In week 11 we’ll try to link evolution and change of values and attitudes to larger patterns of political and economic change, tying social change back to political and economic change.
For me, the central puzzle concerns the growth of aggregate income, concentrations of wealth and inequalities in distribution, and the belief in “free markets” managed by private financial institutions.
Definitions and concepts:
Let’s begin with the broad patterns of change that have been identified in our major texts, and then compare them to more specific details about political, social, and economic evolution from both the major texts and some of the secondary and optional readings identified.
First, consider the patterns of economic change identified by William Clark in his short economic history of the world. In his explanation of the great divergence, Clark points to the same institutional evolutions described by Acemoglu and Robinson in Why Nations Fail – inclusive rather than extractive institutions. But perhaps we should be skeptical about this, if only because mono-causal explanations are always inadequate. The institutional changes had to be supported by changes in individual and collective behaviour, values, attitudes, and beliefs – changes that are still evolving inter-generationally.
Our values, attitudes and beliefs are closely linked to our perceptions of our interests. If we are poor and ignorant, it is fairly easy to mislead us about our interests (see Bageant, 2007 on the American working class, or Marx and Engels 1848, on the miseries of industrial revolution and proletariat false consciousness). If we are well-off and clever, on the other hand, we can easily justify our superior position in markets, and rationalize the levels of inequality that we observe. (Warning under the Beutelsbach consensus).
While industrial production has the capacity to make everyone better off, there is a tendency for incomes to concentrate, as some do better than others. Economist Simon Kuznets, working early in the 20th Century, hypothesized that social stratification based on wage labour changed as a society adopted new technology – first becoming more unequal as technology rewarded entrepreneurs and early adopters, and later becoming more equal, but at higher levels, as society redistributed labour income (9 minute video). The curve can also be described as change in the Gini coefficient of income distribution over time (2:30 minute video by Ed Joyce).
Galbraith (2012) re-examines Kuznets’ hypothesis with the best, albeit imperfect data available today, and finds that the relationship remains valid for wage income, controlling for other factors: “inequality tends to decline with economic progress in the process of successful industrialization.” But the reverse is the case for China, and the relationship may be generally the case for the richest countries. Galbraith’s study is meticulous in tracing the sources of the greatest rises in wealth, and finds that they are not related to production or wages, or even ownership of real property, but to financial capitalism – what investor George Soros describes as a “superbubble”. Further, it is these large pools of finance capital chasing high returns that create the greatest source of financial instability.
One solution, which will be familiar from Polanyi’s description of economic history, is to return to the gold standard. Laughland (1997), prefiguring the collapse of the southern tier of the Eurozone, wrote of the dangers of scrip or mandated currency, which permitted governments to take value from owners by re-valuing currency. But Polanyi’s point, and Galbraith’s, is that governments at least can be democratic, and presumably can be democratically controlled, while financial markets inevitably fall to the control of the wealthy. High interest rate policies intended to preserve the value of currency naturally favour those in possession of the greatest wealth. Again, faith in markets and in the control of inflation as the highest political priority seem to be interesting cultural values that have emerged coincident with the collapse of communist alternatives almost everywhere,
Now consider the macro patterns of political change. The pattern of statehood and the constitution of states, described by Bobbitt, culminating in the state being reduced to market interlocutor for its citizens – the state is only legitimate if it maximizes the opportunity for its citizens. (Beutelsbach warning!) But is the state responsible for maximizing the opportunity of all citizens? Surely to do so would require universal health, education, and welfare, effective redistribution mechanisms? Would a state maximizing all citizens’ opportunities face the rising inequality and regressing social mobility evident in the US? Would a market system trending towards greater equality with the spread of ever more mobile market conditions produce the global inequality and instability described by Galbraith (2012)? Or is the state focused on its largest and most demanding citizens, the corporations with a personality of an individual, but enjoying immortality and enormous wealth, with the accompanying power and influence?
Have we come to see these cultural phenomena as inevitable and necessary in the evolution of the state, or is there still a significant “double movement” or “anti-systemic movement” in national and global society? If there is, what does look like in the evolution of the state?
A third example of patterns of social change comes from Putnam chapter 23 – the gilded age and the progressive era. The foundation of declining inequality in the mid-twentieth century was the emergence of constraint on the most rapacious of the trusts, on political corruption, and on the influence of money in politics, permitting further redistribution through income tax, death taxes, and public spending on health and education. What made these changes possible? Why have they unravelled as we approach a new gilded age (Bartels, 2008)?
Now to return to a final example of patterns of economic change, or rather, change in economic thinking, consider the Washington Consensus, articulated by John Williamson in 1989. In some ways it represented the culmination of the 1980s market enthusiasm for fiscal discipline, small government, and end to subsidized production, market driven interest rates, lower marginal tax rates, competitive exchange rates, trade liberalization, foreign investment, privatization, deregulation, and secure property rights. The IMF clearly adopted parts of the so-called consensus, but was less consistent about others–effectively, it wasn’t much of a consensus (Naim, 1999). But we can also trace a cultural shift shortly after the articulation of the consensus. James Wolfensohn was the 9th president of the World Bank from 1995 to 2005, with a clear focus on poverty reduction (Mallaby, 2004). From 1997-2000, the Chief Economist of the World Bank was Joseph Stiglitz, one of the world’s most influential economists. He helped to describe the patterns in the evolution of thinking about economic development that saw in week 1 (below). Two terms later, the Chinese economist Justin Yifu Lin was the first Chief Economist for the Bank. Lin consistently extolled the virtues of state-managed and state-led development, and others like Dambisa Moyo, formerly enthusiasts for market discipline prescribed by the IMF, began to extol the virtues of the state as development leader. Does this represent a new evolution in thinking about development, and what does it mean for the integration of political, economic and social factors in development?
Read Putnam, Ch. 23 and 24
Bageant, J. (2007). Deer hunting with Jesus: Dispatches from America’s class war. Random House LLC, Introduction.
Bartels, L. M. (2009). Unequal democracy: The political economy of the new gilded age. Princeton University Press.
Galbraith, J. K. (2012). Inequality and instability: A study of the world economy just before the great crisis. Oxford University Press. (Ch. 3 extract on Kuznets and implications)
Johnson, P (2009) explains Kuznets’ implications for social stratification.
Joyce, E (2012) explains the Kuznets Hypothesis.
Losurdo, D. (2011). Liberalism: a counter-history. London: Verso Books.
Laughland, J. (1997) Tainted source: The Undemocratic Origins of the European Idea.
Mallaby, S. (2004). The world’s banker: a story of failed states, financial crises, and the wealth and poverty of nations. New York: Penguin Press.
Answer the self-assessment questions online. You should be making progress with your second assignment and may wish to discuss it in detail.
Assignment 2: 5 percent for a summary and review of secondary sources related to your review, which may be presented orally or in point form (all references must be included in the final paper) – recommended not later than week 11
Our online discussion will focus on the three self-assessment questions.