idl | 26 Economy and Society * PART VI Evolution and Seine aaa Institutional Economics 212 » 25 A Dissident Tradition in Economics. ....... 220 ~ 26 Economic Power <.:. 229 27 Economic and Social Reform 2a . 251 28 Corporate Globalisation...Economy and Society Why focus on economic institutions? What does an evolutionary approach to economics entail? What were the main ideas of Thorstein Veblen, the leading light in the development of institutional economics? Institutional economists have mounted a strong challenge to the dominance of neoctasical ‘economits. They argue that the pure market economy is little more than a fiction. Market arrangements in practice are socally enbedded, dependent o oc thet cffectve operation. They depend srlop iioateocahlned ees pe it According to institutional economists, these are the real political economic phenomena tint ned toe studied-rot the unas abstactons aoa! perl competitive markets Ineffec, institutional economists are making a plea for the initiation OF conemniCeTgUIRY (GERRARD ecioy, pois, history, geography, indus elation, and anthropology. Institutional economics, refiecting this orientation, has sometimes been called. tcirenic socolagy? This sometine taken to ipl tat tis ot eal comonomer, ‘eGR epue that tsi eomomicsesin htrel-wrd content, where hey art inexorably linked with social and political matters, and nothing could be more real than that. Institutions and evolution Instnutonal economics takes an evolutionary rather than mechanisti view ofthe economy | sfoeasison histor athe thn euro, is concerned vith studying the interactions (CHAPTER 24: ECONOMY AND SOCIETY _ between social values, technology, and economic institutiors. In this respect, it can be seen as exploring the very things that necelasscal economists take as given in their models; for example, consumers’ tastes, the state of technology, and the ownership of economic resources. According to institutional economists, it is through the study ofthese socially ‘moulded phenomena thata better understanding ofthe evolation of economic society can be constructed. ‘This orientation also leads toa focus on the diverse paterne of capitalist development. ‘The economic institutions of countries such asthe USA, the UK, Australia, Japan, Germany, ‘Sweden, and Singapore ae quite different. We need to undestand wy. Such understanding ‘an only come from the detailed study ofeach country in itshstercal context. Taken tothe extreme, this denies the possibilty ofa general explanation ofthe structure and functioning of ‘apitalim. The quest, common to Marxist and neoclassical economics, fora unifid theory to ‘explain the economic system, may be regarded as misplaced in this expec. Pethaps tis tore ‘important to look a the variety of economic experience in American capitalism, Australian capital, Japanese capitalism, and so on. The result may b less tidy, but, according to its roponents, tis ikely to be markedly more realistic. Sill, some structural guidelines are imperative for any poiticl economic enquiry. The Gita abate is useful in eis regard, Ac noted in preceding chapters, these three conceptual categories ae used in other currents of economic thought. What is distinctive about the institutional approach is the treatment of them as institutional dusters _-having internal diversity, particulartyin respect of ther relativ economic power. Capital snot ‘an amorphous factor of production; rather, i is something that comes in many institutional fs institutional forms oflabour so vary significantly, according to whether workers are organised into trade unions and whether they are fragmented by locality, gender, orrace. The institutions ofthe state are yet more vari, ranging fom public enterprises, concerned with the direct provision of goods and services, to agencies responsible ‘forthe provision of infrastructure, central banking, regulation of markets, and arbitration of wages and industrial disputes, ow these institutions of capital, labour, and state interact is not an equilibrium rocess; itis OWSEIA It follows that the study of econonic power—its sources, its uses and abuses—is a necessary prt of institutional analysis, Of couse, power is also part of the Marxist and neoclassical stores: class power in the former, and market power inthe latter. ‘The conception of power in institutional economics is more bmad ranging, as we stall se in ‘the next two chapters. As abridge between economics and sociology, i isnot surprising to seein intitutionalism the influence of seminal social theorists such as Max Weber and Emile Durkheim. The influence on the institutional economics tration of the German historical school ofthe nineteenth century i also significant. As a distinctive tradition of economic analysis, instituticnalism’s peak was in the USA ‘Indeed, it sno exaygeration to cam that it thenPARTVE EVOLUTION AND ReEORME rivaled the neoelasscalschool asthe most influential typeof economics, Itwas more evidently (ieenturies: increasingly powerful economic institutions were coming to dominate the economy, corporate power was growing, trade unions were forming, and states were assuming a yet ‘ore extensive role in the management of economic afar, inclating the orchestration of imperialism on a world scale. 2 most notable of ‘the criti was the dissent American economist, Thorstein Veblen (1857-1929), As we shall sae, his eoncerns have continuing resonance today. American of Norwegian descant, he had an outsiders ‘ew ofthe society in which heived. He saw its excesses its inofilences, ond its wastes, andhe wrote about them with insight and wt. Among his books, The Theory ofthe Leisure Cioss (1899), The Theor of Business Enterprise (1904), ‘end Absentee Ownership and Business Enterprise in Recent Tires (1923) re otal ‘Veblen held a series of academic appointments, aut he id not enjoy the ‘secure tenured status accorded to many laser scholar. tis ficult to escape the inference that he wes discriminated agoinst because of his isda ions, ‘though fs reputation for having atfars with the wies of faculty members may sao have contrbuted to his dificltes in secur continous academic employment. Byallacceuntshe was an eccentric charactor, inhls appearence andhis personal habits, Hehod enurkemet moustache anda shor, straggly beard, His sack were sometimes held Up by safety pins atached to his trousers. He ie ead to have not washed his dishes after meals, preferring to hoee down stacks of them periodically, He wastacitum inmannw aed.a ‘notoriously dul teacher, munbiing int his beard ad setting lng reeding sts designed to ‘scourage all but the most conscientious students Notwithstanding these personal eccentricities and foibles, Veblen wes undoubtedly one ofthe most percaptive social aciontists of his are. He was eventually invited to be brosident of the American Economics Association, but tured down the invitation saying ‘thatthe position should have been offered to him earer in his ecademic eareee when It could have been of some professional value. He died in 1926 in relative poverty and cbscurity. His leg to society was his published work His books and articles are till ‘requentiyreferredto, whorees those of his mare respectable’ coleagues have long sinon ‘bean forgotten SSeS CHAPTER 24: ECONOMY AND SOCIETY The social nature of consumption ‘Veblen sought to develop a more subtle view of HETFOREND Betesn the indivgial) (GGidlpoeety than in the orthodox conception analysis of the socal ‘character of consurption is cental to this endeavour. People’s preferences, which shape ‘heir consumption of goods and services, cannot sensibly be taken as given, Veblen thought, because they ae socially determined. Our tastes are learnt as we grow up, and that learning rocess can produce quite different patterns of demand within and be diferent localities ‘RENT prays fr those wo have the estes pele ore ‘eben cle the trendseting alent social tatu theese dst, ephesing its tendenyto engage in onspiaois consumption and conspicuous esr, (hese terme it saybe noted, haresine aqued common wage) Ines, thle swt etal corspiamns. The ate nineteenth centr inthe USA's smetines knowns the ea ofthe ober barns Fane sacha the Vanes, Ar, Witney, and Rokeales Became prodigy ih ften though acres ining the unsrupalseniie of economic power’ Ea Marx mold thar been suprised by ths, of ous, sine he forent tt th oncerzaton and centralisation of atl wold make ring Gas neat, Henry Geog argued that the roots ofthe piso wealth ayn he denation olan and the unearned increment of comes Gesrng fom fs ownership. Vee’ concern was more ideal house {snotmerely one in which its comfortable to lve, but also one whose palatial characteristics {impress the neighbours, friends, and passers-by. A motorcar has to be not simply a reliable ‘means of transport, but also a status symbol: it must be expensive, and widely perceived 4s such, Likewise a yacht. Clothing has to be more than functional; it must indicate to all ‘who care to observe that the wearer is a person of economic wealth and social position, if not refinement, Ifthe apparel signals thatthe wearer does ot have to toil fr a living, £0 ‘much the better for that isthe hallmark ofthe leisure clase, White shoes and white gloves are ‘deal accoutrements forall ho want to show their soca distance from the world of manual labour. Wives are particularly seful inthis process, ae objects of display for wealthy:men, tobe ‘ress in whatever finery most clearly signals that they have no ned to work. Such social pretension ial! oo familiar tous in an era of McMansions, designer dothes, SUVs, and luxury sports cars. Veblen wrote of its development a century ago in a way that ‘was witty and insightful. His observations in The Theory of the Leisure Clas are like those af ‘an anthropologist observing a strange tribe, or of an ecologist observing an exotic species of ird, One can almost imagine a nineteenth. century David Attenborough erouching in the shrubbery a a garden party thrown by a member ofthe leisure clas, saying, ‘See how thePART Vc EVOLUTION ANO REFORM rmale ofthe species is inctined to predatory ehaviou but always finds time to display his acquisitions And Wok at how the apparel of the women indicates their soil position. See hhow they strut and preen themselves at every occasion. And note how the whole process {is reproduced in succeeding generations through careful attention to encouraging the offspring to adopt similar modes of behaviou’ The human ape is under observation and looks isle, There is a more serious point here, however. (ES = eRe CSSA ED ‘throwing extravagant parties, where champagne flows like ‘water and people Light cigars with twenty-dollar bills, be hel, by any standard, to be an efficient allocation of resources? The neoclassical economists duck the issue, protesting their reluctance to make value judgments about consumers’ preferences. Veblen was more concemed to describe than to judge; but drawing attention tothe social excesses invites normative reflection. In effect, Veblen was observing the tendency, not awards efficiency, ‘but towards waste asthe central feature of capitalist society. His analysis was a forerunner ‘of modern concerns about consumerism, its excesses and its dubious connection with enhanced commenitywelBeing. ‘The problens of uitimately unsatisfying consumption are magnified by the process of SeeAAA (another piece of Veblen’s terminology that has since gained widespread currency). Its, of couse ‘Theymay seekto dothe best they can, consuming saled-dowmand cheaper versions according tothe Units of ther incomes (and sometimes beyond), batitisa proces fraught wth inherent frustration, Ifoar perceived wel/-being depends on what we haverelatve to what others have, ‘ass consumers is 2 recipe for permanent dissatisfaction, The neoclassical assumption of a direct correlation betmeen increased consumption and higher tility eannot be sustained. The social nature of production Vebten azo male major contbuton to understanding business actives. As with the analysis of conzmpton his analysis of the processes of production dams atetion to the Gearon wasta ana MEINE). The production of goods and services is not ‘weated, at nnedascal theory, ata techaia pole involving the selection atheleas-cost combination afar of eduction anda pt axnising ute. eis tested a socal proce As sc itrefiects a fundamental disjunctuze between the instinct of workmanship Ghat preaatarynsinetzVebien posited these two instincts as universal features of human Tehri. ‘The tension between the instinct of workmanship and the predatary instinct is particularly otlenatein pital bsineses. Wana ithe productive apect valving the use flan, abou, and capital to make uel gods and services Bary BERAMGGE onthe ther an nddesacttes that ehanee rot without adding to peductvecpacy. The former is socially beneficial setting aside the isue of environmental exploitation and decay); ‘CHAPTER 24: ECONOMY AND SOCIETY the latter is counterproductive, although t maybe an attractive strategic option inthe short ter, Both aspects coexist inthe real economy. Somewhat schematically this dualism can be described asa tension between industry and business. These ‘wo terms are often use interchangeably in popular discourse (and lsewinere in this book, but the suggestion here i that they represent contrary tendencies, Geist Tiss the realm ofthe engi and this alone, 4s the interest ofthe owners ofthe businesses, particulary where they are what Veblen called absentee ower; thats, shareholders having no direct nvolvementin the management ofthe enterprises. This isthe realm ofthe financier. Thee betwen he ene an the Sane isan inthe ‘ ‘ecole charge Enger te concerned withthe development of new tenepe, ‘Technological change may, therefore, be perceived as working against the interests of the absentee owners of businesses, One way of handling this dilemma, Veblen noted, is for business managers to ty to) ‘ncompatbilty of modem technology with competition was Veblen’s explanation for the great wave of mergers and cartel formation taking place in his time. Inthe present age) Gtrategy and industrial concentration iis a two-way process, though, being in the forefront ‘fnew technological developments canbe a key factor in the growth of businesses, while big businesses are better able to control the form that technological change takes. ‘Veblen also sought to explain the tendency to @eonomie Yeeession. He considered that, even if mergers and the formation of cartels produced coordination onthe supply side of the economy, the problem of ensuring sufficient demand for the growing volume of goods and services would Ukely remain, Prodigious productive capacity was being developed, but the Aistribution of income seta Limit to what could be soldat the prices monopotists require in order to get an acceptable rate of return on ther capital. Echoes ofthe overproduction and ‘underconsumption problems discussed by Marx are clearly audible here. Veblen’s analysis of the wasteful expenditures of the leisure lass drew attention, in effect, to a partial solution to those problems, Wasteful public expenditures~on grandiose public edifices, Aiplomatic and ecclesiastical establishments, military service, and armaments—could also playa significant part. However, Veblen doubted that these wasteful expenditures would be capable of growing ‘indefinitely a the same rate as the productive power of industry. Hence, he forecast a great Aepression. His analysis of it was loose and imprecise, but the concusion that tendencies‘PART VI: EVOLUTION AN REFORM ‘towards depression were endemic in the economic system preceded Keynes's more thorough analysis by almost ree decades, ‘Veblen further noted that the most successful form of wasteful expenditure is war. War ‘shel ofcourse, but it can give temporary stimu to an economy with an inbuilt tendency to depression. isanalyis proved prescient; the Fst Word War broke out in 1914 leading to Aerastatng os off bt providing no ongoing basi fr econone prosperity Veblen also predicted the rise of faslsi/and the emergence ofthe OrPORRH,a ‘scenario in which military authoritarianism and the interests of capitalist big business would ‘Prevail over nominally democratic institutions, This too subsequently became a feature of European nations, such as Germany, Italy, and Spain, in the years leading up to the Second ‘Word War. Veble’s engagement with these bread politcal economic issues foreshadowed one ofthe major themes raised by institutional economists today: the awkward, even incompatible, telationship between capitalism and democracy." Conclusion ‘Thorstein Velen’s work provided a substantial foundation forthe development of institutional economic. It may be regarded as everything that the neoclassical economists’ theories were not—and still are not. It was interdisciplinary in character, with strong historical and anthropological zo he ern of te ag hat ‘orthodox hors nomaly aes (GGaaURLI| focus on these matters, particulary tastes and technology, enabled Veblen ‘to lunmate te escedat spec ofthe econny, He showed an enon if wih wate And intemal contador, not an economy pong barrios outcomes. Tis the ‘soi of nunnhbed social sdentist developing a wena ego the ecncne ‘basis of the society of his day. ‘Was Veblen the American equivalent of Karl Marx? In a society with a deep attachment ‘ecaplaim athe expeson of ecnon ndviduao, Veblen was sbot a radio someon sekng agian andione forthe vewseane inthe USA. Howeeysaanced assesment of contibation mst aso acknwedge to contrary fetes, Fa, theres othe sme ana goa sis found in Marr's polal econo, ble’ tne rod thoy led hintoalorersjlofeasoning, earn sol observation and tly cn, Second, Yel had opal progam copa that proposed by Ma Hs analysis oft Galen ad wastes ofthe American economy didnot lea to substantial reponse coomicarangenens tht wold ferme eo ore or oes. Theres the hope, een he expectation, tht th enghers wl take seo the faces athe ecnanic manages of vce, but ne ana of any sich wnaton ano rare for analteratve pole economic oder Tis ents belt the importance st ‘his work. Veblen paved the way for a significant dissident tradition in economic thought _ ation tint economies, KEY Ponts ies (CHAPTER 24: ECONOMY AND SociETY EyA Dissident Tradition in Economics What are the characteristics of institutional economics? What contributions has this tradition made to economic thought? What impact have institutionalists had on economic policy in practice? Many dissident economists, folowing in the footsteps of Veblen, have been concerned to ‘understand economic issues n thelr socal context. These economists do not form so clealya, defined school of thought ax Marxist and neoclassical economists They have no clear analytic framework equivalent to Marxist value theory or neoclassical marginal analysis. Indeed, _institutionalists normally reject both value theory and utility theory as abstractions that are GEE ee eee (Goel inesyoFenquiryyrnis atracts Ute academic prestige. Nevertheless, institutional economists can clam to have had major influence on government policies, teipering the) _Snstablty and inequality generated in a capitalist economy, ‘Theloocelybounded character ofthe institutional economic tradition isbothite strength and its weakness. 1 makes for uminatng analyses ofthe connections between econo, social, and political issues. thas also opened up new lines of enquiry, helping to spawn acadenie disepines such as economic statistics and industrial relations However, crite of institionalsm dam that its loosely bounded character shows aac of analytic igo Some stocktaking of the cotsibutions of andthe competing clans bout, instittonal economies i warranted, Sx general characteristics of ination economics, while not applying equal to all its practitioners, ndiate the broader orientation of his treition in political economy. These are as follows: + Insttutonalists have generally ben critical indeed, often downright diespectul, of economic orthodoxy. Theirconodarm ha challenged the‘conventional wisdom ‘economics, thereby dearing the decks for more down-to-earth institutional Investigations. CHAPTER 28: A DISSIDENT TRADITION w ECONOMICS + att omnis een oc hth emp stay fv et ‘They emphasise its complexity, but also try to discern recurrent patterns. This empirical approach the antithesis ofthe armichaletheorising’ that has tended te dominane, meen * Institutional have been concered with eintepating economics ith SGU (pli and bce cal aiees Trees ‘compartments, they argue, so the analysis of it must have a correspondingly recy . "* _ Institutionalists also emphasise the\pérvasive influence of ideology in shaping economic ‘hia heey sneer nest ‘on por i nO ase open + Ronumicsptenazeto conta cagig ascot sgetat se tthoiouy enmity mt oe iccceaaer ete foxces that shap ithe corresponding processes of socal change. indeed, invariably is steered bythestate, Economic owiedge thereby becomes key element inthe proces of taking contre of our own destinies. This ‘reformist view of the state tends to situate institutional economists politically, in abroad idle ground between neoclassicals and Marxists, American institutionalism Significant numbers of economists, seeking to apply the foregoing principe in bulding an alteratie to orthodox neoclassical economic, have contributed to institutional analysis tcl, insitatonalism hastened to become more conservative as Veblen’ breadth of Vision has given way to more detated contributions to empirical research, However, in the ‘wetieth century, asthe wrk of nttutional economists came to be more acceytale to the polticalestabishnent, some ofthe reformist prescriptions ad significant infvence on pubic atic Inthe USA especialy, nstitionaleconomswasaseriousrialtocrthodor economies uring theft half the certury. Tt continues tobe a source of constructive dissent. ‘In Usting the major contrTbutors to this pottial economic tration, iis appropriate to begin with GORATCSBIGRD) (1862-1945). Hs publications inciuded the ten-vlime Documentary History of American Industral Society (630-11). He also wrote The Legal foundations of Cpitalism (1924), which eramined the lationship between the economic and (GAB an important connection because, to this day, these continue to be the twin foundations of social order. Commons emphasised the ned to study the economy 2s‘ gong concen, evolving in reponse to real pressure, rather than abstract priate, His wing ‘were packed with the rents of his painstakingly detailed and descriptive institutionalPART Vie EYOLUTION AND REFORM oul: the sot of wok at eveyone says usefull ew eee. res, he had sone practi intaege nis own dy, prey in the dertopment ofthe pales ofthe Hey Dealintrodced by President ann D. ooseret to combate cron ennomican sock prbien the Great Depression (PRR (7-100) was note roniner American nso economist Ain and former sndent flr, itch Ro ERO He compet nonnous volume of sats dta to dese anf arlee these wees. Measenest ‘eho theory hs ceed One can acer ints wrk he origins othe dipline of Conon sats, eto bene eenometie At et aght us does a ft comfy withthe gener character fitatoral economics assent ues inthe ecnamis ducipine Hower, thee is actualy common theme: the enphas In ltitonl ccononcson empl ebsuvations of the veal wold ater than ast thera Mitchel emphasised the ganthatie aspects ofthis emia enguiyConputes, of ue, tavemade the aap lage zal data sets ofeconomi ales uch eae oda han itwasin Mitchel sine. ares Mea (106-198) made equlyinportant contains to undetaning ‘the qualitative changes in twentieth-century capitalist development. Together with Adolph Bate :895-57) hls et mown othe book The Maden potion nd Pate Property (1922), which med thesgiance ofthe epantion of emery fom cnt nthe ‘Gocern coperaton, Teng the im as a single decor making wnt a mainstream canons usualy do, was shown tobe out fer ith el ims The roth of abet mui (eles wo have det maraer le a opened up mar pote conf ofinteet inthe rarang ofthe corportions The deta stay by Bel and Mears ofthese changes and tensions wasa significant contribution to understanding the origins and consequences of te manager elution The wok one to esoat, scrote over becomes mre oncertate and nore last. A final example of the major figures in the tradition of American institutionalism is Rotiert Hebe (1919-2005), who comes close to rivalling John Kenneth Galbraith as its ros cutstandng vepeettvesncethe Second World Wa Abigthinker and prolife rte, Helios petap nortan anyother nner pol economist was ing sft wat oon the shor tem ends inecoomic onthe future prospect fr eapitais. ‘ndiators beloved ofthetnancil mare pundits, botonthe broad trajetoryofeconomy and. (Geyer the deter ae is nny he Human Prospect, for example, ree onthe resus renting fom population growth, envzonnertal sues, andmtary conic rook tthe fais of ur pla intatons in making the necessary adaptation. 1. au cosa the ins of human nate boldly stepping beyond the usual ints of otal cconon nto the ein fsei chology. Hebonesevlonary pret siended with an emphasis on the limits of industrial society, or what he elsewhere calls “business) \(Gilization?? Writing before the current wave of concerns with terrorism and environmental alsis, Heflvoner aaliipated convulsive change; that ly, ‘cange forced on us by external ‘events rather than by conscious choice, by catastrophe rather than by calclation’.* (CHAPTER 25: A DISSIDENT TRADITION IN ECONOMICS Circular and cumulative causation How cononisand sal chang cesses conte then in istuonal economies. Perhaps ost significant interpretation is the principle of circular and cumulative causation, The ‘notion has its roots in Veblen’s writing, and has since been developed by other institutional conomists, most notably the distinguished Swedish political economist Gunnar Myrdal Its ‘Key proposition is that economic inequalities, once established, tend to sel perpetuate end grow: In one respect, this theory isan uncomfortable product of irstiutionlin, because its practitioners are usually suspicious about clans regarding universal economic principles. Cizcular and cumulative causation looks lke a general theory proposed by etic of general ‘theory. Perhaps the best way of interpreting it sas @ notion that can be applied in numerous specific contexts, ranging from the analysis of sexual and racial discrimination, to regional and national underdevelopment, and the formulation of industry policies. tis not so much a general theory 2s ‘way of seeing’ that opens up new ection in analysis an poi ‘The contast withthe equlbrium tendencies posited in neoclassical theory is eertainly striking, Recall the analogy of the ball on a saucer in which the bal invariably tends to a "idle postion in spite of external disturbances: thsi the essence of the neoctassical view: ofthe economy in equtvium. tn ereular and cualative causation theory, if heres any ‘uiibriam at all, iis the equilibrium of a pene standing on its end. Once disturbed, the ‘Pencil fal further and further away fom its initial vertical positon. This analogy lustates ‘the contrast with neoclassical theory, or equilibrium economics, as Nicholas Kaldor, another ‘of the proponents of the principle of circular and cumulative causation, labels it But this doesnot adequately convey the key feature ofthe institutional economic reasoning, which ‘is more about processes than end states, Circular and cumulative causation processes arse ‘because relationships in the reat world between economic and social variables are seldom \Unear. Economic changes interact with social changes in waye that open up opportunites for ‘economic growth and social progress. Meanwhile, problems beget problems, Consider some examples. One is racial discrimination, the focus of one of Myrdat's fatty books.’ If ethnic minority groups—such as people of Aftican descent in the USA ot the Aboriginal peoples of Austraia~are subject to discrimination, they are consigned to {generally inferior economic and social circumstances, usally manifest in lower incomes and ‘higher unemployment. These circumstances cause the victins of discrimination to cluster {in areas where housing is cheaper, to wear clothing of inferior quality, and perhaps alo to ‘adopt self-destructive or antisocial patterns of personal behaviour. That provides a basis and spparent justification for further discrimination against them, Avcious cycle of advantage and more entrenched prejudice develops. ‘A similar story can be told about unemployment. People who tose thels obs (or have ifclty finding a frst job) usally experience a predictable sequence of responses, The longer they remain out of work, the more likely itis that ther optimism about employment ‘rospecs wil turn to pessimism. Their personal characteristic, such as regular timekeeping. ‘that employers usually look for in ob applicants, atrophy. Potential employers are also often suspicious of people who have significant gaps in their employment record. Eventually the 2aPART VE EVOLUTION ANO REFORM ‘unemployed people may rationalise ther own situation by saying they do not want to work anyway; then, it seams, they are not farce Sn ther own eyes. The “ole Budge’ or ‘work shy’ welfare recipient is thereby ceated. Conservative politcal campaigns then turn these ‘undeserving individuals into scapegoats forthe unemployment problem, a process generally supported by the tabloid press ard other capitalist-owned media. The victims become the problem. This sort of sequence, writ lange, is also central to the problem of economic ‘underdevelopment. To quote the economic historian Ragnar Nurse: poor man may not have enouch to eat; being undernourihed is health may be weak; being _hsically weak, his working capactymaybelow, which meas that e's poor, whichin turn ears ‘hate wl not have enough to at and soon. A situation ofthis sort, applying toa county aka ‘whole, an be summed up Inthe ite proposition 'a country poor becaaze it spoon ‘This i a simple but powerful insight into the general nature of international economic Inequalities. Although it does net address the origin of the inequalities, it stands as a Powerful antidote to the conventional economic claim, from Ricardo onwards, that more ‘openness to trade is necessarily tomutual advantage. The ceation ofa level playing field for market exchange may tend to giveth already big players even more competitive advantage, accentuating the international economic inequalities. ‘Within mations there are ato observable tendencies towards cumulative regional ‘equality. Particular cites and regions usuallyleadthewayin economic gronth.Thosewiththe ‘head stat, fr whatever historical geographical reasons, forge further ahead. Ther better developed infrastructure makes them attractiveto both capital and labour, with theresaltthat aigratory flows accentuate thelr growth, Meanwhile, emigration from the peripheral regions depletes the ‘human capital, particularly their younger and more entrepreneurial people. ‘These are what Myrdal calls the ‘tackwash effects’ in regional economies. Then the firms in the core regions, having the best access to consumer markets and factors of production, develop economies of sale, and external economies arise as rms cluster in those Tocalities. ‘Spread effects from this growth, nay benefit firms in neighbouring regions who serve the core regions with foodstuffs or ancillary services. However, the ‘backwash effects’ normally Aomnate, increasing regional ecoromic inequalities, The ‘urban basin poorer mations tende tohave a similarly circular and cunlative character.” ‘These illustrations of the processes of cicular and cumulative causation present @ rather depressing picture. The possiblities for more balanced economic and social progress recede, Greate inequalites—racial international, and regional~scem inevitable asa result ofthe operation of normal socioeconomic processes. That isthe bad news. However, once lnderstood, circular and cumulative causation analysis opens up more positive possibilities It enables usto envisage what i needed to generate better outcomes. Thisisthe good news. With strong policy commitments (and. Ute ht of uck), vicious cycles can be turned into virtuous «cles. Afrmative action policies can help to reverse the disadvantages suffered by ‘minority’ groups subject to discrimination. More balanced regional development can be fostered by (CHAPTER 28:4 DISSIDENT TRADITION in ECONOMICS polices that locate growth centre in underdeveloped regions, giving them the opportunity ‘to become ‘coumtermagnets’ to the otherwise cumulatively dominant metiopolitan centres, More effective industry polices cn also he constructed, recognising the technical interdependencies of industries and developing institution to foster the cooperation of firms within those industries. No general panacea is implied. Problens of social exclusion, stigmatistion, and zacial Aiscrimination are seldom easy to turn around, because of thelr socially embedded character. Sesional and industria inequalities are feat to redes, and alyays etal opportunity costs ifthe policy meesures divert public expenditures from elsewhere. The problems of {international economic inequality are particularly hard to resolve, because of the need for international cooperation inthe pursuit of lutions. Long-term commitments, emphasising ‘anecessary role for the state as a manager ofthe process of reform, ate required, This means ‘more than the augmentation of the market economy with selective government intervention: ‘tentails aholistic approach to economic and social policy. MEGS 0:2r+ scnvureren iees-000 Joseph Schunpeter is not ususly considered an institutions economist, but his work has many of the cheracteristics of instiutonalisn. He was certainly big thinker, seokng, as he ‘ld, to understand the trajectory of the economic system as 3 whole He grew up in an aristocratic housahod in Vien before the First Word War At that tie, Vienna wee tiving centre of learing inthe socal sciences, and Schumpeter became interested in both nacclassical and Mardst economics, ‘though his om work cid not fl clearly into ether category. He fed Europs es fascism spread, and he then spent mest of Fis professional career in the USA, While & professor atthe Massachusetts Institute of Technology here is penchant for ‘weering riding boots, evento fecuity meetings, wes notorious he wrote the most comprehensive survey of the history of ‘economic thought published to that date ‘Schumpsters best known political economic contribution isthe book Coptatem ‘Socialism and Oameocracy 11943}. it, re poses the question Can cepiteism survive?, and answers, No, Ido not thirk con He aw the most attractive feature ofcepitallemas ‘he dynamism generated by ontreprencuship and innovation, which erated s perennial ‘le of creative destruction: This would bo eroded, he anticipated, by the development ‘of large corporations, A managerial class would emerge more concerned with sheltering from the perennial gale of creative destruction than in fostering It. The dynamism of the system would be throttled. This, he predicted, would pave the way for change tosocial. wes a change thet he saw as regrettable but Inevitable, Politely this was ‘Marx upside town: Schumpeter viewed competition 8s crucial to the dynamism of capitals, but was competition among entrepreneurs seeking menopely pref, nat competition in perfectly competitive markets la neoclassical theory. From this perspective, lgopoly Ie ectually preferable to perfect competition becausa It enablan firme tn make sufilont profs to vest In research and dovelopment. Th inherent danger, though ie that ratonlsing Imovation eventually leads to managerial capitalism being pron to stagnation There has been © recent revival of intrest in Schumpeters economic snalsis, sometimes labelled neo‘Schumpeterian. The made variant is lass concerned with the broad patie! aconomic trajectory of capitalism than with pragmatic aspects of industry policy. It sets aside Schurnpete’s porsonalconservetiam in favour of amore intervertionst proach to fostering imovation in industry. This focus on innovation asthe key to econemic ‘dynamism underes pubic potcies of expenditure on education and traning, and research ‘nd development tishoped that these will promotes high road for economic developrent, roving interesting snd secure careers. If 6, ite 8 me attractive altemative than the “lw road, which emphssises cost reduction, particularly woge cutting, as the mesne of sncuring ational competitive sdventoge* Anew institutionalism? A survey of the major institutional economists and their practical contbutions would ‘be incomplete without considering what in recent years, has been described as ‘new instittonalis’ 1s eading practioner include the American economists Richard North, Oliver Wiianson, and Richard Lanles. Rew intiutonalists are concerned with analysis of the tltionship between indidal and institutional behaviour.” Corporate hierarchies and non-market instistions ae studied in lation tothe rational choices of el-ntrested Individuals within them. The uerying view eof society as a market in which individuals ‘ave cntirual opportunities to make mutually beneficial exchanges. Contracts may be made (conic or ipl) between the partes in order pei utre rights and obligations. What bedeis the proces is the pervasive problem of transactions costs. The costs of gathering information and specifying and enforcing contracts, for example, must be taken into account. The esting institutional arrangements ae, shereor, an outcome of more conplexnegotition than normally assured in mainstream economic theory. This way of interpreting business bebavious, and soil behaviour generals helpful in daving attention to the effect of transaction costs on economic choices. However, putting the individual atthe centr of atention ves a distinctiy neoclassical orientation to this ‘new istittional economics. Much of transactions cot theory makes assumptions about individuals wit ven preference. This tens to give prinacyto the market asin neoclassical ‘theory ‘nthe besinnng there were market says Willamson in oe of is books "From ‘hat begining some individuals goon to create fms and hierarchies, which endure if hey (CHAPTER 26:4 DISSIDENT TRADITION IN ECONOMICS ¢an keep transactions costs down. Wiliamson claims a close connection between this focus ‘on transactions costs and John Commons's idea ofa transaction, but thee isa fundamental difference of emphasis. As institutional economist Geoff Hodgson puts it, For Wiliamson ‘the unit of anatysis isthe given, abstract, atomistic and “opportunistic” individual, whereas ‘Commons presupposes and stresses the organic and collective quality of instittions."= ‘What fades from view in the ‘new insttutionalism are the characteristic concerns of ‘old’ {nsitutionalism, such as how preferences, aspirations, and behaviour are moulded by ctcamstancesand become embeded inthe habits and customs othe people Her, tseens, is a case where the new isnot an advance onthe old {Ina sina vein, it is pertinent to note the awlorard relationship between ‘new growth theories’ and the old insttutionalist principle of cizcular and cumulative causation. New growth theories study the path-dependent character of economic growth.” The central ropositon is that what happens tomorrow depends crucially on what happened yesterday and on what exists today. That means thatthe econom growth that a region or nation can achieve is constrained by its past experience. To givean example: implementing a particular government economic policy (such as tighter monetary policy) tends to change the overall, {evel of national economic activity, which in turn affects future growth prospects and tits fature policy options. This path dependency has long been recognised by the proponents of lecular and cumulative causation. However, the formal models ofthe new growth theorists ‘purge the circular and cumtlative causation theory ofits qualitative insights into economic ‘and social processes. As with the tension between the new institutional theories ofthe firm and the older institutionalist tradition, the key difference is one of methodology-whether to-make the simplifying assumptions necessary for the construction of formal models orto ‘emphasise the comple, qualitative changes associated with evolutionary processes. Conclusion Institutional economists have had diverse concern. They form a motley crew, some would say. However, the contributions of institutionaism to political economy ae important in at ‘east three respects. They are a consistent source of critique within the economics profession, challenging the dominance of neoclassical theorising and the unrealism ofits underlying ‘assumptions, They contribute useful concepts, suchas the principle ofcirular and cumulative causation, for understanding and shaping the evolution of economic society. They have also hha a significant practical influence on polices to ameliorate the extremes ofa capitalist ‘market economy, particulary through the development of institutions to ster processes of socioeconomic development. ‘Acommon element in all those contributions is the concer of institutional economics with economic power: its sources, uses, and abuses. Ths theme ie further developed in the ‘ext chapter, which looks in particular atone of the most interesting gues ofthe economics profession, the American political economist John Kenneth Galbraith.KEY POINTS Economic Power : What are the principal sources of economie power? ‘How have power structures changed in modern capitalism? Can the power of capital be matched by the power of a reforming state? ‘Theanalyss of economic powers central to polticaleconomy. Indeed, this ists most obvious point of departure from the neoclassical orthodery. Power in neoclassical economics is United to the study of power in the marketplace, This isthe power exercised by consumers over firms as they make their purchasing decisions, or the power of monopolist to raise their ‘rices above the level that would prevail under mere competitive conditions Looking at only ‘these forms of power gives a myopic view, focusing on only part ofa bigger picture. As Mare ‘emphasised, there are more systemic dimensions of power suchas the power that captalas a dlass exercises overlabour. Institutional economists have emphasised other types of power, too: the power that business corporations may exercise over governments, for example, and the power that they can exercise over consumers through processes of commercial advertising, Collective organisations, such as workers in trade unions or environmentalist in active pressure groupe such as Greenpeace, can exercise power to offset the power of corporate capital. The relative strength ofthese different kins of power, and their sources and wses, warrants attention, Gelbrsith has been a towering figure I Institutnal economics, terallyfbeng mere than ‘wo metres tal an iguratively. He made an ercrmaue contribution to enhancing populst Understanding ofthe modern economy. His nurrous beoks on plticel economy have Probebly been more widely read than those of ary ather twentieth century economist Glbith was born in 1908 into & Canaan farming family of Scottish descent. He ‘studied sgricuture at the University of Teronto and aubsequertly completed his PAD in‘economics at the University of California, Barkley. During the Second Wore War he was appointed Deputy Dector for rice Administration, {or the US goverment, 2 post that cove him practical experince in the ‘cis of regustory processns to contro the inflationary pressures that Invariably cour in wertine Batbrath became Professor of Economics at Harvard University, lectured st many other universities, nd waa elected Prasident of the ‘American Economics Association in 2972. He had = longstending ‘asscciaton with the Democratic Party, aiving advice to oresidents, inching Jeb F. Kennedy, who appointed him US Ambassador to ina in the poriod 1961-63, He alo wrote two novels and a book on Idan pairing, However, ts fortis writing and public peaking on poteal economic issues that he i best own. Books auch 9 American Capitalism (1052, The Affluent Society (1958), The "Now inustrio! Stot 1967), Economies and the Public Purpose (1974, Money (1975), ‘nd The Culture of Contentment (1892) have boon bestzlls. He also made a television ‘setes called The Ago of Uncertainty, which crcally and witty assessed the relationship betwaen sconomic hisory and the davolopment of economic Sess For over half century his was an outstandig voice against conservative econemiat’‘onventional wisdom! (Gobrats cotebe ptyase for thet which is corventianal but not actualy wise Echoos of ‘Thorstein Vable's corcerns are to be found in his writing: the shallowness and woste cf sonsumor soclty the shifts n power over kay economic decision, andthe evlutonary character ofthe economy. Like Veblen, Galbraith also enjoyed ambiguous status inthe {economics profession:he has been widely praised for his elagant writing and engagement withthe major practice concams ofthe day, but elo been derided for his side views ‘2nd preference for erkl argument rather than formal economic modeling His son, Jemes K. Galbraith has followed in hs fotsteps ae @ prominent etic of mainstream econemse theory end of what passes for erthodany today inthe realm of economic poly, —— ‘This chapter puts particular focus on the contributions of the distinguished political economist JK. Galbraith tc the study of economde power. His numerous books have ranged ‘over almost every cnceivatle aspect of politcal economy, butthe study of power has been a central theme, The anatomy of power Galbath mote a book dette to this topic, appropitely titted the Anatomy of Powe.) [distinguishes thre forms of poner: condign, compensatory, and conditioned. Codon Dever associated with coercion and purishment. It isthe type of power exercised by A slave onnes over his saves. More milly is evident in al socal behaviour eonatraned CHAPTER 26: ECONOMIC POWER by the fear of rebuke, The common element in condign power is that submission occurs as ‘the result of threatened or actual adverse consequences. Compensatory power, by contrast, ‘works by offering rewards. If the fear of rebuke isa mid form of condign power, the pursuit of praise is its equivalent in tenms of compensatory power. More specifically in the modern ‘conomy, compensatory power usualy takes the form of pecuniary reward. Submission to the economic purposes of thers finds its compensation ina monetary payment. Tiss central to ‘the functioning of capitalism. So, too, i the third type of power, conditioned power, which is exercind by inftencing peoples belief. As Galbraith puts it, Peisugsin, edueation, of the Social commitment to what seems natural, proper or right causes thé individual to submit to ‘the will of another orf others. Submission may not be—indeed, normallyis not—conscious, The essence of conditioned powers wiling, even enthusiastic, compliance. Soelal conformity isite halla, So, what differentiates those who wield power from those who submit to it? Galbraith continues his analysis of power by identifying its thre sources: personality, property, and crganisation. Personality in this context is broadly interpreted as the personal qualities of leadership, ranging from physique to persuasiveness. Charisma fs one commonly cited rarifestation albeit one tat is notoriously difficult to define. Property isthe more obviously ‘economie source of power. Thisis the power that derives from wealth, including command over resources, andthe capacity to hire and dismiss employees. However, according to Galbraith, itis organisation thats the most important source of power in modern societies. The power of ‘corporate executives orof senior state bureaucrats derives rom their organisational positions, ‘ot primarily from ther personalities or personal property. Power ataches to their office, not ‘their person. On their retirement, thels power disappears overnight Similarly, inthe politcal ‘arena, the power ofa politician derives from having a senior positon in government o having the capacity to influence colleagues in such positions. Again, on losing office, the personal ‘power usually disappears; the retized politician may command an interested audience—and sometimes a handsome appearance fee—but he or she usually wields tle orno power. Rather more contentiously, Galbraith asserts general corelation between thethiee types ‘of power and the three sources of power, According to this reasoning, the exercise of condign ower is mast directly associated with personality or leadership; compensatory power has ts strongest linkage with power structures deriving from propesty; while conditioned power is ‘characteristic of organisational sources of power. These he calls ‘primary but not exclusive associations’, conceding that there are also ‘numerous combinations ofthe sources of power and the related instrument”. The taxonomy starts to lookiess tidy. Galbraith’ Anatomy of Power isa starting point fr thinking about the avenues though ‘hich power is exercsed, but deeper insights come from his other books particulanly those he identified as his principal political economle quartet: American Cepitaimn, The Affluent Society, The New Industrial State, and Economics and the Public Purpose Figure 26. later inthis ‘chapter shows some ofthe major themes developed in these books, and provides a summary of ‘is important contributions to the understanding of power in modern capitalism, zaPANE Vl EVOLUTION AND REFORM Technology, planning, the corporation Tecnology i Galbrait’s distinctive stating pont i understanding the modern economy, He regards capitalism as being in subtanil measure, the offing of technology He emphasises the incest pressures or economic change duet the sstenati application of scientific or ether oreised knowlege to practical tak. These task invlve the provision of services aswell asthe production of goods parila during the presente, when the spread of information technologies has been so rap, Relentless technslogial change has alae been a prominent festive of eplalist devebpment.Sulding up vast productive capacity based on increasingly sophisticated producton and transportation technologies i haps retest achievement. Inded, what Marx called the eres of production hae been erlutinised Does this constitute a technological inperatin? Glbat’s cre accuse hi of technological deterinisn, of implying that technological change has fe of sown rather than being a product of capitalist interests Inded, technology may have its own partly independent momentum, driven by the Snings of scientists researching new materia, ‘processes, and applications, for example. Thisindependenceisleseened, ofcourse, areseach ‘becomes more dependent on corporate funding. Muchof the research ang to innovation is now done by the companies themselves, particulary when asscited with new product development. o, th form and direction oftechnologia changes directly Unked to capitalist {nterests. This as major implications forthe ogasation ofthe companies, theleationship with oe another, andthe broader soit. Galbrith’saralgis emphasises that an economy based on increasingly sophisticated technology must necessary be a planned econemy, Ina capitalist pte itis the big fre that ae the planers. They need to make long-term large-scale commitments of capita because the capital goods embodying the complex technologies ae so expensive; the commie of funds to research and development as further othe cost. Therein isa Paradox: the capitalist sytem, whose supporting ldtology enphasies fee markets, as become characterise, in practice, by institutions engaged in economic planning. A wold of apy changing tecnolgies is always one of uncertainty. Comming capital tothe parchaze of equipment based ona particlar technology risy busines, fr thse capital, so0ds canbe quickly uperseded by farther innovations, Is fo his reason tat plang is inescapable The competitive marketlaceis too usta toe focused onthe kar ter fora technologically sophisticated economic system requiring long-term, large sale commitment ofeapital Does this compris a new secialsm’ A the corporate sector of captalam becomes & Manned economy, does the system take ona characteristic more commonly associated with ‘he vocialiststemative? ths pss, sometimes akled the convergence thess, was @ contovesia interpretation of the long-term trajectories of capitalism and scam in the {wenteth century. in essence, the cain is thatthe rial systems, notwithstanding their competing Ideclogies, must necessary come to look lke, becuse all economic actly ‘HAPTER 26: ECONOMIC roweR {s shaped by common technological and organisational imperatives. But the term ‘new socatism’ does not necessarily connote a complete convergence; it certainly doesnot mean ‘that capitalism fades away. What Galbraith is talking abouts a system run by corporations for comporations Te panning is fo private interests rather than for broader soil goals only takes onary sort of socials character ifthe corporations are forced by the countervaling ‘Power of governments or trade unions, for example~to assume wider social responsibilities, ‘In Galbraith’s analysis, ‘new socialism’ would imply a more substantial role forthe state in ‘managing and steering the economy, notwithstanding the rhetoricpaatng capitatem with free markets. Overall, the picure presented by Galbreith is one in which several hundied giant corporations, able to contol technology and plan for their own corporate interests rather than simpy responding to market frees, dominate the economy. This corporate sector of ‘the modern economy controls key parts of contemporary industry, Its enormous economic ‘Power reshapes economic relationships—within the corporations, between firms, and with consumers, workers, and governments Power within corporations ‘hose who contol the information necessary forthe day-to-day running ofthe eoeporate economy are, according to Galbraith the focal point for the exercise of corporate power. These ‘people he labels collectively asthe ‘technostructure, comprising ‘all who bring specialised JInowledge, talent or experience to group decision-making:* Technicians, scentists, engineers, financial controllers, market researchers, and human resource managers are ‘among the teehnostructure's members. University qualifications are the norm-—which may be reassuring to some readers ofthis book, knowing that they are onthe road to joining the most ‘Powerful group in modern capitalism. Itisimportantto distinguish thetechnostructare rom the owners ofthe big corporations. The crucial feature ofthe former isnot ownership, nor even an elevated position in the ‘organisational hierarchy: i is control of information, The technostructure has the detailed Jnowedge about ronning the business, whereas the owners have onty a pecuniary interest {n the outcomes. This aspect of Galbraith’ analysis builds onthe earlier work of institutional economists Berle and Means (discussed in the preceding chapter), which explored the significance ofthe separation of ownership from contrl inthe modern corporation. Galbraith goes one step further, however, distinguishing between the formal power of the capitalist lowers and the practical power of the technostructue, which derives from its contro over ‘the sources and uses of information. The latterhas more day-to-day opportunity to shape how capitalist businesses operate in practice, Galbraith justifies his emphasis on the power ofthe technostructure with a character- sticalty neat argument. Under feudalism, he notes, land was the key factor of production, so ‘the owners of land were the dominant clas, With the development of industrial capitalism,24 PART Vi EvoLUTION AND REFORM cept Beare the ey facto of oducin, and power sitched tots omer and controler, ‘With the adventof the information ap, he ay, tote who generat an ona information become the key group Hee ia strong cones, bth withthe necclaselasumption of the masa single decision-maker nd with he Maran view ofthe continuing dominance ot ‘he coptaist ass. Galbraith emphasises theater contrat as folows, ‘were capital and abou, the cepts and the worker. Tere were alo, to Be ste armors, had {oteletuls and others. But capital and labo, capital eras abou, that was the bass daa, ars had an authority bere that would have surprised even him. Ths sna tones the eae i the sdvanced instil counties, The srextpolticldhatomy-the captalt an the working ‘masse—haverresied ito the shadows It survive ota a realty but as mental commonene ‘place of the capitalist thee ls now the moder ret earorate bureaucracy. Not captains boy managers? Whether or not the managers serve the capitalists i, of couse, the erucial question. ‘In general, one may expect them to do so." However, according to Galbraith, there i some evidence of different, self-serving tendency. Managers, he notes, are commonly concerned ‘ith corporate growth, even at the expense of profit maximisation, since therein es the ‘Strongest basis for their own employment security, income, and prestige, Ths reinfores the ‘rowth orientation ofthe modern capitalist system asa whole, what Galbraith had earlier called ‘the paramount position of production." Bidence of yet more directly self serving tendencies foday are the increasingly generous managerial remuneration packages and the perquisites of office. But these prodigious incomes are mainly enjoyed by chief executive oficers (CB0s) and other top managers; the members ofthe technostructure generally receive rather more modest Tewards, notwithstanding their key role in actualy running the corporations, Power relations between corporations ‘The scope for the discretionary exercise of managerial power depends crucially on the ‘elationships between the corporations themselves, These relationships are both cooperative and competitive. Large rms inthe corporate sector mst continually make strategic decisions ‘bout the use of power. Theirs isa world that neoclassical economists describe as olgopolistie (see Chapter 21), using this term to describe the structural relationship between firms in a Particular industry, Actually, in modern capitalism large corporations often straddle different industries, making a range of products that defy categorisation into a single industry sector ‘his the essence ofthe corporate economy. what Galbraith calls the planing system. Tis shares, corporate culture, and organisational practices, and that are collectively powerfl in ‘reshaping the world in their own image and interests, ‘ongside thie planning system i a market system comprising smaller businesses, where ‘more traditionally competitive practices operat. Galbraith concedes thatthe sort of market Principles discussed by neoclassical theorists under the rubrie of imperfect competition —>— ‘CHAPTER 26: =CONOWC PoweR ‘ay hav some oto pay here, they enterpeting the eclasil henry of igopaly is mlerant to the realm of relatively small, rather than big, business, But the sitetae, ' complicated by the dependence ofthese firs inthe market system onthe sant inthe Panning system. The former usualy supply the ater with intermediate product, services and subconsarted elements inthe production process. This dependent, or subedingte, characte ofthe arket stem sits most general character. The dualism of the planing ‘and marke eystems involves a dramatic asymmetry inthe distribution of economic pewer, ’ Corporations and consumers ‘What about the consumers? Their purchases ae essential forthe corporations to achieve thee Sls and fo the elentiestygrowth-ovientated capitalist syste to contine functioning. ‘According to the neoclassical theory of consumer sovereignty, tis the consumers’ preferences that call forth the products: the pattern of consumption thereby determines the pattern of Production. Galbraith posits that the reverse situation is more typical. This is what he calle ‘the revised sequence, perhaps the most controversial of Calbraith’s claims about the use of ‘corporate power in moder capitalism." According this reasoning, tis imperative that ange firms seek, a far as possible, to contol the demand for their products. Integral to lng-term Corporate strategy, this s made necessary bythe major commitments of cpital necessary for the large-scale production of thes goods. Hence the channelling of prodigious resources {into commercial advertising and other sales promotion activities designed to create product ‘acceptance and ensure brand loyalty. The preferred pattern of production shapes the pattern ‘of consumption. Producer sovereignty replaces consumer sovereignty, Stated so badly, the argument isnot compeling, 1 isnot as if firms can simply mould and exploit gullible consumers~at least not all the time, Galbraith himself acknowledges ‘important exceptions to producer sovereignty and the importance of the context within hich product chofcesare made. New products, even extensively advertised ones, sometimes fail And brand loyalty can wane when rival firms are simultaneously pursuing extensive sales promation activities fo thelr own products, Market research also provides something of feedback logp, ensuring that the want-reation process has some basis in consumers’ Potential preferences, founded on aspirations or paychotogica fears that can be exploited for commercial advantage. Most significantly, ial takes place in abroad social context that slamorises consumption. A widespread acceptance of the consumerist ethoe~T consume, ‘therfore am’—isthenecestary condition forthe effectiveness of producer sovereignty. ‘The inclusion of these contextual considerations gives Galbrath's argument much steater force and generality. It also raises some profound questions about the purposes of ‘conomic activity in an alent society. Is there a reliable connection between consumption {and happiness? Does the production of ever more goods and services contribute to a good society? albrath’s analysis has an explicitly normative dimension, It is not simply a matter of countering the neoclassical theory of the consumer wth a more realistic view of the powerFART Vi; EVOLUTION AND MEFOKA ‘relationships involved in consumption processes in practice, Iti also a matter of drawing attention tothe rogs of pervasive soil problems. Perhaps most fundamental isthe tendency ‘towards ever higher levels of goods and services being consumed. Consumption has its ‘purposes, but they are increasinoly socal in character, once basic needs for food, clothing, and shelter have been met. Even these basic gods come tobe consumed increasingly as means of social display. On the subject of clothing, for example, Galbraith says ‘to a marked extent, attire remains to this day... prime badge of social postion and distinction’.* An echo of ‘Thorstein Veblen is clearly audible there. If we can distinguish between needs and wants— (Galbraith differs from the neoclassical in arguing that we should do so~and ifthe wants are ‘becoming increasingly frivolous, then there is no necessary connection between increased ‘consumption and socal well-being. ‘he tendency towards the dichotomy of ‘private wealth and public squalor’ makes the situation yet worse." According to Galbraith, private sector consumption tends to expand, atthe expense of the quality ofthe public sector, So, we have fabulously expensive private ‘ars, but inadequately maintained public roads on which to drive them. Our pootty funded pubic education and public health systems struggle to maintain quality alongside vastly more affluent private schools and elaborate private medical services, These ae striking examples of social imbalance in modern capitalism, Corporations and the state (Can we look to the state to rectify problems of social imbalance and, generally, to manage capitalism in the public interest? Indeed, we must, says Galbraith However, we alzo need to recognise the major tensions arising from the power relationships between corporations and. the tate, Thefocus onthe balance of power between the corporations andthe state’s the crux of Galbraiths political analysis and, as we shall seein Chapter 38, s crucial inthe construction ‘of modern political economy, In his early witing, Galbraith was relatively optimistic that the growing power of corporations would be checked by other sources of countervailing power, particularly the power of government and unions.” His later wrk emphasised the problems of growing power, imbalance as the corporate sector has become ever more dominant. But this imbalance can be corrected by strengthening the capacity ofthe state: hence, the need fora theory, and rogram, of economic reform to curtail corporate power and pursue ‘the public purpose. * ‘At one level this reformist postion echoes the iberalinterventionism of some orthodox ‘economusts, giving primacy to the mazket but acknowledging a supplementary role for te state. The ‘marke failure’ perspective is evident in Galraith’s proposition that: ‘Thre are some things the market system does not do well or sometimes even badly. These must be ‘the responsibility of the state. However, for Galbraith the range of such intervention is atypically broad. Ensuring thatal citizens have access toa basic source ofincome, to adecent educational system that may facilitate upward social mobility, to low-cost housing, and to CHAPTER26:ECONOMIC POWER 237 ood helt series, and ensuring tat there is funding for he siences and the ars, that peace ismaintained, an that recessions avoied—these are the characteristic pois that he regars as necessary if we are to ein a good sacety. The requles positive government Intervention, sage Galbraith, adding, wth his characteristic amon, that ‘edition and ayer, the instrament of policy inpast yes, wil not serve’ Sopprt for systematically reformist policy measures, he had ear argued, might be expected tobe forthcoming fromthe edveatonal and cient estat, comprising the beter, etacated and more economically advantaged social stata." alr’ writing over many decades became more pessimistic about this potential source of sufprt fr ecoromic and soca, His observations sugest thatthe politcal ilo effet the reforms has slipped aay (teat inthe USA, whichis is principal foc), particulary among the members ofthe side class who night be expected to havethe os righted refomist views FIGURE 26. ELEMENTS IN GALBRAITH'S ANALYSIS OF ECONOMIC POWER: A SUMMARY CChengos in tochnology | ‘The imperative af lensing | ‘The gronth of corporate powor | Resulting changes in economic relatonshine: (8) within corportions the tectnostucture’ (between corporations and the state —countervaling power or @ grove power imbalance’? what scope for ecanemic rf?PART Vi: EVOLUTION AND REFORM Galbraith wryly refers to ‘the culture of contentment’ i the USA. An electoral majority, enjoying the fruits ofa consumer society, has become defensive, conservative, ard feafil of change. Its members no longer look to government as an instrument for social betterment, Instead, their concerns have turned inwards, away from political processes and the collective Provision for soral needs, to market processes and individval provision They aspire to, and often inhabit, a demi-world of private schooling, private health insurance plas, and private houses in private security petolled gated communities, insulated from the socal underclass, ‘They are extremely relutantto pay the taxes that would be necessary to fund higher levels of sovernment expenditure onthe provision of public goods. The Tea Paty’ movement in the USA, wtich developed in 2009-10 inthe aftermath ofthe global financial criss san extreme ‘ase, financed by big wealth aut also drawing in some lower-income people enthused by ati- ‘government rhetoric, Galbraith dd not ivelong enough to see this far-right poplist campaign ‘to’get government out ofthe economy’ Had he done so he woud surely have said told you ‘0 ring its attemptto remove the economic sytem from control by the politcal process and thereby frustrate the possibilty of achieving the ‘ood society’to which he aspzed. Towards the good society? Galbraith’ political econozry exhibits the pessimism ofthe intellect and the optim ofthe wil The latter aspect usually prevails The last section of Feonomics and the Public Purpose explores the possibilities of significant political economic reform-notwithstanding the Powerful reasoning in the preceding chapters about the concentration of economic power that stands its way. The Good Society presents a significant reformist agenda for capitalism in the years ahead. Ftstand foremost, Galbrathargues, publicpolicy must address the fate ofthe underclas: the social stratum comprising people excluded from the ‘culture of contentment. Some are ‘unemployed orhave only marginal attachment tothe workforce, effectively forming a modern {industrial reserve army. Some do heavy repetitive induslsial work; others are engaged in doing the jobs that make life pleasant for the corporate bureauerats, the diverse smaller entrepreneurs, the lawyers, dovtors, teachers, and other professionals—~the cultural elite, asit ‘has been called, andthe large yensioned and renter community,” Members ofthe underclass harvest ther fruit and vegetables, clean thei streets and collect their garbage. Avery broad ‘interpretation of underclass is evident hee, straddling traditional views of the working cass, economically marginalised segments of society, and minorities subject to discrimination, It ‘erves Galbraith’s purpose in d:awing attention tothe continuing need for publi policy to be ¢oncemed with economic inequality Utimately, it is a concern fr social order a concern that ‘those who have no other outlet for palitical expression may wel take to the streets in protest or» escape civilised reality ints drugs and crime’ Generally, the case for pubic policy to assist the underclass reflects an egalitarian politcal sentiment, as much as can be tolerated in modem American socety: hence, the ‘haereR 26: ECONOMIC POWER «ase for policies to expand employment oppertuities, to improve opportunities for upward social mobility, and, as alas ert, forthe sate to provide basic income, As Galbraith says, “There can be no claim to civilised existence when such a safety net isnot availabe," It smptomatic of the welfare state being in retreat that such a case even needs to be restated. ‘The rationale for direct government provision of public goods also has an egalitarian be seen asa specific example ofthe base-superstructare relationship discased in Chapter 13, ‘he focus ison how the functioning of politcal institions is constrained and shaped by the structure of the economic system, andthe interest f capital in particular, Phrases in the politcal economic literature such as ‘the capitalist state and ‘the stat in capitalist society dlzetly draw attention this connection I is not simply mater of economic wealth buying polticainfiuence. Whats tissue here isa moresystemicrelationship.Atroot,itisstractural. {he stateis concerned with managing o steering the economy, it musthave dueregarto the Aominant interests whose cooperation is essential forthe achievement of succesful outcomes. ‘Toput the point negatively, if an economic crisis oocrs because the state fails to ensure the conditions for capital accumulation, this is lkely to precpitate political eiss and change of ‘government. Not surprisingly, iis a scenario that state leaders would normally wish to avoid. Inthese circumstances, working in tandem with the interests of capital has apoliteal lagi. ‘The third apect ofthe state is its bureaucratic character, This shifts our gaze to the Structures within the state and how they shape its functiening, Instead of looking at how the state responds to external pressures—whether from the etizenry va democratic processes of {om capitalist economic interests—the internal bureaucracy itself now comes under scrutiny, The term ‘bureaueracy is not used here ina derogatory sense. Indeed, asthe sociologist Max ‘Weber emphasised, bureaucratic procedures are generally necessary in large organisations to ensure that there is consistency in the processes of public administration. However, once a large state apparatusis created, its members tend to develep their ow interests, which may be Afferent from, even contrary to, those oftheir ‘politcal masters’ in government. An old BBC television series Yes, Minster wily llastrated this theme. Anyone with experience of working ‘in large institutions, whether inthe public or private sectors, wil have firsthand experience of familiar bureaucratic tendencies. Itsnormal manifestations are seeking continuity in public ‘ministration and security for public administrators Policy paralysis sa predictable outcome ‘when these concers are at odds with the reforms sought by governments. Inthe extreme case ‘when corporate corruption of state ofials occus, the bureaucratic character of the state ‘tends to closely align to its capitalist character. ‘A schematic representation of these three influences on the state, together with ‘quotations emphasising each aspect, appears in Figure 27.1 (overleaf) The resulting tensions ensure thatthe state, in practic, is always contested terain. This is nowhere more evident ‘than in looking a the development of, and attacks on, thewelfae stateos FIGURE 274 UNDERSTANDING THE STATE: LINKING DEMOCRACY, CAPITALISM, ANO BUREAUCRACY “Tha cent loss rule doc et gor: neg te gorse Sear Ray “The peopl gover, "nade rte pecs ray a poles raworbl tote peop “atl Ven, Statue Towmodenetate concpmposeos alge oraicaton eevee mu hag made te ssi exons he "Cena sown purpose 1K Garth The welfare state Onereason why analyisofthestatfeatures more prominently in insiutional economics than nthe ther traditions of economic sry considered in this books the generally reformist sncinatonofnatiutionalecnomists. They are usually ooking fr ways in which institutions canbe devel and adapts esl scoeronnieobens and ty managethe evn of economic society. Probably the most inportant expression ofthis reformist incinaton, {inking the concerns ofinstintonl economics with the practical polis of cil democracy, ‘is the development of the welfare state. This was one of the great practical political economic achievements cfthetwentiet cenary, tempering the cptalst economy with nstiiton to enhance ecoremic security and reduce economic inequality. Sine, asthe target of neaiberl austerity measures, it isa development in danger of being rolled back in many countries in ‘he twenty-first century, tisinportant to conser this legac of economic and social form. 1s usual to think ofthe were state a8 having experienced fs most spectacular development inthe yeas afer the Second World Wa. Yt its foundations were ad arte, during the ate nineteenth entry in Germany an the Uk. Many intellectuals, as wel as praca pltians, contrite to is development, supporting socal reform based on legislative change and the extension of government's role to foster social institutions with ‘humanist goal ‘CHAPTER 27: ECONOMIC AND SOCIAL REFORM ‘One such important intellectual was John Hobson (1858-1940), a British economist who ‘ote prolifically on economic and socal srues inthe early twentieth century. He has been Aeceibed as ‘the Godfather ofthe newiy formed British Labour Party. is wide-ranging ‘concerns included the analysis ofthe causes ofecononmse depression pera, monopolies, and economic inequality. Denied a university post because of his unorthodox views, he ‘ay be seen in retrospect asa visionary of the welfare state. As the American institutional economist Daniel Fusfelé puts it: Hobson believed that government action could end poverty, ‘unemployment, and insecurity, and could establish a society in which human happiness ‘revailed. Utopian, yes~but this was the vision that lay behind ESglish social legislation, Hobson didnot originate it, but he was one ofits bert spokesmen.” Here was a foundation on hich practical reformers such as Britain's Lord Beveridge would later build, establishing the welfare statein practice by extending the provision of social security, pensions unemployment ‘nsurance, public education, and public health facilities. ‘The welfare state has found its most fully developed form in the Scandinavian nations: Denmark, Norway, Sweden, and Finland. Swedish political economist Gunsar Myrdal woo a significant contributor to this process (see Box 27.1) The Scandinavian experience suggests ‘hat having socil democratic partes in governments crucial forthe ful realisation of welfare state ambitions, However, even some conservative political parties have, in the past, accepted 488 logi. Both in the UK and Australia, for example, conservative governments during the 1950s and 1960s consolidated and, in some respects, extended welfare state provisions. Political economists were wont to infer thatthe welfare state served capitalist interest inthe {ong term, by ensuring a healthy workforce with the requisite sls, ensurinc the high Levels ‘of consumer spending on which the economy depends, and contributing tothe legitimation rocess that prevents fundamental challenge to the prevailing socioeconomic system.* ‘Sneclh poltcel economist Gunnar Myrdsl is th mest stinguishod nomAmecican in the ination! econamice ‘wadition. Ae well 86 being an academic economist, he wa '8 member of the Social Domecratic Party i the Shedksh pariment, serving fora coupe of years as Minister for Trade ‘and Commarce and contributing significantly to developing the ‘institution that made Sweden one ofthe most economically secure and egalitarian nations ofthe word Fis rumerous books include An American Diem (1944), ‘which examines the problem of racial dtriminatin; Economic Theory and Underdeveloped Regions (1957, which analyses hom processes of circular and cumuistive causation accentuate realonel economic inequality; The Paltical Element in the Develooment of Economic Thought (1954), which shows that 2a{econemie analysis hss naver boon value free; and Aslan Drama 1.968), three-volume work ‘on the problems of economic underdevelopment. Gunner Myrdal was averded the Nobel Prize in Economie Scionces in 1974 although he roportedly suid aftecwards that he regretted accepting it because his whole profesional ‘oraer hasbeen epent arguing that economicacannet be a scence In The Political Element Inthe Development of Economic ought, he wrote: Every economists painfully aware that there exists widespread doubt sbout the supposed scientific" character of economics, The dotustis, indeed wl fori" Ho further argued that there wore tee min focal volte {er the‘politca speculation which has permeated economics from the very beglanng’ the de of vous, the idea freedom, andthe idea of soca ecanemy er collective hovsehaeping. The les ofthese is perticulriy Interesting, touching ae t does oncifferent views about the link betwoon the household andthe national economy, and the role ofthe statin naan ‘anomie management ‘The Snedish economy i @strkng example ofthe concept of social econeny bing sven Its broadest inverpretatin n practice. n effet, i constitutes a major experiment In ‘seeking to blend capitalism and soci, Instead of social Iberia, wherein problems such as poverty andunemploymentare seen asfrictonsinanctherwisehermonious system, the Social Democrats In Sweden, n conjunction withthe Labor Organisation, developed poles to challenge captast principles on a more programmatic bass. These pole have incked reduced wage diferentes, a igh progressive income tax. the pursuit of fall employment through @ pacmenent labourmarket policy, industrial democrecy, nd the use of superannuation funds to finance nationalytrgeted investment priorities Sedans \wolere state, although recently under challange, has been the ery of th world” Even ‘the self-proclaimed right-wing Republican Party reptile P. J. ORourke, conceded thet it constitutes god seca SSeS So, was the welfare state won or given? Its uneven realisation was the product of social and poiticel struggle in various countries. However, its development was also increasingly accepted by cpitalistinterests, who could see the economic benefits it generated. The Achilles hel it seems, has been the issue of how to fnancei. There is no problem in principle. Taxes ‘can generate the revenue needed to finance welfare state expenditures: itis just a matter of allocating some of our national income, via taxes, to finance our collective socal needs ‘In practice, though, this process is beset with tensions, in the early 1970s, the economist James O'Connor, drawing on Marxist reasoning, argued Ut a fiscal criss of the state would frustrate further development of the welfare state.” The reluctance of upperincome groups and businesses to contribute the tax revenues necessary to finance a comprehensive welfare state has since been the major source of tension in practice. The ascendancy of neoliberal ideologies has undermined the perceived legitimacy of ‘this substantial role for the state. indeed, some see this as the primary political target ‘of ‘eotiberalism. Governments infiuenced by neoliberal ideology have sought to cutback welfare state provisions, typically replacing citizens’ universal entitlements to benefits with mare ‘selective targeting of government expenditures (and a corresponding tightening of eligibility (CHAPTER 27; ECONOMIC AND SOCIAL REFORM cxiteria). Because such a policy shift hasan adverse impact on particular social groups, itis almost invariably controversial So attempted welfare tate cuts continue to be a focal point for contemporary political economic debate and struggle. Tiss a powerful reminder thatthe evolution of economic institutions is seldom fee from contzadictons. Politics in command? ‘Some modern institutional economists, as wll at other police scientists with a social democratic inclination, contine to argue that the dominant historical tendeny is towards seater governmental influence onthe economy, notwithstanding the asalts on the welfare state mounted by neotberals. Putting pits in command ofthe economy’ i the theme, mother word, progress comes through making more and more issues of resource allocation and wealth distribution subject to collective societal processes rather than teaving them to ‘the marketplace. Individual choice and market processes have their appeal, particularly from an economic eral perspective, but they need to be constrained, ifnot altogether replace, by government policies reflecting societal concerns. Such policies range from occupational heath and safety, heath care more general, public educational standards, security and Pensions, o regulation of monopolies, provision ofinfrastructure, determination of minimum ‘wages and employment conditions, protection of consumers’ interests, and enviormental conservation. ‘Australian pttial economist Geoff Dow, fr example, contends that addrestng these concernsispartofthehistorc mission fthe tate—past preset, andfature—inthe pursuit social progres. He argues that verse currents ofpoiticalecononicand social, evenrsligous, thought have fostered such an expectation.” The Papal encyclical Rerum Novara (1891) ‘sone example, in which Pop Leo XItI nounced the effects of labour markets, enthased about experiments in industrial democracy, and emphasised the ned for soil rether than ‘economic imperatives to be dominant." At round the same tine, the emerging tradition of economic sociology, springing ftom the work of French sociologist and philosopher Enile Durkheim, sessed that economies are necesaiy embedded in social conditions. The later ‘work of Max Weber posited the ned for deberative processes to be exercised by the modem state to impose a politcal rather than market logic on ecnomic outcomes. Eat olan, another interesting social scientist, emphasised that the market economy couldnt sensibly Deregarded a natura stat offi, since t had been nurtured by sca ington and therefore there should be no political presumption towards laissez feire rather than towards {nstitations protecting the interests ofthe people.” Al these currents of thought, flowing into the cxtigue of economic brain, put emphasis on the need for institutional arrangements designed to produce socal and ‘economic progress. Merely relying on ‘the market’ won't suffice. The German historical School of the nineteenth century had also laid foundations for this statist orientation ‘within the instintonal economic tradition, Frievich List, author of The National St,Fe PART Vi-EVOLUTION AND REFORM. of Pltical conomy, published in 1841, is notable for his emphasis on the importance of national strength-for economic survival The Liberal case for freedom of trade might suit British interests, he argued, but would Likely result in greater British domination over less economically developed nations, Geman national interest required a different, state-centred, approach. German intellectual culture was also of less Uberalincination than its British ‘counterpart, in that it emphasised a more corporative sense of community. The German historical school of economic enquiry reflected this orientation, stressing the social and historical centext of economic activity, rather than the abstract theorising, which became the hallmark of the British approach to economic analysis. As noted in Chapter 26, this historical schol was to have a major nfinence on the development of institutional economics. Modern institutional economists also commonly note that, in recent international experience, some ofthe best economic performance—according to quite conventional GDP rmeasures—has been in nations where the state has played a major ole in stering economic development. Japan's spectacular economic progres after that nation’s devastation at ‘the end of the Second World War for example, was attributable in no small measure tothe steering role of state institutions such asthe Ministry of International Trade and Industry (Qu. Sindarly, the role ofthe ‘developmental state’ in nations such as Singapore, Taiwan, Malaysia Scuth Korea, and Thailand has been crucial to these nations industralsation and ‘economic advance.” In more recent years, the People’s Republic of China, with its peculiar blend of an authoritarian state and economic liberalisation, has emerged as an economic superpower. As Dow concludes, ‘Actual economic development, in rich and poor countries alike, does not follow the script imagined in abstract economic inguiry."* Nor should it, ‘economic reformers contend, if economic interests are to be tempered by broader social So what policies for economic and social reform are now appropriate forthe advanced capitalist nations of Australasia, North America, and Europe? Table 27.1 shows what could ‘form aviable socal democratic altemative to the neoliberal policies ofthe lst thee decades, Corresponding with each of five social goals (prosperity, equity, security, participation, and ivy are focal points for policy (investment, income distribution, the labour matket, economic democracy, and social capital) and institutions for the administration of those policies. To achieve greater prosperity, the volatile pattems of investment that characterise the capitalist economy could be stabilised and coordinated through tripartite bodies, ‘netuding government, industry, and union representatives responsible for industry policy. A national investment scheme could expand the role of public investment by steering an agreed portion of workers’ savings now held in superannuation funds into targeted national priorities. Corresponding foal points for policy and institutional development are indicated forthe other four socal gpals in Table 273. This doesnot provide a fully comprehensive reformist agenda: it doesnot include policies relating to urban planning, regional development, childcare, and pension arrangements, for example. However, ii indicative of how socal democratic goals ae ‘CHAPTER2T: ECONOMIC AND SOCIAL gon cold be ped though systemic enone and sl efor, Whether ° : : form. Whee thee Pact fo this sort of ratical eformismisan issue to which we tum in Chaptersg Sa TABLE 274 DIRECTIONS FOR ECONOMIC AND SOCIAL REFORM = Goal ocusofpocyintervenion ypectplicyiathaion Psenty—lavestment + ipa bodes grerament, busines unond or evetoping nuttin "+ tonal mestnentscheme, ong on superannuation nds uly Income stibtion + Sompusaryarivation of wages through cout ten) + Teation autor implement gressive tax eorm Secuty The lbour moet + Managed labour mare rcudnganngetining) + Govemments employe let esrt, Paricpaion teonomie democracy *+ Indust! democracy lor crane worker presente onconpany bonds) + Coopeties Sce adapted fom 6. Dom, Neolbera Coat Goran of te aston Ean Govenaoe ad isto amc vod Urhesty Pes, Meourn 200 5 Bal ed), zane Conclusion ‘Institutional economists emphasise the evolution of economic society. in that respect the state ‘cevidently significant, int paramount. Historical, ithasbeen key driver and manager of ‘aptalist development. Its taxation and expenciture has shaped the balance between private and public rectors in the economy and te changing dstibation of income The development ofthe welfare state in the twentieth century was a particulary inportant transformation, Intemational variation inthe form of government economic activity today gives capitalism ¢ ‘qualitatively different character in different nations, Questions aboutthepossbityofeconomic and socialrefermandtheroleofthestatein this ‘rocess ae of crucial importance. Reform in this contest has quite a different meaning fom ‘te recent usage by neoliberals as aterm to describe rolling back the state through policies to cuttaxaton and remove tariff protection, deregulate labour and capital markets, and privatise Buble enterprise, Reform should mean change forthe better trough making the economy serve a broader array of social goals, such as economc and sta security, and distributional ‘suit. As this chapter has emphasised, important analytical :urrents emphasise the need for {hestateto serve thisreformingmision. The challenge in practice isto mobilise the necessary Political suppor: It isa chaltenge that, in the modern word, also needs to take account ofthe ‘constraints imposed onthe capacity ofthe nation state by corporate globalisation. aooy KEY POINTS pate mein een tata tm Pee ee erie Gea anime Tete etn eat Cie Nar eere tt Hy eatin rE ya Corporate Globalisation What are the main dimensions of the process of globalisation? What are the implications for political economic analysis and policy? How does globalisation change the balance of economic power? Globalisetion is one ofthe most frequently mentioned trends ofthe present era. It is also ‘one ofthe most hotly debated concepts in poltical economy. At one extreme are those who consider globalisation to be a relentless process, driven by technological and commercial ‘imperatives and rapidly undermining the sovereignty of nation states, pethaps even Aestroying the political economic significance of national boundaries.’ At the other extreme are the globalisation sceptics, who argue that there is nothing new about international commerce, and thatthe task for nation states, as ever isto determine how to reconcile t ‘ith the pursuit ofmational and Local economic interests Analytically, many questions aise {in such cebates. How i globalisation to be defined? How does the globalisation of capital relate to the globalisation of labour, the state, and nongovernmental organisations? Is slobalisetion orchestrated by a transnational capitalist class? Are nation states independent of such interests? What are the implications for democratic processes? Who wins fin lobalisaion? Who loses? Institutional economists have a head start in contributing answers to these questions because of their longstanding concern to understand the evolving characteristics of economic society. Their focus, as set out in the preceding four chapters, is on what is distinctive about the institutions of capital, labour, andthe state, how they ae changing ‘over time, and how the economic, social, and political aspects of that institutional behaviou: Interact. The work of Australian political economist Ted Wheelwright exemplifies these concerns, The subsequent analysis draws on his pioneering contributions tothe analysis of Globalisation.»PART VI EVOLUTION AND REFORM eae “TED WHEELWRIGHT (1921-2007) Ted Weed wes an esta ft ne dnt Ran ocd sorceress Sasser icy tenon beer anaes ang aeOe Are eet pebpaaletey drvpeyinng Mrapia/ertgebetia a ; Seccmantaes sextene msnievioconconae i reams radiearoiueaieraiieeire Bi ARN at the conventional wiodom m ecororica art with ois Fen. nil Ted vcabegee escheat aaa SAY of globalisation long before that term became popular. He pointed to ea cu that transnational corporations have created a naw corporete word economic oder. He predicted thst governments seeking to attract investment by transnational corporations wed tend to become chant states, effectively atthe eave ofthe corporations. ‘These develepments, Wheelwright argued, would accentuate the tendency forthe econemic interests of capital to werk agahnst the interests of ordinary working puople. A two-volume Nistor of Australia, Fee Parodie: ‘Austraion Capitalism Revisited, 1915-1955, written in conjunction with economic Fotorian Ken Buckley, extended this working class perspective toa broader dascripion ‘and etique of capitalist development down under. Other themes in Wheelarghtspolticl economy include the ascendancy of Asian capitalism and the influence of Japenese investment on other nation, pariculary Australia His writng vine consistent critical of the concentration of corporate paver and o the comply of ethadx economics in this rocass. He established the Traninations| Corporations Resosrch Projet atthe Uriverity ‘of Sydney as a means of encouraging research on global big business, Together with other dssidentpolitcal economist, Wheelwright also participatedin the Jong struggle to establish poltical economy courses atthe University of Sydney, a focal point in Australia forthe challange to conservative economic orthodoxy, The struggle bore {rutin 1975 wit the introduction ofthe fst of sequence of underaraduat units of study ln political economy. Other course development, both undergraduate and postaraduate, ‘followed. The Journal of Austrian Political Economy wae introduced 82 a means of +» 31 Instability in a Monetary Economy... — | 32 "Macroeconoinic Policy {33 The Keynesian Legacy