Problems with the concept of capitalism in the social sciences

Introduction

The conventions of academic publishing generally encourage specialization and highly focused research. Within the usual limits of a social science journal article, it is difficult to address the big issues that social scientists have struggled with over many decades, such as the proper understanding of Keynesianism or the nature of capitalism. ¹ Even sympathetic referees are likely to complain that the author has inappropriately ignored this or that important intellectual tradition or the writings of these seven well-known scholars. As a consequence, we spend less time and effort than we should working to clarify some of the key concepts that we use routinely. The price we pay for these conventions is that we end up carrying around theoretical baggage from the past that should have been jettisoned long ago.

For this reason, I will push against the academic convention in order to provoke a discussion of the way the term capitalism has been used by social scientists in recent decades. Given the limitations of space, there are many complexities and subtleties that I will have to ignore, and I cannot possibly convey the richness of some of the intellectual traditions that I am calling into question. My request is simply to focus—for a change—on the nature of the forest, rather than the particularities of different trees, since questioning some of our master concepts is a necessary and important exercise.

Property-based essentialism

My critique is focused on what I call “property-based essentialism”; this is the idea that the key factor in understanding any given society is the nature of the property system. There are highly influential versions of this way of thinking across the political spectrum. When state socialism collapsed in the Soviet Union and Eastern Europe, the advocates of “shock therapy” insisted that the urgent task was to get the property relations sorted out as quickly as possible. ² These advocates reasoned that once state-owned property had been put into the hands of private owners, the incentive structures of a market economy would result in the kind of productive entrepreneurial activity that had produced decades of economic growth in Western Europe and the USA (Aslund, 2009). Similarly, it has been argued that the absence of clear land titles in many parts of the developing world have inhibited productive use of the land. The claim is that reforming the system of land ownership will, by itself, unleash rapid economic growth (De Soto, 1989).

But there is also a strong tradition of property-based essentialism on the political left that derives from the Marxist tradition. While Marx’s own writings are complex and multidimensional, polemical pieces written by Marx, Engels, and their followers argue that the emergent working class should adopt a revolutionary stance toward the existing bourgeois order rather than succumb to what they viewed as the false temptations of reformism. Reformism was an illusion because the extraction of surplus value at the point of production was the core process that shaped the entire social order. Without transforming that core relationship by ending private ownership of the means of production, reforms that were won today would be reversed tomorrow.

This argument has been endlessly repeated over the decades by Marxist-inspired intellectuals and activists who have argued that various desirable goals—gender and racial equality, a more egalitarian society, environmental sustainability—cannot be achieved without eliminating capitalism (e.g. Klein, 2014), which is defined as a regime of private property in which producers seek to profit in competitive markets. To be sure, such deterministic arguments have also been contested within the same intellectual tradition by drawing on other writings of Marx and later Marxist theorists. But it is undeniable that property-based essentialism has been an important strand in the Marxist tradition, although certainly not the only strand.

It is appropriate to label this way of thinking as “essentialist” because one particular aspect of the economic order, specifically the ownership of the productive apparatus, is the essence or key to understanding the workings of the entire system. Just as the organism’s DNA shapes its developmental path, so the property relations shape the entire society’s developmental path (Block, 2018a). To be sure, there are more or less deterministic versions of such essentialism, and a strong current within Marxism has emphasized the relative autonomy of laws, politics, and culture (Gouldner, 1980).

Nevertheless, the fact that both mainstream economics and Marxism embrace versions of property-based essentialism has had real consequences. This helps us to understand how a property-centered definition of capitalism has become common sense. Moreover, the recent trajectory of the literature addressing “varieties of capitalism” demonstrates the continuing strength of property-based essentialism (for a useful review, see Coates, 2005). This literature expanded in sociology and political science in the 1990s as comparative scholars sought to make sense of the obvious and substantial differences in the way that different developed market societies were organized. Esping-Andersen’s (1990) analysis of distinct types of welfare arrangements was one source of this development, as was John Zysman’s (1983) account of the significant differences in the ways that financial systems operated in different market societies. Ronald Dore’s (1973) comparison of Japanese and British factories was an early precursor of this body of work.

The first wave of these studies used national case studies to document distinct varieties within different policy realms (Berger and Dore, 1998; Crouch and Streeck, 1997; Hollingsworth and Boyer, 1997). The aspiration was to recognize variety, but to organize that variety into a limited number of distinct types, as Esping-Andersen (1990) did when he identified three types of welfare institutions. This was an intellectual project designed to escape from property-based essentialism. By showing that the same ownership arrangements could produce quite different patterns of labor relations or ownership structures, the varieties of capitalism perspective emphasized that other factors, including historical contingencies, could shape the institutions of societies with private ownership.

However, the second wave of this literature was dominated by the Hall and Soskice volume, Varieties of Capitalism (2001), and particularly the extended introduction to the edited volume contributed by Peter Hall and David Soskice. In this piece, Hall and Soskice made two critical moves. First, they identified the key source of variation in capitalism as the strategies adopted by large firms. Second, they identified two basic varieties—liberal market economies (LMEs) and coordinated market economies (CMEs). In the former, firms tended to keep government at arm’s length and rely on markets to solve their problems, while in the latter government played a key role in helping firms cope with various forms of uncertainty.

The Hall and Soskice formulation of the varieties of capitalism framework is elegant and it has been very influential. But it can also be seen as evidence of the continuing weight of property-based essentialism in shaping current understandings of capitalism. The varieties literature initially opened up the question of the number of different varieties, with some scholars citing cases that could not easily fit into any of the existing types. For example, arguments were made that Japanese capitalism was distinct from European varieties (Vogel, 2003) and that the post-communist societies generated several types of their own (Bohle and Greskovits, 2012). But Hall and Soskice, with their two ideal types, suggested that the axis from more liberal to more coordinated effectively encompasses all significant variations. Rather than opening up space for the exploration of more variety, they closed it down.

Hall and Soskice’s thinking was strongly influenced by the formulations of neoclassical economists who see property arrangements and the search for profits as the distinctive dynamic elements in capitalist economies. But the point is that the earlier contributions to this literature had entertained a variety of explanations for the divergences in the institutional structures of different capitalist societies. For example, it was common to return to specific 20th-century events such as victory or defeat in World War II as critical in explaining institutional divergences. But for Hall and Soskice this history is less relevant than the coping strategies of big firms.

As others have noted, Hall and Soskice end up embracing a functionalist account of these varieties that focuses on how well particular social welfare institutions fit or do not fit with the strategies pursued by that society’s capitalists (Blyth, 2003; Coates, 2005; Crouch, 2005). The earlier generation of work on the varieties of capitalism had been animated by skepticism toward the idea that any given society’s institutions fit together like parts of a well-oiled machine. This critical literature was partly inspired by contemporary theorists who emphasize that economic dynamics, political dynamics, and cultural dynamics can be out of phase and push in very different directions (Bell, 1976; Mann, 1986). Hence, these scholars tended to emphasize historical residues, contradictions, and the multiplicity of causal dynamics. But all of this was pushed aside by Hall and Soskice’s formulation of the issues.

Many other scholars have made similar criticisms of Hall and Soskice. In fact, there has been a third wave of this literature that has deliberately organized itself around a different rubric—the study of variegated capitalism (Jessop, 2007, 2018; Peck and Theodore, 2007). While there are differences among these authors, they insist that we are unlikely to be able to identify a small number of varieties; rather, we should expect that each particular capitalist society will differ on some dimensions from others. Furthermore, this perspective emphasizes that the causes of variegation are complex and cannot be reduced to the economic dimension. Culture and history matter and play an important role in shaping the variegation process.

The terminology of variegation is designed to resist the pull of property-based essentialism. But the fact that the varieties of capitalism literature followed this trajectory from less deterministic to more deterministic indicates how strong the pull of essentialism is. The term “variety” was intended initially to modify and alter the historical meaning of the term “capitalism,” but ultimately the old baggage triumphed. The “variegated capitalism” formulation could easily suffer the same fate because of the weight of property-based essentialism.

Why property-based essentialism is a problem

The fundamental problem with property-based essentialism is that it is built on the idea that creating the legal and economic infrastructure to protect and preserve the rights of property owners is a simple and straightforward proposition (Block, 2013). However, this is not the case. First of all, even establishing the legal rules governing property and contracting is a complex and contradictory undertaking. ³ It is useful here to think of the ongoing battles over digital property during the last four decades (National Research Council, 2000). With computerization, firms invested billions of dollars in creating books, movies, television shows, news stories, musical performances, software, and computer games that were available in easily copied electronic files. Governments around the world have faced the daunting task of rewriting property laws to protect this new kind of property. But in doing so, they have to balance the rights of the producers with the rights of purchasers and they also have to weigh the value to society of allowing ideas and information to flow freely. Many different legal regimes have been suggested and, in many cases, the issues are still being fought out.

Another example that has been resolved differently in different places centers on the conflict between property rights and the rights of employees to form unions and engage in collective bargaining at the workplace. A conventional view of property rights suggests that the owner of a factory or a store or other workplace has an absolute right to exclude uninvited guests and determine what information is displayed on bulletin boards in those premises. However, labor laws frequently provide unfettered access of union officers to a workplace and allow the union to post notices in designated places in the workplace. In other words, legislation of this kind strips away some of the rights that property owners once had.

Societies also face choices in structuring how corporations are governed, in setting the ground rules for the workings of a society’s financial system, and in shaping the regime of taxation. These choices, as with property rules, can have a significant impact on both the relative bargaining power of employees and employers and on the distribution of income. It follows that property-based essentialism does not adequately contend with such obvious realities as the huge differences in income inequality between, for example, Brazil and Sweden. But beyond this, there are two other problems that are difficult to analyze with the baggage of property-based essentialism. The first is the vast differences in economic performance across societies that are organized around the pursuit of private profit. The second is the variability in the power exercised by owners in such societies.

What makes the global economy capitalist?

In an analysis of variegated societies operating within a capitalist world economy, it is important to clarify what factors determine whether the organization of the global economy is or is not capitalist. Without some kind of answer, there is a danger that essentialism will creep back in through the global level of analysis. This problem is already apparent in some work done within Wallerstein’s world-system perspective, in which a set of global mechanisms does the work of imposing capitalism social relations on all existing societies.

My answer is that the world economy is capitalist when there are strong institutional mechanisms that require societies to open their borders to market-driven flows of goods, services, and capital. In the current global economy, most nations belong to the International Monetary Fund and the World Trade Organization, and have signed various bilateral and multilateral trade agreements that require them to limit policies that could restrict these market-driven flows. Moreover, nations that seek to opt out of these rules, such as Cuba and North Korea, face economic sanctions and the threat of military action. This is what makes the current world economy a capitalist world economy.

It follows as well that a non-capitalist organization of the global economy would exist when societies or transnational regions have a much enhanced ability to insulate themselves from global flows of trade and capital. This could happen either through a deep reform of existing global organizations or a collapse of the disciplinary mechanisms that currently discourage nations from violating these global rules.

However, it is difficult to specify in advance how much insulation of national or regional economies would have to exist to qualify the organization of the global economy as no longer being capitalist. Here, it is useful to compare the global system in place during the Bretton Woods era (1944–1973) with current global rules. ⁵ During Bretton Woods, exchange rates were fixed and nations were permitted to restrict and limit capital inflows and outflows. Under this regime, some developed nations were able to create relatively egalitarian societies and maintain something close to full employment. Japan, Taiwan, and South Korea were able to pursue an ambitious project of state-led economic growth.

All of these policies are much more difficult, perhaps impossible, to carry out under the post-Bretton Woods regime of floating exchange rates and massive movements of highly liquid capital. Similarly, current World Trade Organization rules outlaw some of the developmental policies that prevailed in that earlier period. The point is not to celebrate the Bretton Woods era as some kind of socialist utopia. It was certainly not that because there were huge variations in the ability of nations to insulate themselves. Many developing nations were very limited in their responses to chronic balance of payments pressures because they were subject to the discipline of the International Monetary Fund and the World Bank.

The point rather is to suggest that the contrast between current arrangements and the way Bretton Woods worked for more privileged nations suggests the kind of continuum that exists between a capitalist and a non-capitalist organization of the global economy. In that sense the distance between present arrangements and Bretton Woods might be one-third to one-half of the distance to a non-capitalist set of global arrangements. A non-capitalist organization would involve strict limits on global flows of private capital and something similar to Keynes’ proposal in the 1940s for an International Clearing Union (Skidelsky, 2000). It would give nations more freedom to restrict imports that conflicted with domestic priorities; there would be much higher levels of policy autonomy than was provided by the Bretton Woods rules.

In sum, there is no question that current global arrangements impose extremely powerful constraints on national governments and therefore limit how much variegation is possible in any particular society. When a left-wing political party comes to power nowadays, either through revolution or through electoral means, its ability to pursue radical policies that would redistribute income or wealth is very limited. We have seen this recently in the case of the left-wing party Syriza coming to power in Greece. It was effectively blocked from carrying out any significant redistributive reforms. In fact, the new government had to keep in place most of the extremely unpopular austerity measures imposed by the European Community or risk a collapse of Greece’s banking system and expulsion from the Eurozone (Varoufakis, 2017).

The point, however, is that the current global economic regime is hardly the only possible set of rules for managing global trade and investment. The fact that the constraints imposed by the Bretton Woods order provided some countries with substantially greater policy space suggests that there is no inevitability in the current structures. The current structures represent a particular political settlement that could be overturned either through conflict or negotiation. And the possibility of such an overturning remains real because the current structures are contradictory and deeply unstable. They have generated multiple financial crises and they have blocked the more radical policies that the world needs to address the challenge of climate change. ⁶

Conclusion

The argument of this article is that rather than analyzing varieties of capitalism or variegated capitalism, we should instead analyze variegated societies that exist within a global economy that is organized along capitalist lines. This formulation helps to avoid some of the property-based essentialism that has been inherited from both 19th-century Marxism and contemporary mainstream economic analysis. That way of thinking asserts that property arrangements—who owns what—is the most critical factor in shaping an entire society. But there is ample evidence that societies with very similar property arrangements can differ substantially in levels of inequality and poverty, and in the strength and influence of trade unions.

Furthermore, the focus on property arrangements usually goes along with a systematic neglect or denial of the central role that politics and the exercise of political power play in shaping the trajectories of particular societies. Most obviously, various developmental regimes created a bourgeois class where none had previously existed. But even in more typical circumstances, decisions made by political leaders—sometimes with little or no input from business owners—can play a central role in shaping the trajectory of a particular society’s social and economic development.

The advantage of the “variegation of societies” perspective is that it does not require abandoning any of the important insights that come from those intellectual traditions that focus on property arrangements. There is significant political power that comes from owning society’s means of production and this is an important factor in limiting the extent of variegation. But the point is that the class power of the owners is not a constant; it is a variable. How much power they exert depends upon the organization of other social classes, their own internal divisions and disagreements, and most importantly, the nature of the existing political arrangements.

The other important constraints on variegation are the institutions in place at the global level that often work to reinforce the class power of the bourgeoisie. For example, when those arrangements allow rich people and firms to engage in capital flight to weaken a government they distrust, this greatly enhances class power. Moreover, under current arrangements, trillions of dollars of liquid capital are controlled by portfolio managers at large banking institutions, and their ability to move funds out of a country whose government is pursuing unorthodox economic policies is a powerful disincentive.

But in this case as well, the constraints operating at the global level are not a constant but a variable. Even at moments when most nations are severely constrained, there can be particular geopolitical factors that give political leaders in a particular place far more room to maneuver than is true for other places. Even in the absence of a significant overhaul in the global structures, the declining power of a global hegemon or a global economic crisis can also increase the policy space available to governments. In a word, analysis of variegation has to be sensitive to even subtle changes that can provide opportunities for previously unexpected policy options.

Most critically, the “variegation of societies” perspective allows social scientists to avoid the trap of assuming “path dependence”—that the future will look pretty much similar to what exists now. The study of history is full of very significant discontinuities that operate at both the national scale and the global scale. Our ability to understand these discontinuities is much enhanced when we adopt a theoretical approach that breaks with the essentialism and determinism that is part of the baggage that comes with the concept of capitalism.