantee recognizedpositions in organisations. A
patchwork of individual destinies is emerging as
unforeseeablechanges plunge one person into redundancy, another
into precarious employment, and yetanother