Redistribution, Inequality, and Sustainable Growth: Reconsidering the Evidence

Inequality has the potential to undermine growth. However, greater redistribution requires higher tax rates, which reduce incentives to work and save. Moreover, the evidence that inequality is bad for growth might simply reflect the fact that more unequal societies choose to redistribute more, and those efforts are antithetical to growth. This column presents evidence from a new dataset on pre- and post-tax inequality. The authors find that income equality is protective of growth, and that redistributive transfers on average have little if any direct adverse impact on growth.

Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects (including questions about the consistency of extreme inequality with democratic governance), but also its economic implications. While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth – for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks.

Understandably, economists have been trying to understand better the links between rising inequality and the fragility of economic growth. Recent narratives include how inequality intensified the leverage and financial cycle, sowing the seeds of crisis (Rajan 2010), or how political-economy factors – especially the influence of the rich – allowed financial excess to balloon ahead of the crisis (Stiglitz 2012).

But what is the role of policy – and in particular fiscal redistribution – in bringing about greater equality? Conventional wisdom suggests that redistribution would in itself be bad for growth, but by reducing inequality, it might conceivably help growth. Looking at past experience, we find scant evidence that typical efforts to redistribute have on average had an adverse effect on growth. Moreover, faster and more durable growth seems to have followed the associated reduction in inequality.

Disentangling the Effects of Inequality and Redistribution on Growth

In earlier work (Berg and Ostry 2011), we documented a robust medium-run relationship between equality and the sustainability of growth. We did not, however, have much to say on whether this relationship justifies efforts to redistribute.

Indeed, many argue that redistribution undermines growth, and even that efforts to redistribute to address high inequality are the source of the correlation between inequality and low growth. If this is right, then taxes and transfers may be precisely the wrong remedy – a cure that may be worse than the disease itself.

The literature on this score remains controversial. A number of papers (e.g. Benabou 2000) point out that some policies that are redistributive – e.g. public investments in infrastructure, spending on health and education, and social insurance provision – may be both pro-growth and pro-equality. Others are more supportive of a fundamental tradeoff between redistribution and growth, as argued by Okun (1975) when he referred to the efficiency ‘leaks’ that come with efforts to reduce inequality.

In a new paper (Ostry et al. 2014), we ask what the historical data say about the relationship between inequality, redistribution, and growth. In particular, what is the evidence about the macroeconomic effects of redistributive policies – both directly on growth, and indirectly as they reduce inequality, which in turn affects growth?

To disentangle the channels, we make use of a new cross-country dataset that carefully distinguishes net (post-tax and transfers) inequality from market (pre-tax and transfers) inequality, and allows us to calculate redistributive transfers for a large number of countries over time – covering both advanced and developing countries. We analyse the behaviour of average growth during five-year periods, as well as the sustainability and duration of growth.

Our key questions are empirical. How big is the ‘big tradeoff’? How does the direct (in Okun’s view negative) effect of redistribution compare to its indirect and apparently positive effect through reduced inequality?

Some Striking Results on the Links between Redistribution, Inequality, and Growth

  • First, we continue to find that inequality is a robust and powerful determinant both of the pace of medium-term growth and of the duration of growth spells, even controlling for the size of redistributive transfers.

Thus, it would still be a mistake to focus on growth and let inequality take care of itself, if only because the resulting growth may be low and unsustainable. Inequality and unsustainable growth may be two sides of the same coin.

  • Second, there is remarkably little evidence in the historical data used in our paper of adverse effects of fiscal redistribution on growth.

The average redistribution, and the associated reduction in inequality, seem to be robustly associated with higher and more durable growth. We find some mixed signs that very large redistributions may have direct negative effects on growth duration, such that the overall effect – including the positive effect on growth through lower inequality – is roughly growth-neutral.


These findings may suggest that countries that have carried out redistributive policies have actually designed those policies in a reasonably efficient way. However, it does not mean of course that countries wishing to enhance the redistributive role of fiscal policy should not pay attention to efficiency considerations. This is especially important for countries with weak governance and administrative capacity, where developing tax and spending instruments that can allow governments to undertake redistribution efficiently are of the essence. A forthcoming paper by the IMF will delve into these fiscal issues.

Of course, we should also be cautious about drawing definitive policy implications from cross-country regression analysis alone. We know from history and first principles that after some point redistribution will be destructive to growth, and that beyond some point extreme equality also cannot be conducive to growth. Causality is difficult to establish with full confidence, and we also know that different sorts of policies are likely to have different effects in different countries at different times.

Bottom line

The conclusion that emerges from the historical macroeconomic data used in this paper is that, on average across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes. Quite apart from ethical, political, or broader social considerations, the resulting equality seems to have helped support faster and more durable growth.

To put it simply, we find little evidence of a ‘big tradeoff’ between redistribution and growth. Inaction in the face of high inequality thus seems unlikely to be warranted in many cases.


Benabou, R (2000), “Unequal Societies: Income Distribution and the Social Contract”The American Economic Review, 90(1): 96–129.

Berg, A, J D Ostry, and J Zettelmeyer (2012), “What Makes Growth Sustained?”, Journal of Development Economics, 98(2): 149–166.

Berg, A and J D Ostry (2011), “Inequality and Unsustainable Growth: Two Sides of the Same Coin?”, IMF Staff Discussion Note 11/08.

Okun, A M (1975), Equality and Efficiency: the Big Trade-Off, Washington: Brookings Institution Press.

Ostry, J D, A Berg, and C G Tsangarides (2014), “Redistribution, Inequality, and Growth”, IMF Staff Discussion Note 14/02.

Rajan, R (2010), Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton: Princeton University Press.

Stiglitz, J (2012), The Price of Inequality: How Today’s Divided Society Endangers Our Future, W W Norton & Company.



Can Democracy Help with Inequality?

Inequality is currently a prominent topic of debate in Western democracies. In democratic countries, we might expect rising inequality to be partially offset by an increase in political support for redistribution. This column argues that the relationship between democracy, redistribution, and inequality is more complicated than that. Elites in newly democratized countries may hold on to power in other ways, the liberalization of occupational choice may increase inequality among previously excluded groups, and the middle classes may redistribute income away from the poor as well as the rich.

There is a great deal of concern at the moment about the consequences of rising levels of inequality in North America and Western Europe. Will this lead to an oligarchisation of the political system, and imperil political and social stability? Many find such dynamics puzzling given that it is happening in democratic countries. In democratic societies, there ought to be political mechanisms that can inhibit or reverse large rises in inequality, most likely through the fiscal system. Indeed, one of the most central models in political economy, due originally to Meltzer and Richard (1981), suggests that high inequality in a democracy should lead the politically powerful (in their model the voter at the median of the income distribution) to vote for higher levels of taxes and redistribution, which would partially offset rising inequality.

But before asking about what happens in a democracy, we could start with some even more fundamental questions. Is it correct factually that democracies redistribute more income than dictatorships? When a country becomes democratic, does this tend to increase redistribution and reduce inequality? The existing scholarship on these questions, though vast, is quite contradictory. Historical studies, such as Acemoglu and Robinson (2000) and Lindert (2004), tend to suggest that democratization increases redistribution and reduces inequality. Using cross-national data, Gil et al. (2004) find no correlation between democracy as measured by the Polity score and any government spending or policy outcome. The evidence on the impact of democracy on inequality is similarly puzzling. An early survey by Sirowy and Inkeles (1990) concludes, “the existing evidence suggests that the level of political democracy as measured at one point in time tends not to be widely associated with lower levels of income inequality” (p. 151), though Rodrik (1999) finds that both the Freedom House and Polity III measures of democracy were positively correlated with average real wages in manufacturing and the share of wages in national income (in specifications that also control for productivity, GDP per capita, and a price index).

In a recent working paper (Acemoglu et al. 2013), we revisit these questions both theoretically and empirically.

Theoretical Nuances

Theoretically, we point out why the relationship between democracy, redistribution, and inequality may be more complex than the discussion above might suggest. First, democracy may be ‘captured’ or ‘constrained’. In particular, even though democracy clearly changes the distribution of de jure power in society, policy outcomes and inequality depend not just on the de jure but also the de facto distribution of power. Acemoglu and Robinson (2008) argue that, under certain circumstances, elites who see their de jure power eroded by democratization may sufficiently increase their investments in de facto power (e.g. via control of local law enforcement, mobilization of non-state armed actors, lobbying, and other means of capturing the party system) in order to continue to control the political process. If so, we would not see much impact of democratization on redistribution and inequality. Similarly, democracy may be constrained by other de jure institutions such as constitutions, conservative political parties, and judiciaries, or by de facto threats of coups, capital flight, or widespread tax evasion by the elite.

Democratization can also result in ‘inequality-increasing market opportunities’. Non-democracy may exclude a large fraction of the population from productive occupations (e.g. skilled occupations) and entrepreneurship (including lucrative contracts), as in Apartheid South Africa or the former Soviet Union. To the extent that there is significant heterogeneity within this population, the freedom to take part in economic activities on a more level playing field with the previous elite may actually increase inequality within the excluded or repressed group, and consequently the entire society.

Finally, consistent with Stigler’s ‘Director’s Law’ (1970), democracy may transfer political power to the middle class, rather than the poor. If so, redistribution may increase and inequality may be curtailed only if the middle class is in favour of such redistribution.
But what are the basic robust facts, and do they support any of these mechanisms?

Empirical Evidence

Cross-sectional (cross-national) regressions, or regressions that do not control for country fixed effects, will be heavily confounded with other factors likely to be simultaneously correlated with democracy and inequality. In our work we therefore focus on a consistent panel of countries, and investigate whether countries that become democratic redistribute more and reduce inequality relative to others. We also focus on a consistent definition of democratization based on Freedom House and Polity indices, building on the work by Papaioannou and Siourounis (2008).

One of the problems of these indices is the significant measurement error, which creates spurious movements in democracy. To minimize the influence of such measurement error, we create a dichotomous measure of democracy using information from both the Freedom House and Polity data sets, as well as other codings of democracies, to resolve ambiguous cases. This leads to a binary measure of democracy for 184 countries annually from 1960 (or post-1960 year of independence) to 2010. We also pay special attention to modeling the dynamics of our outcomes of interest – taxes as a percentage of GDP, and various measures of structural change and inequality.

Our empirical investigation uncovers a number of interesting patterns. First, we find a robust and quantitatively large effect of democracy on tax revenues as a percentage of GDP (and also on total government revenues as a percentage of GDP). The long-run effect of democracy in our preferred specification is about a 16% increase in tax revenues as a fraction of GDP. This pattern is robust to various different econometric techniques and to the inclusion of other potential determinants of taxes, such as unrest, war, and education.

Second, we find an effect of democracy on secondary school enrolment and the extent of structural transformation (e.g. an impact on the nonagricultural shares of employment and output).

Third, however, we find a much more limited effect of democracy on inequality. Even though some measures and some specifications indicate that inequality declines after democratization, there is no robust pattern in the data (certainly nothing comparable to the results on taxes and government revenue). This may reflect the poorer quality of inequality data. But we also suspect it may be related to the more complex, nuanced theoretical relationships between democracy and inequality pointed out above.

Fourth, we investigate whether there are heterogeneous effects of democracy on taxes and inequality consistent with these more nuanced theoretical relationships. The evidence here points to an inequality-increasing impact of democracy in societies with a high degree of land inequality, which we interpret as evidence of (partial) capture of democratic decision-making by landed elites. We also find that inequality increases following a democratisation in relatively nonagricultural societies, and also when the extent of disequalising economic activities is greater in the global economy as measured by US top income shares (though this effect is less robust). These correlations are consistent with the inequality-inducing effects of access to market opportunities created by democracy. We also find that democracy tends to increase inequality and taxation when the middle class are relatively richer compared to the rich and poor. These correlations are consistent with Director’s Law, which suggests that democracy allows the middle class to redistribute from both the rich and the poor to itself.


These results do suggest that some of our basic intuitions about democracy are right – democracy does represent a real shift in political power away from elites that has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected.

This might be because recent increases in inequality are ‘market-induced’ in the sense of being caused by technological change. But at the same time, our work also suggests reasons why democracy may not counteract inequality. Most importantly, this may be because, as in the Director’s Law, the middle classes use democracy to redistribute to themselves. Nevertheless, since the increase in inequality in the US has been associated with a significant surge in the share of income accruing to the very rich, compared to both the middle class and the poor, Director’s Law-type mechanisms seem unlikely to be able to explain why policy has not changed to counteract this. Clearly other political mechanisms must be at work, the nature of which requires a great deal of research.


Acemoglu, Daron and James A Robinson (2000), “Why Did the West Extend the Franchise?”, Quarterly Journal of Economics, 115: 1167–1199.

Acemoglu, Daron and James A Robinson (2008), “Persistence of Power, Elites and Institutions”, The American Economic Review, 98: 267–291.

Daron Acemoglu, Suresh Naidu, Pascual Restrepo, and James A Robinson (2013), “Democracy, Redistribution and Inequality”, NBER Working Paper 19746.

Gil, Ricard, Casey B Mulligan, and Xavier Sala-i-Martin (2004), “Do Democracies have different Public Policies than Nondemocracies?”, Journal of Economic Perspectives, 18: 51–74.

Lindert, Peter H (2004), Growing Public: Social Spending and Economic Growth since the Eighteenth Century, New York: Cambridge University Press.

Meltzer, Allan M and Scott F Richard (1981), “A Rational Theory of the Size of Government”, Journal of Political Economy, 89: 914–927.

Papaioannou, Elias and Gregorios Siourounis (2008), “Democratisation and Growth”, Economic Journal, 118(532): 1520–1551.

Rodrik, Dani (1999), “Democracies Pay Higher Wages”, Quarterly Journal of Economics, 114: 707–738.

Sirowy, Larry and Alex Inkeles (1990), “The Effects of Democracy on Economic Growth and Inequality: A Review”, Studies in Comparative International Development, 25: 126–157.

Stigler, George J (1970), “Director’s Law of public income redistribution”, Journal of Law and Economics, 13: 1–10.


Going beyond the Big Mac index: EQCHANGE – a New Powerful Database on Actual and Equilibrium Effective Exchange Rates

Academics have traditionally computed their own measure for assessing whether a currency is over- or undervalued, while policymakers rely on scarce public information with inconsistent data. This column introduces a new database, EQCHANGE, which includes nominal and real effective exchange rates, as well as equilibrium real effective exchange rates for more than 180 countries from 1973 onwards. It represents the longest and largest publicly available database on equilibrium exchange rates and corresponding misalignments.

It is well documented that the build-up of large external imbalances across the Eurozone during the first decade of the euro was partly due to the overvaluation of peripheral countries’ currencies against those of the core (Baldwin and Giavazzi 2015). In a recent paper (Couharde et al. 2017b), we documented that the evolution of currency misalignments has reversed in the periphery since the Eurozone crisis, but the dispersion across the Eurozone remains large (Figure 1).

Figure 1 Currency misalignments within the Eurozone (%)

In fact, the periphery has experienced a significant real depreciation from 2012 after the implementation of austerity programmes, but meanwhile, core countries have undergone significant real depreciations too (Figure 2). As a consequence, some core countries are now undervalued, such as Germany and the Netherlands (Table 1). In sum, all euro members have experienced a real depreciation, a fact that slows down the restoration of external balances in the Eurozone.

Figure 2 Changes in the real effective exchange rates
Table 1 Currency misalignments

Unfortunately, this is not the only bad news. Not only is the dispersion still large, but the analysis also reveals a most likely unsustainable evolution. Real exchange rates of the periphery are less overvalued because prices have decreased after the austerity programmes, while those of the core became undervalued because fundamentals have improved (Figure 3).

Figure 3 Changes in the equilibrium exchange rates

This analysis of currency misalignments in the Eurozone draws from a new database developed by CEPII that we presented in another recent paper (Couharde et al. 2017a). The practice of estimating equilibrium exchange rates has a long-standing tradition in applied and policy-oriented analysis. Yet academics and practitioners estimate their own measure when needed, while journalists and policymakers rely on scarce public information with inconsistent frequency, time, and country sample. In turn, EQCHANGE, the new CEPII database includes: (i) nominal and real effective exchange rates, and (ii) equilibrium real effective exchange rates for more than 180 countries from 1973 onwards.1 To our knowledge, it is the longest and largest publicly available database on equilibrium exchange rates and corresponding misalignments.

Current public information on currency misalignments has important limitations. First, the ‘Big Mac index’ published by The Economist since 1986 gives an indication of the extent to which a currency is over- or undervalued against the US dollar according to the law of one price.2 As tractable as it may be, the Big Mac index assesses the purchasing power gap between one country and a single partner – the US – and in terms of a single good (this shortcoming is acknowledged by The Economist, commenting that “the Big Mac index is merely a tool to make exchange-rate theory more digestible”). This measure is currently calculated for 56 countries at a semi-annual frequency and can be downloaded from the website of The Economist.

In order to address the limitations just mentioned, subsequent measures have introduced two major improvements. First, currency misalignments can be computed to account for multilateral economic exchanges. The misalignment of a currency is measured against a basket including the currencies of all or main trade partners instead of only the US. Second, the over- or undervaluation of a currency can be assessed to account for multiple macroeconomic factors. More precisely the misalignment can be derived from the estimation of an equilibrium value of the real effective exchange rate, which varies over time, reflecting changes in economic fundamentals. There are various approaches to estimating equilibrium exchange rates, which are usually classified into three complementary groups (MacDonald 2000, Driver and Westaway 2004):

  • The macroeconomic balance approach calculates the difference between the current account projected over the medium term at prevailing exchange rates and an estimated equilibrium current account, or ‘CA norm’.
  • The behavioural equilibrium exchange rate (BEER) approach estimates the equilibrium exchange rate as a function of medium- to long-term fundamentals.
  • The external sustainability approach calculates the difference between the actual current account balance and the balance that would stabilise the net foreign asset position of the country at some benchmark level.

The IMF Consultative Group on Exchange Rate Issues (CGER) has combined these three complementary approaches to assess exchange rate misalignments for a number of advanced economies and emerging market countries (Lee et al. 2008). However, the information is produced at an irregular frequency, it concerns a limited number of countries only, and the panel of countries varies across studies. In sum, the lack of time and geographic consistency limits its use in historical studies. The American Peterson Institute for International Economics publishes estimates of fundamental equilibrium exchange rates based on the macroeconomic balance approach. Their measure, developed by Cline and Williamson (2008), is available for 34 countries since 2008 at a semi-annual frequency. Since Bénassy-Quéré et al. (2004), CEPII has also published several estimates of currency misalignments based on the macroeconomic balance and the BEER approaches.

In sum, each aforementioned institute computes its own equilibrium real exchange rates and corresponding currency misalignments, but so far there was no publicly available database for a consistent and large sample of countries over a long period of time. In order to bridge the gap, CEPII has developed EQCHANGE, which contains two sub-databases.

The first sub-database provides indices of nominal and real effective exchange rates for 187 economies over the 1973-2016 period. The effective exchange rates indices are calculated for two panels of trade partners (186 and top 30) and using three alternative weighting systems (see the details in Couharde et al. 2017a). The substantial enhancement introduced by EQCHANGE is without doubt the second sub-database, which includes equilibrium real effective exchange rates and corresponding currency misalignments. We have committed to the BEER approach because the associated macroeconomic data needed for the computation exist for the vast majority of countries in the world (182 countries) and over a reasonably long time-span (from 1973 onwards). In turn, the two alternative approaches would have restrained the range of countries and time span. Currency misalignments – which are deduced from the difference between real effective exchange rates and their equilibrium values – are calculated in different ways depending on: (i) the definition of real effective exchange rates indices (based on three possible weighting schemes), (ii) the specification of the equilibrium exchange rate model, and (iii) the sample of countries. EQCHANGE will be updated at a semi-annual frequency.3

As the IMF puts it, using a broad range of indicators provides the best possible estimate of the equilibrium exchange rate level. Therefore, an extension of EQCHANGE for the future will consist of adding estimates based on the two alternative approaches.

In summary, we hope that time- and sample-consistent public information will contribute to documenting key debates such as currency misalignments and their impact on global and/or regional imbalances, mercantilist exchange rate management, the change in competitiveness, the drivers of trade and capital flows, and the resources reallocation between the tradable and the non-tradable sectors, to name but a few.


Baldwin, R E and F Giavazzi (2015), The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Remedies, CEPR Press.

Bénassy-Quéré, A, P Duran-Vigneron, V Mignon and A Lahrèche-Révil (2004), “Burden Sharing and Exchange Rate Misalignments within the Group of Twenty”, CEPII Working Paper, 2004-13.

Cline, W R and J Williamson (2008), “New estimates of fundamental equilibrium exchange rates”, Policy Brief 08-7, Peterson Institute for International Economics, Washington, DC.

Couharde, C, A L Delatte, C Grekou, V Mignon and F Morvillier (2017a), “EQCHANGE : A World Database on Actual and Equilibrium Effective Exchange Rates”, CEPR Discussion Paper 12190.

Couharde, C, A L Delatte, C Grekou, V Mignon and F Morvillier (2017b), “Sur- et sous-évaluations de change en zone euro: vers une correction soutenable des déséquilibres?”, La Lettre du CEPII, CEPII Research Center, 375.

Driver, R, and P F Westaway (2004), “Concepts of equilibrium exchange rates”, Bank of England Working Paper no. 248.

Lee, M J,M J D Ostry, M A Prati, M L A Ricci and M G M Milesi-Ferretti (2008), “Exchange rate assessments: CGER methodologies”, paper no. 261, International Monetary Fund.

MacDonald, R (2000), “Concepts to Calculate Equilibrium Exchange Rates: An Overview”, Discussion paper 3/00, Economic Research Group of the Deutsche Bundesbank.


[1] Data can be downloaded here.

[2] For example, in July 2017, a Big Mac in Canada costs 12.2% less than in the US, a fact that translates in the Big Mac index as an undervaluation of the Canadian dollar by 12.2% against the US dollar.

[3] The semi-annual frequency update can be carried out for advanced economies and several developing countries. For the remaining countries, an annual revision of the data will be implemented.


The Big Mac Index and Global Currencies

Not everyone finds macroeconomics as riveting a subject as we do here at Rows Collection, but thanks to the Economist Magazine’s Big Mac Index, concepts like Purchasing Power Parity (PPP) and the Law of One Price are more interesting and accessible than ever before.

1986 was an exciting year in the financial and economic world: Microsoft had its initial public offering, the British Government deregulated its markets in what became known as the “Big Bang,” and “Burgernomics” was born.

Since then, the Big Mac Index has been used by the Economist Magazine to determine and track a currency’s over- or undervaluation by comparing the different prices we pay for the iconic Big Mac burger in various countries around the world.

The Theory Explained

At its most basic, the Big Mac Index is a way to gauge a currency’s over- or undervaluation using the Law of One Price, Purchase Power Parity, and the cost of the iconic Big Mac.

The Law of One Price

The Big Mac Index is an example of how we measure the law of one price, which states that in the absence of any transport costs and trade tariffs and if free competition and price flexibility are present, then identical goods will cost the same price regardless of where you purchase them (once converted into a common currency).

This seems pretty straightforward since you would expect to pay the same amount for an ounce of gold in Australia as you would in Zambia. However, I also know that a pint of beer in Geneva is going to cost me way more than a beer in Warsaw.

Therefore, it seems that this may generally be true for commodities such as gold, but it doesn’t always apply to other goods. In theory, however, even when prices are not currently the same across borders, over time they should move towards the same price.

This follows from the assumption upon which the law of one price is based – any variations in pricing that exist between two separate locations will inevitably be eradicated once enough participants in the market begin to exploit arbitrage opportunities that exist.

Our regular readers might be familiar with the concept of geoarbitrage, a topic Andrew has written extensively on. Geoarbitrage is based on the same concept as arbitrage, but it focuses on the disparities in labor costs between countries, noting how exploiting these disparities will deliver a greater return on your time. For instance, if you wish to hire an online personal assistant, then you can save money by hiring someone from Eastern Europe since their wage requirements will be lower than someone from the US.

However, the arbitrage I am discussing here is slightly different, and it is generally applied to financial instruments. This type of arbitrage refers to any transaction that exploits pricing imbalances that exist for a tradable item between two or more markets. such as if you were able to buy a financial instrument in one market and sell it in another for a risk-free profit.

This arbitrage actually operates as an instrument that regulates pricing across markets because once the pricing imbalance is noticed by either or both markets, the pricing will likely be adjusted to eliminate the discrepancy.

The Big Mac Index applies to the Law of One price to the hamburger business.

Now, Big Mac burgers are not really all that susceptible to the practice of arbitrage, but they can provide a tasty example of how the concept works.

Here is a hypothetical scenario based on the figures released in the 2019 Big Mac Index to illustrate the concept:

A Big Mac costs $4.46 (R$ 16.9) in Brazil while it costs just $3.18 (S 10.5) across the border in Peru.

So, a McDonald’s restaurant that is situated on the Brazilian side of the border could potentially purchase all of its Big Macs from a McDonald’s situated on the Peruvian side of the border for $3.18

Then, it could go on to sell those Big Macs to its Brazilian customers for $4.46, providing a risk-free profit of $1.28 a burger – until, of course, this behavior causes the prices to converge either by adjustments in the prices themselves, adjustments in the value of the currency, or both, resulting in purchasing power parity.

Purchase Power Parity (PPP)

So, what is purchase power parity? Well, as the above example implies, it is an economic theory that is founded on the law of one price.

To offer a somewhat superficial account, PPP provides that the exchange rate between two countries should be equal to the ratio of the respective purchasing power of those currencies. If this is not the case, then one of the currencies may be either over- or undervalued against the other currency.

Customarily, a “basket of goods” is used to determine purchasing power, but the burger-loving folks over at the Economist simplified things by placing just a single Big Mac burger in their hypothetical basket, making the concept a bit easier to digest.

Here is how the Economist Magazine applies this concept in their Big Mac index:

The cost for a Big Mac in Britain in 2018 was £3.19, or $4.41 if converted using the exchange rate of 0.72. In the United States, the same Big Mac cost $5.28.

We can attain an implied exchange rate, or PPP, by dividing the cost of the Big Mac in Britain (using the value in pounds sterling) by the price charged in the US (in USD).

So, 3.19 divided by 5.28 provides us with an implied exchange rate of 0.6.
To calculate to what extent one currency is over- or undervalued against another, you take the difference between the implied exchange rate and the actual exchange rate and then divide by the actual exchange rate.

In this case, 0.6 minus 0.72 gives us -0.12, and if you divide that by 0.72, we can conclude that the British pound is undervalued by around 16%.

Ronald McDonald and Macroeconomics

“Why a Big Mac?” you may ask. I know I did at first. Well, although basing a macroeconomic analysis on a single fast food item might seem counter-intuitive and arbitrary, it actually makes a lot of sense.

For starters, McDonald’s has a phenomenally wide reach in the international community, where it serves close to 70 million people a day in over 120 countries. The meteoric rise of this American burger institution is a truly astonishing story, and Forbes Magazine’s Global 2000 Ranking for 2018 showing McDonald’s once again retaining pole position as the largest restaurant chain in the world by revenue.

Another factor that makes the Big Mac a great candidate for this metric is that it is mostly produced to the same specifications throughout the world, which means – in theory at least – that the costs of producing the burger should be relatively standard across the globe.

Since the input costs involved in producing the Big Mac are located in several various sectors of the local economy – such as advertising, agriculture, transport, and labor – it could be argued that the burger is a lot closer to a “basket of goods” than it appears.

Although economists usually use a basket of goods to determine purchasing power, a burger comes surprisingly close.

However, the index is not without its critics. In 2016, Andrew wrote an article on the Big Mac Index where he explained the theory behind the index and highlighted potential insights around financial trends that it could provide.

Andrew also touched on several factors that were not taken into consideration when calculating the Big Mac Index that could have caused potential inaccuracies. Here are a few of the more glaring limitations that exist in the methodology of the Big Mac Index:

First, the index has no way of incorporating considerations like the impact of taxation, local competition levels, or even the social status that is attached to dining at a fast food chain in a particular society.

Second, the popularity of the Big Mac will vary from location to location. As a result, McDonald’s may respond to this demand by pursuing a high-volume, low-margin strategy in locations where the Big Mac is popular, but in locations with fewer Big Mac orders, they may seek to generate more profit through higher margins.

Finally, while the reach of the Big Mac is astounding, there are some notable gaps in its availability in certain regions, particularly Africa. Only three of the fifty-four African countries currently bask in the illuminating glow of the golden arches – South Africa, Egypt, and Morocco. Africa is home to around 16% of the world’s population, which means that many of them remain unrepresented by the Big Mac Index.

The Adjusted Version

In 2011, the Economist decided to address one shortfall in their Big Mac Index by offering an alternative index that has been adjusted to account for GDP per capita when assessing the fair value of a currency.

Keeping in line with their culinary theme, they refer to this adjusted version of their raw index as the “gourmet version.”

Using a statistical tool called the line of best fit between GDP per capita and the price of a Big Mac, the Economist provides a more realistic view of a currency’s current fair value.

How to Use the Big Mac Index to Guide your Investments

The Big Mac Index can provide you with some fantastic insight into how various currencies may react in the future. However, just like any other investment strategy, it is important to practice the right amount of due diligence before acting.

In this section, we’ll undertake a superficial analysis of how the Big Mac Index has the potential to inform foreign exchange investments. As you read, keep in mind that this analysis is meant to get you thinking – it’s not professional investment advice.

Below, I have analyzed the accuracy of the Big Mac Index using the figures released in 2011 and 2018 for seven countries that I selected at random.

In this analysis, I use both the raw Big Mac Index and the “gourmet” Big Mac Index that takes GDP per capita into account.

Now, if you were operating a currency hedge fund, applying the principle of selling overvalued currencies (expecting their values against the dollar to decrease) and buying those that are undervalued (expecting their values against the dollar to strengthen), you might have made a few bad calls.

Working off the raw index, you might have been tempted to purchase the currencies of South Africa (undervalued by 29.3%), Egypt (undervalued by 41.9%), and India (undervalued by 53.5%), and you most likely would have ignored Britain’s undervaluation of around 4% and sold off the currencies of Switzerland (overvalued by 98.4%), Brazil (overvalued by 51.9%), and the Euro Zone (overvalued by 21.2%).

However, when looking at the three countries that were significantly undervalued against the dollar in 2011, you’ll notice that they depreciated further by 2018. The South African rand, for instance, is rapidly declining, and political instability in Egypt has continued to depress its currency value.

Interestingly, India – despite the exchange rate slipping from 44.4 to 63.89 – actually reduced its margin of undervaluation from 53.5% to 46.6%. Upon closer inspection, however, you will notice that this is in fact due to a sharp spike in the Indian price of the Big Mac – the beloved burger cost 80% more in 2016 than it did in 2013.

The currencies in the table that you would have potentially sold off – Switzerland. Brazil, and the Euro Zone – did, in fact, depreciate against the dollar.

While you could technically use the Big Mac Index to guide your investments, it isn’t always on the ball.

On the other hand, if you were working with the adjusted index, you would have been more likely to sell all currencies except that of India.

When examining the two indices, the first thing you are likely to notice is the remarkable difference between the raw index and adjusted index in relation to the over or undervaluation of currencies against the dollar.

The adjusted index also seems more reliable in predicting fluctuations in exchange rates. In this brief analysis, six out of the seven countries behaved as predicted by the adjusted index in 2011 as opposed to just three in the raw index.

Of course, this is a very small sample group of countries, and as is the case with statistics, they can often represent a myriad of contrasting phenomena depending on how, and by whom, they are used.

Based on the figures above, it certainly appears that the adjusted index is a more accurate account of a currency’s over- or undervaluation against another currency. Therefore, if you were to use the Big Mac Index to guide your trading decisions, the adjusted index is the safer bet.

Big Mac Prices around the world

At this point, you might be wondering which countries are the most expensive to buy a Big Mac in and which countries are the cheapest.

Below is a list of five countries where you will pay the most for a Big Mac and the five countries where you will pay the least.

Although the Big Mac Index isn’t an exact science, it can provide a rough indication of living costs from country to country, but as we have seen, there are a myriad of other factors involved that you need to consider when applying the results of the Big Mac Index.

The Five Most Expensive Countries

These are the most expensive countries to buy a Big Mac in based on 2018 figures.

SWITZERLAND: $6.76 (6.50 CHF)

Actual exchange rate = 0.96
Implied exchange rate = 1.23

Zurich, which is often cited as the world’s most expensive city, is also fittingly home to the world’s most expensive Big Mac.

According to the Big Mac Index, the Swiss franc is overvalued by 28.1%. If we look at the adjusted index, however, you will notice that that figure is much lower, showing the franc being just 8.1% overvalued. However, it is still considered the 11th most overvalued currency in the world.

To illustrate just how expensive this beloved burger is in Switzerland, for the price of one Big Mac in Switzerland, you could feast on four of them in Ukraine.

Factors that contribute to higher costs in producing the burger in Switzerland include relatively high wages and a heavy tax on imported goods imposed to shield and support local Swiss farmers.

NORWAY $6.24 (49 NOK)

Actual exchange rate = 8.02
Implied exchange rate = 9.28

Norway is home to the second most expensive Big Mac burger in the world with a price tag of $6.24, which is the equivalent of 49 Krone.

Oslo is the most expensive city in the world in which to enjoy a pint of beer, and with the 2nd most expensive Big Mac, it looks as if a night out drinking and feasting on fast food may be quite a pricey affair.

This is partially thanks to Norway’s high wages and high cost of living. According to Deutsche Bank, Oslo, Norway had the 8th highest average salary in the world in 2017, and higher wages combined with tolls placed on imported produce keep restaurant prices high.

According to the Big Mac Raw Index, the krone is overvalued by 18.2% while the Adjusted index reveals that the krone is overvalued by 22.4%.

SWEDEN $6.12 (49.10 SEK)

Actual exchange rate = 8.02
Implied exchange rate = 9.30

Sweden has the world’s third most expensive Big Mac at $6.12, making it the most expensive in the European Union. Sweden has fallen slightly in the Big Mac Index, dropping down from the second-place seat it occupied in 2017.

If you think a Big Mac in Sweden will flatten your wallet, wait until you hear about their tax rates. Sweden imposes some seriously steep taxes – the highest in the world – with top-tier earners facing ferocious taxation of up to 60%.

The cost of a Swedish Big Mac is quite high, and so are the country’s taxes. Despite these high tax rates, the Swedish economy has been steadily growing and flourishing for the past few decades, and citizens enjoy the “cradle to grave” welfare system. However, this system’s sustainability has been questioned more recently as Swedish citizens become more concerned with the quality of welfare they receive considering the amount of tax they pay.

The hefty price of a Swedish Big Mac is attributed to higher taxes, higher wages, and a willingness and ability to pay higher prices among Swedish consumers.

According to the Big Mac Index, the Swedish Krona is overvalued by 16%. The adjusted index has it more overvalued at 22.4%


The strength of the dollar means that you will pay less for the iconic American Sandwich almost anywhere else in the world, making it a good time to travel with the greenback in your pocket.

U.S food prices are naturally affected by the strength of the dollar. When the dollar is strong, exports of food for sale in overseas markets generally drop, which produces supply in the local market and effectively drives food prices down.

Another reason why the US Big Mac is comparatively more expensive is that this price is an average of all Big Mac prices in the US. There are significant fluctuations in the cost of living among states and cities, so Big Macs in expensive regions like New York City or the California Bay Area are naturally going to drive up the average.

CANADA $5.26 (C$6.55)

Actual Exchange Rate = 1.25
Implied Exchange Rate = 1.24

Canada has seen sharp increase in price from last year’s Big Mac Index, where the cost was listed at $4.60 – $0.44 less than the US price.

Canada is one of the few developed nations that actually exports net energy and boasts a 13% share of the world’s oil reserves.

The Canadian economy is heavily dominated by the service industry, and Canadian salaries are among the highest in the world with a minimum wage the equivalent of $8.20 an hour and two of its cities – Vancouver and Toronto – are among the top 28 cities where workers have the highest wages on the Deutsche Bank’s “Mapping the World’s Prices” annual report.

Canada has the 10th highest ranking in the Human Development Index and the 15th highest nominal per capita income in the world, and thanks to the country’s natural resources, the Canadian dollar is one of the world’s most stable and robust currencies.

The good trade relationship between Canada and the US, however, has declined recently due to disagreements between Trump and Trudeau. Trump has vowed to alter the North American Free Trade Agreement of 1994 (NAFTA), which will likely impact food prices and might mean a more expensive Big Mac in future.

According to the Big Mac Index, the Canadian dollar was undervalued by a negligible .04%. However, the adjusted index shows it to actually be overvalued against the US dollar by 13.8%.

The Five Cheapest Countries

On the other hand, here are the five countries with the cheapest Big Macs in the world, and you might be surprised at who made the list.

UKRAINE $1.64 (47 UAH)

Actual exchange rate 28.72
Implied exchange rate = 8.9

Ukraine is the cheapest country in which to live in in Europe – especially for foreigners. However, with low cost of living comes low purchasing power.

Ukraine has struggled to recover from the 2014 Euromaidan Revolution, and it has a shortage of skilled labor since many Ukrainians have had to seek job opportunities elsewhere – with a large portion of the labor force choosing to work in Poland.

Ukraine is also a country with incredibly high corruption – coming in at 5th place on the Economist Crony-Capitalism index as of 2016, and Ukrainians receive some of the lowest salaries in Europe. With the average salary hovering around $272, a $1.64 Big Mac might not be such a great deal.

EGYPT $1.93 (34.21 EGP)

Actual exchange rate = 17.70
Implied exchange rate = 6.48

Egypt has the 2nd cheapest Big Mac in the world at just $1.93.

Egyptian salaries are remarkably low, and steep price hikes in recent times have put more pressure on Egyptian citizens as basic services become increasingly expensive, including transport, electricity, and even drinkable water.

However, there are reassuring signs of economic recovery in Egypt with unemployment falling and indications of sustainable growth in the future.

With the exchange rate sitting around 1 dollar to 17 Egyptian pounds, this is a great time to travel to Egypt and get yourself a Big Mac.

The Big Mac Index for 2018 shows the Egyptian pound undervalued against the dollar by a whopping 63.4% with the adjusted index at a slightly less alarming 34.7%.

MALAYSIA $2.28 (9 MYR)

Actual exchange rate = 3.95
Implied exchange rate = 1.70

Political upheaval has plagued Malaysia in recent times, but this has not decreased this country’s attractiveness as a fantastic place to live thanks to its low costs of living (particularly for foreigners) and comfortably high quality of life.

In fact, the country is considered one of the best places in the world to retire, and in 2014, it came in third in the global retirement index. Malaysia has one of the most competitive economies in Asia, and it aims to become a high-income country by 2020.

Although Malaysia’s economy is growing rapidly, the price of a Big Mac there remains low.

Malaysians also enjoy reasonably high life expectancy, subsidized healthcare, reasonably good education, and strong industries, such as electronic equipment, petroleum, and liquefied natural gas production, which all point towards Malaysia becoming a developed nation over the next few years.

It has one of the most developed infrastructures in Asia – ranking 6th in Asia and 22nd in the world according to the Global Competitiveness Index published by the World Economic Forum.

Although the Malaysian economy is highly developed, it’s still home to the 3rd least expensive Big Mac on the planet.

According to the Big Mac Index, the Malaysian ringgit is undervalued by a staggering 56.9%, but that number is a drastically reduced in the adjusted index, which shows the currency to be undervalued by only 28.9% against the dollar.

RUSSIA $2.29 (130 RUB)

Actual exchange rate = 56.75
Implied exchange rate = 24.62

Russia is one of the largest emerging markets in the world. In 2015, Russia’s economy was the 6th largest in the world by purchasing power parity and 12th largest in terms of the GDP. It also enjoys one of the largest mineral and energy resource reserves in the world and produces much of the globe’s oil and natural gas.

Growth has recently slowed with the collapse of oil and gas prices as well as the stringent economic sanctions imposed after Russia’s annexation of Crimea from Ukraine in 2014, and doubt exists over the accuracy of data provided by Russia regarding important statistics about the cost of living in Russia.

Ultimately, these economic factors add up to a $2.29 Big Mac.

According to the raw index, the Russian ruble is undervalued by 56.6% against the US dollar while the adjusted index shows it at 28.1% undervalued.

TAIWAN $ 2.33 (69 TWD)

Actual exchange rate = 29.55
Implied exchange rate = 13.07

For many reasons, Taiwan has become an increasingly attractive destination for expats – particularly those looking to retire abroad in a country where the cost of living is comparatively lower.

The prices at McDonald’s in Taiwan are more or less in line with average meal prices at inexpensive restaurants in Taiwan, but Taiwanese street food still remains your cheapest option for a meal.

Taiwanese produce is known for being good quality and very cheap. Transport costs are also low, and average salaries are as well. All of these factors combine to give you a cheap and cheerful Taiwanese Big Mac Burger.

The New Taiwan dollar is undervalued by 55.8% according to the raw index, but the adjusted index has it slightly less undervalued at 38%.


Accumulation, Capitalism and Politics: Towards an Integrated Approach

This article aims to regenerate analysis of how accumulation relates to politics by underlining that one cannot be theorized without the other. After recalling how initial Marxist and institutionalist problematics implied the need to grasp the relationship between these two terms, we set out to show how coupling regulation theory with field theory enables empirical analysis to reveal the political structuring of accumulation.


In an article published in 2007, Robert Boyer noted a renewed interest in the social sciences – sociology, political science and political economy, in particular – for the concept of capitalism. Editorial news lends credence to this finding 1 , in France and beyond. Somewhat surprisingly, however, this renewed interest does not translate into renewed attention to the process that underlies the uniqueness of capitalist economic organization: the accumulation of capital, that is to say the perpetual transformation profits into new productive forces to generate new profits. An effort of definition is therefore necessary. Economic system, capitalism produces and offers goods and services, but for a particular purpose, to make profits 2. According to Ellen Meiksins Wood (2019), this phenomenon is due to the fact that, in this system, the agents (the workers as well as the capitalists themselves) are prey to what Karl Marx calls “the silent constraint of economic relations” – the the former are forced to sell their labor power for a wage, the latter to use it to acquire their means of production and sell their products. This dependence means that “the mechanisms of competition and profit maximization become fundamental rules of existence” ( ibid., p. 9). The quest for labor productivity, which is based in particular on the acquisition of new technical means, is, in this system, a condition of economic survival for entrepreneurs. So much so that “the first objective of the [capitalist] system is the production of capital and its natural growth” ( id. ). From this perspective, the study of capitalism is that of the accumulation of capital, of its origins and of its multiple socio-economic and political effects.

The call for papers, from which the articles in this file are taken, therefore proposed to put the question of capital accumulation back on the job, but from a specific angle. Far from claiming to exhaust the question, this introductory text will focus more particularly on the political structures – understanding the political balance of power – inseparable from the “mechanism of the capitalist economy” (Petit, 1969, p. 9). This insight will evoke an old question for those who frequented the benches of universities before the decline of academic Marxism. It will be different for the generations that followed. Be that as it may, and without denying – quite the contrary – the contributions of classical writings,

By returning to classical political economy, we will first propose to grasp accumulation as an intrinsically political economic process. The latter is indeed based on conflicts – conflicts of powers, beliefs and values ​​3 –, whose permanence it maintains (Hay & Smith, 2018). We will thus observe that accumulation is political through its “structuring structures” (Bourdieu, 1980), i.e. the power relations that it induces, for example the reproduction of the asymmetry of positions between a worker and a capitalist, but also by his “structured structures”, the relations of forces which are at the origin of this one and found it, like private property or primitive accumulation. Through the commentary on the articles in the dossier, the sections that follow propose a diagram for analyzing the political structures of accumulation, while illustrating it with the help of empirical examples drawn in particular from the texts brought together here. In a second step, we will thus take advantage of the institutionalist tradition (in particular of certain achievements of the school of regulation but also of certain sociological currents) to draw attention to the institutions which organize and support accumulation and to the orders in which the forces competing for their production oppose each other. In a third step, relying on the structuralist tradition (in particular on the economic anthropology of Pierre Bourdieu), we will deepen this analytical scheme articulated around three concepts – “institutions, fields and political work” – in order to empirically decipher the processes that support the accumulation. Thus, echoing certain authors of regulation theory (TR),

Putting the question of accumulation back on the table – precisely that of its political structures – is not just an intellectual issue. By remaining particularly discreet on this subject in Europe and the United States 4, social sciences participate in the naturalization of the capitalist economy, its mechanisms and its effects. This is the case, in France, with the abundant literature on the sociology of markets which reduces economic activity to markets in order to study the mechanisms for adjusting supply and demand (Hay & Smith, 2018). The same goes for Anglo-Saxon literature, also abundant on the varieties of capitalism, and which, drawing on the institutionalist tradition, captures national economies through their firms and the way in which they coordinate (Roger , 2018). In one case as in the other, no word is said on the way in which the new productive forces appear, any more than on the relations of force which organize them and which they produce.

1.  Back to the 19th Century : the Accumulation of Economic Capital as an Intrinsically Political Phenomenon

1.1. From Political Economy to Its Critique: the Political Underpinnings of Capitalist Accumulation

Putting the question of accumulation back on the job leads to a return to the debates that have run through classical political economy. This is, in the 18th century  but especially in the 19th century, witness to a phenomenon unprecedented in its magnitude (Labrousse & Michel, 2017): increasingly guided by the quest for profits, economic activity lends itself, in the main European states, to a significant accumulation of capital ( generally assimilated to the means of production). The phenomenon is – for Adam Smith, in particular – at the foundation of a virtuous social process: accumulation – understood as the broadening of the productive base by adding capital – allows an increase in the number of workers, the division labor, productivity and, ultimately , production. Accumulation and enrichment of nations seem to be linked.

The question of the reproduction of the capitalist economy gradually came to structure the debate on political economy (Denis, 2016 [1966]). Reproduction – that is, the renewal of the production process – presupposes a relative balance between the two major sections – the production of the means of production and that of the means of consumption. According to the categorisations of Rosa Luxemburg (1969 [1913]), the “economists’ quarrel” opposes the “optimists” and the “pessimists”. The first, partisans of balance (that is to say of a harmony of the relations between production and consumption), make accumulation a positive process which, unfortunately, must end in a stationary state that it is a question of pushing back while promoting profit (case of the heirs of Adam Smith, Jean-Baptiste Say and David Ricardo, especially). The latter, liberals (such as Jean de Sismondi) or critics (such as Karl Marx, of course), underline the possibilities of imbalances and crises of general overproduction, pointing out the internal contradictions of the capitalist economy. For the latter, the question of reproduction is all the more thorny in that the mechanisms of capitalism – the competition between the holders of capital, in particular – induce an “enlarged reproduction” of capital, a source of imbalances between production and consumption (the competition leading to a quest for productivity gains to ensure economic survival). Whereas, according to Karl Marx’s categorisations, “simple reproduction” is the repetition of the process in identical proportions to the previous cycle (the surplus value obtained by the capitalist is, in this case, devoted to the purchase of consumer goods), reproduction can be described as expanded when part of the sum of money drawn from surplus value is devoted to the purchase of means of production and/or labor. work, allowing the scale of production to increase. One-word summary: “In the first, the capitalist squanders all the surplus value, in the second, he demonstrates his bourgeois virtues by consuming only part of it and transforming the rest into money [to broaden his base productive]” (Marx, 2006 [1867], p. 656). Extended reproduction is thus confused with the accumulation of capital. allowing the scale of production to be increased. One-word summary: “In the first, the capitalist squanders all the surplus value, in the second, he demonstrates his bourgeois virtues by consuming only part of it and transforming the rest into money [to broaden his base productive]” (Marx, 2006 [1867], p. 656). Extended reproduction is thus confused with the accumulation of capital. allowing the scale of production to be increased. One-word summary: “In the first, the capitalist squanders all the surplus value, in the second, he demonstrates his bourgeois virtues by consuming only part of it and transforming the rest into money [to broaden his base productive]” (Marx, 2006 [1867], p. 656). Extended reproduction is thus confused with the accumulation of capital.

If, in this “quarrel”, the political character of accumulation is secondary, it is not absent; including among liberal economists who consider that the phenomenon presupposes the separation between the class of owners of capital and that of workers 5. From their point of view, the exploitation of the labor of the latter by the former is in a way a necessary evil for raising the standard of living of the community. It is probably Karl Marx who depicted capital and its accumulation as intrinsically political economic phenomena. Indeed, unlike the liberal economists he criticized, his philosophy of history aimed at a radical critique of forms of alienation, so as to bring out what, in social representations and material conditions, founded social relations. of their exploitation (Bartoli, 1984) – an approach that would prove to be the foundation of social sciences (constructivists) 6. Analyzing the genesis of capitalism and contrary to previous treatises on political economy, Karl Marx grasps capital not as wealth but as a social relationship 7. It is the transformation of property relations (notably the advent of private property) that opens up the possibility of a transformation of wealth into capital, private property setting in motion the mechanisms specific to the capitalist economy – taxation at all competitive relationships, incessant quest for better productivity. Seizing capital – and beyond that, accumulation – as a social relationship inevitably leads to making it an intrinsically political phenomenon in that, at a general level of definition, capital and accumulation engage the “relationships of men among themselves”, relations which are moreover conflicting (Lordon, 2008a, p. 12).

Indeed, accumulation is, in its structuring structures, political insofar as it engages power relations which, according to the moments of development of capitalist economies, are sometimes based on physical violence, sometimes on law and silent constraint. economic reports 8 . Thus, the genesis of capitalist economies, which passes through an initial appropriation of wealth by future capitalists (the so-called moment of primitive accumulation in classical political economy), is marked by “crime” and “looting” which alone allow the separation of the means of production between two social classes 9 . The enclosure movement in 17th century England century, constitutes in historiography (Marxist or not) an emblematic expression of the genesis of capitalism (Moore, 1969). In established capitalist economies, the balance of power involved in accumulation is based in particular on law (Palermo, 2007). For Karl Marx, if from a formal point of view it involves two legally equal persons, the separation of the labor force and the means of production generates an asymmetrical power relationship: “[the worker] and the possessor of money meet on the market, and enter into a relationship with each other, with their parity of possessor of goods and this single distinction that one is a buyer, the other is a seller” (Marx, 2006 [1867], p. . 188). The first has the money to build capital, the other does not: ibid. , p. 189). Establishing the asymmetry of the relationship between forces (“the worker works under the control of the capitalist to whom his labor belongs” ( ibid. , p. 208), the labor contract allows the capitalist a legal appropriation of part of the labor unpaid to the worker (the “surplus work”) that the capitalist will have to invest in order to expand his productive base.

In its structured structures, accumulation is for Karl Marx an intrinsically political phenomenon. In Le capital , which offers a more schematic representation of social stratification than other writings by the same author, it is divided into two classes, capitalists and proletarians, the former – endowed with the practical and symbolic force of law (private property and employment contract, in particular) – monopolizing part of the (unpaid) labor of the latter to feed accumulation: “capital is dead labor, which, similar to the vampire, only comes to life by sucking the labor alive, and his life is all the brighter the more he pumps out” ( ibid .., p. 259). In addition to the demands imposed by the conditions of reproduction, exploitation finds some limits with the development of social legislation. Relating the struggles over the establishment of the length of the working day, Karl Marx concludes: “the workers must unite in a single troop and conquer as a class a law of the State, a social obstacle stronger than all, which prevents them from selling themselves to capital by negotiating a free contract, and from pledging themselves and their kind to death and slavery” ( ibid ., p. 338). The feminist critique of Marxism will reveal another social division induced by the development of capitalist economies, which is added to the first: “what we see from the end of the 19th century, with the introduction of the family wage, the male worker’s wage […], it is because the women who worked in the factories were expelled from them and sent back to the home, so that domestic work became their first job, to the point of making them dependent […]. Through the salary, a new hierarchy is created, a new organization of inequality: the man has the power of the salary and becomes the foreman of the unpaid work of the woman” (Federici, 2019, p. 16-17). “Patriarchal capitalism” is emerging: the new organization of the family allows the development of capitalism in that it places in the hands of women the work of reproduction (of the workforce) – unpaid work.

1.2. Veblen and the Analysis of the Power of Businessmen

Under the effect of the marginalist revolution and until the recompositions caused by the Great Depression and the Second World War, the question of accumulation, like that of growth, no longer held much attention: the focus shifted towards microeconomics. However, American institutionalists, and more particularly Thorstein Bunde Veblen (1904, 1914, 1919), were interested in the processes of accumulation and their institutional foundations, in particular mentalities and power. For Veblen, the industrial system was constituted through the accumulation, by the community, of knowledge embodied in technology, and was favored by the artisan instinct of engineers, the institutions of science and rationalism. Gradually, the state of the industrial arts has made workers mere appendages of the technical system and standardized industrial equipment. Equipment and technology have become the going concern around which the presence of the workers was necessary, although auxiliary (1919, p. 14). At the same time, Veblen analyzes the ideological foundations of private property in modern liberalism and the revolutions of the eighteenth century  , which was originally conceived as personal property in an economy of small entrepreneurs/individual workers. Subsequently, this was actualized in the ownership of the assets of the business enterprise ( business enterprise ), that is to say capitalist, in a state of the industrial art which no longer corresponded to it. . The owners of the means of production and the business class then developed vested interests , understood as ” the legitimate rights to get something from nothing  ”, that is to say the right to obtain the usufruct of this property, without contributing anything to production. Capital, conceived (“invented”) by financiers as a capacity for income, a right to capitalized income on future production, is valued and accumulated by the practices of the business enterprise , which aim to hinder excessive development. of production, under penalty of seeing overproduction and price reductions, through the use of anti-competitive practices and the exploitation of intangible assets (trademarks, goodwill, patents, etc.). Thus, the accumulation of intangible assets also means an accumulation of means of impeding and restricting production in order to increase profitability, all actions which come under what Veblen calls “sabotage” (Veblen, 1921) and more generally predation.

This analysis basically aims to reveal the way in which the “robber barons” acquired a legitimized power of predation, parasitism and rent extraction through a set of practices restricting trade and competition, through the actualization of ownership and “predatory instincts”. Thus, Veblen shows that the accumulation of knowledge and its submission to the property and customs of the business world can harm the majority ( the common man ) and the dominated classes, starting with the workers. For him, capital is thus the product of a power (even if he rarely uses the term), of a vested interest . A thesis taken up more recently and partially by Nitzan and Bichler (2009) when they speak of “  capital as power “. Veblen (1919) was also interested, at the end of the First World War, in the foundations of states, kingdoms, nations and democracies, and in the relations between the business classes and nationalism or imperialism. He shows in particular that, in parallel, kings and political leaders have vested interests (what he calls “the divine rights of kings or Nations”) and that the suppression of kings and their replacement by democratic regimes does not did not have the effect of limiting the impulses of imperialist dominion, the vested interests of the Nation having ended up being confused with the defense of the interests of the business classes. At the same time, the common mentend to feel themselves in solidarity with the upper classes because of their national belonging, and can therefore support warlike adventures ( ibid. , p. 46). Veblen also analyzes inter-imperialist wars.

In short, with regard to the approaches in social sciences which today dominate the study of economic activity, a return to and through classical political economy leads to emphasizing the question of accumulation and to see a political phenomenon, both in terms of its origins (the power relations that found it) and its effects (the power relations that it induces). The historical analyzes of Marx or those of Veblen place, in relation to their predecessors, the question of the social and political structures of accumulation at the top of the scientific agenda. This appears as a social construction, made up of power relations, instituting social relations such as private property and the wage relation, which will be found in the theory of regulation (TR) inspired by the approaches of Marx and the institutionalism.

2. Institutional Dynamics of Accumulation

Classical political economy (notably in its critical version) constitutes a first foundation for the analysis of the political structures of accumulation that we are sketching out here. Certain institutionalist approaches, starting from a critical analysis of the Marxist heritage, and defining institutions as the rules, norms and stabilized conventions which constrain but also “enable” socio-economic activity (Commons, 1934) in are another. We will focus here mainly on work that mobilizes the TR 10. We retain, for the project that is ours, two main assets: the plurality of institutional supports which, in time and space, organize the accumulation (2.1.); the differentiation of the social space in which the strategies of accumulation take shape and develop (2.2.).

2.1. From the “Law of Accumulation” to Regimes of Accumulation

In the 1970s, when the growth of Western economies declined, empirical observation led the economists who would formulate RT to introduce a new research program – the analysis of crises and changes in capitalism (Aglietta, 1976). Here comes the concept of “mode of regulation”, which aims to grasp the resilience of capitalism through the “conjunction” (Boyer & Mistral, 1978, p. 119) of social relations, institutional determinants and private behavior – a conjunction that enables ensemble reproduction. In this perspective, where capitalism is declined in capitalist economies, “the general law of capitalist accumulation” of Marx (2006 [1867], p. 686-802) gives way to “regimes of accumulation”, national analyzes of Fordism revealing institutional configurations located in time and space. Consequently, the study of accumulation becomes that of accumulation regimes. A tool forged to analyze the reproduction of capitalist economies, the concept is defined as “the set of regularities ensuring a general and relatively coherent progression of the accumulation of capital, that is to say making it possible to absorb or spread out in time the distortions and imbalances that constantly arise from the process itself11  ” (Boyer, 2004, p. 20). An arrangement of institutional forms, always specific in time and space, makes it possible to organize and sustain a regime of accumulation. Observation of the Fordist moment has made it possible to identify five fundamental social relations of the capitalist mode of production which are actualized in five institutional forms – understood as codifications of said social relations – according to the modes of regulation: monetary regime, wage relation, labor regime. competition, international regime and state form. The approach revealed a plurality of accumulation regimes. Thus, over time, dominant configurations have succeeded one another – an extensive accumulation in the 19th century (focused on the extension of capitalism to new spheres of activity), intensive accumulation from the interwar period (focused on increasing productivity gains through the reorganization of work), an accumulation driven by finance from the end of the 20th century century (oriented towards the financialization of institutional forms). If accumulation regimes differ over time, they also differ over space. Thus, the regulationist works have shown that Fordism essentially characterized the American case, while the French version knew a more statist regulation. The German or Japanese cases put forward a sometimes meso-corporatist sometimes companyist regulation (Boyer, 2015), with accumulation regimes partly driven by exports. As for the peripheral economies, these were simply not Fordist.

From this conceptualization derive some major achievements, which we retain to build our own approach. The first, of a methodological order, is that the study of accumulation is that of its institutional supports. Once the dynamics of accumulation that marks an economic space at a given time have been objectified, the object of the research focuses on the production (or reproduction) of the institutions that organize it. The construction of the object can be declined on a meso-economic scale. To analyze the transformations that the contemporary French agricultural field is undergoing, Matthieu Ansaloni and Andy Smith (book to be published) take as their subject the regime of accumulation which determines its structure, placing at the heart of their argument the institutions which codify the relations of commercialization. , supply, financing and revenue generation. The construction of the object can also be declined on a macro-economic scale, in the manner of Isil Erdinç and Benjamin Gourisse (2019), when, to analyze the accumulation by the Muslim Turkish bourgeoisie, the Kemalist state expropriates certain ethnic minority fractions. Moreover, the analysis can also take as its object an institution which, because it affects the other components of the regime, weighs on the dynamics of accumulation. Thus, in the present dossier, Matthieu Ansaloni – to analyze the geographical redistribution of cereal production in France – takes as his subject the market institutions which organize competition between competing poles of accumulation. like Isil Erdinç and Benjamin Gourisse (2019), when, to analyze the accumulation by the Muslim Turkish bourgeoisie, the Kemalist state expropriates certain ethnic minority fractions. Moreover, the analysis can also take as its object an institution which, because it affects the other components of the regime, weighs on the dynamics of accumulation. Thus, in the present dossier, Matthieu Ansaloni – to analyze the geographical redistribution of cereal production in France – takes as his subject the market institutions which organize competition between competing poles of accumulation. like Isil Erdinç and Benjamin Gourisse (2019), when, to analyze the accumulation by the Muslim Turkish bourgeoisie, the Kemalist state expropriates certain ethnic minority fractions. Moreover, the analysis can also take as its object an institution which, because it affects the other components of the regime, weighs on the dynamics of accumulation. Thus, in the present dossier, Matthieu Ansaloni – to analyze the geographical redistribution of cereal production in France – takes as his subject the market institutions which organize competition between competing poles of accumulation. the analysis can also take as its object an institution which, because it affects the other components of the regime, weighs on the dynamics of accumulation. Thus, in the present dossier, Matthieu Ansaloni – to analyze the geographical redistribution of cereal production in France – takes as his subject the market institutions which organize competition between competing poles of accumulation. the analysis can also take as its object an institution which, because it affects the other components of the regime, weighs on the dynamics of accumulation. Thus, in the present dossier, Matthieu Ansaloni – to analyze the geographical redistribution of cereal production in France – takes as his subject the market institutions which organize competition between competing poles of accumulation.

The second achievement that we retain, of an ontological and epistemological order this time, is due to the fact that the economic field, the playground of capitalist accumulation, and the economic agents who confront each other there, do not grasp each other as given but as social constructs. As collective representations (Descombes, 2000; Théret, 2000), institutional forms are both external to individuals but also and above all internalized by them. The institutional contexts of economic action frame, and therefore constrain, action: they define the regularities that organize and sustain accumulation. Individuals also internalize institutional contexts: contrary to what the New Economic Sociology postulates, their natural motivation is not the incessant quest for profit, but rather they are caught up in mechanisms – historically constructed – which orient them in this direction (Boyer, 2004). The analysis of the political structures of accumulation (the institutions but also and above all the power relations that affect them) requires empirically resituating the way in which the mechanisms of symbolic imposition that feed bureaucratic struggles as well as the official discourses operate. ‘they generate, as much as the scientific struggles and the dominant expertise that result from them (Roger, 2020).

RT, considered here mainly in its sociological and anthropological dimensions, therefore leads us to understand accumulation through its institutional supports. It also leads us to place at the top of our reflection the strategies of accumulation that unfold in a differentiated social space.

2.2. In Search of Political Structures

An intrinsically political phenomenon, accumulation is, from the origins of RT, understood through its political structures. In his founding analysis of American capitalism, Michel Aglietta (1976, p. 14) intends thus: “to explain the general meaning of historical materialism: the development of the productive forces under the effect of the class struggle and the conditions of the transformation of this struggle and the forms in which it materializes under the effect of this development”. The State is a major stake in economic struggles, in that its policies codify social relations (which have become institutional forms), but also in that its economic policy participates in the mode of regulation and the coherence (or not) of institutional forms. . The sources of inspiration of the TR are multiple to apprehend the policy, whose meaning and conception are diverse (see the article by Éric Lahille in this file). Integrating the contribution of the state to capitalist regulation into the analysis leads some regulationist economists to break with the analysis of the state as a puppet of the capitalist class.12 . Through his theory of the state, Bruno Théret (1992) sets out a framework – forged in the light of the sociological thought of Max Weber, Norbert Elias and Pierre Bourdieu, in particular – for thinking about the political structures of accumulation. The “topology of social space” he proposes is made up of differentiated orders, each endowed with specific stakes, practices and institutions. The economic order, first of all, is one where the domination of man over man is guided by the capitalist logic of the incessant quest for profit by means of the accumulation of material goods and monetary securities. The political order, then, is one where domination is its own end, the economy being put at the service of the accumulation of power viathe concentration of fiscal and military resources. The domestic order, finally, is that in which the human population is reproduced, a population that is subject to exploitation by the other orders of practices 13 . The proposed conceptualization offers some milestones: grasping the institutions – or the regime – that organize accumulation involves identifying the relationships between the forces that oppose each other within the orders of practice that make up the social order. We will specify, in the following section, the way in which we analyze such balances of power.

The work of Bob Jessop sheds additional light. For the English sociologist, if the “circuit of capital” (constituted by institutional forms) sets the institutional context of action, it in no way determines the regime of accumulation: because, echoing the proposals of Bruno Théret, capitalist developments are the fruit of incessant struggles that unfold in multiple social orders, contingency marks their evolution (Jessop, 1990). Such a perspective leads to grasping the games that agents play in order to perpetuate, or even amend, the accumulation regime. To this end, Bob Jessop introduces the notion of “accumulation strategy” and defines it as follows:ibid ., p. 198-199). Economic hegemony therefore corresponds not to a concerted agreement between the dominant fractions of “capital” but more to a sort of temporarily stabilized compromise, in no way exempt from conflict, the model underlying the regime of accumulation allowing them to perpetuate, or even improve, their positions. In this conceptualization, the state is the main target of economic struggles, competing forces clashing to obtain a monopoly over one or another of its segments, investing the social relations of the capitalist economy (which have become institutional forms) with practical and symbolic force of law ( ibid ., p. 201).

Institutions and regimes of accumulation, social space differentiated into distinct orders of practice, strategies of accumulation: the founding arguments of RT offer useful benchmarks for the reflection engaged here. Sociology and political science deliver some complementary conceptual and methodological proposals and allow us to map out the political structures of accumulation.

3. The Political Structures of Accumulation: Fields, Institutions, Political Work

Institutions and regimes of accumulation are what enable, constrain and orient capitalist economic activity: analyzing in depth their genesis and reproduction implies opening a second “front” which specifically concerns the agents who fuel these processes. The analytical challenge is to grasp the action of those who influence the institutions that organize and support accumulation in a given economic space. The production of “institutionalized compromises” involves the capture of a segment of public power (State and/or European Union, for example): more or less faithful expressions of their demands, the institutions seal in return the distribution of economic capital in the economic area considered. Analyzing such a political process implies equipping oneself with tools to grasp differentiated social positions and the struggles that result from them. If we stick to a precise definition and analytical use, the concept of field makes it possible to analyze social positions as combinations of differentiated capitals and to consider that they are part of a structured and structuring whole (3.1 .). The concept of political work makes it possible to analyze the formation of alliances and/or convergences between the agents of a field and beyond (3.2.). From this perspective, nourished by certain achievements of contemporary sociology and political science, the study of the accumulation of economic capital becomes that of the accumulation of capital – economic, social, cultural and symbolic.

3.1. The Political Structuring of Accumulation through the Prism of “Fields”

The study of social structuring is a major issue in sociology and political science (Giddens, 1984). To analyze economic activity, the concepts of profession 14 , market 15 and sector 16 have enjoyed their greatest success since the 1980s. economic: while that of profession focuses attention on boundary workand the institutionalization of jurisdictions, that of the market elucidates market arrangements based on interactions between companies (sometimes public authorities) (Hay & Smith, 2018); finally, the concept of public action sector casts a veil over companies, their commercial and political activities (Jullien & Smith, 2012). In the version proposed by Pierre Bourdieu, the concept of field makes it possible, on the other hand, to remove the unthought of accumulation and its political structuring, backing empirical research with an ontology and a structuralist, institutionalist and constructivist analytical scheme (Roger , 2020; 2021; Ansaloni & Smith, 2021. See also the contribution of Matthieu Ansaloni in this dossier). In response to this proposal,

A field, in the sense of Pierre Bourdieu, is an analytical category intended to describe a social space within which agents, whose position is determined by the holding of heterogeneous capital in kind (economic, social, cultural, symbolic) and volume, are mobilizing in order to influence (or even impose their priorities) on the power relations (and therefore the institutions) that affect them and to derive profits from them 17. Always disputed, the borders of each field are the very object of empirical research: it is a question of revealing the objective positions of the agents, the perception that they have of the “stakes” of the struggle and of their competitors, the criteria they mobilize to distinguish “legitimate players” from those who are “offside”. As a historical construction, the field is therefore also a structure objectified by scientific work. Each field also has a hierarchy – more or less disputed – that research must restore. Fierce competition within a field is channeled through the institutions that command its structure, as well as the power imbalance that underlies them .. Capital therefore presents itself as a relational and political concept. The social position determined by the holding of capital (economic but also social, cultural and symbolic capital) procures more or less power; its accumulation is itself differential 19. The (re)distribution of capital (capitals) that institutions (or regimes of accumulation) allow is, by construction, a redistribution of power(s), in particular symbolic power and the capture of public power. The relative position in the field conditions the strategies of agents, including firms, which apprehend themselves both as fields where agents struggle for domination, and organizations endowed with organizational capitals which use strategies of control and capture over consumers, employees, competitors and public power to reproduce and accumulate more capital 20 .

In the works that adopt this perspective, the inter-field relationships are not the subject of a systematic treatment and do not lend themselves to stabilized analyzes either. They are, however, crucial for analyzing the structures of accumulation. Matthieu Ansaloni shows it well in this issue, on the scale of production: the political structures of accumulation that underlie the cultivation and marketing of a cereal (durum wheat) are located on the borders of professional fields., bureaucratic and partisan. The same is true on a global scale: a regime of accumulation is marked by the domination of companies and segments of the economic field, which are distinguished by the accumulation of capital – determinants at a given moment. This was the case for companies producing consumer goods and fixed capital during the Fordist era (Boyer & Mistral, 1978). This has now been the case with finance companies and financial capital for four decades: within the framework of the financialized accumulation regime, it is basically the ability of financial capital to maintain its position and capture public power , because of its position in the division of labour, the liquidity of capital markets and the liberalization of the movement of capital (Lordon, 2000), which enables it to ensure its income and to shape and print a specific dynamic to all the other components of the economic field as well as the state field (in particular the rules of shareholder value or, in the case of States, submission to the injunctions of the financial markets and the agencies to maintain a sufficient rating to finance the public debt). The differential accumulation of capital makes it possible to influence public policies by accumulating symbolic capital and capturing – or at the very least dominating – the bureaucratic and partisan fields (Bourdieu, 2000; Boyer, 2003), tipping the trade-offs policies that establish modes of regulation and accumulation regimes (Klébaner & Montalban, 2020). From a structural perspective, such phenomena are not the result of coalitions united around a concerted project, but the momentary expression of relations between competing forces. The differential accumulation of capital makes it possible to influence public policies by accumulating symbolic capital and capturing – or at the very least dominating – the bureaucratic and partisan fields (Bourdieu, 2000; Boyer, 2003), tipping the trade-offs policies that establish modes of regulation and accumulation regimes (Klébaner & Montalban, 2020). From a structural perspective, such phenomena are not the result of coalitions united around a concerted project, but the momentary expression of relations between competing forces. The differential accumulation of capital makes it possible to influence public policies by accumulating symbolic capital and capturing – or at the very least dominating – the bureaucratic and partisan fields (Bourdieu, 2000; Boyer, 2003), tipping the trade-offs policies that establish modes of regulation and accumulation regimes (Klébaner & Montalban, 2020). From a structural perspective, such phenomena are not the result of coalitions united around a concerted project, but the momentary expression of relations between competing forces. overturning the political compromises that underlie modes of regulation and accumulation regimes (Klébaner & Montalban, 2020). From a structural perspective, such phenomena are not the result of coalitions united around a concerted project, but the momentary expression of relations between competing forces. overturning the political compromises that underlie modes of regulation and accumulation regimes (Klébaner & Montalban, 2020). From a structural perspective, such phenomena are not the result of coalitions united around a concerted project, but the momentary expression of relations between competing forces.21 . Taken in systems of specific relations, these converge towards a common horizon according to the stakes which are theirs. The accumulation of economic capital is thus analyzed as the fruit, temporary and therefore reversible, of a coincidence between hierarchies formed in multiple fields, at the cost of incessant conflicts (Roger, 2020, Ansaloni in this dossier). The analysis of discourses like the analysis of objective positions 22 makes it possible to bring out the convergence of logics of action.

From an empirical point of view, analysis in terms of field therefore involves mapping the objective distribution of the capitals held by the agents, as well as the positions of some in relation to others (Georgakakis & Rowell, 2013; Lebaron, 2000). By bringing to light the objective structure of an economic field, we are given the means to analyze the distribution of capital between operators who confront each other for accumulation 23 . This work cannot be based on an a priori delimitation– whether it involves artificially isolating the economic field from other fields or concentrating on one scale to the exclusion of all others. To study, for example, the accumulation in European wine production, it is important to restore a system of relations between agents who come from several fields (producers, civil servants, scientists, in particular) in Europe – without limiting ourselves to the fact that these agents describe themselves as “European”, “national” or “local” (Itçaina, Roger & Smith, 2018).

Shedding light on the power relations and the institutions that structure economic activity, its political regulation and its regime of accumulation, therefore amounts to proposing a sociology of power. The positions acquired in the fields concerned are at the origin of the institutions: they are a major object of research in political economy. However, the political structures of accumulation cannot be reduced to objective structures. At this stage come the concepts of symbolic struggles and political work.

3.2. The Political Regulation of Accumulation: Work and Infra- and Inter-Field Struggles

Those who dominate a field can, more than the dominated agents, rely on the listening of bureaucratic and partisan personnel. The result is a greater ability to capture public power. Political mediation also consists in prioritizing the demands formulated by the fractions mobilized in different fields, according to their own logics – all presented as legitimate thanks to an accumulated symbolic capital: if the struggle for symbolic capital is observed within of each field, that which takes place between the fields is generally based on heterogeneous values ​​and legitimation regimes. In all cases, a “political work” of mobilizing arguments and values ​​serves to justify the relative importance given to each claim, or on the contrary to demonetize competing positions. It passes, upstream, by the construction of public problems. When these problems are on the agenda, their “dealing” is then based on the creation of regulatory instruments. It finally leads to a work of legitimation (Smith, 2019). Indeed, public authorities, in particular elected officials, leaders of political parties and senior civil servants, like those who support their action or request their intervention, constantly proclaim the legitimacy of their approach – an expression of the struggle and the symbolic dominance. Reporting on the arguments and the work of legitimization in no way amounts to saying that these arguments are “legitimate”. When these problems are on the agenda, their “dealing” is then based on the creation of regulatory instruments. It finally leads to a work of legitimation (Smith, 2019). Indeed, public authorities, in particular elected officials, leaders of political parties and senior civil servants, like those who support their action or request their intervention, constantly proclaim the legitimacy of their approach – an expression of the struggle and the symbolic dominance. Reporting on the arguments and the work of legitimization in no way amounts to saying that these arguments are “legitimate”. When these problems are on the agenda, their “dealing” is then based on the creation of regulatory instruments. It finally leads to a work of legitimation (Smith, 2019). Indeed, public authorities, in particular elected officials, leaders of political parties and senior civil servants, like those who support their action or request their intervention, constantly proclaim the legitimacy of their approach – an expression of the struggle and the symbolic dominance. Reporting on the arguments and the work of legitimization in no way amounts to saying that these arguments are “legitimate”. in particular elected officials, political party leaders and senior civil servants, like those who support their action or ask for their intervention, constantly proclaim the legitimacy of their approach – an expression of symbolic struggle and domination. Reporting on the arguments and the work of legitimization in no way amounts to saying that these arguments are “legitimate”. in particular elected officials, political party leaders and senior civil servants, like those who support their action or ask for their intervention, constantly proclaim the legitimacy of their approach – an expression of symbolic struggle and domination. Reporting on the arguments and the work of legitimization in no way amounts to saying that these arguments are “legitimate”.24  ”. From an analytical point of view, this makes it possible, on the contrary, to reveal the way in which the “problems” and the “solutions” (instruments/institutions) are shaped: this is the “intellectual framework” (Jobert & Théret, 1994) which serves as a support for certain fractions mobilized in different fields, capable of supporting institutions and accumulation regimes. Understanding the symbolic struggles that generate the accumulation of economic capital thus leads, in the same way as understanding objective structures, to the analysis of the accumulation of capital – economic, social, cultural and symbolic.

Studying the problematization of socio-economic issues therefore commits the researcher to identifying the agents who transform a private issue into a “problem” involving collective or public action, but also to analyze their modus operandi .(Gusfield, 1981; Nephew, 2015). Such a perspective makes it possible to grasp the social thickness – the conflicts, the preferred solutions and the alternatives rejected in their term – of the institutions and regimes that organize and support capitalist accumulation, as the contributions to this dossier illustrate. Sylvain Moura’s article, for example, points to how dominant players in the defense industry in France interpreted the end of the Cold War as an opportunity to hammer home the argument that supporting R&D will induce “military innovations which, subject to adaptations, will spread to the civilian domain”. Beyond, redefining the “problem” of R& D enabled a variety of agents in this industry to (re)present themselves as economic operators who “maintained” France “in the race for technological excellence”. Similarly, in his study on wind energy in Denmark, Pierre Wokuri shows that a territorialized definition of the energy problem strongly contributed to the initial rise of small and medium-sized wind energy cooperatives. In short, the definition of a public problem is in all cases at the foundation of the process of accumulation of symbolic capital by which such an agent (or such a fraction of the field) is likely to find an attentive ear with elected officials, those responsible for political parties and senior civil servants, with the aim of – in his study on wind energy in Denmark, Pierre Wokuri shows that a territorialized definition of the energy problem strongly contributed to the initial growth of small and medium-sized wind energy cooperatives. In short, the definition of a public problem is in all cases at the foundation of the process of accumulation of symbolic capital by which such an agent (or such a fraction of the field) is likely to find an attentive ear with elected officials, those responsible for political parties and senior civil servants, with the aim of – in his study on wind energy in Denmark, Pierre Wokuri shows that a territorialized definition of the energy problem strongly contributed to the initial growth of small and medium-sized wind energy cooperatives. In short, the definition of a public problem is in all cases at the foundation of the process of accumulation of symbolic capital by which such an agent (or such a fraction of the field) is likely to find an attentive ear with elected officials, those responsible for political parties and senior civil servants, with the aim of – ultimately  – to influence the production of institutionalized compromises. In either case, a link emerges between the problematization of the issues, the orientations (commercial and financial) of companies and the shaping of institutions and accumulation regimes.

This point leads to an interest in the second process that the concept of political work mobilizes: the way in which claims on the instruments of public action are formulated, negotiated, adopted or rejected. While these instruments take very diverse forms (standards, subsidies, taxes, classifications, statistics, etc.), political sociology teaches above all that they are never neutral (Lascoumes & Le Galès, 2004). They are, in fact, enlightening objects of study for those who wish to shed light on the political work necessary for the structuring of economic activity in general and the institutions of accumulation in particular. Pierre Wokuri thus shows that the “breathlessness” of Danish wind energy cooperatives in the mid-1990s was the product of the remodeling of public intervention with, on the one hand, the abolition of a guaranteed feed-in tariff (in favor of regulation by “market prices”) and, on the other, the liberalization of residency criteria (undermining the tax advantages offered to local cooperatives). By analyzing the case of defence, Sylvain Moura highlights the strict supervision of the segment of the administration responsible for implementing R&D policy – ​​the Directorate General for Armaments (DGA) within the Ministry of the Armed Forces. Whereas, for more than thirty years, this agency had worked closely with armament companies in the “co-design of products”, from the mid-1990s, its action was refocused on “the definition of needs and the control of the services rendered”. More generally, Éric Lahille shows the importance of integrating the analysis of political work for a full understanding of the processes of political regulation. According to him, the analysis of a mode of political regulation implies, for the researcher, the matching of four action regimes (sovereignty regime, citizenship regime, political regime, public policy regime), the political work shaping each of them. The author shows that these regimes take on particular forms in the era of globalization and financialization: according to his analysis, the financial and global elites partially define the forms of regulation – due, in particular, to the

Problematization and instrumentation therefore go hand in hand, the (re)definition of a problem generating that of its “solutions”. They are both accompanied by a work of legitimation (Lagroye, 1985). This work encompasses the repertoires of arguments, symbolic acts and communication practices that agents manipulate to legitimize, that is to normalize, even “naturalize”, the problems and instruments of public action. In symbolic struggles, an important part of such legitimations is knowingly designed and manipulated to serve strategies for justifying private interests that the agents represent as universal, leaving their instrumental and venal motivations in the shadows. As we indicated above, the dominators of a field (such as the large energy groups in Denmark or the weapons engineers within the DGA) have privileged access to their counterparts in the bureaucratic field – and therefore a greater capacity to capture public power. Just as for economic capital, the asymmetries of symbolic, cultural and social capital therefore weigh heavily on the legitimization of claims directed towards the (re)production of institutions and power relations. The observation applies both in the economic field (or some of its segments) and in the bureaucratic and partisan fields. It does not imply falling into the deterministic trap according to which the dominated would have no chance of asserting their positions,25.

Grasping the (re)production of the institutions that organize and support accumulation is therefore to reveal the state of the structure of the relationships between antagonistic forces. It is also to grasp the dynamics of the struggles that result from it to produce and reproduce these same institutions. To account for such a dynamic, it is necessary to analyze the agents who, within and between the fields, mobilize their respective capitals, so as to benefit from a large audience, the support of a possible objective alliance. In this sense, symbolic struggles and political labor are major components of the political structures of accumulation.


The relationship between the accumulation of capital and politics, however founding they may be in classical political economy and in RT, raises a question that must be constantly revisited, relying on the shoulders of giants, whether Marx, Veblen or Bourdieu. By making capital accumulation a political issue of power and wealth distribution, field and regulationist approaches offer tools for the empirical analysis of the social processes that generate the institutions of accumulation. The dialectic between accumulation and politics requires a dynamic analysis, without for all that imposing a renunciation of structuralism. The meso scale of the approaches in terms of fields and the concept of political work make it possible to extract oneself from the overhanging analyses, by emphasizing the logics of agents who are at the origin of the accumulation process without losing sight of the powerful determinations of the structures on their actions. The preceding arguments are an invitation to pursue this program through empirical investigations, similar to what the contributions to this file propose.


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1 This is the case in France with sociological literature. See, for example: Bessière and Gollac (2020), Boltanski and Esquerre (2020), Purseigle (2017), Laurens (2015).

2 On the basis of this fundamental proposition, authors have sometimes emphasized the rationalization of productive techniques (the “capital account” dear to Max Weber, 1991 [1923]), sometimes on ideology, even more on its religious dimension, assimilating capitalism and religion (Benjamin, 2019 [1921]).

3 Thus defined, politics is distinguished from politics (the partisan world) and public policies.

4 Exceptions can be noted, for example by certain proponents of the new institutional economy who have considered the coupling of violence and accumulation (North, Wallis & Weingast, 2009; Acemo ğ lu & Robinson, 2012).

5 Commenting on Sismondi’s thought, Rosa Luxemburg noted that “having thus made, in agreement with the disciples of Ricardo and Malthus, exploitation and class antagonism the indispensable spur, he arrives at the cause of exploitation: the separation of labor power from the means of production” (Luxemburg, 1969, [1913], p. 153).

6 See in particular Bourdieu, Chamboredon and Passeron (1980). Note that the term constructivist is posterior to Marx.

7 See in particular, chapter XXIV (“The alleged initial accumulation”) of the seventh section of the first Book of Capital (Marx, 2006 [1867]).

8 Meiskins Wood (2019) distinguishes between “coercive means” and “economic means”.

9 Marx (2006 [1867], p. 804). Harvey (2004) disputed this periodization, considering that neoliberalism was accompanied by an “accumulation by expropriation”, based on violence and predation.

10 We will attach less importance to its American cousin, the so-called Social structures of accumulation approach , which TR inspired and which today has less vitality. See Kotz, McDonough and Reich (1994), as well as McDonough (2008). For a critical analysis, see Labrousse and Michel (2017).

11 The regularities that allow reproduction mainly concern the organization of production, the valorization of capital, the sharing of value, the composition of demand and the articulation of capitalist and non-capitalist forms.

12 Delorme and André (1983) understand the state as an institutionalized compromise between contradictory interests, a conceptualization from which they analyze the evolution of public expenditure.

13 The furrow dug by Bruno Théret (with Bruno Jobert, in particular) has allowed the development of research on economic policy, grasped through a “sociology of reference points” (Lordon, 1999). Updating the classist vision of origins, Bruno Amable and Stefano Palombarini (2005; 2017) for their part proposed an approach to economic policy in terms of “social blocks”.

14 See, in particular: Abbott (1988); Gieryn (1983).

15 Voir, notamment : Powell & Dimaggio (1991) ; White, (1992), Dobbin, 2004.

16 See, in particular: Jobert & Muller (1987); Hassenteufel (2008).

17 Profit is understood here in a broader sense than that of the “classic” economic category: it includes any form of advantage that improves one’s position in the social space.

18 Contrary to what some critics have said, field theory opens up profoundly dynamic analyzes (Boyer, 2003; Lordon, 2003, 2008a). More generally, methodical structuralism (to which the sociology of Pierre Bourdieu is attached), because it considers agents – individuals endowed with their own history – as antagonistic poles of attraction, offers a dynamic reading of change. social (Théret, 2003).

19 This point echoes the work of Nitzan and Bichler (2009), who understand capital as power and accumulation as differential – in line with the proposals of Veblen (1904). Similarly, Montalban (2018) shows that power is a relational concept, the hidden face of which is the dependence linked to the unequal holding of rare and/or complementary assets between dominant and dominated actors.

20 See Fligstein (1996), Bourdieu (2000) and Montalban (2017) on the theoretical level and Montalban (2007) for an application to the pharmaceutical industry. This conception is largely compatible with that of Veblen (1904).

21 This dimension clearly distinguishes field theory “à la Bourdieu” from that “à la Fligstein”, the latter emphasizing the mobilization work undertaken by institutional entrepreneurs endowed with a powerful “  social skill  ”, when the first aims to characterize constraining position systems. For a discussion on this, see Itçaina, Roger and Smith, 2016; Ansaloni, Pariente & Smith, 2018.

22 To bring out, in his contribution to this file, an objective alliance between fractions of agents belonging to distinct fields – Mr. Ansaloni thus highlights the circulation of agents, from the (very) senior agricultural civil service, ministerial cabinets and the political representation of French cereal producers.

23 Contrary to what some critics have argued, Pierre Bourdieu’s field theory, like the work of the regulation school, is not imbued with methodological nationalism. See, respectively: Bourdieu, 2013; Sapiro, 2013; Buchholz, 2016; Lamarche et al. , 2015 ; Chanteau et al. , 2016; Klébaner & Montalban, 2020).

24 Let us repeat, legitimacy is the fruit of a symbolic struggle whose object is to make certain claims, and by extension to set aside or conceal others.

25 On this point, see Fouilleux and Jobert (2017).

New Developmentalism: Macroeconomics for Developing Countries

After developing remarkably over the course of the 20th Century, the Brazilian economy stagnated in the 1980s, as a consequence of high inflation and a substantial foreign debt crisis.

Since 1994, despite these two obstacles having been overcome, the country’s growth per capita has been limited to 1% per year, down from an average of 4.5% between 1950 and 1980.

In 2007, I wrote Macroeconomics of Stagnation in order to develop a new theory to understand and explain the Brazilian economy’s poor performance. This article is about the application of that theory to Brazil. The 2007 essay garnered little attention when it was published because a commodities boom caused the Brazilian economy to skyrocket, but the following years confirmed my diagnosis. Globalization and Competition (2010) and Developmental Macroeconomics (2016, co-authored with Nelson Marconi and José Luiz Oreiro), represent a more extensive articulation of the theory.

The theory gradually took shape and received a name: new developmentalism. Inclusive of development macroeconomics and a political economy of developmental capitalism, the theory contrasts with two extremes: liberal capitalism and statism.

New developmentalism’s macroeconomics is innovative in how it addresses the exchange rate and the current account balance and by virtue of its focus on the five macroeconomic prices: the interest rate; the exchange rate; the wage rate; the rate of profit; and the rate of inflation.

Education, institutions, investment in infrastructure, a financial system able to facilitate investment, and sustained demand are all essential to the economic development process. I argue that the exchange rate and the current account balance are just as essential, and, together with sustained demand, their outcomes are short-term.

Of all the macroeconomic prices, the exchange rate has received least interest from economics. In The General Theory of Employment (1936), John Maynard Keynes created a ‘closed’ economy model involving no foreign trade and posited a fixed exchange rate, thereby excluding exchange rate policy from his book.

Liberal or neo-classical economists believe the exchange rate is satisfactorily determined by the market and their only proposal in this regard is free currency exchange.

Classical development economists like Arthur Lewis, Albert Hirschman, Raúl Prebisch, and Celso Furtado understood the importance of the exchange rate, but instead of arguing for a competitive rate, they proposed a problematic substitute to foster industrialisation: high tariffs on imports of manufactured goods.

Many still believe the exchange rate is only important in its effect on imports and exports but it is crucial for inflation as well. According to new developmentalism, the exchange rate is a significant determinant of investment and savings, and therefore of economic development.

An exchange rate that is overvalued in the long run makes a country’s manufacturing firms uncompetitive, discourages investment, and thereby becomes an obstacle to growth. In addition, the corresponding current account deficit leads the country into a balance-of-payments crisis. Nevertheless, the overwhelming majority of economists fails to recognize the importance of current account deficits. They are rightly concerned with the fiscal indiscipline expressed by severely high public deficits but are deeply mistaken to not argue for exchange rate discipline as well, in order to guard against severe current account deficits.

1. Against Current Account Deficits

A theory possesses value if in addition to being true to fact it is also counter-intuitive. The simple replication of common wisdom is not good science.

New developmentalism’s macroeconomics begins with a counter-intuitive principle: middle-income countries like Brazil do not need foreign capital. Current account deficits, which are necessarily financed by foreign funds, hamper economic development rather than fostering it. The notion that capital-poor countries must attract capital from rich ones seems true, but is misguided.

The argument for taking on foreign debt is that a current account deficit equates to ‘foreign savings’ and that foreign savings and domestic savings together make up total savings, which always spells investment. This, however, is an accountant’s reasoning, not an economist’s. An economist thinks in terms of cause and effect, not in terms of identities.

When a country has a current account deficit, its exchange rate rises in parallel; secondly, the revenues of labourers (wages) and rentiers (interest, rent, and dividends) increase in real terms; thirdly, profits fall, discouraging firms from investing, while workers and rentiers are encouraged to consume. The influx of foreign funds, therefore, leads to a high level of substitution of domestic savings for foreign savings.

The only situation in which the substitution of domestic for foreign savings will not be as significant is when a country is already experiencing very marked growth when investment opportunities are multiplying, and the propensity to invest is increasing. The last time this occurred in Brazil was during the 1968-1973 economic ‘miracle’.

As figure 1 shows, there is a direct link between the current account balance (horizontal axis) and the exchange rate (vertical axis). A current account deficit corresponds to a higher exchange rate than that required for a balanced current account.

This can be illustrated by a country like Brazil, which has already industrialised but exhibits a very slow growth rate, low investment and savings rates, and high public and current account deficits.

In a country like this, an exchange rate that would keep the current account at zero is R$3.30 to the US dollar, whereas an exchange rate that would enable manufacturing companies to be competitive is R$4.00 to the US dollar, corresponding to a current account surplus of 1% of GDP. In the same country, a current account deficit of 3% of GDP would correspond to a higher exchange rate of R$2.80 to the US dollar. Figure 1 displays this correlation.

When a government decides to pursue growth through foreign savings, it, therefore, decides to incur a current account deficit. The decision is self-defeating because the growing current account deficit denotes an exchange rate that in the long run, is so high as to make technologically competitive companies (i.e., those using the best technology available) uncompetitive in monetary terms.

By accommodating a current account deficit, the government engages in exchange rate populism: the country incurs a current account deficit that causes wages interests, real estate rents, and dividends to be artificially high, rather than encouraging investment and growth.

Figure 1: Current-account balance and exchange rate

In order for Brazilian firms (be they local or multinational) to remain internationally competitive, the government must ensure an exchange rate of around R$4.00 to the US dollar, corresponding to a current account surplus of just over 1% of GDP.

This idea is counter-intuitive because it means the country does not need foreign funds. In fact, by incurring a current account surplus the country will grow while reducing its foreign debt, increasing its international reserves, and/or financing local companies investing abroad.

2. Dutch Disease

In the example above, the exchange rate that balances the current account, or holds it at zero (R$3.30 to the US dollar) is the ‘current equilibrium’ exchange rate. The competitive or ‘industrial equilibrium’ exchange rate is different – at around R$4.00 to the US dollar – because the country suffers from the Dutch disease. In this example, the Dutch disease represents the R$0.70-to-the-US-dollar difference between the industrial and current equilibriums.

The Dutch disease is a long-term over appreciation of a country’s currency caused by commodities exports which – whether due to a momentary boom in prices or differential or Ricardian rents – can be profitably exported at an exchange rate significantly higher than that enabling state-of-the-art manufacturing firms to remain internationally competitive.

Although the Dutch disease represents a R$0.70-to-the-US-dollar differential in this example, it may be far greater in other cases, especially in oil-exporting countries where the cost of extraction is very low. The severity of this competitive disadvantage will vary in accordance with international commodities prices.

Figure 2: Current and industrial equilibria and exchange rate

A country affected by the Dutch disease will experience a current account surplus. In figure 2, with the exchange rate on the vertical axis and time on the horizontal axis, the two equilibriums are shown by the near-parallel red and blue lines: the current equilibrium is the lower red line, and industrial equilibrium is the blue line above. In a commodities-exporting country, commodities will determine the current equilibrium because this equilibrium corresponds to a satisfactory rate of profit for local producers.

Neutralising the Dutch disease means raising the current equilibrium to the level of the industrial equilibrium. Because the latter is higher than the former, this means that neutralising the Dutch disease and thereby ensuring a competitive playing field for firms operating abroad necessarily involves a current account surplus.

The two equilibriums vary over time. For the purposes of this article, it suffices to say that the industrial equilibrium varies mainly with increased productivity and rising manufacturing wages, whereas the current equilibrium varies mainly with changes in commodity prices.

How can the Dutch disease be neutralised? Before it was properly acknowledged, the Dutch disease was neutralised intuitively through high customs tariffs. Governments justified this using the infant industry argument, while critics accused governments of protectionism. However, in many cases, high customs tariffs aimed to neutralise the Dutch disease for the sake of the foreign market.

The United States, for example, endured the Dutch disease due to oil exports, so maintained high tariffs until 1939. To speak of an infant industry at that point would have been absurd, and nor does it make sense to think in terms of protectionism. In fact, high tariffs were a necessary condition for US industrialisation. The US stopped neutralising the Dutch disease in 1939 because it was already very rich and – because of the war – it lacked competitors.

Ordinarily, countries neutralize the Dutch disease from a certain stage of development onwards, following an import substitution model of industrialization. To this end, they subsidize exports of manufactured products in addition to implementing high import tariffs on foreign goods. Brazil did this successfully between 1967 and 1990. In 1965, manufactured goods exports represented just 6% of total exports; this had risen to 62% by 1990!

The WTO now forbids subsidies. The alternative is to tax commodities exports at variable rates based on commodity prices, whereby, in the Brazilian case, the exporter of a certain commodity would pay 0.70 per US dollar of exports earned. As a consequence of the reduced supply caused by the tax, the exchange rate would depreciate, thereby re-establishing supply, with the manufacturing industry becoming internationally competitive. The tax on commodities exports would lead the market to automatically equalize the current and industrial equilibriums.

This is a very interesting way to neutralise the Dutch disease because ultimately it doesn’t cost exporters anything. What they pay, they receive back in full by way of currency depreciation.

3. Exchange Rate Overvaluation

Figure 2 also shows a third curve, with cyclical behaviour expressed by two peaks; this is the real exchange rate curve. If the market operated as liberal economists assume, the curve would float around the current equilibrium. We know, however, that this is not the case.

According to new developmental macroeconomics, in developing countries afflicted by the Dutch disease, severe long-term exchange rate overvaluation is typical, leading the economy from one financial crisis to another. The peaks correspond to financial crises, after which the exchange rate falls sharply.

In Brazil’s case, this occurred in 2002 and 2014, when the exchange rate briefly rose above the industrial equilibrium. The exchange rate then crossed beneath the industrial equilibrium, then the level of the current equilibrium, to enter the area representing a current account deficit (between the real exchange rate and the current equilibrium), finally stabilizing for a few years at a ‘bottom level’ that was not good for commodities, but enough to keep producers exporting.

Two things cause the exchange rate to rise after a crisis: the Dutch disease and very high interest rates. The Dutch disease ‘pulls’ the exchange rate only as far as the current equilibrium because, for a commodities exporting country, it is commodities that determine the current equilibrium. But the exchange rate continues to drop below the current equilibrium. This is because a commodities exporting country implements substantially higher interest rates than rich countries. Finally, the exchange rate reaches a bottom level, which, in the Brazilian case, was around R$2.80 to the US dollar (at today’s prices) from 2007 to 2017, accompanied by drastic deindustrialisation and quasi-stagnation.

While the exchange rate fluctuates around this bottom level, the current account deficits incurred year after year gradually increase firms’ foreign currency-denominated debt and therefore the debt of the country.

Because the exchange rate regime is free-floating, the deficits should cause the country’s currency to depreciate, but this is prevented by the forming of a credit bubble. Foreign creditors are happy to benefit from high interest rates, economists explain the deficits as ‘foreign savings’, beneficial for the country, and creditors continue to gladly extend credit. In consequence, local manufacturers become internationally uncompetitive and accumulate debt.

Usually, more than half of the foreign debt is financed through foreign investment, which only extends the period of overvaluation. But creditors eventually realize the risk of sovereign default and suspend refinancing of the foreign debt. Alternatively, multinational companies, fearful of being unable to repatriate profits, stop investing. Local firms (manufacturers especially) which have been forced to take on debt, having ceased to be competitive, may also conclude they have to stop accumulating debt. In any case, firms stop investing and a financial crisis is triggered, while the exchange rate rises sharply once again.

Interest rates in developing countries are usually justified by two ‘needs’: that of attracting foreign capital, and that of using the exchange rate as an anchor against inflation.

It should be clear that a policy designed to attract foreign capital is self-defeating.

Central banks have to use interest rates to fight inflation. The level of the real interest rate around which the central bank conducts policy is particularly important. It is fine for this level to be a little lower than that of rich countries, but nothing justifies a much higher level. A third cause for high interest rates can be their benefit to rentiers and financiers, which is perverse when one realises that healthy economies in democratic countries are characterised by low interest rates. Justifying high rates through foreign savings is a mistake: the resulting exchange rate rise leads to higher levels of consumption rather than higher levels of investment.

The use of the exchange rate as an anchor against inflation is absurd. Economists are outraged when governments hold back the prices of state-owned companies (like Petrobras, for example) to keep inflation under control; they should be similarly outraged when central banks hold back the ‘price of the country’: the exchange rate.

4. Financial Crises

Every country is subject to financial crises, which mainly consist of banking crises in rich countries and balance-of-payment or foreign exchange crises in developing countries.

Conventional economics explains crises away in terms of fiscal irresponsibility. Indeed, financial crises may stem from this: excessive government spending can cause increases in demand, imports, and ultimately, fiscal and current account deficits. When these occur together, they are referred to as the ‘twin deficits’.

Still, crises may emerge in the absence of fiscal indiscipline, simply as a consequence of policies of growth through foreign savings.

These days, government fiscal accounts are increasingly scrutinised by rating agencies, financial economists, and the press, so that imbalances like those of the Rousseff Administration are more of an exception than a rule amongst middle-income countries.

On the other hand, current account deficits and the indebtedness of firms do not receive the same level of attention from conventional economists, be they liberal or developmental, because they mistakenly assume the market will provide appropriate controls. It is therefore understandable that these deficits are the main causes of developing countries’ financial crises.

5. The Exchange Rate and Development

Investment is the key variable in the development process. The state’s economic role in contemporary societies is to provide equitable income distribution and ensure conditions for capital accumulation. In this latter role, firstly, it has to provide education; secondly, institutions that ensure market efficiency; thirdly, infrastructure investment; fourthly, long-term finance, and fifthly, a stable national currency.

Keynes diagnosed capitalism’s tendency for insufficient demand and added a sixth condition: demand for investment. New developmentalism adds a seventh general condition: an exchange rate capable of ensuring firms’ access to demand. The exchange rate is like a switch that will turn access to foreign and domestic markets on or off.

Economic development textbooks do not discuss exchange rates because they are seen to represent short-term problems and economic development is chiefly interested in long-run trends. Exchange rates are acknowledged to be volatile, but this volatility does not occur around the current equilibrium. If that were the case, its negative effect on investments would be relatively small because businessmen would not take a higher interest rate for reference when making their investment calculations.

New developmentalism views the problem differently because it is the only theory accounting for the fact developing countries have a tendency for cyclical and long-run exchange rate overvaluation in-between financial crises.

In Brazil, for example, the exchange rate remained overvalued for seven years from 2007 to 2014, during which it hovered around R$2.80 to the US dollar. Under these conditions, businesses find investment does not help them remain competitive, even if using state-of-the-art technology, and choose not to invest.

6. Economic Policy

To ensure increases in savings and investment, macroeconomic policy must not only guarantee fiscal responsibility but exchange rate responsibility as well, with an even greater focus on the latter because current account deficits are less justifiable than public deficits.

Of paramount importance is that five key prices are effectively controlled: low interest rates; competitive exchange rate; wage rates compatible with rates of profit sufficient to provoke investment; and a low rate of inflation.

The exchange rate is the most important of these five prices. Exchange rates should be maintained close to the industrial, or competitive, equilibrium. In other words, cyclical exchange rate overvaluation must be neutralised to ensure firms can access both foreign and domestic demand. Industrial policy is also necessary, but as a supplement, never a substitute, for macroeconomic policy.

In order to maintain a competitive exchange rate, the Dutch disease should be neutralised through a variable tax on commodities exports, and should also reject the three policies habitually embraced by developing countries which cause additional currency appreciation: the policy of growth through foreign debt; the use of the exchange rate as an anchor against inflation; and – the policy used to enable the former two – high interest rates.

Central banks should certainly use interest rates to combat inflation, but it should be kept low – slightly above rich country rates. Because central banks are responsible for keeping inflation in check, they are constantly tempted to keep interest rates high and the exchange rate overvalued. That is why central banks should be responsible for growth in addition to inflation. As is already the case in certain countries, exchange rate policy committees should operate similarly to existing monetary policy committees. Naturally, the government should also be able to control capital flows.

7. Where the Difficulty Lies

The theory is simple and so is the exchange rate policy that derives from it. New developmentalism explains why so many developing countries face the competitive disadvantage of long-term exchange rate overvaluation and are therefore unable to industrialize, and why middle-income industrialised countries which dismantle their mechanisms for neutralising the Dutch disease then deindustrialise, as has been the case in Brazil.

The reason countries like Brazil have followed the course they have is the pressure received from the rich world since the 1980s, when developing countries surrendered to economic liberalism and opened up their economies, thereby dismantling mechanisms which had previously prevented exchange rate overvaluation: import tariffs and subsidies for the production of manufactured goods.

New developmentalism explains the fortunes of deindustrialising middle-income countries and offers policy responses. But now that the theory is available, why don’t developing countries, Brazil included, embrace the necessary policies?

Firstly, in spite of interest from younger scholars, trained economists have enormous trouble learning and internalising new things.

Secondly, there is a short-run cost involved in shifting from a current account deficit to a surplus. The necessary one-time devaluation reduces the income of both workers and rentier capitalists.

The fact neither workers nor rentiers like devaluation is why development economists who defend the short-term interests of wage-earners, and liberal economists who basically represent the interests of rentiers and financiers, are both opposed to devaluation.

Rentiers oppose devaluation with a better reason than workers. For the latter, a depreciation will cause wages to lose purchasing power in the short run, but they will soon be rewarded with additional jobs, and later, with increased productivity and higher wages. For rentiers, the picture is different. A devaluation will similarly reduce the purchasing power of their revenues (interests, dividends, and real estate rents), but also the worth of their wealth. Devaluation will also occur only via an interest rate cut, which definitely runs counter to rentier interests. That is why – besides the neo-liberal education they receive in American and British universities – liberal economists refuse to countenance a competitive exchange rate and inevitably ‘forget’ exchange rates when discussing developing countries’ economic problems.

Faced with the macroeconomic issues caused by large current account deficits and public deficits, liberal economists merely propose fiscal adjustment. By causing recessions and unemployment, sole reliance on fiscal measures reduces interest rates and makes the national currency more competitive without devaluing it. In this way, only waged and salaried workers pay for the adjustment by way of a drop in wages.

New developmentalism’s proposals include fiscal adjustment too but alongside a simultaneous cut in interest rates and a currency devaluation. This leads to a more complete adjustment of the country’s accounts and a more equitable distribution of the cost of the adjustment.

Under conditions of ‘liberal’ adjustment, costs are entirely borne by workers, who lose their jobs and see their wages and salaries reduced. In contrast, the bill for new developmentalism-style adjustment is distributed between wage earners and rentiers.


The Surplus Approach to Rent

Theories of rent are wide-ranging. However, whether neoclassical, Marxist, or Proudhonist, they tend to neglect evolutionary institutionalist theorising. Increasingly dominated by the income approach, rent theories need to be expanded, partly to correct existing work, partly to break persistent intellectual monopoly and oligopoly, and particularly to develop institutional theories of rent. In this paper, I attempt to do so by presenting and evaluating the surplus approach to rent, particularly R.T. Ely’s, highlighting its power and potential and stressing its critiques and contradictions. Drawing, among others, on the original writings of Ely, it is argued that, while the emphasis on property rights, land as a ‘bundle of sticks’, and rent as surplus rather than income help to advance heterodox approaches to rent, the surplus approach is severely limited in its analysis of inequalities and how they can be addressed, especially in extractivist and rentier societies. To unravel long-term inequalities that characterize rent and rentier economies, it is crucial for surplus theorists to engage stratification economics which, in turn, can drive the surplus approach to rent.

1. Rent: Beyond Income

Neoclassical economists define rent as the price paid for the use of land obtained in a competitive market (see, for example, O’Sullivan, 2012, p. 157-161). Therefore, rent is an open-market price paid for the use of land – much like interest is income for the use of capital. In this income approach, rent functions as a driver of growth. Also, rent – like price, more generally – becomes a mechanism for allocating land as a scarce resource.

The surplus approach to rent is rather different. Advanced by a wide range of classical and other economists, including the physiocrats, Smithians, Ricardians, Georgists, institutionalists, Marxists and the French Régulationists, rent is not simply the return price for the use of land; it is also surplus (Ely, 1922, 1927; Haila, 1990, 2016; Fine, 2019; Faudot, 2019). Every surplus approach offers a critique of approaches in neoclassical economics and their related policy prescriptions, but the surplus approach also provides a comprehensive and coherent alternative framework to analyse extractivism and other socio-ecological problems (Butler, 2002). In practice, the surplus approach also offers a springboard for developing practical transformative steps and policies to change the world.

Beyond these generalities, the surplus approach has many nuances. Various theorists have debated what land rent is, and what it is not. Many analysts focus on regimes of growth, particularly the French régulationnistes (See, for example, Faudot, 2019, the work of Robert Boyer, and its extensive discussion, including Vercueil, 2016; Harada & Uemura, 2019). When determining how to address inequality, they deal with the question of rent as a surplus, but how to deal with that surplus and whether to emphasise growth or inequalities, land or capital varies widely. Generally, in the surplus approach, a critical question is whether to re-invest the surplus “to expand and transform the existing economic system”, whether the surplus should be ‘wasted in luxury consumption, leading to economic decline’ (Martins, 2018, p. 41), or whether to redistribute the surplus for inclusive economic development. What proportion of land rent should be returned to the landowner? Should a landowner whose labouring activities help to improve land rent be compensated or should all land rent be given back to society?

Richard T. Ely, a pioneering institutional economist, sought to provide new answers to these questions. He did so by emphasising land, especially redefining land, reintegrating economics and law through land, and bringing in the courts as arbiter to the land rent question. Accordingly, Ely’s focus was not so much on growth, but rather on how land rent is an instrument for creating and maintaining systemic inequality and in what ways inclusive prosperity or wellbeing might be nurtured in an ecologically sound society.

These contributions are of continuing importance. Three reasons help to make the point. The first is that the Revue de la régulation1 is seeking to bring back the rent approach to the political economy of the régulation school at a time when the study of extractivism is at the crossroads on whether to give any place to ‘earlier’ rentier state analysis pioneered by Hossein Mahdavy (see, for example, Mahdavy, 1970).

The second is that the rent approach to the study of inequality has been marginalised in political economy, which is increasingly centred on labour and capital, and their growth (Obeng-Odoom, 2020a; 2021), rather than on land and its place in redistribution (Sheil, 2015; Asongu, 2016). In the USA, Piketty (2014) shows that inequality levels have reached 1910/1920 levels of between 45-50 percent wealth concentration in the hands of the top 10 percent of the population in that country (also, updates in Piketty, 2020). OXFAM (2014) reports that 85 people now have the same wealth as half of the world (3.5bn people). The attempts to explain this inequality has typically focussed on capital and labour. For example, Piketty’s contributions have largely focused on the capital-income ratio (see, for example, Piketty, 2014, p. 8, p. 18, p. 40, p. 42). In general, a careful analysis of land and property rights has largely been ignored, as Robert Rowthorn (2014) pointed out in his review of Piketty’s work for the Cambridge Journal of Economics. Much like Piketty’s work, the OXFAM report focuses on total wealth and the proportion going to the class of capitalists, while others demand attention to labour, but only make superficial or rhetorical comments about land-based inequality.

A third and final reason for the continuing importance of Ely’s contribution is that he has been overlooked as an institutionalist.

Ely gradually disappeared from American social sciences after the early twentieth century […] neoclassical thought […] made every effort to limit his place in the history of thought, granting him only a few mundane lines in the New Palgrave. (Rocca, 2020, p. 11)

Institutionalism is well developed in modern political economics, but its relationship to land and property rights especially as echoed in the work of Richard Theodore Ely, is poorly understood. The entries on ‘institutionalism’ in the Encyclopedia of Political Economy make no reference to Ely (see Waller, 2001, p. 523-528; O’Hara & Waller, 2001, p. 528-532; Hutton, 2001, p. 532-535; Hodgson, 2001, p. 535-538), although he is the “progenitor” of institutional political economy (Vaughn, 1994, p. 28), “founder of land economics” (Weimer, 1984; Malpezzi, 2009), “dean of American economists” (Vaughn, 2000, p. 239) and the founding editor of the field’s pre-eminent journal, Land Economics, initially called the Journal of Land and Public Utility Economics (Salter, 1942).

The existing work on Ely is so little that it can easily be summarised. One type is biographical, looking at the life and contribution of Ely (see, for example, Rocca, 2020). Another is laudatory of his proposals, while the third is entirely dismissive of the political proposals of Ely about war, and unions, for example (see a review in Bradizza, 2013, p. 13-16). Bradizza’s (2013) book and Rocca’s (2020) book chapter are some of the rare recent contributions on Ely seminal interventions on property rights, but these studies do not address Ely’s surplus approach to rent. It seems Ely’s work on rent has largely been forgotten.

Demonstrating the continuing importance of Ely, I draw on his original books and papers, along with existing wider analyses of his work, including reviews of his books published around the time his books were first released. In doing so, in this paper I seek to explain and evaluate Ely’s distinctive approach to rent and to reflect on its significance in modern institutional economics and political economy more widely at the time of a resurgence in extractivism and rentierism.

Like other surplus theorists, Ely rejected the income approach to rent common in neoclassical economics. However, unlike other surplus theorists, Ely recognised that landowners bear substantial costs, so not all the rents going to them should be socialised. He contended that the rent going to landlords was justified so long as they put their private property to social uses. If they failed to do so and, hence, inequality continued to increase or remained entrenched, again Ely broke ranks with other surplus theorists by refraining from the use of revolutionary political processes. Instead, he preferred evolutionary transformation in the form of changes in laws and, notably, appeal to the courts to intervene in addressing growing inequalities. This emphasis on law and rules also distinguishes Ely’s approach to land, which other surplus theorists considered as a unity. For Ely, land was not only a ‘bundle of sticks’ with diverse interests and tenures; land rent also differs based on use, type of land, and change of use and land type, along with all the typical surplus approach emphasis on, say, location and fertility (see, for example, Ely, 1940, p. 76, p. 80-81). In this sense, like Marx’s theories of rent (Munro, 2022), Ely’s surplus approach is historically specific, against absolutism, and crude determinism (Rocca, 2020, p. 4). However, unlike Marx’s theorising, Ely’s approach was evolutionary, rather than revolutionary, and his ‘bundle of sticks’ approach, far more granular. In general, Ely’s specific surplus approach created a “Golden mean”, with three defining features (Rocca, 2020, p. 3), namely: offering a critique of the status quo, providing the principles undergirding evolutionary alternatives, and providing concrete practical steps or policies for creating an inclusive society.

Ely contemplated the limits of his surplus approach. For instance, he suggested that if the courts failed, new judges could be appointed. Concurrently, commissions of enquiry could be established and used to pursue reform (Rocca, 2020, p. 9). However, he was less successful in foreseeing the tendency for property rights to entrench inequality and how that inequality itself gives power over the courts. Also, he overlooked the various ways in which the courts are stratified and racialized. The difficulties of simply appointing new judges in such a racialised environment was not carefully analyzed either. More fundamentally, Ely paradoxically endorsed the global intersections of national inequalities, and entrenched stratification.

To flesh out these arguments, the rest of the paper is divided into three sections. Rent and surplus explains Ely’s conceptualization of rent, stressing how it differs from other theorizations of rent. Rent and distribution discusses how Ely’s surplus approach to rent is applied in the analysis of property and maldistribution. Critiques and contradictions shows the limitations of Ely’s approach.

2. Rent and Surplus

Rent features prominently in Ely’s political economy. While many political economists equate rent and surplus, Ely considered some, but not all, rent to be surplus. In his article, “land income” (Ely, 1928), he clarified how his three-part contribution relates to neoclassical economics, classical economics, and institutional economics. For both neoclassical and classical economics, he offered critiques, paving the way for his attempt to make a positive contribution to institutional economics.

Neoclassical economics regards rent as a payment for the use of land, itself a gift of nature whose value is determined through the interaction of supply and demand. According to Ely, none of these is accurate (Ely, 1928, p. 409). Ely (1917, p. 20, p. 28; 1928) considered rent to be payment for more than land use. Rent reflects privilege for the use of a multiplicity of property rights in land, which is itself made up of several rights together, not a unity. Ely was one of the early exponents of the notion that property is a ‘bundle of rights’ (see, for example, Ely, 1940, p. 76, p. 80-81), not the singular view of property so commonly held in neoclassical economics. This emphasis on rights and economics also made Ely a pioneer of the economics approach to law or the law approach to economics, the combination of which is much bigger than the total of the various parts. For instance, the ‘bundle of rights’ metaphor for Ely also signified an evolutionary approach to social inclusion, not simply a meme of laws and rights (Rocca, 2020, p. 7). In Ely’s political economy of rent, therefore, the courts are clearly central in settling questions of rent and social injustice. In neoclassical economics, too, property rights need to be guaranteed by the courts of law, but in the case of Ely, “they are not absolute rights of an abstract or isolated individual but social arrangements to be justified because they serve definite social-economic ends” (Cohen, 1917, p. 388). The courts in Ely’s surplus approach do not simply favour the landlord, but they consider the social good of private property.

Ely’s approach differs from other surplus approaches, at least in three respects. Firstly, land is not a free resource of nature. Secondly, not all rent is surplus. Thirdly, although contingent rather than categorical, Ely’s proposed solution to the surplus problem is to be found in the courts. Explaining these three differences is crucial for appreciating the essence of Ely’s surplus approach. Starting with whether land is free for Ely is fundamental. Unlike in the classical economics tradition of surplus value which considers that land is a gift, neither land nor land-use is free in Ely’s surplus approach to rent. There are waiting and ripening costs to be borne by the user of land. For these reasons, land income, Ely’s preferred expression for land rent, is not simply the product of supply and demand. He recognises location advantages, the role of public investments, luck, and uncertainty in determining rent, but how they influence rent is shaped by both land-use type, land-use form, and the change between land uses, ranging from mineral land, agricultural land, urban land, and forest land, to many other types of land (Ely, 1922, p. 39-42; 1928).

The second difference between Ely’s approach and other surplus approaches relates to whether all rent is ‘surplus’ (Ely, 1914, p. 400-411). In many of the surplus approaches, rent is an extra payment received over and above what non-privileged people receive; or rent is the extra payment received over subsistence levels. Alternatively, rent could be seen as anything that is owed to labour after it has been paid an exploitation wage. There is also rent as “economic surplus”, which Ely considers the most similar to his approach. According to him, this rent or economic surplus is the “excess over and above what is required to secure the application of the requisites of production” (Ely, 1914, p. 401). What sets Ely apart is that his reading of ‘surplus’ was unlike most classicals who contended that any payment that exceeds what is socially necessary for the factor of production to be used is to be considered as rent or surplus. Karl Marx used ‘surplus value’ to denote anything in excess of what is paid to labour. Henry George, on the other hand, generally considered all land income to be unearned increment and, hence, postulated that the annualised rental value of land should be taxed away, while removing taxes on labour and capital.

Ely’s proposed solution to rent-based problems also set his approach apart from other surplus frameworks. Ely recognised that privilege and interests, even insider group-trading and information can pave the way for extraordinary advantages to accrue to individual landlords. That is, that society creates the conditions for rent. He called this influence of group characteristics a “‘group relationship’ theory of land income” (Ely, 1928, p. 421, italics added). However, he maintained that the broad-based surplus approach is problematic. It is not the privileges per se that generate the increases in value, but the public facilities. However, even these so-called ‘unearned’ incomes are earned because individual landlords incur costs. Ely points to waiting costs and ripening costs as examples (Ely, 1928, p. 409-414). Accordingly, he contended that landlords must be compensated for the cost of waiting and of deferring the use of land to a future date.

To the charge that speculative investments should be discouraged, Ely argued that such speculation is justified because often land investors need to acquire adjoining parcels of land, if they consider that other uses to which such lots could be used would hamper the realisation of the full potential of the land. So, speculation is socially necessary (Ely, 1928, p. 414-416). Ely also argued that land can suffer decrements. If rents can increase, they can also fall. In Ely’s expression, there are both “unearned increments and likewise unearned decrements” (Ely, 1928, p. 426). For all these risks, landlords should not be assumed to always benefit from “unearned income”. “It is suggestive of serious mistakes”, wrote Ely, “that the consideration of land rent and land income has not been closely connected with the consideration of costs. […] The classical view of the rent of land is that it is income without cost” (Ely, 1922, p. 33).

Still, Ely’s approach to rent is based on the surplus approach in a narrower sense. In Outlines of Land Economics, under “Definition of surplus used in this work”, Ely wrote, “The economic surplus is that which is paid over and above such a return to those who are engaged in production as will induce them to do their part fully and efficiently in the work of production” (Ely, 1922, p. 23). Of the five forms of surplus, Ely names “rent of land” as the first, the rest being interest, personal surplus, monopoly gains, and gains of conjecture (Ely, 1922, p. 26). Contrary to the classicals, Ely makes a distinction between surplus and socially useful surplus. The latter is surplus which, when taken back from rent via tax (for example), the land investors will be so demoralised that they give less than optimal contribution to land investment (Ely, 1922, p. 26-27).

Finally, Ely’s preference is to use the courts to address problems of surplus and rent. However, unlike others who were more categorical about such claims, Ely insisted that his position of rent was not cast in stone. Rent was one of the fields of research he set out in his course about, and vision of, land economics (Ely, 1917, p. 28-29). There were three aspects in these endeavours: Description, Definition, and Determination of the claims about rent. In terms of description, he argued that the field of land economics should focus on evolutionary changes in the use of the terms, to analyse the significance in the use of the term and to evaluate how rent is used both in science and in the market. In terms of Definition, he insisted on rent as power or privileged position. Both of these percolate his third charge: to offer empirical assessments of rental theories continuously (including the effects of custom and competition on rent). Reflecting the influence of the German Historical School on Ely (Rocca, 2020, p. 2), his surplus approach is historically specific, against determinism, and absolutism. These features also Ely’s approach to extractivism and distribution.

3. Rent, Extractivism, and Distribution

To examine how Ely’s surplus approach is applied to the analysis of extractivism, structural or long-term inequality, examining his book, Property and Contract in Their Relations to the Distribution of Wealth (hereafter Property and Contract, Ely, 1914) is critical because of its use of “wealth” as “weal” or “that which produced well-being” (Ely, 1914, p. 19) – a central issue in the analysis of global social problems about extractivism. Wealth, as a concept has many intertwined aspects, namely: economic wealth and social wealth. Private wealth, Ely explains, “means economic goods which yield utilities to the individual, and it may even mean something which detracts from social wealth”. Even though private wealth includes “legitimate and proper claims on others”, private wealth “is a concept which belongs primarily to a discussion of individual distribution, while social wealth is a concept which receives special emphasis in production” (Ely, 1914, p. 23). Public and social wealth may be similar (e.g., a post office), but not all public (state) wealth is social wealth.

It is from this formulation that Ely develops his approach to distribution. In Property and Contract (Ely, 1914), he sets out to build on this formulation. In doing so, he argues that distribution is more about ownership than location. While Ely’s questions such as “in whose hand do they rest as property?”, that is “who has the right to consume them, to sell them, to give them away?” (Ely, 1914, p. 1) have a Marxian ring, his question: what are the “underlying economic institutions upon which the economic structure rests” (Ely, 1914, p. 5), takes the analysis one step beyond the Marxist ‘structuralist’ perspective.

Ely’s approach to the study of inequality is based on three questions. First, what is the distribution of income and wealth among ‘the various units of the social organism?’ (Ely, 1914, p. 2). Next, what portion of this wealth produced is derived from or given back to land, labour, capital, or entrepreneurship? Then, what institutions support the present economic structure? Marxists typically leave their analysis at the second level in the enquiry, while for Ely, the third aspect constitutes the ‘fundamental’ issue: “The third line of enquiry […] is concerned with the underlying economic institutions upon which our whole economic structure rests. The fundamentals have been much neglected […]” (Ely, 1914, p. 5). On page 6, Ely also equates institutions with “foundation”. Figure 1 is a schematic presentation of Ely’s approach.

Figure 1. Ely’s approach to analysing the distribution of wealth

Source: author’s illustration based on Ely (1914)

Figure 1 is an annotated diagram of Ely’s analysis of distribution. The institutions in the figure are the fundamentals of the system. They come in the form of collective social forces that consciously or unconsciously shape inequality. Unconscious social forces are those that are not directed at distribution per se (e.g., some laws) but end up having an impact on the question of distribution (e.g., through the unequal application of these laws). The self-conscious forces, called “social self-consciousness”, are rather different. They are aimed at affecting the question of distribution. They may come in the form of legislation, action (judicial, police, executive/government), and public opinion (through praise, criticism, punishment, and reward). Social self-consciousness can also come in the form of social and interest group activity that lobby to change the distribution of incomes and wealth. Such lobby groups can be associations, labour organisations, consumer leagues, and religious groups. There is a relationship between the social self-conscious and the unconscious social forces in the sense that the unconscious may become affected by the conscious with the effluxion of time just as the conscious may evolve into unconscious forces with time.

Individuals are not regarded as institutions in Ely’s approach, but their actions interact with institutions. Individual actions can be conscious, or individuals can unconsciously shape their proportion of wealth. Conscious actions such as planning and training may improve the individual’s proportion of income and wealth. Unconscious actions such as being disciplined, staying out of trouble, and study that is not aimed at improving the individual proportion of incomes and wealth may all contribute to a bigger stake in incomes. However, whether conscious or unconscious, such individual actions interact with institutions such as the media (Ely, 1914). Overall, it is the interaction of all these factors that shapes the distribution of income and wealth. As Ely notes:

We have the incomes which come to us partly because we work for them, in part also we have them because society has decided that we should have them, and not infrequently we have them because certain social forces, operating more or less unconsciously, have cooperated with our own efforts to secure them, or have even procured them for us without any efforts on our part. (Ely, 1914, p. 14)

Institutions, then, are the key forces for Ely. The institution of inheritance and the movement of property values are given by Ely as classic examples of what society does for us in terms of getting a proportion of the incomes and wealth. These considerations lead to the question of how institutions are formed. For Ely, they are collectively created, not individually devised. In his own words: “Passing over to an examination of the fundamentals in the existing socio-economic order, the first truth to note is that they are established not by individuals, nor by nature, but by human society” (Ely, 1914, p. 16).

While institutions are crucial in this approach, it does not mean that institutions themselves are built by individual action. Institutional analysis consciously veers away from beginning with individual characteristics, not only because it is institutions that matter but also because individual actions have been constrained/enabled/influenced by institutions over time and they are still being moulded by institutions. Of all the institutions of analysis, however, Ely centres his case on property, especially private property. In his own words: “The first fundamental institution in the distribution of wealth is the sphere of private property” (Ely, 1914, p. 58, capitalization in original quotation removed).

To illustrate this point, consider oil extractivism, rentierism, or (re)primarisation. A range of scholars and activists and scholar-activists reduce the process to mere extraction of oil in which case every extraction of oil is extractivism and hence, the demand to leave oil in the ground (Obeng-Odoom, 2014, p. 33-36). Others, notably Marxist scholars, consider extractivism as linked to the system of transnational extraction of oil (Nwoke, 1984a, 1984b; Cooney, 2016; Barkin, 2017; Cooney & Freslon, 2019). Thus, the ownership structure along with the international division of labour in which the Global South is consigned the role of raw oil production and the Global North supplies the tools needed to do the extraction and processing are all extractivist, meaning they come with little or no structural transformation in the economy, for example, through local-centred industrialisation. In this sense, colonialism was an extractivist regime because it transferred oil rents from the Global South to the Global North by disinvesting in oil and other infrastructure to ensure socio-economic transformation of oil economies. With the growing power of transnational corporations, Marxists argued that it would be impossible to bargain with them (see Nwoke, 1984b). In this respect, since it is difficult to bargain with transnational-colonial-imperial state complex for rent, Marxists advocated the nationalisation of oil resources. This highly influential position inspired many postcolonial oil economies to create national oil companies to socialise the rents from oil. Examples of such national oil companies are Iraq, Iran, Saudi Arabia and, until recently, Mexico (Sarbu, 2014, p. xii, p. 35). Yet, as is now well known, even when oil wells have been nationalised, oil institutions have still transferred resources into the hands of private entities.

Perhaps, the issue is not so much capital, or not solely capital, industrialisation, and state based-growth, it is also land, wider socio-ecological transformation, and inclusive change (Ely et al., 1917, p. 3-18). “Conservation policies are then land policies” (Ely et al., 1917, p. 54). “Conservation means three things: viz (1) Maintenance as far as possible; (2) Improvement where possible; (3) Justice in distribution” (Ely et al., 1917, p. 3). Ely points to a tendency for concentration through private property rights (Ely et al., 1917, p. 60-69). “Conservation is considered […] to show that it is first of all a problem of property relation” (Ely et al., 1917, p. 3). Yet, ‘property’ is a poorly understood concept. Even in property economics – supposedly the centre for the study of the economics of property – ‘property’ is confusingly regarded as a ‘thing’, often real estate and ‘possession’ of property confused with the ‘ownership’ of property (cf. Steiger, 2006; Griethuysen van, 2012). Property rights analysts add a layer of ‘rights’ to explain ‘property’ by demanding that property be regarded as a ‘bundle of rights’ exercised over a thing, often real estate and land.

Ely also uses the ‘bundle of rights’ metaphor (see, for example, Ely, 1940, p. 76, p. 80-81), but he shifts the emphasis from property relations to social relations. According to him: “the essence of property is in the relations among men arising out of their relations to things” (Ely, 1914, p. 96). For the purpose of rent theories, Ely’s focus suggests a double shift, first from individuals to property and, second, from property to society. Therefore, property, connotes class, status, and position. Property is not merely individuals having a bundle of rights, individuals exercising certain rights over things, or “the category of legal doctrines concerned with allocating rights to material resources”, as legal and new institutional economics perspectives hold (Alexander & Peñalver, 2012, p. 6). If property implies class, subclasses and inter-group differences, then so does rent: its payments could vary according to group position and its very existence is a spark for and maintains inequality and social stratification in an environment in which different groups pay different types of rent. In this sense, Ely delves into the workings of property, notably its (a) characteristics (b) mode of transfer, and (c) how it is established among various groups.

Ely refers to the ‘sphere’ of private property. This notion connotes two main features of property: its extensivity and intensivity. The extensivity of private property refers to how widespread is property which is individually owned. Intensivity refers to how many sticks are in the ‘bundle of rights’ (see, for example, Ely, 1940, p. 76, p. 80-81). Therefore, to consider property, the analyst must dig into both the breadth (extensivity) and depth (intensivity) of private property. Ely also recognises other types of tenure, namely public property (exercised by a political unit such as a city or a nation-state) and common property (exercised by a social grouping such as a community). While Ely’s attention is centred on private property, to investigate property as a driver of inequality, all types must be analysed. In doing so, the conditions under which property is held, the laws about the transfer of property (e.g., taxation or no taxation; extensive or limited transfer taxes), and the evolution of property in both its intensivity and extensivity must be studied. Property itself may be classified as ‘subjects’ (classification according to actors) and ‘objects’ (classification according to objects over which rights are exercised). Property subjects may be classified into common, private, and public property, while property objects may be human beings, land, and capital (Ely, 1914, chap. 10, book 2). It is also possible to classify property according to duration (e.g., freehold). That being said, Ely points to the crucial test of being in the propertied class: ownership as distinct from possession. Mere possession of property does not confer ‘property’ class status. According to Ely, this is why anarchists have strongly advocated that tenants in possession would rather have their possession commuted to ownership (Ely, 1914, chap. 4, book 2). Ownership confers the right of exclusivity, alienation, and appropriation (Ely, 1914, chap. 5, book 2), while possession does not necessarily confer these property rights. Applying his approach to the distribution of wealth as it relates to property and property rights in the twenty-first century illustrates the point further.

Figure 2. Key argument about the tendency under the social theory of property

Source: author’s illustration based on Ely (1914)

The process of growing rent itself is disempowering for the poor because they are forced to move away from central areas to the margins. For some landlords, the process of concentrating property rights works through the advance of risky loans. In this process, there is much dispossession aided by both state and market rules interacting with customs and mores. Two examples of how this works are the non-application of land taxation and the removal of all taxes that constitute a brake on the private acquisition of land.

This argument and the approach on which it is based is substantially different from neoclassical or new institutional economics (mainstream economics in this paper) typically based on general equilibrium analysis and Kuznets’ ideas of inequality (see an extensive review by Asongu, 2016). For mainstream economists, inequality is not necessarily considered to be bad because it can be an incentive to hard work. Second, inequality is the result of individual effort or sloth such that the difference between the incomes and wealth can be attributed to hard work or laziness. Otherwise, in general, inequality tends towards disappearance in the form of a spatial equilibrium. The neoclassical approach to the study of wealth and income concentrates largely on the economic aspects of wealth, not its social aspects.

When land is studied, the primary assumptions are that private property motivate its owners to work hard, invest, and trade in land which in turn, will improve the social conditions of landowners and support national economic growth. However, this approach suffers conceptual bias because for most land in the Global South (e.g., Africa and the Pacific), neither of these assumptions is valid. Instead, land and property are communally held, managed, and used such that even when individual kith and kin pursue personal aspirations with ‘their land’, the use must be governed by and in pursuit of the collective good broadly defined (Anderson, 2011; Elahi & Stilwell, 2013). So, there is no congruence between neoclassical assumptions and the real land economy of customary landowners. New institutional economics (NIE), on the other hand, accepts that neoclassical economics is in error in making methodological individualist assumptions about customary land tenure, however, NIE assumes that such customary systems will ipso facto evolve to Western land tenure systems (see, for example, Yoo & Harris, 2016; The Economist, 2019) – without acknowledging counter ‘hegemonic’ forces that resist such evolution and the autonomous development of customary land tenure (Moyo & Yeros, 2005). The argument in this paper, drawing on Ely’s approach, runs against both neoclassical and new institutional economics for these reasons.

The argument in this paper is also quite distinct from Marxian analysis and claims. For Marxists, inequality is reprehensible, and under the capitalist mode of production, is persistent, and expansionary. The source of inequality, for Marxists, is the capitalistic exploitation of labour. A rich body of Marx’s work on land has recently been analysed (Munro, 2022), but in general Marxist political economy, land is of secondary importance. So, Marxists tend to seek changes in the distribution of surplus-value and the economic structure. Ely’s approach is much wider. Focused on institutions that support the economic structure, land is of particular interest. In this sense, Ely’s pursuit of just distribution is akin to that of Henry George, but his approach differs from that of George in many respects (for a review of the work of Henry George, see Gaffney, 2009; 2015). For instance, in terms of the weight Ely gives to other institutions and their relationship with property rights, in terms of how inequalities need to be addressed, and in terms of whether all rent is to be regarded as surplus. Nevertheless, Ely’s institutionalism complements other heterodox approaches rather than demolishing them. Therefore, Ely’s surplus approach to rent is one more scaffold not only to build a heterodox alternative but also to more deeply mark the terrain and intellectual apparatus of original institutional economics and political economy in general.

Critiques and Contradictions

Ely has been widely criticised. Concerns have ranged from his apparent support of propertied interests to his non-commitment to the founding ideals of the United States. Some have pointed to “his handling of legal material” as being of “a slip-shod character” (Cohen, 1917, p. 399). Others point to his overly optimistic view about the neutrality of judges (e.g., Hand, 1915). Ely himself suggested many ways to overcome such challenges, either by using existing legislation or creating new legislation. As noted by Swayze (1915, p. 825): “the right of taxation, the right of eminent domain, the right to exercise the police power, the right to control transfers, especially by way of inheritance, the right to exempt certain property from education and distress in order that a man [sic] may not be deprived of the means of doing his part in the world by working at his trade or calling”. Ely also suggested a flexible system in which new judges are appointed to overturn archaic judicial philosophies and practices (Swayze, 1915, p. 828), but these positions have been criticised. For example, “It is far better to wait until public opinion is finally settled on a disputed question, and time makes it possible to determine whether proposed changes are real reforms or not” (Swayze, 1915, p. 828). With respect to his surplus approach to rent, these criticisms need to be extended in at least two respects centred mainly on questioning his theorising of inequalities and his trust in “police power”. The surplus approach to rent locates inequalities primarily at the national level where race, gender, class, nor other identities are considered seriously. Yet, as a large body of research has shown, the rise in inequalities is not only at the national level, but can also be seen at the subnational, regional, and global levels (e.g., Bush & Szeftel, 2000; Cahill & Stilwell, 2008; Gaffney, 2009, 2015; Plack, 2009; Obeng-Odoom, 2021). Whatever the scale, inequalities have taken particular identity lines, ranging from caste, colour and class, to gender, disability, and sexuality, among others.

These inequalities and social stratification arise from different underlying institutions and historical periods, and they have entirely different geographical forms. However, they have all tended to lead to similar outcomes: Dispossession, Discrimination, and Concentration. In the United States, this privatization of land has had a distinctive racial orientation. As we see in N.D.B Connolly’s (2014) book: A World More Concrete: Real estate and the remaking of Jim Crow, the process of instituting private property was also the process of establishing white supremacy. Not only have Zoning laws, the use of state power of eminent domain, and so-called campaigns to improve housing for African-Americans in ghettoes ended up dispossessing and displacing African Americans of their land but also these forces of stratification have locked them into the rental market as renters or subprime mortgagors and associated them with undesirable features (e.g., crime, grime, drugs, and dereliction) that drive down property values, while white Americans have made millions off them in rent and mortgage payments.

While there have been black property owners, and these have collaborated with white property owners, for example, by lending each other money to pursue propertied empires, the institutions in that country have made it increasingly difficult for them to expand their property holdings for example by making it much more difficult to obtain the types of loan that white property owners can access to surge ahead (Connolly, 2014, p. 1-16). Such Jim Crow barriers matter, but as Darity and Mullen (2020) have shown recently, these processes of racialised wealth inequalities extended from the era of slavery through Jim Crow to modern multiples of discrimination and privilege. In Africa, the number of sticks in the bundle of private property rights has significantly increased. Common water is now being fenced off and being parcelled out as part of the sphere of private property, as we see in the recent book by John Anthony Allan and his colleagues: Handbook of Land and Water Grabs in Africa (2013). In Ely’s terminology, then, both the extensivity and intensivity of private property have been substantially widened, but they have concentrated wealth in private and racially privileged hands.

None of these engaged Ely’s attention in his time. It is not that Ely was unaware of persistent stratification. He was, but he thought it was deserved, often canvasing a particular type of eugenics in which so-called inferior races would be oppressed to such a level that they would be exterminated: “we have got far enough to recognize that there are certain human beings who are absolutely unfit and should be prevented from a continuation of their kind” (Ely cited Leonard, 2016, p. 74). “Negroes”, Ely noted, “are for the most part grownup children, and should be treated as such” (cited in Leonard, 2016, p. 121). Ely campaigned to exclude immigrants from opportunities because he considered them to be racially inferior (Leonard, 2016, p. 8). He campaigned against giving work to the disabled, to pave way for the worthy poor (Leonard, 2016, p. 131-132), while he deemed white people to be of the “superior classes” (cited in Leonard, 2016, p. 52).

Ely, in short, echoed the dark illiberal side of progressive institutional economists who also sought protection for women, but not equality with them (Leonard, 2016, p. 182-185). Ely, for example, deemed women to be biologically weaker and hence in need of protection (Leonard, 2016, p. 170 & 174). Accordingly, Ely’s surplus approach overlooks, even reinforces, the colour of rent, and the multiple identities of those marginalised by the extraction of rent across the uneven landscape of global political economy both in terms of analysis and proposed ways of addressing the problem.

Yet, in these processes, it is the majority poor peasants, migrants, politically marginalised, blacks, women, nomads and others of minority identities who give up or are made to give up their land and from whom community water is taken. Research published in Feminist Economics establishes that women’s land is often the first and easiest targets. Established plantations disrupt long-standing gendered roles that guarantee certain jobs for women by employing men, often from different communities, to take up women’s jobs (e.g., Daley and Pallas 2014; Poro and Neto, 2014). Mining and drilling activities surged at the height of land grabs Cooney, 2016; Barkin, 2017; Cooney & Freslon, 2019).

41Often the ‘winners’ do not control land forever, but the process can range from 50 to 99 years. People are hardly consulted, as powerful groups take unilateral decisions or government officials even in clear contravention of the law are over-excited about the social benefits the project will bring and, hence, the social theory of this private property movement is that enclosures are good for society. Jobs, technology, knowledge transfer, foreign exchange, and modernisation, development and positive social change have all been promised as a justification for these enclosures – albeit they have remained just that: promises (Obeng-Odoom, 2013a; Elhadary & Obeng-Odoom, 2012; Obeng-Odoom, 2020a). In effect, these multiple transformations have transferred rent from the Global South to the Global North, from blacks to whites, from men to women, from weaker classes, castes, and colours to more powerful groups.

The outcomes have been changing property relations in favour of the rich, wealthy, and mighty. That is, Polanyi’s (1945) “great transformation” has generated stratified hierarchical property relations characterised nearly always with the weaker groups taking the lower and more precarious position in the property ladder. In the case of real estate, indebted mortgage recipients live with the myth that they are property owners when in fact, they only possess property and hold conditional rights that can easily be terminated by the real property owners: banks, doubling as speculators, and landlords who double as bankers, supported by a wide range of professional valuers and real estate organisations (Obeng-Odoom, 2020b). In the case of agrarian relations, proletariats become converted into wage labour sometimes for 50 years, others for much longer. So, while the land will ultimately return to the land-owning communities, community members will have long passed on – especially in countries where the life expectancy is less than 70 or they become much more wretched than they were prior to the process.

By country, the top 10 appropriators as of 2012 were the USA, Malaysia, the UK, China, the United Arab Emirates, South Korea, India, Australia, and South Africa (Land Portal, 2012), while countries in Sub-Saharan Africa provide 70 percent of all land captured (World Bank, 2010). Leon’s (2015) more recent work suggests that these figures are accurate: most of the land purchased has been located in Africa and most of the centres from which the purchases have been financed are the world’s super-rich or rich cities, most notably New York, London, Singapore, Seoul, and Kuala Lumpur (Leon, 2015). Seventy-five percent of the time, the land acquired in such processes is put to the cultivation of biofuel plants, being a change of their previous use (food/non-food uses).

The rest is put to food cultivation, but mainly for export purposes (Borras & Franco, 2012; International Land Coalition, 2012). In turn, access to local food consumption has become insecure or expensive for those in weaker property relations. So, the increase in global food security is mainly for the so-called ‘developed regions’ for which both the number and percentage of people who are undernourished are on the decline. As shown in Table 1, such regions have consistently recorded a decline in undernourishment problems – “A state, lasting for at least one year, of inability to acquire enough food, defined as a level of food intake insufficient to meet dietary energy requirements” (FAO, IFAD & WFP, 2014, p. 50)

Africa (Sub-Sahara and North Africa), where most parcels of land have been taken up in the ongoing global process of private enclosure, is the region with the worst trends in feeding its people. While the causes of undernourishment are many and certainly not simply restricted to the loss of land, the trend in Africa is not a mere question of ‘correlation’. Rather, the reduction of land available for food production is a major contributor to the maldistribution of the burden of food insecurity which in turn, feeds into the problem of undernourishment. As noted in the Africa Agriculture Status Report, “large acquisitions by nationals and foreigners in other countries have greatly increased inequality. From the seller’s point of view, there is concern about distress sales where poor households have no alternative for meeting emergencies than to sell their land at very low prices” (AGRA, 2013, p. 36). Land taken is typically used for agribusiness. As Timothy Wise has shown in his latest book, Eating Tomorrow (Wise, 2019), such a regime of agriculture undermines ecologically sustainable agriculture with its emphasis on genetically modified seeds, excessive emphasis on the use of agro-based fertilizer and other chemicals, and the insistence on viewing agriculture as a for-profit business.

Wise’s work is revealing. Most farmers he has interviewed in Africa are opposed to agribusiness. He refers to his interviews with female farmers in Mozambique who reject agribusiness because, for the farmers, such food system only serves the interest of the West and the local landlord class (Wise, 2019, chap. 1). “Seeds of opposition”, to quote The Economist (2019, p. 32-33), were sown in Mozambique eventually. Prosavana, a corporate initiative, aimed at turning 107,000 square kilometres (a large tract of land analogous to the size of Bulgaria) into a food basket, was launched in 2009. By 2019, not much progress had been made. Rather, plans had been afoot to raise $2bn private equity funds for another agri-business in 2013. By 2019, such was the opposition that The Economist (2019, p. 32-33) described the situation as “stony ground”. Stefan Ouma (2020) has offered a more systematic, more up-to-date account. The financialisation of land and resulting dispossession and deprivation have become even more serious today. The question, then, is no longer whether such inequalities exist but what institutional forces or in the terminology of régulationists, “institutional forms” (Vercueil, 2016), drive, sustain, and mould the trends in the distribution of wealth in relation to property.

Whether the ‘police power’ intended to ensure that such privatisation and private capture of value is an effective check requires careful analysis. In his tome, Legal Foundations of Capitalism, J.-R. Commons, Ely’s student, carefully documents the changing meanings of ‘police power’ in the American and the English courts (Commons, 1924). The courts will often take a larger view of ‘value’ and the ‘economy’ than neoclassical economists would because the courts consider the economy as constituted by the interaction or transaction between two people (plaintiff and defendant), constituting electrons in motion (see Commons, 1924, p. 7-8): not individuals, atomistic individuals, whose actions are static as in neoclassical economics.

Yet, even the courts cannot ipso facto confirm what is ‘reasonable value’ and how the police power might be used, as the use depends on the particular location, time, and constitutional provisions (Commons, 1924). Nowhere is this contingent interpretation better demonstrated than in India where judicial decisions on the question of public and private space have been shifting dramatically from pro-marginalised groups interests to business interests. The state and its agencies even in the days of pro-hawker judicial decisions had always found ways around court decisions to pursue their own interest (Schindler, 2014). Elsewhere, in many cases, courts have used the police power to favour the rich. In one case, this police power was exercised in favour of investors who had been misled into investing in a private land venture in Togo, West Africa (Obeng-Odoom, 2016). Lyn Ossome has conducted a detailed analysis of police power, which seeks to answer the question: “Can the Law Secure Women’s Rights to Land in Africa?”

After considering the evidence, she notes:

There is still no conclusive evidence of the viability of customary law’s efficacy in securing women’s rights to land. Rather, contemporary land deals take place in the context of a legal, political, and economic terrain that requires constant negotiation and reinterpretation in line with the lived realities of communities and women within them. This study demonstrates that customary law is not yet exhausted as an avenue for redress. It exposes the colonial fallacies upon which the customary was based, the attempts to put it aside, and the assumptions that underlay these attempts. It also examines the problematic nature of formalisation in the contexts of land acquisitions, which in essence pits the state against itself. (Ossome, 2014, p. 172)

While this evidence relates to customary law, the research findings about constitutional law and courts follow similar patterns. John Mbaku’s (2018) research on constitutional protection of minority rights in Africa makes the point. According to him, constitutional structure and constitutional making are contingent on socio-historical context. Forcibly united under colonialism, countries such as Cameroon have tried to build constitutions, but such documents are exclusive not only in their rules, but also in their application and enforcement. The Supreme Court of Ghana might be much more inclusive both in how the Ghanaian constitution was drafted and is interpreted (Date-Bah, 2015). But both the US Supreme Court and the South African Supreme Court have been exclusive and ideologically biased against minorities. Typically, the rules of court, constitutional provisions, the complicity of judges and lawyers, and the wider political economies of the two countries combine to concentrate land in the hands of white, wealthy and powerful landlord classes (Bonica & Sen, 2020; Ngcukaitobi, 2021).

Fundamentally, whether inclusive or exclusive, long-term inequalities, social stratification, and property concentration have increased in Africa (Obeng-Odoom, 2021) and elsewhere in the world (Stilwell, 2019; Piketty, 2014, 2020; Darity & Mullen, 2020). Indeed, in the US, research (Maclean, 2017) shows that James Buchanan, the leading theorist behind the public choice school of economics, conceived of the Supreme Court as an institution to support white propertied interests, rather than as an instrument of harmonious arbitration between the landlords and ordinary members of the American society. Not only are black judges in the minority, research shows that their decisions are more likely to be overturned on appeal (e.g., Sen, 2015).

That said, this contingency does not amount to a concerted attempt by lawyers and judges to create what Marxists perceive to be a deliberate institutional framework to encourage extractivism for foreign interests (see, for example, Freslon & Cooney, 2019, p. 26-27). Nigerian courts, for instance, have tried to constrain extractivisms of various kinds when seeking to bring transnational oil companies under their jurisdiction (Obeng-Odoom, 2020a, p. 195-196).

International law itself has been complicit in creating concepts such as terra nullius which have been used to justify extractivisms and many imperial courts like those in Britain still make decisions on many occasions to favour the transnational corporations from the imperium. (For a discussion of concepts and international law, see Amin, 2020). While the Prosecutor at the International Criminal Court (ICC) has promised to prosecute land grabbers at the ICC, no such action has taken place (Surma, 2021). If it does, there is no guarantee of success. It follows that the police power is no guarantee, as suggested by Ely’s surplus approach to rent.

Conclusion: Rent and Reconstruction

Rent is central to political-economic discussion of long-term inequality and social stratification. However, rent is largely neglected in neoclassical-economic analysis of inequality. The surplus approach to rent tries to rectify this problem. The social theory of property, advanced by Ely, offers a distinctive contribution to the surplus approach to rent. Not only does it differ from other surplus approaches in terms of its analysis of how rents arise, Ely’s surplus approach is also distinctive in emphasising land as a ‘bundle of rights’ and reform, not via the socialisation of rent for wider social policy or for workers’ liberation, but through revisiting and revamping the courts (see, for example, Ely, 1940, p. 76, 80-81).

Yet, as the evidence in this paper has shown, the social trust bestowed on private property owners has long been broken and the police power offered as a check on the excesses of private property ownership is way too limited to serve as an effective constraint on the propertied class. The concentration of land-wealth has dramatically normalised, and pre-transformation property relations have been moulded in diverse, different and differentiated ways across scales and over time, particularly in the extractivist forms of accumulation.

Not all these are surprising. Ely’s surplus approach is more strongly focused on national, not multi-scalar global inequalities and global social stratification. Inherent in the social theory of property rights is structural bias against racial and other minorities. As discussed in this paper, the surplus approach also places too much categorical weight on the police power which, in practice, is clearly contingent. Marxian revolutionary alternatives are similarly uncertain. Other evolutionary surplus approach alternatives – including Georgist political economy – are a bit more certain. Drawing on multi-level state power, community, and global institutions, a Georgist alternative can more reliably socialise rent as surplus.

The trouble with all the surplus approaches is that they are either race blind or racist. At the same time, it could be analytically useful to bring Ely ‘back in’ to the debate about the social theory of property and distribution of wealth in extractivist and rentier societies, and link inequalities to institutions, notably the courts. In this way, Ely is one antidote to Buchanan in the sense that he sees institutions as one set of ways to transform society in an evolutionary inclusive way. But, like Buchanan, Ely’s theorizing also explicitly sought to subjugate minorities, especially black people.

If Ely’s theorizing can succeed in this role, therefore, then his theory has to be emptied of its problematic underpinnings which can helpfully be replaced by stratification economics, pioneered by black political economists to become the most advanced school of institutional and evolutionary political economy on inter-group inequalities, analysis of which is a story for another time (for further reading, see Darity, 2009; Darity et al., 2015; Darity, 2021). What can be stressed even now, is that the surplus approach to rent can benefit from the broad approach offered by the régulation school. This group of thought seeks an historical approach that links previous socio-economic and ecological processes to present ones (e.g., rentier processes to new extractivist processes). This school of thought also provides the canvass for an open-ended approach to uniting or amalgamating diverse forms of institutional and evolutionary alternatives. The aim is usually to question orthodoxy, more deeply understand, and more comprehensively change uneven and unequal global political economy. Clearly, one way for stratification to advance is for it to take the driving seat in the surplus approach to rent.


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Economics Can’t Avoid Distributional Issues

Economics can’t avoid distributional issues—it must make room for insights from other disciplines

We live in an age of material abundance and social disquietude. A quarter millennium of industrial revolution has produced an awesome increase in prosperity: almost 8 billion people and enough wealth for every one of them to live lives of unprecedented comfort. The problem, of course, is in the distribution.

The rise of economic inequality in the developed world is weighing on growth and straining the fabric of liberal democracy. And economists, who exert a profound influence on public policymaking, have an important role to play in analyzing the inequities of distribution, exploring the consequences, and shaping remedies. The past half century has provided a mountain of data. And in the past decade, particularly among younger economists, there has been a clear surge of interest and engagement.

Just as economists learned to incorporate the growth of knowledge into their understanding of the world, just as they have—for the most part—accepted the need to wrestle with the imperfections of financial markets, so too they now are grappling in earnest with the complexities of distributional questions.

Yet as a careful observer of the discipline of economics—albeit as an outsider looking in through the windows—engagement with these questions seems to me still constrained by a number of factors. Many economists have enduring doubts about the importance of distributional issues. Many are reluctant to become engaged in what they see as normative questions. And intertwined with these doubts and misgivings is the discipline’s disregard for other forms of knowledge, and its lack of diversity.

The field’s long-standing indifference to the distribution of prosperity has come at the particular expense of minorities, and it is no great leap to suggest that a more diverse profession might reach different conclusions. To be sure, this is a premise that offends some economists. Milton Friedman famously insisted that the political views of good economists could not be discerned in their academic work. He lacked the self-awareness to see that his interests, methods, and conclusions were all informed by his life experience—and in this respect, Friedman was just like everyone else.

In some cases, greater diversity may yield greater clarity. In other cases, greater diversity may result in greater confusion, as new voices challenge old certitudes. But that is a kind of clarity too: it will tell us what we don’t know.

Equity vs Efficiency

Inequality is an economic issue. A growing body of research illuminates its importance. The distribution of wealth and income has a meaningful influence on the distribution of opportunity, on the mechanics of the business cycle, and on the pace of innovation. Inequality also distorts public policy, increasing the power of rent-collecting elites and of those seeking aid, while attenuating the sense of shared purpose necessary for public investment in education, infrastructure, and research.

For decades, mainstream economists argued that efforts to address inequality through redistributive policies would come at the expense of growth—what Arthur Okun called “The Big Tradeoff.” But one silver lining to the rise of inequality over the past half century has been the opportunity to study the real-world impact. A number of recent studies, including work by Jonathan D. Ostry and his colleagues at the IMF (Ostry, Loungani, and Berg 2019), find that high levels of inequality actually impede growth.

Yet even among economists who regard this evidence as compelling, one encounters hesitation about incorporating distributional considerations into the advice professors give to policymakers. Economists have long conceived of their role in public policy debates as being “the partisan advocate for efficiency,” in the words of Charles Schultze, an advisor to Presidents Lyndon B. Johnson and Jimmy Carter. One reason is that in championing efficiency, economists think of themselves as representing the interests of the common man and woman. “Without economists in the room, it’s like a free-for-all where everybody is going for their narrow self-interest and there is no voice for efficiency. And what ‘efficiency’ really means is ‘every American citizen,’” said Michael Greenstone, a University of Chicago economist who worked in the Obama administration. The evidence of the past half century strongly suggests that simply advocating for efficiency does not produce the best outcomes for those ordinary men and women. But there is real value in the role, there isn’t anyone else likely to perform it, and therefore it’s reasonable to have some hesitation about the consequences of a diluted focus.

The field’s long-standing indifference to the distribution of prosperity has come at the particular expense of minorities.

Furthermore, many economists profess a reluctance to meddle in what they regard as a political debate about the distribution of economic output. Quite often, the result is that economists finesse the question of distribution by noting that the benefits of more efficient policy could be distributed equitably, whatever that means, but the details should be worked out by the politicians. Paul Romer, a Nobel laureate in economics, argued in a recent essay (Romer 2020) that economists should just “say ‘No’ when government officials look to economists for an answer to a normative question.”

I recognize the appeal of Romer’s advice. Overconfidence is a common attribute in disciplines that reach for practical conclusions. Perhaps it is even a necessary one: after all, choices must be made. But there is an obvious attraction in limiting the scope of the potential damage.

The problem is that normative judgments can’t be avoided.

In the 1980s, for example, most mainstream economists favored the elimination of minimum wage laws. In 1987, my predecessors at the New York Times editorialized in favor of eliminating minimum wage laws, citing “a virtual consensus among economists that the minimum wage is an idea whose time has passed.” This was purely a judgment about economic efficiency. Economists did not pretend to weigh other arguments for minimum wages. But by advocating for a change in policy on the basis of efficiency, they implicitly devalued those arguments. (And, as it happened, even the efficiency argument was wrong. A few years later, two economists took the radical step of gathering evidence and reached a different conclusion. American workers are still suffering the consequences.)

Even economists who embrace in good faith the argument for avoiding distributional advice—especially economists who embrace this argument in good faith—must recognize that, in practice, they are facilitating the exclusion of distributional issues from public debate. A genuine concern about distributional issues requires distribution to be treated as a primary goal of policy, not as a by-product that requires remediation.

It is particularly problematic for economists to advocate for a policy as broadly beneficial if there is no mechanism for a broad distribution of benefits. Economists have often advocated for trade deals by calculating net benefits and deferring questions of distribution. But the second act seldom happens. “The argument was always that the winners could compensate the losers,” the economist Joseph Stiglitz, also a Nobel laureate, told me a few years ago. “But the winners never do.” Huffy, for example, built about 2 million bikes a year in the town of Celina, Ohio, until it moved production to China in 1998 to meet Walmart’s demand for cheaper bikes. There is now a Walmart where the Huffy workers once parked their cars, and everyone in Celina—and everyone in towns across the United States—can buy cheaper bicycles. But the workers lost their jobs, and promises of help went largely unkept. Advocacy for the interest of “the people,” in the abstract, often ends up looking a lot like cruel indifference to actual people.


The assertion here is not that economists should aspire to provide comprehensive guidance on the optimal distribution of economic output. They can’t. Cross-pollination with other disciplines has enriched economics, as in the incorporation of insights from psychology; from the work of demographers who look at the spatial dimension of economic activity; and from the examination of the evolution of economic ideas through time. But the goal ought not to be the creation of some hybrid super social science.

Rather, the need is to leave space for other perspectives. Economists can provide better guidance to policymakers by emphasizing the importance of distribution—and the importance of considering other kinds of knowledge.

Cross-pollination with other disciplines has enriched economics. But the goal ought not to be the creation of some hybrid super social science.

A disturbing body of psychological research, for example, documents that economic inequality mimics the effects of absolute poverty on physical and mental health. This isn’t an insight that fits easily into economic models, nor does it need to. The key question is how to make sure that information is incorporated into decision-making alongside economic analysis.

There’s an old saying that there are two kinds of scientists: those trying to understand the world and those trying to change it. The nature of economics places it solidly in the second category, but economists don’t always seem to recognize the implications. Treating distributional issues as segregable is politically naive and therefore tends to limit the beneficial influence of economic ideas. The development economist Gustav Ranis observed that economists struggled to influence policy in many developing nations because they had their priorities backward. Economists emphasized efficiency as the most important goal of public policy while regarding political stability and distributional equity as benefits of the resulting growth. Ranis argued that the list should be reversed. People must agree that policies are equitable and conducive to stability before they are likely to support measures to increase efficiency.

That’s a powerful truth: no matter how well you think you understand the world, you still need to persuade others to listen.


Boushey, Heather. 2019. Unbound: How Inequality Constricts Our Economy and What We Can Do about It. Cambridge, MA: Harvard University Press.

Ostry, Jonathan D., Prakash Loungani, and Andrew Berg. 2019. Confronting Inequality: How Societies Can Choose Inclusive Growth. New York: Columbia University Press.

Payne, Keith B. 2017. The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die. New York: Viking Penguin.

Romer, Paul. 2020. “The Dismal Kingdom: Do Economists Have Too Much Power?” Foreign Affairs (March/April).

Opinions expressed in articles and other materials are those of the authors; they do not necessarily represent the views of the IMF and its Executive Board, or IMF policy.


The Post-Pandemic Brave New World

Policymakers’ choices during this disruption could shape their economies for decades to come

The pandemic struck a global economy that already was profoundly unsustainable—socially, environmentally, even intellectually.

Over the past four decades almost all advanced economies have become more polarized, with increasingly unequal income distributions. Developing economies lifted billions of people out of poverty, but in the process they, too, created their own rising inequalities and social tensions.

The global economy’s lopsided growth has brought us to the edge of catastrophic climate change.

And political upheavals in one country after another meant the world could not expect to go on as before. This pressure for change was reflected in economic policy thinking that was rapidly challenging old orthodoxies about public spending, central banking, and government intervention in the economy.

Then the coronavirus brought the most dramatic societal disruption and economic collapse in peacetime memory. Greater policy shifts took place in days or weeks than the most ambitious politicians could have dreamed of achieving in a lifetime. The enormity of the crisis made unintended radicals out of many political leaders as they intervened drastically in economic activity and took the risks of both workers and businesses onto the state’s shoulders on a massive scale.

We are now far enough past the initial onslaught to lift our gaze to the future, even if the pandemic’s course remains uncertain. It is time to consider how current policy choices will—and how they should—shape the long-term path for the world’s economies. This year’s transformation of both the economic and political landscapes—what economic risks and rewards we can realistically foresee and what is newly considered politically possible—means that things will never be the same. But how they will change is wide open, and policy choices made over the next few years will make a big difference to whether the post-COVID world favors broadly shared prosperity more than the status quo ante.

Sharpened societal contradictions

The fundamental economic fact about the pandemic is that it intensified existing societal fault lines. The preexisting policy debates about them have intensified too.

Concerns about rising inequality have been given new fuel because lockdowns entailed much greater hardship for people in jobs that could not be done from home. White-collar jobs, especially knowledge-intensive ones, already were increasingly well rewarded relative to manual jobs—in terms of pay, but also job security and predictability. Workers in most manual service jobs—hospitality and tourism, delivery, retail, and basic care—had long been getting a rougher deal, which worsened in the pandemic. Because they require physical proximity, these are the jobs most exposed to either lockdowns (when judged nonessential) or contagion (when essential). Women and the young are hit particularly hard because they are overrepresented in many of these sectors, as documented in the IMF’s latest World Economic Outlook.

A second, related economic impact of the pandemic is an accentuation of the policy challenge from gig work and other irregular labor. It was already clear that in rich countries, nonconventional forms of employment and contracting were fitting ever less well with established welfare states. Informality continues to be an obstacle to developing safety nets in poorer countries (see Back to Basics in this issue of F&D). The lockdowns demonstrated the shortcomings of even well-developed state bureaucracies in reaching workers outside regular jobs. Politics and legislation often progressed at lightning speed to establish income-support programs, but the support sometimes failed to reach its target because governments could not identify the workers most in need.

Large, informal labor markets have long been a feature of poor economies. But the growth of a “precariat” of service workers—those with insecure employment and income and ill served by public services—is a principal reason why shockingly many people in the world’s richest countries have exceedingly thin financial buffers. Workers in sectors relying on low-paid and precarious work, hit disproportionately hard by the pandemic, were also less equipped to absorb such a shock to begin with.

Moreover, even unprecedented government steps to protect incomes have generally been insufficient to offset the disproportionate damage to those already worse off. As a result, the pandemic is likely not only to have reinforced chronic economic polarization, but to have intensified public awareness of it as a problem.

The economic fallout from the pandemic interacts with the underlying pressures of inequality in a third, less obvious, way. The sudden shift to remote working amounts to a steep change in business use of digital technology that is bound to affect production patterns and the distribution of economic surplus. While these effects may be hard to foresee, it is plausible that they could increase the productivity of those who already have the most “modern” jobs, intensive in cognitive skills and suitable for remote working. That could exacerbate the bifurcation of good and bad jobs.

The pandemic also played into political rifts over economic geography. Most obviously, it raised new questions over globalization—how interconnected countries can cope with contagion that spreads with travelers; with production disruptions from lockdowns in a global supply-chain manufacturing hub, as in Wuhan in January 2020; and with a sudden scramble for imported medical equipment.

Less obvious are the pandemic’s geographic effects within countries. Regional inequality has been one of the most toxic forms of economic polarization: starting about 1980, the post–World War II process of regional catch-up stagnated or even reversed as industrial jobs across national territories gave way to a concentration of knowledge services in their biggest cities. Now, while COVID-19 has spread in leading and declining cities alike, the economic disruption has temporarily changed how and where white-collar work is carried out—and could potentially be used by policymakers to alter permanently the geographic distribution of prosperity.

What is to be done?

For all these reasons, the pandemic is forcing policymakers to confront problems neglected for too long. But if things cannot go on as they were, the question remains, What policies should be implemented to change them and with what goals in mind? This is no easy question. The problems highlighted by the coronavirus crisis have defeated well-meaning attempts at improvement before.

But if things cannot go on as they were, the question remains, What policies should be implemented to change them and with what goals in mind?

But two things seem clear. The first is that the nature and quality of work are central, and any reform program must focus on creating higher-quality jobs for more people in more places. The second is that it must be big in scope and scale—something with ambition and motivational power comparable to the New Deal or the Marshall Plan.

Work must be central because it is where many of the chronic and pandemic-related economic challenges intersect: inequality, precarity, and the new informality; geographic disparity; and technological change. A much greater availability of high-quality jobs is also the main common yardstick to measure the success or otherwise of a comprehensive range of policies.

What these policies should be is, of course, the big question, and one that ought to be democratically anchored. In my recent book The Economics of Belonging, I argue for a program that

Embraces productivity growth and the technological upgrade of jobs by demanding more from employers . It is when unproductive jobs give way to more productive ones that work becomes safer, more pleasant, and better paid. In the European Nordic economies, wage egalitarianism has spurred productivity growth by making low-productivity labor uneconomical and incentivizing investment in productivity-enhancing capital. This approach can be adopted elsewhere to combat chronic low-paid, low-productivity work in lightly and rigidly regulated labor markets alike (both the United Kingdom and France have their precariats, for example) and to direct the reallocation about to take place as COVID-19 makes some activities unviable. Concretely, this means ambitious minimum wage increases and strong and strictly enforced workplace standards.

Produces a high-pressure economy with strong demand growth to give productive firms reason to expand and ensure new jobs appear as bad jobs disappear. High demand pressure is necessary to benefit those on the margins of the labor market—the young, ill-educated, and minorities—who tend to be fired first in a recession and hired last in an upturn. Concretely, this means running macroeconomic policy “hot,” calibrating monetary and fiscal policies to keep demand always slightly ahead of the economy’s capacity, to encourage companies to pull more people into the labor force and seek productivity-enhancing improvements. This is admittedly more easily done in large, rich economies, especially reserve currency issuers—which also puts the onus on their policymakers to lead global demand growth.

Lowers the cost of leaving a bad job and finding a better one . This requires a panoply of policies, including greater spending on skills, well-resourced active labor market policies, and social security reform to untie benefits from jobs. Changing jobs and upgrading skills are costly for workers, and are not undertaken if people have low buffers to live on between jobs. Direct and unconditional payments, including a basic income or negative income tax to avoid low-income traps in the benefit system, are ultimately the only way to overcome these obstacles. They are also the most effective and quickest way to improve living conditions for the worst off, especially when more targeted approaches are unable in practice to reach those most in need.

Reforms tax systems to encourage high-quality work. This means shifting taxes away from labor to encourage job-switching and hiring. The tax revenue loss must be made up elsewhere. This requires that a greater tax burden fall on capital, ideally through a net wealth tax, which is more productivity-friendly than other capital taxes. In addition, carbon taxes should be significantly increased to reallocate labor and capital in a green direction. The proceeds should be redistributed as a “carbon fee and dividend” or “carbon checks.” Finally, international corporate taxation must be fixed to level the competitive playing field between multinational and locally employing firms, and to allow governments more room for maneuver in taxing capital.

Reforms financial systems and tax rules to be less favorable to debt and more favorable to equity-type funding, which is both more conducive to productivity growth and restores an appropriate balance of risk between workers and investors. Governments should convert COVID-related rescue loans to companies that struggle to repay into tradable equity stakes.

Incentivizes a broader geographic spread of the highest-value-added jobs . The goal of policy should be to make more places host a critical mass of high-paying jobs. This is easier said than done, but at a minimum requires greater investment in transport and IT connectivity, local infrastructure, and amenities to make places attractive to live in, and policies to make financing available for new ventures in declining areas. The change to remote working provides a promising opportunity to use tax or regulatory incentives to shift good jobs from large central cities to more remote locations.

Reinterpreting the world

All of this may seem a tall order. The devil will be in the details: implementing large-scale reforms depends on solving myriad trade-offs and logistical difficulties at the micro level. But the challenge our economies face is so big that incremental policies are unlikely to achieve much—and are easy for vested interests to defeat. So any program with a hope of success must be of great scale and broad scope. Given that enormous policy changes have already happened, that no longer seems unrealistic.

The challenge our economies face is so big that incremental policies are unlikely to achieve much—and are easy for vested interests to defeat.

The old macroeconomic rules have been thrown out. Politicians who not long ago intoned about fiscal responsibility preside over record-breaking deficits, actively choosing to open the budgetary floodgates to sustain people’s incomes and companies’ liquidity.

The structure of public spending has also undergone a big shift, especially in countries with Spartan welfare states to begin with. The United Kingdom, in a matter of months, designed a European-style wage subsidy from scratch. The United States allowed people to lose their jobs, but sharply boosted unemployment benefits. And every advanced economy has put in place extraordinarily generous loan programs for businesses, in some cases taking all credit risk off banks’ hands. In many countries, the state is back in a big way, and this shift is qualitative as well as quantitative: governments are taking on risks previously borne by the private sector.

Some of these policy shifts are unprecedented. Others are an acceleration of preexisting trends. A reset of several fundamental premises for central bank policymaking had already emerged from the sluggish recovery after the global financial crisis. Central banks largely, if grudgingly, accepted mounting evidence that low interest rates are here to stay. The Federal Reserve, in particular, has embraced a greater tolerance for “running the economy hot,” no longer worrying that inflation might threaten as soon as unemployment comes down. Both shifts in thinking have helped central banks act early and comprehensively to sustain demand, cheap funding, and financial market functioning in the pandemic—a dovish shift in central bank thinking that is likely to continue.

Then there is the significant change in technology used by companies, which suggests that new remote work practices are here to stay. Surveys suggest that many companies plan to retain at least some work-from-home practices even after the pandemic. In any case, the technological and organizational know-how employers have had no choice but to accumulate at breakneck speed this year cannot be unlearned. It almost certainly will create permanent change in how people work.

And this holds not just for employers, but for consumption patterns. The pickup in online retail and substitution of online connectivity for physical travel are unlikely ever to be fully reversed, even if a vaccine eliminates the virus. A dramatic restructuring of the economy is underway.

These changes are easier to respond to in richer than in poorer economies. But there are opportunities even for lower-income economies. If nothing else, policy revolutions in rich countries will be a learning experience for the world and ought to affect the policy conditions attached to financial aid and debt relief for the poorest economies. And some developments provide direct opportunities for emerging economies: the embrace of remote working improves the prospect of attracting outsourced high-value-added service jobs.

Revolutionary questions

Ordinarily, policymakers can at most hope to tweak their governing systems. Mostly their job is to keep things running. At rare moments, however, leaders’ decisions help reset the course of their societies for a long time. This is such a moment.

Leaders now face three big questions about how they envisage their countries’ economic future.

The first is: reallocation or restoration? National economies have been knocked out of joint, leaving companies and workers uncertain about the future—whether a job viable before the pandemic will be again, whether a line of business is worth investing in or should be wound down. The nudge—or not—of policy can make a big difference to whether capital and labor shift into new activities or the allocation of economies’ resources retains its precrisis pattern. Even if COVID-19 makes some activities permanently less profitable, reallocation may not happen—or not to the necessary extent—without policies to promote it, because of the risk and uncertainty involved. Even if the existing economic model is broken, a new one will not build itself.

The second, more stirring, question is, “building back better or back to business?” There is a big difference between using the disruption to build something different and wishing to get things back on track as fast as possible. These two orientations lead to different policy considerations—roughly, whether to keep resource reallocation to the minimum necessitated by the pandemic or use the disruption to reengineer the economy more fundamentally. Building back better will demand more of businesses and people—for example, by doubling down on climate change goals or raising pay and work standards, using the dislocation to move to a different path. The alternative “back to business” approach will aim to make as minimal, quick, and painless as possible any adjustment economic agents have to undertake.

The final question is whether states are ready to once again embrace planning—using intervention to consciously shape the economy over time. Having a policy goal of sectoral reallocation, or regional convergence, or “building back better” presupposes some confidence in the ability of the state to coordinate and steer private sector behavior and a willingness to establish a desired destination. The loss of both confidence and will caused planning to fall out of fashion in the 1980s. As a result most governments today are neither used to strategic planning nor all that good at it.

Yet there are signs that planning is back. Climate change, geopolitical upheavals, rapid technological transformations, and now the pandemic have increased pressure on politicians to lead their economies to a better place, rather than simply freeing the animal spirits of the private sector. Even before COVID-19, economics and economic policy advice were becoming increasingly sympathetic to more active intervention to make economies work better.

Most leaders vow to “build back better” and to oversee a reallocation of resources to more COVID-safe, greener, and more productive activities. At least implicitly this entails a commitment to a more active and strategic state role in the economy than most have engaged in recently. Whether many states have the capability, or their leaders the temperament, to govern the economy more actively and more strategically than before, we are about to find out.


Fighting Climate Change with Innovation

March 5, 2022 1 comment

Innovation has brought us to an inflection point; the coming decade will be decisive

What has brought us to this inflection point of hope edging out despair?

Innovation—in institutions, understanding, technology, and leadership. The Paris deal itself was hugely innovative. Politics ruled out a legally binding treaty, so a new approach had to be forged. Fiercely criticized by some for its voluntary nature and non-binding targets, it was predicated on the belief that despite a modest first round of commitments, growing scientific evidence, falling technology costs, and rising citizen demands for action would lead to more ambitious targets over time. Recent evidence appears to support this hypothesis, although it will be essential to continue to ramp up ambition in the years ahead if the Paris Agreement’s targets are to be met.

There has also been innovation in the economic understanding of climate change. Not long ago economists, politicians, and business leaders overwhelmingly believed in a trade-off between climate action and economic growth. The cost of action today had to be weighed against the benefits of avoided costs in the distant future, with the discount rate a major focus of debate. This view has been largely replaced by an understanding that smart action against climate change doesn’t only stop bad things happening, it leads to increased efficiency, drives new technology, and lowers risk. These benefits in turn stimulate investment, generating jobs, creating healthier economies, and boosting the livelihoods and well-being of citizens, even in the near term.

We’ve also seen important innovations in leadership. When in 2019 the Intergovernmental Panel on Climate Change (IPCC) concluded that the risks of 2°C average warming were simply too great, and recommended a maximum warming of 1.5°C, it implied a considerably more difficult task ahead. Many expected climate leadership to evaporate in the face of a much steeper hill to climb. However, once the magnitude of the necessary revolution became apparent, enlightened leaders recognized that they had to be all-in to manage risks and seize opportunities. Investors, staff, and customers wanted visionary leaders on the right side of history. To be sure, there are business and political leaders, as well as critical segments of the population, who have vested interests in maintaining the status quo and are resisting change, but the discourse is quite different today than it was only a few years back.

Most dramatically, of course, innovation has driven down costs and introduced new technologies, and this must pick up speed throughout the current decade.

A disruptive decade ahead

Despite this good progress, we are far from an emissions trajectory that avoids even worse effects of climate change. Even if pledges are fully implemented, there remains a wide gulf between our current emissions path and one that achieves the Paris Agreement’s goals. Communities around the world are seeing the impact of just 1°C of warming, from extreme heat to uncontrollable fires to withering food crops to disappearing ice. The future world will be increasingly unrecognizable unless we transform our actions.

Consider the scale of transformation required to limit dangerous warming. The share of renewables in power generation must move from about 25 percent today to almost 100 percent by 2050, and unabated coal will need to be phased out six times faster than it is today. We must renovate our buildings with zero-carbon heating and cooling and improved energy efficiency at a rate of 2.5–3.5 percent by 2030—significantly higher than today’s rate of 1–2 percent. While crop yields are expected to rise in the coming decades, according to the UN Food and Agriculture Organization, they must do so even more quickly on existing lands in order to meet a growing population’s food needs without encroaching upon forests, doubling recent rates over the next 10 years. This growth must at the same time avoid agricultural expansion and maintain soil health as well as water quantity and quality.

Innovation will be critical to achieving these goals. The International Energy Agency’s (IEA’s) new net zero roadmap notes that the needed decarbonization by 2030 is largely achievable with readily available technologies, but by mid-century almost half of required emissions reductions will call for technologies that are not yet on the market. Reliance on technologies still under development is even higher for harder-to-abate sectors, such as long-distance transportation and heavy industry.

Three innovation opportunities alone—direct air capture and storage, advanced batteries, and hydrogen electrolyzers—can deliver roughly 15 percent of cumulative emissions reductions between 2030 and 2050. Efforts to spur innovation must focus not only on research and development of these technologies but also on the technologies and infrastructure these solutions depend on, such as integrated grids and battery storage.

Some trends already show incredible promise. Battery pack prices have fallen almost 90 percent over the past decade. We have seen exponential growth in renewables, now the technologies of choice in many places. And electric vehicle (EV) sales have accelerated, with a growing number of governmental phaseouts of internal combustion engines, subsidies to increase EV demand, and car companies’ embrace of EV fleet targets.

‘Systems change, not climate change’

The famous slogan from climate protesters, “systems change, not climate change,” gets it right. Incremental change that doesn’t quickly lock in a different trajectory will not deliver the change we need. Change must be systemic. History has demonstrated that seemingly impossible change can come about, but only when the right combinations of drivers come together.

Incremental change that doesn’t quickly lock in a different trajectory will not deliver the change we need.

Addressing the climate crisis will also require innovation in many other arenas, such as finance, institutional design, novel partnerships, philanthropy, and international cooperation, to name a few.

Take technological carbon removal, for example. The IPCC and National Academies of Sciences suggest that, by mid-century, 8–10 gigatons of carbon dioxide (GtCO2) may need to be removed annually, but we cannot rely on any one approach to achieve that scale. Natural approaches, such as landscape restoration, may remove 5–6 GtCO2, with significantly renewed efforts, but engineered approaches such as direct air capture and storage will be needed as well if we are to remove and store carbon as much as the latest science suggests is necessary.

Yet many technological approaches remain at the earliest stages of development and require drastic cost reductions. Only a few companies are piloting direct air capture today. Scaling capture and storage will not only rely upon technological innovation to reduce energy inputs and costs, it will also depend on policy support such as tax credits, greater market demand, and public and private investment, among other factors. And in addition to support for the technology itself, another set of drivers must come together to support its enabling infrastructure.

The decarbonization of cement production, one of the world’s most energy intensive materials, is another example of the need for innovation. Demand for cement is growing far more quickly than innovation is offering solutions. For a 1.5°C compatible pathway, the energy intensity of cement production must drop 40 percent in the next decade. Emissions-cutting strategies, such as novel cements that require less heat to produce, and the use of carbon capture and storage are not fully mature. In addition to investments in large-scale demonstration projects, scaling will require supportive policies such as low-carbon performance standards and updated industry standards. Public procurement incentives and mandates will also be key to stimulating demand.

Financing needed

The IEA estimates that $90 billion in public financing is needed as soon as possible to support demonstration projects for the energy transition before 2030, though only $25 billion is budgeted over the next decade. We must find new ways to leverage private investment while boosting and better aligning government spending. Policy and regulatory frameworks tailored to an innovation agenda and additional reduction of risk are needed to attract more private investment. Developing economies in particular need significant support—in the form of financing, technology transfer, and capacity building—to reap the benefits of innovation and move to a low-carbon future.

With the right support, society’s transformation could take off in a way previously unimaginable—providing tremendous opportunities, including new job opportunities and the creation of whole new industries. It could also provide significant health benefits—for example, through air quality improvements. But it must be properly nurtured.

The transformation will no doubt be disruptive. Governments measures must ensure that transitions are just and equitable, especially for workers and industries currently tied to a carbon-intensive future. Our recovery from COVID-19 presents a near-term opportunity to reshape our current systems and advance solutions for the future—instead of further locking in our fossil-fuel-intensive past.