Varieties of Capitalism: A Critique

Abstract

The Varieties of Capitalism (VoC) has become the dominant approach in comparative political economy and enjoys wide application and attention in disciplines outside of political science and sociology. Indeed the VoC approach has enjoyed much attention in comparative industrial/employment relations (IR). This article undertakes a critical evaluation of the importation of the VoC paradigm into comparative IR. Inter alia, it is argued that the VoC approach, as it is presently configured, may have little to teach IR scholars because its basic theoretical concepts and methodological priors militate against accounting for change. This article begins with a summary of the routine problems researchers in comparative political economy and comparative IR have encountered when attempting to account for change within the constraints of the VoC paradigm. Here the focus is on the limitations imposed when privileging the national scale and the problems engendered by a heavy reliance on comparative statics methodology infused with the concepts of equilibrium and exogenous shocks. The article then goes beyond these routinely recognized limitations and argues that the importation of terminology from neoclassical economic theory, of which the original VoC statement makes foundational reference, further serves to constrain and add confusion to the comparative enterprise; namely, comparative advantage, Oliver Williamson’s neoclassical theory of the firm, the use of the distinction made between (im)perfect market competition in neoclassical economics and the fuzzy distinction made between firms, markets and networks.In the concluding section we argue that the VoC’s narrow focus on the firm and its coordination problems serve to legitimate IRs traditional narrow focus on labour management relations and the pride of place that HRM now enjoys in the remaining IR departments. Ultimately, however, the embrace of the VoC paradigm by comparative IR is a net negative normative move.

The full article can be found here

The Rebel Letter to Mankiw and some thoughts on education in economics

Yesterday I noted that 10 percent of Mankiw’s students walked out of his class to protest what they, rightly believed, to be a heavily biased introduction to economics.  I think the students are right.  Introductory courses are meant to introduce students to the discipline– both its orthodox core and its dissenting periphery.  Krugman has been consistently bemoaning the “dark age of economics” on his daily blog.  What is interesting is that I suspect Krugman is likely as guilty as Mankiw for the thin gruel that gets passed off as intellectual pluralism in the discipline of economics.  RatEx + sticky prices is hardly a different intellectual paradigm: it is a tweak.  Keen hits on some the ontological problems here.

I empathize with these students because like them when I took my intro to economics I was left asking myself if I could continue on studying a subject in which certain truths were baked in from the get go.  Here are a couple:

1) Minimum wages are bad because they decrease the level if employment and thus hurt low skilled workers.

2) Unions are bad because they similarly decrease employment via the premium on union wages.

3) Rent control is bad because it lowers rent and thus decreases private investment in housing leading to a shortage of housing.

In the end I simply quit the discipline and chose political science instead and then took as many credits as I could in the history of economic thought and directed readings with heterodox economists as I could shoe horn into my three degrees. In the end I pieced together a decent education in heterodox economics.  Although I wish I could have found an economics department where I could have been exposed to the best of heterodox thought along side the best of orthodox thought: Rowe, Steadman, Shaikh, Waldman, Mitchell, Dumenil, Lebowitz, Bowles, Fine, Hodgson, Lawson, Mirowski etc.

It is sad state of affairs that Intro to economics is not really and introduction to economic thought but rather an introduction to neoclassical economics.  The equivalent would be an introduction to political science where only rational choice theory was taught.  Political science is already a fairly conservative discipline and I recoil when I think about how much more conservative it would be if rational choice was the only intellectual paradigm I was seriously exposed to and if that paradigm dominated 85 95% of all hiring in the discipline.

From Mankiw’s perspective, and perhaps Krugman’s, I suspect the fact that 10 percent of the students self-identified as having heterodox instincts and declared their reluctance to continue on in economics as a feature and not a bug of the standard intro econ curriculum.

What a shame.  Below is the Rebel letter to Darth Vader Mankiw.

Dear Professor Mankiw—

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.

A legitimate academic study of economics must include a critical discussion of both the benefits and flaws of different economic simplifying models. As your class does not include primary sources and rarely features articles from academic journals, we have very little access to alternative approaches to economics. There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.

Care in presenting an unbiased perspective on economics is particularly important for an introductory course of 700 students that nominally provides a sound foundation for further study in economics. Many Harvard students do not have the ability to opt out of Economics 10. This class is required for Economics and Environmental Science and Public Policy concentrators, while Social Studies concentrators must take an introductory economics course—and the only other eligible class, Professor Steven Margolin’s class Critical Perspectives on Economics, is only offered every other year (and not this year). Many other students simply desire an analytic understanding of economics as part of a quality liberal arts education. Furthermore, Economics 10 makes it difficult for subsequent economics courses to teach effectively as it offers only one heavily skewed perspective rather than a solid grounding on which other courses can expand. Students should not be expected to avoid this class—or the whole discipline of economics—as a method of expressing discontent.

Harvard graduates play major roles in the financial institutions and in shaping public policy around the world. If Harvard fails to equip its students with a broad and critical understanding of economics, their actions are likely to harm the global financial system. The last five years of economic turmoil have been proof enough of this.

We are walking out today to join a Boston-wide march protesting the corporatization of higher education as part of the global Occupy movement. Since the biased nature of Economics 10 contributes to and symbolizes the increasing economic inequality in America, we are walking out of your class today both to protest your inadequate discussion of basic economic theory and to lend our support to a movement that is changing American discourse on economic injustice. Professor Mankiw, we ask that you take our concerns and our walk-out seriously.

Sincerely,

Concerned students of Economics 10

Book Review: Economics for Everyone

Economics for Everyone: A Short Guide to the Economics of Capitalism

Jim Stanford (2008), Pluto Press, the Canadian Centre for Policy Alternatives, and Fernwood Publishing Inc.

Upon first reading Economics for Everyone I was disappointed. At the time of its publication I was a doctoral student at the end of a long road of education in and around economics, political economy and political science and I was looking for a concise and penetrating settling of theoretical scores. After a couple years, with the polemical urge tempered, I reread Economics for Everyone (Economics) from the perspective of a professor evaluating a potential introductory textbook on economics and political economy. Viewed from this angle Economics is an impressive introductory text.

With respect to introductory economic textbooks there is really only a choice between two genres. The first introduces students to the basic elements of neoclassical economic analysis and its mathematical formalizations. The second genre introduces students to the origins, evolution, key institutions and social relations that obtain in a capitalist economy. It is to this second genre that Jim Stanford’s text belongs. One of the inherent challenges for texts of the second genre is that there is a stark difference between educating students about the economy and educating students about the practice of economics as a social science (i.e. the discipline of economics). More often than not heterodox textbooks end up serving as introduction to the history of the polemics and controversies of economics as a discipline and thus function as prelude or substitute for actually talking about capitalism and its key institutional underpinnings. Economics for the most part avoids this trap.

Economics
is organized into five sections beginning with a discussion of “why we should study economics; the origins and evolution of capitalism as distinct form of economic organization; and the political economy of economics. All in 64 pages! Clearly the only way to achieve such a concise statement is via the hegemonic voice. Yet this voice is the voice of agnostic radicalism rather than an orthodox unitarianism. From an educator’s point of view, the schematic nature of the introductory section serves well enough to delimit the objects of analyses while at the same time introducing students to the idea that capitalism is both historically novel and socially mutable. This is important because the world is indeed populated by a series of extant capitalist “models” which produce qualitatively different results across a broad range of metrics. Stanford’s agnostic radicalism thus finds its empirical grounding in the reality that many different types of policies are indeed possible within capitalism.

Section two of Economics is dedicated to the gear box of capitalism—work, tools (capital) and profit. In this section the central agents of the capitalist economies are introduced; i.e., workers and capitalists and their associative economic units and their linkages. Here I wish Stanford had paid closer attention to management and managers and the difference between profit producing labour (workers) and profit maximizing labour (supervisors and administrators). This is unfortunate because one of the major failings of orthodox economics is its near silence on the question management Nonetheless, Stanford does touch on the problem of work effort and some of the carrots and sticks employed by management to elicit higher productivity. Thus for those wishing to go deeper into the issue of supervision and human resource management this text does provide an opening. The same can be said of Stanford’s treatment of the household as the site of reproduction. That is to say there is enough in his schematic presentation to allow both instructors and students to delve deeper into subject matter should they choose.

The third section introduces the dynamic elements of capitalist economies: competition, investment and growth, employment and unemployment, distribution and the environment. Each is taken up with the same rapid-fire vigour which like the previous sections should serve to stimulate the curiosity of students.

The fourth section is likewise a rather hefty presentation of the “Complexities of Capitalism”. Here the list of topics covered is too extensive to present here. All the traditional macroeconomic policy questions are dealt with from monetary and fiscal policy through to international trade and development which culminates in the presentation of a basic macro model of the economy. What I found interesting about this section was that it also raised three issues not customarily broached in introductory texts: the financialisation of the economy, pensions and a rather long discussion of that much neglected topic in orthodox textbooks—the state and liberal democracy.

The last section deals with that age old dispute between reform liberals and socialist reformers and revolutionaries. It is a muddled conversation and wish Stanford had simply presented the Nordic model as one possible alternative vision while noting Kalecki’s observations about the instability of high road equilibrium strategies. Students would be better served in my opinion to focus their attention on the structural barriers to any serious project of economic reform. This could have been partially accomplished by referring back to the chapter on the state and liberal democracy. The question is not if another world is possible for in the abstract it always is. The real question is how and under what conditions it could be possible.

The fuzzy nature of the last section is in no small part, perhaps, a function of Stanford’s agnostic radicalism. Indeed the weakness (strength?) of this textbook would only become apparent should Stanford choose to write an intermediate version. Then all the serious disputes between heterodox economists could not be papered over by the authority of the hegemonic voice that is characteristic of introductory textbooks.

That said, this is an introductory textbook and a very good one at that. It can be used in whole or part depending on the needs of the instructor. There is also an online resource which has course outlines, lesson plans and a glossary. Union educators and summer session instructors will particularly appreciate the truncated course plan for short intensive sessions.

The MENA countries (Middle East and North Africa) and public choice

Just in case you were wondering how the firestorms in North Africa were being spun in the policy circles of the great powers, check out the latest highly instructive speech by the president of the World Bank (see link below). What Zoellick reminds us of is that street protests are really a demand to equitably distribute economic incentives  so that everyone can behave like economic maximizers. Indeed, he reminds us that economists can bring the political back into economics by reducing democracy to incentives that produce economically rational behaviour.

Apparently people are dying on the streets for the right to be incentivized so that they can behave like Homo Economicus! And what Homo E really is all about is self-evident too, so that the only problem until till now in the MENA countries is that the right incentives did not exist because Oriental desposts were too greedy and hoarded all the economic rewards that existed in the country.

Bloody clan system!

In any case now the World Bank has learnt its lesson. It now know knows that all human being are economically rational (secretly we are all moderns, it is just the clan system that keeps us down).

Thus, from now on the World Bank is willing to partner with anyone in the MENA countries (especially the women)who will free up the flow of incentives so that people all over MENA will become happier.

It is only rational.

Really?

And so the WB finds yet another way to absolve itself from thinking about market failure over the past 30 years in the MENA countries. And  so to0 it can really and truly keep the political away from the economic.

But also telling is that this market place of incentives and rewards is what Zoellick thinks democracy in the West is all about too.

And I quote: “These [incentives] are not luxuries reserved only for developed countries. They reflect on the quality of governance. They improve public policy. They signal integrity. They communicate respect for the public. They treat public office as a trust.  They may sound political, but they are certainly economic.

These topics are part of the economics of public choice.  The public choice theorists cautioned us to think about how governments really work, compared with how we might wish them to work.  The public choice advocates have called for better incentives and opportunities for citizens to monitor government more effectively.  They are right.”

(Zoellick, April 2011)

What an innovative vision of humanity!

To find out more about how the World Bank spins protest from 1848 until 2011, follow the link (and yes, Zoellick really does mention 1848):

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22880264~pagePK:34370~piPK:42770~theSitePK:4607,00.html

Hopeful news

Paul Krugman is now debating the flank to the left of him with quasi seriousness and respect. Might not seem like much but actually in the context of the last 20 years of mainstream economic debate a fairly remarkable and somewhat hopeful sign. I have long argued that mainstream reform liberals will have little success unless they bring those to the left of them into the respectable conversation.

Book Review: The Dirty Work of Neoliberalism

Aguiar, Luis, and Andrew Herod, eds. The Dirty Work of Neoliberalism: Cleaners in the Global Economy: Cleaners in the Global Economy. Oxford: Blackwell Publishing, 2006.

In this edited volume Luis Aguiar and Andrew Herod have brought together a collection of articles on the global cleaning industry principally organized into three thematic sections: geography, ethnography and agency. This book takes an expansive approach to considering labour relations in the cleaning industry. Not only do the editors manage to bring together a collection of articles in which the experience of cleaners in the global north and the global south are put into relief. They also manage to provide great depth in terms of the individual experiences of cleaners as they are subject to increasing forms of intensive management. Here a clear line is drawn between classic Taylorist managerial strategies (involving increasing levels of micro-supervision with the goal of work intensification), new innovations in cleaning machinery and surveillance technology and the pressures that a now globalized cleaning industry brings to bear on workers in the modern cleaning sector. The last section of the book is dedicated to an exploration of the different strategies of resistance to work intensification and to examples of the collective struggles taken-up by workers in the furtherance of their common interests. This book thus comprises an ambitious attempt to reveal, what the authors’ stress, is the hidden and largely invisible world of the cleaning industry, cleaning work and the particular challenges facing cleaning workers.

One of the articles I personally found most interesting was that authored by Andries Bezuidenhout and Khayaat Fakier. Here the authors do an excellent job at exposing the continuities and discontinuities between the pre and post apartheid labour relations regimes. Both the continuities and discontinuities will be disconcerting for those who would hold to any simplistic notion of the amelioration of the life of South African workers following the end of apartheid.

Clearly the strength of this book is that it combines the work of several different researchers and their diverse perspectives. As often is the case in projects of this type and scope, however, its strength is also its weakness: the diversity of the researchers and perspectives makes it difficult to achieve a totally coherent whole. For example, as the title of the book makes clear the editors seek to link the research contained inter alia to the broader political economy of what the authors see as a globalized neoliberalism. While I am sympathetic to this project I am not sure the articles manage to come together in a systematic enough fashion to offer a clear workout of neoliberalism as a description of the structure of the global economy, an ideology, or a policy paradigm. In this regard the introductory remarks of the editors are too schematic.

Yet these are minor criticisms. I would recommend this book to those with an interest in critical management studies, industrial relations, trade unionists and those who specialize in the sociology of work.

Brad Delong Wrong Yet Again and Again and Again: oh why can’t we have smarter reform liberals

Scandalum Magnatum, takes Brad Delong to task for botching  Kelecki in a recent post.

Brad DeLong damns Kalecki with praise:

I WAS EXPECTING A 6% PRODUCTIVITY GROWTH QUARTER, BUT THIS IS RIDICULOUS!!!

Productivity increased 9.5 percent in the nonfarm business sector during the third quarter of 2009 as unit labor costs fell 5.2 percent (seasonally adjusted annual rates). In manufacturing, productivity increased 13.6 percent while unit labor costs fell 7.1 percent…

Back in the 1930s there was a Polish Marxist economist, Michel Kalecki, who argued that recessions were functional for the ruling class and for capitalism because they created excess supply of labor, forced workers to work harder to keep their jobs, and so produced a rise in the rate of relative surplus-value.

For thirty years, ever since I got into this business, I have been mocking Michel Kalecki. I have been pointing out that recessions see a much sharper fall in profits than in wages. I have been saying that the pace of work slows in recessions–that employers are more concerned with keeping valuable employees in their value chains than using a temporary high level of unemployment to squeeze greater work effort out of their workers.

I don’t think that I can mock Michel Kalecki any more, ever again.

To which Mike responds:

Well I don’t think DeLong knows much about Kalecki.

In Kalecki’s general model of the business cycle, gross profits fall in recessions just as the pre-3Q-2009 DeLong would have expected them to, because investment and hence total demand declines. The effect on profit and wage shares depends on how much total output and employment fluctuates alongside it, and in fact, on how much labour businesses keep (under)employed – exactly the reason DeLong gives for the worldview he maintained before 3rd-quarter 2009 data came along and shattered it.

In “Distribution of National Income” (1956) Kalecki writes that the wage share excluding salaries “does not seem to show marked cyclical fluctuations”. [p. 66 in his 1971 ‘Selected Essays’ book] But once salaries are included, “the ‘real’ wage and salary bill… can be expected to fluctuate less during the course of the cycle than the ‘real’ gross income of the private sector.” [pp. 75-76] Therefore, the wage+salary share increases in a recession. He gives theoretical reasons – mainly that salaried workers’ employment and pay does not vary so much with output – and runs a regression on US data 1929-41 to back it up. This is exactly the opposite of deLong’s representation.

Kalecki does not use the Marxian value terminology, so DeLong’s use of ‘relative surplus value’ is odd.

DeLong seems to be vaguely remembering and mashing into Kalecki’s business cycle theory his infamous 1943 essay “Political aspects of full employment”, although here too Kalecki clearly argues that less-than-full employment is bad for profits: “It is true that profits would be higher under a regime of full employment than they are on average under laissez-faire; and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices…” [p. 141]

But full employment was likely to meet political opposition from ‘business leaders’ and ‘captains of industry’ (he also never says ‘capital’ or ‘the ruling class’) because of (i) ideological prejudice against Government deficit spending and (ii) any expansion of public investment “which may foreshadow the intrusion of the state into the new spheres of economic activity” [p. 142], and (iii) dislike of the social and political consequences of greater working class confidence that comes with full employment. ‘Rentiers’ would have an additional reason: the erosion of their wealth from more rapid inflation. Kalecki thus predicted a political alliance between rentiers and the intellectual representatives of big industry, “and they would probably find more than one economist to declare that the situation was manifestly unsound.” [p. 144]

DeLong’s account of Kalecki’s views is thus completely misleading. But there’s some wholesale inventories data out today that might just make him rethink everything he thought he knew about Joan Robinson.

To which I would add that when I read Delong’s post I was sure he was channelling Paul Mattick:

“Both Marx and Keynes, then, though for different reason, recognize the capitalist dilemma in a declining rate of capital accumulation. Keynes diagnoses its cause as a lack of incentive to invest. Marx, looking behind the lack of incentive, finds the reason for it in the social character of production as a production of capital. Keynes does not regard crisis and depression as necessary aspects of capital formation; they are such only under laissez-faire conditions, and then only in the sense that the economic equilibrium does not include full employment. For Marx, however, a continuous capital accumulation presupposes periods of crises and depression, for the crisis is the only “equilibrium mechanism” which operates in capitalism with regard to its development. It is in the depression period that the capital structure undergoes those necessary changes which restore lost profitability and enable further capital expansion.”

Paul Mattick (1955), “Marx and Keynes”

So here we have three very different views of recessions and depressions and the way forward:

Keynes insufficient investment which can be remedied by augmenting effective demand (in a liquidity crisis);

Kalecki in accord with Keynes but sees political limits to full employment policies as a solution to aggregate demand and investment;

In Marx interpreted by Mattick, crises  restore a particular balance between productivity growth, wages and profits–with the restoration of profits hinging on rapid productivity growth and declining wages. Over at Angry bear just this scenario seems to be playing itself out in the US.  Productivity was running 9.5% and wage share of output is declining at an increasing pace.  Someone here is being vindicated.

That said, maybe Brad is just rehashing his own understanding of Marx, and like Keynes confesses to have never read him. Hence, it is of little surprise that Brad should make a mash-up of, what are for him, random Marxists and pin his tail on the wrong donkey. Just using the word “Marxist” is akin to the most vulgar of profanities for Brad and thus a display of his necessarily macho character so he thinks.

Someday leading liberals in the US will have to confess that they, like their Republican counterparts, are no Angles when it comes to accurate representation.  Further they will have to admit that much of what passes itself off as economics is really political economy–a confession that I am fine with.