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Can Democracy Reduce Inequality
Despite two decades of social policies targeting poverty and inequality, Latin America remains one of the most economically unequal regions in the world. Recurrent protests motivated by economic grievances have been a regular reminder of this reality. The ongoing health crisis caused by the coronavirus pandemic has disproportionately harmed already vulnerable populations, undoing some of the progress made. At the same time, democracy has taken root in the region, and participation in elections is growing. Then why hasn’t democracy been more effective in resolving Latin America’s persistent inequality?
Research shows voters are not able to make their demands for greater redistribution heard, while governments are not implementing redistributive policies at the desired pace. Reasons include unequal political participation, institutional bias against redistribution, and vote buying. Until such impediments are removed, democracy’s impact on inequality will remain limited.
Between 2000 and 2018, income inequality in Latin America, as measured by the Gini index, gradually fell from 53.3 to 45.7. During the same period, government spending on social protection steadily increased by almost one percentage point of GDP. While these trends seem promising, inequality in Latin America remains high and social spending low by the standards of more advanced economies. For example, the thirty-six countries of the OECD reported a Gini index of only 33.2 in 2018. That is puzzling, given that at least on paper, Latin America is built on similar economic and political principles—market economies and representative democracies. One would expect that the democratic process, which by design is based on the egalitarian principle of “one person, one vote”, would lead to policies that reduce market inequalities. In other words, in a well-functioning democracy, inequality should to some extent be self-correcting. Why isn’t this happening to a greater degree in Latin America?
Weak Voter Demand for Policies that Lower Inequality
A first explanation is that voter demand for inequality-reducing policies remains relatively weak. Lack of voter pressure can be seen in limited and unequal political participation. Despite the widespread use of compulsory voting, voter turnout in the region has remained below 70% on average. More importantly, turnout is biased in a way that is detrimental to the poor, as voting is less common among the less educated and the less wealthy.
Even when they do vote, the less well-off are less informed, and thus less effective in choosing candidates that represent their economic interests. The poor are the greatest beneficiaries of basic public services, such as public education and health care. Unfortunately, voter demand for government investments in these public goods is tenuous, either due to low trust in the ability of public officials to spend public resources in these areas effectively, or due to a preference for immediate benefits such as cash transfers, at the expense of longer-term benefits such as high-quality education and public safety.
Weak Supply of Policies Designed to Reduce Inequality
A second explanation is that the policymaking process may fail to internalize popular demand for redistribution. In some cases, this occurs because political institutions can be manipulated by incumbents to retain power, for example through legislative malapportionment. Others argue that elements of the elite gain access to and remain in power using campaign donations from narrow interest groups, obviating the need to rely on broad popular support.
More recent research has shown that vote buying by political candidates, a prevalent phenomenon in many Latin American democracies, subverts the normal functioning of the budget process. Voters targeted with vote buying prior to an election may receive no government benefits after the election. As poorer voters are more susceptible to vote buying, they are often left unrepresented in the subsequent negotiations over the budget. Thus, vote buying crowds out redistributive spending that could reduce inequality.
Stronger Democracies Better Alleviate Inequality
In a chapter of the recent IDB report entitled The Inequality Crisis I present new data patterns that support the idea that the strength of democracy matters for the alleviation of inequality. I use the Economist Intelligence Unit democracy index to rank democratic quality along five dimensions. Among Latin American countries, stronger democracies provide more redistributive spending. At one end of the spectrum, Nicaragua spends less than 1% of GDP on social protection, compared to almost 7% in Uruguay, at the other end of the spectrum. Interestingly, stronger democracies are also characterized by higher voter turnout and fewer protests. This suggests that voting, rather than protesting, is a catalyst for government redistribution. Protests appear to be a symptom of unmet economic expectations.
Some development institutions, such as the UNDP, have suggested that inequality may be one of democracy’s greatest weaknesses. As the less well-off are economically marginalized, they become more disengaged with the democratic process. However, a weaker democracy may also fail to alleviate inequality. Overcoming this vicious circle remains a challenge for Latin America’s young democracies. Political and civic leaders in the region should renew their commitment to strengthening democratic institutions, chief among them free elections, civic liberties, and independent media. Over time, better-functioning democracies should improve economic equity. Democracy can certainly reduce inequality, as long as it functions as intended.
How Inequality Undermines Democracy?
Inequality has been on the rise over the last three decades, and has been a pervasive issue in the recent U.S. national election. On one level, income inequality is a non-issue in a market economy where there will always be winners and losers. In a market where individuals are free to make choices and reap the rewards of the choices they make, it is a given that some will wind up with more than others. We cannot all be equal because we don’t all have the same natural endowments. Those with certain skills and abilities will often wind up with more than those without. And those who went to school to train for specific occupations that pay well will earn more than those who did not. In short, skilled workers will earn more than non-skilled workers. Consequently, in an increasingly global economy where there will be two classes — skilled and educated workers at the top earning high wages and unskilled and poorly educated workers at the bottom earning low wages — there is bound to be inequality. Moreover, as these trends continue, the gap between the top and the bottom is only bound to grow. On another level, however, income inequality is a seminal issue because of what it really speaks to: the disappearance of the middle class. Inequality per se may not be the problem; rather it is the rate of increase in inequality. In this essay, I argue that to the extent that inequality effectively speaks to a shrinking middle class it represents a threat to democracy.
Rising Inequality
Income inequality is an amorphous concept. When we talk about income inequality we are often talking about the gap between the top and the bottom. The extent to which it is a problem is contingent on just how it is measured. General income inequality, as measured by the ratio of the incomes of the top fifth of the population to those of the bottom fifth, for instance, includes in all income; not just income earned laboring. For those at the top this can include wages, interest and dividend income.[i] For those at the bottom this can include income supports, which are usually subsidies or in-kind assistance that has the effect of boosting the wages of those at the bottom or their effective purchasing power. Income at the bottom, then, often includes wages plus these supports, whether through public assistance transfer programs and/or disability programs. Therefore, wage income will not be the same as income inequality, and this gap between the top and bottom will tend to be less.
General income inequality has in recent decades been on the rise. Those at the top of the distribution have seen their incomes increase while those at the bottom have seen their incomes decrease in real terms. Prior to 1973, the incomes of families in the bottom fifth of the income distribution in the U.S. grew more rapidly than the income of families in other countries. After 1973 low-income families in the U.S. experienced a steady decline in real income, especially from the late 1970s through the middle of the 1990s. Between 1979 and 2007, the top one percent of families had 60 percent of the income gains while the bottom 90 percent only had about 9 percent of those income gains (Belman and Wolfson 2014). Income inequality, especially after 1980, exploded with the top decile share of the national income rising to between 45-50 percent in the 2000s. This may nonetheless understate the problem, which in recent years has been couched as the very top pulling away from the rest because a subclass of “supermanagers” — those at the top of the distribution with great ability and talent, who in some cases were viewed as “superstars” because they were able to make their companies profitable and return a high rate of return to shareholders — emerged who were earning extremely high compensation (Hacker and Pierson 2010; Piketty 2014).
The Threat to Democracy
Democratic theory assumes a society of free, equal, and autonomous individuals. Although democracy may have different meanings for different people, an ideal of democracy is that all individuals are supposed to have equal standing. This means that each individual is equal before the law, has the same vote as other individuals, the same right to express oneself in the political sphere, and perhaps most importantly the same potential to influence what government does, even if they opt not to exercise that potential. All citizens, then, have the same access to governing institutions. Within this theoretical construct, which may also characterize American democracy, money is supposed to be irrelevant to one’s standing. Both the rich and the poor are equal before government (Hacker and Pierson 2010). This conception of equality, otherwise known as procedural equality is not usually concerned with how resources, wealth and income are distributed, but with how individuals stand in relation to one another. Individuals can have more than others so long as they are equal in terms of their legal and political standing. Procedural equality is especially critical to democratic society because it serves to secure another essential condition: personal freedom, which is also a necessary condition for individuals to function autonomously. The greater their autonomy, the more likely they are to participate in the democratic process. Individuals are free to pursue their goals and objectives—i.e. self-interests—so long as their pursuit does not interfere with others’ ability to pursue their own goals and objectives. In a very basic sense, and certainly within the context of classical political thought, this is what it means to talk about personal independence or autonomy. But as Tocqueville observed there cannot be real political equality without some measure of economic equality as well, because a society with great concentrations of poor people can be dangerous (Zetterbaum 1987). Therefore, economic inequality could pose serious problems in a procedural democracy.
Why, then, might inequality be so dangerous to democracy? According to Acemoglu and Robinson (2006), unrest is often a consequence of inequality. And yet, changes are more likely to occur in those societies with greater inequality between elites and citizens. The more equals the society, the less likely are the masses to demand democratization. Democratization requires that society be sufficiently unequal so that the threat of revolution is credible. Therefore, elite may be willing to begin a transition by extending the right of franchise because it is in its interests to do so. The transition effectively preserves the status quo by staving off the threat of revolution, which in the end may preserve the power base of the elite. Yet, the elite only democratizes to the degree necessary to stave off the threat of revolution, because the former effectively limits the power of the majority by diluting popular pressure and undermining the power of the majority. Democratization refers to achieving voice through fair procedures. But democratization could mean achieving greater equality through the redistribution of resources aimed at achieving equality of result.
Economic equality, then, effectively promotes democracy because it effectively reduces the pressure for redistribution, which could occur as a byproduct of mass revolution and the subsequent creation of an authoritarian regime (Boix 2003). More unequal distribution of wealth increases the redistributive demands of the population and the ultimate level of taxes in a democratic system. But what happens when the political system is unresponsive to a so-called democratic vote on the tax rate?
A truly democratic regime would not simply take away from the wealthy elite for the benefit of the masses, but it might set a higher tax rate for purposes of redistribution. In a democracy, everybody votes on the tax rate in accordance with what is known as the median voter theorem. This holds that the more inequality there is the greater will be the distance between the median income and society’s average income. The greater the distance, the more calls there are for redistribution, and it is the distance itself that effectively determines the tax rate (Meltzer and Richard 1981).
On an individual level, unequal distribution of wealth and income, however, may adversely affect individuals’ ability to participate in the democratic process as equals. It may result in procedural inequality to the extent that those lacking in wealth and income may not enjoy the same access to political and policy officials as those who possess wealth and income enjoy. With a greater concentration of wealth at the top, elites are in a better position to use their wealth toward the attainment of their political and other ideological objectives (Bachrach and Botwinick 1992: 4-5). Those at the top of the distribution often enjoy inordinate power and are able to not only limit redistribution, but shape the rules of the game in favor of those with more resources (Stiglitz 2012). Various studies have found legislative bodies to be more responsive to affluent constituents than to non-affluent constituents (Bartels 2008; Gilens 2012; Volscho and Kelly 2012).
Inequality, especially in its extreme form of poverty, does in the end deprive us of our capabilities, which is said to be a kind of freedom. To the extent that individuals at the bottom of the income distribution could be said to be poor, poverty deprives individuals of their capabilities. Therefore, there is a strong case to be made for judging individual advantage in terms of the capability that a person has — “the substantive freedoms he or she enjoys to lead the kind of life he or she has reason to value” (Sen 1999, p.87). Such freedoms are the basis of individual autonomy. Those with more resources may be better positioned to pursue their goals and objectives, while those with fewer resources may find that their ability to pursue their goals and objectives are limited.
An individual’s ability to pursue their goals and objectives is important to democracy for yet another reason. A democracy, especially as its legitimacy and power are derived from popular consent, assumes that individuals have the capacity to reason for themselves, i.e. to deliberate in the public square, and to act on that capacity in a responsible manner. They cannot effectively participate, whether it be in full policy discussions or selecting their own representatives, if they cannot deliberate in a rational manner. As democracy requires that individuals execute their agency, human agency must be protected. But this human agency also presupposes that basic material needs will have been met, which may be less likely given ever widening disparities in wealth and income. Democracy also requires a measure of trust between people, and growing income inequality is said to threaten trust as various groups, mainly those at the bottom, experience political alienation and perceive the system not to be fair. As social capital is the glue that holds society together (Stiglitz 2012), if individuals believe that the economic and political system is unfair, the glue does not work and society does not function well. This is because institutions effectively promote trust. A trusting population tends to be more cooperative, and governments with trusting populations tend to be less corrupt and function with less conflict and greater responsiveness (Uslaner 2008).
Impact of Inequality on Civic Participation
Income inequality not only distorts democracy in terms of how institutions and political actors respond to different levels of income, but it may have a profound effect on the development of social capital, which affects civic engagement. Democracy requires the active participation of citizens in the affairs of their communities, which extends beyond mere voting. Underlying social capital is the notion that civic virtue is most powerful when it is embedded in a dense network of social relations. American civil society has been defined by its associative life, in which Americans belong to voluntary organizations. And through these organizations, they participate in the affairs of their communities (Putnam 2000).
In a study of the relationship between income inequality and civic engagement, Levin-Waldman (2013) found that in 2008 individuals in households with different levels of income had different levels of civic engagement. Six measures of civic engagement were considered: daily discussions of politics, daily reading of newspapers — which were intended to speak to one’s knowledge about and interest in politics — involvement in protests, attendance at political meetings, visiting public officials, and participating in civic organizations. Participation was found to be greater on all measures of participation among those in households earning more than $100,000 a year than among those earning less than $30,000. Those at the highest end of the distribution were not necessarily more likely to be engaged than those between $30,000 and $99,999, but those in households between $30,000 to $59,999 were considerably more likely to be engaged than those in households below $30,000. Participation appeared to improve dramatically when one was in a household with income greater than $30,000. These differences alone would suggest that entry into the middle class might result in greater levels of civic participation. Moreover, logistical regressions found that those with higher incomes were more likely to be civically engaged, and that those earning less than a minimum wage were least likely to be engaged.
Aside from the adverse impact that income inequality has on civic engagement, it could also lead to political anomie. As family income inequality increases, those families below the median are further from the social norm than before. Similarly, those at the top of the distribution see a larger gap between themselves and the rest of the population. Families at the bottom of the distribution may end up drifting further from the mainstream, and thus may also experience greater alienation as those with greater resources may come to see them as both more distinct and undeserving. This may also have consequences for how citizens in turn view the potential role and functions of government (Haveman, Sandefeur, Wolfe, and Voyer 2004). Poor people experience greater social alienation because of their tendency to participate less, which means that they may be out of touch with common interests. But participation is also less likely because the alienation coming from social isolation will lead many to the conclusion that there really is no benefit from participation in the common project of which they are part. When resources are unequally distributed, those at the top and the bottom might not see themselves as sharing the same fate. Consequently, they have less reason to trust people of different backgrounds. Where inequality is high, people may be less optimistic about being masters of their own fate. Increasing inequality results in less participation because of declining trust (Uslaner and Brown 2005).
Conclusion
With rising inequality, it ought to be clear that there are serious challenges to democracy. It cannot be predicted with certainty just how disruptive inequality will be to democracy, as this is contingent on the fragility of democracy. In the U.S., we are clearly seeing an erosion in democracy in that elected representatives no longer represent all people equally. Rather there is greater responsiveness to those with resources, especially those contributing to political campaigns. Increasingly those without resources find themselves frozen out. In more fragile democracies, the response is unrest. And even in the U.S. we see some of that with various social protest movements. Although the results of the 2016 national election were not necessarily a response to rising income inequality, they were clearly a response to the larger economic conditions of which rising income inequality has been a symptom. Specifically, voters appeared to be rebelling against political elites who apparently were unable to deliver good job growth with rising wages. Voters chose a candidate who, rhetorically at least, was opposed to open borders and free trade, and were effectively challenging the commitment of elites to globalism — the same globalism that has resulted in the two-tier economy with highly skilled and paid workers at the top and poorly skilled and paid workers at the bottom. It might be a stretch to conclude that the election of Donald Trump represents a desire for authoritarianism. And yet, his critics view him as such, and if the voters were not choosing what they might have thought were authoritarian solutions to economic conditions, they were clearly responding to the very economic conditions that have been the source of rising inequality in recent years.
Notes and References
[i] Dividend income is income from stocks and/or other types of investments.
Acemoglu, Daron and James A. Robinson. 2006. Economic Origins of Dictatorship and Democracy. Cambridge & New York: Cambridge University Press.
Bachrach, Peter and Aryeh Botwinick. 1992. Power and Empowerment: A Radical Theory of Participatory Democracy. Philadelphia: Temple University Press.
Bartels, Larry M. 2008. Unequal Democracy: The Political Economy of the New Gilded Age. Princeton: Princeton University Press.
Belman, Dale and Paul J. Wolfson. 2014. What Does the Minimum Wage Do? Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
Boix, Carles. 2003. Democracy and Redistribution. Cambridge and New York: Cambridge University Press.
Gilens, Martin. 2012. Affluence & Influence: Economic Inequality and Political Power in America. Princeton and New York: Princeton University Press/Russell Sage Foundation.
Hacker, Jacob S. & Paul Pierson. 2010. Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned its Back on the Middle Class. New York: Simon & Schuster.
Haveman, Robert, Gary Sandefeur, Barbara Wolfe, and Andrea Voyer. 2004. “Trends in Children’s Attainments and Their Determinants as Family Income Inequality Has Increased.” in Kathryn Neckerman ed., Social Inequality. New York: Russell Sage Foundation.
Levin-Waldman, Oren M. 2013. “Income, Civic Participation and Achieving Greater Democracy. Journal of Socio-Economics. 43,2:83-92.
Meltzer, Alan H. and Scott F. Richard. 1981. “A Rational Theory of the Size of Government.” Journal of Political Economy. 89,5: 914-927.
Piketty, Thomas. 2014. Capital in the Twenty-First Century. Cambridge, MA and London: Belknap Press of Harvard University Press.
Putnam, Robert. 2000. Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster.
Sen, Amartya. 1999. Development as Freedom. New York: Anchor Books.
Stiglitz, Joseph E. 2012. The Price of Inequality. New York: W.W. Norton.
Uslaner, Eric. 2008. “The Foundations of Trust: Macro and Micro.” Cambridge Journal of Economics. 32:289-294.
—————– and Mitchell Brown. 2005. “Inequality, Trust, and Civic Engagement.” American Politics Research. 33,6 (November):868-894.
Volscho, Thomas W. Jr. and Nathan J. Kelly. 2012. “The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949-2008.” American Sociological Review. 77,5:679-699.
Zetterbaum, Marvin. 1987. “Alexis De Tocqueville.” In Leo Strauss and Joseph Cropsey eds., History of Political Philosophy. Chicago: University of Chicago Press.
Introducing Kuznets Waves: How Income Inequality Waxes and Wanes over the Very Long Run
The Kuznets curve was widely used to describe the relationship between growth and inequality over the second half of the 20th century, but it has fallen out of favour in recent decades. This column suggests that the current upswing in inequality can be viewed as a second Kuznets curve. It is driven, like the first, by technological progress, inter-sectoral reallocation of labour, globalization, and policy. The author argues that the US has still not reached the peak of inequality in this second Kuznets wave of the modern era.
In 1955 when Simon Kuznets wrote about the movement of inequality in rich countries (and a couple of poor ones), the US and the UK were in the midst of the most significant decrease of income inequality ever registered in history, coupled with fast growth. It thus seemed eminently reasonable to look at the factors behind the decrease of inequality, and Kuznets famously found them in expanded education, lower inter-sectoral productivity differences (thus the rent component of wages would be equalized), lower return to capital, and political pressure for greater social transfers. He then looked at (or rather imagined) the evolution of inequality during the previous century and thought that, driven by the transfer of labour from agriculture to manufacturing, inequality rose and reached its peak in the rich world sometime around the turn of the 20th century. Thus, he created the famous Kuznets curve.
The Kuznets curve was the main tool used by inequality economists when thinking about the relationship between development or growth and inequality over the past half century. But the Kuznets curve gradually fell out of favor because its prediction of low inequality in very rich societies could not be squared with the sustained increase in income inequality that started in the late 1970s in practically all developed nations (see the long-run graphs for the US and the UK). Many people thus rejected it.
The Upswing in Current Inequality as a Second Kuznets Curve
In a new book (Milanovic 2016), I argue however that we should see the current upswing in inequality as the second Kuznets curve in the modern times, being driven, like the first, mostly by a technological revolution and the transfer of labour from more homogenous manufacturing into skill-heterogeneous services (and thus producing a decline in the ability of workers to organize), but also (again like the first) by globalization, which has both led to the famous hollowing out of the middle classes in the west and to a pressure to reduce high tax rates on mobile capital and high-skilled labour. The elements listed here are not new. But putting them together (especially viewing technological progress and globalization as practically indissoluble, even if conceptually different) and viewing this as part of regular Kuznets waves is new. It has obvious implications for the future, not the least that this bout of inequality growth will peak like the previous one and eventually go down.
But before I address that part, let us consider recent important work done by economic historians such as van Zayden (1995); Nogal and Prados (2013); Alfani (2014) and Ryckbosch (2014), who have documented periods of waxing and waning inequality in pre-modern Europe. The interesting part is that Kuznets cycles in pre-modern societies basically replicate the Malthusian cycles because they take place in conditions of quasi-stationary mean income. The pre-modern Kuznets cycles are not driven by economic factors but by epidemics and wars. Both lead to a decrease in population, an increase in mean income, higher wages (because of labour scarcity) and thus lower inequality, that is, until population growth in a Malthusian fashion reverses all these gains.
Thus, we can observe Kuznets waves over some six or seven centuries of European history. In pre-modern times, they are observable against time because mean income is more or less constant (it is just one point on the x-axis). After the Industrial Revolution, however, we see the waves responding to economic factors (e.g. technological change, transfer of labour), and can plot them as Kuznets thought against mean income. This is shown here in the graphs for the US and the UK (Figure 1 and 2). In addition, I show in my book long-term inequality cycles for Spain, Italy, the Netherlands, Germany, Japan, Brazil, Chile, and over a shorter period for China.
While Kuznets’ explanation was focused almost entirely on economic and thus ‘benign’ forces, he was wrong to overlook the impact of ‘malign’ forces (especially wars) that are powerful engines of income equalisation. I find this somewhat puzzling because Kuznets himself, having worked during World War II in the US Bureau of Planning and Statistics, must have noticed how the war led to the compression of income through higher taxation, financial repression, rationing, price controls, and even sheer destruction of physical assets (as in Europe and Japan).
Inequality May Not Be Overturned Soon
Which leads us to the present. How long will the current upswing of the Kuznets wave continue in the rich world, and when and how will it stop? I am skeptical that it will be overturned soon, at least not in the US where I see four powerful forces that keep on pushing inequality up. I will just list them here (they are, of course, discussed in the book):
- Rising share of capital income which is in all rich countries extremely concentrated among the rich (with a Gini in excess of 90);
- Growing association of high incomes from both capital and labour in the hands of the same people (Atkinson and Lakner 2014);
- Homogamy (the educated and the rich marrying each other); and
- Growing importance of money in politics which allows the rich to write rules favourable to them and thus to maintain the inequality momentum (Gilens 2012).
The peak of inequality in the second Kuznets wave should be lower than in the first (when in the UK, it was equal to the inequality level of today’s South Africa) because the rich societies have in the meantime acquired a number of ‘inequality stabilizers’, from unemployment benefits to state pensions.
The pro-inequality trends will be very hard to overturn during the next generation, but eventually they may be – through a combination of political change, pro-unskilled labour technological innovations (which will become more profitable as skilled labor’s price increases), dissipation of rents acquired during the current bout of technological efflorescence, and possibly greater attempts to equalize ownership of assets (through forms of ‘people’s capitalism’ and workers’ shareholding).
Now, these are of course the benign factors that, I think, will ultimately set inequality in rich countries on its downward path. But history teaches us too that there are malign factors, notably wars, in turn caused by domestic maldistribution of income and power of the elites (as was the case in the World War I), that can also do the job of income levelling. But they do it at the cost of millions of human lives. One can hope that we have learned something from history and would avoid this destructive path to equality in poverty and death.
References
Alfani, G (2014), “Economic inequality in the northwestern Italy: a long-term view (fourteenth to eighteenth century)”, Dondena Working Paper No. 61, Bocconi University, Milano.
Alvarez-Nogal, C and L Prados de la Escosura (2013), “The rise and fall of Spain (1270–1850),” Economic History Review, vol. 66(1), pages 1-37.
Atkinson, A and C Lakner (2014), “Wages, capital and top incomes: The factor income composition of top incomes in the USA, 1960-2005”, November version.
Gilens, M(2012), Affluence and Influence, Princeton University Press.
Kuznets, S (1955), “Economic growth and income inequality”, American Economic Review, March, pp. 1-28.
Milanovic, B (2016), Global inequality: A new approach for the age of globalization, Harvard University Press.
Ryckbosch, W (2014), “Economic inequality and growth before the Industrial Revolution: A case study of Low countries (14th-16th century), Dondena Working Paper No. 67, Bocconi University, Milano.
van Zanden, J L (1995), “Tracing the beginning of the Kuznets curve: western Europe during the early modern period”, The Economic History Review, vol. 48, issue 4, pp. 1-23. November.
Wealth and Income Distribution: New Theories Needed for a New Era
Growth theories traditionally focus on the Kaldor-Kuznets stylised facts. Ravi Kanbur and Nobelist Joe Stiglitz argue that these no longer hold; new theory is needed. The new models need to drop competitive marginal productivity theories of factor returns in favour of rent-generating mechanism and wealth inequality by focusing on the ‘rules of the game.’ They also must model interactions among physical, financial, and human capital that influence the level and evolution of inequality. A third key component will be to capture mechanisms that transmit inequality from generation to generation.
Six decades ago, Nicholas Kaldor (1957) put forward a set of stylized facts on growth and distribution for mature industrial economies. The first and most prominent of these was the constancy of the share of capital relative to that of wealth in national income. At about the same time, Simon Kuznets (1955) put forward a second set of stylized facts — that while the interpersonal inequality of income distribution might increase in the early stages of development, it declines as industrialized economies mature.
These empirical formulations brought forth a generation of growth and development theories whose object was to explain the stylised facts. Kaldor himself presented a growth model which claimed to produce outcomes consistent with constancy of factor shares, as did Robert Solow. Kuznets also developed a model of rural-urban transition consistent with his prediction, as did many others (Kanbur 2012).
Kaldor-Kuznets Facts No Longer Hold
However, the Kaldor-Kuznets stylized facts no longer hold for advanced economies. The share of capital as conventionally measured has been on the rise, as has interpersonal inequality of income and wealth. Of course, there are variations and subtleties of data and interpretation, and the pattern is not uniform. But these are the stylized facts of our time. Bringing these facts centre stage has been the achievement of research leading up to Piketty (2014).
It stands to reason that theories developed to explain constancy of factor shares cannot explain a rising share of capital. The theories developed to explain the earlier stylized facts cannot very easily explain the new trends, or the turnaround. At the same time, rising inequality has opened once again a set of questions on the normative significance of inequality of outcomes versus inequality of opportunity. New theoretical developments are needed for positive and normative analysis in this new era.
What sort of new theories? In the realm of positive analysis, Piketty has himself put forward a theory based on the empirical observation that the rate of return to capital, r, systematically exceeds the rate of growth, g; the famous r > g relation. Much of the commentary on Piketty’s facts and theorizing has tried to make the stylized fact of rising share of capital consistent with a standard production function F (K, L) with capital ‘K’ and labour ‘L’. But in this framework a rising share of capital can be consistent with the other stylised fact of rising capital-output ratio only if the elasticity of substitution between capital and labour is greater than unity, which is not consistent with the broad empirical findings (Stiglitz, 2014a). Further, what Piketty and others measure as wealth ‘W’ is a measure of control over resources, not a measure of capital K, in the sense that that is used in the context of a production function.
Differences between K and W
There is a fundamental distinction between capital K, thought of as physical inputs to production, and wealth W, thought of as including land and the capitalized value of other rents which give command over purchasing power. This distinction will be crucial in any theorizing to explain the new stylized facts. ‘K’ can be going down even as ‘W’ increases; and some increases in W may actually lower economic productivity. In particular, new theories explaining the evolution of inequality will have to address directly changes in rents and their capitalized value (Stiglitz 2014). Two examples will illustrate what we have in mind.
- Consider first the case of all sea-front property on the French Riviera.
As demand for these properties rises, perhaps from rich foreigners seeking a refuge for their funds, the value of sea frontage will be bid up. The current owners will get rents from their ownership of this fixed factor. Their wealth will go up and their ability to command purchasing power in the economy will rise correspondingly. But the actual physical input to production has not increased. All else constant, national output will not rise; there will only be a pure distributional effect.
- Consider the case where the government gives an implicit guarantee to bail out banks.
This contingent support to income flows from ownership of bank shares will be capitalised into the value of these shares. Of course, there is an equal and opposite contingent liability on all others in the economy, in particular on workers — the owners of human capital. Again, without any necessary impact on total output, the political economy has created rents for share owners, and the increase in their wealth will be reflected in rising inequality. One can see this without going through a conventional production function analysis. Of course, the rents once created will provide further resources for rentiers to lobby the political system to maintain and further increase rents. This will set in motion a spiral of increasing inequality, which again does not go through the production system at all — except to the extent that the associated distortions represent a downward shift in the productivity of the economy (at any level of inputs of ‘K’ and labour).
Analysing the role of land rents in increases in inequality can be done in a variant of standard neoclassical models — by expanding inputs to include land; but explaining increase in inequality as a result of an increase in other forms of rent will need a theory of rents which takes us beyond the competitive determination of factor rewards.
Differences in Inequality: Capital Income versus Labour Income
The translation from factor shares to interpersonal inequality has usually been made through the assumption that capital income is more unequally distributed than labour income. Inequality of capital ownership then translates into inequality of capital income, while inequality of income from labour is assumed to be much smaller. The assumption is made in its starkest form in models where there are owners of capital who save and workers who do not.
These stylised assumptions no longer provide a fully satisfactory explanation of income inequality because: (i) there is more widespread ownership of wealth through life cycle savings in various forms including pensions; and (ii) increasingly unequal returns to increasingly unequally distributed human capital has led to sharply rising inequality of labour income.
Sharply rising inequality of labour income focuses attention on inequality of human capital in its most general sense:
- Starting with unequal prenatal development of the foetus;
- Followed by unequal early childhood development and investments by parents;
- Unequal educational investments by parents and society; and
- Unequal returns to human capital because of discrimination at one end and use of parental connections in the job market at the other end.
Discrimination continues to play a role, not only in the determination of factor returns given the ownership of assets, including human capital; but also on the distribution of asset ownership.
- At each step, inequality of parental resources is translated into inequality of children’s outcomes.
An exploration of this type of inequality requires a different type of empirical and theoretical analysis from the conventional macro-level analysis of production functions and factor shares (Heckman and Mosso, 2014, Stiglitz, 2015).
In particular, intergenerational transmission of inequality is more than simple inheritance of physical and financial wealth. Layered upon genetic inequalities are the inequalities of parental resources. Income inequality across parents, due to inequality of income from physical and financial capital on the one hand, and inequality due to inequality of human capital on the other, is translated into inequality of financial and human capital of the next generation. Human capital inequality perpetuates itself through intergenerational transmission just as wealth inequality caused by politically created rents perpetuates itself.
Given such transmission across generations, it can be shown that the long-run, ‘dynastic’ inequality will also be higher (Kanbur and Stiglitz 2015). Although there have been advances in recent years, we still need fully developed theories of how the different mechanisms interact with each other to explain the dramatic rises in interpersonal inequality in advanced economies in the last three decades.1
High Inequality: New Realities and Old Debates
The new realities of high inequality have revived old debates on policy interventions and their ethical and economic rationale (Stiglitz 2012). Standard analysis which balances the tradeoff between efficiency and equity would suggest that taxation should now become more progressive to balance the greater inherent inequality against the incentive effects of progressive taxation (Kanbur and Tuomala,1994 ).
One counter argument is that what matters is not inequality of ‘outcome’ but inequality of ‘opportunity’. According to this argument, so long as the prospects are the same for all children, the inequality of income across parents should not matter ethically. What we should aim for is equality of opportunity, not income equality. However, when income inequality across parents translates into inequality of prospects across children, even starting in the womb, then the distinction between opportunity and income begins to fade and the case for progressive taxation is not undermined by the ‘equality of opportunity’ objective (Kanbur and Wagstaff 2015).
Concluding Remarks
Thus, the new stylised facts of our era demand new theories of income distribution.
- First, we need to break away from competitive marginal productivity theories of factor returns and model mechanisms which generate rents with consequences for wealth inequality.
This will entail a greater focus on the ‘rules of the game.’ (Stiglitz et al 2015).
- Second, we need to focus on the interaction between income from physical and financial capital and income from human capital in determining snapshot inequality, but also in determining the intergenerational transmission of inequality.
- Third, we need to further develop normative theories of equity which can address mechanisms of inequality transmission from generation to generation.2
References
Bevan, D and J E Stiglitz (1979), “Intergenerational Transfers and Inequality”, The Greek Economic Review, 1(1), August, pp. 8-26.
Heckman, J and S Mosso (2014), “The Economics of Human Development and Social Mobility”, Annual Reviews of Economics, 6: 689-733.
Kaldor, N (1957), “A Model of Economic Growth”, The Economic Journal, 67(268): 591-624.
Kanbur, R (2012), “Does Kuznets Still Matter?” in S. Kochhar (ed.), Policy-Making for Indian Planning: Essays on Contemporary Issues in Honor of Montek S. Ahluwalia, Academic Foundation Press, pp. 115-128, 2012.
Kanbur, R and J E Stiglitz (2015), “Dynastic Inequality, Mobility and Equality of Opportunity“, CEPR Discussion Paper No. 10542.
Kanbur, R and M Tuomala (1994), ‘‘Inherent Inequality and the Optimal Graduation of Marginal Tax Rates”, (with M. Tuomala), Scandinavian Journal of Economics, Vol. 96, No. 2, pp. 275-282, 1994.
Kuznets, S (1955), “Economic Growth and Income Inequality”, The American Economic Review, 45(1): 1-28.
Piketty, T (2014), Capital in the Twenty-First Century, Cambridge Massachusetts: The Belknap Press of Harvard University Press.
Piketty, T, E Saez, and S Stantcheva (2011), “Taxing the 1%: Why the top tax rate could be over 80%”, VoxEU.org, 8 December.
Roemer, J E and A Trannoy (2014), “Equality of Opportunity”, in A B Atkinson and F Bourguignon (eds.) Handbook of Income Distribution SET Vols 2A-2B. Elsevier.
Stiglitz, J E, et. al. (2015) “Rewriting the Rules of the American Economy“, Roosevelt Institute.
Stiglitz, J E (1969), “Distribution of Income and Wealth Among Individuals”, Econometrica, 37(3), July, pp. 382-397. (Presented at the December 1966 meetings of the Econometric Society, San Francisco.)
Stiglitz, J E (2012), The Price of Inequality: How Today’s Divided Society Endangers Our Future, New York: W.W. Norton.
Stiglitz, J E (2014), “New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals”, paper presented to the International Economic Association World Congress, Dead Sea, June and forthcoming in Inequality and Growth: Patterns and Policy, Volume 1: Concepts and Analysis, to be published by Palgrave MacMillan.
Stiglitz, J E (2015), “New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals: Parts I-IV”, NBER Working Papers 21189-21192, May.
Footnotes
1 For early discussions of such transmission processes, see Stiglitz(1969) and Bevan and Stiglitz (1979).
2 Developments in this area are exemplified by Roemer and Trannoy (2014).
Income Inequality and Citizenship: Quantifying the Link
Our level of income is unarguably dependent on where we live in the world. But evidencing this is tricky. This Posting presents a model that explains global income variability using one variable only – where you live. The results suggest that we might want to reassess how we think about both economic migration and global inequality of opportunity.
It is as obvious as it is well known that the world is unequal in terms of individuals’ incomes (e.g. Mohammed 2015). But it is unequal in a very particular way – when split into ‘inequality within countries’ and ‘inequality between countries’, the latter accounts for by far the biggest gap.
Inequality within countries measures, for instance, gaps between poor and rich Americans or between poor and rich Chinese. For simplicity, let’s call it ‘class’ inequality. But there is also another equally obvious inequality – that between rich and poor nations. More specifically, this inequality is measured as the gap between the ‘representative’ or ‘average’ individuals of any two countries, be they Morocco and Spain or Mexico and the US. For simplicity, let’s call this ‘locational’ inequality.
Inequality, as it is commonly understood in today’s world, is such that whatever measure we choose, the lion’s share of global inequality is ‘explained’ by the differences in mean incomes between countries.
This was not always the case. Although our data for the past are far more tentative than our data for today’s global income distribution, we can still state with little doubt that the dominant type of equality in the 19th century was that within countries (see Milanovic 2011).
Citizenship Premiums and Penalties
If income differences between countries are large then your income will significantly depend on where you live, or even on where you were born (97% of the world’s population remain in the countries where they were born). This is what I call a ‘citizenship premium’ (or a ‘citizenship penalty’) – a ‘rent’ that a person receives if he or she happens to be born in a rich country, or, if we use the terminology introduced by John Roemer, an ‘exogenous circumstance’ which is independent from any one individual’s effort and episodic luck (Roemer 2000).
How big is citizenship rent, how does it vary with one’s position in the income distribution, and what does it imply for global inequality of opportunity and migration?
Estimating Citizenship Rent
I estimate citizenship rent by using data collected from household surveys conducted in 118 countries in and around the year 2008 (Milanovic 2015). For each country, I have micro-level (household) data ordered into 100 percentiles, with individuals ranked by their household per capita income. This gives 11,800 country/percentiles with ‘representative’ per capita incomes expressed in dollars of equal purchasing parity, making incomes across countries comparable.
I ‘explain’ these incomes using only one variable – the country where individuals live. Of course, people living in the US will tend to have higher incomes at any given percentile of the distribution than people living in poor countries in, for instance, Africa. But how will it look for the world as a whole? In a least-square dummy variable regression, I use Congo (the poorest county in the world) as the ‘omitted country’ so that I can express the citizenship premium in every other country in terms of the income gain compared to Congo. The premium for the US is 355%, it is 329% for Sweden and 164% for Brazil. But for Yemen, another very poor country, it’s 32%.
According to this regression, we can explain more than two-thirds of the variability in incomes across country/percentiles by only one variable – the country where people live. This estimation shows that, as we thought, a lot of our income depends on where we live.
Citizenship Rent across the Distribution
But this is only an average premium that compares countries. Does citizenship rent vary along the entire income distribution? If I were to take into consideration only people belonging to the lowest part of the income distribution in each country, would the premium still be the same?
Intuition may help here. Suppose that I focus only on the incomes of the lowest decile (with rich countries more equal than poor countries). Then the gap between rich and poor countries should be greater for the very poor people than for the average individual. And this is indeed what we find – Sweden’s citizenship premium compared to Congo is now 367% versus 329% on average. But Brazil’s is 133% versus 164%. The situation at the top is exactly the opposite – Sweden’s advantaged position at the 90th percentile of the income distribution is ‘only’ 286%, but Brazil’s becomes 188%.
Implications for Migration
The existence of the citizenship premium has obvious implications for migration: people from poor countries will have the opportunity to double or triple their real incomes by moving to a rich country.
But the fact that the premium varies as a function of one’s position in the income distribution carries additional implications. If I consider moving to one of two countries that have the same average income, my decision on where to migrate – based on economic criteria alone – will also be influenced by my expectations regarding where I may end up in the recipient county’s income distribution. My decision will thus be influenced by the extent to which the recipient country’s income distribution is unequal.
Suppose that Sweden and the US have the same mean income. If I expect to end up in the bottom part of a recipient country’s distribution, then I should migrate to Sweden. The poor people in Sweden are better off compared to the mean, and the citizenship premium, evaluated at lower parts of distribution, is greater. The opposite conclusion follows if I expect to end up in the upper part of the recipient country’s distribution – I should migrate to the US.
This last result has unpleasant implications for rich countries with greater ‘in-country’ equality. More equal rich countries will tend to attract lower-skilled migrants who generally expect to be placed in the bottom part of the recipient country’s distribution. Developing a national welfare state would have the perverse effect of attracting migrants who can contribute less.
Even in this rough sketch, we also have to consider the levels of social mobility in recipient countries because more unequal countries with strong social mobility will, everything else being the same, tend to appeal to more skilled migrants.
Global Inequality of Opportunity
The mere existence of a large citizenship premium implies that there is no such a thing as global equality of opportunity because a lot of our income depends on the accident of birth.
So should we strive for global equality of opportunity or not? It is a political philosophy question that philosophers have thought much more about than economists. Some, following John Rawls in The Law of Peoples, believe that this is not an issue and that every argument for global equality of opportunity would conflict with the right of national self-determination. But other political philosophers like Thomas Pogge believe that in an interdependent world, the dominant role of chance in people’s life is not to be accepted lightly (Pogge 2008). I am not proposing a solution to this issue, yet, I believe that economists should not shy away from addressing it.1
As gaps between nations diminish, mostly thanks to the high growth rates of Asian countries, the citizenship rent will tend to reduce. But there is such a huge gap today that even a century of much higher growth in poor countries (in comparison to rich countries) will not eradicate citizenship rent.
However, it will reduce. As it does, it will also reduce overall global inequality. This might then lead us to a world not dissimilar to the mid-19th century, in which class is again more important for one’s global income position than location.
Do I hear the distant sound of Marx?
References
Milanovic, B (2011), The haves and the have-nots: a short and idiosyncratic history of global inequality, New York: Basic Books.
Milanovic, B (2015), “Global Inequality of Opportunity: How Much of Our Income Is Determined By Where We Live?”, The Review of Economics and Statistics 97(2): 452-460.
Mohammed, A (2015), “Deepening income inequality”, World Economic Forum report.
Pogge, T (2008), World Poverty and Human Rights, Polity Press.
Rawls, J (2001), The Law of Peoples, Cambridge, MA: Harvard University Press.
Roemer, J (2000), Equality of Opportunity, Cambridge, MA: Harvard University Press.
Shachar, A (2009), The Birthright Lottery, Cambridge, MA: Harvard University Press.
Footnote
1 Legal scientists such as Ayalet Shachar have written about addressing global inequality from a legal standpoint, proposing a much more flexible and open definition of citizenship (see Shachar 2009).
Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession
Since 1988, rapid growth in Asia has lifted billions out of poverty. Incomes at the very top of the world income distribution have also grown rapidly, whereas median incomes in rich countries have grown much more slowly. This posting asks whether these developments, while reducing global income inequality overall, might undermine democracy in rich countries.
The period between the fall of the Berlin Wall and the Great Recession saw probably the most profound reshuffle of individual incomes on the global scale since the Industrial Revolution. This was driven by high growth rates of populous and formerly poor or very poor countries like China, Indonesia, and India; and, on the other hand, by the stagnation or decline of incomes in sub-Saharan Africa and post-communist countries as well as among poorer segments of the population in rich countries.
Anand and Segal (2008) offer a detailed review of the work on global income inequality. In Lakner and Milanovic (2013), we address some of the limitations of these earlier studies and present new results from detailed work on household survey data from about 120 countries over the period 1988–2008. Each country’s distribution is divided into ten deciles (each decile consists of 10% of the national population) according to their per capita disposable income (or consumption). In order to make incomes comparable across countries and time, they are corrected both for domestic inflation and differences in price levels between countries. It is then possible to observe not only how the position of different countries changes over time – as we usually do – but also how the position of various deciles within each country changes. For example, Japan’s top decile remained at the 99th (2nd highest from the top) world percentile, but Japan’s median decile dropped from the 91st to the 88th global percentile. Or, to take another example, the top Chinese urban decile moved from being in the 68th global percentile in 1988 to being in the 83rd global percentile in 2008, thus leapfrogging in the process some 15% of the world population – equivalent to almost a billion people.
When we line up all individuals in the world, from the poorest to the richest (going from left to right on the horizontal axis in Figure 1), and display on the vertical axis the percentage increase in the real income of the equivalent group over the period 1988–2008, we generate a global growth incidence curve – the first of its kind ever, because such data at the global level were not available before. The curve has an unusual supine S shape, indicating that the largest gains were realised by the groups around the global median (50th percentile) and among the global top 1%. But after the global median, the gains rapidly decrease, becoming almost negligible around the 85th–90th global percentiles and then shooting up for the global top 1%. As a result, growth in the income of the top ventile (top 5%) accounted for 44% of the increase in global income between 1988 and 2008.
Fortunes of income deciles in different countries over time
The curve in Figure 1 is drawn using a simple comparison of real income levels at given percentiles of the global income distribution in 1988 and 2008. It is ‘anonymous’ because it does not tell us what happened to the actual people who were at given global income percentiles in the initial year, 1988. In fact, the regional composition of the different global income groups changed radically over time because growth was uneven across regions. A ‘quasi non-anonymous’ growth incidence curve in Figure 2 adjusts for this – the growth rates are calculated for all individual country/deciles at the positions they held in the initial year (1988). The growth rate on the vertical axis (calculated from a non-parametric fit) thus shows how the country/deciles that were poor, middle-class, rich, etc. in 1988 performed over the next 20 years. The supine S shape still remains, although it is now slightly less dramatic.
People around the median almost doubled their real incomes. Not surprisingly, 9 out of 10 such ‘winners’ were from the ‘resurgent Asia’. For example, a person around the middle of the Chinese urban income distribution saw his or her 1988 real income multiplied by a factor of almost 3; someone in the middle of the Indonesian or Thai income distribution by a factor of 2, Indian by a factor of 1.4, etc.
It is perhaps less expected that people who gained the least were almost entirely from the ‘mature economies’ – OECD members that include also a number of former communist countries. But even when the latter are excluded, the overwhelming majority in that group of ‘losers’ are from the ‘old, conventional’ rich world. But not just anyone from the rich world. Rather, the ‘losers’ were predominantly the people who in their countries belong to the lower halves of national income distributions. Those around the median of the German income distribution have gained only 7% in real terms over 20 years; those in the US, 26%. Those in Japan lost out in real terms.
The particular supine S-shaped growth incidence curve (Figure 1) does not allow us to immediately tell whether global inequality might have gone up or down because the gains around the median (which tend to reduce inequality) may be offset by the gains of the global top 1% (which tend to increase inequality). On balance, however, it turns out that the first element dominates, and that global inequality – as measured by most conventional indicators – went down. The global Gini coefficient fell by almost 2 Gini points (from 72.2 to 70.5) during the past 20 years of globalisation. Was it then all for the better?
Probably yes, but not so simply. The striking association of large gains around the median of the global income distribution – received mostly by the Asian populations – and the stagnation of incomes among the poor or lower middle classes in rich countries, naturally opens the question of whether the two are associated. Does the growth of China and India take place on the back of the middle class in rich countries? There are many studies that, for particular types of workers, discuss the substitutability between rich countries’ low-skilled labour and Asian labour embodied in traded goods and services or outsourcing. Global income data do not allow us to establish or reject the causality. But they are quite suggestive that the two phenomena may be related.
A dramatic way to see the change brought by globalisation is to compare the evolution over time of the 2nd US income decile with (say) the Chinese urban 8th decile (Figure 3). Indeed we are comparing relatively poor people in the US with relatively rich people in China, but given the income differences between the two countries, and that the two groups may be thought to be in some kind of global competition, the comparison makes sense. Here we extend the analysis to 2011, using more recent and preliminary data. While the real income of the US 2nd decile has increased by some 20% in a quarter century, the income of China’s 8th decile has been multiplied by a factor of 6.5. The absolute income gap, still significant five years ago, before the onset of the Great Recession, has narrowed substantially.
Political Implications
And even if the causality cannot be established because of many technical difficulties and an inability to define credible counterfactuals, the association between the two cannot pass unnoticed. What, then, are its implications? First, will the bottom incomes of the rich countries continue to stagnate as the rest of China, or later Indonesia, Nigeria, India, etc. follow the upward movement of Chinese workers through the ranks of the global income distribution? Does this imply that the developments that are indeed profoundly positive from the global point of view may prove to be destabilising for individual rich countries?
Second, if we take a simplistic, but effective, view that democracy is correlated with a large and vibrant middle class, its continued hollowing-out in the rich world would, combined with growth of incomes at the top, imply a movement away from democracy and towards forms of plutocracy. Could then the developing countries, with their rising middle classes, become more democratic and the US, with its shrinking middle class, less?
Third, and probably the most difficult: What would such movements, if they continue for a couple of decades, imply for global stability? The formation of a global middle class, or the already perceptible ‘homogenisation’ of the global top 1%, regardless of their nationality, may be both deemed good for world stability and interdependency, and socially bad for individual countries as the rich get ‘delinked’ from their fellow citizens.
Conclusion
In a nutshell, the movements that we witness do not only lead to an economic rebalancing of the East and West – in which both may end up with global output shares close to what they had before the Industrial Revolution – but to a contradiction between the current world order, where political power is concentrated at the level of the nation-state, and the economic forces of globalization which have gone far beyond it.
References
Anand, Sudhir and Paul Segal (2008), “What Do We Know about Global Income Inequality?”, Journal of Economic Literature, 46(1): 57–94.
Lakner, Christoph and Branko Milanovic (2013), “Global income distribution: from the fall of the Berlin Wall to the Great Recession”, World Bank Working Paper No. 6719, December.
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.
Caveats
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.
References
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.
Conclusions
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.
References
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.
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.
Introduction
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.
Conclusion
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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Notes
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).
Mr. Rows Namoura Coffee 
The Separation of the ‘Economic’ and the ‘Political’ under Capitalism: ‘Capital-centric Marxism’ and the Capitalist State
One of the central claims of Capital-centric Marxism is that capitalism is the first mode of production in human history whose social property relations are reproduced through market competition. Capitalism’s unique laws of motion/rules of reproduction—the law of value which compels producers to economize labor-time through productive specialization, labor-saving technical innovation and the accumulation of surplus-value—operates through the mechanism of price competition. Put simply, capitalism is reproduced through the “dull compulsion of the market place” rather than through varied forms of extra-economic coercion.
The capitalist state, from this perspective, is distinguished from all previous forms of political domination by its relative separation from the capitalist economy. The capitalist state constitutes what Heidi Gerstenberger has called a public sphere of “impersonal power;” while exploitation is privatized in individual units of production. In the words of Ellen Meiksins Wood in her seminal essay “The Separation of the ‘Economic’ and the ‘Political’ in Capitalism”:
To speak of the differentiation of the economic sphere…is not, of course, to suggest that the political dimension is somehow extraneous to capitalist relations of production. The political sphere in capitalism has a special character because the coercive power supporting capitalist exploitation is not wielded directly by the appropriator and is not based on the producer’s political or juridical subordination to an appropriating master. But a coercive power and a structure of domination remain essential… Absolute private property, the contractual relation that binds producer to appropriator, the process of commodity exchange—all these require legal forms, the coercive apparatus, the policing functions of the state.2
While the capitalist state provides the ‘general conditions of accumulation,’ it does not direct the distribution of labor-power and means of production within and between branches of production. Instead, it is the law of value operating through real market competition that insures the reproduction of this mode of production. The unique dynamism of capitalism—the constant development of the productive forces—and its crisis tendencies—falling profits as a result of the increasing mechanization of production—operate independently of the desires and goals of either individual capitalists or its “Executive Committee,” the capitalist state. Again, as Wood argued:
… the social functions of production and distribution, surplus extraction and appropriation, and the allocation of social labor are, so to speak, privatized and they are achieved by non-authoritative, non-political means. In other words, the social allocation of resources and labor does not, on the whole, take place by means of political direction, communal deliberation, heredity duty, custom, or religious obligation, but rather through the mechanisms of commodity exchange.3
Many critics of “Political Marxism” have labelled this approach a “Hayekian Marxism” that limits the “general conditions of production” to the provisions of certain infrastructure that individual capitalists cannot produce profitably. This perspective, it is argued, cannot account for the key features of the concrete history of capitalism. Specifically, Capital-centric Marxism cannot explain the role of the capitalist state in creating capitalist social property relations, the persistence of legally coerced labor under capitalism; or the growth of capitalist state economic intervention in the twentieth and twenty-first centuries. In this essay, we will attempt to sketch the barest outline of a Capital-centric account of the roots and limits of capitalist state policies that attempt to shape social relations and the course of accumulation. In this task, I draw not only on Marx’s Capital—the most important of Marx’s mature, scientific works—but on a variety of works in or close to the tradition of “Political Marxism.”
Michael Zmolek’s excellent new book, Rethinking the Industrial Revolution4, directly addresses, from an explicitly Capital-centric perspective, the role of the capitalist state in the creation and consolidation of capitalist social property relations in England. Brenner, Wood and others have been quite insistent that the operation of capitalist rules of reproduction—specialization, innovation and accumulation—cannot explain the origins of capitalist social property relations. Put simply, the process of ‘primitive accumulation’—the establishment of capitalist social relations of production—is not the result of the spread of markets or the development of the productive forces. Instead, it is the unintended consequences of attempts of pre-capitalist classes to reproduce themselves in periods of crisis that produce capitalism. In this process, the state plays a crucial role. Zmolek’s discussions of enclosures and the expropriation and sale of monastery lands in Tudor England give new historical depth and sophistication to Marx’s discussions in the section on “primitive accumulation” in Capital.
Zmolek’s discussion of the role of the post-1688 British capitalist state in the creation of an industrial working class is especially important. Marx was quite clear that the ‘dull compulsion’ of the market was not sufficient to discipline propertyless wage workers when capital had not yet conquered the labor-process. As long as capital’s subsumption of labor was formal and the actual labor-process was in the hands of skilled artisanal wage earners—legal-juridical forces was necessary to ensure the sale of labor-power and capital’s ability to command production. The majority of workers can be “dually free”—free from possession of objects and instruments of production; and free of non-market legal-juridical compulsion to labor—only when capital has achieved real subsumption of labor. Only when capitalists both face a mass of workers without non-market access to the means of production and are able to constantly reproduce a reserve army of labor through the mechanization of production, can capital effectively secure an adequate and reliable supply of labor power without legal and juridical restrictions on workers. Zmolek’s discussion of the central role of the British capitalist state in destroying artisanal wage workers’ resistance to the real subsumption of labor to capital again concretizes these insights.
Legally coerced wage labor also persists in capitalist agriculture, where the disjuncture between production and labor time5 makes non-market coercion necessary to secure adequate supplies of labor power during crucial periods like planting and harvesting. Legally coerced wage labor is also found in situations where capital has command of industrial labor-processes, but where workers are only partially separated from landed property. For example, in apartheid South Africa, workers were not “free” to enter or leave labor contracts at will.6 The specific forms of capitalist social property relations that emerged in the South African countryside and urban centers after the 1913 Natives’ Land Act—the partial separation of the African population from the means of production—necessitated this legal coercion. Africans were able to partially reproduce their labor-power outside of the wage-relation either in the “Reserve Areas” or on plots of land provided by capitalist farmers. This “partial proletarianization” required the “pass laws” that legally restricted geographic mobility of labor-power in order to ensure steady supplies of ‘cheap’ African labor power to capital.
Today, millions of non-market coerced wage workers—often mislabeled ‘slaves’—are compelled to sell their labor-power often for less than the cost of their reproduction, and are prevented from leaving employers to seek better wages and conditions. As David McNally and Susan Ferguson7 have argued, most of these workers are migratory workers who do not enjoy the legal rights/freedom of citizens. The extra-economic coercion they face is crucial to supplying inexpensive labor-power to labor-intensive sectors—sex-work, domestic servants, landscape workers, hotel cleaners, janitors, home construction, garment production, and certain branches of agriculture. Real capitalist accumulation and competition compels capitalists in labor-intensive industries to pay low wages—wages often below the costs of reproduction—in order to earn the average rate of profit.8 Legal coercion in the form of the denial of civil and political rights is often required to provide such “cheap” labor-power.
The reality of capitalist competition through the “artillery of fixed capital” also explain the role of the capitalist state historically in attempting to protect “infant” capitalist industries. Anwar Shaikh, in his seminal essay “Foreign Trade and the Law of Value,”9 has argued out those capitalist classes that entered the world market after the consolidation of industrial capitalism in Britain were faced with a dilemma. Whether in Germany, Italy, Japan or the US in the nineteenth century, or in the global South in the twenty and twenty-first centuries, “late industrializers” found they were unable to compete directly with the older, more capital-intensive producers. “Free trade” meant remaining exporters of agricultural goods, raw materials and low-end, labor-intensive manufactured goods. Only those ruling classes that succeeded in establishing protective tariffs and selective state subsidies for capital-intensive export industries succeeded in carving out a place for themselves in the capitalist world economy. As Vivek Chibber points out in Locked in Place: State-Building and Late Industrialization in India10, protective tariffs as part of “import substitution industrialization” programs were insufficient, allowing inefficient manufacturing in many parts of the global south to survive for decades. However, “export led industrialization” programs had a very different impact. When capitalist classes were ready and willing to compete globally, usually in social formations where the capitalist transformation of agriculture had created a competitive home market, forms of capitalist state intervention and protection were necessary preconditions for successful industrialization.
Finally, Joaquim Hirsch’s essay “The State Apparatus and Social Reproduction: Elements of a Theory of the Capitalist State”11 provides important insights into the roots and limits of capitalist state intervention in the advanced capitalist countries in the twentieth and twenty-first centuries. The state-derivation school, of which Hirsch was a prominent figure, shared with “Political Marxism” the goal of providing a Marxist analysis of the form of the capitalist state—of a “public power” separate from the private sphere of exploitation and accumulation. Like Wood, Hirsch rooted the separation of the political and economic in the specific social property relations and rules of reproduction of capitalism. The “state derivation” school also sought to counter various neo-Keynesian and neo-reformist arguments that capitalist state fiscal and monetary policy, combined with forms of ‘indicative planning’ and limited nationalizations, had finally created a crisis-free form of ‘managed’ or ‘state monopoly capital.’ Put another way, Hirsch’s arguments point to how the separation of the political and economic that characterizes capitalism essentially limits the capacity of capitalist state personnel to alter the rules of reproduction of capitalism through the construction of institutional frameworks—the Regulationists’ “regimes of accumulation”—to regulate the economy. Instead, it is the dynamics of accumulation, competition and profitability that place strict limits on the actions of capitalist state personnel, as we have seen time and again in the past forty years beginning with the Mitterand regime in France in the early 1980s through, most recently, the capitulation of Syrizia in Greece to the austerity agenda of the European Union.
Starting from an account of the separation of the political and economic that is essentially the same as that of Capital-centric Marxists, Hirsch concludes:
… that the bourgeois state, by reason of its essential character [its formal separation from the economy—CP], cannot act as regulator of the social process of development, but must be understood in the determination of its concrete functions as a reaction to the fundamentally crisis-ridden course of the economic and social process of reproduction. The developing state interventionism represents a form in which the contradictions of capital can temporarily move; but the movement of capital remains historically determining… These can be condensed in terms of value theory in the law of the tendency of the rate of profit to fall, which also means that this law must be the conceptual point of departure for an analysis of state functions, to be developed out of the concrete course of capital accumulation and class conflict.12
Put simply, other than the extension of political rights to workers and the expansion of the welfare state which were temporary concessions to working class struggle that never undermined labor-market discipline, the logic of capitalist state economic policy is driven by attempts to mobilize the counter-tendencies to the falling rate of profit.13Whether the use of fiscal and monetary policy to stimulate demand, manipulate interest rates or provide tax subsidies to various capitals; incomes policies and restrictions on trade union rights; or the mechanisms of indicative planning and nationalization (usually of less productive capitals), capitalist state economic policies aim facilitate increasing the rate of surplus-value and destroying redundant capitals—without the collapse of accumulation that comes with crises.
The abandonment of Keynesian policies in the late 1970s and early 1980s reflected the limits of capitalist state policy and the necessity of periodic capitalist crises.14 Despite the massive expansion of ‘state intervention,’ capitalist state policies operated at a distance from accumulation and could not prevent a new crisis of profitability. The shift to neo-liberalism facilitated the revival of profitability and accumulation between 1982 and 2007 because it was effective in facilitating the increased exploitation of labor and the destruction of inefficient firms. However, neo-liberalism—like all other capitalist state policies—could not prevent a renewed crisis of profitability beginning in 2008. These crises are rooted in the operation capitalism’s most fundamental laws of motion/rules of reproduction—the operation of the law of value through specialization, innovation and accumulation under the whip of market competition—which are beyond the ability of capitalist state managers to effectively regulate.
Ultimately, the Capital-centric understanding of the place of the capitalist state in the ensemble of capitalist social property relations points to the need to radically disrupt the separation of the political and economic in order to transcend capitalism. Because capitalist state policies are ultimately limited by independent dynamics of profitability, the capitalist state institutions cannot be utilized in some instrumental fashion to abolish capitalism in some piece-meal manner, as strategies of “non-reformist reforms” argue. Instead, working people will have to confront the capitalist state and build their own organs of political and social power—which will abolish the separation of the political and economic—in order to build a new, democratic socialist order.
———————-
1 “The Bourgeois State Form Revisted,” in W. Bonefeld, et al. (eds.) Open Marxism, Volume I: Dialectics and History (London: Pluto Press, 1992); Impersonal Power: History and Theory of the Bourgeois State, (Chicago: Haymarket Books, 2009)
2 “The Separation of the ‘Economic’ and the ‘Political’ in Capitalism,” in Democracy Against Capitalism: Renewing Historical Materialism (New York: Cambridge University Press, 1995), pp. 29-30.
4Rethinking the Industrial Revolution: Five Centuries of Transition from Agrarian to Industrial Capitalism in England (Chicago: Haymarket Books, 2014).
5 Susan Archer Mann, Agrarian Capitalism in Theory and Practice (Chapel Hill, NC: University of North Carolina Press, 1990), Chapter Two.
6 This argument is detailed in Martin J. Murray and Charles Post, “The ‘Agrarian Question,’ Class Struggle and the Capitalist State in South Africa and the United States,” Insurgent Sociologist, Volume 11, Number 3 (Winter 1984).
7 “Precarious Migrants: Gender, Race and the Social Reproduction of a Global Working Class,” in L. Panitch and G. Albo (eds.), Socialist Register 2015: Transforming Classes (New York: Monthly Review Press, 2014).
8 Howard Botwinick, Persistent Inequalities: Wage Disparities under Capitalist Competition (Princeton, NJ: Princeton University Press, 1993.
10 (Princeton, NJ: Princeton University Press, 2003). See also “Development from Below,” Jacobin 19 (2015) [https://www.jacobinmag.com/2015/11/development-state-korea-india-nehru-postcolonial-global-south-chibber/]
11 In J. Holloway and S. Picciotto (eds.), State and Capital: A Marxist Debate (Austin, TX: University of Texas Press, 1978)
13 For a similar argument see G. McCormack and T. Workman, The Servant State: Overseeing Capital Accumulation in Canada (Blackwood, NS: Fernwood Press, 2015)
14 See David McNally, Global Slump: The Economics and Politics of Crisis and Resistance (Oakland, CA, PM Press, 2011) and Anwar Shaikh, “The First Great Depression of the 21st Century” in L. Panitch, G. Albo and V. Chibber (eds.), Socialist Register 2011: The Crisis This Time (New York: Monthly Review Press, 2010).
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