Transcript Standard Lecture

Conceptualizing Capitalism
Institutions, Evolution, Future
Geoffrey M Hodgson
Introduction
DISCOVERING CAPITALISM
1. Distilling the essence
2. Social structure and individual motivation
3. Law and the state
4. Property, possession and contract
5. Commodity exchange and markets
6. Money and finance
7. Meanings of capital
8. Firms and corporations
9. Labor and employment
10. The essence of capitalism
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Conceptualizing Capitalism
Institutions, Evolution, Future
Geoffrey M Hodgson
11.
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ASSESSING CAPITALISM
Conceptualizing production
Socialism, capitalism, and the state
How does capitalism evolve?
The future of global capitalism
Addressing inequality
Capitalism and beyond
Coda on legal institutionalism
Today’s
Lecture
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Conceptualizing Capitalism
Lecture 8: The evolution of global capitalism
1. How does capitalism evolve?
2. Will a new global hegemon
overtake the USA?
3. The persistence of varieties
of capitalism
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Conceptualizing Capitalism
Lecture 8: The evolution of global capitalism
Evolution is an extremely vague word
Its etymology suggests predestination
Single or multiple entities?
A population with a representative entity?
Every entity facing a pre-ordained set of stages?
(Hegel, Marx, Rostow etc.)
Or “population thinking” that encompasses variety?
(Darwin, Veblen, Mayr)
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Lecture 8: The evolution of global capitalism
Problems with stages theories
More advanced countries may accelerate, delay or divert the
latecomers, which may then forge different paths.
Capitalism – mercantile, imperialistic, industrial, financial
stages?
But finance was central to capitalism in Italy and the
Netherlands.
Global development of capitalism may be more a result of
rise and decline of different capitalist countries, than
immanent mechanisms within the system.
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Lecture 8: The evolution of global capitalism
The development of major individual capitalist economies
has global consequences.
Rise of Britain in the 18th and 19th centuries established a
global trading and financial system.
British legal and administrative institutions were cloned in
North America, Australia and elsewhere.
Absence of hegemon in the 1930s (Kindleberger 1973).
New world order based on US hegemony arose after 1945.
Big question now: global impact of China …
… cannot be understood without appraisal of developments
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within China and other economies.
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Conceptualizing Capitalism
Lecture 8: The evolution of global capitalism
With populations of varied, interacting entities we must
address at least three basic explanatory problems:
1. How does variation occur and how is it sustained
within a population? What explains variations
between members of a population?
2. How does one explain that some members of the
population survive and replicate, while others are
less successful, or expire?
3. How is the retention of features, and their
transmission from one entity to another, explained?
Darwin’s three core principles of variation, selection
and inheritance.
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Lecture 8: The evolution of global capitalism
Geoffrey M. Hodgson and
Thorbjørn Knudsen (2010)
Darwin’s Conjecture: The Search
for the Principles of Social and
Economic Evolution
(University of Chicago Press).
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Conceptualizing Capitalism
Lecture 8: The evolution of global capitalism
Global capitalism – populations of entities at multiple levels:
1. A population of capitalist systems.
2. Within each capitalism are populations of organizations
competing for resources and within markets.
3. Every capitalist system includes human individuals.
At every level, entities face problems of immediate local
scarcity of resources.
Information is transmitted from one entity to another.
Darwinian questions concerning the explanation of
variation, differential success, and the transmission of
information remain vital.
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Lecture 8: The evolution of global capitalism
In addition to the three Darwinian principles, a distinction is
made between
(1) the entities that compete for locally-scarce resources
and
(2) the information useful for survival that is transmitted
from one entity to another.
Using David Hull’s (1988) terminology, the entities are
termed interactors …
… and program-like sequences of information that are
transmitted from one interactor to another are termed
replicators.
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Lecture 8: The evolution of global capitalism
Cases of replication where one
interactor gives rise to another …
such as the formation of a new political
state by the secession of a region or
component nation …
or by a company spin-off …
or by human sexual reproduction.
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Lecture 8: The evolution of global capitalism
In a different kind of replication, termed diffusion, no new
interactor is formed …
but replicators are copied from one interactor to another.
Examples of diffusion include the copying of laws or
policies by states …
the copying of routines by firms …
and the transmission of habits from one individual to
another – i.e. learning by example.
Diffusion is much more common in socio-economic than in
biological evolution.
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Lecture 8: The evolution of global capitalism
George Price (1995): we distinguish between subset
selection and successor selection.
Interactors are objects of selection.
It is only indirectly that the pool of genotypes, or other
replicators, will change as a result of selection.
With human individuals, both subset and successor
selection can occur.
Subset selection occurs when firms go bankrupt.
Successor selection occurs when there are new entrants to
the industry and spin-offs from existing firms.
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Conditions for efficiency improvement at one level can
conflict with those at another.
For example, competition between firms could be more
effective if competition and mobility among the workforce
were reduced, leading to enhanced teamwork and learning
(Campbell 1994).
Competition between firms does not always favour higher
efficiency or productivity (Winter 1964, 1971, Boyd and
Richerson 1980, Schaffer 1989, Hodgson 1993, 1994).
Firms that do well in one institutional context may do badly
in another.
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Lecture 8: The evolution of global capitalism
War between states is an imperfect selection mechanism
– Genghis Khan.
What is important is the threat rather than the reality of
military defeat.
Robert Neild (2001) – fear of military defeat in the
eighteenth and early nineteenth centuries prompted the
development of more efficient national administrations
and reductions in public corruption in European states.
Military rivalry with Russia and China from 1894 to 1905
promoted modernization of the Japanese state and the
development of its industry and infrastructure.
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Examples of diffusion
Influence of Islamic institutions on medieval Europe:
Sea-trading partnerships in Venice and Amalfi in the ninth
century were modeled on the legal form of the Islamic
muqarada (Micklethwait and Wooldridge 2003).
Twelfth-century reforms of the English legal system by
King Henry II may have had an Islamic inspiration ...
… accounts for the jury system (replaced trial by ordeal)
… and the Islamic waqf may have inspired English charity
and corporate law.
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Conceptualizing Capitalism
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Examples of diffusion
Karl Marx and Frederick Engels: “Masses of labourers, crowded
into the factory, are organized like soldiers. As privates in the
industrial army they are placed under the command of a perfect
hierarchy of officers and sergeants”
Max Weber: “The discipline of the army gives birth to all discipline.”
Lewis Mumford (1934): “the psychology of the new industrial order
appeared upon the parade ground before it came, fully fledged, into
the workshop.”
Barton C. Hacker (1993): “Corporate management, patterns of
professionalization in related fields, the very process of [nineteenth
century] industrialization drew on military models and battened on
military funding.”
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Examples of diffusion
The Dutch invasion of Britain in 1688 brought financial practices
from the Netherlands.
From 1792 French armies occupied many European countries –
imposition of a civil legal code, the abolition of remnants of
feudalism, introduction of equality before the law (Acemoglu et
al. (2011)
British Empire spread common-law systems to many countries.
Arrival of American warships in Tokyo Bay led to the Meiji
Restoration of 1868 and Japan’s transition from feudalism to a
Western-inspired capitalist society. Japan then replicated some
European institutions.
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Implications of diffusion
Effective replication by diffusion is often difficult.
Replication by diffusion is often not subject to
strong selection.
The importance of diffusion decisively
undermines the Marx-Schumpeter notion that
evolution is the unfolding of a system exclusively
“from within.”
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Drivers of capitalist complexity
Adam Smith (1776): the growth of markets and an everfiner division of labor.
Allyn Young (1928): “industrial differentiation … remains
the type of change characteristically associated with the
growth of production.”
Young underlined “the increase in the complexity of the
apparatus of living, as shown by the increase in the variety
of goods offered in consumers’ markets” plus an allegedly
greater “diversification of intermediate products.”
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A new hegemon?
Possible diffusion of technology and
institutions from the advanced to the lessadvanced economies (Alexander
Gerschenkron 1962, Stanislav Gomulka
1971).
But when can a country overtake in GDP
per capita terms – and become the leader?
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A new hegemon?
Japan’s per capita GDP exploded from 1950 to
1973 at an average annual rate of 8.1%.
In 1950 Japan’s GDP per capita was 20% of the US.
In 1990 it reached 81% of the US level.
In 1950 South Korea’s and Taiwan’s GDP per capita
Formerly
were 8% and 10% of the US.
Japanese
colonies
In 2012 they reached 64% and 78% of the US.
These are 20  60 exceptions, rather than the rule.
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A new hegemon?
Around 2020 China will become the largest
economy in the world in terms of GDP – the new
hegemon? China to “rule the world”?
About 1500 China GDP overtook India. China
remained world’s largest economy until overtaken
by US in the 1880s.
Despite rapid growth from 1980, in 2012 Chinese
GDP per capita was 18% of that in the US.
Japan failed to catch up with US in 40 years. China
in 2012 in a worse position than Japan in 1950.
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A new hegemon?
Possible high-growth: India, Bangladesh,
Vietnam, Indonesia and the Philippines – all in
2012 much poorer than China.
In 2012 Brazil’s and Russia’s GDP per capita
about 24% per cent and 39% per cent of the US.
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A new hegemon?
Predicted GDP per capita rankings for 2030 and 2050:
2012
2030
Maddison
(2007)
2030 Buiter &
Rahbari
(2011)
2050 Buiter &
Rahbari
(2011)
USA
1
1
1
1
EU
2
2
4
4
Japan
3
3
2
5
Russia
4
4
3
2
Brazil
5
6
6
6
China
6
5
5
3
India
7
7
7
7
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70,000
Singapore
Non-oil GDP per capita
60,000
USA
Hong Kong
50,000
Germany
40,000
Sweden
South Korea
Italy
30,000
United Arab Emirates
Greece
Russia
France UK
Japan
20,000
Malaysia
Brazil
10,000
China
India
0
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Composite index of open government and absence of corruption
The Rule of Law and Non-Oil GDP Per Capita (2012)
All variables significant at 1% level. Adjusted R2 = 0.759. N = 97.
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The persistence of varieties of capitalism
On institutional complementarities: Pagano (1991), Amable
(2000), Aoki (2001), Hall and Soskice (2001), Boyer (2005),
etc. …
Countries are at different levels of development and are
experiencing different rates of growth  variety preserved.
Institutions that are more effective at one level of
development are often less effective in another.
Institutions that are necessary for higher growth rates are
different from those suitable for more gradual change.
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Australia
Share of top
Year (for
share data)
Unit (for
share data)
20%
2010
household
61.8
10%
5%
2%
1%
Gini
0.622
Brazil
0.784
China
2002
person
59.3
41.4
0.550
France
2010
adult
Germany
2007
household
61.1
India
2002
household
69.9
52.9
38.3
Italy
2010
household
62.6
45.7
32.9
Japan
1999
household
57.7
39.3
0.547
Netherlands
2008
household
78.5
62.7
0.650
Norway
2004
household
80.1
65.3
0.633
62.0
24.0
0.730
0.667
21.0
15.7
0.669
14.8
0.609
Russia
0.699
Spain
2008
household
Sweden
2007
Switzerland
61.3
45.0
32.6
adult
67.0
1997
family
UK
2008
adult
USA
2010
family
21.7
16.5
0.570
49.0
24.0
0.742
71.3
58.0
34.8
0.803
62.8
44.3
30.5
12.5
0.697
86.7
74.4
60.9
34.1
0.801
44.8
Distributions of Wealth in Selected Countries
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Lecture 8: The evolution of global capitalism
Australia
Brazil
Canada
France
Germany (W)
India
Italy
Japan
Netherlands
Norway
Russia
South Korea
Spain
Sweden
UK
US
1970
31.93
35.11
32.35
35.68
39.44
35.47
34.32
31.55
25.31
42.12
41.21
28.62
26.78
35.08
2000
37.17
46.66
38.19
36.42
36.48
49.28
36.31
36.51
35.10
33.68
45.16
37.60
39.25
28.96
36.77
38.28
change
+5.24
+3.08
+4.13
+13.6
–3.13
+1.04
+0.78
+2.13
+19.85
–4.52
–1.96
+0.34
+9.99
+3.20
Gini Coefficients for Distributions of Income
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The persistence of varieties of capitalism
Branko Milanovic (2011) showed that level of global income
inequality has increased since the early 19th century, reaching a
high level in about 1950, with slower growth since.
In the early 19th century, most global income inequality was due to
differences within countries.
By the early 21st century most global income inequality was due to
differences between countries.
Much of the change in global inequality in the next few decades
could result from economic growth in large and lower-income
countries – eg. China, India, and Brazil.
This could diminish world inequality by bringing their populations
into globally higher income ranges.
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Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Italy
Japan
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
UK
US
1980
10.3
22.4
23.5
13.7
24.8
18.1
20.8
22.1
18.0
10.2
24.8
16.9
9.9
15.5
27.1
13.8
16.5
13.2
2005
16.5
27.1
26.5
16.9
27.7
26.2
30.1
27.3
24.9
18.5
20.7
21.6
23.0
21.1
29.1
20.2
20.5
16.0
change
+6.2
+4.7
+3.0
+3.2
+2.9
+8.1
+9.3
+5.2
+6.9
+8.3
–4.1
+4.7
+13.1
+5.6
+2.0
+6.4
+4.0
+2.8
Public Social Spending as Percentage of GDP
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Our future?
Possible global destabalisation resulting from
shift in economic centre of gravity to East.
Threat of further financial instability.
Ecological and resource problems.
Dani Rodrik’s (2011) trilemma: “we cannot
simultaneously pursue democracy, national
determination, and economic globalization”
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