The Political Economy of Emerging Markets

Varieties of BRICS in the Age of Global Crises and Austerity

Richard Westra

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317309185
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Rapid and sustained growth in the twenty-first-century global economy of large developing economies including Brazil, Russia, India, China, and South Africa, has captivated policy-makers and popular business press pundits alike. The coining of the new acronym BRICS and widespread adoption in international economics discourse of the designation "emerging markets" is symptomatic of that interest.

The Political Economy of Emerging Markets situates the BRICS phenomena in the global economic context of advanced economies continuing to languish in recession and hovering over a deflationary abyss several years after the meltdown. A key question this volume seeks to answer is whether the BRICS and so-called "emerging market" phenomenon is really the new miracle it is presented as, offering new or modified varieties of reloaded capitalist development to the world, or yet another mirage. Written by ten leading global experts, this book answers the tough questions over BRICS and emerging markets potentially realizing new varieties of reloaded capitalism. It is not only international and interdisciplinary but uniquely multiperspectival. Theories framing chapters are not of one genre, but generate theoretical debate at the frontier of knowledge in political economy along with nuanced empirical analysis which flows from it.

This book is of great importance to those who study political economy, development economics and international political economy.

Part I Development theory from capital to capitalist development and the twenty-first-century global economy in crisis

1 From development to BRICS

The policy magical mystery tour

Richard Westra

It is certainly instructive that the coining of the acronym BRICs, referring initially to Brazil, Russia, India and China, as emblematic of the purported twenty-first-century wave of “emerging market” economies, would spring from the research department of an investment bank – Goldman Sachs, no less (O’Neill 2001). The prediction that the mantle of “development” was being newly donned by a group of countries from the erstwhile Third World captivated not only the investment community but politicians and pundits around the globe. BRICs, soon to become BRICS with South Africa added in, was being marketed as a capitalist investment nirvana where the sweeping world economic prosperity, initially promised by architects of the “free world” in the aftermath of World War II (WWII), was on the cusp of consummation (Wilson and Purushothaman 2003). However, from the perspective of this introductory chapter to a book collection on the emerging market phenomenon, there exists in the BRICS story a massive dose of déjà-vu.

To make its argument, the chapter procedure is as follows. First, the very question and meaning of development will be interrogated. After all, in its most basic dictionary level definition, development implies movement or change from one state or condition to another. Further, development as such necessarily calls forth some metric for assessing both the kind of change that is expected and whether it is realized in the particular state or condition that is arrived at; or, at least, that is taking imminent shape on the horizon. It is argued that in the world economic context in which the concept of development is used, as a term set out to capture a specific type of economic change, producing a metric for assessing change requires the problematization of capitalism. Problematizing capitalism, in turn, demands that we take up questions of capitalism and its development raised by Marx in Capital and the field of Marxian political economy which is constructed around that work.

Second, related to questions of economic change and the metric for adequately measuring such is the question of potential human “actions” that purportedly bring development about. Development, from roughly the period following WWII, in an academic field of that name, has been largely treated in terms of “policies” and the sort of agency to best operationalize these (Currie-Adler 2016). Yet, it is argued that to the extent such development “policy” analysis proceeds in the absence of the critical understanding of capitalism and grasp of the current global political economy presented here, it is destined to offer little more than an exercise in bourgeois ideological enchantment.

As captured in this chapter, mainstream conceptualization of development, which predominates in major academic institutions and intergovernmental organizations, guiding the “practitioners” of development, has remained rooted in neoclassical economics theorizing of “the market” as the ultimate “rational” means for organizing human material life. From the 1950s “formalist revolution”, however, neoclassical economics has modeled “the market” less in terms of “really existing” economies and more in rarefied terms of high calculus as a “virtual economy” (Blaug 2003, 147–148). Leaps are then made from such “virtual” market economic models into the rough and tumble capitalist world with little account made for capitalist diversity, the historical transmutations of capitalism across its world historic phases of development or the perverse current structure of accumulation in major economies.

What Marxian political economy spotlights, as we shall see, is the irony that the whole development project came into being carrying with it all the confidence of “formalist” neoclassical economics at an historical point where the economies it upheld as embodying the particular condition advanced as “developed” operated at the greatest distance in capitalist history from “pure” market principles modeled in neoclassical theory. Such dissonance has plagued development thinking from its inception and continues to play out to this day in so-called emerging market and BRICS discourse.

Capital and the development of capitalism

Notions of development as applied to human society are rooted in Enlightenment thinking about progress. Progress, in turn, as maintained by Gilbert Rist, was given a naturalist gloss, as the necessary, indubitable, “order of things”, by the late eighteenth century. This was topped off by social evolutionism in the nineteenth century which read into development social law driven change akin to that experienced by biological organisms (Rist 2014, 37ff.). Finally, naturalist renderings of both human progress and social evolution which factored into the defining of development were displaced onto capitalism and capitalist “growth”. Rist advances a definition of development that he sees as best capturing the foregoing, and which renders development a condition that all humanity across the world may be perceived as being driven toward (Rist 2014, 13):

‘Development’ consists of a set of practices, sometimes appearing to conflict with one another, which require – for the reproduction of society – the general transformation and destruction of the natural environment and of social relations. Its aim is to increase the production of commodities (goods and services) geared, by way of exchange, to effective demand.

For Rist, the belief that development in the foregoing vein would become universal rather than something which select parts of the world exemplify was imbibed with religious fervor by academics and practitioners alike within the fields feeding into development thinking. So mesmerizing is the belief, Rist declares, that “more than sixty years after the international community officially set its sights on extending ‘development’…this has still not come to pass”. Yet, thinkers and practitioners routinely inculcated with all the accepted development incantations soldier on notwithstanding the abject failures of the total enterprise (Rist 2014, 23).

Though it is clear that in attempting to define development Rist has capitalism in mind as the central conditioning factor of development, the components of his definition do not adequately reflect the historical specificity of capitalism in a way that allows us to properly navigate the impact of the development of capitalism upon modern history. In dealing with the historical specificity of capitalism the most important point to be made is that it is not possible to define capital or capitalism is any simple fashion. Marx, who devoted his life to the study of capital, never attempted such. Rather, in his major economic writing, Capital, Marx theorized capital as the deep inner logical structuring mechanism operating in all capitalist societies. In this fashion Marx produced a “synthetic” definition of capital across the three volumes of Capital as a “totality” of logically interconnected commodity economic categories (Westra 2009, 19–42).

Let us explore the ramifications of Marx’s theorizing of capital for development thinking through the prism of Rist’s definition of development. It should be noted at the outset of this exercise that from Marx’s “defining” of capital in terms of its deep, inner logical categories, it is only possible to sketch out the most general features of capitalism. These are features which hold across time and space in that all capitalist societies will manifest such. What follows is hardly intended to be exhaustive or a substitute for either Marx’s synthetic definition or even a summary of propensities of capital in general. Nevertheless, for purposes of this chapter, these features serve to distinguish capitalism as an historical society from other “kinds” of historical societies and foreground later discussion.

First, while classical economists, followed by neoclassical economics, approached capitalism as a natural order, Marx saw this as the centerpiece of ruling class ideology of conformism. Capitalism, for Marx, as all human societies is socially and historically constituted and like all human societies is historically delimited and destined to pass from history as the material conditions of its existence are outpaced by historical change.

Second, capital operates to reproduce the material lives of human beings in capitalist societies but it does this only as a byproduct of its fundamental chrematistic of value augmentation or profit making. Put differently, production of goods in capitalist economies does not occur primarily to meet consumption (even conceptualized as monetary or “effective” demand) but for profit measured in terms of accumulated abstract mercantile wealth. Both classical and neoclassical theories begin with consumption or the “consumer”. Consumption, however, is a transhistorical category and constitutes part of every existing human society. Marx, on the other hand, well understood that to produce knowledge of capitalism theory necessarily had to start with its most fundamental activity. That is, value augmentation or profit making. Marx’s economic theory therefore starts with the “seller” or capitalist. Even in the simple act of “exchange” in capitalist society Marx shows that the seller only brings a good to market because they are not interested in its concrete, useful qualities as an object of consumption. This indifference to concrete, qualitative characteristics of goods, which distinguishes capital from precapitalist economies where community use (within the context of their social class relations) was the paramount consideration in production and distribution, pervades capitalism at every turn.

Marx treats the cardinal issue here with his elaboration upon the most fundamental contradiction of capital – that between value and use value. Succinctly put, use value is the substantive foundation of human material reproduction. No human society could survive without the metabolic interchange between human beings and nature through which the labor and production process furnishes the useful goods necessary for human material reproduction. Value, on the other hand, is the historically specific abstract, homogenizing, quantitative principle of capital. Looking back at our initial point on the historical delimitation of capitalism, it is precisely this: the existence of capitalist societies in human history is predicated upon the amenability of use value life to management according to the dictates of value augmentation. Capitalist economies thus arise in human history at the point where human wants and technologies available to satisfy them turn upon a relatively narrow range of standardized mass produced material goods. Production of such material goods lends itself to the suppression of qualitative, heterogeneous considerations in reproduction of human economic life in favor of abstract, homogenizing, quantitative ones. Of course, to state that a constellation of use values and forms of use value production are amenable to value augmentation does not mean that they offer no resistance to value or do not generate contradictions for capital. It is simply the case that capital is able to temporarily surmount the contradictions posed by particular forms of use value production in its chrematistic of value augmentation, at points deploying extra-capitalist practices and considerable extra-capitalist support, such as that of the state, to do so.

Third, it is through the grasp of the most fundamental contradiction of capital – that between value and use value – that the antithesis to nature, the environment and biosphere manifested by capital is best exposed. In the broadest sense, use value embodies not only the useful goods human beings refashion nature to produce, but nature itself in all its concrete, sensuous, qualitative terrestrial, geospatial and biospheric heterogeneity. Yet, as alluded to above, the wielding of human material life by capital for its quantitative, homogenizing social goal of augmenting abstract mercantile wealth renders it indifferent to all the foregoing except to the extent capital seeks to neutralize obstacles the sensuous, qualitative heterogeneity of nature might pose for profit making. It is this indifference to use value at the heart of capital which sees it regularly produce the most noxious goods (for nature and human beings) as vehicles of value augmentation. Ultimately, as capitalist production centered societies spread their tentacles across the globe, the technologies, production systems and energy sources which power capital in service of abstract, value augmentation wreak such murderous devastation upon nature and the biosphere as to call into question human existence itself.

Fourth, in the process of capitalist development the integrated self-regulating market operations of capital tend to destroy precapitalist interpersonal social relations of production. Capital, as Marx famously put it converts these into reified “relations among things”. Market participants communicate through abstract, quantitative price signals attached to the “things” or commodities they impersonally buy or sell. But the emergence of capitalism and its extirpating of precapitalist social relations is never a fait accompli. That capital spawned initially only in select parts of the globe manifesting precapitalist social relations of a discrete kind is testament to its “alien” character vis-à-vis the socio-material conditions of the world’s diverse humanity antedating it. Indeed, the “parcelization” of ruling social class power within “feudal” property relations provided the necessary “spaces” in precapitalist Britain, Western Europe and Japan for new bourgeois social class relations to germinate (Anderson 1979). It was on the basis of these that, in the case of Britain principally though in Western Europe as well, advances in navigational techniques, naval and war technology, and expansion of colonial commerce undergirded by the foregoing, concatenated to ensure the agglomerating of wealth destined for capital accumulation and spur the production centered activities of industrial revolution which cemented the capitalist era.

Without becoming ensnared in arcane debate swirling around transitions to capitalism, the “destruction” of social relations which led to successful crystallizing of capitalist social relations of production had two paradigmatic elements that have been reproduced in all societies where capitalism fully developed, including in the latest late twentieth-century capitalist developers (Kay 2002). One is the removal through either cooptation or forcible elimination of precapitalist landed classes leading to the constitution of private property and owner operated agriculture in land. Two, which followed upon the heels of this, is the massive release of surplus populations from agriculture in tandem with rapid growth of industry. Only with sustained productivity rises made by owner operated market oriented farming was mass commodification of labor power made possible. Food costs had necessarily to be kept low to check industrial wages during the nascent period of capitalist industrialization. Resultant profit fed capital accumulation which sustained the virtuous circle of industrialization and capitalist development even as wages ultimately began to rise with absorption of populations jettisoned from agriculture.

The sine qua non of the capitalist era is, therefore, the conversion of human labor power into a commodity. Through its commodification, labor power is rendered indifferent to the production of specific goods. Rather, capital purchases labor power on the market and sets it in motion in producing any good according to changing patterns of demand and opportunities for profit making. Looked at from another angle, all factors of production contribute to production of use values. But the historical possibility of capitalism is predicated upon a factor with the dual property of being use value and value productive. Commodified labor power is the only factor of production which lends itself to simultaneous application in a concrete specific fashion (as furnishing concrete use values of human sustenance necessarily remains the byproduct of value augmentation) and in an abstract general way (producing any good for capital) in the service of augmenting abstract mercantile wealth. Therefore, that the condition for labor power to be value augmenting is the same as that by which capital allocates social resources to reproduce human material life (as the byproduct of value augmentation) constitutes the differentia specifica of capitalism as an historical society (Westra 2014, 39–40).

It is reproduction of human material life by capital for its abstract, quantitative, “extra human” purpose of value augmentation that drives the accelerated “progress” of capitalist economies in expanding production of standardized material goods along with the material infrastructure of their provision. Referring back to Rist’s definition of development, to “increase the production of commodities” is a capitalist goal only to the extent this fuels profit making. Yet, capitalist growth, the metric of capitalist profit making, was initially coupled with both industrialization and development as the building of production centered full-scale industrialized societies fostered growing prosperity in living and health standards.

As industrial revolution played out in Britain, the world’s first definitively capitalist economy, the historical structure of capitalism as a production centered society rapidly materialized. By 1881, 44 percent of the labor force in Britain was employed in industry or occupations related to it with agriculture then employing only 13 percent of the working population. The remaining working population found employment in the service sector; particularly in varying facets of the transportation industry which directly underlabored for manufacturing and trade (Bayly 2004, 173).

Industrial revolution in Britain further set off what the best economic history to-date maintains is that global disjuncture or “great divergence” in wealth and living standards between advancing Western economies and the rest of the world (Osterhammel, 2014, 650–51). This was the case notwithstanding the expropriation and pillage Western Europe subjected the rest of the world to from the fifteenth century. Following Britain, Belgium was the second capitalist economy to experience industrial revolution. Industrial revolution then spread from the 1850s to France and later Germany, Austria and Northern Italy across the following decades. Britain, however, maintained a role as “workshop of the world” and center of international trade into the late nineteenth century, despite having only 2 percent of the world’s population. This was due in part to the waves of emigration from it to the “white settler colonies” of the United States, Australia, Canada and New Zealand. Its transplantation of colonialists with common language and culture and imbued with ideologies of laissez faire government and capitalist market economy led to formation of what has been dubbed a “Lockean heartland” at the core of the increasingly integrated emergent global political economy (van der Pijl 2001, 5).

While capitalism in each of the above nation-state containers developed with its own idiosyncrasies as a relatively discrete “variety” of capitalism, the basic contours of capitalist development wherever it took hold in the nineteenth century were necessarily constant. “Follower” states blazed a similar trail as Britain with capital accumulation beginning in textile industries that were entrepreneurial and competitive (Bayly 2004, 175–176). As well, when marketization spread across nascent capitalist economies the new rhythms of material life it imposed on subsumed economies – its cyclical prosperity and crisis oscillations – were fatalistically accepted by all social classes (Gallarotti 2000). Further, during the initial period of industrial capitalism the extra-economic role of the state was also minimal, leaving economies largely managed according to abstract market principles. State activity in Britain, for example, as late as 1906, contributed a miniscule 7.5 percent of GNP (van Crevald 1999, 235). Even in France and the Netherlands, on the cusp of World War I (WWI), state expenditure as a percent of GDP remained a scant 8.9 and 8.2 percent respectively (Maddison 2001, 135).

If there ever did exist a point in capitalist history where the door for capitalist development was opened wide to the world, the nineteenth-century post industrial revolution period was it. After all, the technologies and light use value complex of ma...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• The Political Economy of Emerging Markets
• Routledge Frontiers of Political Economy
• Contributors
• Preface and acknowledgements
• PART I Development theory from capital to capitalist development and the twenty-first-century global economy in crisis
• PART II BRICS up close
• PART III Varieties of emerging markets in the global economy