State Capitalism: How the Return of Statism is Transforming the World

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This macro periodization is often cited, and it becomes clearer if we consider the two main institutions in each phase. In primitive societies, tradition and religion were the two main institutions coordinating society; in slave societies, or in the ancient empires, religion again and the ancient state performed this role; and, in capitalist societies, the modern state and markets are the main coordinative institutions.

Thus, the secondary institution in each phase becomes the primary institution in the following phase. The ancient state was essentially an instrument of the military and land-owning oligarchy devoted to war for the purpose of conquest and colonization, or in order to plunder and to reduce the dispossessed to slavery. Together with religion, it coordinated and legitimized the power of the governing oligarchy.

With capitalism, the state turns national, acquires a rational or bureaucratic structure, and shares the coordinating role with a new institution: the national market. The constitutional and rational state that Locke championed and Hegel first understood in its historical dimension is the state that originally promoted the interests of the monarch and its aristocracy.

It is the state of the long transition from ancient to modern societies; it is a state that gradually became liberal, responding principally to the interests of the bourgeoisie. Finally, at the beginning to the twentieth century it turned democratic, opening itself to the three social classes that define modern capitalism: the bourgeoisie, the technobureaucracy, and the working class.

In consequence, besides guaranteeing the profit rate, which is essential for the reproduction of capital, and the high salaries that are required to pay the professional or technobureaucratic class, the modern state today also represents to some extent the popular classes - which explains why economic elites have become so bitterly critical of the democratic state.

Corporatism: State Capitalism

The market, in its turn, is the national institution regulated by the state that performs its coordinating role through economic competition. And soon an international market also emerges. Before capitalism, markets were rather local fairs, and played a marginal role in economic and even social coordination, not only because they lacked the means but also because religion, tightly linked to the state, did this job.

Under capitalism, the market assumed a new and major role. As Marx well noted, capitalism is the mode of production where money and the market are the core economic institutions; it is the society defined by the process of commodification the transformation of everything into commodities, beginning with the labor force together with the process of capital accumulation. Table 1 shows the four basic institutions, the three stages primitive, slave and capitalist , and the corresponding forms of political-territorial society:.

The nation-state is the sovereign political-territorial society formed out of a nation, a state and a territory. Since formal colonies disappeared after World War II, nation-states cover the entire globe. Following Ernest Gellner , in the ancient empires the state regulated only the core of the imperial system; the rulers were not interested in transferring its superior culture to the colonies, which were expected just to pay taxes, not to integrate with the center. The last representatives of the classical empires - the Austro-Hungarian Empire and the Ottoman Empire - did not seek to integrate the colonies into their superior culture, but only to force them to pay taxes.

Completely different are the capitalist nation-states, in which the state corresponds to a nation, which, domestically, is supposed to be integrated and relatively solidary, having as its main objectives national security and economic growth.

Tag: state capitalism

For Gellner , p. This means that the superior culture existing at the core of such nation-state is supposed to be spread to the whole society, which thus shares the common basic knowledge required for ever-increasing productivity. Whereas in pre-capitalist societies the concept and the objective of economic development was absent, in capitalist societies it becomes a major goal of the state, as profit becomes the crucial motivation of business enterprises, to be achieved by investment that incorporates technical progress.

The capitalist class also understood the importance of both the state and the market in the economic coordination of modern societies, and for that reason combined economic nationalism or developmentalism with economic liberalism. Neoclassical economists lost view of this simple truth.

Fascinated by the power of the new coordinating institution based on competition, which is apparently a self-regulating form of social coordination, independent of the will and the say of governments, the economists of the neoclassical and also the Austrian schools of thought transformed the market into a kind of myth, and attributed to it a role that is far beyond its capacities.

The state and the market are the main institutions coordinating capitalism, but the coordinating role of the state is broader because the state comprises not only the government or the public administration the state organization but also the legal system. The state is the overarching institution endowed with sovereignty, while the market is an institution regulated by the state that is able to coordinate the competitive sectors of the economy.

This means that a large non-competitive sector, consisting principally of infrastructure and the industry that manufactures basic inputs, is excluded from market coordination. As for the macroeconomic domain, it has been definitively established that markets are unable to get the five macroeconomic prices right, and so the developmental state is supposed to adopt an active macroeconomic policy, particularly in relation to the exchange rate and the corresponding current account in order to keep national economies on the road to financial stability and growth.

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Economic liberalism should not be confused with political liberalism, which in the eighteenth century contributed to the affirmation of civil rights. Yet political liberalism is also problematic. It long opposed democracy, and its concept of freedom is quite different from the republican concept of liberty. In contrast, the republican concept of freedom maintains that citizens are free if and only if they defend the public interest even when it conflicts with their personal interests.

Britain completed its capitalist revolution around , and turned democratic around , protecting not only civil rights but also universal suffrage. Today, in the more advanced countries, the economic elites accept democracy but fear it, and are to an extent republican when they cease to be liberal. Liberal ideologues oppose liberalism to socialism, and conclude that only liberalism is consistent with democracy. Actually, in the first three-quarters of the twentieth century several developmental countries underwent their industrial revolutions, and then made their transition to democracy; in the twenty-first century, the challenge they face is to combine growth with reducing inequality and protecting the environment.

Developing countries were developmental when they experienced their industrial revolutions; when they became democratic they did so directly, while rich countries, which also industrialized under authoritarian regimes, were liberal for around a century before turning democratic. Developmentalism is more compatible with democracy than is economic liberalism because, although the public interest and the interests of the popular classes are not the same, they are not as divergent as are the public interest and the interests of the capitalist class - the latter being today, chiefly, the interests of its ever-increasing rentier segment.

What is not consistent with democracy is statism - the state assuming the full coordination of the economy.

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When Friedrich Hayek, in his book The Road to Serfdom , opposed liberal capitalism to socialism, socialism was still viewed as a possible short-term alternative to capitalism. After the Budapest uprising of and the Prague revolt of , it became clear that the Soviet Union was not a socialist but a statist society.

At that time, it seemed that statism was effective in promoting growth and, so, posed a challenge to capitalism. After the war, the Soviet Union experienced accelerated growth, and Nikolai Khrushchev predicted that in twenty years the Soviet economy would surpass the North American. Yet from the early s the Soviet economy stagnated, showing that statism could be effective in achieving primitive accumulation and promoting heavy industrialization but incapable of efficiently coordinating complex economic systems. Historically the role of markets in coordinating capitalist societies has been overestimated, for several reasons.

First, capitalism was the first mode of production in which a national market became one of the two main coordinating institutions. Second, economics is essentially a science of how markets coordinate economic systems. Third, the challenge of devising a theory in which the market fully and satisfactorily coordinates the economy is very attractive to academic economists.

After neoclassical economics turned mainstream in the late nineteenth century, replacing classical political economy, economists adopted the hypothetic-deductive method build mathematical models that reduced their science to a system of equations. Neoclassical and also Austrian economists found a receptive audience among the bourgeoisie, which was always attracted to liberalism but never ceased to be also nationalist.


Nationalist in economic terms, and so developmental, because business entrepreneurs always viewed the domestic market as their main asset, and the state as its instrument to guarantee their monopoly over this market and to negotiate their access to other countries. Thus, developmentalism has always been present in coordinating capitalism, dialectically associated in some form with economic liberalism: first, in the central countries that originally industrialized, like Britain and France, in the framework of mercantilist capitalism; second, in the central latecomer countries like Germany and the United States in the nineteenth century; third, in the peripheral independent countries of East Asia; fourth, in the peripheral national-dependent countries of Latin America; and fifth, again in the original central countries, in the framework of the New Deal plus the post-war Golden Years of Capitalism or of Fordism - a time when developmentalism and social democracy coincided.

Nations build their state and their nation-state, the latter the sovereign territorial political society formed out of a nation, a state and a territory. Such a social construction soon assumes a formal character - the building of the legal system - which is not exogenous, as the new institutionalism associated with neoclassical economics assumes, but endogenous. In fact, institutions are not the fruit of purely rational choices, but are the outcome of a complex historical process that relates the economic infrastructure with institutional and cultural instances, and of political strategies and compromises, of class struggle and class coalitions.

In this social construction, capitalist society and the modern state are so deeply intertwined that when we refer to the liberal state we are also referring to liberal capitalism, and when we refer to the developmental state we are referring to developmental capitalism. In modern societies, the degrees of state intervention may be thought as disposed along a continuum running from liberal capitalism to statism, with developmentalism in the middle.

Capitalism is liberal when it is coordinated almost exclusively by the market; it is developmental when it combines state and market coordination.


When coordination is almost exclusively undertaken by the state, we have a statist or purely technobureaucratic society. I have already defined developmentalism and economic liberalism, but let me elaborate these definitions. A given capitalist society the state will be developmental if.

A capitalist society will be liberal if the state limits itself to guaranteeing property rights and contracts, and to balancing its fiscal accounts, while the market takes care of the rest - of growth and economic stability. Developmentalism presupposes that economic development is the outcome of political design, where markets have a major role, but the will of citizens is the crucial variable; economic liberalism sees development as the outcome of exogenous institutions defined by the economic elites and international agencies designed to defend economic liberalism and rentier-financier interests.

This concept of developmental capitalism and the developmental state is broader than that adopted by Chalmers Johnson , , who took Japan as his model. The definition of the developmental state in South Korea is also quite similar.

State Capitalism: How the Return of Statism is Transforming the World by Joshua Kurlantzick

The role of the state in capitalist societies is to maintain the general conditions of accumulation. Classically, these are education, institutions that guarantee property right and contracts, investment in infrastructure and the availability of credit. Just as Keynes showed that monetary economies face a tendency to the insufficiency of demand, new developmentalism argues that developing countries face a tendency to the cyclical and chronic overvaluation of the exchange rate.

As the experience of the East Asian countries has demonstrated, keeping the budget deficit as well as the current account under control is a necessary condition for keeping the macroeconomic prices right and the macroeconomic aggregates balanced. The widespread idea that associates developmentalism with financial profligacy is just vulgar Keynesianism or fiscal populism. Expansionary fiscal policies are required countercyclically, not chronically.

The developmental state requires a proactive administration and a developmental class coalition to support it. Industrial entrepreneurs, workers, public bureaucrats, and sectors of the old oligarchy originally formed the developmental class coalitions that presided over the formation of the nation-state in each country.

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In pre-industrial countries, sectors of the old commodity-producing ruling class and business importers and exporters formed the liberal-conservative class coalition; today, rentiers, financiers, the top executives of corporations, the traditional middle class and foreign interests usually form the liberal-conservative coalitions in peripheral countries. Chalmers Johnson and Peter Evans attribute to public bureaucracy a strategic role in the developmental state, which is correct, but industrial entrepreneurs play the decisive role, first, because their separation from the rentier capitalists is a condition for this coalition, and, second, because they exercise a veto power as they decide whether or not to invest.

Developmental class coalitions are always changing.

The most recent developmental class coalition in rich countries, Fordism, was a broad coalition embracing industrial businessmen, entrepreneurs and executives associated with the new information technologies, the public technobureaucracy, the non-rentier sectors of the middle classes, and the workers.