Global Capitalism

A Sociological Perspective

Miguel A. Centeno, Joseph N. Cohen

• Publisher: Polity
• Year: 2013
• ISBN:
  9780745655949
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

The global financial crisis has challenged many of our most authoritative economic ideologies and policies. After thirty years of reshaping the world to conform to the market, governments and societies are now calling for a retreat to a yet undefined new economic order.

In order to provide a guide to what the twenty-first-century economy might look like, this book revisits the great project of Global Capitalism. What did it actually entail? How far did it go? What were its strengths and failings? By deconstructing its core ideas and examining its empirical record, can we gain clues about how to move forward after the crisis? Miguel Centeno and Joseph Cohen define capitalism as a historically-evolving and socially-constructed institution, rooted in three core economic activities trade, finance and marketing and identify the three key challenges that any new economic system will need to surmount inequality, governance, and environmental sustainability.

This accessible and engaging book will be essential reading for students of economic sociology, and all those interested in the construction of our economic future.

1

Global Capitalism

Two key institutions define capitalism: private property and market exchange. Both are historically rooted, which means that they were created and shaped by past (and, for the most part, recent) generations, and do not constitute universal, timeless aspects of human society. Private property and market exchange are social institutions, which were forged, propagated, and entrenched through numerous political, economic, cultural, and even military conflicts. What we understand as “normal” or “natural” about the way the economy works is neither, and much of it is surprisingly new.

The characteristics often associated with capitalism: commerce, money, the pursuit of self-interest, and conflicts between “haves” and “have-nots,” are not defining features of capitalism or unique to it. Indeed, all were present in Soviet Russia, Feudal France, Ancient Rome, and Old Testament Israel. None of these societies would typically be described as “capitalist,” and so the term must connote something more. The institutions of private property and market exchange must be distinguished from the commonplace practice of ownership or commerce. They represent what can be described as core economic rules that underlie the social pact between modern states and societies. Private property and economic markets are legally integrated into a structure of governance. Capitalism is the economic system that operates under those rules.

In capitalism, objects, money, ideas, and spaces, can be appropriated by individuals (or legal entities like corporations). Their ownership grants them the right to determine how these assets will be used and to claim the profit or return on these activities, and any attempt to re-appropriate these assets faces legal and normative hurdles. The extent to which this marks a significant historical change merits highlighting. Not so long ago, many people could not claim ownership over their bodies or the freedom to sell their labor on a market; they literally did not own themselves, let alone other assets. Our notion of property has now grown so extensive that people own images, ideas, or even genetic sequences. Whether celebrated or bemoaned, private property is fundamental to capitalism. Without an acceptance of this tenet, the remaining economic and political structure of capitalism falls apart. As far as capitalism is concerned, we are what we own and what we sell.

Capitalist societies have developed a rich social infrastructure to facilitate and safeguard voluntary exchange through markets. Historically, most property transfers, beyond the smallest transactions of daily life, occurred by means of coercive appropriation and political patronage. In the ancient economy, most assets moved across communities by plunder, and exchanges as commonplace today as the transfer of real estate moved by grants from political powers rather than by purchase (Finley 1999 [1973]). Over time, some societies created institutions that allowed and encouraged voluntary transactions hinging on competition over price and quality. This does not imply that capitalism operates without any compulsion or violence, but serves to emphasize the extent to which individual autonomy within an explicit legal constraint is the main operating principle of this form of economic life.

In the ideal, each economic actor, whether as an owner of property or seller of labor, is free to make decisions regarding the sale, rent, and use of what they have to offer, each following no other norm than the pursuit of their self-interest. These forces come together in a market where exchanges take place that will literally link billions of offers and demands. Ranging from the face-to-face negotiations between a single buyer and a seller to the electronic auction of derivatives among millions, markets essentially match the supplies of goods and services with the demands for the same. Markets allocate the flow of goods and payments according to the intrinsic logic of a balance between needs and offers.

Varieties and Convergence

Within this basic framework, however, capitalism can be organized in a myriad of ways. Different capitalisms take distinctive shapes, and are experienced in dissimilar ways. Scholars have produced a range of typologies to describe the varied forms that capitalism can take. Some see the main distinction in the extent to which the state is involved, and, more importantly, how investment is allocated.

Peter Hall and David Soskice (1999), for example, distinguish between “coordinated market economies” and “liberal market economies.” Both are inherently capitalist systems in that the rights of property and the centrality of the market are respected, but there are critical distinctions in how these two institutions are managed. In the liberal market economies, decisions are made either through hierarchies within firms or in markets between them. Relations are instrumental and calculated for the benefit of individual players. In coordinated market economies, relations exist outside of formal market mechanisms, and involve cooperation in achieving some collective goals. In this case, investment choices will involve coordination between owners of capital (often in the form of banks rather than individuals), labor, and state authorities

A parallel (but often related) distinction is the extent to which the two systems provide welfare provisions for their populations. “Liberal market” systems tend to have smaller safety nets than coordinated economies, thereby exposing people to more stringent hardships should they not find a productive or remunerated role in the economy. The United States is a paradigmatic example of the liberal system, in that public provision of things like guaranteed income, childcare, or health care is relatively limited compared to countries of similar wealth. Alternatively, countries like those of the European Union tend to offer a richer array of government-subsidized or -provided income or products to guarantee some level of economic safety or comfort to those who cannot (or will not) secure them through market participation. While both kinds of systems are fundamentally capitalist, they differ in terms of the degree to which people must secure “necessities” by successfully competing in markets.

William Baumol and his colleagues (2007) offer a typology that differentiates the size and monopoly of power of a country’s economic enterprises, overall or in particular markets. In this case, the emphasis is on the level of what they call entrepreneurship or the creation and dissemination of new products or methods. For Baumol, the world’s economies are divided into state-guided capitalisms (where government plays a central role), oligarchic capitalism (oriented toward the interests of a few players), big-firm capitalism (where giant enterprises predominate), and entrepreneurial capitalism (in which small innovative firms play a more central role). State-guided capitalism (epitomized by East Asian economies in the 1950s through to the 1970s) can have excellent success if governments can set their economy in the right direction. Some economies have experienced great development successes as state-guided systems, but this form of organization has also produced giant failures in others. Oligarchic capitalism is usually found in economies that focus on commodity production, such as the Middle Eastern oil producers, and, to a lesser extent, some Latin American countries. These economies’ fortunes tend to be tied to the prices of a single commodity with the predicted boom-and-bust patterns. In big-firm capitalism, a set of predominant companies or agglomerations thereof is able to dominate. The prototypical examples are Japan and Korea in the 1980s, and, while the success of these speaks well of this model, the failure of sectors such as auto production in the United States attests to its limits. Finally, small and innovative firms characterize entrepreneurial capitalism. Rather than national examples, the economies of the American Pacific Northwest, or those of Italian Emilia-Romagna, best exemplify this type. However, a permanent entrepreneurial economy is almost a definitional impossibility and it would likely blend with one also focused on large firms.

Note again that in all these variations, the central principles of private property and market exchange remain privileged. What differs is the set of institutional provisions in which these are embedded. These arrangements in turn help define who will benefit from (and how much), and who will pay for (and how much) global capitalism.

While these differentiations help us understand the various forms that capitalism can take, it is not clear how they affect the integration of the respective economies with a world market. The term global capitalism implies much more than economic activity in different national borders. At least in theory, one could have an “international” economy consisting of autarchic domestic economies engaged in limited commerce with each other. Or one can imagine (as was largely the case well into the nineteenth century) an international economy whose connections involved luxury goods or a few “products” (sugar and slaves, for example). A global economy, however, implies one in which few if any of the domestic economies really exist separate from the planetary whole. A global economy is one that is interconnected and networked across a variety of borders, as well as including a variety of goods and services. It also presupposes a set of agreements regarding the “rules of the game,” whether these involve accounting regulations or business norms.

Global capitalism arose through the diffusion and entrenchment of the twin institutions of property and markets to virtually all corners of the earth. Fifty years ago, many of the world’s economies were strongly controlled by governments and existed in semi-autarchy. For many countries in 1959, the sanctity of private property was weak (if it existed at all), and the power and autonomy of private markets were more limited (if they were allowed to operate). The role of foreign markets and investors was limited. By the summer of 2008, private property and markets had become well-entrenched features of most countries’ economies and the relations between them, and had expanded to an ever-widening scope of activities. Societies had come to commodify, trade, and monetize practically every social institution or human product. No economy could afford to be isolated.

The result is that we produce and trade more, and we have garnered spectacular improvements in our consumption. The global economy is now larger than it has ever been and the pace of its growth has been unprecedented over the past half-century (despite the recent shocks). World GDP increased sixfold from 1950 to 1998, with an average growth of 3.9 percent per year compared to 1.6 percent between 1820 and 1950 and 0.3 percent from 1500 to 1820. Over the past ten years (prior to the summer of 2008) the world economy has grown by more than a third and some of the poorer parts by two thirds. Each person in the world (on average – but many are above it and most are below) is now seven times richer than 100 years ago and four times richer than just fifty years ago.¹ Due to improvements in technology, the last fifty years have seen a fivefold increase in production per hour worked. The total amount of merchandise exports (the amount of goods that countries send out to the global market) is roughly $10 trillion per year. Annual global financial flows include over $625 billion invested across borders, $227 billion sent by migrants back to their countries, and $750 billion spent by international tourists. $1.5 trillion is exchanged in currency markets daily.

While global capitalism is experienced in different ways by different people at different times, it also represents a major phenomenon that all of the world’s countries have felt over the past thirty or forty years. We are less interested in the varieties of domestic or national capitalism than in how different societies experience its global variant. In this instance, one can speak of much greater convergence than that found among the national variations. Global capitalism is, in some sense, a historical development with which all societies grapple in common. To a very large extent, all participants in the global capital system need to play by the same rules (some of which bind all countries, and others that can be applied or enforced more selectively). We can speak of a global capitalist order to which a very large part of the world now belongs. Unlike the situation prior to 1989, those who do not accept these rules are marginalized.

One set of rules has to do with the explicit and implicit laws that govern transnational transactions. Property rights are established and protected by nation-states. In this way, global capitalism still very much depends on the supposedly anachronistic notion of territorially defined authority. While there are global bodies in charge of overseeing and standardizing property claims (and this is particularly important for intellectual property), an individual or firm must establish its claim to any asset in a national jurisdiction. It is important to note that no global bodies exist with enough power to enforce these rules over and above the laws of national states. In one of the most interesting paradoxes of global capitalism, its own global dynamics are based on national and territorial governance.

The implications of this system are critical for a global system to work: states must recognize the property claims of other countries’ citizens, and transnational payment for goods and services or contracted service of debts is demanded of all players – the transport of one’s asset to a different part of the world does not imply the surrender of rights to it until payment has been received. The global capitalist system is governed by a set of rules based on those established in large parts of Western Europe and North America to manage and regulate their domestic markets in the eighteenth and nineteenth centuries. This is a central point in order to understand many of the international debates on the future of the market. Whether one treats the basic rules of capitalism as “natural” or stemming from a historical domination by a part of the world will make a significant difference in attitudes toward capitalism (Robinson 2004). In this way, the social context through which global capitalism is perceived and analyzed can make a great deal of difference.

It is also important to recognize the expected or assumed motivations of those involved in global capitalism. In the twenty-first century, the pursuit of self-interest and specifically financial profit from transactions is expected. There are some global institutional actors motivated by and acting under altruistic norms, but the global economy functions under the assumption that each person is seeking to make money on any transaction. The global food trade, for example, is not driven by a concern to feed the world’s population, but by the desire to make money from selling commodities and products to consumers. As we now know, bankers were after short-term profits, and not concerned with establishing stable systems of payments, transparent economic information, or prudent allocations. This is still accepted as legitimate by the vast majority of the world’s population (as long as the game is played by the minimum accepted rules). Again, perceptions of this can either involve the freeing of human nature and choice, or the enslavement of our emotions by materialist desire. Either way, it is important to appreciate how central such an assumption of self-interest is to the social underpinning of global capitalism, and how relatively new such an assumption truly is (Hirschman 1977), as well as the extent to which a rejection of such assumptions forms the basis for much of the resistance to global capitalism.

Another critical regulation concerns the freedom to truck and barter across borders. Fetters on cross-border exchanges are increasingly discouraged and sanctioned. The capitalist system is arguably more open across the globe than at any other time in history and former non-market “intrusions” on trade, such as tariffs, subsidies, or embargoes are becoming less commonplace. There are significant exceptions and these are linked to power asymmetries (as we will see in later chapters), but the percentage of global transactions of goods, services, and money that operate without significant national hindrance is ever expanding. The major exception (and a significant reversal from historical norms) involves labor. While sellers and buyers of practically any asset can utilize the global market, those who wish to sell or purchase labor cannot except in highly elite sectors (entertainment, the academy). The construction of segmented channels into the global market (a privileged one for goods and capital, a much more restricted one for labor) indicates once again how much we need to understand the construction of global capitalism as not arising from a vacuum, but reflecting underlying interests and powers.

Differing Roles within the Same System

Applying Donald Black’s theories of law (1976) to the global system, we could say that the salience of these norms and regulations decrease dramatically as we approach the peripheries of the system. For capitalist relations between countries at the core of the capitalist system, regulations tend to be applied both stringently and relatively even-handedly. There is, of course, some tough brinksmanship between OECD countries, for example, but there is often a core dedication to maintaining international trade and investment and private markets.

As we move toward the external districts of the capitalist economy, the prevalence of democracy, limitation of corruption, capacity for governments to govern, and average standard of living drop precipitously. These frontiers are commonly described as the “global periphery.” Transactions between actors at the frontier of the global economy – including in the business of government – are fraught with uncertainties, transparency problems, systemic instability, and a sad legacy of squandering economic opportunities. Relations between those closer to the center and those on the frontier may also deeply reflect the asymmetries of power.

What separates the core from the periphery? For Wallerstein (1996), a first-order difference is the amount of capital present in a society. Simply put, the rich are different. Just as importantly, the core is differentiated from the periphery by the former’s capacity to enforce control over that capital through the capacity of the state. In the final analysis, states remain the actors of paramount importance in the global economy, and any explanation of a societies’ economic character, power, or prosperity must consider seriously the role played by governments. The core capitalist countries are economically rich and powerful, but also the most politically stable and militarily dominant. Governments play substantial roles in advancing other important factors, such as technological advance, basic health, or educational levels. When we speak of the rich, we also speak of the governed. Another way of thinking of the difference is that the global economic system is capitalist because the countries in the core are capitalist. In the periphery, countries are capitalist because the global system is capitalist.

The United States stands alone as the capitalist core’s first-order power, most central venue, and chief guarantor.² Its economy constitutes one quarter of global value-added (whether real or financial). Coupled with Canada and Mexico – two very strong allies (and, some might argue, dependents) – the North American Free Trade Association (NAFTA), accounts for 30 percent. The North American relationship with the global economy is in part dictated by its sheer enormity. First, the size of its domestic market makes it economically less...

Table of contents

• Cover
• Half Page
• Dedication
• Title Page
• Copyright
• Contents
• List of Figures, Tables, and Boxes
• Acknowledgments
• Introduction
• 1. Global Capitalism
• 2. Trade
• 3. Finance and Wealth
• 4. Marketing and Consumption
• 5. Governance
• 6. Inequality
• 7. Living with Limit
• Conclusion
• Notes
• References
• Index