This comprehensive and stimulating Handbook examines the contribution of political economy to public policy. It provides
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HANDBOOK ON CRITICAL POLITICAL ECONOMY AND PUBLIC POLICY
HANDBOOKS OF RESEARCH ON PUBLIC POLICY Series Editor: Frank Fischer, Rutgers University, New Jersey, USA The objective of this series is to publish Handbooks that offer comprehensive overviews of the very latest research within the key areas in the field of public policy. Under the guidance of the Series Editor, Frank Fischer, the aim is to produce prestigious high-quality works of lasting significance. Each Handbook will consist of original, peer-reviewed contributions by leading authorities, selected by an editor who is a recognised leader in the field. The emphasis is on the most important concepts and research as well as expanding debate and indicating the likely research agenda for the future. The Handbooks will aim to give a comprehensive overview of the debates and research positions in each key area of focus. For a full list of Edward Elgar published titles, including the titles in this series, visit our website at www.e-elgar.com.
Handbook on Critical Political Economy and Public Policy Edited by
Christoph Scherrer Professor Emeritus of Globalization and Politics, Department of Social Sciences, University of Kassel, Germany
Ana Garcia Assistant Professor of International Relations, Institute of the Pontifical Catholic University of Rio de Janeiro and Professor, Graduate Program in Social Sciences, Federal Rural University of Rio de Janeiro, Brazil
Joscha Wullweber Heisenberg Professor of Politics, Transformation and Sustainability, Department of Philosophy, Politics and Economics, Witten/Herdecke University, Germany
HANDBOOKS OF RESEARCH ON PUBLIC POLICY
Cheltenham, UK • Northampton, MA, USA
© The Editors and Contributors Severally 2023
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2023931483 This book is available electronically in the Political Science and Public Policy subject collection http://dx.doi.org/10.4337/9781800373785
ISBN 978 1 80037 377 8 (cased) ISBN 978 1 80037 378 5 (eBook)
EEP BoX
Contents
List of figuresviii List of tablesix List of contributorsx Acknowledgementsxiv 1
Introduction to the Handbook on Critical Political Economy and Public Policy1 Christoph Scherrer, Ana Garcia and Joscha Wullweber
PART I
THEORIES OF POLITICAL ECONOMY WITH PUBLIC POLICY IMPLICATIONS
2
Plurality of political economy approaches to the global division of labor Christoph Scherrer
20
3
The cultural political economy approach to public policy Bob Jessop and Ngai-Ling Sum
36
4
Institutionalist, regulationist and dependency approaches to transition countries’ economic policies Joachim Becker
49
5
COVID-19 and the gender dilemma: blind spots in both macroeconomics and feminist economics Brigitte Young
65
6
Ordoliberalism’s advice for economic policymaking Pavlos Roufos
80
7
What is neoliberal about new public management? Sahil Jai Dutta, Samuel Knafo and Ian Lovering
95
PART II
METHODS
8
Historical-materialist policy analysis of climate change policies Etienne Schneider, Alina Brad, Ulrich Brand, Mathias Krams and Valerie Lenikus
110
9
Beyond methodological Fordism: the case for incorporated comparisons Alexander Gallas
127
v
vi Handbook on critical political economy and public policy PART III ENVIRONMENT 10
Land grabbing, financialization and dispossession in the 21st century: new and old forms of land control in Latin America Karina Kato and Sergio Leite
144
11
Extractive economies and public policies: critical perspectives from Latin America Bruno Milanez and Ana Garcia
159
12
Ecological perspectives on sustainability in China Lau Kin Chi
176
13
Looking south: megaprojects, borders and human (in)mobilities Ana Esther Ceceña and Sergio Prieto Díaz
186
PART IV FINANCE 14
Challenges for monetary policies in the 21st century: financial crises and shadow banking Joscha Wullweber
15
Governance of the eurozone in the face of transnational crises dynamics Hans-Jürgen Bieling
16
Chinese capitalism and the global economic order: the impact of China’s rise on global economic regulation Jenny Simon
17
Taming dollarization hysteresis: evidence from post-socialist countries Ia Eradze
PART V
204 219
232 247
LABOUR
18
Global exploitation chains in agriculture Praveen Jha and Paris Yeros
262
19
The development of labor policies in China: from passive revolution to eroding hegemony Elaine Sio-ieng Hui
20
The political economy of minimum wage policies Hansjörg Herr
293
21
Just transitions: a historical relations analysis Dimitris Stevis
310
279
Contents vii PART VI TAXATION 22
Critical political economy of taxation Hanna Lierse
327
23
Global tax governance Matti Ylönen and Lauri Finér
341
24
Globalization, international tax policy and the OECD Lyne Latulippe
356
PART VII TRADE AND ECONOMIC DEVELOPMENT 25
Postcolonial critique of economic development Aram Ziai
374
26
Economic cycles and rural policies in the People’s Republic of China Sit Tsui, Yan Xiaohui, He Zhixiong and Wen Tiejun
387
27
Trade and investment agreements from a critical international political economy perspective Luciana Ghiotto
402
28
South Africa’s failed privatization, commercialization and deregulation of network infrastructure Greg Ruiters and Patrick Bond
413
PART VIII WELFARE 29
Care in global value chains Christa Wichterich
430
30
The cultural political economy of housing policy in the era of the Islamist Justice and Development Party in Turkey Ismail Doga Karatepe
31
The financialization of social policy: an overview Lena Lavinas, Lucas Bressan, Pedro Rubin and Ana Carolina Cordilha
461
32
The political economy of global health and public policies Jameson Martins and Deisy de Freitas Lima Ventura
476
446
Index489
Figures
10.1
Cultivated areas with soybean production in Brazil (in hectares), 1973–2018
149
10.2
Conflicts in the Brazilian rural context, 2002–20
154
11.1
Real price variation of industrial minerals, 1970–2020 (index number)
164
13.1
Pacific–US East Coast connection
192
13.2
Wealth in the Mayan Train–Transisthmian Corridor region
193
14.1
Global credit hierarchy
208
20.1
The neoclassical labour market
297
20.2
Monopoly and minimum wage increases
300
20.3
Employment effects of compression of the wage structure by minimum wages 301
20.4
Kaitz index and unemployment rates in OECD countries, average values, 2015–19
304
22.1
Development of tax rates and revenues in the OECD (%)
332
22.2
Spread of global CO2 pricing instruments
333
28.1
Rhythms of infrastructure investment, 1946–2010
416
viii
Tables
11.1
Neoliberal institutional changes, selected countries, 1976–99
164
11.2
Legal changes aimed at extractive income appropriation, 2005–13
169
17.1
De-dollarization policies
253
18.1
Average hourly compensation per worker engaged in agriculture, hunting, forestry and fishing for select countries as a percentage of compensation in the USA, in 1995 and 2009
273
18.2
Compensation for high-skill labour in select countries, 1995 and 2009 (constant 2017 USD)
274
19.1
A summary of labor policies in three different periods in China
289
32.1
Contrasting characteristics of the universal health coverage (UHC) and universal health system (UHS) models
479
ix
Contributors
Joachim Becker is an economist and political scientist. He works as an Associate Professor at the Department of Economics at Vienna University of Economics, Austria. Hans-Jürgen Bieling is Professor of Political Economy at the Institute of Political Science, University of Tübingen, Germany. Patrick Bond is a political economist, political ecologist and scholar of social mobilization. He is Distinguished Professor in the Department of Sociology at the University of Johannesburg, South Africa. Alina Brad is a political scientist and Senior Scientist in the Department for Political Science at the University of Vienna, Austria. Ulrich Brand is a political scientist and Professor of International Politics at the University of Vienna, Austria. Lucas Bressan is a PhD Candidate at the Institute of Economics, Federal University of Rio de Janeiro, Brazil. Ana Esther Ceceña holds a PhD in International Economic Relations from University Paris I-Sorbonne and is the coordinator of the Latin American Observatory of Geopolitics at the National Autonomous University of Mexico, Mexico. Ana Carolina Cordilha is an economist with a PhD in Economics from Université Sorbonne Paris Nord and member of the Center of Economics of University Paris Nord (CEPN) at Sorbonne Paris Nord University, France. Sahil Jai Dutta is Lecturer at the Centre for Political Economy Research at City, University of London, UK. Ia Eradze has a PhD in Social and Economic Sciences and is a researcher at the Institute for Social and Cultural Research, Ilia State University, Georgia. Lauri Finér is a Doctoral Researcher in Law at the University of Helsinki and the Director of the Kalevi Sorsa Foundation, Finland. Alexander Gallas is Assistant Professor in the Department of Political Science at the University of Kassel, Germany. Ana Garcia is Assistant Professor at the International Relations Institute of the Pontifical Catholic University of Rio de Janeiro, Executive Director of the BRICS Policy Center, and Professor of the Graduate Program in Social Sciences of the Federal Rural University of Rio de Janeiro, Brazil.
x
Contributors xi Luciana Ghiotto is Professor of International Relations at the National University of San Martín (EPyG/UNSAM) and Assistant Researcher at the National Scientific and Technical Research Council (CONICET), Argentina. He Zhixiong is Senior Research Officer, Green Ground Eco-Tech Centre, Beijing, China. Hansjörg Herr is Emeritus Professor of Supranational Integration at the Institute for International Political Economy, Berlin School of Economics and Law, Germany. Elaine Sio-ieng Hui is Assistant Professor of Labor and Employment Relations and Asian Studies at Pennsylvania State University, USA. Bob Jessop is Emeritus Distinguished Professor of Sociology at Lancaster University, UK, and is best known for his contributions to critical governance studies and state theory, the regulation approach in political economy, studies of state restructuring, and contributions to critical realism. Praveen Jha is Professor of Economics at the Centre for Economic Studies and Planning (CESP) in the School of Social Sciences at Jawaharlal Nehru University (JNU), Delhi, India, and editor of Agrarian South: Journal of Political Economy. Ismail Doga Karatepe is a researcher at the International Center for Development and Decent Work (ICDD), University of Kassel, Germany. Karina Kato is Professor at Graduate Program in Social Science in Development, Agriculture and Society, Federal Rural University of Rio de Janeiro (CPDA/UFRRJ), and a junior researcher at Research Foundation of the State of Rio de Janeiro – FAPERJ and at the National Council for Scientific and Technological Development – CNPq. Samuel Knafo is a Senior Lecturer in the Department of International Relations, University of Sussex, UK. Mathias Krams is a Doctoral Researcher in the Department of Political Science at the University of Vienna, Austria. Lyne Latulippe is a Professor in the Department of Taxation, and Senior Researcher for the Research Chair in Taxation and Public Finance at the School of Management, Université de Sherbrooke, Canada. Lau Kin Chi is coordinator of the Programme on Cultures of Sustainability at the Centre for Cultural Research and Development and an Adjunct Associate Professor of Cultural Studies at Lingnan University, Hong Kong, China. She is a founding member of the Global University for Sustainability. Lena Lavinas is a Professor at the Institute of Economics at the Federal University of Rio de Janeiro, Brazil, and currently an Associate Researcher in the Economics Department at SOAS, University of London, 2022–24. Sergio Leite is Full Professor in the Graduate Program in Social Science in Development, Agriculture and Society/Federal Rural University of Rio de Janeiro (CPDA/UFRRJ), Brazil.
xii Handbook on critical political economy and public policy He is also Senior Researcher at the Research Foundation of the State of Rio de Janeiro (FAPERJ) and the National Council for Scientific and Technological Development (CNPq). Valerie Lenikus is a Doctoral Researcher in the Department of Political Science, University of Vienna, Austria. Hanna Lierse is a Researcher at the Centre for Sustainability Management, Leuphana University Lüneburg, Germany. Ian Lovering is a Lecturer in International Political Economy in the Department of European and International Studies at King’s College London, UK. Jameson Martins holds a Master’s in International Relations and is a PhD Candidate in the Global Health and Sustainability Program at the School of Public Health (FSP), University of São Paulo (USP), Brazil. Bruno Milanez is an Associate Professor and works in the Politics, Economics, Mining, Environment and Society (PoEMAS) research group at the Federal University of Juiz de Fora, Brazil, in the School of Engineering, Department of Production and Mechanical Engineering. Sergio Prieto Díaz, PhD, holds a Research Chair of the National Council of Science and Technology-CONACYT, and coordinates the Transborder Studies Laboratory-LIT at the College of the Southern Border, México. Pavlos Roufos was a graduate student in the Department of Political Science, University of Kassel, Germany. He submitted his PhD on Ordoliberalism and the Economic Constitution in December 2022. Pedro Rubin is a Master’s student at the Institute of Economics, Federal University of Rio de Janeiro, Brazil. Greg Ruiters is Chair of Citizenship and Democracy, based in the University of the Western Cape School of Government, South Africa. Christoph Scherrer is Professor Emeritus of Globalization and Politics, University of Kassel, Germany, and a founding member of the Global Labour University. Etienne Schneider is a political scientist and University Assistant (PostDoc) in the Department of Development Studies at the University of Vienna, Austria. Jenny Simon is a Post-Doctoral Researcher in International Political Economy, Germany, and is editor of the journal PROKLA. Sit Tsui is Associate Professor at the Rural Revitalization Strategy Research Institute, Southwest University, Chongqing, China. She is a founding member of the Global University for Sustainability. Dimitris Stevis is a Professor in the Department of Political Science at Colorado State University, USA. Ngai-Ling Sum retired as a Reader in Cultural Political Economy in the Politics, Philosophy, Religion Department, Lancaster University, UK. She is now an Honorary Research Fellow in
Contributors xiii Sociology and the Co-director of the Cultural Political Economy Research Centre, Lancaster University. She is best known for her work in regulation approach and cultural political economy, which combines critical discourse studies and political economy. Deisy de Freitas Lima Ventura is Professor of Ethics at the School of Public Health (FSP), Coordinator of the PhD Program in Global Health and Sustainability at the University of São Paulo (USP), Brazil, and President of the Brazilian Association of International Relations. Wen Tiejun is Professor and Executive Dean at the Institute of Rural Reconstruction of China, Southwest University, Chongqing, and Executive Dean of the Institute of Rural Reconstruction of the Straits, Fujian Agricultural and Forestry University, Fuzhou, China. Christa Wichterich is a sociologist, currently freelance researcher and author, previously Guest Professor of Gender Politics at the University of Kassel, Germany; Lecturer at Gilan University, Iran; Jawaharlal Nehru University, New Delhi, India; and at universities in Switzerland, Austria and Germany. Joscha Wullweber is Heisenberg Professor of Politics, Transformation and Sustainability, and Director of the International Center for Sustainable and Just Transformation at Witten/ Herdecke University, Germany. Yan Xiaohui is Senior Research Officer, Centre for Cultural Research and Development, Lingnan University, Hong Kong, China. Paris Yeros is Professor at the Federal University of ABC (UAFBC), Brazil, and member of the faculties of Economic Sciences, Sciences & Humanities, and World Political Economy. He is also an editor of Agrarian South: Journal of Political Economy. Matti Ylönen is a University Lecturer of World Politics and Global Political Economy at the University of Helsinki, Finland. Brigitte Young is Emeritus Professor of International Political Economy at the Institute of Political Science at the Westphalian Wilhelms University in Münster, Germany. Aram Ziai is Full Professor Development and Postcolonial Studies and Executive Director of the Global Partnership Network (GPN) at the University of Kassel, Germany.
Acknowledgements
We are grateful to the many colleagues who have shared our objective to apply a critical political economy perspective to important policy fields. At Edward Elgar Publishing, we were fortunate to have a team that supported us through the various stages of the Handbook. We also thank series editor Frank Fischer for encouraging us to assemble a wide spectrum of political economy issues for the Handbooks of Research on Public Policy. Since most of us are not native English speakers, we are very thankful to Madhuparna Banerjee for a superb job in copy-editing. Special thanks to Nicole Magura for formatting the chapters and Ujan Natik for checking and formatting the references and keeping track of the contributions. Financial support was granted by the International Center for Development and Decent Work (ICDD), Kassel, Germany. Christoph Scherrer, Ana Garcia and Joscha Wullweber Berlin/Rio de Janeiro/Witten August 2022
xiv
1. Introduction to the Handbook on Critical Political Economy and Public Policy Christoph Scherrer, Ana Garcia and Joscha Wullweber
Since the first decade of the present century, the field of political economy has seen a significant resurgence of interest not only in the wake of the 2008–09 financial crisis and the euro crisis, but also in response to the deep economic crises triggered by climate catastrophes and the COVID-19 pandemic. Competition among the new great powers, not least in the field of economics, has further reinforced this interest. But what exactly is it that distinguishes the field of political economy? Is there really a need to bring together what divergencies long ago separated into two major disciplines: economics and political science? And what about the emphasis on the word ‘critical’? Are not all scientific endeavors called upon to critically examine the phenomena they study? Finally, has not public policy always been the subject of analysis and focus of contributions in the field of political economy? Ever since governments have emerged, people have conceived of policies that regulate the livelihood strategies of their respective populations, including policies for securing labor and/ or monetary or in-kind contributions for carrying out government activities and supporting the lifestyles of government personnel and ruling elites. Nevertheless, the term ‘political economy’ with reference to such activities did not appear until 1615 when the French author Antoine de Montchréstien coined the phrase in his Traicté de l’oeconomie politique [Treatise on Political Economy]. The work, which today we would call a policy brief, was written as advice to the monarch on how to increase the wealth of France by promoting industry, trade, and exports. Referring to the monarch’s governance of his subordinates and their livelihood activities, Montchréstien used the Greek word oikonomía to refer to the material management of a patriarchal household. In countries such as England and the Netherlands, where the powers of a monarch were constitutionally limited, a preference developed for terms such as ‘national treasure,’ ‘national interest’ or ‘national happiness’ due to the fact that ‘police,’ the English equivalent of politique, carried a negative connotation. However, by the late 18th century, after the Journal Economique had popularized the term économie politique in France, ‘political economy’ also came to be adopted in Great Britain as the name for a scholarly discipline (Muldrew, 2018, pp. 95–120). Until the 18th century, intellectuals who offered advice on aspects of political economy dealt primarily with issues pertaining to the financial resources of a monarch, not least of which involved their capacity to wage war. They advocated the promotion of industry and exports to facilitate access to precious metals as the means to maintain standing armies and fund war campaigns at a time when the financial system was not yet sufficiently developed to provide the large amounts of credit required to pay for such ventures (ibid., pp. 105–6). Although modern states are no longer feudal, the focus on strengthening state capacities has survived to the present and is found in the writings of geopolitical, nationalist, and even developmentalist political economists (Helleiner, 2021). 1
2 Handbook on critical political economy and public policy During the 18th century, political economists, especially in the classical Anglo-Saxon tradition, turned their attention to strategies for increasing the wealth of property-owning ‘free men.’ In the words of James Steuart, who wrote the first book in English under a title containing the term ‘political economy’: The principal object [of political economy] is to secure a certain fund of subsistence for all the inhabitants, to obviate every circumstance which may render it precarious; to provide everything necessary for supplying the wants of society, and to employ the inhabitants (supposing them to be free-men) in such a manner as naturally to create reciprocal relations and dependencies between them, so as to make their several interests lead them to supply one another with their reciprocal wants. (Steuart [1767] 1966, p. 17)
Adam Smith’s definition of political economy and its purpose expanded the focus, adding the securing of sufficient revenue for public services to the task of enabling people to provide for themselves: Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign. (Smith [1776] 1976, Book IV intro.)
Over time, this classical tradition of liberal political economy narrowed its analytical scope and evolved into neoclassical economics focusing on market transactions. With some delay the separate discipline of political science, the study of politics, emerged. While sharing key assumptions of neoclassical economics such as utility maximization and market equilibrium, and applying methods from its microeconomic toolbox, some authors have reverted to the analysis of politics, policies, and polities, thereby establishing the field of political economy within the discipline of economics. The editors of the Oxford Handbook of Political Economy, for example, defined political economy as ‘the methodology of economics applied to the analysis of political behavior and institutions’ (Weingast & Wittman, 2008, p. 1). The approach that deals most explicitly with politics, the public choice approach, focuses on how individual preferences shape institutions as well as policies and how individuals interact with political rules and institutions (Buchanan, 1999). While most studies guided by the public choice approach are theoretical, abstract, and deductive, the relatively new field of behavioral economics makes extensive use of experiments with human participants (Banerjee & Duflo, 2011). An interest in assessing connections between individual behavior and the effectiveness of policy decisions is widely shared among the political economists in the realm of economics (Cardinale & Scazzieri, 2018). After World War II, at least in Germany and France, political economy became synonymous with Marxism, although Karl Marx himself had actually formulated a critique of the political economic thought of his time. His criticism was directed against nationalist as well as liberal approaches to political economy for their neglect of history, exploitation, and the endogenous tendencies of crisis (Marx, 1887). Historical materialism as conceived by Frederick Engels and Karl Marx does not share the belief in the primacy of the individual that is common to the liberal tradition. Central to their theory is the concept of class and capitalism as the main feature of the contemporary relationship between state and economy. Societies are historically divided along class lines, which are defined by the division of labor and the ownership of the
Introduction 3 means of production. These divisions are the key drivers of social change, and, accordingly, the chief determining factors in the political sphere (politics, polity, and policies) as well as in the economic sector (the material reproduction of humankind). The original Marxist concern with the working class and its suffering as well as its emancipatory potential has nowadays been supplemented, expanded, and sometimes replaced by analyses of a variety of other issues and forms of domination. As can be seen in this Handbook, while capitalism and a multitude of different capitalist relations remain an important part of the broader stream of critical political economy, scholars have meanwhile also begun to explore other lines of societal division such as gender and race. These three different strands of political economy – economic nationalism, economic liberalism, and critical political economy – cover a broad spectrum of societal topics, causal explanations, and methods as well as ontological and epistemological positions (Wullweber, 2019). The economic nationalist strand that takes the nation-state as its primary unit of analysis (and the respective government as addressee for its advice) is primarily concerned with strengthening the material base (and competitiveness) of the respective nation-state with regard to other nation-states and their subjects (especially corporations domiciled in these other countries). For the most part, it adheres to a positivist epistemology and is open to the integration of mixed quantitative and qualitative methods. The primary unit of analysis for the liberal strand is the individual, whose preferences and behavior are generally modeled after the ideal of the white, property-owning or at least highly skilled male (Homo oeconomicus; Habermann, 2008). Its key concern is maximizing individual wealth and purchasing power regardless of economic inequalities. The liberal strand is also wedded to a positivist epistemology. Its methods are mostly quantitative and in recent times also experimental. The critique of political economy, which today also goes by the label of critical political economy (with roots in the Marxist tradition) or heterodox political economy (with roots in the Keynesian tradition), is primarily concerned with analyzing and overcoming economic inequalities among different groups on diverse social levels, from the individual household to the global community. A common ontological position is that humans are social beings that cannot be understood outside their social context. It follows that economics and political economy are an integral part of the social sciences. There is a plurality of epistemological positions, spanning the gamut from the original historical dialectics to positivist and post-positivist approaches, which all seek to gain insight into human societies (Wullweber, 2015; Wullweber & Scherrer, 2011). In critical political economy, therefore, a wide variety of methods can be found, ranging from regression analysis, triangulation, and comparative approaches, to retroduction and ethnographic methods. For all their differences, these three major strands of political economy share the same conviction that the spheres of the economy (accumulation of wealth in spaces governed by market exchange) and the political (accumulation of power and legitimation of coercion), while analytically separable, are in practice intertwined and thus require interdisciplinary analysis. The prominent member of the French l’école de la regulation, Robert Boyer, has succinctly explained the interdependence of the two domains: [T]he proper operation of each of the fields makes use of resources coming from the other field, for reasons that are not purely contingent. On the one hand, economic logic in order to operate requires preconditions that can only come from another sphere: a stable monetary and credit regime, commercial and labor laws, a legitimate public authority preserving national sovereignty, and the required collective infrastructures, as many institutions which the economic logic left to itself is incapable of
4 Handbook on critical political economy and public policy engendering or even sustaining in the long period. On the other hand, without financial resources and integration into the economy, polity will not be able to satisfy its primary objective, the accumulation of power, which is not directly economic, but needs to be realized through a tax system and public spending. (Boyer, 2018, p. 556)
Citing the failure of a command economy as practiced in the Soviet Union and pointing out the far-reaching implications of the financial crises, Boyer argues that ‘the political regime and the economic regime are condemned to coevolve, since any of the two extreme configurations (i.e., “all is polity” or “all is economy”) are unable to prevail in the long run’ (ibid.). Our selection of chapters for this Handbook sides with the critical tradition among these three strands of political economy. This is not to deny critical scrutiny of research designs, theoretical elaborations, and findings in the other traditions. As elaborated above, however, their focus concentrates on increasing the wealth and competitiveness of nations and/or enhancing the allocative efficiency of markets. And although topics addressed in a number of more recent writings in the other two strands do also include environmental concerns, the question of how to overcome structures of economic inequality and power asymmetries beyond mere remedial action against egregious forms of poverty does not figure in their agenda. But our preference for the critical tradition is not based on normative grounds alone. Its openness to other social sciences and sensitivity towards societal inequalities without neglecting either interstate rivalries or individual agency promises a more holistic approach and therefore more convincing insights into political economies. A primary concern of this Handbook is to illustrate ways in which critical political economy finds practical application in everyday life by informing public policies. In areas ranging from the environment and the use of land and water to health, labor, and other factors that affect the quality of life, critical political economy can show how public policies impact different social groups and social classes differently. Policies remain gendered and racialized even when formulated in universal terms (in areas such as environment or health, for example). Moreover, their implications and ramifications vary greatly depending on whether they are implemented in the Global North or the Global South. The key factors to uncover here are for what and for whom public policies are elaborated and implemented. Indeed, it is precisely in the area of public economic policy that the particular strength of critical political economy comes to bear. For this to happen, it is not only necessary but also indispensable to critically engage with various market-liberal dogmas. The idea that the market will reach equilibrium on its own must be abandoned. At the same time, the view that the state should refrain as much as possible from economic activity needs to be questioned. And the often proclaimed dichotomy between state and market must be discarded. The economy does not function without the state, but neither does the state function without the economy. Further, the state is not a monolithic entity, nor is it simply an instrument of the dominant classes. Rather, the state is criss-crossed by class relations and struggles. Specific correlations of forces and struggles materialize in institutional structures and agencies, for the state is the ‘material condensation of the relationship of forces and class fractions’ (Poulantzas, 2000, p. 127) that is tasked with reflecting on how and for whom public economic policies should be designed and applied. Unlike mainstream economics, critical political economy does not provide policy recommendations that disregard the social context in which the proposed policy is to be implemented. And in contrast to mainstream public policy analysis, it does pay attention to issues of policy compatibility with prevailing capital accumulation strategies. Taking these approaches seriously can open up completely new perspectives and reveal new paths for eco-
Introduction 5 nomic policy to lead society out of the explosive dilemmas it currently faces. Critical political economy provides the analytical tools and the conceptual framework to probe conditional relationships among relevant variables while disentangling specific intertwinements between state, economy, and society, and examining their underlying power relations. Herein lies its particular strength. The aim of our Handbook on Critical Political Economy and Public Policy is to showcase this strength with examples of policy studies covering the fields of economic development, environment, finance, labor, taxation, trade, and welfare at the local, national, and international levels.
BOOK STRUCTURE Theory Our Handbook begins by introducing a diverse range of theories of political economy applicable to the field of public policy. In the first contribution in Part I, Chapter 2, ‘Plurality of political economy approaches to the global division of labor,’ Christoph Scherrer highlights the relevance of the international division of labor for a critical politico-economic analysis of public policy. Traditionally, three analytical approaches have competed for dominance in the interpretation and evaluation of the international division of labor: liberal international political economy, economic nationalism, and historical materialism. Since the 1970s, a fourth approach has been gaining ground: feminist political economy. Scherrer shows that the global division of labor is analyzed quite differently within each of these theoretical frameworks. Not surprisingly, liberal international political economy is very much in favor of the division of labor. Strongly rooted in Ricardian thought and often based on neoclassical economics, liberal approaches hold that the more international division of labor there is, the better it will be for everyone. In contrast hereto, economic nationalism takes global power structures into consideration. Economic nationalist approaches, which go back to Friedrich List, are not critical of economic liberalism per se, but argue that an international division of labor based on free trade primarily serves industrialized states. They take the view that developing countries and ‘latecomers’ should protect their (infant) industries until they are able to compete internationally. The third strand, historical materialism, or Marxian political economy, focuses on power relations embedded in the capitalist mode of production in general. Here, the home domain of analysis is not the unequal power relations among states, but the distribution of power within societies and the capitalist mode of production with a focus on classes – traditionally the owners of the means of production and the wage earners or working class. For the final line of approach, feminist political economy, gender relations are the starting point for analysis. Feminist approaches insist that the international division of labor is already always a gendered division of labor. Through this lens, they are able to shed light on topics such as unpaid labor, the feminization of the workforce, and the gender differential impact of trade liberalization. In conclusion, Scherrer emphasizes the significance of deciding on a certain theoretical framework when it comes to the analysis of public policies. Each approach and school of thought offers very different ways of interpreting and problematizing the global division of labor. In Chapter 3, ‘The cultural political economy approach to public policy,’ Bob Jessop and Ngai-Ling Sum present cultural political economy (CPE) as a distinctive social science approach to the analysis of public policies that combines critical semiotic analysis and critical
6 Handbook on critical political economy and public policy political economy. They argue that the overall CPE approach extends beyond these fields and encompasses cultural and social analysis in general. The chapter illustrates this claim with critical reflections on historical-materialist policy analysis (see Chapter 8) and shows how this approach can be improved by considering the broader theoretical contributions of CPE. With reference in particular to Foucault and his concepts of problematization, objectification, subjectivation, power/knowledge, and dispositive, the authors explain that CPE aims to expand the microphysics of power to macro-level questions of political economy and the state. They then elaborate on these concepts, incorporating Gramscian terms of analysis such as the workings and logics of hegemony, passive revolution, and domination. Bob Jessop and Ngai-Ling Sum point out that CPE is not a closed theory but a ‘grand-theoretical paradigm’ that offers a useful heuristic for empirical research rather than a set of pre-given hypotheses that apply universally. In this way, CPE is especially useful for analyzing policy responses to social problems and crises. The authors conclude by delineating some implications for research in critical policy studies, suggesting four methodological steps. First, such an analysis should begin with a reasoned critique of policy proposals based on flaws in their internal assumptions, categories, problematizations, and argumentations. Second, it is important to identify the ideal and material interests favored by certain political proposals or strategic lines in certain times or constellations. Third, such an analysis should include an account of the role played by politics, the political paradigm or the general strategic line in the reproduction of one or more permanent, structured forms of social domination. Fourth and last, critical policy analysis should produce proposals for alternative interpretations, policies, and strategies to facilitate the emancipation of subordinate social forces (and perhaps dominant forces) from the harmful effects of the pattern of domination naturalized or legitimized by those who are the subject of said critique. Chapter 4, ‘Institutionalist, regulationist and dependency approaches to transition countries’ economic policies,’ contributed by Joachim Becker, brings forward institutionalist and regulationist approaches to public policy. Arguing that these approaches offer a variety of middle-range concepts that can be directly applied to different policy fields, Becker illustrates this in an application of those theories to the economic policies of countries in transition from a socialist mode of production toward a capitalist economic system. He demonstrates how institutionalist and regulation theory approaches enable an analysis that focuses on the subordinate form of international integration and the resulting peripheral position of transition and post-transition economies in the European division of labor. Of special importance for these approaches is the relationship between growth models, the state, and economic policymaking. Continuities in economic development patterns and institutional structures of the different capitalist regimes are the home domain of institutionalist theories. Regulation theory places the emphasis on different forms of accumulation, making a fundamental distinction between productive and financialized accumulation. Accumulation, in turn, can be either introverted – that is, primarily oriented towards the domestic market – or extraverted – that is, heavily based on exports or imports of goods and capital. In combination with dependency theory, these approaches provide the tools to explore the asymmetric relations between core and peripheral economies. In a comparison of institutionalist approaches with regulation theory, Becker points out that the latter places more emphasis on crises as junctures in economic policy. The broader conceptualization of lines of social conflict, power relations, and the state makes it possible to use regulation theory together with dependency theory to more systematically
Introduction 7 analyze shifts in the relationship between different capital fractions, conflicts over strategic state selectivity, and resulting economic policies. Brigitte Young’s contribution, Chapter 5, ‘COVID-19 and the gender dilemma: blind spots in both macroeconomics and feminist economics,’ holds that many if not most traditional economists rely on macroeconomic approaches that are both gender-blind and data-driven. Arguing that the ‘silencing’ of women in macroeconomic accounting leads, among other things, to the exclusion of household-produced goods and services in economic growth measurements, she sees this lack of gender sensitivity reflected in policy programs. As an example, she cites the EU Recovery Fund, which mainly supports male-dominated industries such as digital technology, energy, agriculture, construction and transport, while underrating or simply ignoring areas of the economy such as care and health, accommodation and food services, social work, the arts, culture, and recreation. This situation is all the more surprising considering the applause received by (mainly) women care workers at least at the beginning of the COVID-19 epidemic. As Young also observes, however, even though many feminist economists do include household activities, the labor market and the care sector in their analyses, they nonetheless demonstrate macroeconomic blindness when they neglect such issues as monetary policy and the global finance sector. While emphasizing the micro level, they largely ignore important shifts in global finance and the new normal of unconventional monetary policies. This, as Young contends, is unfortunate, considering how strongly such macro-policies affect the micro- and meso-levels. At the same time, however, she calls attention to several economists who do, indeed, include all the different levels in their analyses, and concludes by suggesting several strategies to strengthen gender-sensitive economic approaches in more encompassing and holistic ways. In Chapter 6, ‘Ordoliberalism’s advice for economic policymaking,’ Pavlos Roufos engages with ordoliberalism as a concept and an approach to political economy while exploring the different ways in which this approach relates to public policy. He explains how ordoliberal thought shapes the elaboration and creation of institutional and constitutional instruments intended to provide the overall framework for market-compliant policies. Through the reconstruction of key theoretical concepts developed by ordoliberal theorists, Roufos scrutinizes the crucial role meant to be played by the state in constructing and maintaining a liberal competitive market order. At the same time, he argues that ordoliberalism has never been a self-contained concept but has always also functioned as an ideological and pragmatic underpinning of specific market-liberal policies. Ordoliberals envisioned a state based on a strong administrative and legislative apparatus that would shield it against the influence of particular interest groups including strong capital factions that might undermine competition by establishing oligopolies, for example, or trade unions that could threaten price and monetary stability with excessive wage demands. The goal for ordoliberals, according to Roufos, was to de-politicize economic policy in order to preserve a market-liberal order capable of ensuring the full effectiveness of the market and price mechanism. The final chapter in Part I on theory, Chapter 7, ‘What is neoliberal about new public management?,’ contributed by Sahil Jai Dutta, Samuel Knafo, and Ian Lovering, explores the concept of new public management. The term describes a deep restructuring of the state involving the weakening of the classical welfare state under the guise of increased efficiency and necessary structural adjustments. The authors argue that although the term new public management is widely perceived as the neoliberal approach to public administration, to problematize the notion of new public management and to elaborate its political dimension, the
8 Handbook on critical political economy and public policy contribution critically discusses different explanations of its association with neoliberalism. The authors argue that the relation between new public management and neoliberalism is rather diffuse: first, in many cases, center-left governments have been strong supporters of new public management, both before and after New Right governments of the 1980s. Second, in many respects, public choice ideas and new public management are not compatible. Third, purported ‘business-like’ methods that are often associated with new public management are rather fuzzy and the dualistic framing of private versus public management has always been conceptually empty. To bring deeper insight into the role and politico-economic significance of new public management, Dutta, Knafo, and Lovering trace the emergence of the approach in the 1950s and 1960s. Against this background it becomes clear that the success of the new public management approach was based on its ability to create a market-like environment in public administration. The authors conclude that while the neoliberal context was crucial to the development of new public management, the governance practices introduced with this approach had little to do with neoliberal ideas. Methods Part II introduces two different methods, based on critical political economy, to specific realms of public policy. In Chapter 8, ‘Historical-materialist policy analysis of climate change policies,’ Etienne Schneider, Alina Brad, Ulrich Brand, Mathias Krams, and Valerie Lenikus discuss historical-materialist policy analysis (HMPA) to understand, and tackle, climate change. They argue that the aim of HMPA is to analyze how specific policies are formulated against the background of competing and contradictory interests of different social forces and how, if at all, they contribute to social reproduction and the regulation of contradictory social relations and crisis tendencies. As a way to operationalize HMPA for empirical research, they propose a three-step process: (1) context analysis; (2) actor analysis; and (3) process analysis. As they analyze negative emission technologies (NETs), the authors argue that the integration of NETs into EU climate policy is not just a result of ‘rational’ decision-making or the efficacy of sociotechnical imaginaries, but is also shaped by actors, strategies, and interests. Thus, one can observe how fossil capital, and how other capital fractions, contribute to the ‘normalization’ of NETs by adopting ambitious ‘net-zero’ or even ‘climate-negative’ targets. They conclude that HMPA sensitizes us to the inherent contestedness of such policymaking processes and alternative political initiatives to counteract attempts at mitigation deterrence through NETs. In Chapter 9, ‘Beyond methodological Fordism: the case for incorporated comparisons,’ Alexander Gallas offers a discussion on the limitations of ‘methodological Fordism,’ and argues for an alternative approach, showing us how to conduct empirical research in political economy from a global vantage point. He draws upon McMichael’s (1990, 2000) notion of ‘incorporated comparison’ and outlines a distinct research design for the field of the political economy of labor. For this, Gallas points to critical problems in the process of doing empirical research from a global vantage point: the dangers of subsumptionism; the limitations of approaching global issues from a quantitative angle; the challenge of reconciling analytical breadth and depth; and the need for selecting suitable cases and data. The method of ‘incorporated comparison’ deals with the need to connect a global perspective with a sensitivity to context-specific divergences. The author proposes categories for assessing class formation on the grounds of materialist class theory, putting them to use by mapping non-industrial strikes
Introduction 9 around the world, and supplementing this mapping with detailed case studies of large-scale strikes or strike waves. He concludes that this research design and the criteria developed for case and data selection ensure that the research process remains open and enables us to move beyond methodological Fordism with its focus on the national state, a small number of core countries and on manufacturing. Environment Part III features different analyses on critical issues concerning environment, ‘extractivism,’ development strategies, and its geopolitical implications. In Chapter 10, ‘Land grabbing, financialization and dispossession in the 21st century: new and old forms of land control in Latin America,’ Karina Kato and Sergio Leite examine land grabbing and contemporary capitalist dynamics, the commodification of land and nature, and intensification of dispossession processes. The authors focus on three analytical dimensions: the expansion of extractive corporations in rural areas accompanied by processes of dispossession; the reconceptualization of land as a financial asset by the accelerated financialization of extractive global chains, with impact on regional land markets and on mechanisms of expropriation; and the configuration of a new global governance of land transactions. Thus, the chapter points to how financialization mechanisms related to agriculture and land have resulted from a complex arrangement derived from capital accumulation processes at the international scale with direct impact on different territories and populations in countries in the ‘Global South,’ in particular those located in Latin America. This process relied on the participation of states and multilateral agencies. In an attempt to minimize the strong environmental, social and economic impacts, they ‘contemporize’ these investments by qualifying them as ‘responsible.’ The authors conclude that land has gained a central role in the international political-economic agenda, which prompts a revision of the character and significance of agricultural activity for capitalist accumulation. The rural sector is not just the location of food production. Both land and commodities have also become the object of ever-more sophisticated financial arrangements. It leads to permanent tension in rural areas. In defense of territory, social movements advance different modes of development that provide spaces for differentiated forms of lives and livelihoods. Chapter 11 takes up the issue of land use and offers a closer look into extractive economies in Latin America. In ‘Extractive economies and public policies: critical perspectives from Latin America,’ Bruno Milanez and Ana Garcia argue that the emergence of neoliberalism and the economic rise of Asia have driven the restructuring of nation-states and public policies towards a deepen dependence on extractivism in Latin American countries. This dynamic resulted in new and complex territorial impacts and conflicts. The chapter points to the main schools of thought on extractivism and economic development; it addresses the main issues involving the economic and political context of mining in Latin America, providing examples of public policies in the extractive sector; and concludes with a synthesis of new conceptual propositions on ‘post-extractivism’ and ‘post-development,’ based on recent Latin American intellectual debates. It argues that, from the public policy point of view, most countries governed by center-left leaders did not achieve substantive changes in their socioeconomic structure, and there were no significant modifications in the tax or land ownership configurations. In some cases, these policies even intensified aspects of inequality, either through tax incentives for extractive projects, or through land concentration in the hands of agribusiness or mining corporations.
10 Handbook on critical political economy and public policy In Chapter 12, ‘Ecological perspectives on sustainability in China,’ Lau Kin Chi examines issues of air pollution and water diversion, and reflects on the ways China may confront the dangers of modernization. The author argues that it is necessary to take subaltern and ecological perspectives in challenging statist, elitist and anthropocentric discourses and practices in relation to the question of sustainability in China. The chapter updates data and discusses air pollution and lung cancers in China, and the South-to-North water diversion project. It argues that the modernization paradigm that China pursues has been characteristically privileging industry over agriculture, urban over rural, and middle class over subaltern, hence growth statistics and resource emphases are all geared to such a development paradigm. ‘Modernization’ itself is not questioned, and it justifies the ‘price’ that needs to be paid. In the modernization discourse in China, ‘de-growth’ is almost unthinkable. It concludes that it is necessary to articulate socioeconomic justice with ecological justice, and consider the cultural dimensions of Chinese society and political economy as part and parcel of the development paradigm. Chapter 13 discusses the geopolitical dimension of nature and development strategies. In ‘Looking south: megaprojects, borders and (in)mobilities,’ Ana Esther Ceceña and Sergio Prieto Díaz reconstruct an image of the territories of the so-called southern border of Mexico, relating the geostrategic character of the megaprojects projected for the region. The authors show the links these megaprojects have with respect to the processes of geopolitical ordering and human (in)mobility, in order to clarify the meanings and implications of the current development policies and its risks. To this end, the traditional notion of border is de/reconstructed in a long-term perspective, which incorporates the analysis of the conjunctures with the historical structures that define this territory, and its sovereign/hegemonic relations with the northern neighbor. Through this problematization, defining elements of the territorial reordering policies are presented and analyzed, with special emphasis on those corresponding to the Mayan Train and the Transisthmian Corridor, but without losing the continental context, as well as their foreseeable impacts in terms of population redistribution and changes in the ways of life. Finance Capitalism cannot do without a well-functioning global financial system. Accordingly, the question of state regulation and the way this system is governed plays a crucial role in being able to analytically classify and evaluate the current capitalist system. In this respect, Joscha Wullweber’s contribution in Part IV, Chapter 14, ‘Challenges for monetary policies in the 21st century: financial crises and shadow banking,’ assumes a radical change in both the functioning of the global financial system and the way in which the governance of this system is carried out on the part of central banks. Within the financial system, the importance of the shadow banking system has greatly increased. This implies that the part of the financial system that is little or not regulated at all by the state – the shadow banking system – is gaining strongly in relevance. As a result, the crisis-ridden nature of the financial system as a whole has increased sharply and continues to do so. The global financial crisis of 2007–09 forced central banks to react to this new constellation, as well as the financial crisis caused by COVID-19. In both crises, the leading central banks created a whole series of radically new, unconventional and powerful monetary policies to keep the overall system reasonably stable. The problem is, however, that while these measures stabilize the financial system in the short term, they also lead to a strong increase in overall crisis vulnerability. The fundamental problem is that there is no deviation from market-liberal assumptions within monetary policy. The belief in a finan-
Introduction 11 cial market that stabilizes itself and tends towards equilibrium continues to dominate. Such an approach, however, is not capable of permanently stabilizing the crisis-ridden financial system. Chapter 15 by Hans-Jürgen Bieling, ‘Governance of the eurozone in the face of transnational crises dynamics,’ argues that the governance of the eurozone has originally been guided by the view that the European Central Bank is responsible for monetary policy and that national governments can confine themselves to modernizing national models of capitalism and making them fit for the requirements of the single currency. Since the late 2000s, transnational crisis processes – first the financial and sovereign debt crisis, most recently the coronavirus pandemic – have challenged this view. Accordingly, to save the euro and the Economic and Monetary Union, there were repeated negotiations about ‘crisis constitutionalist’ reforms – that is, comprehensive institutional and procedural reforms of economic governance. While these reforms in the so-called sovereign debt crisis were still primarily oriented towards austerity policies, in the coronavirus pandemic, elements of a jointly organized and maybe even solidary management gained in importance. Jenny Simon’s contribution ‘Chinese capitalism and the global economic order: the impact of China’s rise on global economic regulation,’ Chapter 16, analyzes the impact of China’s rise on global economic regulation in the fields of trade and finance from a process-oriented neo-Gramscian perspective. The analysis shows that the Chinese state neither followed a grand strategy to overthrow the global economic order, nor did China’s rise lead to its fundamental transformation. However, below the level of the grand order, China’s rise led to an incremental transformation of the hegemonic nexus of global economic regulation based especially on China’s development of parallel regulatory arenas and regimes with a regulatory rationale shaped by the Chinese mode of development. This not only limited the reach of the market-liberal paradigm and rulemaking capacities of US or EU actors. It also led to a more fragmented, multipolar nexus of regulating global capitalism. The final chapter in Part IV, Chapter 17 by Ia Eradze, ‘Taming dollarization hysteresis: evidence from post-socialist countries,’ critically explores dollarization processes in post-socialist countries from a political economy perspective. Although the political processes and dynamics and the economic structures and dependencies are specific to each country, the chapter systematically elaborates common trends, roots, and trajectories of dollarization processes. The analysis is based on a methodological critique of the dollarization literature that mostly draws on neoclassical economics. These studies struggle to capture and understand the problem of dollarization and de-dollarization processes. One of the biggest problems of these approaches is that the role of the state is not or only insufficiently included in the analyses. Accordingly, the author brings the state back into the analysis based on an analytical framework inspired by peripheral state theory, regulation school and dependency theory. In this way, the chapter demonstrates the responsibilities of the state and the role of the central bank. Moreover, it brings the underlying power relations and conflicts of de-dollarization policies to the fore. The author also suggests policies that are more likely to support successful de-dollarization processes. Labor The cleavage between capital and labor in modern society raises numerous policy issues. Four chapters in Part V address this divide in different ways. The first chapter traces the increas-
12 Handbook on critical political economy and public policy ing power of capital through the organization of global value chains, using agriculture as an example. The second chapter looks at the intertwining of state and capital in regulating the world’s largest labor force. The third chapter looks at the controversies surrounding minimum wage policies, and the final chapter critically examines the concept of ‘just transition,’ the idea that the transition to an environmentally sustainable system of production and consumption should be humane and equitable for the workers and communities affected. Chapter 18 by Praveen Jha and Paris Yeros, ‘Global exploitation chains in agriculture,’ describes and theorizes the significant acceleration of the transnationalization of production and distribution systems. It places these developments in the context of the emergence of capitalism in the era of colonialism when key raw materials and intermediates were sourced from subjugated territories in the South and production took place in the North. While production is geographically dispersed in the current phase of globalization, value appropriation still resides with transnational corporations (TNCs), most of which are headquartered in the Global North. These TNCs engage in ‘labor–nature–regulation arbitrage’ to the detriment of workers and nature. The resulting divergence between labor productivity trends and wages deepens the processes of exploitation for working people in general, but disproportionately in the South. The authors illustrate these processes using agriculture in the Global South as an example. They show how gross inequalities in the level of government support for agricultural activities, the rules of the current trade regime, and control over intellectual property facilitate and reinforce the impact of global agricultural value chains on the exploitation of peasants and agricultural workers in the South. Elaine Sio-ieng Hui’s Chapter 19, ‘The development of labor policies in China: from passive revolution to eroding hegemony,’ analyzes class politics in the country with the largest working population in the world. Her key question concerns the strategies of the party-state to keep this huge working class under control. Inspired by Antonio Gramsci, she shows that the Chinese economic reform initiated since 1978 was a passive top-down revolution, not a bottom-up revolution led by the bourgeoisie as has emerged in some Western countries. Labor policies during this economic reform period went through three phases: passive revolution, emerging hegemony, and eroding hegemony. Drawing on her many years of field research in the People’s Republic of China, Hui traces these changes, focusing on the largest group of the working population in China, rural migrant workers. During the passive revolution to integrate China into the world economy under party leaders Deng Xiaoping and Jiang Zemin (late 1970s to 2003), Chinese labor policies served the purpose of introducing capitalism into the country. Thereafter, under the governments of Hu Jintao and Wen Jiabao (2003–13), many labor policies were aimed at mitigating the negative effects of economic reforms on workers and securing their approval of the ruling bloc. According to Hui, these welfare measures contributed to the emergence of an incipient hegemony of the Chinese ruling class. In the current era under Xi Jinping, labor protections have been softened and labor relations made more flexible. In addition, the party-state is tightening control over civil society actors and suppressing independent workers’ groups, compromising the previous hegemonic base. In Chapter 20, ‘The political economy of minimum wage policies,’ Hansjörg Herr addresses one of the most debated and controversial labor market issues: minimum wages and their adjustment. Since this is also a matter of dispute between economists belonging to different economic paradigms, he presents the two opposing paradigms: neoclassical economics and Keynesianism. According to the neoclassical paradigm, minimum wages and collective bargaining distort the functioning of labor markets. Herr advocates a Keynesian approach based
Introduction 13 on original Keynesian thinking rather than the post-war neoclassical synthesis. In this view, labor markets are dominated by asset and goods markets and therefore do not have their own mechanism by which they can increase employment. Nevertheless, labor markets are important for the stability of economies. Leaving the labor market to the market mechanism, combined with flexible wages, leads to a permanent destabilization of the price level and greater inequality. Minimum wages can thus contribute to more stable labor markets. Herr’s chapter also provides an overview of empirical studies on the effects of minimum wages and discusses the political choices involved in setting minimum wages. Chapter 21, ‘Just transitions: a historical relations analysis,’ by Dimitris Stevis, critically examines various approaches to climate change. Based on the historical relations approach, which pays attention to the power asymmetries inherent in the social division of labor, Stevis historicizes and politicizes the concept of just transition. It was the US Oil, Chemical and Atomic Workers International Union (OCAW) that first raised the idea of a transition program for workers in the 1970s in response to environmental regulations and increased automation. The narratives of the Anthropocene and planetary boundaries largely avoided questions of power and justice in the years that followed. The idea of a just transition resurfaced in the context of green economy proposals following the 2007 financial crisis. While the ecological transition may create more jobs, such as in renewable energy, the shift away from the fossil-fuel-based production and consumption may have a detrimental effect on the labor force. The new jobs may be in other fields, require different skills, and capital may keep unions out of the new jobs. While the just transition discourse recognizes the need to ensure that workers are not disproportionately burdened by the transition, the policies proposed in the name of just transition differ in ambition based on their breadth and depth. Stevis assesses key policy recommendations for just transition against these categories, as well as the range of actors challenging just transition and their worldviews. In the end, he argues for a transformative just transition that goes beyond addressing the (un)just transitions inherent in the capitalist political world economy to an ecosocial political economy in which differences over transitions are a matter of democratic deliberation, not survival. Taxation A central issue in public policy is, of course, how to finance the modern state, and it is therefore not surprising that taxation has long been a subject of study in political economy. Because of its distributional effects, taxation is a highly contentious issue. The increasing opportunities for tax avoidance and evasion arising from the privileged position of corporations in the era of neoliberal globalization have elevated the traditional national issue to the international level. In Part VI, we have therefore included three chapters dealing with tax trends at the national level, cross-border tax evasion, and responses to the erosion of the national tax bases at the supranational level. Hanna Lierse’s contribution, ‘Critical political economy of taxation,’ Chapter 22, introduces the key theoretical debates about taxation, outlining the different and competing forms and goals of taxation and how they have evolved throughout history. It also explains key concepts such as progressive and regressive forms of taxation and shows how different tax policies can contribute to different goals. This is followed by a descriptive overview of some of the major tax changes and transformations that have taken place in advanced post-industrial societies in recent decades. She then shows how these changes are explained from different
14 Handbook on critical political economy and public policy political economy perspectives and what further insights can be gained from the perspective of a critical political economy. She is skeptical about the extent to which policy preferences can be derived from theoretically determined constellations of interests. Instead, she argues for paying attention to the dominant discourses that shape the perceptions of politicians and the population on tax issues. Her focus is on two main trends in recent decades: the decline of redistributive direct taxation and the recent introduction of regressive carbon taxes. These trends expose the currently dominant understanding of taxation in capitalist societies and highlight how governments prioritize certain societal goals, particularly economic growth, over others, such as curbing inequality or climate change. Tax avoidance and tax evasion through tax havens is the topic of Chapter 23, ‘Global tax governance,’ by Matti Ylönen and Lauri Finér. The authors illustrate aggressive tax planning with a case study of a British company that eroded the tax base in its countries of operation, demonstrating how tax base erosion undermines states’ revenues and hinders redistribution. This kind of tax avoidance or aggressive tax planning is often legal, taking advantage of differences in national laws and benefits from tax treaties. In contrast, tax evasion means exploiting loopholes in tax control by illegally hiding tax income. So-called tax havens facilitate international tax avoidance and evasion. They thrive, the authors explain, from the loopholes of the international corporate tax system, which relies on bilateral and multilateral tax treaties that determine tax bases and the mechanisms of administrative cooperation. The international corporate tax system rests on the separate entity doctrine and the arm’s-length principle that allow multinational enterprises to transfer profits to jurisdictions with lowest taxes. In recent years, data leaks from tax havens and the fiscal deficits caused by the 2007–09 financial crisis have contributed to calls for greater transparency, information exchange, and tackling tax base erosion. The authors conclude their chapter by recommending, among other things, that the Organisation for Economic Co-operation and Development (OECD) should intensify its cooperation with non-OECD countries to prevent tax base erosion and to strengthen information exchange. Lyne Latulippe’s Chapter 24, ‘Globalization, international tax policy and the OECD,’ addresses the central role of the OECD in the globalization of tax policymaking. The OECD has developed international tax standards since the mid-20th century. It designed and promoted to both members and non-OECD member countries a model for bilateral tax treaties and provided resources to continuously improve and adapt it to new issues. Since then, a network of over 3000 bilateral treaties has become the basis of today’s international tax system. However, these treaties do not address the problem of tax competition among governments seeking ways to attract capital and investment. The international tax regime has proven very robust over the past 40 years despite increasing failures to deal with tax evasion or avoidance, the financialization of the economy, and the exponential growth of digital economy. It was not until the 2010s, after the financial crisis, that the OECD initiated a more ambitious base erosion and profit shifting (BEPS) project. The BEPS project culminated in 2019 with proposals for a global minimum tax and the allocation of taxing rights to market jurisdictions. Latulippe points out that the OECD’s tax policy analysis and recommendations remain embedded within the economic liberalization discourse and comprise intrinsic limits for the participation of all stakeholders. Furthermore, even if implemented, these recent proposals will be limited to solving some issues related to the taxation of multinationals and leaving other issues also requiring international coordination, such as wealth taxation and environmental taxation, untouched.
Introduction 15 Trade and Economic Development In his contribution to Part VII, ‘Postcolonial critique of economic development,’ Chapter 25, Aram Ziai presents perspectives on postcolonial thinking about development. He begins with an overview of postcolonial concerns such as the impact of the ‘legacies of colonialism,’ the ‘persisting cultural and political ramifications of colonialism in both colonizing and colonized societies,’ and the ‘critique of the process of producing knowledge about the other.’ Ziai then addresses the critique of ‘development’ voiced by some of the postcolonial approaches, especially those known as post-development. The latter challenge the postwar concept of development as a promise of affluence intended to keep decolonizing countries from joining the communist camp based on an interpretation of difference from the US and Western European experience as backwardness. Ziai ends his chapter with a presentation of policy alternatives that build on the preceding critique. While mainstream development recommendations assume an omnipotent and benevolent actor such as the ideal state, post-development recognizes the richness of social relations and is oriented toward communities’ worldviews and priorities. It aims at more emancipatory alternatives. Chapter 26, ‘Economic cycles and rural policies in the People’s Republic of China,’ by Sit Tsui, Yan Xiaohui, He Zhixiong and Wen Tiejun, traces the changes in agricultural policies since the founding of the People’s Republic of China, the various shifts between supporting rural villages and exploiting them for industrialization and urban growth. Their account begins with the equal distribution of land for nearly 90 percent of the population and moves on to successive policy changes: collectivization, the policy of allowing small parcels of privately cultivated land, granting farmers the right to the rural surplus, the establishment of township and village enterprises (TVEs), the integration of TVEs into the export economy, the recognition of environmental degradation, and finally the trend of capital flow into the rural sector. The account of these changes is placed in the context of urban developments and the challenges of rapid industrialization and militarization in response to external threats from the USSR and US-led capitalist alliances. The chapter concludes that rural China played an important role in cushioning the shocks of cyclical economic crises caused by urban industrial capital. In Chapter 27, ‘Trade and investment agreements from a critical international political economy perspective,’ Luciana Ghiotto offers a Marxist perspective on international trade and investment protection treaties. The analytical starting point is social antagonism. From there, she describes how the reshaping of state–market relations driven by the internationalization of production has spurred the development of legal mechanisms that provide a measure of security for capital accumulation. These contracts are a legal form by which states guarantee the freedom of capital and private property. In particular, the investor–state dispute settlement (ISDS) mechanism is an extraterritorial form of jurisdiction that provides greater security for capital by guaranteeing protection of investors’ property when states have been unable to fulfill it. Thus, the chapter makes a profound contribution to the development of a critique of international political economy. In Chapter 28, ‘South Africa’s failed privatization, commercialization and deregulation of network infrastructure,’ Greg Ruiters and Patrick Bond discuss the results of various forms of privatization and commercialization of network infrastructure that occurred in post-apartheid South Africa. These experiences, they argue, confirm the most serious concerns expressed about current weaknesses in state management, ideology, and service delivery. Any socially, economically, and environmentally sound infrastructure project carries significant public
16 Handbook on critical political economy and public policy benefits. However, instead of positive multipliers, many more negative externalities have been generated. While social and environmental externalities were increasingly socialized, deregulation allowed for an increase in privatized monopoly profits in areas that were supposed to be provided by the state as ‘natural monopolies.’ However unsuccessful, megaprojects continued to motivate a supposedly developmental approach to state-building, even though the harsh project-based realities exposed systemic corruption as a driver of class formation. Welfare Part VIII deals with different public policies regarding the social welfare system. In Chapter 29, ‘Care in global value chains,’ Christa Wichterich discusses the reconfiguration of social reproduction across borders and boundaries. She argues that feminist political economists coined the notion of global care chains by extending the perspective on labor and trade chains across countries from the productive sector to the reproductive sphere. The chapter highlights how the global care chain emerged in the context of a crisis of social reproduction and the transnational supply of care; the policies of both ‘sending states’ and receiving countries; and the patterns of migration, care drain and the construction of transnational families. The author concludes by pointing to policy recommendations and to the necessity to address the multidimensional inequalities that cause the export and import of care workers. From the perspective of migrant workers, it is necessary that receiving states offer opportunities regarding labor rights, minimum wage, equal payment, social protection, and organizing to migrant care workers as they provide for citizens of the country; in turn, sending states profiting from outmigration should enable migrant workers and their communities to make informed choices and access legal information and social protection. Thus, it is necessary to rethink the economy from a caring perspective in terms of responding to people’s needs and human rights. In Chapter 30, ‘The cultural political economy of housing policy in the era of the Islamist Justice and Development Party in Turkey,’ Ismail Doga Karatepe analyzes the Mass Housing Administration of Turkey (TOKİ). Since the conservative AKP came to power, TOKİ’s share in housing provision has drastically increased. The author employs the CPE approach developed by Bob Jessop and Ngai-Ling Sum in Chapter 3, which combines culture with political economy. He considers that CPE represents an ontological turn, defending that the world has semiotic and material properties that are equally important. Yet, the author goes beyond the vocabulary provided by Jessop and Sum’s CPE, and argues that, for a more nuanced analysis, a context-dependent conceptual-theoretical integration is required. The author applies the concept of patronage to highlight the discretionary and preferential treatment in exchange for political and economic support. He points out that the extensive state involvement through the housing provisions of TOKİ was the outcome of a certain discourse that disparaged the gecekondu (squatter) mode of housing provision. Also, it is the outcome of a certain Islamist imaginary that aims to change the urban landscape in a modernist way. Karatepe concludes that the long-standing commitment of Islamist politics to a rapid reconstruction/development through government intervention has finally been realized with TOKİ’s operations. Chapter 31 discusses the financialization of social policies, with particular emphasis on education and healthcare. In ‘The financialization of social policy: an overview,’ Lena Lavinas, Lucas Bressan, Pedro Rubin, and Ana Carolina Cordilha argue that the concept of financialization is central to understanding current transformations in social policies. The chapter maps some of the ways in which these transformations are occurring across key sectors of social
Introduction 17 provision, such as pensions, education, and healthcare. The authors show how the advance of this new paradigm of social policy in financialized capitalism is connected to a growing dependence of households on financial markets, especially through mounting levels of debts. They point to the corrosion of social ownership and collective identities that sustained the development of a wide variety of welfare systems in central and peripheral economies, which now engenders an accelerated process of recommodification and re-individualization. Rather than promoting socioeconomic security over the course of individuals’ life cycle, social policy now regulates access to financial markets while it is simultaneously regulated and reconfigured by them. The result of the financialization of social policy is therefore the production of families’ growing dependence on deregulated financial markets. The discussion carried out throughout the chapter aims to critically examine how this paradigm undermines the fundamental goals of social policy by deepening different forms of inequalities and exclusions among individuals, while feeding financial accumulation. Finally, in Chapter 32, Jameson Martins and Deisy de Freitas Lima Ventura discuss ‘The political economy of global health and public policies.’ The authors argue that global health has emerged as a wide and heterogeneous set of both public and private institutions and their respective agendas concerned with health issues around the world, which has been defined as an ‘open-source anarchy.’ In such a context, we may observe multiple sources of conflict between such forces, which ultimately expose the inextricably political nature of health, beyond its mere biomedical definition and data-based metrics. Among the most overt of those conflicts, one may consider the contemporary debate on the feasibility of health systems: more specifically, the financial foundation to universal health coverage; the disparate landscape of institutions shaping the global governance of health, at the center of which the World Health Organization plays a paramount role; the increasing influence of private institutions, particularly those engaged in what has been defined as philanthrocapitalism, such as the Bill & Melinda Gates Foundation; and, no less relevant, the securitization and politicization of global health issues, such as the latest Public Health Emergency of International Concern (PHEIC) due to the COVID-19 pandemic. The authors argue that an underlying thread of continuity between those phenomena is the persisting tension between the neoliberal market-oriented and the public-funded approaches to health, which has accompanied the expansion and complexity of global health issues from the onset of the field. They consider that the securitarian approach, pervasive in the response to all major global health crises in the early 21st century, focuses too much on the containment of diseases, instead of tackling their structural causes on the ground in the first place. The authors conclude that socioeconomic inequalities and the lack of access to basic health conditions of large swaths of people do not come to the fore when an acute crisis emerges. The neoliberal policymaking cannot deliver on the needs for equity in health and accountable leadership to overcome such challenges.
BIBLIOGRAPHY Banerjee, A.V. & Duflo, E. 2011, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, New Delhi: Random House. Boyer, R. 2018, ‘Comparative political economy,’ in I. Cardinale & R. Scazzieri (eds), The Palgrave Handbook of Political Economy, London: Palgrave Macmillan, pp. 543–604.
18 Handbook on critical political economy and public policy Buchanan, J.M. 1999, ‘The domain of constitutional economics,’ in J.M. Buchanan (ed.), The Logical Foundations of Constitutional Liberty, Vol. 1, The Collected Works of James M. Buchanan, Indianapolis, IN: Liberty Fund, pp. 377–95. Cardinale, I. & Scazzieri, R. 2018, ‘Political economy: outlining a field,’ in I. Cardinale & R. Scazzieri (eds), The Palgrave Handbook of Political Economy, London: Palgrave Macmillan, pp. 1–28. Habermann, F. 2008, Der homo oeconomicus und das Andere: Hegemonie, Identität und Emanzipation, Baden-Baden: Nomos. Helleiner, E. 2021, ‘The diversity of economic nationalism,’ New Political Economy, 26 (2), 229–38. Marx, K. 1887, Capital: A Critique of Political Economy, Moscow: Progress Publishers. McMichael, P. 1990, ‘Incorporating comparison within a world-historical perspective: an alternative comparative method,’ American Sociological Review, 55 (3), 385–97. McMichael, P. 2000, ‘World-systems analysis, globalization, and incorporated comparison,’ Journal of World-Systems Research, 6 (3), 68–99. Muldrew, C. 2018, ‘Politics and economics of markets,’ in I. Cardinale & R. Scazzieri (eds), The Palgrave Handbook of Political Economy, London: Palgrave Macmillan, pp. 91–132. Poulantzas, N. [1978] 2000, State, Power, Socialism, London: Verso. Smith, A. [1776] 1976, An Inquiry into the Nature and Causes of the Wealth of Nations, Vols. I–II, edited by R.H. Campbell, A.S. Skinner & W.B. Todd, Oxford: Oxford University Press. Steuart, Sir J. [1767] 1966, An Inquiry into the Principles of Political Economy: Being an Essay on the Science of Domestic Policy in Free Nations, in Which Are Particularly Considered Population, Agriculture, Trade, Industry, Money, Coin, Interest, Circulation, Banks, Exchange, Public Credit, and Taxes, London: A. Millar and T. Cadell. Weingast, B.R. & Wittman, D.A. 2008, ‘The reach of political economy,’ in D.A. Wittman & B.R. Weingast (eds), The Oxford Handbook of Political Economy, Oxford: Oxford University Press, pp. 3–25. Wullweber, J. 2015, ‘Post-positivist political theory,’ in M.T. Gibbons (ed.), The Encyclopedia of Political Thought, Chichester: Wiley, pp. 2932–42. Wullweber, J. 2019, ‘Monism vs. pluralism, the global financial crisis, and the methodological struggle in the field of International Political Economy,’ Competition and Change, 23 (3), 287–311. Wullweber, J. & Scherrer, C. 2011, ‘Postmodern and poststructural international political economy,’ in R.A. Denemark (ed.), The International Studies Encyclopedia, Oxford: Blackwell, accessed 20 December 2022 at https://doi.org/10.1093/acrefore/9780190846626.013.468.
PART I THEORIES OF POLITICAL ECONOMY WITH PUBLIC POLICY IMPLICATIONS
2. Plurality of political economy approaches to the global division of labor Christoph Scherrer
The question of the international division of labor, the foundation of international trade, stands at the beginning of the field of international political economy. After all, the benefits and dangers of the division of labor have been argued about at least since Adam Smith’s detailed description of pin production based on the division of labor in the 18th century. Regarding the cross-border division of labor, three paradigms developed as early as the 19th century that still guide the debate on the international division of labor today: the liberal, the economic nationalist, and the Marxist ‘schools.’ The first welcomes the cross-border division of labor, the second makes its benefits contingent on the fulfillment of certain conditions, and the third rejects the mode of division of labor. In recent decades, these views have been supplemented by the feminist critique of the gender division of labor. The international division of labor is therefore an ideal entry point for providing an overview of the different strands in international political economy (IPE) and their respective policy positions on trade. By taking note of these paradigms, I hope to gain a better understanding of today’s global economic policy debates. Therefore, I will first present these theoretical traditions individually in order to compare them systematically in a second step with regard to their attitude towards the societal division of labor. Given its mainstream status, the liberal IPE receives less space in this contribution to the Handbook on Critical Political Economy and Public Policy.
THE LIBERAL INTERNATIONAL POLITICAL ECONOMY From the outset, classical political economy advocated the emergence of an international division of labor, with Adam Smith (1723–90) recommending specialization on the basis of absolute advantages (especially climatic or resource), and David Ricardo (1772–1823) on the basis of comparative cost advantages (countries should specialize in those industries in which they have comparatively the highest cost advantages). Accordingly, they advocated the dismantling of government control of foreign trade, especially through tariffs. Ricardo’s theory of comparative advantage remained the basic theorem of foreign trade theory (Krugman, Obstfeld & Melitz, 2018, pp. 52–78), which, abstracting from differences in power and development among nations, examines cross-border economic activity. From this ‘purely’ economic perspective, the political is primarily an obstacle to the realization of free world markets or the addressee of recommendations based on model theory. In the postwar period, liberal IPE raised the political to an independent object of study based on the insights of foreign economic theory. The central issues relate to developmental differences and to conditions of stability in the world economy, with the liberal tradition taking up economic nationalist critiques on the one hand, and Marxist critiques of the international division of labor on the other (see below). 20
Plurality of political economy approaches to the global division of labor 21 The development policy debate was shaped by modernization theory (protagonist: W.W. Rostow, 1960), which saw the catching-up and, thus, the modernization of ‘traditional’ societies with regard to the Western industrialized countries within a liberal world economy as only a question of time, but which could be accelerated by appropriate measures – for example, by advising the respective decision-making bodies, by technology and capital transfer. While Keynesian modernization theory focused on the development of a single market and the transfer of administrative knowledge, technology and capital through state or supra-state organizations (Lewis, 1966), the neoliberal variant that dominated from the 1980s onward (Lal, 1983) adopted the microeconomic view of the prevailing foreign trade theory. Its recommendations include export orientation and strengthening of market forces, leaving transfers primarily to private enterprises (closing the so-called savings gap through private capital imports) and advice to consulting firms and the International Monetary Fund (IMF). Due to the discrediting of this so-called Washington Consensus (Williamson, 1990) in the wake of the Asian crisis (1997) and the permanent crises in the countries advised by the IMF, a post-Washington Consensus emerged that takes greater account of the stability conditions of markets: through so-called good governance (infrastructure, education, functioning administration and rule-of-law institutions) in the respective nation-state and through certain restrictions on risky financial operations at the world level (Herr & Priewe, 2005). Another central issue of liberal IPE relates to the conditions of stability of the world economy, and these are dealt with primarily using the example of the monetary system. The dollar crisis, which began in the 1960s and led to the end of the Bretton Woods fixed exchange rate regime in 1971, gave rise to an ongoing debate about the extent to which a stable liberal world economy needs a strong leader (hegemon). An analysis by Charles Kindleberger (1910–2003) of the world economic crisis of 1929 had shown that it had been aggravated by the refusal of the US to act as a stabilizer (Kindleberger [1973], 1986). After World War II, the US had assumed a ‘benevolent’ leadership role, but with the end of the Bretton Woods system, this came to an end. Kindleberger’s observation was called the ‘theory of hegemonic stability’ by American political scientists, who countered it with the thesis that stability as a public good could also be provided through cooperation between individual nation-states. This insight was taken up by regime theory, which holds that international agreements, insofar as they are based on broadly shared values and have stood the test of time, are of their own weight with regard to individual nations, including the dominant nations. Offers from various paradigms can be found in support of it: liberal (Keohane, 1984), rational choice (Axelrod, 1984), institutionalism (Krasner, 1982), and constructivism (Wendt, 1992). In the 1990s, this debate was continued under the term global governance, with the inclusion of international civil society actors representing the innovation. The content of global governance is controversial. From a social-ecological perspective, it is supposed to contribute to the management of global problems such as climate change (Rosenau, 1995). The neoliberal version gives priority to securing private property rights (Ohmae, 1990). What both have in common is that power imbalances and exclusion mechanisms are subordinated to the search for the stability conditions of global governance. Since the early 1980s, the liberal IPE paradigm has become predominant in the United States and its adherents have increasingly employed methods borrowed from neoclassical economics (Maliniak & Tierney, 2009). Those liberal IPE scholars with an interest in international trade address questions concerning domestic actors’ constellations influencing trade decisions (e.g., Grossman & Helpman, 1995; Milner & Judkins, 2004) or the impact of trade agreements on
22 Handbook on critical political economy and public policy various issues such as the flow of foreign direct investment (e.g., Malesky & Milner, 2021) or labor rights (e.g., Short, Toffel & Hugill, 2020). The policy-oriented strand in liberal IPE has expressed concerns about the rise of a ‘populist’ backlash against globalization, especially after Donald Trump’s ascendancy to the US presidency (e.g., Barattieri & Cacciatore, 2020; articles on US–China relations in Foreign Affairs 2018–2021). President Biden seems to allay these fears, although he seems to pursue a foreign economic policy that I call the intersection of Obama’s encircling strategy of the People’s Republic of China (PRC) and Trump’s direct confrontation strategy (Scherrer, 2022).
ECONOMIC NATIONALISM Economic nationalism is mostly attributed to Friedrich List (1789–1846; on List, see Szporluk, 1988; Tribe, 1995), but his protective tariff argument had been developed before him in many other countries that wanted to emulate the British model of industrial development – for example, in France by F.L.A. Ferrier (1805) and in the USA by Alexander Hamilton’s Report on Manufactures (1791) and Henry Carey (1837; on Carey, see Dawson, 2000). As a liberal expelled from the country by the king of Württemberg, he and the emerging German bourgeoisie faced the central challenge of overcoming the small German states. In his main work, The National System of Political Economy (1841), he accordingly did not reject in principle the free trade arguments of the classics (which he called the ‘school’), but these would only be valid when the world was no longer divided into nations. As long as nation-states still existed, however, ‘the result of general free trade would not be a universal republic, but, on the contrary, a universal subjection of the less advanced nations to the supremacy of the predominant manufacturing, commercial, and naval power’ (List [1841], 1909, p. 101). Accordingly, he advised the ‘less advanced nations’ to introduce protective tariffs for as yet undeveloped industries and to dismantle all measures that hinder the development of industries within the nation-state (in the case of Germany, especially the internal customs borders). In addition, countries should focus on the development of their productive forces, especially through education. However, in his colonialist worldview he saw the introduction of protective measures as justified only if certain preconditions were met – namely, ‘the highest degree of civilisation, and development of material prosperity and political power’ (ibid., p. 134), taking the ‘civil liberty’ of Britain as a model (ibid., p. 220). Overall, List very much admired Britain’s protective and developmental policies that helped its rise to industrial pre-eminence, as these were contrary to the ‘cosmopolitan’ policies propagated by the liberal tradition (for Britain’s policies, see also Nye, 2007). Today’s most prominent representative of the Listian tradition, Ha-Joon Chang, who argues just like List based on historical precedents, has shown how other early industrializing countries have used a similar set of protective policies and once they were successful switched to propagating and enforcing liberal policies (Chang, 2002). While today’s orthodox foreign trade theory emphasizes primarily the benefits of free trade for consumers, List clearly gave priority to production over consumption: ‘It [the nation] must sacrifice some present advantages in order to insure to itself future ones’ (List [1841], 1909, pp. 112–13). In other words, for the good of the nation as a whole, individual needs should be subordinate. Nevertheless, List’s liberalism set him apart from romantic German nationalism, which, with Johann Gottlieb Fichte (The Closed Commercial State [1800], 2012), placed the all-encompassing nation before the individual and adhered to the ideal of national autarky. In
Plurality of political economy approaches to the global division of labor 23 the form of the concept of a large-scale economy (political-economic control over continental Europe), this idea was to become a guiding principle for the German National Socialists in the wake of the Great Depression. Autarky, or politically controlled foreign trade and state-led industrialization, was also the credo of the state socialist countries and Eastern European agricultural states (Manoilescu, 1931). After World War II, free trade became the universal guiding principle of trade policy in the Western advanced capitalist camp. But List’s plea for exceptions to the rule remained relevant. On the one hand, with the establishment of the Generalized Agreement on Tariffs and Trade (GATT), the United States realized List’s call for multilateral negotiations on foreign trade facilitation committed to the reciprocity principle of comparable trade concessions (as opposed to the unconditional opening of borders to trade). On the other hand, in view of the large mass of ‘inferior civilization(s)’ (List [1841], 1909, p. 124), his protective tariff argument was widely received; it also found its way into the liberal tradition under the heading ‘infant industry protection.’ In the postwar period, it was pragmatically applied, especially with success, by Japan and other East Asian countries, but also by West Germany, whose industrial reconstruction was state-supported and flanked by exchange controls (Streeck & Yamamura, 2001). In particular, the Bundesbank’s interest rate policy and the obligatory involvement of the collective bargaining parties can be characterized as elements of an economic nationalist strategy that curbed domestic demand and thus imports in favor of a foreign trade surplus (Germann, 2021). More explicitly, List’s ideas found their way into the development discourse of the postwar period. Pointing to the deteriorating terms of trade for agricultural products and natural resources (the price index of these products rose more slowly than that for industrial goods), adherents of the Economic Commission for Latin America and the Caribbean’s (ECLAC) economic theory of unequal trade argued that the dependence of former colonies on capitalist centers was inscribed in the traditional international division of labor. First, demand for primary goods would not increase proportionally with income growth in the industrialized countries. Second, productivity increases in developing countries would not lead to wage increases because of the massive release of labor in subsistence agriculture, but only to production expansion, while in industrialized countries wages kept pace with productivity increases. Thus, in terms of income, productivity gains in the developing countries would primarily benefit the industrialized countries via the worsened terms of trade. Raul Prebisch, the leading intellectual of this trend and the first Secretary General of United Nations Conference on Trade and Development (UNCTAD), advocated, in line with List, the development of domestic industry under the protection of tariffs (substitution of imports of industrial goods by domestic production) and with the help of state infrastructure. In addition, however, Prebisch also called for the opening of the markets of the industrialized countries to the industrial goods of the developing countries, whose export capacity he wanted to see strengthened (Prebisch, 1950). Other authors of this current did not share Prebisch’s liberal credo and, similar to the nationalists in Europe before them, called for a stronger decoupling (dissociation) from the world market (Frank, 1967). Unlike many Asian countries, many in Latin America failed to use tariff protection to build up an industry capable of competing on the world market, so that, contrary to List’s proposals, the respective educational tariff became a permanent tariff (see Burnell, 1986 for economic nationalism in the Third World). The catching-up and selective opening strategies of the PRC in the post-Maoist era were inspired by Sun Yat-sen (Sun, 1922) and the Chinese tradition of the ‘self-strengthening’
24 Handbook on critical political economy and public policy movement following the Second Opium War of 1856–60, though not by the Listian tradition (Helleiner, 2018). Even in the capitalist centers, some of List’s ideas remained current. As the US unions were the first to be affected on a broad front by the increasing relocation of labor-intensive production steps to low-wage countries, they raised comprehensive demands for a restriction of transnational companies in 1971. Labor-friendly senators enlisted the support of Robert Gilpin for a study of the national impact of transnational corporations. His studies, The Multinational Corporation and the National Interest (1973), U.S. Power and the Multinational Corporation (1975), and especially his later work, The Political Economy of International Relations (1987), became the standard reference point for the so-called realist tradition in IPE – that is, with an overt emphasis on the role of nation-states. While tariff protection and restrictions on transnational corporations were subsequently rejected in the US, calls for industrial policy measures (e.g., research subsidies) gained attraction (Thurow, 1985). The theoretical rationales for tariff and industrial policy did not move beyond List until the 1980s. The ‘new’ or ‘strategic’ trade theory incorporated insights from industrial economics that led to consideration of imperfect markets, heterogeneous products, increasing returns to scale, learning curves, and externalities in the design of partial equilibrium models (Krugman, 1986). For international trade, it has been known at least since Adam Smith that it can lead to increasing returns to scale – that is, decreasing production costs per unit as production volumes increase (for example, due to high development costs). Thus, the classical model assumption of diminishing returns to scale is not always fulfilled. However, taking into account increasing returns to scale led, under certain further model assumptions, to the result that trade barriers for one’s own country can have a welfare-enhancing effect. This is because the domestic firm can enjoy the economies of scale more quickly if foreign competition is kept out of the market during the introductory phase. It then has an initial advantage in third markets. However, the results of this more ‘realistic’ modeling of the international division of labor are also used to justify further steps toward foreign trade liberalization in two ways. First, the strategic trade concepts can be employed to redirect interest in closing off one’s own market in favor of opening foreign markets. Second, the theory’s insights allow for the justification of further liberalization steps of one’s own markets. The maximization of economies of scale is only possible with further specialization within the framework of intra-industrial trade. However, this requires the dismantling of non-tariff trade barriers. This argument is used particularly effectively to justify deregulation measures in the context of free trade areas (see, for example, Cecchini’s 1988 report on the benefits of a European Single Market and the envisaged Transatlantic Trade and Investment Partnership; also Felbermayr, Heid & Lehwald, 2013). The exit of Great Britain from the European Union in 2020, the so-called Brexit, and the tariff policies of the US President Donald Trump (2017–21) are seen by some to be informed by the tradition of economic nationalism, though not necessarily by the more nuanced writings of List (Helleiner, 2021). In light of the British government’s pursuit of new free trade agreements and the American use of tariffs on Chinese products to force the PRC to limit its state support for industrial catch-up, this interpretation does not seem so convincing (Scherrer & Abernathy, 2017).
Plurality of political economy approaches to the global division of labor 25 The immense industrial success of the PRC has renewed interest in industrial policy among advanced capitalist as well as catching-up countries (Belton, Mandel & Duesterberg, 2020; Otsubo & Otchia, 2021; Rodrik, 2004).
CRITIQUE OF POLITICAL ECONOMY – HISTORICAL MATERIALISM The Marxist critique of political economy is being increasingly recognized again, especially in the North–South discourse, but not only limited to it. It is critical insofar as Karl Marx (1818–83) developed his own approach, historical materialism, explicitly in the debate with the liberal classics (Heinrich, 2012). The Marxian approach is ‘historical’ because it focuses on the developmental dynamics of societies. In contrast to the liberal and national economic tradition, capitalist society is not seen as the end point of the development of human societies. The central moment of development is seen as the social conditions that ensure the material reproduction of society – that is, the securing of the basis of life for the next generation. In contrast with the idealistic notion, common in Germany at that time, that societies develop on the basis of ideas, or are even only expressions of the unfolding of specific ideas, historical materialism focuses on the practice of people to create their livelihoods over and over again from scratch (see also Schneider et al., Chapter 8 in this Handbook). This understanding of materialism, however, is not to be equated with the everyday understanding – namely, that the disdainful greed for the accumulation of possessions drives humankind and its societies. Rather, it is assumed that the way in which a respective society reproduces itself is contradictory and that the conflicts resulting from these contradictions cause the social dynamics. In capitalism – that is, in those societies in which individuals primarily (not exclusively) enter into a relationship with one another mediated by capitalist property relations and become part of society (‘socialized’) – the contradiction is inherent in the act of exchange that brings together people producing in a division of labor. In capitalism, the exchange of goods is based on the idea that it takes place among legally equal persons who exchange goods of equal value. This would apply to commodity markets, but not to the labor markets that characterize capitalism. The latter could only arise where, as Marx put it, there are the doubly free wage laborers. On the one hand, they must be able to dispose freely of their labor power – that is, be free from obligations to others (feudal lords, slave owners), otherwise they could not sell their labor power. On the other hand, they are forced to sell their labor power because they do not have their own means of production – that is, they are ‘free’ from them (Marx-Engels-Werke [MEW], vol. 23, ch. 6). Wage workers would create more value with their labor power than is paid to them in the form of wages. They would also produce, unpaid, the means needed to reproduce the means of production owned by the capitalist that were used up during production, plus the luxury consumption of the owners of the means of production who buy their labor power, of course only as far as they are successful in the market. In this division of labor between owners of the means of production and wage earners, the Marxist tradition sees a relationship of exploitation. While the liberal tradition advocates this kind of division of labor and wants to see it universally enforced, while the national economic tradition accepts it as well but concentrates
26 Handbook on critical political economy and public policy on its realization in the respective nation-state, the Marxist tradition problematizes it with a view to overcoming it. With this view of the wage relation, Karl Marx was more interested in Ricardo’s labor theory of value than in his theory of comparative advantage. The only chapter in Das Kapital that explicitly deals with ‘foreign trade’ explores the consequences of foreign trade for the law of the tendential fall of the rate of profit (MEW, vol. 25, pp. 247–50). For Marx, the creation of the world market lay as a tendency directly given in the concept of capital itself: accumulation for the sake of accumulation itself. He saw in foreign trade both the historical origin of the capitalist mode of production and its consequence due to the need for an ever-expanding market (ibid., p. 247). Moreover, the economic laws revealed by the classical economists ‘would become more true, more exact, and cease to be mere abstractions to the same extent that free trade asserts itself’ (MEW, vol. 4, p. 307). Politically, Marx and Friedrich Engels (1820–95) evaluated foreign trade by its impact on class relations. At one point, they advocated free trade because it would exacerbate the contradictions of the capitalist mode of production, and that from these contradictions ‘will emerge the struggle that will end with the emancipation of the proletariat’ (ibid., p. 308). In another passage, Engels likewise welcomed the protective tariff in revolutionary terms: ‘But since…the bourgeoisie in Germany needs protection against foreign countries in order to clear up the medieval remnants of the feudal aristocracy…the working class also has an interest in that which helps the bourgeoisie to undiminished rule’ (Engels, ‘Protective tariff or free trade system,’ ibid., 59ff.) Consequently, they did not share the classics’ belief that free trade ‘will make the opposition between industrial capitalists and wage laborers disappear’ (ibid., p. 456), that free trade is peacemaking (‘All the destructive phenomena which free competition produces in the interior of a country are repeated to an even greater extent on the world market’; ibid.), and in the naturalness of the international division of labor. The revolutionary perspective also shaped their criticism of List. On the one hand, the protective tariff system was only a means ‘to raise industry in a country – that is, to make it dependent on the world market’ (ibid., p. 457). On the other hand, it represented an attempt to blur the opposition between capital and labor by an opposition between nations (ibid, p. 461). The latter argument was to prove true, contrary to Marx’s intentions, in World War I. Accordingly, for the first generation of Marxists after Marx, the main question was to what extent the imperialist ambitions of the leading capitalist nations of the time helped or hindered the revolutionary spirit of the proletariat. For Rosa Luxemburg (1871–1919), imperialism resulted from capital’s need to seize regions not yet thoroughly capitalized (external land grabs). Since she did not take into account advances in productivity, she could not imagine how the capitalist economy could continue to grow if only the capitalists and wage earners were available as buyers of goods. Growth could only be secured if there was demand from outside capitalist relations. The violent character of the subjugation of non-capitalist areas, however, would rebound into the capitalist centers (Luxemburg [1912], 2003; Patnaik & Patnaik, 2016).1 Vladimir Ilyich Lenin (1870–1924), like Rudolf Hilferding (1877–1941) and Karl Kautsky (1854–1938),2 derived imperialism from the process of concentration of capital. He contributed an idea that was later echoed by some Marxist-oriented adherents of the dependency theory (Emmanuel, 1972): the monopolistic profits of imperialist countries ‘creates the economic possibility of bribing the upper strata of the proletariat’ (Lenin [1916b], 2000, p. 173). The social catastrophe of imperialist war, however, would bring about the realization of the necessity of revolution, especially since monopoly, through the socialization
Plurality of political economy approaches to the global division of labor 27 of production, would create the basis of the historical possibility of socialism (Lenin [1916a], 1964, p. 107). This view became fundamental for the further development of Soviet-style theory, which resulted in the theory of state-monopolistic capitalism (stamocap). The different variants of the latter shared the following assumptions: (1) capitalism progresses lawfully until it is overcome; (2) a few large capitals dominate; and (3) the state apparatuses fall into the hands of the monopolies (Boccara, 1973). A resolute critique of stamocap was developed by a leading representative of Trotskyism, Ernest Mandel (1923–95), who was convinced of the validity of the law of value and the tendency toward the emergence of an average rate of profit even in ‘late capitalism’ (Mandel, 1972). His work provided an important pole of reference and friction for the West German reception of Marx for an analysis of the world economy, which began in the late 1960s. This world economic debate produced a theoretical approach based on Marx’s ‘modification’ of the law of value on the world market (MEW, vol. 23, ch. 20). This ‘law’ states that the socially average labor time required to produce a commodity determines its value. If the labor time used is above the social average for the commodity in question, the time above the average is not socially recognized in exchange – that is, it creates no value. If the time is below it, extra surplus value is created. Instead of assuming, as Lenin did, the monopolies’ striving for profit and power, this value-law approach assumed that ‘according to the logic of the concept of capital, the development of capital on the world market basically takes place in the same forms as the development of capital in the space delimited by the nation-state’ (Neusüß, 1972, p. 96; own translation, original emphasis). From this it followed that the monopolies on the world market still meet as competing individual capitals, that they therefore do not cancel out the law of value, that development phases do not represent simple repetitions, and that capitalism is not yet at its end. In contrast to the notion of ‘unequal exchange’ on the world market (Frank, 1967; in its Marxist variant: Emmanuel, 1972), popular not least because of the dependency theory (Dos Santos, 1970), Christel Neusüß (1937–88) argued with the category of extra surplus value, which would accrue to those nations whose labor intensity is above the national averages of labor intensity. A transfer of value would not take place, since the concept of social labor loses its economic meaning beyond the borders of the respective society (Neusüß, 1972, pp. 138–41). The theoretical debate petered out toward the end of the 1970s, not least because of the high degree of abstraction and the neglect of political action. However, its insights informed quite a few empirical works on the world market (e.g., Altvater, 1987). The world systems theory developed in the USA and the regulation theory from France essentially inherited these debates. In direct confrontation with modernization theory, the world system theory assumes a world market interrelationship mediated by the sphere of circulation since the European conquest of America, which brought the European and Asian world economies into an increasingly intensive exchange via the silver and gold deposits there. This developing modern world system, with an association of sovereign national states, constitutes the basic unit of analysis. It is driven by capital accumulation, dissected into a center and a periphery by a division of labor mediated by unequal exchange (with the semiperiphery in between), dominated by hegemonic states in cyclical, crisis-like succession, and shaped by technological cycles (Wallerstein, 1982). From this perspective, development and underdevelopment are mutually constituted in the world system. While it is possible for individual
28 Handbook on critical political economy and public policy countries to move from the periphery to the center via the semiperiphery, for systemic reasons it is not possible for most countries in the periphery. However, the absolute level of development can increase for the periphery. Overall, following Marx, the division of labor is generally problematized, but the focus is on the spatial dimension of hierarchized division of labor, as in economic nationalism. Some called for a delinking from the capitalist world economy to give space for domestic development priorities, creating ‘autocentric’ development (but not autarky; Amin, 1976). Informed by the world system theory, Gary Gereffi was one of the first to analyze the emerging global supply chains that make use of differences in wage levels, environmental standards, and infrastructural spending (Gereffi, 1994). The question of who is capturing most of the value created along the supply chains and how one can improve one’s position has become a mainstream management and development discourse (Fuller & Phelps, 2018). Class-based IPE has highlighted the role of working-class resistance in the spatial configuration of the global supply chains (Selwyn, 2015; Silver, 2003). Works in the tradition of Antonio Gramsci have highlighted the embeddedness of the supply chains in the neoliberal hegemony of global economic governance (Levy, 2008; Scherrer, 2021). Although the Marxist tradition assumes the crisis-proneness of capitalist socialization, it is the special merit of regulation theory to have pointed out the coordination problems of the market-mediated division of labor. The term regulation stands neither for a state of equilibrium nor for state regulation, but refers to the precarious reproduction of commodity and wage relations. Growth would be accompanied by ruptures in production methods and ways of life (Aglietta, 1979). If capital accumulation nevertheless takes place, then there is a relation of correspondence between the regime of accumulation and the mode of regulation. Regulation is thus system change with system preservation. Regulation is not the result of conscious control because of the competition of interests inscribed in these relations (Lipietz, 1985; see also Chapter 4 by Becker in this Handbook). The post-2000 emerging field of cultural political economy (CPE) has added a sensitivity to the analysis of capitalist dynamics concerning the role of semiotics (see Jessop and Sum [Chapter 3] and Karatepe [Chapter 30] in this Handbook). The policy recommendation of these more recent strands in Marxism concerning the global division of labor are usually reformist – that is, strengthening the agency of labor through international solidarity, renegotiating trade agreements in favor of labor and the environment as well as more economic policy space, and closing of tax havens and offshore financial centers.
FEMINIST CRITIQUE Gender relations first came into view within IPE in the sociological development literature, pointing out, on the one hand, the leading role of women in agriculture, which had been overlooked until then, especially by development policy (Boserup, 1970). On the other hand, the relationship of women in domestic work and subsistence agriculture to the enforcement of the wage–labor relationship for men was examined (Federici, 2004; Mies, 1986). In the wake of the ‘new’ international division of labor, many dimensions of this division were analyzed, such as the feminization of the proletariat in the world market factories of the textile, garment, and electronics industries (Seguino, 1997; Tejani & Milberg, 2016); the impact of structural
Plurality of political economy approaches to the global division of labor 29 adjustment measures dictated by the IMF on gender relations (Haddad et al., 1995); the division of labor between the academically educated ‘mistress’ and the ‘servant’ who usually comes from a different class and country (Young, 2001); the gender differential impact of trade liberalization (Van Staveren et al., 2007); the conditions and causes of women’s labor migration (Schwenken, 2018); and care supply chains and reproductive technologies (Fraser, 2017; see also Wichterich, Chapter 29 in this Handbook). The issue of care work has led to a Marxist theory of social reproduction (Bhattacharya, 2017). This now highly differentiated research on gender relations in the world of work does not always receive the attention it deserves. Epistemologically, feminists questioned the liberal IPE’s notion that truth claims could be redeemed through rationality in terms of a separation of subject and object. The separation of subject and object is seen as fundamental to thinking that reproduces patriarchal domination. In this dichotomous worldview, on the one hand, the manifold forms of reality are forced into two opposing poles. On the other hand, one pole is privileged over the other, according to a gendered coding. The poles of the many dichotomies such as public and private, (material) production and reproduction (of people), autonomy and dependence, which are counted to the ‘male’ side, enjoy a higher valence (Peterson, 1992). A particularly pronounced gender-coded binary view was demonstrated by Ann Tickner (1992) to those works that favor a ‘masculinely’ constructed rationality – namely, by having actors in the international sphere respond to system constraints as utility-maximizing individuals. An obvious consequence of this thinking is the exclusion of the ‘feminine’ from IPE, not only of women as persons, but also of those behaviors that do not belong to the behavioral canon of an autonomous, competitive, and power-maximizing individual/company/state. Just as a society consisting only of utility-maximizing individuals is inconceivable, human economic activity could not be reduced to the production of market goods. The forms of interactions in the international sphere would, despite all conflictuality, also include non-competitive behavior and other forms of economy (especially the household economy) (Peterson & Runyan, 1999). Since the 1990s, feminist research has become more attentive to the intersection of gender with other social hierarchies and the resulting qualitatively different forms of discrimination (Collins, 2019; Crenshaw, 1989; Schwenken, 2018). Feminist economists call for making trade rules subordinate to commitments to achieving gender justice, undertaking full gender impact assessments, and ensuring trade agreements do not increase women’s unpaid domestic and care work.
DISTINGUISHING CRITERIA OF APPROACHES: ATTITUDE TOWARD THE INTERNATIONAL DIVISION OF LABOR The four traditions presented here, which dominate the field of IPE, share a central question: how is the international division of labor to be shaped? Their answers, however, vary widely. The spectrum ranges from a general advocacy of division of labor to its fundamental problematization. Criticism is based on essentially two arguments, which are emphasized differently by the respective traditions. On the one hand, the division of labor goes hand in hand with a hierarchy of the value of individual work, be it between nations, between owners of the
30 Handbook on critical political economy and public policy means of production and wage earners, or between the sexes. On the other hand, the division of labor gives rise to coordination problems; coordination via the market is susceptible to crises. Liberalism is the ‘discoverer’ of the productive power of division of labor (Adam Smith). It wants to see this principle extended across the globe, even between countries of unequal starting levels. Accordingly, this tradition calls for the removal of all barriers to the further division of labor – that is, restrictions on trade. Its units of analysis – that is, the actors in its analyses – are owners of commodities, be it the individual in possession of one’s labor or a large corporation selling complex machinery. In the usual models designed to illustrate the benefits of the international division of labor, however, these units of analysis are presented in aggregate terms, workers as the factor labor and firms as well as industries as the factor capital. The two are each aggregated into countries that differ in terms of the relationship between the two factors and, relatedly, in terms of labor productivity. However, this approach has only a heuristic value: countries, industries, factories have no weight of their own beyond the fact that they aggregate the respective individual actors for analytical reasons. Liberalism does not question these units of analysis, they present themselves as given, they are its ontological basis. The behavior of the units of analysis among themselves, be it on the individual or on the aggregation level, is assumed to be market rational; each of them try to maximize their utility. The market-rational actions of some do not limit the possibilities of others to increase their own welfare by equally market-rational actions. The works in this tradition mostly proceed analytically, on the one hand, by examining in the model the effects of international division of labor under specific conditions in each case, and prescriptively, on the other hand, by mostly proposing the removal of trade barriers. Epistemologically, this tradition assumes that there is an objective truth independent of human society. The goal of this ‘positivist’ scientific cognition is to come closer to this truth, while acknowledging that this is a lengthy and not straightforward endeavor. The notion of an objective truth is accompanied by the claim to gain universally valid insights that are universal for time and space. Politics and economics are also seen as separate spheres, at least in the desired ideal state. Politics should not interfere with economics, if possible. However, the liberal institutionalist tradition confronts the coordination problem. It looks for the optimal institutions that provide stability. List’s economic nationalism, which criticized ‘cosmopolitan’ liberalism, recognized the welfare-enhancing effects of the division of labor. But he pointed out that collective efforts were needed to secure for one’s own collective – that is, the nation – privileged places in the division of labor. These efforts included, above all, the deepening of the national division of labor, which, however, could only be achieved through protection against foreign competition, to the extent that this protection remained partial and temporary. The primary unit of analysis in this tradition is the nation, which competes and sometimes struggles with other nations. Nevertheless, actors are also identified within the respective nations that can contribute to the welfare of the nations, including entrepreneurs (in the sense of creating something), but primarily technocrats and scientists, whose actions are based on a planned rationality to optimize national economic performance. The ontological basis in economic nationalism turns out to be more complex than in liberalism. On the one hand, a nation is seen not merely as a random collection of citizens, but as a collective with a willfulness that is more than the sum of its parts. On the other hand, the nation and the social actors contributing to its greatness are conceived of as in the process of becoming or of proving themselves in struggle with other nations. In the works of these traditions, description plays a greater role, as the particularities
Plurality of political economy approaches to the global division of labor 31 of each nation are recognized, and economic policy proposals are guided by the example of other nations. Epistemologically, this tradition is equally positivist, but the focus on the less economically powerful nations in each case limits the claim to universal generalization. Politics and economics are seen as more intertwined: government intervention can promote economic activity, and this in turn should contribute to the greatness of nations. Thus, at the heart of the critique is the hierarchization of the division of labor in spatial-collective terms. In contrast, an entrenched hierarchy of the value of the respective work between persons and the problem of coordination are not addressed. Marxism also recognizes the potentially productive power of the division of labor, but it sees hierarchies inscribed in this division of labor (especially capital owners – wage earners) and, in its private and thus market-like form, a destructive crisis. Therefore, this uncontrolled division of labor based on private property should be overcome and replaced by a consciously planned one. The units of analysis are relations, especially capital and wage relations. The classes confronting each other in these relations are the central actors. Depending on the specific Marxist tradition, these classes behave according to the precepts of the internal laws of motion of the central relations, or they are seen as capable of rational action, but do not always act rationally, and therefore are to be guided to rational action by means of scientific knowledge. The mainstreams of Marxism also assume an ‘objective’ truth, which, however, is considered specific to the dominant relations in most contexts – that is, the explanatory claim is mostly limited to capitalist societies. Thus, the separation of politics and economics is treated as a fiction peculiar to capitalist society. Politics and economy are always complexly interconnected, but in time and space as well as in the self-understanding of the societies in different ways. The most radical criticism of the division of labor comes from feminism. Feminism denounces the consolidation of the gender division of labor and the resulting higher social valuation of activities that are considered male. The problem of coordination, on the other hand, receives little attention. The other axes of the hierarchization of the division of labor, nation, class, skin color, and ability, are considered depending on the respective variety of feminism (e.g., on black feminism; Collins, 2000). Since feminist approaches are found in the respective disciplinary paradigms, their ontological and epistemological foundations also differ. The poststructuralist gender perspective, which has become popular especially among the younger generation of feminists, gives ontological status to the social construction of truths, to discourse (e.g., Cavaghan, 2017). This is matched by a relativist epistemology that de-objectifies truth through contextualization. This allows it to question the naturalness of any form of division of labor. In the light of these paradigmatic differences in the analysis of the socio-spatial division of labor, the question arises, in conclusion and with regard to the second critical argument on the international division of labor, whether, from a theoretical-historical perspective, today’s debates on globalization, global supply chains, migration patterns and so on, are a continuation of a controversy about the opportunities and dangers of the market-mediated division of labor that has been going on since Adam Smith.
NOTES 1.
Patnaik and Patnaik (2016) forcefully restated this argument.
32 Handbook on critical political economy and public policy 2.
Unlike Lenin, Kautsky predicted that the concentration of capital would lead to a peaceful cartel-like ultra-imperialism (1914).
BIBLIOGRAPHY Aglietta, M. 1979, A Theory of Capitalist Regulation: The US Experience, London: New Left Books. Altvater, E. 1987, Sachzwang Weltmarkt: Verschuldungskrise, blockierte Industrialisierung, ökologi-sche Gefährdung – der Fall Brasilien, Hamburg: VSA. Amin, S. 1976, Unequal Development: An Essay on the Social Formations of Peripheral Capitalism, New York and London: Monthly Review Press. Axelrod, R. 1984, The Evolution of Cooperation, New York: Basic Books. Barattieri, A. & Cacciatore, M. 2020, ‘Self-harming trade policy? Protectionism and production networks,’ NBER Working Paper No. 27630, July, National Bureau of Economic Research. Belton, K., Mandel, M. & Duesterberg, T. 2020, ‘Policies to enhance the resilience of US manufacturing’, accessed December 4, 2022 at https://dx.doi.org/10.2139/ssrn.3693461. Bhattacharya, T. (ed.) 2017, Social Reproduction Theory: Remapping Class, Recentering Oppression, London: Pluto Press. Boccara, P. 1973, Etudes sur le capitalisme monopoliste d’état, sa crise et son issue, Paris: Editions sociales. Boserup, E. 1970, Women’s Role in Economic Development, London: Allen & Unwin. Burnell, P. 1986, Economic Nationalism in the Third World, Brighton: Wheatsheaf Press. Carey, H.C. 1837, Principles of Political Economy: Part the First: Of the Laws of the Production and Distribution of Wealth, Philadelphia, PA and London: Carey, Lea & Blanchard, and John Miller. Cavaghan, R. 2017, Making Gender Equality Happen: Knowledge, Change and Resistance in EU Gender Mainstreaming, New York: Taylor & Francis. Cecchini, P. 1988, The European Challenge: 1992: The Benefits of a Single Market, Aldershot: Gower. Chang, H. 2002, Kicking Away the Ladder: Development Strategy Under Historical Perspective, London: Anthem Press. Collins, P.H. 2000, Black Feminist Thought: Knowledge, Consciousness, and the Politics of Empowerment (2nd edition), New York: Routledge. Collins, P.H. 2019, Intersectionality as Critical Social Theory, Durham, CT: Duke University Press. Crenshaw, K. 1989, ‘Demarginalising the intersection of race and sex,’ University of Chicago Legal Forum, 1989 (1), 139–67. Dawson, A. 2000, ‘Reassessing Henry Carey (1793–1879): the problems of writing political economy in nineteenth-century America,’ Journal of American Studies, 34 (3), 465–85. Dos Santos, T. 1970, ‘The structure of dependence,’ The American Economic Review, 60 (2), 231–6. Emmanuel, A. 1972, Unequal Exchange: A Study of the Imperialism of Trade, New York: New Left Books. Federici, S. 2004, Caliban and the Witch: Women, the Body and Primitive Accumulation, New York: Autonomedia. Felbermayr, G.J., Heid, B. & Lehwald, S. 2013, Transatlantic Trade and Investment Partnership (TTIP): Who Benefits from a Free Trade Deal? Part 1: Macroeconomic Effects, Gütersloh: Bertelsmann Stiftung. Ferrier, F. 1805, Du gouvernement considéré dans ses rapports avec le commerce ou l’administration commerciale opposée aux économistes du 19e siècle, Paris: Perlet. Fichte, J.G. [1800] 2012, The Closed Commercial State, Albany, NY: State University of New York Press. Frank, A.G. 1967, Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil, New York and London: Monthly Review Press. Fraser, N. 2017, ‘Crisis of care? On the social-reproductive contradictions of contemporary capitalism,’ in T. Bhattacharya (ed.), Social Reproduction Theory: Remapping Class, Recentering Oppression, London: Pluto Press, pp. 21–36.
Plurality of political economy approaches to the global division of labor 33 Fuller, C. & Phelps, N.A. 2018, ‘Revisiting the multinational enterprise in global production networks,’ Journal of Economic Geography, 18 (1), 139–61. Gereffi, G. 1994, ‘Capitalism, development and global commodity chain,’ in L. Sklair (ed.), Capitalism and Development, London: Routledge, pp. 211–31. Germann, J. 2021, Unwitting Architect, German Primacy and the Origins of Neoliberalism, Stanford, CA: Stanford University Press. Gilpin, R. 1973, The Multinational Corporation and the National Interest, Ann Arbor, MI: University of Michigan Press. Gilpin, R. 1975, U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investments, New York: Basic Books. Gilpin, R. 1987, The Political Economy of International Relations, Princeton, NJ: Princeton University Press. Grossman, G. & Helpman, E. 1995, ‘The politics of free trade agreements,’ American Economic Review, 85 (4), 667–90. Haddad, L., Brown, L.R., Richter, A. & Smith, L. 1995, ‘The gender dimensions of economic adjustment policies: potential interactions and evidence to date,’ World Development, 23 (6), 881–96. Hamilton, A. 1791, ‘Alexander Hamilton’s final version of the Report on the Subject of Manufactures (December 5, 1791),’ Founders Online, National Archives, accessed December 4, 2022 at https:// founders.archives.gov/documents/Hamilton/01-10-02-0001-0007. Heinrich, M. 2012, An Introduction to the Three Volumes of Karl Marx’s Capital, New York: New York University Press. Helleiner, E. 2018, ‘Sun Yat-sen as a pioneer of international development,’ History of Political Economy, 50 (S1), 76–93. Helleiner, E. 2021, ‘The diversity of economic nationalism,’ New Political Economy, 26 (2), 229–38. Herr, H. & Priewe, J. 2005, The Macroeconomics of Development and Poverty Reduction: Strategies Beyond the Washington Consensus, Baden-Baden: Nomos. Kautsky, K. 1914, ‘Imperialism and the war,’ trans. William E. Bohn, International Socialist Review, 15 (5), 282–6. Keohane, R.O. 1984, After Hegemony: Cooperation and Discord in the World Political Economy, Princeton, NJ: Princeton University Press. Kindleberger, C.P. [1973] 1986, The World in Depression: 1929–1939 (revised and enlarged edition), Berkeley, CA: University of California Press. Krasner, S.D. 1982, ‘Structural causes and regime consequences: regimes as intervening variables,’ International Organization, 36 (2), 185–205. Krugman, P. (ed.) 1986, Strategic Trade Policy and the New International Economics, Cambridge, MA: MIT Press. Krugman, P., Obstfeld, M. & Melitz, M. 2018, International Economics: Theory and Policy (11th edition), London: Pearson Education. Lal, D. 1983, The Poverty of Development Economics, London: Institute of Economic Affairs. Lenin, V.I. [1916a] 1964, ‘Imperialism and the split in socialism,’ in Lenin Collected Works, Vol. 23, trans. M.S. Levin, Moscow: Progress Publishers, pp. 105–20. Lenin, V.I. [1916b] 2000, Imperialism, the Highest Stage of Capitalism, with an Introduction by P. Patnaik, New Delhi: LeftWord Books. Levy, D. 2008, ‘Political contestation in global production networks,’ Academy of Management Review, 33 (4), 943–63. Lewis, W.A. 1966, Development Planning: The Essentials of Economic Policy, New York: Harper & Row. Lipietz, A. 1985, The Enchanted World: Inflation, Credit and the Global Crises, London and New York: Verso. List, F. [1841] 1909, The National System of Political Economy by Friedrich List, trans. S.S. Lloyd, with an Introduction by J. Shield Nicholson, London: Longmans, Green & Co. Luxemburg, R. [1912] 2003, The Accumulation of Capital, London: Routledge. Malesky, E. & Milner, H.V. 2021, ‘Fostering global value chains through international agreements: evidence from Vietnam,’ Economics & Politics, 33 (3), 443–82.
34 Handbook on critical political economy and public policy Maliniak, D. & Tierney, M.J. 2009, ‘The American school of IPE,’ Review of International Political Economy, 16 (1), 6–33. Mandel, E. [1972] 1975, Late Capitalism, London: New Left Books. Manoilescu, M. 1931, The Theory of Protection and International Trade, London: P.S. King & Son. Marx, K. & Engels, F. (1956–2018), Marx-Engels-Werke (MEW) [The collected works of K. Marx and F. Engels in 44 volumes], Berlin: Dietz Verlag for the Institute for Marxism-Leninism at the Central Committee of the SED (Vols. 1–42), Institute for the History of the Labor Movement (Vol. 43) and Rosa Luxemburg Foundation (Vol. 44). Mies, M. 1986, Patriarchy and Accumulation on a World Scale: Women in the International Division of Labor, London and Atlantic Heights, NJ: Zed Books. Milner, H.V. & Judkins, B. 2004, ‘Partisanship, trade policy, and globalization: is there a left–right divide on trade policy?’ International Studies Quarterly, 48 (1), 95–119. Neusüß, C. 1972, Imperialismus und Weltmarktbewegung des Kapitals, Erlangen: Verlag Politladen. Nye, J.V.C. 2007, War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689–1900, Princeton, NJ: Princeton University Press. Ohmae, K. 1990, The Borderless World: Power and Strategy in the Interlinked Economy, New York: Harper Business. Otsubo, S.T. & Otchia, C.S. 2021, Designing Integrated Industrial Policies Volume II: For Inclusive Development in Africa and Asia, London: Routledge. Patnaik, U. & Patnaik, P. 2016, A Theory of Imperialism, New Delhi: Tulika Books. Peterson, V.S. 1992, ‘Security and sovereign states: what is at stake in taking feminism seriously?’ in V.S. Peterson (ed.), Gendered States: Feminist (Re)Visions of International Relations Theory, Boulder, CO: Westview Press, pp. 31–64. Peterson, V.S. & Runyan, A.S. 1999, Global Gender Issues, Boulder, CO: Westview Press. Prebisch, R. 1950, The Economic Development of Latin America and its Principal Problems, New York: United Nations Department of Economic Affairs. Rodrik, D. 2004, Industrial Policy for the Twenty-First Century, Cambridge, UK: Cambridge University Press. Rosenau, J.N. 1995, ‘Governance in the twenty-first century,’ Global Governance, 1 (1), 13–43. Rostow, W.W. 1960, The Stages of Economic Growth: A Non-Communist Manifesto, Cambridge, UK: Cambridge University Press. Scherrer, C. 2022, ‘Biden’s Foreign Economic Policy: Crossbreed of Obama and Trump?’, International Review on Public Policy, 4 (1), 129–138. Scherrer, C. 2021, ‘Power relations in global agricultural value chains,’ in I.D. Karatepe & C. Scherrer (eds), The Phantom of Upgrading in Agricultural Supply Chains: A Cross-Country, Cross-Crop Comparison of Smallholders, Stuttgart: NOMOS, pp. 261–96. Scherrer, C. & Abernathy, E. 2017, ‘Trump’s trade policy agenda,’ Intereconomics, 52 (6), 364–9. Schwenken, H. 2018, ‘Intersectional migration regime analysis: explaining gender-selective labor emigration regulations,’ in A. Pott, C. Rass & F. Wolff (eds), Was ist ein Migrationsregime? What is a Migration Regime?, Wiesbaden: Springer, pp. 207–24. Seguino, S. 1997, ‘Export-led growth and the persistence of gender inequality in the newly industrialized countries,’ in J. Rives & M. Yousefi (eds), Economic Dimensions of Gender Inequality: A Global Perspective, London: Praeger, pp. 11–34. Selwyn, B. 2015, ‘Twenty-first-century International Political Economy: a class-relational perspective,’ European Journal of International Relations, 21 (3), 513–37. Short, J.L., Toffel, M.W. & Hugill, A.R. 2020, ‘Improving working conditions in global supply chains: the role of institutional environments and monitoring program design,’ ILR Review, 73 (4), 873–912. Silver, B. 2003, Forces of Labor: Workers’ Movements and Globalization Since 1870, Cambridge, UK: Cambridge University Press. Streeck, W. & Yamamura, K. (eds) 2001, The Origins of Nonliberal Capitalism: Germany and Japan in Comparison, Ithaca, NY: Cornell University Press. Sun, Y.-S. 1922, The International Development of China, New York: G. Putnam’s Sons. Szporluk, R. 1988, Communism and Nationalism: Karl Marx versus Friedrich List, Oxford: Oxford University Press.
Plurality of political economy approaches to the global division of labor 35 Tejani, S. & Milberg, W. 2016, ‘Global defeminization? Industrial upgrading and manufacturing employment in developing countries,’ Feminist Economics, 22 (2), 24–54. Thurow, L.C. 1985, The Zero-Sum Solution: Building a World-Class American Economy, New York: Simon & Schuster. Tickner, J.A. 1992, Gender in International Relations, New York: Columbia University Press. Tribe, K. 1995, Strategies of Economic Order: German Economic Discourse, 1750–1950, Cambridge, UK: Cambridge University Press. Van Staveren, I., Elson, D., Grown, C. & Cagatay, N. 2007, The Feminist Economics of Trade, New York: Routledge. Wallerstein, I. 1982, The Capitalist World-Economy, Cambridge, UK: Cambridge University Press. Wendt, A. 1992, ‘Anarchy is what states make of it: the social construction of power politics,’ International Organization, 46 (2), 391–425. Young, B. 2001, ‘The “mistress” and the “maid” in the globalized economy,’ in L. Panitch & C. Leys (eds), Socialist Register 2001: Working Classes: Global Realities, 37, 315–27.
3. The cultural political economy approach to public policy Bob Jessop and Ngai-Ling Sum
Cultural political economy (hereafter CPE) is a post-disciplinary approach that highlights the contribution of the cultural turn (a concern with semiosis or meaning-making) to the analysis of the articulation between the economic and the political and their embedding in broader sets of social relations.1 Explicit arguments for CPE as such emerged in several contexts in the 1990s as part of and/or in reaction to the then prevailing cultural turn. It was also prefigured in classical political economy, the German historical school, and some versions of critical political economy and/or ‘old institutionalisms’, and there are similar currents in other fields of social scientific inquiry. In addressing the analysis of public policy, CPE draws on other theoretical and empirical schools to supplement the cultural turn. Cultural turns can be thematic, methodological, ontological, or reflexive. In other words, one could examine hitherto neglected research themes, propose a new method of analysing the social, argue that ‘culture’ is foundational to the social world, or apply a methodological or ontological turn to the development of CPE itself. Our version of CPE includes all four turns and is presented in detail in Towards a Cultural Political Economy (Sum & Jessop, 2013). But it treats the ontological turn as primary, stressing the basic character of semiosis alongside structuration in cultural and social analysis. It synthesizes the work of Marx, Gramsci and Foucault to produce an integrated micro-macro analysis. In effect, it seeks to Gramscianize Marx, governmentalize Gramsci, and Marxianize Foucault (ibid., pp. 205–14). We take Marx’s analysis of capital as a social relation as the material base of the critique of political economy but argue that he also practised critical semiotic analysis (Jessop & Sum, 2018). We use Gramsci’s vernacular materialism, based on his philological studies and interests, to expand the Marxian critique of the capital relation and state power (on vernacular materialism, see Ives, 2004). Gramsci was more interested in hegemony as political, intellectual and moral leadership but, like Marx, he neglected the micro-disciplinary and governmental bases of class powers. Indeed, as Richard Marsden explains, Marx explains why, but cannot explain how, Foucault explains how, but cannot explain why. ‘To marry “why” and “how” it is necessary to explicate “what”: to synthesize Marx’s description of relations of production and Foucault’s description of the mechanisms of disciplinary power’ (Marsden, 1999, p. 135). Accordingly, we use Foucault to explain key aspects of the how of exploitation, domination and hegemony. His analysis of governmentality can be linked to Marxian and Gramscian insights into the why and what of political economy. Thus, our approach to CPE involves a novel synthesis of critical semiotic analysis and critical political economy that is reflected in five features that together distinguish it from other versions on similar terrain: (1) the manner in which it grounds the cultural turn in political economy in the existential necessity of complexity reduction; (2) its emphasis on the role of evolutionary mechanisms in shaping the movement from social construal to social construction and their implications for the production of hegemony; (3) its concern with the interde36
The cultural political economy approach to public policy 37 pendence and co-evolution of the semiotic and extra-semiotic in all fields of social relations; (4) the significance of technologies, in a broadly Foucauldian sense, to the consolidation of hegemony and its contestation in the remaking of social relations; and (5) its de-naturalization of economic and political imaginaries and, hence, its contribution to Ideologiekritik and the critique of specific forms of domination. Even within this version of CPE, different authors give more weight at different times to different features depending on the object of analysis.
A CPE APPROACH TO POLITY, POLITICS AND POLICY A basic distinction in political analysis is that between polity, politics and policy (Heidenheimer, 1986). The polity covers the institutional architecture of the political field, including the forms of its separation and modes of boundary maintenance with regard to non-political spheres, and the asymmetric effects of this architecture on political practice. Its constitution involves material and discursive lines of demarcation between the state qua institutional ensemble and other institutional orders or ‘civil society’. The institutional architecture of the polity frames actors’ capacity to introduce policies that influence these other spheres. Politics, in turn, comprises an inherently dynamic, open-ended and heterogeneous ensemble of political practices that are directly oriented to, or otherwise shape, the exercise of state power. It can occur within the formal political sphere, on its margins, or well beyond it. The set of activities included within politics ranges from practices concerned with transforming the scope of the political sphere, defining the nature and purposes of the state, modifying the institutional integration and operating unity of the state, exercising direct control over the use of state powers, shaping the form and function of apparatuses, influencing the balance of forces inside the state, blocking or resisting the exercise of state power from ‘outside’, or modifying the wider balance of forces that shapes politics as the art of the possible. Such issues are raised in competing political imaginaries and can be studied in terms of our CPE approach, which includes a Foucauldian concern with governmentality as well as a Gramscian interest in the articulation of political society and civil society. Finally, policy concerns a wide range of issues: the aims and content of particular decisions and non-decisions in particular policy fields, the appropriate modes and fields of state intervention and non-intervention, the changing responsibilities of different branches and scales of its apparatuses, and the overall strategic line of the state. CPE can illuminate the various modes (discursive, structural, technological and agential) that are deployed and/or operate unwittingly to place specific policies, policy-making and policy-taking approaches, and detailed policy implementation within the field of open political contention or, conversely, to depoliticize them. Sedimentation is a key mechanism here because it removes many taken-for-granted themes from the political field, from the scope of contentious politics, or from policy considerations (for further discussion, see Jessop, 2014).
THE DIALECTIC BETWEEN SEMIOTIC AND STRUCTURAL SELECTIVITIES Social structuration and, a fortiori, the structuring of capitalist social formations, have three general semiotic aspects. First, semiotic conditions affect the differential reproduction and
38 Handbook on critical political economy and public policy transformation of social groups, organizations, institutions and other social phenomena. Second, they also affect the variation, selection and retention of the semiotic features of social phenomena. And, third, semiotic innovation and emergence is a source of variation that feeds into social transformation. In short, semiosis can generate variation, have selective effects, and contribute to the differential retention and/or institutionalization of social phenomena. Simplifying the analysis of evolutionary mechanisms given in Fairclough, Jessop and Sayer (2004) and extending it to include material as well as semiotic factors, these mechanisms can be said to comprise: ● Selection of some available, including emergent, discourses for interpreting events, legitimizing actions and (perhaps self-reflexively) representing social phenomena. Semiotic factors operate by influencing the resonance of discourses in personal, organizational and institutional, and broader meta-narrative terms and by limiting possible combinations of semiosis and semiotic practices in a given semiotic order. Material factors also operate here through conjunctural or institutionalized power relations, path-dependency and structural selectivities. ● Retention of some resonant discourses – for example, inclusion in an actor’s habitus and personal identity, enactment in organizational routines, integration into institutional rules, objectification in the built environment, material and intellectual technologies, and articulation into widely accepted accumulation strategies, state projects, or hegemonic visions. The greater the range of sites (horizontally and vertically)2 in which resonant discourses are retained, the greater is the potential for effective institutionalization and integration into patterns of structured coherence and durable compromise. The constraining influences of complex, reciprocal interdependences will also recursively affect the scope for retaining resonant discourses. ● Reinforcement insofar as procedural devices exist that privilege these discourses and their associated practices and also filter out contrary discourses and practices. This can involve both discursive selectivity (e.g., genre chains, styles, identities) and material selectivity (e.g., the privileging of certain dominant sites of discourse in and through structurally inscribed strategic selectivities of specific organizational and institutional orders). Such mechanisms recursively strengthen appropriate genres, styles and strategies, selectively eliminate inappropriate alternatives, and are most powerful where they operate across many sites in a social formation to promote complementary discourses within the wider social ensemble. ● Selective recruitment, inculcation, and retention by relevant social groups, organizations, institutions and so on of social agents whose predispositions fit maximally with the preceding requirements. Such path-shaping is mediated semiotically as well as materially. Crises encourage semiotic as well as strategic innovation (see below). They often prompt a remarkable proliferation of alternative visions rooted in old and new semiotic systems and semiotic orders. Many of these will invoke, repeat or re-articulate established genres, discourses and styles as a poetry of the past; others may develop, if only partially, a ‘poetry for the future’ that resonates with new potentialities (Marx, 1979, p. 106). Which of the proliferating alternatives, if any, is eventually retained and consolidated is mediated in part through discursive struggles to define the nature and significance of emerging crises. If a crisis can be interpreted as one in the existing order, then minor reforms and a passive revolution will first be attempted to re-regularize that order.
The cultural political economy approach to public policy 39 If this fails and/or if the crisis is already interpreted initially as one of the existing order, a discursive space is opened to explore more radical changes. In both cases, conflicts also involve how the costs of crisis management get distributed and the best policies to escape from the crisis.
HISTORICAL-MATERIALIST POLICY ANALYSIS Our version of CPE fits well with historical-materialist policy analysis (HMPA). They both explore the semiotic and extra-semiotic dimensions of the variation, selection and retention of polity, politics and policy and both adopt a historical-materialist reading of political economy that respects the institutional differentiation of the economy and politics. In addition, CPE can also address known criticisms of HMPA regarding its analysis of the state, its representational rather than constructivist logic, and calls for a better use of Foucauldian theory in terms of dispositives and de-centred knowledge production (e.g., Paul & Haddad, 2015, pp. 47–50; Spash, 2014, pp. 402–9). Ulrich (Uli) Brand introduced HMPA in 2013 and it has been developed mainly by German-speaking historical-materialist scholars (see Chapter 8 by Schneider et al. in this Handbook). It is distinct from rationalist policy analysis that adopts a technocratic approach, and it also seeks to escape the risks of discursive reductionism or the problems of understanding policies as the sheer result of dynamics at the level of politics and polity. It attempts ‘to call attention to the fact that policy analysis needs to look beyond mere policies’ (Brand, 2013, p. 427) and seeks to show ‘how societal reproduction works beyond discourses’ by linking discourses to macro-perspectives (ibid., p. 430). In this sense, it focuses on ‘the dimension of politics (societal and political forces and their strategies, conflicts, and compromises) and on that of the polity (political institutions and governance structures, i.e., the state in its narrow and integral sense) rather than on policy, i.e., the concrete contents and functioning of institutionalized politics’ (ibid., p. 426; original emphasis). HMPA is a theoretically informed heuristic that guides empirical analysis rather than a fixed paradigm to interpret pre-given data. It starts from specific problems that confront actors and traces the process of problematization in terms of the situated context, actors’ construals of problems, and the situated practices that engender results. It asks which discourses and/or practices produce problems and could become political issues in the sense that they reinforce, shape or create particular policies. Whether certain issues become the subject of policies is an open question but, if they do, concrete forms of hegemony will determine how they become policies – that is, in which corridor of the reasonable and viable they are addressed (ibid., pp. 433–4). HMPA does not assume that the problem construals are accurate, that actors have the necessary resources to translate their solutions into the internal structures of the political system, and that these solutions solve problems as diagnosed. The ‘context’ depends on the concrete constellation in which certain events or policies take place and strategic action is situated in relation to specific socio-historical discourses and institutional practices. The context varies with the forms of institutional separation of social fields and the form of the state understood in its Gramscian sense of political society plus civil society. While its construal by particular actors or groups is important, the context is also reproduced independently of that construal, and needs to be theorized in order to understand its effects in concrete constellations (ibid., p. 433).
40 Handbook on critical political economy and public policy HMPA proceeds in three steps. First comes an analysis of the context in which problems emerge; second is an analysis of the specific interpretation of problems by particular sets of actors; third comes the process analysis of the strategic balance of forces and the account of how specific policies can be understood as unstable compromises among social forces that are formulated through specific state apparatuses or even groups or alliances in particular apparatuses (ibid., p. 436). The central aim of the context analysis is to reconstruct this conflict as a specific historical situation to which social and political forces reacted differently and in opposition to each other, and which was brought about by a complex set of historical conditions and processes. The context analysis first identifies the specific problems to which social and political forces reacted differently. Second, it situates these problems in their broader historical context. Third, it illuminates the central historical and material conditions that gave rise to the problems at the heart of the investigated conflict (Kannankulam & Georgi, 2014, p. 63). The heterogeneity of the state apparatuses is one central element of the overall policy analysis. This is not due to any lack of coherence but reflects the form in which the state operates. Since particular structures and power relations exist in different conflict or policy fields, their material condensations in state apparatuses are specific, which illustrates the reason for tensions among various political institutions (Brand, 2013, p. 436). Process analysis in turn aims to reconstruct ‘the dynamic process in which the investigated conflict between the identified hegemony projects unfolded through different phases and turning points, and against the background of its broader historical context’ (Kannankulam & Georgi, 2014, p. 67). In this respect, HMPA scholars after Brand suggest distinguishing between already successful hegemonic projects and ‘hegemony projects’ – that is, societal projects that aspire to hegemonic status but have not reached it yet. They use hegemony projects to aggregate the myriad of actions, practices, tactics and strategies that are pursued by diverse actors in any given societal conflict, and actors choose against the background of their vastly different, specific power resources (ibid., p. 64). HMPA can be located within critical policy studies, interpretive policy analysis, and CPE. Relevant issues include the following: (1) the historical and materialist dimensions of policy analysis are path-shaping as well as path-dependent; (2) HPMA does not assume that class interests are primary but studies a wide variety of material conflicts and contradictions in social reproduction; (3) the internal differentiation of the state – in its Gramscian integral sense – does not ensure that the state policies are coherent enough to produce an overall viable state project; and (4) the role of knowledge production within the state can be linked to the role of intellectuals as well as parties and lobby groups (cf. Buckel et al., 2017).
SUGGESTIONS TO IMPROVE HMPA Brand’s paper attracted four comments in the Austrian Journal of Political Science. Andreas Bieler (2014) called for a more rigorous analysis of the constraints of capital accumulation rooted in the logic of valorization and for a more class-based analysis of social forces. This orthodox Marxist critique is less relevant for a CPE analysis of public policy analysis. Bernhard Leubolt (2014) proposed improving the analysis of the context of policy-making. First, he wanted to include a broader range of theoretical currents than Brand’s interpretive accounts; second, he suggested a strategic-relational interpretation of historical institutional-
The cultural political economy approach to public policy 41 ism; third, he advocated a more advanced concept of ‘periodization’ for a systematic account of historically evolving structures; and, fourth, he wanted a more refined concept of ‘selectivities’ that would better grasp the workings of the ‘institutional condensation of the correlation of forces’ in the policy cycle (Leubolt, 2014, p. 309). This critique is more relevant to CPE and, indeed, draws on our earlier work. Clive Spash argued that Brand has an uncertain position in relation to weak and strong constructivism and would benefit from a more rigorous engagement with Foucault’s analysis of power/knowledge regimes (2014, pp. 401–10). His remarks on constructivism ignore the difference that Sayer makes between construal and construction and its mediation through semiotic and material relations. He is correct on the use of Foucault’s analysis of governmentalization. Finally, Katharina Paul and Christian Haddad (2015) criticized Brand’s type of interpretive policy analysis as being informed by a critical realist understanding of the real and also suggested a more Foucauldian account of statecraft, emphasizing the importance of decentred dispositives as opposed to Brand’s alleged assumption of a central, unified state (Paul & Haddad, 2015, pp. 47–51). Their account is compatible with our attempt to use Gramsci’s integral analysis of the state as political society plus civil society and our proposal to governmentalize Gramsci’s analysis of hegemony. It also ignores the extent to which Brand himself analyses the state in Gramscian and Poulantzasian terms and emphasizes the selective constitution of the state as a decentred apparatus and the range of relevant social actors (Brand, 2013, p. 435). Writing in Critical Discourse Studies, Daniela Caterina (2017) has suggested that one can integrate CPE, HMPA and critical discourse analysis of practical argumentation into a transdisciplinary research framework to explore conflicts over the making and challenging of hegemony. She suggests that analysis of practical argumentation can improve HMPA’s analytical strength in investigating strategies within the broader context of hegemony struggles. Indeed, she argues that both CPE and HMPA imply a process of practical reasoning – concrete practical arguments for or against a certain course of action in the face of political problems and conflictual situations – as a key element in their respective approaches to questions of strategy. She adds that HPMA pays attention to the availability and relative weight of four main kinds of resources that shape the balance of power in the process of struggle over competing hegemony projects. These include organizational resources (e.g., money, bureaucracies, use of force); systemic resources referring to actors’ ability to take (mainly economic) decisions with relevant consequences for the overall system; discursive, ideological and symbolic resources concerning how far actors can make their own perspective broadly accepted; and institutional or strategic-structural selectivities concerning the degree of complementarity between actors’ strategies and their respective social (politico-economic) context (Kannankulam & Georgi, 2014, p. 65, cited in Caterina, 2017, p. 216).
CPE AND CRITICAL POLICY ANALYSIS We now introduce some key concepts from Foucault that are especially relevant to critical policy analysis. These are problematization, objectification, subjectivation, power/knowledge and dispositive. In this regard, CPE follows Foucault in scaling up the microphysics of power to macro-level questions of political economy and the state (Foucault, 2008, p. 186) and combines this with Gramscian interests in the forms and mechanisms of hegemony, passive revolution, and domination. It asks how micro-technologies get assembled and articulated to
42 Handbook on critical political economy and public policy form more encompassing and enduring sets of social relations that are embedded in everyday life but also provide the substratum of institutional orders and, in some cases, even broader patterns of social domination. Problematization concerns the construal of social problems and proposed solutions. Many construals and solutions are arbitrary, irrational and short-lived; but some are more plausible and stand more chance of being selected. This depends in part on emergent, non-semiotic features of social structure as well as inherently semiotic factors. What matters here is the resonance (and hence capacity to reinterpret and mobilize) of the discourses with the key forces able to translate them into policy matters. This explains the nature of the dispositives that get consolidated around specific construals of a social problem and its corresponding set of policy solutions. A dispositive is used critically to disclose how heterogeneous sets of instituted social practices (including their discursive as well as ‘material’ aspects) instantiate, reflect and refract power relations. Dispositives are contingent ‘discursive–material’ fixes that emerge in response to specific (and specifically problematized) challenges to social order (with a referent in the ‘real world’) and that thereby create a strategic imperative to address and, if possible, solve the challenge (cf. Brand, 2013, pp. 427, 430, 437). A dispositive is a strategically selective, problem-oriented assemblage that comprises (1) a dispersed apparatus, including institutions, organizations and networks; (2) an order of discourse, with corresponding thematizations and objectivations – that is, constructed objects of intervention; (3) diverse devices and technologies involved in producing various forms of power/knowledge that contribute to the realization of the strategic imperative; and (4) subject positions and subjectivation – that is, constructions of subjects to occupy these positions. In short, dispositive analysis provides a fruitful conceptual framework for a critical exploration of policy dynamics. One approach to analysing the assembling and consolidation of dispositives in response to specific ‘problematizations’ is to study the interaction of different modes of variation, selection and retention. In addition to the semiotic and structural moments that provide the two principal alternative starting points of CPE analyses, there are two cross-cutting modes of selectivity: technological and agential. All four involve different kinds of variation, selection and retention. How they are articulated, when condensed into diverse fixes or dispositives, shapes both the semiotic and ‘material’ moments of the dynamic of social relations. Although many plausible narratives may be advanced, their narrators will not be equally effective in conveying their messages and securing support for the proposed solutions. Powerful resonance does not mean that these construals and solutions should be taken at face value. All narratives are selective, appropriate some arguments, and combine them in specific ways. So, we must also consider what goes unstated or silent, repressed or suppressed, in specific discourses. Interpretive power depends on the ‘web of interlocution’ (Somers, 1994) in different fields. It is also shaped by discursive selectivities, the organization and operation of the mass media, the role of intellectuals in public life, and the structural biases and strategically selective operations of various public and private apparatuses of economic, political and ideological domination. This is mainly an issue of political contestation. An important CPE hypothesis is that the relative importance of semiosis declines from the stage of variation in policy proposals based on different (policy-relevant) imaginaries through the stage in policy development when they are selectively translated into specific material (policy) practices to the stage when they may become integrated into a strategically codified, structurally coherent, and mutually supportive (or, at least, negatively integrated,
The cultural political economy approach to public policy 43 non-disruptive) set of dispositives within a given spatio-temporal envelope. Technologies have a key role in the selection and retention of specific imaginaries insofar as they provide reference points not only in meaning-making but also in the coordination of actions within and across specific personal interactions, organizations and networks, and institutional orders. In this sense they are important meaning-making instruments deployed by agents to translate specific social construals into social construction and hence to structure social life. Policies, policy decisions techniques, policy instruments and policy evaluation are important technologies in this regard because each, in its own way, contributes to the selection and retention of its associated policy discourses, often transforming them at the same time (cf. Sum, 2009, on policy technologies relating to competitiveness). This is why one must look beyond agenda-setting, policy discourses and policy formulation to examine how policies actually get implemented and with what effects, whether intended or not. Success/failure in this regard also depends on how specific construals correspond to the properties of the ‘raw materials’ (including social phenomena such as actors and institutions) that provide the target and/or tools of attempts to construct social reality. Finally, the CPE approach posits that the relative weight of semiotic and extra-semiotic mechanisms varies across social fields and, a fortiori, policy fields. For example, the scope for semiosis to shape policy would be greater in the long run in fields such as education in the arts and humanities than it would be in infrastructure and technology policy.
A CRISIS-THEORETICAL ANALYSIS OF POLICY ANALYSIS Our approach to CPE implies that crisis is never a purely objective process or moment that automatically produces a particular response or outcome. Instead, a crisis emerges when established patterns of dealing with structural contradictions, their crisis tendencies, and dilemmas no longer work as expected and, indeed, when continued reliance thereon may even aggravate the situation. Crises are most acute when crisis tendencies and tensions accumulate across several interrelated moments of the structure or system in question, limiting room for manoeuvre in regard to any particular problem. Changes in the balance of forces mobilized behind and across different types of struggle also have a key role in intensifying crisis tendencies and in weakening and/or resisting established modes of crisis management (Offe, 1984, pp. 35–64). This creates a situation of more or less acute crisis, a potential moment of decisive transformation, and an opportunity for decisive intervention. In this sense, a crisis situation is unbalanced: it is objectively overdetermined but subjectively indeterminate (Debray, 1973, p. 113). This situation opens up space for strategic interventions to significantly redirect the course of events rather than ‘muddle through’ in the (perhaps forlorn) hope that the situation will eventually resolve itself. Moreover, as Milton Friedman (1962, p. 32) put it hyperbolically but tellingly: ‘Only a crisis produced real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.’ This indicates that preparing the cultural and social ground for crisis-induced strategic interventions will also prove important to the nature and outcome of crisis management and crisis response. Crises often create profound cognitive and strategic disorientation and trigger proliferation in interpretations and proposed solutions. As the critical policy studies literature emphasizes, a crisis is never a purely objective, extra-semiotic moment or process that automatically produces a particular response or outcome. A CPE approach combines semiotic and material
44 Handbook on critical political economy and public policy analyses to examine: how (1) crises emerge when established patterns of dealing with structural contradictions, their crisis tendencies, and strategic dilemmas no longer work as expected and, indeed, when continued reliance thereon may aggravate matters; and (2) how contestation over the meaning of the crisis shapes responses through processes of variation, selection and retention that are mediated through a changing mix of semiotic and extra-semiotic mechanisms. A crisis is most acute when crisis tendencies and tensions accumulate across interrelated moments of a given structure or system, limiting manoeuvre in regard to any particular problem. Shifts in the balance of forces may also intensify crisis tendencies by weakening or resisting established modes of crisis management (Offe, 1984, pp. 35–64). Crisis construals can be assessed in three ways (Jessop, 2018). The first is in terms of their scientific validity – that is, their conformity with prevailing scientific procedures and rules of evaluation. This depends on specific protocols of investigation and acknowledges that conclusions may be fallible. Even the origins of the Great Depression in the 1920s and 1930s are still contested within and between theoretical paradigms. The second is in terms of the narrative plausibility of a given construal in identifying and explaining the (symptoms of) crisis relative to the prevailing discourses in circulation among relevant social forces. Narrative plausibility depends on rules of argumentation oriented to persuasion rather than apodictic truth. In this context, while scientific argument has its rhetorical features, these should be subordinate to scientific analysis; conversely, the plausibility of crisis narratives may be enhanced by reference to facts, but these are selected to lend credibility to the overall narrative with the result that the factual elements are less rigorous and comprehensive and will often screen out inconvenient details. The third is in terms of the pragmatic correctness of construals – that is, their ability to read a conjuncture, discern potential futures, provide a plausible narrative, and guide action that transforms the conjuncture (Lecercle, 2006). Pragmatically correct construals are epistemologically different again because they involve what currently exists (if at all) only in potentia, may never be actualized, and cannot therefore be analysed in the same ways as the past and present. Narrative Plausibility Narratives have structure and purpose that are different from scientific explanations. They emplot selected past events and forces in terms of a temporal sequence with a beginning, middle and end in the form of a story that embodies causal and moral lessons. The plausibility of narratives and other construals and their associated crisis-management solutions (including inaction) depends on their resonance with (or capacity to reinterpret and mobilize) key social forces. For example, neoliberals narrated how trade union power and the welfare state undermined economic growth in the 1970s and called for more market, less state. The Tea Party and Occupy Wall Street movements offered different narratives about the financial crisis of 2008 and reached radically different conclusions. The former offered a pseudo-grassroots or ‘Astroturf’ conservative story, the latter a radical critique of inequality and precarity. Narratives play a key role in strategic action because they can simplify complex problems, identify simple solutions, connect to common sense and mobilize popular support. To be effective in the long run, however, they should correspond to the objective conditions and the real possibilities of action. Yet strategies based on ‘inorganic’ narratives can have adverse path-shaping effects, making recovery from a crisis harder or shifting its forms and effects.
The cultural political economy approach to public policy 45 Pragmatic Correctness While scientific validity concerns the genealogy of the crisis as an event and/or continuing process, pragmatic correctness is judged in the light of future developments, including counterfactual analysis, and depends on social agents’ ability to read present and future conjunctures in terms of what exists in potentia and how it might be realized. Plausible narratives are typically an important moment of pragmatic correctness. This is mediated through language as well as through social practices and institutions beyond language. Indeed, since the development of print media at least, crisis construal is heavily mediatized, depending on specific forms of visualization and media representations, which nowadays typically vary across popular, serious and specialist media. Pragmatic correctness depends on: (1) the strategically selective limits to action set by the objectively overdetermined form of a crisis conjuncture; (2) the interpretive and mobilizing power of crisis construals and strategic perspectives – notably its ready communicability to relevant audiences – which affects the capacities of strategic forces to win hegemony; and (3) the balance of forces associated with different construals or, at least, the ability of some forces to impose their preferred construals, crisis-management options and exit solutions (Debray, 1973, pp. 106–7; Lecercle, 2006, pp. 40–41). Considered in these terms, to paraphrase Gramsci, ‘there is a world of difference between conjunctural analyses [he writes of ideologies] that are arbitrary, rationalistic, or “willed” and those that are organic’ (Gramsci, 1971, pp. 376–7). The former analyses misconstrue the crisis – minimizing or exaggerating its scale and scope and its system-threatening qualities – and misidentify necessary or feasible solutions. An organic analysis is an at least minimally adequate analysis of the objective dimensions of the crisis and its manageability or transformability in terms of a possible attenuation of crisis symptoms, muddling through, displacement or deferral and so on, and in terms of the correlation of forces and the strategic horizons of action of the social forces whose ideal and material interests it represents. This raises the key issue of the (always limited and provisional) fit between imaginaries and real, or potentially realizable, sets of material interdependencies in the real world. Proposed crisis strategies and policies must be (or seen to be) effective within the spatio-temporal horizons of relevant social forces in a given social order. In all cases, how a crisis is managed has path-shaping effects: responses affect how subsequent crises will develop. This corresponds to the idea that crises are moments where a decisive intervention can mark a turning point in the progress of a disease or other critical conjuncture. Indeed, a ‘correct’ reading creates its own ‘truth effects’ and may then be retained thanks to its capacity to shape reality. Getting consensus on an interpretation about which of different aspects of a crisis or, alternatively, which of several interlocking crises matters is to have framed the problem (variation). Nonetheless this consensus must be translated into coherent, coordinated policy approach and solutions that match objective dimensions of the crisis (selection). Effective policies adapt crisis-management routines and/or discover new routines through trial-and-error experimentation and can be consolidated as the basis of new forms of governance, meta-governance and institutionalized compromise (retention). Only crisis construals that grasp key emergent extra-semiotic features of the social world as well as mind-independent features of the natural world are likely to be selected and retained. Effective construals therefore also have constructive force and produce changes in the extra-semiotic features of the world and in related (always) tendential real mechanisms and social logics.
46 Handbook on critical political economy and public policy
TOWARDS CRITICAL POLICY STUDIES Drawing on the CPE approach outlined above, we suggest that four steps are required to promote critical policy studies: 1. A reasoned critique of policy proposals based on deficiencies in their internal assumptions, categories, problematization and argumentation, with a view to disclosing empirical inadequacies or anomalies and, perhaps, practical failings, and relating these to inconsistencies in the underlying theoretical paradigms, policy paradigms, or knowledge brands (on knowledge brands, see Sum, 2009). 2. Identification of the ideal and material interests favoured by specific policy proposals or strategic lines in specific periods or conjunctures, whether this privileging of some interests over others is motivated by bad faith or results from the naturalization, reification or fetishization of specific social facts. 3. An account of the role, if any, of the policies, policy paradigm or overall strategic line in reproducing one or more durable, structured forms of social domination. 4. The proposal of alternative interpretations, policies and strategies to facilitate the emancipation of subordinate social forces (and, perhaps, dominant forces too) from the harmful effects of the pattern of domination that is naturalized or legitimated by those subjects to this critique. All four steps are required to deliver a CPE critique that has practical policy relevance as well as theoretical appeal. Immanent critique shows the historicity of a given dispositive along with its policy discourses and practical implementation. It should also analyse the polity, politics and policy in terms of how these reflect and refract the discursively and institutionally mediated condensation of a changing balance of forces. It examines struggles to shape the identities, subjectivities and interests of the forces engaged in struggles to maintain or transform the political system, the forms of politics, and specific policies and their various modes of selectivity. Thus, CPE goes beyond the critique of ideology to explore the semiotic and extra-semiotic mechanisms involved in selecting and consolidating the dominance and/or hegemony of some meaning systems and ideologies over others. This offers more solid foundations from which to understand forms of social domination, develop a critique of domination, and contribute thereby to critical policy studies.
CONCLUSIONS As a ‘grand-theoretical’ paradigm, many of the insights of CPE can be applied far beyond its original home domain in the critique of political economy. The challenge of avoiding both a voluntarist, idealist constructivism and a reified, mechanical structuralism is not confined to the analysis of differential capital accumulation and its regularization and governance. On the contrary, many types of social scientific inquiry could gain from a reflexive, critical engagement with the meta-theoretical assumptions that inform CPE, its emphasis on the equal foundational importance of sense- and meaning-making and efforts to limit compossible variation among social relations, and its attention to the articulation and interaction of discursive, structural, technological and agential selectivities. Whether or not a scholar is interested in the critique of the polity, politics and policy approaches to this task, as we have tended to do, in
The cultural political economy approach to public policy 47 terms of their relevance to differential accumulation and class domination, they can still gain intellectual and critical value from an evolutionary approach to the movement from construal to construction in terms of the respective contributions of discursive, structural, technological and agential selectivities in the transition from variation through selection to retention. The CPE approach developed by the present authors has not as yet elaborated an equivalent set of substantive concepts for social fields, institutions and institutional complexes, and system dynamics beyond the profit-oriented, market-mediated economy. This challenge to develop an appropriate ‘conceptual dispositive’ is one for us but also for all of those interested in CPE’s potential in other fields.
NOTES 1. This chapter draws on discussions with Ulrich Brand, Daniela Caterina, Norman Fairclough, John Kannankulam, Andrew Sayer and Christoph Scherrer. We alone are responsible for remaining errors. 2. Horizontal refers here to sites on a similar scale (e.g., personal, organizational, institutional, functional systems) and vertical refers to different scales (e.g., micro-macro, local-regional-national -supranational-global).
BIBLIOGRAPHY Bieler, A. 2014, ‘What about class struggle? Critical reflections on Uli Brand’s HMPA’, Austrian Journal of Political Science (OZP), 43 (3), 305–8. Brand, U. 2013, ‘State, context and correspondence. Contours of a historical materialist policy analysis’, Austrian Journal of Political Science (OZP), 42 (4), 425–42. Buckel, S., Georgi, F., Kannankulam, J. & Wissel, J. 2017, The European Border Regime in Crisis: Theory, Methods and Analyses in Critical European Studies, Berlin: Rosa Luxemburg Stiftung. Caterina, D. 2017, ‘Investigating hegemony struggles: transdisciplinary considerations on the role of a critical discourse analysis of practical argumentation’, Critical Discourse Studies, 15 (3), 211–27. Debray, R. 1973, Prison Writings, London: Allen Lane. Fairclough, N., Jessop, B. & Sayer, A. 2004, ‘Critical realism and semiosis’, in J.M. Roberts and J. Joseph (eds), Realism, Discourse and Deconstruction, London: Routledge, pp. 23–42. Foucault, M. 2008, The Birth of Biopolitics: Lectures at the Collège de France, 1978–1979, London: Palgrave Macmillan. Friedman, M. 1962, Capitalism and Freedom, Chicago, IL: University of Chicago Press. Gramsci, A. 1971, Selections from the Prison Notebooks, London: Lawrence & Wishart. Heidenheimer, A.J. 1986, ‘Politics, policy and policy as concepts in English and Continental languages’, Review of Politics, 48 (1), 1–26. Ives, P. 2004, Language and Hegemony in Gramsci, London: Pluto Press. Jessop, B. 2014, ‘Repoliticizing depoliticization: theoretical preliminaries on some responses to the American and Eurozone debt crises’, Policy & Politics, 42 (2), 207–23. Jessop, B. 2018, ‘Valid construals or correct readings? On the symptomatology of crises’, in B. Jessop & K. Knio (eds), The Pedagogy of Economic, Political and Social Crises, London: Routledge, pp. 49–72. Jessop, B. & Sum, N.-L. 2018, ‘Language and critique: some prefigurations of critical discourse studies in Marx’s work’, Critical Discourse Studies, 15 (4), 325–37. Kannankulam, J. & Georgi, F. 2014, ‘Varieties of capitalism or varieties of relationships of forces? Outlines of a historical materialist policy analysis’, Capital & Class, 38 (1), 59–71. Lecercle, J. 2006, A Marxist Philosophy of Language, Leiden: Brill.
48 Handbook on critical political economy and public policy Leubolt, B. 2014, ‘History, institutions, and selectivities in historical-materialist policy analysis: a sympathetic critique of Brand’s State, context and correspondence,’ Austrian Journal of Political Science (OZP), 43 (3), 309–18. Marsden, R. 1999, The Nature of Capital: Marx After Foucault, London: Routledge. Marx, K. 1979, The Eighteenth Brumaire of Louis Bonaparte, in Marx & Engels Collected Works, Volume 1: Marx and Engels 1851–53, London: Lawrence & Wishart, pp. 99–197. Offe, C. 1984, Contradictions of the Welfare State, London: Hutchinson. Paul, K.T. & Haddad, C. 2015, ‘Marx meets meaning: a critical encounter between historical materialism and interpretive policy analysis’, Austrian Journal of Political Science (OZP), 44 (1), 46–52. Somers, M.R. 1994, ‘The narrative constitution of identity: a relational and network approach’, Theory and Society, 23 (4), 605–49. Spash, C. 2014, ‘Policy analysis: empiricism, social construction and realism’, Austrian Journal of Political Science, 43 (3), 401–10. Sum, N.-L. 2009, ‘The production of hegemonic policy discourses: “competitiveness” as a knowledge brand and its (re-)contextualizations’, Critical Policy Studies, 3 (2), 184–203. Sum, N-.L. & Jessop, B. 2013, Towards a Cultural Political Economy: Putting Culture in its Place in Political Economy, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing.
4. Institutionalist, regulationist and dependency approaches to transition countries’ economic policies Joachim Becker
What transition countries have in common is their transition from a (state-)socialist mode of production to a capitalist one. Neither their state-socialist experiences nor their economic, social and political transformation processes have been uniform, however. The transition to capitalism went hand in hand with a deeper subordinate integration into international markets. Several currents of political economy have provided frameworks for analysing the different forms of emerging capitalism and economic policies in the Europe’s Eastern periphery. Institutionalist and regulationist approaches highlight the subordinate form of international integration and the resulting peripheral position of the (post-)transition economies in the European division of labour. Thus, they have conceptual affinities with dependency theory. Regulationist theorists have drawn more explicitly on the Latin American dependency theories and their later adaption to the European context. Dependency has also been highlighted as a key characteristic of the Eastern European region from the perspective of world-systems theory, although this theory is less interested in comparing different post-socialist trajectories. Institutionalist, regulationist and dependency theories have developed concepts of middle-range abstraction in order to analyse the trajectories and key characteristics of post-socialist countries. The institutionalist concepts generate typologies from empirical research. Regulation and dependency approaches have a fundamental, systemic concept of capitalism, which is informed by a non-determinist reading of Marxism. For the analysis of concrete cases, they have developed time- and space-sensitive concepts of middle-range abstraction. In all these three approaches, institutions matter for economic policymaking. Different from these approaches, the world-systems approach focuses on the systemic features of uneven capitalist development and its conditioning of economic policy. In this chapter, we will focus on the theories with a strong focus on institutions. Thus, the world-systems theory will remain at the margins. The institutionalist, regulationist and dependency approaches conceptualize the relationship between the economic and political sphere. They have taken a critical stand against the shock therapies of the early 1990s, which had been prevalent in many transition countries, their scant regard for institution-building and their blind faith in the spontaneous emergence of self-regulatory capacities of the market (e.g., Chavance, 1995, p. 433; Mlčoch, 2000, p. 36ff.). Nevertheless, they show differences in their concepts, foci and policy perspectives. For institutionalist perspectives of the (European) transition countries, the conceptual frameworks of Myant and Drahokoupil and Bohle and Greskovits published briefly after the global financial crisis (GFC) have been path-breaking and based on a particularly broad comparative empirical analysis. They have remained a core reference for critical institutionalist theorizing on the region. The approaches of Myant and Drahokoupil engage critically with the ‘varieties 49
50 Handbook on critical political economy and public policy of capitalism’ approach (Hall & Soskice, 2001) and provide a modified framework for the comparative analysis of transition economies that highlights the form of their international economic insertion. Bohle and Greskovits blend a Polanyian institutionalism with mainstream transition literature. At the same time, approaches combining elements of regulationist and dependency approaches have emerged. This contribution will focus on how these approaches conceptualize the relationship between accumulation or growth models, the state and economic policymaking in European transition countries. Attracting foreign direct investment (FDI) as a key component of industrial upgrading has been at the forefront of economic policymaking in almost all transition countries – and is viewed as a crucial element by most institutionalist currents. Nevertheless, it has encountered limits and is increasingly critically discussed in the region. Finally, economic policy options highlighting diversification and selective de-linking, which are informed by a regulationist-dependency perspective, will be discussed as a possible alternative to FDI-led and extraverted development. Before discussing the theoretical approaches, a brief review of key challenges for transition economies will be provided, drawing partially on the rich empirical studies of the institutionalist and regulationist approaches.
KEY CHALLENGES FOR TRANSITION ECONOMIES From the point of view of the newly emerging power blocs in the transition economies, the priority issue was the transformation of property relations – that is, privatization. Economic development strategies did not play any significant role in their deliberations and policymaking. Existing planning, coordination and supply mechanisms were rapidly abolished. Trade links within Eastern Europe were severed on a massive scale. Export specialization did not fit Western European demand, and relatively rapid trade liberalization proved to have quite negative consequences for local production. Following the predominant international policy consensus, governments squeezed domestic demand through harsh austerity policies. The result was a steep decline in production and a deep recession (cf. Berend, 2009, p. 65ff.; Myant & Drahokoupil, 2011, p. 49ff.). With the recovery in the late 1990s, the economic trajectories of the European transition countries took increasingly different directions. After an economic and political consolidation in Central Eastern Europe (CEE – Czech Republic, Hungary, Poland, Slovakia, Slovenia) and the commencement of EU accession talks, Western European manufacturing companies, especially German firms, began to massively relocate parts of their production to CEE due to low wages, well-trained labour forces and geographic proximity (Celi et al., 2020, p. 152ff.). In Southeast Europe (SEE – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Montenegro, Northern Macedonia, Serbia) and the Baltic countries (Estonia, Latvia, Lithuania), the de-industrialization of the 1990s had lasting effects. Manufacturing recovery was slow (Becker, Ćetković & Weissenbacher, 2016). FDI, rather focused on banking and a household-based financialization, took off. These credits were usually denominated in foreign currency (Becker & Ćetković, 2015, p. 74ff.; Myant & Drahokoupil, 2011, pp. 261ff., 319). In the post-Soviet countries (with the major exception of Belarus), the manufacturing fabric remained weakened, although industries slowly recovered from a low level. Domestic demand was to some extent sustained by increasing household debt. Financialization was part of the
Institutionalist, regulationist and dependency approaches 51 regimes of accumulation up to 2008, often in foreign currency (Myant & Drahokoupil, 2011, pp. 261ff., 319). In some of the post-Soviet countries – in particular, Russia, Azerbaijan and Kazakhstan – raw material exports turned into the main pillar of the accumulation regime. Thus, the European transition countries are plagued by different developmental problems. The narrow specialization of the CEE countries renders them highly vulnerable. For the de-industrialized SEE periphery, the extreme weakness of the production sectors is the key economic problem.
INSTITUTIONALIST APPROACHES As approaches of a medium level of abstraction, institutionalist approaches aim to provide concepts with which to understand this type of diversity. The institutionalist approaches, which have been used to analyse transition countries, often discuss their understanding of institutions implicitly rather than explicitly. They can be loosely affiliated with old institutionalism. The old institutionalist economists and their current continuators understand institutions as social arrangements (rules, norms, organizations) that regulate conflictive as well as cooperative relations between individuals and collectives (Sojka, 2010, pp. 209, 218). Bohle and Greskovits (2012) refer in their influential study more explicitly to the institutionalist understanding of Karl Polanyi. In particular, they take up Polanyi’s key concept that institutions in market societies are either linked to marketization or to protective countermoves (ibid., p. 13). The principal aim of the institutionalist approaches is to understand differences in economic performance. The yardstick is international competitiveness, as Drahokoupil and Myant (2013, p. 92) formulate quite explicitly. In line with this, the institutionalists focusing on transition economies pay particular attention to export performance. They are concerned with aspects of social equity. This is particularly explicit in the case of Bohle and Greskovits (2012, p. 19ff.) with their references to Polanyi. These socially progressive orientations are in line with the broader institutionalist tradition – at least in its Anglo-Saxon variant (cf. Sojka, 2010, p. 210f.). The institutionalist approaches share an emphasis on developing typologies for economies. The key comparative institutionalist concepts on the European transition countries take the latter’s international insertion as their point of departure. They view the form of integration into the international economy as the key variable for understanding economic performance and success (Myant & Drahokoupil, 2011, p. 300; see also Bohle & Greskovits, 2012, p. 44ff.; Nölke & Vliegenhart, 2009, p. 676ff.). In many of the transition economies, the investment decisions of transnational corporations are perceived as the key drivers of the economic dynamics. These are informed by location-specific factors, often of an institutional nature (Nölke & Vliegenhart, 2009, p. 676). The institutionalists relate the forms of international integration with the institutional features of the individual countries (Bohle & Greskovits, 2012, p. 25ff.; Myant & Drahokoupil, 2011, p. 302; Nölke & Vliegenhart, 2009, p. 679ff.). Factors like the endowment of raw materials may also play an important role in the international insertion. Since the typologies are derived from actual forms of international specialization, the individual typologies are partially shaped by the geographic scope of the studies. The broader the geographical scope, the higher the identified number of forms of international integration. The institutionalists discuss four key elements of international insertion: exports, FDI, financial-
52 Handbook on critical political economy and public policy ization and labour migration/remittances. Regarding exports, both the strength and the composition of the export sector matter. Among the industrial export economies, both Myant and Drahokoupil (2011, p. 304ff.) and Bohle and Greskovits (2012, p. 44ff.) distinguish between complex manufacturing exports and simple manufacturing subcontracting to transnational corporations (TNCs). They regard the former as a more successful form of international insertion. Another form of export specialization, observed particularly in the post-Soviet space, is raw material exports. The analytical frameworks refer exclusively to exports; import dependency is not an issue. FDI is a second feature of international insertion. There is a broad consensus among the institutionalists that FDI critically shapes the transition economies in CEE and SEE countries (Bohle & Greskovits, 2012; Myant & Drahokoupil, 2011; Nölke & Vliegenhart, 2009). The sectoral patterns of FDI, however, differ among the transition countries and might produce different dynamics. In post-Soviet countries, FDI is at times less relevant, and export-oriented complex sectors might also exist without FDI, as Myant and Drahokoupil write (2011, pp. 293f., 304f.). A third form of international insertion might occur through financialization. In most countries, foreign banks control the banking sector and often relied on external refinancing for rapid credit expansion. Finally, a strong reliance on outward labour migration and remittances is identified as a possible relevant element of international insertion. The institutionalists relate the types of economic international insertion to the institutional set-up. They pay particular attention to institutional features of the state. The transition from state socialism to capitalism led to massive institutional dislocation and transformation in the early transformation phase. As Myant and Drahokoupil (2011) point out, state restructuring and institution-building processes were very uneven among the transition economies. Where, as in the Soviet Union and Yugoslavia, capitalist transformation and conflictive state disintegration went hand and hand, state capacities were often strongly impaired. Here, reconstruction of state capacities often took many years. The disorder in the political sphere deepened and prolonged the economic crisis, and at times even led to collapse. The extent of economic destruction in the early transformation period had long-term implications for the economic performance and development options. In the first phase, fundaments for the new institutional set-up were built. Both domestic and international actors played a role, whose interaction the institutionalists depict. In a second phase, the EU played a crucial role in shaping institutions in CEE and SEE countries through, respectively, accession and talks on Stabilization and Association Agreements. Myant and Drahokoupil (2011, p. 141) underline that a crucial factor explaining the differences in state capacities and more generally the institutional set-up between CEE and most of the post-Soviet space is the pressures of the EU’s conditions. While Bohle and Greskovits and Myant and Drahokoupil acknowledge international influences on the institutions of the nation-states, questions of the international insertion or the external autonomy of the nation-states are not an explicit part of their institutional matrixes (Bohle & Greskovits, 2012; Drahokoupil & Myant, 2013, p. 95ff.). In this regard, there is a tension between acknowledging the relevance of international pressures and the nation-state focus of their institutional matrixes in their analytical framework. Drahokoupil and Myant (2013, p. 94ff.) identify specific (institutional) pre-conditions for the forms of integration: state capacities (especially the rule of law and the separation of politics and business), state activities (policies), the financial system and types of firms. Thus, the state is of particular importance to their conceptual scheme. They do not aim to develop a comprehensive state theory but limit themselves to identifying specific institutional traits of the state that are requirements for specific forms of integration. From a perspective
Institutionalist, regulationist and dependency approaches 53 informed by Weberian concepts, Myant and Drahokoupil place particular emphasis on state capacities, which they define ‘as an ability to make and enforce collectively binding decisions across a territory’ (Myant & Drahokoupil, 2011, p. 123). Derived from this are ‘“strategic capacities” to make and enforce strategic decisions’ (ibid.). A related aspect refers to the rule of law, where they refer to a composite index developed by the World Bank that focuses on aspects like the enforcement of property rights and contracts, the autonomy of courts and so on (ibid., p. 135f.). While Drahokoupil (2008, pp. 29f., 123ff.) highlighted the importance of the power asymmetries among social actors in shaping policies, these issues, apart from the business–state connections, are not part of the institutional matrix of Myant and Drahokoupil (2011, p. 123ff.). Bohle and Greskovits (2012, p. 19ff.) look at institutions in post-socialist countries from a slightly different angle: how they balance the search for efficient markets and social protection. State institutions are at the core of their institutional matrix. The elements of their state concept are somehow heterogeneous. They include references to theories of neo-corporatism and the involvement of organized labour and business, and Polanyian concerns with embedding markets, mainstream democracy theories with an emphasis on formal indicators like voter volatility and the Freedom House index, as well as the aspect of state capacity. In discussing state capacity, they rely heavily on World Bank indicators such as regulatory quality, government effectiveness, rule of law and control of corruption (Bohle & Greskovits, 2012, p. 36ff.). At times, a question emerges of how compatible the concepts are. The World Bank concept of regulatory quality, whose details they do not discuss, might with its neoliberal slant not really fit with Polanyi’s idea of good state regulation. The state concept of Bohle and Greskovits builds heavily on liberal elements. The institutionalists combine economic and institutional features to define, respectively, the different ‘varieties of capitalism’ (Drahokoupil & Myant, 2013; Myant & Drahokoupil, 2011) and ‘regimes’ (Bohle & Greskovits, 2007, 2012) of post-socialist countries. Although institutionalists recognize changes and crises in the regimes, their approach focuses rather on longer-term continuities. It is, thus, not very well suited to understanding ruptures. Economic policies are formulated within the context of these varieties of capitalism or regimes, their insertion into the international economy, their institutional features and actor constellations. The institutionalist focus is particularly on economic policy fields linked to the key forms of international integration of the respective varieties. For the countries relying strongly on FDI-based export industrialization (in particular, Czech Republic, Hungary, Poland, Slovakia and Slovenia), policies aiming at attracting (industrial) FDI have been regarded as crucial since the late 1990s. The governments of this group turned the attraction of FDI into the main instrument for industrial development (Myant & Drahokoupil, 2011, p. 172ff.), offering specific incentives and designing low corporate taxation regimes. As Bohle and Greskovits (2012, p. 168ff.) emphasize, the governments tried to outbid each other in their offers, which led, inter alia, to a tax-cutting competition. Regarding growth performance, institutionalists regard the FDI-led industrialization as successful. Nevertheless, there are nuances in their evaluation. In contrast with the industrialized CEE periphery, financialization played a more prominent role in the pre-financial crisis development of the less industrialized countries of the Eastern European periphery. Here Bohle and Greskovits (2012, p. 104ff.) emphasize the strategic emphasis on building independent monetary institutions and very rigid exchange rate regimes in order to attract foreign loan capital. During the GFC, the governments stuck to this priority and later sought refuge in the eurozone, while this was not necessarily the case in more
54 Handbook on critical political economy and public policy diversified growth regimes (Ban & Bohle, 2021). The institutionalist frameworks enable the analysis of the commonalities and the differences between economic policy foci and measures in the transition countries. As far as alternatives are discussed, they are confined to different options of integration into the international economy.
REGULATIONIST AND DEPENDENCY APPROACHES Regulation theory is another important approach to analysing the political economy of Eastern Europe. To analyse the region, it has increasingly been combined with the dependency approach (Becker, 2019; Delteil, 2018; Magnin, Delteil & Vercueil, 2018). Both approaches have roots in Marxism but have also drawn on other theoretical currents. In the case of regulation theory, these currents include the French historical Annales school and post-Keynesianism (Boyer, 2015). With regard to dependency approaches, the influence of Latin American structuralism has been strong (Kay, 1989). In both approaches, some researchers have remained closer to Marxist conceptions, while others opted for stronger institutionalist or structuralist directions. Both approaches operate with concepts of a medium level of abstraction with specific attention to time and space and institutional configurations. Both concepts regard capitalism as being inherently driven by the need to accumulate and beset by structural contradictions. The state deals with these contradictions (see also Schneider et al., Chapter 8 in this Handbook). For a more refined analysis of capitalist social formations, these approaches see the need to develop middle range concepts. They do so in complementary ways. Regulation theory provides a framework for analysing different forms of accumulation. It makes a basic distinction between predominantly productive and financialized accumulation (Becker, 2002, p. 74ff.). Productive accumulation can occur in manufacturing or in activities based on ground rent like agriculture, mining and construction (Becker & Weissenbacher, 2015). Regarding productive accumulation, early regulation literature focused primarily on core countries and manufacturing. Aglietta (1982, p. 60ff.) distinguished between primarily extensive accumulation based on the increase in the number of workers, working hours and so on, and primarily intensive accumulation based on increased labour productivity. The existence of a strong manufacturing sector still makes a difference for accumulation dynamics. For Eastern Europe (and beyond it), a basic distinction can be made between industrialized peripheries on the one hand and de-industrialized or hardly industrialized peripheries on the other (Becker, 2019). In Eastern Europe, current peripheral industrialization usually rests strongly on integration in international production chains (Myant, 2018; Pavlínek, 2017). Only the post-Soviet economies of Belarus, Ukraine and Russia depart significantly from this pattern and show more autonomous forms of accumulation. In parts of Eastern Europe, the productive side of accumulation rests strongly on ground rent, like raw material production in Russia or construction/tourism activities in SEE countries. The differential ground rent provides a certain form of location-dependent protection for specific economic activities in the periphery. Some of these activities have a strong link to financialization – in particular, construction and real estate, which are often financed by credits and might be initiated in view of expected real estate prices. Financialization takes off when the productive accumulation slackens, and economic insecurity increases. In such a situation, capital looks for flexible and liquid forms of investment. Financial investments fulfil this requirement (Arrighi, 1994, p. 221ff.). It can take
Institutionalist, regulationist and dependency approaches 55 different forms. One form is based on the price increases of ‘fictitious capital’ (Marx, 1979, pp. 482ff., 510) – that is, shares and other securities. In Eastern Europe, as in most of the global peripheries, the second form based on interest rates and loans is prevalent (Becker et al., 2010). Lending is targeted primarily at households that incur debts in order to acquire flats or consumer durables. In that regard, it can be characterized as mass-based financialization. If the expansion of credits is massively refinanced abroad, banks usually push for lending in foreign currency. Euroization and dollarization are a phenomenon of peripheral financialization, which renders the economies more vulnerable to exchange rate fluctuations and the GFC (Becker et al., 2010; see also Eradze, Chapter 17 in this Handbook). Accumulation can be introverted – that is, primarily geared toward the domestic market – or extraverted – that is, relying strongly on exports and imports of goods and capital. Regarding external economic relations, regulationist and dependency approaches can be easily combined. The dependency approach, which originated in the 1960s in Latin America, underlines the asymmetric relations between core and peripheral economies. As Cardoso and Faletto (1979), whose approach employing a ‘historic-structural analysis with a nonmechanistic conception of history’ (Weissenbacher, 2019, p. 21) possibly shows the strongest conceptual affinities with regulation theory, point out, the forms of dependency and the weight of various elements of asymmetric economic relations, like trade, external credit, FDI, as well as the economic trajectories and strategies, vary over time (Cardoso & Faletto 1979, pp. xii, xivff.). The asymmetric economic and political external relations are an integral part of ‘situations of dependency’ as Cardoso and Faletto call them (ibid., p. xviiiff.). External and domestic social forces form alliances and enter into conflict depending on the constellation of interests and political strategies. External interests are internalized (ibid., p. xvi). In major crisis situations, the constellation of forces changes and fundamental shifts in accumulation and economic policy strategies might occur. In the 1970s and 1980s, dependency concepts were adapted to the European context (Weissenbacher, 2019). In recent years, a renewed interest in the dependency approach can be observed – not least regarding Eastern Europe, where the asymmetric relations are analysed from a peripheral, dependent position. Recent publications (e.g., Becker, 2019; Becker, Weissenbacher & Jäger, 2021, p. 226ff.; Delteil, 2018; Krpec & Hodulák, 2019; Magnin et al., 2018; Richet, 2019; Scheiring, 2019) highlight the following features of economic dependency: ● Commercial dependence: this aspect refers to the dependence on key imports – in particular, machinery and key intermediate goods. The massive reliance on machinery imports reflects technological dependence. ● Productive capital and more generally FDI: through FDI, foreign capital is able to strongly shape accumulation dynamics. In manufacturing, it defines the role of its subsidiaries in supplying the domestic market or in production chains. In CEE, manufacturing plants are located in the subordinate parts of the production chains (cf. Myant, 2018; Pavlínek, 2017). In banking, foreign banks define the basic contours of their subsidiaries. FDI leads to the outflow of profits, especially after the maturing of investment. This is a drain on the current account. ● Finance: this refers to the reliance on foreign loans in order to finance current consumption, productive investment and the expansion of credit. The strong reliance on foreign refinancing is often a key characteristic of dependent financialization. Foreign indebtedness leads to the outflow of interest payments.
56 Handbook on critical political economy and public policy ● Labour migration and reliance on remittances. Accumulation is impossible without the reproduction of labour. This aspect has long been neglected by regulationist (and other institutionalist) approaches. More recently, researchers inspired by dependency and world-systems theory have included this aspect more prominently in their research (Czirfusz et al., 2019). In capitalist economies, reproductive labour is remunerated and depends to a significant extent on wages and the opportunity to buy reproduction-related commodities with them. Reproductive labour also comprises unpaid, non-waged care work, mostly done by women, in the analysis. A third form of reproductive labour is provided (in an at least partially decommodified form) by the state (cf. Becker, 2017, p. 57ff.). Accumulation strategies of individual capitals may be in conflict. Capitalist production relies directly on the exploitation of wage labour, but also requires (often unpaid) reproduction work. The social relations are beset by contractions and conflicts. The state is a fundamental social relation within a wider dispositive or mode of regulation, which deals with the social contradictions and conflicts. The mode of regulation includes as structural forms the wage and competition relations, and the monetary and the ecological constraints (cf. Aglietta, 1982, pp. viiif., 10ff., 275ff.; Becker, 2002, p. 122ff.). Conflicting and contradictory social interests are organized by civil society, which is characterized by huge power asymmetries. In civil society, social norms are formed and options for state policies are pushed forward. Civil society and political society – that is, the state apparatuses and political parties – are closely interlinked (Gramsci, 1971, p. 12). The access of social forces to decision-making centres of the state is uneven; they try to mould the institutional set-up of the state to their own advantage. According to Jessop, the state displays a strategic selectivity – that is: the ways in which the state considered as a social ensemble has a specific, differential impact on the ability of various political forces to pursue particular interests and strategies in specific spatio-temporal context through their access to and/or control over given state capacities – capacities that always depend for their effectiveness on links to forces and powers that exist and operate beyond the states formal boundaries. (Jessop, 2002, p. 40)
Strategic selectivities differ according to the territorial level of states – national, subnational and supranational. A strategic bias of the state towards capital is inscribed in the dependence of its fiscal revenues and, thus material base, on well-functioning accumulation (Jessop, 1990, p. 178f.). Accumulation in the periphery is crucially dependent on foreign exchange revenue. This renders the state in the capitalist periphery particularly dependent on capital groups engaged in the external economic relations, as Tilman Evers (1977, p. 80ff.) points out in his path-breaking study on the peripheral state. The availability of foreign exchange as a crucial bottleneck for accumulation significantly influences the fiscal revenue sources. Another significant factor of external dependence of the peripheral state is access to international loans and to grants (Becker, 2008, p. 12ff.; Evers, 1977, p. 80ff.). The material scope for consensual policies is smaller than in core states. Therefore, clientelist (and often also repressive) practices tend to play a major role (Becker, 2008, p. 19ff.). States show different degrees of relative autonomy with regard to the dominant bloc (Poulantzas, 2013, p. 196ff.) and individual capitals. For peripheral states, the degree of the external relative autonomy is particularly crucial. Thus, a key distinction between states in Eastern Europe would involve the degree of their internal and external relative autonomy.
Institutionalist, regulationist and dependency approaches 57 Interest constellations differ according to the accumulation strategies of businesses, the strength of trade unions and social movements. Economic policy is subject to conflicts in civil society (and the scientific field; cf. Lordon, 1999) – and in political society – among political parties and potentially between different apparatuses of the state. Social and political actors might try to find international backing for their proposals in order to increase their domestic leverage. The result of these struggles is not necessarily coherent economic policies or strategies. Economic and political crises are potential turning points for economic policies. Such junctures are usually moments of intensified conflict over economic policies. They have been policy junctures for transition countries, too. The late 1980s was a time of systemic crisis for the state socialist countries. It opened the way for the capitalist transformation, which implied ruptures in the functioning of the state, a change of property relations and a profound transformation of class relations. In the 1990s, privatization was the main economic policy priority of the new emerging power blocs throughout the region. Developmental issues did not play a role. It was primarily from the late 1990s onwards that development models became more neatly defined. They differed with the region – and with them economic policy patterns. In CEE, EU accession talks implied a loss of external autonomy of the state. At the same time, the autonomy of the state with regard to domestic capital groups remained limited (Šitera, 2020, pp. 78ff., 84). At that time and in line with EU priorities, the attraction of FDI became the key priority economic policy, paving the way for export industrialization on the one hand and financialization on the other. Regarding the attraction of FDI, economic policy patterns in this group of countries were fairly uniform (cf. Becker, 2019). They regard attracting FDI as their main industrial policy. However, a more nuanced picture emerges regarding policies pertaining to financialization. Here, different interest constellations, but also risk perceptions of central banks played a role in shaping different policy attitudes – for example, in regard to foreign exchange credits. Through housing credits, financialization had a link to domestic real estate and construction companies. For these companies, urban development regulations were crucial. Otherwise, domestic companies partially relied heavily on public tenders. Here, often, political links proved to be crucial – a mirror of the limited state autonomy. The great financial crises had only a short and rather uniform impact on industrial export production. Due to the different structures of financialization partially resulting from different regulations, financialization in the region was unevenly hit by the crisis. Post-crisis policy responses differed too. At least in some of the non-eurozone countries of the group (Hungary and Poland), nationalist right-wing parties perceived the crisis as an opportunity to increase the external autonomy of the state to strengthen the role of domestic capital groups and to create economic policies for pursuing this aim (cf. Becker, 2020; Gerőcs & Jelinek, 2018). Thus, in the wake of the crisis, economic policy patterns among the industrialized peripheral countries of CEE increasingly diverged. States in the de-industrialized periphery (SEE and the Baltic countries) also lost external autonomy through, respectively, EU accession and pre-accession talks. Like the CEE countries, they banked increasingly on policies to attract FDI. They attracted, however, little industrial FDI. FDI remained concentrated in services, especially banking. In the years before the GFC, the increasingly foreign-owned banking sector engaged in expanding household credits. Due to the external refinancing, the banks pushed foreign exchange credits. This strategy was accommodated by very rigid exchange rate policies (Becker & Ćetković, 2015, p. 74ff.). Financialization was massively affected by the crisis. The governments stuck to the
58 Handbook on critical political economy and public policy rigid exchange rates. The EU countries of the group intensified efforts to enter the eurozone. In the face of weak productive structures, there has been a strong tendency of domestic capital groups, especially in SEE, to engage in ground-rent-based sectors like construction, tourism and real estate. Public tenders and land-use regulations have been of crucial importance for many of them. They could use their political connections in the context of a state with weak autonomy with regard to capital groups and deeply rooted clientelist practices (Becker, 2019, p. 202ff.). Regulation theory helps to understand different patterns of economic policies not only between different subgroups of transition economies, but also diverging patterns within these groups. Regulationist economic policy analysis for the transition countries goes beyond the prism of international insertion and also looks at inward-looking activities and places greater emphasis on crises as economic policy junctures than the institutionalist framework. The broader conceptualization of social lines of conflict, power relations and the state enables the regulation plus dependency approach to analyse shifts in the relationship between different fractions of capital (e.g., mining and manufacturing capital, domestic and foreign capital) conflicts on the strategic selectivity of the state and resulting economic policies in a more systematic way than the institutionalist approaches.
KEY ECONOMIC POLICY: ATTRACTING FDI AS ERSATZ INDUSTRIAL POLICY For many transition countries, attracting FDI has become a prime economic policy. In CEE, it became the ersatz industrial policy. Institutionalists have viewed it as a successful policy – at least under specific circumstances. Therefore, FDI as ersatz industrial policy will be highlighted here. The political breakthrough for unilaterally banking on FDI occurred in different junctures in the CEE region. In the early 1990s, Hungary was the CEE pioneer in banking unilaterally on attracting FDI. This strategic decision of the then Hungarian government was partially due to the high external debt and high foreign exchange needs, the already relatively strong international integration into the capitalist economy already during state socialism, and pro-FDI forces in the state apparatus – in particular, the central bank. In the other CEE (and SEE) countries, governments still aimed at building national capitalists. With the beginning of EU accession talks, the strategic selectivity of the states in the region changed. The EU pushed heavily for opening up to foreign capital. In the changed political and economic juncture, interests closely linked to foreign capital were strengthened, and branches of the state geared towards attracting foreign capital became increasingly influential (Drahokoupil, 2008). Only Slovenia continued to pursue a more selective strategy towards FDI for a few more years. In the wake of the eurozone crisis, the EU institutions pushed successfully for privatizing Slovenian banks, but also other sectors (including manufacturing) (Podvršič, 2019, p. 230f.). Thus, the EU has played a crucial role in changing the strategic selectivity of the states in favour of foreign capital. ‘As the developmental prospects in CEEC became dependent on investment decisions by foreign investors, providing the infrastructure and support became the most important state role in development of the manufacturing industry’, state Myant and Drahokoupil (2011, p. 173). The governments created specialized agencies catering for FDI. They provided
Institutionalist, regulationist and dependency approaches 59 specific incentives and infrastructural support for foreign investors (cf. Drahokoupil, 2008). However, policies were more generally geared towards foreign investors. Governments in the region lowered corporate taxes in order to lure foreign investors (Myant & Drahokoupil, 2011, p. 176). They flexibilized labour legislation in order to make their country more attractive to foreign investors, at times with the direct influence of bi-national chambers of commerce (cf. Delteil, 2018; Gerőcs & Pinkasz, 2019, p. 193). Delteil (2018) argues that macro-institutional influence is particularly strong in weaker or less externally autonomous states. Gerőcs and Pinkasz (2019, p. 192) show, however, that the industrial lobby and bi-national chambers have exercised strong influence on various macro-institutional policies (like taxes and education) in the current Fidesz era. Institutionalist approaches have generally not regarded the Hungarian state as weak, and the Hungarian state currently enjoys at least partial external autonomy. After the GFC had revealed the vulnerabilities of the FDI-based and strongly extraverted industrialization, experts (often with an institutionalist background) started to discuss limits of the FDI-led industrial strategy like low research and development expenditure and the subordinate position in international production chains in local and international fora (e.g., Baláž, 2013; Myant, 2018; Nölke, 2018, p. 276ff.). They emphasize the need for the strengthening of innovation. Thus, Drahokoupil and Galgóczi (2015, p. 34) propose ‘to combine utilization of capabilities in the foreign-controlled sector with reliance on domestic sources of innovation and growth’. Thus, institutionalists acknowledge limits to the hitherto pursued FDI-led strategies and propose modifications, which are to enhance innovation. Their alternatives do not question the primacy of international competitiveness and export orientation. As far as adaptions of production patterns to ecological constraints are discussed, they remain confined to technological adaptions – for example, a switch to electrical car production (Drahokoupil et al., 2019). In some countries in the region, governments have taken up the debate on the limits of the FDI-led industrialization (e.g., Vláda České republiky, 2014 in the Czech Republic or Ministerstwo Rozwoju, 2016 in Poland). As far as they have taken remedy action, international competitiveness has remained paramount in their thinking. In CEE, the PiS government in Poland has been the most ambitious in charting more autonomous industrial policies, although with rather limited success so far. In Hungary, the promotion of domestic capital by the Fidesz governments has been confined to the service sector, construction and agriculture, while Fidesz has continued to bank on FDI in manufacturing (Becker, 2020, p. 157ff.).
SPACES FOR ALTERNATIVES: POLICIES FOR A MORE INWARD-LOOKING MODEL From a regulationist cum dependency perspective, the limits of the FDI-based industrial strategy are inherent in the approach. They reflect the interests of the TNCs. In addition, the reliance on FDI cements the unequal development patterns within the industrial periphery because FDI is regionally highly concentrated (Medve-Bálint, 2015). FDI is not a solution for the socioeconomic problems of the peripheral regions. Since dependency theorists identify ‘external dependencies as the roots of problems’, ‘remedies cannot come from prevailing (dominant) external sources but need to be endogenous’ (Weissenbacher, 2019, p. 198). This implies at least a partial break with the unilateral outward orientation. From a regulationist plus dependency perspective, they argue for combining the
60 Handbook on critical political economy and public policy building of more inward-looking economic activities mobilizing domestic resources with a stronger ecological orientation. This would point in the direction of selective self-reliance and imply providing selective protection to inward-looking sectors (cf. e.g., Stöhr, 1985). Taking Slovakia as an example, Becker and Lesay suggest complementing the accumulation regime based on export industry and financialization by a third pillar (Becker & Lesay, 2019, p. 148ff.; also more broadly, Becker, 2019, p. 205ff.). This third pillar would consist of building or enlarging more inward-looking (productive) activities, the creation of more micro-regional production and consumption circuits. Such steps would diversify the economic structure, rendering it less vulnerable to crisis. In addition, the transport intensity of production would be reduced, which would render production patterns more ecological. Such a reorientation of production would require a change in the strategic selectivity in the state and a more active role of the public sector. In the poorer Slovak areas, there would be support for such a reorientation and for a more active economic role of the state, as qualitative research has shown (Báboš, Világi & Oravcová, 2016, p. 126ff.). The competition and state aid rules of the EU impose limits to a strategy of selective self-reliance, but do not necessarily block initiatives for more autonomous national and local development in the periphery completely. For example, tenders could be used in creative ways in order to promote local, more ecological, productive initiatives. After the 2016 elections that brought about a breakthrough of the far right particularly in several poorer areas, the government led by the mildly social-democrat-oriented Smer-SD saw the need for a stronger emphasis on regional development in the poorer areas. While the strategy still attributed a key role to FDI, it nevertheless stressed the need for the promotion of small and medium enterprises and public investment (Úrad vlády Slovenskej republiky, n.d., p. 59ff.). The then head in charge of the programme, Anton Marcinčin argued that ‘real change must come from below’ (Marcinčin, 2018a, n.p.) and for the inclusion of local actors in planning the programmes (Marcinčin, 2018b). The programme retained an experimental character and seemed to have run up against existing clientelist structures of the state (Becker, 2018, p. 69f.). In the draft reform programme prepared by the present more right-wing coalition in Slovakia, there are brief remarks on regional development, recycling, and alternative energies in the chapter on the green economy (Ministerstvo financii Slovenskej republiky, 2020, p. 34ff.), but it does not even discuss the general thrust of Slovakia’s economic development, its narrow specialization, external vulnerability and high reliance on FDI (Schmögnerová et al., 2020, p. 2). The Slovak example shows how spaces are small and precarious for even limited adaptations of the development strategy. The foreseeable crisis of the car industry as the main manufacturing sector in many countries in the region, in particular CEE, will make changes mandatory. Beyond the building of a more inward-looking sector, there is a more general need for conversion strategies for key export sectors and putting the economy on a more ecological footing. The debate on that in the region has hardly begun; political forces pushing in that direction are very weak.
CONCLUSIONS The strength of the institutionalist, regulationist and dependency approaches is that their analytical framework is well suited to the different economic and political trajectories of the
Institutionalist, regulationist and dependency approaches 61 European transition countries and to their subordinate international insertion. The analysis of economic policies is, thus, contextualized. From this theoretical perspective, the identification of supposedly universal best practice economic policies is not feasible. The institutionalist approaches focus on the continuities of economic development patterns and institutional set-ups of different regimes of varieties of capitalism, although they do admit that they are subject to changes and crises. Thus, they are not well suited for analysing crises, which might open up space for different accumulation and economic policy strategies. The institutionalists analyse economic trajectories, institutions and economic policies through the lens of the success of international insertion. Therefore, the strategic economic policy options are confined to strategies enhancing international competitiveness and deepening international insertion. To institutionalists, the compatibility of economic policy strategies and social equity matters. The regulationist cum dependency approach has a more encompassing vision. It looks at the combination of outward- and inward-looking accumulation strategies and places more emphasis on the strategically relevant elements of dependence (e.g., not only on goods exports, but also imports). It treats the strategic selectivity of the state in a more explicit way than the institutionalist approaches. Crises are explicitly theorized as moments of opportunity for economic and political alternatives. Different from the institutionalist view, selective protection measures and selective de-linking are possible strategic economic policies, although it is very difficult to proceed in this direction under the present circumstances.
BIBLIOGRAPHY Aglietta, M. 1982, Régulation et crises du capitalism: l’expérience des Etats-Unis (2nd enlarged edition), Paris: Calmann-Lévy. Arrighi, G. 1994, The Long Twentieth Century: Money, Power, and the Origins of Our Times, London/ New York: Verso. Báboš, P., Világi, A. & Oravcová, V. 2016, Spoločenské problémy, politické (ne)riešenia: Voľby 2016, Bratislava: Stimul. Baláž, V. 2013, ‘Od montažnej dielne k inteligentne ekonomike’, in G. Mesežnikov, Z. Bútorová & M. Kollár (eds), Odkiaľ a kam. 20 rokov samostatnosti, Bratislava: Kalligram/IVO, pp. 566–81. Ban, C. & Bohle, D. 2021, ‘Definancialization, financial repression and policy continuity in East-Central Europe’, Review of International Political Economy, 28 (4), 874–97. Becker, J. 2002, Akkumulation, Regulation, Territorium: Zur kritischen Rekonstruktion der französischen Regulationstheorie, Marburg: Metropolis. Becker, J. 2008, ‘Der kapitalistische Staat in der Peripherie: polit-ökonomische Perspektiven’, Journal für Entwicklungspolitik, 24 (2), 10–32. Becker, J. 2017, ‘Akkumulation, Reproduktion, Regulation’, Kurswechsel, 2, 55–64. Becker, J. 2018, ‘Uneven development and a new approach to regional development in Slovakia’, Kurswechsel, 2, 63–72. Becker, J. 2019, ‘Dependency, (non-)development and possible alternatives: the Visegrád countries and the post-Yugoslav space’, in V. Delteil & X. Richet (eds), L’Europe, une fracture à retardement: intégration asymétrique, dépendances, fragmentation, Paris: L’Harmattan, pp. 189–212. Becker, J. 2020, ‘Selektiver Wirtschaftsnationalismus und Klassenprojekte: Fidesz und PiS im Vergleich’, in C. Book, N. Huke, N. Tiedemann & O. Tietje (eds), Autoritärer Populismus, Münster: Westfälisches Dampfboot, pp. 150–64. Becker, J. & Ćetković, P. 2015, ‘Patterns of financialisation in Southeast European and Visegrád countries’, in D. Radošević & V. Cvijanović (eds), Financialisation and Financial Crisis in South-Eastern European Countries, Frankfurt am Main: Peter Lang, pp. 71–90.
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Institutionalist, regulationist and dependency approaches 63 Jessop, B. 1990, State Theory: Putting the Capitalist State in Its Place, University Park, PA: Pennsylvania State University Press. Jessop, B. 2002, The Future of the Capitalist State, Cambridge, UK: Polity Press. Kay, C. 1989, Latin American Theories of Development and Underdevelopment, London/New York: Routledge. Krpec, O. & Hodulák, V. 2019, ‘The Czech economy as an integrated periphery: the case of dependency on Germany’, Journal of Post-Keynesian Economics, 42 (1), 59–89. Lordon, F. 1999, ‘Croyances économiques et pouvoir symbolique’, L’Année de la regulation, 3, 169–210. Magnin, E., Delteil, V. & Vercueil, J. 2018, ‘La dépendance dans les relations entre capitalismes nationaux: quelle portée analytique?’, Revue de la régulation: Capitalisme, institutions, pouvoirs, 24 (2), accessed 21 January 2019 at https://journals.openedition.org/regulation/14340. Marcinčin, A. 2018a, ‘Skutočna zmena musí isť zdola’, Hospodárské noviny, 7 March, accessed 8 April 2018 at https://komentare.hnonline.sk/komentare/1706381-skutocna-zmena-musi-ist-zdola. Marcinčin, A. 2018b, ‘Ako ďalej s regiónmi?’, Pravda, 11 April, accessed 16 April 2018 at https:// nazory.pravda.sk/analyzy-a-postrehy/clanok/465288-ako-dalej-s-regionmi. Marx, K. 1979, Das Kapital: Kritik der Politischen Ökonomie, Vol. 3., in Marx-Engels-Werke (MEW) [The collected works of K. Marx and F. Engels], Vol. 25, Berlin: Dietz Verlag for the Institute for Marxism-Leninism at the Central Committee of the SED. Medve-Bálint, G. 2015, ‘Changes still below the surface? Regional patterns of foreign direct investment in post-crisis Central and Eastern Europe’, in B. Galgóczi, J. Drahokoupil & M. Bernaciak (eds), Foreign Investment in Eastern and Southern Europe After 2008: Still a Lever of Growth? Brussels: European Trade Union Institute, pp. 71–101. Ministerstvo financii Slovenskej republiky 2020, Moderné a uspešné Slovensko. Národny integrovány reformný plan, Bratislava: Ministerstvo financii Slovenskej republiky. Ministerstwo Rozwoju 2016, Strategia na rzecz Odpowiedzialnego Rozwoju – projekt do konsultacji społecznych. Projekt z dnia 29 lipca 2016 r., Warsaw: Ministerstwo Rozwoju. Mlčoch, L. 2000, ‘Restrukturalizace vlastnických vztahů: institucionální pohled’, in L. Mlčoc, P. Machonin & M. Sojka (eds), Ekonomické a společenské změny v české společnosti po roce 1989/ alternativní pohled, Prague: Karolinum, pp. 20–96. Myant, M. 2018, ‘The limits of dependent growth in East-Central Europe’, Revue de la régulation: Capitalisme, institutions, pouvoirs, 24 (2), accessed 21 January 2019 at https://journals.openedition .org/regulation/13351. Myant, M. & Drahokoupil, J. 2011, Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia, Hoboken, NJ: Wiley. Nölke, A. 2018, ‘Dependent versus state-permeated capitalism: two basic options for emerging markets’, International Journal of Management and Economics, 54 (4), 269–82. Nölke, A. & Vliegenhart, A. 2009, ‘Enlarging the varieties of capitalism: the emergence of dependent market economies in East Central Europe’, World Politics, 61 (4), 670–702. Pavlínek, P. 2017, Dependent Growth: Foreign Investment and the Development of the Automotive Industry in East-Central Europe, Cham: Springer. Podvršič, A. 2019, ‘Slovénie: du success story à la peripherie industrialisée de la zone euro’, in V. Delteil and X. Richet (eds), L’Europe, une fracture à retardement: intégration asymétrique, dépendances, fragmentation, Paris: L’Harmattan, pp. 213–39. Poulantzas, N. 2013, L’état, le pouvoir, le socialisme, Paris: Les Prairies ordinaires. Richet, X. 2019, ‘Capitalisme importé et dépendance: le rôle des investissements directs étranger en Europe central et du sud est’, in V. Delteil and X. Richet (eds), L’Europe, une fracture à retardement: intégration asymétrique, dépendances, fragmentation, Paris: L’Harmattan, pp. 163–88. Scheiring, G. 2019, Egy demokrácia halála: az autoriter kapitalizmus es a felhalmozó állam felemelkedése Magyarországon, Budapest: Napvilág. Schmögnerová, B., Becker, J. & Csefalvayová, M. et al. 2020, Solidárne, ekologické a modern Slovensko: Sociálno-demokratická alternative sociálno-ekonomickej transformácie v novom viacročnom finančnom rámci Európskej únie, Bratislava: Friedrich Ebert Stiftung. Šitera, D. 2020, ‘Trilema demokratického kapitalismu na východní periferii Evropy’, in P. Barša & M. Dokupil Škrabaha (eds), Za hranice kapitalismu, Prague: Rybka, pp. 69–92.
64 Handbook on critical political economy and public policy Sojka, M. 2010, Dějiny ekonomických teorii, Prague: HBT. Stöhr, W. 1985, ‘Selective self-reliance and endogenous regional development – pre-conditions and constraints’, in D. Nohlen & O. Schultze (eds), Ungleiche Entwicklung und Regionalpolitik in Südeuropa: Italien, Spanien, Portugal, Bochum: Brockmeyer, pp. 229–49. Úrad vlády Slovenskej republiky n.d., Aktualizácia národnej stratégie regionálneho rozvoja Slovenskej republiky, Bratislava: Úrad vlády Slovenskej republiky. Vláda České republiky 2014, ‘Odliv výnosů jako symptom vyčerpaného hospodářského modelu’, 27 October, accessed 20 December 2014 at www.vlada.cz/scripts/detail.php?id=123870&tmplid=50. Weissenbacher, R. 2019, The Core-Periphery Divide in the European Union: A Dependency Perspective, Cham: Springer.
5. COVID-19 and the gender dilemma: blind spots in both macroeconomics and feminist economics1 Brigitte Young
The COVID-19 crisis catapulted women health and care workers to a newfound public visibility. During the first general lockdown in March 2020, women workers were serenaded from European balconies for providing ‘essential’ economic services in sectors such as health, social care, hospitality, and home care, working in retail as cashiers at supermarkets, as cleaners, and as school personnel. In addition, women leaders were extolled as the better decision-makers in managing the crisis. The erstwhile euphoria putting women center stage soon crashed with reality. The applause of the spring did not usher in a transformative rethink of society’s inequalities. That the ‘essential’ and largely invisible workers are undervalued, underpaid, and under-protected worldwide did not start with the COVID crisis. This fact has been analyzed and critiqued by many feminist economists for some time (Bakker & Gill, 2003; Elson, 2013; Ghosh, 2021; van Staveren, 2017). Particularly in the health arena, the gender imbalance has become acutely visible during the pandemic. On a global scale, female doctors, nurses, and care workers account for about 70 percent of personnel. Many of them work in precarious conditions on minimum wages and with poor protection despite the fact that they are at a higher risk of being exposed to the virus (Bijl, 2020). Largely invisible to the larger public is the fact that gender intersects with other forms of inequality. Many profit-oriented health and social care centers rely on informal workers in the form of immigrants, refugees, migrants, and members of ethnic minorities to provide the ‘essential’ services for those who are dependent on assistance (European Economists, 2021). That the precarious working conditions of health and care personnel have not received sufficient political recognition is all the more surprising since the United Nations’ 17 Sustainable Development Goals (SDGs) have called for action by all countries to end poverty and improve health and education in addition to tackling climate change (United Nations, 2015). Yet, the ‘social’ aspect has been overshadowed by environmental and governmental issues. While the oil, gas, mining, and auto industries have been heavily criticized by social movements such as ‘Fridays for Future’ for their slow transition to renewable energy, there has not been a similar public outcry on protecting workers in the healthcare and service sectors, such as offering paid leave, additional safety measures, higher wages, and ensuring economic security for ‘essential’ staff. Paul Krugman (2020) stated the obvious: there are ‘billions for oil, but nothing for nurses and teachers.’ Similarly, he criticized private hospitals for receiving government bailouts while they paid huge sums of dividends to their CEOs and subsequently furloughed many of their staff (cited in Silver-Greenberg, Drucker & Enrich, 2020, n.p.). Given the conundrum of the serenading of ‘essential’ women workers during the COVID pandemic and the subsequent silencing of gender inclusivity, I pose the question of why 65
66 Handbook on critical political economy and public policy the issue of gender inequality is largely absent in public high-level recovery plans issued to cope with the economic and health impacts of the pandemic, and subsequent agendas for a transformation to a post-COVID era. To deal with this question, I will first investigate some of the plans and reports issued by the European Union, the Organisation for Economic Co-operation and Development (OECD), and Chatham House to illustrate the gender blindness in these reports. In the second section, I will try to offer some explanations as to why traditional macroeconomists have largely neglected to include a gender lens in the recovery plans. Subsequently, I turn to some of the feminist economic studies and discuss their shortcomings in offering a transformative systemic shift of capitalist production and global finance for a post-COVID recovery. It seems obvious that gender equality will not happen within a finance-dominated capitalist system. As a tentative hypothesis, I suggest that many traditional economists rely on gender-blind data-driven macroeconomic approaches, while many feminist economists demonstrate a macroeconomic blindness in terms of excluding monetary policy and the global finance sector in their analysis of the micro- and meso-levels of the household, the labor market, and the care sector.2 These two approaches produce distinct outcomes for men and women. What is missing in both perspectives is a link between the two interconnected levels of the economy. Empirically, this can be demonstrated in that gender differences may negatively affect economic outcomes, while gender equality may contribute to higher rates of economic growth and greater macroeconomic stability. As such, macroeconomic policy is one of the feedback loops that contributes to gender (in)equality, which then influences economic growth. By disregarding the relationship between gender relations and macroeconomics, both approaches may unintentionally undermine the goal to achieve gender equality (van Staveren, 2017; Young, 2019). In the final section, I will focus on the weaknesses in feminist economics and introduce some transformative new approaches by economists such as Mariana Mazzucato and her mission-oriented approach that sees the state and not the private sector as the primary actor to tackle the challenges in modern societies, as well as Maja Göpel and Kate Raworth who focus on the public purpose of the economy and not just the profit motive inherent in capitalist production. While these authors do not identify as feminist economists, nevertheless they look at the economy from a systemic and holistic perspective and suggest thinking in terms of a circular economy (Raworth, 2017, p. 8). The purpose of introducing these transformative visionaries is to suggest that the transformative power embedded in a major crisis should not be wasted again, as was the case after the financial crisis in 2007–08.
THE GENDER BLINDNESS IN COVID-19 CRISIS RECOVERY PLANS The following section draws on some of the insights provided by scholars who have undertaken gender assessment reviews of the ‘NextGenerationEU’ recovery plan (Klatzer & Rinaldi, 2020) and the European Semester (Antonucci & Corti, 2020); an OECD (2020) study focusing on global efforts to tackle the coronavirus; and a report from the Chatham House Gender and Inclusive Growth Initiative (Isele & Dubois, 2020), sharing the urgency that women need to be included in the taskforces on tackling COVID-19 around the world. But as
COVID-19 and the gender dilemma 67 Klatzer and Rinaldi (2020, p. 8) bluntly state: ‘The (EU) Recovery Plan, and especially the legislative proposals, are gender blind.’ The EU, however, did learn from the disastrous handling of the euro sovereign debt crisis. In March 2020, as the COVID-19 virus suddenly made landfall on the European continent, the various European institutions reacted swiftly to the social and economic fallout from the pandemic. The European Central Bank (ECB) announced in the spring of 2020 a €750 billion pandemic emergency purchase program (PEPP). Recognizing the mistakes of responding with fiscal austerity measures to the sovereign debt crisis, this time around Angela Merkel could be persuaded to agree with Emmanuel Macron to initiate a fiscal European Recovery Fund, which the EU Council after four days and nightly negotiations passed on July 21, 2020. It is widely seen as a fiscal turning point in Europe, moving from a strategy of national self-interest to European fiscal solidarity measures. The EU Commission could thus raise €750 billion of debt on capital markets in a recovery plan entitled ‘NextGenerationEU,’ which some even called a ‘Hamiltonian’ moment for Europe, referring to a situation in the United States that turned the US into a bond-issuing state backed by the US Federal Government. The entire package, which is part of the multiannual financial framework (MFF) for 2021–27, has at its disposal the remarkable sum of €1.074 trillion. In addition, on the tax-raising side, the EU can enact its ‘own resources’ such as plastic tax, carbon border adjustment mechanism (CBAM), and a digital levy to help finance the debt. Jointly with the MFF and the recovery program, the total financial support of the EU budget amounts to €1.85 trillion (Saraceno, Semmler & Young, 2020). Assessing the more detailed programs and instruments from the overall package, including the European Recovery Instrument, the European Recovery and Resilience Facility, InvestEU, the Strategic Investment Facility and the EU4Health program, Klatzer and Rinaldi (2020) criticize these programs for reinforcing existing gender roles and norms. In particular, the authors stress that the economic stimuli in the EU Recovery Fund are geared mainly to industries with a high male employment rate such as the digital, energy, agriculture, construction and transport industries, while neglecting the sectors with high female employment in the health and care sectors, accommodation and food services, social work, arts, culture and recreation. In these latter sectors, women make up 93 percent of childcare workers and teachers’ aides, 86 percent of personal care workers and health services, and 95 percent of domestic cleaners and helpers in the EU (European Institute of Gender Equality [EIGE], 2020). Surely, one can applaud the goal toward a green and digital transformation for a post-COVID era, but the plans are without binding gender equality objectives. The large share of funds in these stimuli programs will benefit male employment without targeting gender inequality in many of these industries. Klatzer and Rinaldi (2020, p. 9) fear that these gender-blind plans counteract the EU goals to increase gender equality in the labor markets. Equally disappointing is the fact that while ‘essential’ workers are recognized as indispensable to the functioning of a modern economy, the recovery plans lack any reference to a transition towards a more resilient care economy. Klatzer and Rinaldi encourage EU policymakers to expand their instruments proposed by the recovery plan to invest in care infrastructure and combat gender-based violence, to provide equal opportunities for women and men so that they can fully enjoy their fundamental rights (2020, p. 8). The strong mobilization in the EU Parliament against the gender blindness in the recovery plan did subsequently lead to changes in the MFF for 2021–27. The budget now includes a tracking mechanism on the different spending targets for women and men, establishing
68 Handbook on critical political economy and public policy binding budget lines for inserting gender equality objectives into the specific programs and instruments. Incorporating the gender dimension in the EU budget is not new, however, since previous annual budgets had relied on the insights of the European Gender Budgeting Network and incorporated gender-inclusive budgetary targets. The EU parliamentary group was able to refer to the report entitled Purple Pact (European Women’s Lobby, 2019) already criticizing before the pandemic the present conventional economic models, and suggesting the construction of a caring economy, the creation of an inclusive society, and building a feminist future. In addition, the European Commission issued its new Gender Equality Strategy 2020–2025 in March 2020, where, under the subheading ‘Towards a Gender-equal Europe,’ the Commission proposes that in all its activities the Union will aim to eliminate inequalities and to promote equality between men and women. The Commission further proposed a Child Guarantee in 2021 that will focus on the most significant barriers preventing children from accessing the necessary services for their well-being and personal development, to break the poverty cycle and reduce inequalities (EU Commission, 2020a). Given the dire economic, social and health consequences of the pandemic, Antonucci and Corti (2020) suggest that with an estimated loss of 13 percent of working hours in Europe and 20 percent of youth out of work, it is no longer sufficient that the forward-looking investment, protection of incomes and quality of public services can remain as temporary measures to respond to the crisis. Even more forcefully, they suggest that ‘we must dare to change the economic paradigm once and for all’ (p. 3). The battle to include gender objectives and targets in COVID-19 recovery plans and taskforces is not just restricted to the European Union. Both the OECD report (2020) and the Chatham House Gender and Inclusive Growth Initiative report (Isele & Dubois, 2020) remind global leaders in developed and developing countries to include women in the decision-making process of recovery plans and that all policy responses to the crisis must embed a gender lens and account for women’s unique needs, responsibilities, and perspectives (OECD, 2020, p. 1). Not only is gender equality considered a social and human right, it also contributes to economic growth. This has both a demand and supply component. High female labor force participation rates mean that women are integrated into the economy, have access to bank credits to purchase goods and services, and thus contribute to economic growth. In contrast, gender inequality may contribute to a lack of demand for credit by women, leading to aggregate low saving rates, low investment rates, and lower aggregate demand. Similarly, if people do not have the required level of education or skills, companies may find that they are short of the human capital needed to manufacture the material and immaterial goods and services to attain desired outcomes. Gender relationships thus have an impact on the economy, and economic processes at the same time shape gender relations through feedback loops. The mutual influence between gender and the economy has been theorized by feminist economists for some time, arguing that gender equality would foster greater stability and resilience in the economy, and it would further facilitate socio-ecological growth strategies (van Staveren, 2017). In the next section, I will turn to the conundrum of why ‘essential’ workers were serenaded and applauded for their vitally important services at the beginning of the crisis and why economists and economic policymakers have in their subsequent recovery plans ‘silenced’ the largely female-staffed care and social service sectors at the micro- and meso-levels. The
COVID-19 and the gender dilemma 69 silence is also due to the fact that the crisis has only unmasked but not caused the deficiencies in the health and other social services.
THE GENDER BIAS IN MACROECONOMIC DATA ‘Silencing’ women in macroeconomic accounting is nothing new. It starts with the prerogative of economists to select the data that make up statistical accounting, such as in the metrics of gross national product (GNP), in which the contribution of care work and household production remains ignored or undervalued. At a more fundamental level, the selection of data is based on the experiences of men as the norm or default and these gender-blind realities reflect the general reality of how an economy works (Criado Perez, 2019). It is thus not surprising that recovery plans prioritize economic growth and market logics over other goals of life-sustaining processes (Bakker, 2020; Bakker & Gill, 2003). This is also due to the fact that there are few female macroeconomists in the decision-making process of monetary institutions. This is particularly apparent when one looks at the overwhelming male appointment processes for the ECB and for the European Banking Authority.3 In her award-winning publication, Criado Perez (2019) exposes many examples of data bias that underpins the collection of statistics in a world designed for men. She cites gender-biased data in areas as disparate as healthcare, humanitarian disaster response, agriculture, peace talks, and industrial policy. The consequence is that the so-called objective data silences ‘the economy’s other half’ (Heintz, 2019) and can lead to wrong resource allocation in many areas such as education, health, and other public goods. According to Criado Perez, ‘the gender-gap is both a cause and a consequence of the type of unthinking that conceives of humanity as almost exclusively male’ (2019, p. xv). Nor can we hope for more inclusivity due to the shift to big data. Since algorithms are based on the inputs of (mostly male) designers, the built-in bias is replicated in algorithms using, for example, speech recognition, which is more likely to recognize male than female speech. But the examples of gender bias are not due to deliberate manipulation by male scientists, rather they are due to the simple fact that many economists start from the assumption that the world is designed for and by men. It is thus not surprising that inadequate metrics have led to wrong policies and widened the gender gap. Nor is it surprising that women are made hyper-visible when it comes to applauding their essential services during the coronavirus crisis but remain invisible when it counts to be included in the metrics. These findings in which male experiences are the default are most visible in how economists measure economic growth as an indicator of national economic stability and well-being. In response to the financial crisis in 2008, the Nobel laureates Joseph Stiglitz and Amartya Sen, and Jean-Paul Fitoussi (2010) warned that GNP is not an adequate measure of well-being. Yet, economics students in their first semester start with the largely unchallenged idea that the measurement of national income equates to the market value of goods and services produced within a nation’s border in a year. The higher the growth metric at the macroeconomic level, the more this is correlated with social and economic progress. However, there is much that this metric does not cover. Simon Kuznets himself, who devised the national income metric in the 1930s, was aware that it excludes the goods and services produced in the household. In fact, he became an ardent critic of his own gross national product/gross domestic product (GNP/
70 Handbook on critical political economy and public policy GDP) metric in the 1960s, warning that ‘the welfare of a nation can scarcely be inferred from a measure of national income’ (cited in Raworth, 2017, pp. 39–40). As no other crisis before, the COVID health pandemic has demonstrated that the paid and unpaid labor in the household and care economy are essential resources for economic and social stability. Feminist economists have shown that incorporating gender into macroeconomic models improves both the explanatory power of macroeconomic theory and yields better policy results. Gender is thus not only a micro-level variable, but also an endogenous macroeconomic variable that has an impact on aggregate demand and on economic stability (Bakker, 2020; Heintz, 2019; van Staveren, 2017; Young, 2019). In contrast with these insights, statistical metrics used by macroeconomists only measures the operational costs of paid labor, such as in the medical profession, low-paid workers at the supermarket, the care personnel in old-age homes, the invisible night-cleaners at large corporations, or the food-delivery workforce, yet the risks, uncertainties, and precariousness these workers face in their daily tasks remain invisible in the statistics. Equally invisible in these metrics are the unpaid activities in private households and the many hours (mostly) women spent in addition to the home-office with children’s homework, often curtailing their formal working hours, which invariably sets them back in their career goals and their subsequent pension entitlements, a process Jutta Allmendinger (2021) has called the ‘re-traditionalization’ of women, forcing them back to a role they so valiantly fought to escape since the 1950s. The precariousness of working conditions for many women (also some men) is not new, but it has multiplied during the COVID-19 crisis and has created health and economic risks that are not counted in the economic metrics of GNP, to the detriment of society’s well-being. Failing to integrate women’s unpaid labor into the metrics of national economics is an economic blind spot that has so drastically come to the fore during the pandemic. The market power of the many private profit-oriented health and care facilities, which is also duplicated in public care facilities, is particularly evident in wage renumeration. Despite the high demand for health and care personnel, it has not resulted in higher wages. The profit motive in both public and private facilities has not only accelerated a race to the bottom in terms of wages and working conditions, but has also put pressure on these institutions to maximize profits over the interests of care workers and, in many cases, also over patients in such facilities.
THE MACROECONOMIC BLIND SPOT IN FEMINIST ECONOMICS Once again, the COVID-19 pandemic has turned a spotlight on the low or even non-existent female representation in the top decision-making process of important global and EU institutions (Schuberth & Young, 2011). This time around, feminist academics, climate, digital and gender activists, social and print media have highlighted that the pandemic hit women hardest, widening the gender–wage gap, the gender–care gap, and the gender–position gap (Allmendinger, 2021; Bakker, 2020; Klatzer & Rinaldi, 2020). The numerous Zoom webinars organized since the outbreak of the pandemic by global, national, local feminist organizations, academic institutions, non-governmental organizations, think tanks, and political parties in national and EU parliaments have highlighted the need to focus on women’s unique needs and perspectives. Yet, while this public engagement is laudable, the feminist lens in ameliorating the social consequences of the pandemic is equally blind in its neglect of how the macroeconomy
COVID-19 and the gender dilemma 71 fundamentally influences the productive capacity of the economy. Much of the writing of feminist economists and sociologists is located at the micro-level of the care economy, focusing on the decline of public goods, shifting the burden to female household members to increase non-market production in terms of unpaid labor and care work (Bijl, 2020; efas, 2021; Gender5+, 2020; Isele & Dubois, 2020; Women’s Budget Group UK, 2020). I will first briefly highlight some of the changes in fiscal and monetary policy, how these policies are discussed in feminist economic texts, and subsequently show how monetary and fiscal policies are likely to impact women’s and men’s economic lives. Fiscal policy refers to the national parliaments’ power over taxation and expenditures as well as issuing debts for government deficit financing. Monetary policy, as defined in conventional economic textbooks, is set by central banks targeting the supply of credit, thereby influencing the resources available to financial institutions that extend credit and loans. Through targeting the rate of interest and the exchange rate, central banks influence aggregate demand (Heintz, 2019). Yet, these textbook prescriptions have lost their desired effects since the financial crisis. Targeting price stability has failed to come close to or near the 2 percent annual inflation target. In recognition of this failure, Jerome Powell, the Chair of the US Federal Reserve (the Fed), has recently announced a move to a ‘flexible average inflation targeting regime’ (Powell, 2021, n.p.). Flexible means that the Fed is no longer tied to a formula of 2 percent inflation annually, and that maximum employment is a broad and inclusive goal (ibid.). The shift to a largely privatized finance-dominated capitalism has not only resulted in the largest financial crash in 2007 since the Great Depression, but has also put into question the control central banks have over inflation targets. While there is much disagreement as to why the inflation rate has not responded despite central banks injecting the markets with huge amounts of liquidity, hoping to accelerate economic growth and financial stability, the fact remains that the ‘new normal’ (El-Erian, 2016) of low growth, rising inequality, political dysfunction, and social tension has been made worse as a result of the pandemic. Thus, it is imperative that feminist economists link the everyday gender challenges of high unemployment and rising inequality, the disintegration of trust in political institutions and the growth of right-wing radicalism to the changing landscape of macroeconomics to understand how the shift to a finance-dominated capitalism has affected different classes of women and men in dissimilar ways (Bakker, 2020; Young, 2019). In response to the introduction of quantitative easing (QE) by the Fed, its former chair, Ben Bernanke, pointed to a possible link between the increase of asset prices and inequality: The claim that Fed policy has worsened inequality usually begins with the (correct) observation that monetary policy works in part by raising asset prices, like stock prices. As the rich own more assets [on average more men – B. Young] than the poor [on average more women – B. Young] and the middle class, the reasoning goes, the Fed’s policies are increasing the already large disparities in wealth in the United States. (Bernanke, 2015, n.p.)
We can thus assume that boosting equity prices drives wealth inequality in times of unconventional monetary policy measures (Domanski, Scatigna & Zabai, 2016). Only a detailed analysis can demonstrate that in the euro area, the UK and the US, bonds, stocks, and mutual funds may figure more prominently in the portfolio of high-income quintiles than in low-income quintiles. Given the large changes in the arena of macroeconomics and finance, it is startling that in a recent publication, Advanced Introduction to Feminist Economics, Jacobsen (2020) states
72 Handbook on critical political economy and public policy in a sparse two-page overview of fiscal and monetary policy that ‘monetary policy consists of changes in the interest rate, which are caused by increasing or decreasing the supply of money or by direct regulation of the interest rate’ (p. 104). Such a mechanical explanation of monetary policy can be found in any introductory traditional economic textbook. It should have become apparent to any feminist economist that since the financial crisis of 2007–08, central banks in industrial countries have been confronted with a zero-bound interest rate and have largely run out of ammunition to regulate it, except for unconventional monetary policies such as QE. QE is used when the interest rate is close to zero, and when the normal tools of monetary policy are no longer effective. Buying government and commercial bonds on the secondary market adds new money to the economy to provide banks with more liquidity. At the same time, the fall in interest rates has reduced banks’ profitability, measured in terms of net interest income over total assets (Braun & Deeg, 2020) and has also led to virtually zero interest rate returns for deposit owners, negatively affecting many small savers (Metzger & Young, 2020; Young, 2021). In fact, bank customers had to shoulder additional costs since many financial institutions did not lower their overdraft interest rates despite the fact that the prime market interest rates had been close to zero for some time. Given the shift to unconventional monetary policy and its distributive impact, it is thus bewildering why feminist economists have not included these huge macroeconomic shifts in their analyses. A loose monetary policy has rather different effects on women and men than a restrictive or austerity policy. Yet, Seguino (2020) in her recent publication on the gender impact of macroeconomics refers to the handful of papers that have explored the impact of contractionary monetary policy on gendered outcomes. While Seguino mentions that monetary policy is one of the feedback loops that explains gender inequality, there is little information on how finance-dominated capitalism in times of zero-bound interest rates and huge liquidity infusion into the market has changed the distributive effects for women and men. While the increase in asset prices is not exclusively triggered by unconventional policy, nevertheless, studies show that QE may have contributed to higher wealth inequality. Given the uneven distribution of assets within private households and with higher-income households accumulating a disproportionate share of total assets, QE may increase wealth inequalities. Considering that ownership of stocks is in the hands of around 5 percent of the EU population, it may well be that wealth inequality is more prevalent for women and minority groups. If we assume that the rich own more assets than the poor, unconventional monetary policy benefits the wealthier quintile (on average, comprising more men) at the expense of the poorer strata of society (on average, comprising more women; Metzger & Young 2020; Young, 2021). Accordingly, the distributional impacts of QE should be of concern to central banks, but also to feminist economists, since the role of money is one of the most important transmission channels between monetary policy and household wealth. That more work must be done on monetary policy to understand the transmission channels that affect women and men differently is surely an understatement (see Heintz, 2019; Jacobsen, 2020; Seguino, 2020). The theoretical and structural neglect of gender and intersectional linkages needs to be explored further to deepen our understanding of the transmission channels of monetary policy, and in particular QE, to identify the different impacts it has on income and wealth inequality among different gender and minority groups, different countries and regions, and different economic structures.
COVID-19 and the gender dilemma 73
‘TODAY’S CAPITALISM IS INCOMPATIBLE WITH FEMINISM’:4 HOW TO ENVISION A POST-PANDEMIC WORLD? To rescue the shortcomings in traditional macroeconomics and feminist economic approaches, economists such as Mariana Mazzucato, Kate Raworth, Stephanie Kelton, Maja Göpel, Ann Pettifor, Jayati Ghosh, Carlota Perez, and Katharina Pistor, who share a mission to reimagine the present finance-dominated capitalism for a post-COVID recovery, have received widespread media attention. While these authors do not identify as feminist economists, nevertheless, they strongly support putting life at the center of the economy, suggesting a new kind of economy with a public purpose. As such, they provide a holistic and systemic view of the global economy rather than restricting the analysis to the care or social economy. Putting more women into top decision-making positions at every level of public and private institutions and implementing the EU Commission’s Gender Equality Strategy 2020–2025 is without a doubt an important step towards closing the gender care and pay gaps, but this narrow focus does little to link the micro- and meso-level of the care economy to a well-defined macroeconomic mission-oriented strategy to achieve sustainable economic growth beyond the metrics of GNP/GDP accounting design. To reimagine capitalism, we need to redefine the relationship between markets and the state, to democratize finance so that it again serves the real economy, give local actors a ‘voice,’ change the hierarchal structure of international organizations to reflect the concerns of developing countries, and fully integrate the costs of externalities in the accounting statistics of multinationals to achieve outcomes that produce values at a global level. Such a new mission-oriented transformation of a post-COVID capitalism has, not accidentally, put women academics at the forefront of such an endeavor. As a caveat, such an endeavor presupposes a political will and a broad consensus to provide the public goods for the general public. While this section is not the place to provide a detailed account of the respective positions of these new thinkers, nevertheless, the authors show some commonalities. First, they challenge the static linear rationality assumptions and debates rooted in the 1950s, which in turn draw on economic theories of the 1850s (Raworth, 2017, p. 8). Starting from this premise, the market is abstracted as a natural entity, rather than seen as the outcome of variegated capital power constellations existing along different spatial and temporal dimensions. Thus, as Mazzucato (2018b) reminds us, markets need to be seen as embedded in institutions and legal structures and specific interaction in producing market outcomes. Second, creating financial wealth for the few who speculate on stocks and bonds is not the same as creating value. Mazzucato (ibid.) refers to the modern myth that has allowed an immense amount of value extraction in the economy, enabling some individuals to extract resources, but draining societal wealth in the process. The assumption that if you earn a lot, you must be a value creator, is based on the assumption that value-extracting activities, such as rent, is confused with value-creating activities. The upshot is that this has far-reaching consequences, since how we interpret things shape subsequent behavior. In addition, restricting value creation to the usual sectors of the market, the state, finance and trade, excludes the sectors of the household, the commons, and the society, that have come to play such an essential role in providing the necessary goods and services for the entire economy during the pandemic (Raworth, 2017). Even after the financial crisis of 2007–08, the financial sector remained the epitome of a country’s success in terms of contributing to GDP. Thus, feminist economists need to analyze
74 Handbook on critical political economy and public policy the care economy in the larger context of financialization and its monopolistic value extraction at the expense of the value creation of the ‘real economy.’ Many feminist economists point to the negative effects of finance on women and the poor in precarious positions, but this insight does not provide an understanding of how monetary theory and policy have changed as a result of financialization. What is needed is to analyze the transmission channels that have a structural effect on the balance sheets of financial intermediaries and on the company and private household sector via changes in the supply and demand for credit finance and asset acquisition (for more detail on the role of the transmission channels of monetary policy under QE, see Metzger & Young, 2020). However, there is some uncertainty linking QE to wealth inequality since there are indirect effects such as a reduction of the unemployment rate and the increase in the labor income of the poorer segment of society. What is needed is a feminist research project that deconstructs the black box of finance (including monetary theory and practice) to better understand and transform the narrative of national accounting practices that neglect activities that contribute value to the economy but whose output is not priced. At the other end of the spectrum, profits are included from asset price speculation that are unproductive to society at large. Given these diametrically opposed ideas of what contributes to and extracts value from the economy, the financial sector still celebrates the high contribution it makes to national accounting (in the US, 7.3 percent in 2016), but, in fact, the ‘contribution to output is zero, or even negative’ (Mazzucato, 2018b, p. 106). Third, the warning that we have reached the ‘limits of economic growth’ (Göpel, 2020) has become urgent with the devastating impact of the natural disasters of the last decade and the realization of an impending ecological collapse. Raworth introduces a new compass for human progress for the 21st century – to see the world as a ‘doughnut.’ Conceptualizing the doughnut as different rings within an embedded or circular economy, she visualizes an inner ring, the social foundation, which sets out 12 basics of life that are essential for guiding people’s needs. The important aspect of redrawing the economy in this symbolic doughnut shape is the ecological ceiling of the planetary pressures that set the boundaries for a sustainable 21st century. While mainstream economists have largely reduced economics to capital and labor, Raworth and many others suggest that the economy depends on the Earth as a source relying on the inflows and outflows of energy. As long as economic actors can externalize the costs of raising CO2 emissions towards ever more unsustainable levels, the less traditional cost–benefit analysis reflects the critical planetary degradation and the possible tipping point of no return (Schnabel, 2020). In addition, the new visionaries agree on the vitally dynamic role of the state to advance the goals of a new, energized 21st-century economy. Due to the state rescue of private banks in 2007–08, but before the COVID-19 pandemic, Mariana Mazzucato achieved wide acclaim for her message in her publication The Entrepreneurial State (2015), in which she debunks the myth about the dynamic private sector and the fabricated image of the lazy state that is widely believed by the general public. State failure became the mantra against the narrative of the spirit of private entrepreneurs first espoused in the libertarian Mont Pelerin Society of the 1940s, which entered discourse in public choice theories within university courses, and was finally accepted as ‘the truth’ in the political circles of Margaret Thatcher in the UK and Ronald Reagan in the US to implement this anti-state rhetoric against Keynesianism demand management in the 1980s. The hype about the negative impact of the state had disastrous consequences for social, labor, and environmental protection in global trade deals. In fact, corporations were able to lobby for the inclusion of clauses and private dispute settlement
COVID-19 and the gender dilemma 75 systems in trade agreements to demand financial compensation if states shielded their citizens with protective climate or labor laws that, so went the argument of the lobbyists, reduced the profits of their private extraction of profits (Göpel, 2020, p. 140). State interference became the dominant narrative and was debunked as restricting the freedom of private actors, hindering innovation and thus progress. Even more problematic is that this narrative was expressed repeatedly through the media and in university courses so that the public soon internalized this discourse and adjusted their behavior accordingly. But if we take off the veil of this anti-state mantra, the government with its administrative capacity must be seen as a co-creator of value and as a producer of public goods. Mazzucato’s greatest contribution is to demonstrate that from the moon shot (now the Mars shot) to the invention of the Internet, and virtually every technological innovation, stem from government contributions in terms of finance and early support, and not just from the entrepreneurial spirit of the private sector. This innovative focus of these mostly female academics sets a new direction for gender experts to devise mission-oriented well-defined goals as well as the instruments necessary to achieve a more level-playing field with (mainly male) economic policymakers. This may involve stepping outside the normative advocacy approach for more gender equality and create strategic coalitions that call for new taxing regimes (such as a wealth tax, regulation to stop money laundering, tax evasion and avoidance) which could add millions of much needed capital to the public coffers to finance a transformative gender-equal and ethnically diverse economy.
INSTEAD OF A CONCLUSION: A WAY FORWARD Judging from the scores of global, regional, and national Zoom discussions on issues of macroeconomics and feminist economics, one is left with the feeling that they occur in parallel universes, speaking to their own already committed fan base. While macroeconomists focus on how to pay for the increasing sovereign debt due to the coronavirus liquidity injections, whether the central banks can devise an exit strategy for QE without increasing financial volatility, whether inflationary pressures are a near future possibility, how to navigate the risk and opportunities of the introduction of a digital currency, and the role of new geopolitical tensions with China and Russia, feminist economists remain at the level of appeals and demands to finally include the care sector in the larger macroeconomic debates.5 However, both groups remain in their respective silos. So, what can be done about this? First, feminist economists need a well-defined strategic goal for how to achieve their demands. Mazzucato’s mission orientation (Mazzucato, 2018a, 2021; Mazzucato, Kattel & Ryan-Collins, 2019) can function as a model to define corrective actions and solutions and to engage with strategic actors and decision-makers to start a discussion about how to link the macroeconomic level to the microeconomic concerns of the ‘essential’ sectors. To engage these actors, as Mazzucato suggests in her outline on a mission-oriented research for the EU Commission, ‘missions must outline exciting opportunities for bold innovations – while being connected to debates in society about what the key challenges are’ (2018a, p. 14). She defines mission-oriented policies as systemic public policies that will require proactive political leadership and mission-driven public investment. As the COVID-19 crisis has demonstrated, ‘business as usual’ is unfit for this purpose. What is needed is that the state – and not private
76 Handbook on critical political economy and public policy companies – must be given a permanent, continuing role in guiding, stabilizing, and even steering production and investment toward a more sustainable, innovative, and inclusive economy. Crucially, the state should create budgets to balance the economy, ensuring full capacity utilization and reversing the misguided policy of austerity that was implemented after the financial crisis of 2007–08. Questions need to be addressed on how well-articulated missions can help to solve challenges, how missions can be best designed with clearly stated indicators that can be evaluated and controlled, and how they can be designed so that participation can be ensured across different stakeholders. These missions should be targeted as ‘hard laws’ but should not specify solutions. Rather, they should advance a range of different ideas from actors across the globe. Again, to paraphrase Mazzucato, mission projects should strive to obtain a high degree of flexibility and adaptability to allow the possibility of change if the objective cannot be achieved (2018a, p. 18). Feminist economists need to design a concrete ambitious strategy on social and economic well-being and suggest how to tackle the gender blindness in the macroeconomic instruments. Such a strategy would tie in with the opportunity to achieve the SDGs and a ‘Social Economy Europe’ in order to achieve ‘real’ changes in the recovery proposals rather than accept a symbolic narrative of ‘greenwashing’ or ‘genderwashing.’ One possible mission project where both macroeconomists and feminist economists share common ground is how to stop the massive losses of taxes that governments are facing due to tax avoidance of large tech and multinational companies who are not paying even the minimal rate of taxes of local companies. That inequality in the global system has massively increased is no longer a contested arena. However, there is little consensus among national leaders, as the discussions currently demonstrate on US President Biden’s suggestion to increase the corporate tax level on a global scale in order to design an inclusive global framework for tax jurisdictions on a level playing field (Ghosh, 2020; Meinzer, 2019; Saez & Zucman, 2019). Feminists can build on their experience of incorporating gender targets in budgetary decisions, as has been championed by the various Women’s Budget Groups around the globe, in which activists proposed to allocate budgets lines to strengthen gender equality and carry out gender impact assessments in terms of the distributive impacts of budgetary decisions. However, these activities remain at the expenditure level and do not address the revenue side of the budget. But the important question is not how to make the pie more gender equal, but how to gain additional revenues for a vision of a fairer equitable economy no longer based on the traditional mantras of economic growth, efficiency, and productivity to meet the challenges of an inclusive post-COVID era. Creating a fairer global tax system is surely one of many missions to propagate more gender and ethnic inclusivity.
NOTES 1.
I wish to thank Isa Bakker, Ismail Erturk, Friederike Maier, Brigitte Preissl, Christoph Scherrer, and Joscha Wullweber for their insightful comments and helpful feedback. 2. Rare exceptions are the macroeconomist Jayati Ghosh (2021), who analyses developing countries from a systemic macro- and microeconomic perspective within a global economic and financial context; also Isabella Bakker (2020), who analyzes the issue of social reproduction within the context of global capitalist production; and Irene van Staveren (2017) whose theoretical work con-
COVID-19 and the gender dilemma 77 vincingly demonstrates that the macroeconomy shapes the micro-level, but also inequality impacts macroeconomic outcomes. 3. The EU Commission has violated its own gender balance rules in the nominating process in the arena of EU finance, but it hardly led to a feminist mobilization when François-Louis Michaud was nominated for the European Banking Authority in July 2020 despite a strong protest by the European Parliament to advance a female candidate. Similarly, ECON (the Economic and Monetary Affairs Committee) appointed Frank Elderson as successor to Yves Mersch to the Executive Board of the ECB, against the wishes of the Greens, Social-Democrats and the Left. These male elections are a setback for gender equality, particularly as there was also no gender balance in the nominations of Yves Mersch (2012), Luis de Guidon (2018), Philip Lane (2019), and Fabio Panetta (2020). 4. Mariana Mazzucato, in a New York Times article, ‘An “electrifying economists” guide to the recovery,’ November 20, 2020. 5. However, it is not just macroeconomists who have sidelined the demands of parents and teachers during the pandemic. While the German chancellor, Angela Merkel, has (digitally) invited the auto industry several times to discuss their concerns, her first online meeting with mostly very frustrated mothers in their home-offices happened only in February 2021. The same happened with German teachers, who had little direct access to political decision-makers and were not even considered ‘essential’ for early vaccination until mid-February 2021.
BIBLIOGRAPHY Allmendinger, J. 2021, Es geht nur gemeinsam! Wie wir endlich Geschlechtergerechtigkeit erreichen?, Berlin: Ullstein Verlag. Antonucci, L. & Corti, F. 2020, Inequalities in the European Semester, Brussels: Foundation for European Progressive Studies. Bakker, I. 2020, ‘Variegated social reproduction in neoliberal times: mainstream silences, feminist interventions,’ Nordic Journal of Feminist and Gender Research, 28 (2), 167–72. Bakker, I. & Gill, S. (eds) 2003, Power, Production and Social Reproduction, London: Palgrave Macmillan. Bernanke, B. 2015, ‘Monetary policy and inequality,’ Brookings, June 1, accessed December 15, 2022 at https://brookings.edu/blogs/ben-bernanke/posts/2015/06/01-monetary-policy-and-inequality. Bijl, M. 2020, ‘The Covid-19 crisis is exacerbating gender inequalities – but who cares?,’ SocialEurope. eu, May 5, accessed December 15, 2022 at https://www.socialeurope.eu/the-covid-19-crisis-is -exacerbating-gender-inequalities-but-who-cares. Braun, B. & Deeg, R. 2020, ‘Strong firms, weak banks: the financial consequences of Germany’s export-led growth model,’ German Politics, 29 (3), 358–81. Criado Perez, C. 2019, Invisible Women: Exposing Data Bias in a World Designed for Men, London/ New York: Vintage. Domanski, D., Scatigna, M. & Zabai, A. 2016, ‘Wealth inequality and monetary policy,’ BIS Quarterly Review, March 6, 45–64. efas (economy, feminism and science), 2021, ‘Bericht von der 18. efas-Fachtagung “Geschlechtergerecht durch die Pandemie? Ökonomische Analysen aus feministischer Perspektive”,’ January 14, accessed December 15, 2022 at https://efas.htw-berlin.de/?p=4381. El-Erian, M.A. 2016, The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse, New York: Random House. Elson, D. 2013, ‘Economic crisis from the 1980s to the 2010s: a gender analysis,’ in G. Waylen & S. Rai (eds), New Frontiers in Feminist Political Economy, London: Routledge, pp. 189–226. European Commission 2020a, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A Union of Equality: Gender Equality Strategy 2020-2025. COM/2020/152 final, Brussels, accessed December 15, 2022 at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020DC0152. European Economists for an Alternative Economic Policy in Europe 2021, A Post-Covid 19 Global-Local Agenda for a Socio-ecological Transformation in Europe: EuroMemorandum 2021, accessed
78 Handbook on critical political economy and public policy December 15, 2022 at http://www2.euromemorandum.eu/uploads/euromemorandum_2021_updated .pdf. European Institute of Gender Equality (EIGE) 2020, Research Note: Gender Equality and Long-time Care at Home, Vilnius: EIGE, accessed December 15, 2022 at https://eige.europa.eu/publications/ gender-equality-and-long-term-care-home. European Women’s Lobby (EWL) 2019, Purple Pact: A Feminist Approach to the Economy, accessed December 15, 2022 at https://www.womenlobby.org/IMG/pdf/purplepact_publication_web.pdf#page =9&zoom=400,-2,6. Gender5+, 2020, ‘Towards a gendered recovery in the EU: launching of the G5+ report’ [Webinar], Brussels, October 1. Ghosh, J. 2020, ‘Reform of global taxation cannot wait: the huge fiscal pressures occasioned by the pandemic mean global tax-gaming by corporations and the wealthy is a luxury we can no longer afford,’ Socialeurope.eu, December 7, accessed December 15, 2022 at https://www.socialeurope.eu/Reform -of-global-taxation-cannot-wait/. Ghosh, J. 2021, Informal Women Workers in the Global South: Policies and Practices for the Formalisation of Women’s Employment in Developing Economics, London/New York: Routledge. Göpel, M. 2020, Unsere Welt Neu denken: Eine Einladung, Berlin: Ullstein Verlag. Heintz, J. 2019, The Economy’s Other Half: How Taking Gender Seriously Transforms Macroeconomics, Newcastle upon Tyne: Agenda Publishing. Jacobsen, J.P. 2020, Advanced Introduction to Feminist Economics, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Isele, E. & Dubois, S. 2020, The Covid-19 Gender Gap: How Women’s Experience and Expertise Will Drive Economic Recovery, London: Chatham House. Klatzer, E. & Rinaldi, A. 2020, “#NextGenerationEU” Leaves Women Behind: Gender Impact Assessment of the European Commission Proposals for the EU Recovery Plan, study commissioned by The Greens/EFA Group in the European Parliament, initiated by Alexandra Geese, MEP, accessed December 15, 2022 at https://alexandrageese.eu/wp-content/uploads/2020/07/Gender -Impact-Assessment-NextGenerationEU_Klatzer_Rinaldi_2020.pdf. Mazzucato, M. 2015, The Entrepreneurial State (Revised Edition), New York: Public Affairs. Mazzucato, M. 2018a, Mission-oriented Research and Innovation in the European Union: A Problem-Solving Approach to Fuel Innovation-led Growth, Brussels: European Commission. Mazzucato, M. 2018b, The Value of Everything: Making and Taking in the Global Economy, London: Penguin UK. Mazzucato, M. 2021, Mission Economy: A Moonshot Guide to Changing Capitalism, London: Penguin UK. Mazzucato, M., Kattel, R. & Ryan-Collins, J. 2019, ‘Challenge-driven innovation policy: towards a new policy toolkit,’ Journal of Industry Competition and Trade, 20, 421–37. Meinzer, M. 2019, Countering Cross-border Tax Evasion and Avoidance: An Assessment of OECD Policy Design from 2008 to 2018, Ridderkerk: Ridderprint. Metzger, M. & Young, B. 2020, ‘No gender please, we’re central bankers: distributional impacts of quantitative easing,’ Working Paper No. 136/2020, Institute for International Political Economy Berlin, accessed December 15, 2022 at https://www.hwr-berlin.de/fileadmin/institut-ipe/Dokumente/ Working_Papers/ipe_working_paper_136.pdf. Organisation for Economic Co-operation and Development (OECD) 2020, ‘Women at the core of the fight against Covid-19 crisis,’ Oecd.org, April 1, accessed December 15, 2022 at https://www.oecd .org/coronavirus/policy-responses/women-at-the-core-of-the-fight-against-covid-19-crisis-553a8269/. Powell, J. 2021, ‘A conversation with Federal Reserve Chair Jerome Powell,’ January 14, Youtube.com, accessed December 15, 2022 at https://www.youtube.com/watch?v=TEC3supZwvM. Raworth, K. 2017, Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, London: Random House. Saez, E. & Zucman, G. 2019, ‘Progressive wealth taxation,’ Brookings Papers on Economic Activities, conference draft, Fall, accessed December 15, 2022 at https://gabriel-zucman.eu/files/ SaezZucman2019BPEA.pdf. Saraceno, F., Semmler, W. & Young, B. 2020, ‘European economic, fiscal, and social policy at the crossroads,’ Constellation, 27 (4), 573–93.
COVID-19 and the gender dilemma 79 Schnabel, I. 2020, ‘When markets fail – the need for collective action in tackling climate change,’ speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the European Sustainable Finance Summit, Frankfurt am Main, September 28, accessed December 15, 2022 at https://www.ecb.europa .eu/press/key/date/2020/html/ecb.sp200928_1~268b0b672f.en.html. Schuberth, H. & Young, B. 2011, ‘The role of gender in governance of the financial sector,’ in B. Young, I. Bakker & D. Elson (eds), Questioning Financial Governance from a Feminist Perspective, London/ New York: Routledge, pp. 132–54. Seguino, S. 2020, ‘Engendering macroeconomics: theory and policy,’ Feminist Economics, 26 (2), 27–61. Silver-Greenberg, J., Drucker, J. & Enrich, D. 2020, ‘Hospitals got bailouts and furloughed thousand while paying C.E.O.s millions,’ The New York Times, 8 June, accessed December 15, 2022 at https:// www.nytimes.com/2020/06/08/business/hospitals-bailouts-ceo-pay.html. Stiglitz, J., Sen, A. & Fitoussi, J. (eds) 2010, Mismeasuring Our Lives: Why GDP Doesn’t Add Up, New York: The New Press. United Nations 2015, ‘The 17 Goals,’ United Nations Department of Economic and Social Affairs, accessed December 15, 2022 at https://sdgs.un.org/goals. van Staveren, I. 2017, ‘Beyond stimulus versus austerity: pluralist capacity building in macroeconomics,’ European Journal of Economics and Economic Policies: Intervention, 4 (2), 267–81. Women’s Budget Group UK (2020), ‘What would a feminist Green New Deal look like?’ [Zoom seminar], May 20, 2020. Young, B. 2019, ‘A macro-level account of money and credit to explain gendered financialization,’ New Political Economy, 25 (6), 944–56. Young, B. 2021, ‘Roundtable: Monetary policy in the EU. The distributive impact of central banks’ quantitative easing program,’ Justmoney.org, February 10, accessed December 15, 2022 at https:// justmoney.org/the-distributive-impact-of-central-banks-quantitative-easing-program/.
6. Ordoliberalism’s advice for economic policymaking1 Pavlos Roufos
Broadly speaking, ordoliberalism can be defined as a liberal tendency initially developed during the interwar period (with a strong presence in Germany but which quickly spread to more countries) that purported the need for a state-created ‘order’ (Ordnung) as a prerequisite for the proper functioning of the market. Its correlation with the post-war West German ‘social market economy’ of the 1950s and 1960s rendered it a subject of wider scholarly attention at the time, but ordoliberal ideas largely receded from public view during the 1970s. After a short-lived renaissance following the collapse of the Soviet Union and contemporaneous deliberations around the possibility of integrating former socialist countries into the Western market economy, ordoliberalism returned to the spotlight with the outbreak of the global financial crisis and its mutation into a European ‘sovereign debt’ crisis between 2008 and 2010. This time, it was ‘rediscovered’ as the ideological framework that dictated German political economy and crisis management. ‘Re-nationalized’ in the press as a ‘particularly German tradition’ (The Economist, 2015), ordoliberalism became a common explanatory reference for German insistence on austerity and fiscal consolidation (Blyth, 2013; Dullien & Guérot, 2012; Dyson, 2010; Nedergaard & Snaith, 2015; White, 2017). Evocations of a German-originating obsession with austerity and inflexible rule-abiding methods of crisis management appeared to be, for all intents and purposes, quite easy to sell. Leading figures of the crisis management process did, after all, often claim that their policy choices were inspired by ordoliberalism, its intellectual foundations in the Freiburg school and Walter Eucken’s ordoliberal policies for a competitive order (Draghi, 2013; Merkel, 2011; Schäuble, 2012, 2014; Tusk, 2015; Weidmann, 2014). Furthermore, the widespread view of ordoliberalism as explicitly anti-Keynesian (Feld, Köhler & Nientiedt, 2020) made it an easy target for those (mostly, though not exclusively, Keynesian) voices who proposed fiscal expansion as a path out of the crisis. The portrayal of ordoliberalism as standing at the conceptual epicentre of German political economy during the eurozone crisis was, however, quickly challenged, not only from the perspective of self-identified ordoliberals (Dold & Krieger, 2020; Feld, Köhler & Nientiedt, 2015) but also from scholars outside and/or critical of the ordoliberal tradition (Cafruny & Talani, 2019; Jacoby, 2015). As Feld et al. (2015) argued, despite the presence of ordoliberal elements in the European Monetary Union (EMU) architecture, the crisis response included the endorsement of policies that would be, strictly speaking, incompatible with ordoliberal teachings. Furthermore, the policy choice of austerity and competitiveness enhancement through wage cuts was, the argument went, far beyond ‘any specific type of ordoliberal heritage or anything else specifically German’ (Feld et al., 2015, p. 57).2 Ordoliberalism, concluded Dold and Krieger (2019, p. 4), was being ‘used and abused as an ideology’. From a perspective critical of ordoliberalism but drawing similar conclusions, law professor Christian Joerges would quip that looking for ordoliberalism behind the crisis management 80
Ordoliberalism’s advice for economic policymaking 81 is tantamount to ‘the discovery of a culprit who is not alive’. Such an approach represented, instead, a form of camouflage against ‘deep uncertainties on the part of the critics about the causes of the European crisis and the means which could cure it’ (Joerges, 2016, p. 144). Other critics of the ‘ordoliberalization’ narrative pointed at the misleading conflation between German ‘egoistic’ national interests and (misrepresented) ordoliberal positions (Young, 2017). More recently, Julian Germann has argued that German responses to the crisis should be understood as attempts to protect the export-led growth model and the particular domestic stability-producing class compromise of Germany. ‘Efforts to construe ordoliberalism as a meta-narrative of the German political economy are’, he claims, ‘historically unconvincing’ (Germann, 2021, p. 30). Approaching the question from a critical, open Marxist perspective, Bonefeld’s extensive work on ordoliberalism has mounted a distinct challenge on various assumptions of the ‘ordoliberalization’ thesis. Recognizing the suggestive element in describing the EMU as an ‘ordoliberal iron cage’ (Ryner, 2015), Bonefeld rejects the portrayal of Europe (or Germany, for that matter) as an ‘ordoliberal administrative apparatus’. Taking a broader view, he has insisted instead that ‘the ordoliberal argument is not about this economic policy and that economic technique [but] an argument about the liberal state as a market constituting and preserving power’ (Bonefeld, 2017, p. 2). Construed around the need to defend the liberal market order against various challenges (state planning, collectivism, laissez-faire) through a recalibration of the role of the state, Bonefeld’s analysis emphasizes the significance of ordoliberalism as a framework-building, rather than a policy-producing, project. Building on such critical commentaries, this chapter aims to explore the relation between ordoliberalism and public policy. Challenging the interpretation of ordoliberalism as a policy-producing apparatus with an eye to protecting specific German interests, this contribution will approach ordoliberalism as a liberal state theory with a framework-building intent. From this perspective, instead of trying to find an ordoliberal footprint in any specific policy choice, the aim will be to highlight the influence of ordoliberal thinking in the drawing up and creation of institutional and constitutional forms whose existence is meant to provide the overall framework within which market-conforming policies are made. To properly elaborate on this, the next section of the chapter will begin with an exposition of the key theoretical concepts developed by ordoliberal thinkers that have retained a consistency throughout different periods. With a focus on clarifying the crucial role meant to be played by the state in constructing and maintaining a competitive market order, this section will offer a preliminary account of ordoliberalism as a state theory. Having explored what is consistent within ordoliberalism, the second section will examine the various conflicts and tensions within its historical trajectory, utilizing this exposition as a means for highlighting a certain plasticity and pragmatism that accompanies ordoliberalism while preserving its core structure. The argument advanced is that, despite such divergences, the shared belief that the market economy can only function when encased within specific institutional/constitutional forms that limit political discretion has never been undermined. The third section will take a critical look at various attempts at policy recommendations by ordoliberals and evaluate their efficacy, while the fourth section will assess the contemporary significance of ordoliberalism by evaluating its influence on recent policies, such as the Fiscal Compact EU legislation of 2012.
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KEY CONCEPTS OF ORDOLIBERALISM Key elements of the ordo project can already be found, as Bonefeld (2012) has shown, in classical liberalism and, more specifically, the work of Adam Smith. In Smith’s formulations, liberal society is conceptualized as oscillating between the market and the necessary ‘government’ (i.e., state) that can create the conditions that allow the market to function. Contrary to a popular reading, Smith’s ‘invisible hand’ was not seen as single-handedly creating a framework for a functioning society. Rather, the ‘invisible hand’ represented an internal dynamic of the market that, when left to itself, was seen as incapable of integrating and maintaining (i.e., ordering) the social world. For that order to exist, an ‘exact administration of justice’ (Smith [1776], 1977, p. 915) needed to be in place, a certain ‘practice of government’ (Bonefeld, 2019). For Smith and the ordoliberals, ‘Economy is political economy’ (Bonefeld, 2014, p. 169; original emphasis). Adapting this starting point to their contemporaneous predicament, ordoliberals initially visualized such a functional order as stemming from a ‘strong state’ (Goldschmidt, 2004; Kolev, 2019). This represented an administrative and law-based apparatus that would be in the position to resist succumbing to ‘particular interests’, whether in the form of private capital attempting to ensure profits by distorting competition and the signals of the price mechanism (as the phenomena of monopolies or cartels indicated), or in the form of labour militancy and class war that threatened the foundations of private property and sound money. Closely related was an early distrust of mass democracy that, in the aftermath of World War I and the expansion of universal suffrage and democratic pluralism, was seen as providing the working class with the opportunity to ‘take hold’ of the state apparatus. For ordoliberals, a strong state was one able to insulate itself from these pressures and to ‘de-politicize’ economic policy. The state, Eucken argued, required the ‘strength to free itself from the influence of the masses and in some way distance itself from the economy’ (Eucken [1932], 2017, pp. 68–9). Echoed by fellow ordoliberal Alexander Rüstow, the ordoliberal approach saw ‘the strength and independence of a state [as] interdependent variables’, adding that ‘only a strong state is powerful enough to preserve its own independence’ (Rüstow, 1942, p. 276). The conceptualization of the need for a strong state was further strengthened by the consequences of the 1929 crash and the ensuing economic depression. Rejecting the vision of the state as a ‘night watchman’, ordoliberals also attacked the ‘identification…of liberalism with the Manchesterian theory of laissez-faire, laissez-passer’ (Rougier [1938], 2018, p. 10). In their view, the ‘theological-metaphysical origin’ of the laissez-faire dogma had unfortunately become ‘so powerful that it was regarded as self-evident and beyond all discussion’ (Rüstow, 1942, p. 272). The result, according to Röpke, was that ‘the market economy was endowed with sociological autonomy and the non-economic prerequisites and conditions which must be fulfilled if it is to function properly, were ignored’ (Röpke, 1942, pp. 51–2). Despite placing effective competition at the centre of the market order, ordoliberals saw it as inherently unable to produce a social order, making it a potentially destabilizing force. For competition to be truly effective, it had to be legally organized through state action. ‘Appealing as it does solely to selfishness as a motivating force’, Rüstow would point out that ‘[competition] can neither improve the morals of individuals nor assist social integration’ (Rüstow, 1942, p. 272). ‘The fundamental flaw…of laissez-faire politics’, Eucken would explain, is that ‘the “invisible hand” does not create forms in which individual interest and overall interest are aligned’ (Eucken, 1952, p. 260). Especially so in periods of crisis, such an approach proved to
Ordoliberalism’s advice for economic policymaking 83 be ‘impracticable since it is obvious that something has to be done to overcome this depression and to prevent the recurrence of another’ (Röpke, 1936, p. 195). Nonetheless, and having established that the state mechanism needs to be insulated from social and private pressures in order to police market competition, it was crucial for ordoliberals to clarify that the regulative activity of the strong state stood in opposition to state planning. With the looming influence of the ‘socialist calculation debate’ in the background, it was paramount to ensure that abandoning laissez-faire would not promote the belief that business cycle disruptions and crises could be avoided through economic planning. ‘The uncompromising Liberal is right in his recommendation to stick to the essential principles of our competitive market system’, Röpke would exclaim, ‘but he may be wrong in relying on the automatic mechanism of this system for overcoming the secondary depression.’ In the same breath, Röpke would add that ‘the Planner is right in demanding an active policy against depression, but irremediably wrong in suggesting Planning as the right method’ (ibid., pp. 197–8). In contrast to state planning and intervention in the economic process, the regulative function of the state is only meant to create the conditions under which the true capacity of competition can be unleashed. When institutionally regulated, competition could then act as ‘a mechanism that leads to the equilibrium of the economic process and, therefore, also brings stability to the economic order’ (Eucken, 1952, p. 198). In his diagnosis of the central contradictions plaguing the Weimar Republic, Eucken would point out that it was the absence of competition that led to the ‘formation of autonomous power-blocs in industry, agriculture and labour’, which, together with ‘the particularly dangerous instability of the monetary order’, undermined ‘the rationality of the economic processes, leading to depression, unemployment and undersupplied markets’ (ibid., p. 224). A properly functioning competitive order, however, could reduce the concentration of particular, private power and undermine both crises and the demand for planning that they generate, as complete [vollständigen] competition ‘submits one to the control of the market [and] largely disempowers him’ (ibid., p. 237). Alongside the defence of property rights and the freedom of contract, ordoliberals considered price and monetary stability as equally central constitutive principles of a competitive order. ‘Contained within the framework of regulating and controlling measures’, Böhm would explain, ‘is the provision for a stable currency, which is indeed of central importance because price stability determines the aptitude of market prices to guide the production process in an economically correct way and to secure prices against speculative disturbances’ (Böhm, 1966, p. 56). For the price system to act as an effective signalling mechanism and for wealth and property accumulation to be protected, sound money and anti-inflationary policies were indispensable. The interdependence of all these elements is contextualized in the ‘assumption that the economy forms an integrated system, that the market and the state can exist in a complementary relation’ (White, 2017, p. 2). Finally, in the ordoliberal vision, these regulative and constitutive concepts come together under the conceptual umbrella of an ‘economic constitution’ [Wirtschaftsverfassung] which ensures the supremacy of the ‘competitive order’ [Wettbewerbsordnung].
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CONFLICTS AND STRANDS WITHIN THE ORDOLIBERAL TRADITION In the context of distancing themselves from laissez-faire and conceptualizing a regulative role for the state, ordoliberals developed the concept of ‘liberal interventionism’.3 While sharing the dedication to preserve and secure the private property order (Mises [1929], 1996), ordoliberals believed that ‘sitting back and doing nothing’ would increase ‘anticapitalistic sentiment and [make] capitalism untenable’ (Röpke, 1931, p. 450). Their attempts to balance out a form of intervention within a ‘market-conforming’ framework, however, brought them into conflict with thinkers like von Mises and Hayek. For the latter, such an approach represented ‘an unnecessary and dangerous concession to interventionism’, with Hayek going as far as claiming that they represented a form of ‘proto-Keynesianism’ – a position he would, however, withdraw in later years (Kolev, 2016, p. 14ff.). For their part, ordoliberals came to regard the liberalism of von Mises as a ‘purely abstract exercise’, ‘extreme and antiquated’, representing a form of ‘paleo-liberalism’ to which they contrasted their ‘neo-liberalism’ (ibid., pp. 6, 7). In the immediate aftermath of World War II, sympathizers and proponents of ordoliberalism like Ludwig Erhard and Alfred Müller-Armack would find themselves in key government positions, designing and implementing pro-market policies with the backing of think tanks and publicity campaigns orchestrated by fellow ordoliberals like Röpke and Walther Muthesius (Bank, 2013). This represented the first direct engagement of ordoliberals with public policy. It was, however, no easy task. Not only had Germany experienced more than 12 years of central planning and fixed prices, but the dominant policies advanced by the post-war hegemon (the US) were also structured around the Keynesian-influenced ‘global new deal’ plan of state-building and intervention, with fixed exchange rates anchored around the dollar. However, as Allen (1989) has shown, the US authorities in charge of the economic administration of West Germany (and Japan) remained unaffected by the Keynesian consensus, retaining a preference towards supply-side policies, strict adherence to balanced budgets and the desire to transplant US anti-trust legislation in Germany. The appointment of Joseph Dodge, ‘a banker with properly orthodox views’ (Hadley, 1989, p. 297; see also Savage, 2002), facilitated the convergence between the US Office of Military Government and those German economists and policymakers who wanted to push towards market-oriented policies. In this context, ordoliberals found themselves directly involved in the debates around the monetary reform of 1948 and the freeing up of prices,4 the anti-cartel legislation (discussed in the next section of this chapter) and the eventual inauguration of the Bundesbank as an independent central bank with price stability as its only mandate.5 Such direct engagement with policymaking resurfaced the previous conflicts with the ‘paleo-liberals’, exemplified in von Mises’s evaluation of the ‘social market economy’ as ‘ordo-interventionism’ (Kolev, 2016). Symbolic of this friction was the rejection of Müller-Armack’s 1947 concept of ‘social market economy’ (soziale Marktwirtschaft; Müller-Armack, 1947, ch. 2). Famously, Hayek considered the term social a ‘weasel word’ (Hayek [1978], 1988) which allowed the notion of ‘social justice’ to creep in through redistributive welfare policies, dissolving the essence of the market economy. Responding to such accusations, ordoliberals felt forced to explain that in their vision, the only truly social policy is economic growth, an approach that precluded wealth redistribution. If welfare provisions existed, their essential aim was to establish a link between ‘human beings and private property’ (Müller-Armack, 1976, p. 133). From an ordoliberal perspective, in fact, only a market-based
Ordoliberalism’s advice for economic policymaking 85 ‘total mobilization of the economic forces allows us to hope for social improvements, [achieving] real social contents by means of increased productivity’ (Müller-Armack, 1981). Nevertheless, the unease remained. Müller-Armack’s perceived willingness ‘to consider interventionist measures to stimulate demand or ensure that economic development was socially beneficial’ (Nicholls, 1994, p. 140) raised concerns even within the camp of ordoliberals, a scepticism further propounded by unacceptable compromises such as the Pension Reform of 1957 (Kloten, 1989; Nicholls, 1994, pp. 351–4; Röpke, 1960). What appears to have generated the most long-standing conflict, however, was the creation of the European Economic Community (EEC) with the signing of the Treaty of Rome of 1957. Ordoliberals such as Röpke and Michael Heilperin (Feld, 2012; Slobodian, 2018) objected to the European Community in the name of free trade, perceiving it as a project that was doubling down on trade barriers and extending protectionism (the Common Agricultural Policy – CAP – was the most indicative sign of this direction), while also suspiciously geared towards central planning through the expansion of bureaucratic administration. An advocate of Swiss-style federalism, Röpke supported what he saw as the erosion of national sovereignty but not ‘its transfer to a higher political and geographical unit’ (Röpke, 1955, p. 250, cited in Feld, 2012, p. 6) such as the EEC. For a different set of ordoliberals like Ernst-Joachim Mestmäcker and Hans von der Groeben who belonged to the so-called ‘second generation’, however, the rejection of the EEC was a crippling and premature assessment. The European Community might be objectionable on some counts (the CAP being the most obvious one), but it was a work in progress and the task of ordoliberals was to engage with and push the project in their direction. However incomplete it might have appeared, the EEC represented the best attempt thus far to ‘scale up’ Eucken’s concept of the economic constitution beyond the confines of the nation-state. Disentangling themselves from the narrow focus of the national economy and seeking a wider operationalization of framework-building for a competitive order, ordoliberal influence would turn out to be decisive in the design of the EEC’s competition law (discussed in more detail in the next section) and in the constitutional framework that permeated the transition of the EEC into the European Monetary Union (discussed in the fourth section). Summarizing such achievements in 2012, Feld would conclude that, among other things, the ‘denationalization of money’ and the insulation of the monetary authorities from ‘the pressure of national fiscal and labour market policies’ were achievements that even Röpke would have appreciated (Feld, 2012, p. 11).
ORDOLIBERAL POLICY RECOMMENDATIONS After the completion of the 1948 currency reform and the freeing of prices in West Germany, ordoliberals focused on attempts to devise ‘a thorough-going anti-trust and anti-cartel legislation’ (Giersch, Paqué & Schmieding, 1992, p. 85). Already from 1947, Erhard had created a task force within the bi-zonal Economics Administration to look into anti-cartel legislation, giving the ordoliberal Franz Böhm the task to prepare the draft law. When this was eventually published in 1950, Böhm’s proposals were met with great opposition from the Federation of German Industries (FDI) and the German Industry and Trade Association (DIHT). Attacking the plans as ‘ordo-liberal laissez faire purism’ (Nicholls, 1994, p. 333), they warned of the potential of exposing the already weak German economy to crippling foreign competition.
86 Handbook on critical political economy and public policy Erhard and Böhm tried to counter such arguments by mobilizing support from small and medium entrepreneurs, hoping that smaller-sized businesses would welcome the freedom from artificially high prices imposed by heavy industry cartels (ibid., p. 330), while at the same time portraying cartels as nationalist residues and harbingers of inflation. Erhard even went as far as claiming that cartelization was against the Grundgesetz (i.e., German Basic Law; ibid., pp. 332–4), while Böhm pledged state protection ‘against abuses of power by “market-dominating” firms’ (ibid, p. 330), a position that would draw further accusations of ‘ordo-interventionism’. Already, the main outlines of the ordoliberal approach to policy can be traced: legislative measures to limit private power; a reluctance to concede any favourable position to particular German sectors despite their economic output; and the belief that an institutional form can better provide overall price stability. The cartel law was eventually passed in 1958. Erhard retained a positive attitude towards its final form by emphasizing its contribution in the direction of a market competitive economy, while Müller-Armack congratulated Böhm for a law that ‘bore the imprint’ of his hand (ibid., p. 336). Böhm, however, was reportedly dissatisfied with it (Peacock & Willdgerodt, 1989, p. 8). Nonetheless, by that time, a different stage of potential ordoliberal influence had begun. Erhard had initially been sympathetic to the objections against the EEC by earlier generation ordoliberals. As time progressed, however, he came to view its inauguration as a potential expansion of market principles in the European continent. Urging for ‘the first priority…to be price stability and the free convertibility of currencies’ (Mierzejewski, 2004, p. 167), he made Müller-Armack state secretary for European integration and in charge of the negotiations around the Treaty of Rome. For Müller-Armack, the aim was clear: establishing a European ‘stability community’ [Stabilitätsgemeinschaft] founded ‘on law over and above its constitutive political entities’ (Müller-Armack, 1971, p. 162). ‘A law-based order’, in other words, ‘committed to guaranteeing economic freedoms and protecting competition’ (Joerges, 2004, p. 461; see also Bonefeld, 2019). Central to this attempt was EEC competition law, a field seen as ‘the first supranational policy of the European Union’ (McGowan & Wilks, 1995). Walter Hallstein, ‘an avowed ordoliberal’ (per Joerges, 2016, p. 147) and first president of the European Commission, created the Directorate-General for Competition (DG IV) with the aim of fleshing out a ‘common line in European cartel policy’ (Seidel, 2009, p. 139) assigning it to Erhard’s appointee, von der Groeben. Repeating Müller-Armack’s remarks almost a decade later, von der Groeben would, in a lecture delivered at the Aktionsgemeinschaft Soziale Marktwirtschaft,6 describe the EEC as an ‘achievement of an order based on law’ (von der Groeben, 1965, p. 152). As Seidel (2009) has shown in her seminal paper on the DG IV, under von der Groeben’s leadership, ‘competition came to be, and still is considered, one of the central means to promote European integration and to realize the goals laid out in the treaty establishing the EEC’ (Seidel, 2009, p. 130). Presented as an indispensable barrier to state planning and French ‘dirigisme’, early drafts of the law specified that ‘rules were necessary to prevent competition in the future common market from being distorted’ (ibid.). For von der Groeben and his advisor Mestmäcker (a student of Franz Böhm and future editor of the ORDO journal), competition law would be the means to bring the ‘economic constitution of the EEC Treaty to life’ (Slobodian, 2018, p. 204). As Mestmäcker put it, ‘the EEC Treaty embodies an economic constitution. Its substantive foundation is constituted by the freedoms of traffic in goods and services and of personal movement, the prohibition of national discriminations and the system of undistorted competition’ (Mestmäcker, 1973, p. 190). This,
Ordoliberalism’s advice for economic policymaking 87 Seidel adds, laid the foundations for ‘a European competition order, or Wettbewerbsordnung’ (Seidel, 2009, p. 132). The practical aim was that EEC competition policy would act as a framework within which each member enjoys social permission ‘to act as an entrepreneur’ (Böhm, 1966, p. 56), free to ‘plan and implement their own economic decisions by relying only on prices and legal rules’ (Mestmäcker, 2007, p. 22). In typical ordoliberal fashion, the underlying aim of competition policy was to curtail the power of both private interests and the working class to distort the price mechanism and markets.7 Contrary to the early ordoliberal critics of the EEC, von der Groeben and Mestmäcker understood its inauguration as a process of embedding market principles into an economic coordination beyond national boundaries that would eventually expand (as in fact did happen). The task of competition law was creating a framework that would eliminate protectionist measures and market-distorting policies. As Mestmäcker would eventually argue, ‘the system of undistorted competition – extending far beyond the traditional field of cartel law – is one of the constitutional foundations of the Community’ (Mestmäcker, 1973, p. 182). Its competition law was binding ‘not only on the behaviour of firms, but also on that of the member countries as entrepreneurial units’ (ibid., p. 190).
THE FISCAL COMPACT AS ORDOLIBERAL FRAMEWORK-BUILDING Eucken had already declared that ordoliberalism is concerned with providing ‘an appropriate constitutional framework for the economic process’ (Eucken, 1952, p. 289). In this context, the role of the state was not to ‘intervene in the mechanisms of the competitive economic process’, but to ‘set up and maintain the institutional framework of the free economic order. That is the purpose of Ordnungspolitik’ (ibid, p. 339). The significance of institutional forms was directly related to their ability to create path dependency. Within this context, for example, the conceptualization of member states as ‘entrepreneurial units’ within EEC’s competition law was crucial in setting the stage for what Michael Wilkinson (2019, p. 6) describes as a ‘reconfiguration of the “constitutional imagination”’. Under these terms, and with an upscaling of the market order in mind, the ‘legitimising device for the whole constitutional order’ of the EU shifted from that of a ‘sovereign constituent power’ to that of individual economic freedom – that is, ‘the freedom to participate in the market’ (ibid., pp. 15–16). The relative stabilization achieved in the post-war era had reflected a delicate balance between an external exchange-rate anchor (the Bretton Woods system) and member states’ fiscal and economic policy coordination, a process of policymaking that fell short of the macroeconomic institutional regulation that ordoliberals promoted. The eventual collapse of the Bretton Woods regime in the early 1970s, however, provided the appropriate opportunity to reconceptualize the institutional framework. As Mestmäcker had put it shortly after the downfall of Bretton Woods, if the existence of the EEC had already undermined the maintenance of ‘far-reaching differences between the economic orders of the member countries…a common monetary policy would mean finally giving up any such possibility’ (Mestmäcker, 1973, p. 190). The process of conceiving and designing the structure of the EMU from the 1970s until its final inauguration in the early 1990s could, from such a perspective, be understood as an
88 Handbook on critical political economy and public policy attempt to shift focus towards a specific macroeconomic model and the appropriate constitutional structure that could maintain its market conformity. At the time, this was formulated by assigning control over monetary policy to the European Central Bank (ECB), while outlining specific fiscal rules (instead of coordination) in the EMU’s constitutional layout, the Maastricht Treaty. Modelled on the Bundesbank, ECB design reaffirmed the ‘de-politicization’ consensus of insulating monetary policy from majoritarian control and accountability, institutionalizing the impossibility of central bank monetary financing of state spending. In parallel, the fiscal regulations of the Maastricht Treaty reflected the orthodoxy of balanced budgets and anti-inflationary sensitivities, a direction further strengthened with the introduction of the Stability and Growth Pact (SGP) in 1997. Split into a ‘preventive’ and a ‘corrective’ arm, the SGP was meant to concretize the penalties resulting from any member state’s failure to pursue ‘sound public finances’. Initially undermined by the decision of France and Germany to suspend the SGP in 2003 as too restrictive in the face of their declining economic performance, the weaknesses of the regulatory framework of the fiscal aspects of the EMU were dramatically exposed with the outbreak of the eurozone crisis. Officially set in motion by the revelation that Greece had a deficit four times the amount, and a debt twice the size, of Maastricht Treaty/SGP rules, the assumption that ECB monetary control and supranational fiscal supervision was enough to ensure fiscal discipline was significantly impaired. Responding to this perceived gap, a constitutionally anchored form of fiscal regulation was widely perceived as indispensable, finding its form in the Fiscal Compact of 2012. The Fiscal Compact (FC) legislation has been widely described as an ordoliberal idea par excellence (Biebricher, 2017; Cafruny & Talani, 2019; Jessop, 2019; Nedergaard, 2019b; White, 2015). Embedding strict budgetary constraints within national constitutions corresponds, after all, to the strategy of creating a legal framework within which macroeconomic decisions are stringently constrained. Avoiding any direct intervention in the economic process, while at the same time circumventing potentially obstructive democratic legitimation processes, the FC represented ‘a shift from a process-based management of budgetary issues in the political domain to a legal entrenchment of substantive fiscal rules’ (Adams, Fabbrini & Larouche, 2016, p. 12). Echoing Mestmäcker’s vision of a process of ‘[legitimizing] both European law and the existence of a European Constitution without requiring additional “traditional” democratic developments’ (Maduro, 1998, p. 128), the FC captures a particular dynamic at the core of the European project: strengthening supranational integration by enhancing member-state-level competence in imposing macroeconomic discipline. As German ex-Finance Minister Schäuble would explain in a speech at the Freiburg ‘Stiftung Ordnungspolitik’ in 2014, ‘enforcing the rules you have given yourself is not a violation of sovereignty. Otherwise…European competition law…would not be possible. It is not a violation of national sovereignty that if you enter into legal commitments you will be forced to comply with them’ (Schäuble, 2014, n.p.). The reception of the FC by ordoliberals testifies to its affinity to their overall vision, with Feld and others praising its role as an institutional anchor for ‘reinforcing budget discipline’ (Feld et al., 2015, p. 58) and for supplementing the functional principle of market discipline. In a more detailed and illustrative account, Walter Eucken Institute members Heiko Burret and Jan Schnellenbach (2013) wrote a report on the FC for the German Council of Economic Experts (Sachverständigenrat, 2016/17, 2017/18). Laying out its main perimeters and proceed-
Ordoliberalism’s advice for economic policymaking 89 ing to evaluate the diverse process of implementation in different Eurozone member states, the authors point out how despite ‘considerable consolidation progress in recent years…the Maastricht deficit criterion that restricts the public deficit to 3 per cent of GDP was only met occasionally’ (Burret & Schnellenbach, 2013, p. 2). Consequently, the report also praises the adoption of the FC as representative of an appropriate response to the eurozone crisis and the overall institutional deficit of the European Union. Having explained the underlying principles behind the FC and its main structure, the report then zeros in on what it calls ‘legal ambiguities and loopholes’ (ibid., p. 6), which threaten the potential efficacy of such legislative action. Loyal to ordoliberal thinking, the objections point out that a certain amount of (political) discretion is, unfortunately, still perceptible. Lamenting the fact that the constitutional anchoring of the budgetary constraints remains voluntary rather than mandatory, Burret and Schnellenbach deplore the fact that monitoring compliance with the FC remains an ex post facto activity, based as it is on a corrective rather than preventive structure. Further criticizing the corrective mechanism as unable to provide a ‘fast adjustment’ (ibid., p. 7), they suggest making it ‘compulsory to submit fiscal forecasts to an independent fiscal council for review’ (ibid., p. 6). In more ways than one, the Burret and Schnellenbach report echoes a Deutsche Bank report issued one year earlier, authored by another member of the Walter Eucken Institute, Nikolaus Heinen. Saluting the FC as a ‘fire protection regulation’ complementary to the ECB’s monetary ‘firewall’, Heinen had also added his objection to the discretionary space still allowed. In his view, the FC was undermined by the fact that ‘members states are still politically and materially responsible for the implementation of national debt brakes – and thus they must also bear the burden of proof that they are serious about the institutional anchoring of sound fiscal policy’ (Heinen, 2012, p. 1). Finally, he remained sceptical about the efficiency of legal action against deviations (and, by extension, implementation of the FC), as the European Court of Justice assigned with the responsibility would be, until 2016, dominated by countries that are not ‘stability-conscious’ and have ‘a traditionally lax budget policy’ (ibid., p. 4).
CONCLUSION This chapter has focused on an exposition of ordoliberalism’s relation to policymaking as one based on framework-building rather than direct policymaking. Concerned with institutionally embedding a market-conforming direction, ordoliberalism is viewed here primarily as a state theory that tries to grasp the appropriate institutional and constitutional regulative principles for releasing the full effectiveness of the market and price mechanism. If early ordoliberal depictions of this arrangement were formulated around the concept of the ‘strong state’, the post-war predicament produced a discursive shift towards the promotion of a ‘constitutional order’. The aim, however, remained the same: to constitute and regulate an ‘economic order’ through depoliticization. What makes ordoliberalism a state theory is precisely the formulation that the market economy cannot function (or will function imperfectly) in the absence of a legal/institutional framework created and protected by the state. At its core, this vision can be described as an attempt to utilize a specific discretion (state regulative activity) to end all other discretions. In other words, the political activity of the state as one of de-politicization: providing the legal framework that limits the influence of particular pressures has to be performed by ‘placing at
90 Handbook on critical political economy and public policy one remove the political character of decision-making’ (Burnham, 2001, p. 128). ‘Embedded with sufficient autonomy to resist the pressure from special interests’, Nedergaard informs us, the ordoliberal framework suggests ‘a permanent and subtle dialectic between politicized and non-politicized factions of the state’ (Nedergaard, 2019a, p. 20). Nonetheless, translating such a vision into policy has proved a complicated and contradictory process; ‘de-politicization’ can never be fully realized. The purpose of this chapter was to illustrate that from the perspective of framework-building, ordoliberalism has indeed been quite effective in promoting specific institutional forms as safeguards of the market economy. The practical orientation of ordoliberalism, as set out in its foundational Ordo Manifesto of 1936 (Böhm, Eucken & Großmann-Doerth [1936], 2017) to ‘speak to the actual practical problems of economic policy’ through principled thinking anchored around an ‘economic constitution’ persists to this day, as the examples of EU competition law and the FC presented here demonstrate. But the capacity to exert influence at this level remains, however, Janus-faced. Institutional and constitutional frameworks can reduce discretionary space, but they cannot make social antagonism disappear. As ordoliberals themselves reluctantly admit, the market economy has an inherent tendency to produce social conflict, making compromises (as the cartel law in West Germany demonstrated) or even, occasionally, defeat (as the Pension Reform of 1957 suggests) inevitable.
NOTES 1. Translations into English are by the author. 2. Rather than a German imposition, eurozone crisis management policies reflected a shared project across euro area political and economic elites. See Moury and Standring (2017); Roufos (2018). 3. Röpke participated in Chancellor Brüning’s ‘Braun Commission’ on unemployment during the Great Depression. For Röpke, however, the aim was to examine the overall question of ‘the possibilities and limits of state intervention in a period of crisis and depression’ (Commun, 2016, p. 47). Feld et al. (2020, p. 3) make a similar argument, pointing out that Eucken had also ‘supported a fiscal stimulus program at the height of the Great Depression’. 4. Both Nicholls (1994) and Mierzejewski (2004) describe the collaboration of Erhard with Eucken in the drafting of a currency reform plan in 1947 within the Sonderstelle Geld und Kredit (Special Bureau for Monetary and Currency Matters). 5. The apparent consensus on the topic is that ordoliberals were against central bank independence (CBI), preferring instead a revival of the gold standard or, in Eucken’s case, a ‘commodity reserve currency’ (Bibow, 2012; Feld et al., 2015). While the gold standard and/or a commodity reserve currency were closer to ordoliberal theory, the case can be made that the impossibility of either of these choices materializing forced ordoliberals to embrace (and eventually even campaign for) CBI as the best alternative. The Bundesbank’s eventual structural set-up as a counter-majoritarian institution with a limited mandate and a price stability orientation can be seen as concomitant to ordoliberal preferences. 6. The Aktionsgemeinschaft Soziale Marktwirtschaft (ASM – Action Group for Social Market Economy) was established in 1953 by Otto Lautenbach (whom Eucken would call ‘the German Keynes’) but was already taken over by Alexander Rüstow in 1954 and transformed into an ordoliberal think tank with prominent ordoliberals such as Franz Böhm and Wilhelm Röpke on its advisory board. 7. The task of ‘compelling enterprises to act in the public interest is assigned to market competition and, by extension, to the legislature, who should protect competition from restraints created by enterprises’ (Mestmäcker, 1993, p. 71) and powerful unions, as Bonefeld adds (Bonefeld, 2017, p. 91).
Ordoliberalism’s advice for economic policymaking 91
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94 Handbook on critical political economy and public policy von der Groeben, H. 1965, ‘Competition policy in the common market and in the Atlantic partnership’, The Antitrust Bulletin, No. 1–2, 125–53. Weidmann, J. 2014, ‘Market economy principles in monetary union’, speech by Dr Jens Weidmann, President of the Deutsche Bundesbank, at the Wolfram Engels Prize ceremony, Kornberg, 28 March, accessed 9 December 2020 at https://www.bis.org/review/r140404b.htm. White, J. 2015, ‘Emergency Europe’, Political Studies, 63 (2), 300–318. White, J. 2017, ‘Between rules and discretion: thoughts on ordo-liberalism’, LEQS Paper No. 126/2017, London School of Economics and Political Science. Wilkinson, M.A. 2019, ‘Authoritarian liberalism in Europe: a common critique of neoliberalism and ordoliberalism’, Critical Sociology, 45 (7–8), 1–12. Young, B. 2017, ‘Ordoliberalism as an “irritating German idea”’, in T. Beck & H.H. Kotz (eds), Ordoliberalism: A German Oddity, London: CEPR Press, pp. 31–40.
7. What is neoliberal about new public management? Sahil Jai Dutta, Samuel Knafo and Ian Lovering
The notion of new public management (NPM) was developed in the late 1980s and early 1990s to capture a profound restructuring taking place in the public sector. Building on a critique of state bureaucracies as inefficient and hostage to special interest groups, New Right governments in Organisation for Economic Co-operation and Development (OECD) countries overhauled public service provision (Dawson & Dargie, 2002, p. 34). They adopted a series of measures to cut costs, increase efficiency and impose greater accountability, such as the widespread use of contracts, payment-by-results and audits. These initiatives came to be known as a new form of public management to express a paradigmatic shift taking place in the organization of the state (Ferlie & Fitzgerald, 2002, p. 342). Given the fact that NPM was implemented in the 1980s, in particular by the British neoliberal government of Margaret Thatcher, it became widely seen as the neoliberal approach to public administration (Connell, Fawcett & Meagher, 2009; Dean, 2014). This chapter explores the different ways in which we associate NPM with neoliberalism and some of the problems that this association poses. What makes the relationship intriguing is that public administration scholars have long pointed to tensions between the neoliberal rhetoric that drove public sector reforms and the managerial practices that were then implemented. The fact that neoliberals were highly critical of public officials never sat easily with the promotion of discretionary managerial power that often seemed to accompany NPM. Moreover, the fact NPM was partly initiated by centre-left governments (like Paul Keating’s Australia and Roger Douglas’s New Zealand) and was later easily picked up by other centre-left governments (like Tony Blair’s Britain) raised various questions about NPM’s relationship to neoliberalism. As we point out, these facts create considerable ambiguity regarding how these managerial practices relate to neoliberalism and more specifically to neoliberal political programmes. In problematizing this relationship, we aim to shed a sharper light on the nature of the paradigmatic shift of NPM and its political implications. As we argue, one way out of the conceptual problems that surround NPM lies in the history of public management, for the innovations that directly shaped the practices of NPM have a history that differs from that of those ideas that fuelled the rise to power of neoliberals. As we show, public management was born out of a new managerial approach to governance that emerged initially in the 1950s and 1960s in the US defence sector. This managerial approach was characterized by the framing of policy-making as a practice of optimization that uses performance assessments as a means to help determine what course of action to take. Out of this tradition emerged new practices of systems/policy analysis, the use of quantified social indicators, performance management, cost–benefit analysis and strategic policy-making. These practices revolutionized both business studies and public administration and provided new tools of empowerment for corporate, financial and public managers. 95
96 Handbook on critical political economy and public policy In developing this argument, we build here on a growing body of academic work that has emerged in recent years demonstrating the profound imprint of systems analysis and other innovations in the US defence sector on the world of business and public governance (e.g., Amadae, 2016; Erickson, 2015; Light, 2003; Mirowski, 2008; Rindzevičiūtė, 2016). These ‘technical’ developments have often been downplayed in studies of politics because we underestimate their profound political impact. Yet they provided the institutional mechanisms behind the rise of a new managerial class that uses these practices in both the corporate and public sector as tools to further managerial authority. With the consolidation of a vast network of think tanks, consultants and academic institutions with vested interests in these managerial practices of governance, a powerful lobby came to promote the ideas and practices of managerial governance, bolstered, of course, by the systematic campaign to increase managerial pay and power. It only furthered the interests of an increasingly self-aware managerial class. This class stretches from the corporate boardrooms of global accountancy firms and outsourcing conglomerates extracting profit from the public sector, across new regulatory bodies administering privatized public services, down to policy professionals re-socialized as managers of public services. The chapter is divided into two sections. The first explores three different ways in which neoliberalism has come to be associated with NPM and the problems this association generates. This will set the stage for a second section that shows how public management was born out of a radically new conception of managerial governance that goes back to the US defence sector and the rise of systems analysis in the 1950s and 1960s. We conclude by showing how the success of managerial governance under neoliberalism was partly tied to the ability of proponents of these practices to present their managerial planning as a way for managers to mimic the operations of the market or more specifically to create a market-like environment. Cast in this historical light, we are better able to navigate through some of the complex problems that surrounds the relationship between neoliberalism and public management. It will lead us to argue that while the neoliberal context was vital to the development of NPM, the practice of governance then adopted with NPM had in fact little to do with neoliberal ideas.
CONCEPTUALIZING NPM AS A NEOLIBERAL PRACTICE There are three aspects that are often invoked to link NPM with neoliberalism: the historical context for NPM’s emergence; the widely observed influence of neoliberal ideas on NPM, particularly public choice theory; and the depiction of NPM as importing corporate practices into the public sector. In this section, we present these three points in turn before raising various conceptual issues related to each. The first connection between NPM and neoliberalism stems from the fact that NPM emerged in a historical context where neoliberalism was politically dominant. The late 1970s and 1980s was a time of profound dissatisfaction with public administrations. The sprawling interference of the state in the economy was criticized for crowding out private initiative. The public sector was deemed to be unresponsive to political interventions and the cost of welfare as out of control. It was in this context that neoliberalism rode to power, driven by a critique of Keynesian economic governance and the welfare state. Given this context, NPM was read as the administrative form of neoliberal governance. From this perspective, NPM was the product
What is neoliberal about new public management? 97 of the arrival of neoliberals in government who set out to make the public service leaner and more efficient as a form of ‘cutback management’ (Dunsire et al., 1989). A second connection commonly drawn between NPM and neoliberalism relates to the ideas that informed public sector reform. Numerous scholars have pointed to the influence of neoliberal ideas, and more specifically public choice theory, over NPM. Public choice theory was initially developed in the 1950s and 1960s by James Buchanan and Gordon Tullock (among others). Its basic idea was that public servants are not all that dissimilar to market actors in that they pursue their own selfish interests. Given the fact that all people should be expected to act in their own self-interest, public choice theorists argued that the best way to limit abuses was to allow people to choose freely between providers (i.e., in a market). The reason for this is that bureaucratic structures in the public sector shield public officials from the need to be efficient and attentive to the needs of consumers. Without competition or a concrete mechanism to punish or reward public servants according to their performance, they are left unaccountable and liable to exploit their position for their own interest. By contrast, market competition acts as a disciplinary mechanism to force service providers to respond to people’s preferences. The solution then, for public choice theorists, is to create market pressures on state bureaucracies. This involves not only multiplying service providers, opening the door for private sector provision, but also changing the mindset of people to turn them into proper consumers who dynamically compare options over who provides them better public services. This agenda of consumer choice in public services, inspired by public choice theory, has often been part of the rhetoric that surrounds NPM. The multiplication of options by creating charter schools or expanding the private provision of health care has been rhetorically promoted as a means to ensure the power of consumers in shaping how public services were organized. The proliferation of audit and league tables, ranking schools or doctors on various grounds, have also become a hallmark of NPM and are widely interpreted as a means to generate the information for users to make informed choices over where to send their children to school or which hospital to go to for surgery. More generally, the adoption of performance management practices has been seen as a means to organize quasi-markets in the public sector, thus recreating administratively the working of market competition. Assessing the performance of public providers and putting pressure on them to improve by making these evaluations public would thus represent a means to put into practice a neoliberal norm of competition in building a market society (Brown, 2015; Peck, 2010). A third point often invoked to highlight the links between NPM and neoliberalism is the celebration of corporate management that was often used to justify public sector reform. NPM is thus often presented as the product of an attempt by the state to learn market-tested practices from the corporate sector and adopt a more ‘business-like’ approach to government. In the words of Pollitt (1990, p. 48), ‘managerialism became the acceptable face of the new right concerning the state’. If there was to be a public sector, then it should be governed in managerial terms. The transplantation of techniques and jargon drawn from the world of business into government, like mission statements, performance pay or contractualization was thus read as a neoliberal effort to denigrate the value and distinctiveness of the public service. These three points have all contributed to highlighting the ways in which public management has been shaped by neoliberal forces. While they suggest at first glance that there is value in qualifying NPM as a neoliberal approach to governance, each of these points raise their own set of issues cautioning against accepting too readily that NPM is best understood as a neoliberal practice of governance.
98 Handbook on critical political economy and public policy NPM’s Social Democratic Connection The first set of issues relates to the context for the adoption of NPM. As numerous scholars have pointed out, the striking feature of NPM’s implementation is that centre-left governments have in fact been stronger supporters of managerial reform, both preceding and succeeding the New Right government of the 1980s. Paralleling the NPM reforms of Thatcher’s New Right government in Britain, there were centre-left governments who pushed managerial reforms in Australasia in the 1980s, spearheaded by Paul Keating as Australia’s Treasurer and Roger Douglas as Minister of Finance in New Zealand. These became highly influential prototype NPM cases, with key protagonists in the New Zealand reforms going on to push NPM in the OECD. That these two Labour governments would develop NPM has been raised as a point that muddies the link between neoliberalism and NPM (Hood, 1991). More importantly, a significant number of scholars saw NPM as only coming into its own in the 1990s with the arrival of Bill Clinton as US president (Barzelay, 2002). The publication in 1992 of Reinventing Government by Osborne and Gaebler became emblematic for this new managerial movement closely attached to Third Way social democracy. The literature on neoliberalism has often thought little of this development and largely interpreted it as evidence that so-called centre-left governments of the 1990s simply consolidated the neoliberal turn focused on a market-centred view of governance, conceding to the New Right’s undoing of the post-war welfare consensus (Mudge, 2018). However, the vast investment in the public sector, especially in Britain under the New Labour government of Tony Blair, suggested a departure from neoliberal discourses about governance. While the neoliberal Thatcher government had used NPM to invoke the use of ‘business-like’ methods to squeeze efficiency out of the state and discipline bureaucrats deemed out of control, New Labour intensified similar techniques of NPM for seemingly opposite ends. In New Labour’s hands, tools like audit, performance targets or contractualization were not meant to diminish the public sector but to drive a ‘modernization’ project of expanded provision led by a new managerial class that remade the fabric of the public sector. The new managerialism was now perceived as a means to make further investments and develop the public sector. As a result, scholars such as Osborne and McLaughlin argue that we need to be careful not to conflate NPM too closely with the market-based model of Thatcher (Osborne & McLaughlin, 2002, p. 10). Indeed, public administration scholars rarely accept the idea that NPM should be reduced to the agenda of the New Right. According to Hood, the ‘political rise of the “New Right”…does not explain why these particular doctrines [of NPM] found favour’ (Hood, 1991, p. 6). Similarly, Pollitt argues that ‘NPM is definitely NOT just a neo-liberal and still less a neo-conservative doctrine’ (Pollitt et al., 2007, p. 112), and elsewhere that ‘managerialism is not identical to neo-liberalism, or the programme of the “new right”’ (Pollitt, 2016, p. 433). For Hughes, NPM ‘was more about management and responding to economic crisis than new Right ideology’ (Hughes, 2012, p. 270). The Gap Between NPM and Public Choice A second set of conceptual problems relates to the influence of neoliberal ideas (especially public choice theory) on NPM. For while NPM was initially promoted as a means to implement market-based approaches to hold civil servants accountable, beginning in the 1990s there was a marked shift away from such a critique of the bureaucracy, as proponents of NPM
What is neoliberal about new public management? 99 called for unleashing the entrepreneurial spirit of the public sector. As a result, NPM diverged significantly from public choice ideas (Broadbent & Laughlin, 2002, p. 96). The result was a growing gap between a public choice discourse that emphasized choice for service users and the reality of NPM practices that enforced instead the power of managers. While public choice had promised decentralization and free competition, the result was instead growing state monitoring and managerial oversight through a proliferation of targets, contracts and audits. It is interesting to note in hindsight that early scholars of NPM had already insisted on the tensions that existed at the heart of NPM between the ideas ‘of the New Right and those of managerialism’ (Clarke & Newman, 1997, p. 34). The reason for this was that public choice was predicated on the need to limit the margin of manoeuvre of civil servants, while the managerial discourse that promoted NPM celebrated instead the discretionary power of managers. Already in 1990, Aucoin made an influential contribution that pointed to the fact that public choice was based on a profound suspicion of managers in the public sector and pushed for limits to be imposed on them (Aucoin, 1990). By contrast, the managerial discourse that would later be found in Osborne and Gaebler’s (1992) Reinventing Government insisted on the need to provide freedom for managerial initiatives. While it was clear that both managerialism and public choice informed NPM, it remained unclear how one could understand this curious marriage of seeming opposites (Hood, 1991). While a wide range of authors point to this tension, few have clarified how the two principles could be made compatible. As a result, scholars often underspecify the ideational foundations by looking for broader common denominators that could accommodate or overlap such different traditions of thoughts. This may account for why, as Triantafillou argues (2017, p. 2), the ideational foundations of NPM remain poorly understood. With a fundamental ideological contradiction at the heart of this movement, it is difficult to get a clear picture of what NPM is all about. Scholars have generally adopted two responses to this tension. The first, broadly associated with the political economy literature (Block & Somers, 2014; Bruff, 2014), uses this contradiction as a way to reveal the ‘true face of neoliberalism’. For these scholars, growing managerial power simply demonstrates the authoritarian face of neoliberalism and the fact that, behind the rhetoric of free markets, stands a project of social engineering. Since people do not think like the Homo economicus that populates neoliberal writings, it takes considerable incentives and discipline to induce or force people to act like neoliberal theory says they should. Managerialism is thus seen as the means for pursuing a neoliberal project of market-based governance to mould people to the ideals of neoliberal theory.1 The second interpretation of this ideational tension between managerialism and public choice can be loosely connected to the public administration literature. Here, the circle is squared by arguing that NPM (and public choice rhetoric) is something of the past, bound up with the New Right governments of the 1980s in the Anglo-Saxon world, while managerialism lives on (Dunleavy et al., 2006). According to Osborne, ‘NPM has actually been a transitory stage’ to what he calls new public governance (Osborne, 2006, p. 377), a longer-lasting and broader-based paradigm that grew from the field of public management itself. The latter, he argues, was ‘rooted firmly within organizational sociology and network theory…[with] the potential to tap into a more contemporary stream of management theory’ instead of neoclassical economics and public choice theories that were ultimately foreign to public administration (ibid., pp. 382, 384).
100 Handbook on critical political economy and public policy Stylizing NPM as a neoliberal obsession with private sector governance techniques, and a zealous pursuit of markets and austerity, has thus led numerous public administration scholars to declare the normative and historical death of NPM. From this perspective, NPM appears as a passing fad that undermined the credibility of the public sector but failed to deliver on its promises for efficiency and effectiveness (Lynn, 1998; Pollitt, 2000). By 2000, Jones was arguing that ‘NPM-type reform is coming to a close in many parts of the world’ (Jones, 2001, p. 3). This view has often supported a process of paradigm-naming as scholars of public management looked for what replaced this neoliberal form of public management. O’Flynn (2007) pointed to the resurgence of a value orientation to public administration such that NPM was replaced by a new ‘public value management’. For O’Flynn (2007, p. 363), ‘under NPM, broader notions of public value were marginalized in the quest for efficiency and, consequently, the adoption of a public value perspective will represent a further paradigmatic change’. While NPM was obsessed with results, O’Flynn pointed to a form of public administration in the 2000s concerned with relationships, flexibility and multiplicity in the models of service delivery and accountability. From a different perspective, Dunn and Miller (2007) declared that NPM was being replaced by a ‘neo-Weberian state’ approach to public administration. The neo-Weberian state conceded many of the managerial orientations of NPM, while attempting to retain the ethics-driven professionalism of Weberian bureaucracy. In this way, Dunn and Miller argued that ‘the “bureaucrat” becomes not simply an expert in the law relevant to their sphere of activity, but also a professional manager, oriented to meeting the needs of their citizen/users’ (Dunn & Miller, p. 352). As these examples highlight, proclamations of NPM’s death often focused on the alleged changes in the values that inform public management. Yet those promoting these new ideas have at times exaggerated the sea change in the hope of promoting their own solutions. For this reason, numerous scholars have warned us about the ideological nature of these pronounced paradigmatic shifts (Dunleavy & Hood, 1994; Kearney & Hays, 1998; Pollitt, 1993). More generally, a number of scholars have pushed back against such readings found in the public administration literature and lamented the fact that we have lost sight of NPM simply because its practices have become normalized and are now largely taken for granted. According to Pollitt (2007, p. 113), ‘NPM is not dead or even comatose… Elements of NPM have been absorbed as the normal way of thinking by a generation of public officials’. Hyndman and Lapsley go further in describing this trend as the rise of a ‘“denial lobby” which asserts that NPM is no more’ (Hyndman & Lapsley, 2016, p. 404). In our view, the more interesting point to take away from such contributions is the widespread emphasis on the fact that managerialism has essentially triumphed over the market commitment of public choice. It suggests that the key to understanding public management is to be found at the level of the practices it advances, rather than the neoliberal rhetorical package in which they were initially wrapped. The Emptiness of ‘Business-like’ Methods This brings us to the third connection between NPM and neoliberalism: the idea that public management was a product of a fixation on the private sector. Scholars of NPM have frequently taken at face value the presentation of NPM as mobilizing ‘business-like’ methods – the most obvious source of evidence being Margaret Thatcher’s appointment of Marks &
What is neoliberal about new public management? 101 Spencer CEO Derek Rayner as chief of the Efficiency Unit in the UK. It generated a strong reaction from public management scholars who lamented the foreign invasion of private sector methods into the field of public administration. According to Savoie, this was ‘flawed… [because] private sector management practices very rarely apply to government operations’ (Savoie, 2006, p. 595). However, this framing of the critique of NPM is odd in light of the fact that public administration has long drawn on and aimed to learn from private management practices. Already in the early 20th century, Woodrow Wilson’s field-defining intervention in public administration was built on the idea that state bureaucracies were comparable to the corporate world. By stating that ‘the field of public administration is a field of business’, Wilson (1887, p. 209) was concerned to demarcate public office from the machinations of the political party machines of early 20th-century USA. Wilson conceptualized the ideal government as the pursuit of efficiency and general welfare by legally sanctioned and professional bureaucrats in opposition to the politicized and corrupted public offices that dominated the US. The critique of NPM has thus come full circle on Wilsonian public administration, although now public administration scholars lament the same process casting NPM as an attack on an ethical and legally minded ideal of public service. Moving beyond the critique made by public administration scholars targeting the use of private sector practices in running state bureaucracies, a more fundamental point can be made that the dualistic framing of private versus public management has always been conceptually empty. Corporate practices (as well as public management) can take, and have taken, a lot of different forms. It thus makes little sense to simply invoke the ‘influence of corporate practices’ because this does not specify what type of practices we are referring to (Knafo, 2020). In short, NPM does not apply generic corporate practices onto the state, but stands instead in a long tradition of public sector reform that invokes the private sector as a standard-bearer. The scientific management of the early 20th century informed by Taylorism had a significant impact on public administration in the early 20th century in the same way that the divisional organization of corporations usually attributed first to innovations at General Motors were also implemented in the state in the 1950s. For this reason, interest in the impact of corporate thinking cannot be the defining feature of NPM. We need to move forward and specify what form of practices are key to NPM, and trace their lineages more specifically (corporate or otherwise). As we will see below, a historical lineage of these practices reveals in fact that much of the framing of managerialism has been informed by a more generalized revolution in governance that took place in the late 1950s and early 1960s, which was informed by systems thinking and the emergence of information technologies. While this transformation swept through business schools and management consultancies, it cannot be reduced to a ‘corporate’ approach to organization or to the idea that the state should be run as a firm. In fact, the managerial forms of governance that have shaped NPM were initially pioneered in the US defence sector. As will become clearer below, this longer history is of great importance because it offers vital clues about what is the nature of the transition brought about by NPM and what are the political stakes of contesting it. As these three sets of concerns illustrate, the association between NPM and neoliberalism is not as straightforward as it may seem. This has resulted in divergent views on the matter. For scholars of neoliberalism, NPM is simply a conceptual referent for the remaking of the public sector in the name of the market, where private corporations insurge into public services and corporate jargon is parroted. In contrast, much of public administration as a discipline
102 Handbook on critical political economy and public policy has attempted to put NPM behind it, writing the neoliberal 1980s off as a foreign incursion into its domain connected to abandoned public choice theory and a celebration of mythologized business methods. While the former subsumes managerial governance too easily under a neoliberal outlook, the latter is too happy to downplay the paradigmatic shift of the 1980s by reducing it to a fleeting development of the era. As we show here, modern managerialism is rooted in a history that has much more to do with the dynamics of post-war planning than neoliberal concerns and one that brought a lasting paradigmatic shift with the rise of managerial governance.
THE RISE OF PUBLIC MANAGEMENT In this second section, we explore more concretely the historical lineages of public management. We show how it stems from broader transformations in the way we think of governance with the rise of what we have called managerial governance (Knafo et al., 2018). This approach became characterized by the way it frames policy issues in managerial terms, essentially using tools of optimization and mathematical modelling in order to frame policy-making. This has often lent an economistic aspect to this practice of governance because of its emphasis on maximizing the uses of resources in relation to a given objective. Yet it would be more accurate to speak of a managerial approach since it relies mainly on managerial techniques of optimization. The key is that management, long seen as a practice focused on finding the best way to implement a policy decreed from above, was now redeployed as a means to determine what this policy should be in the first place. By calculating which option could make the best use of resources one could then select the best course of action. This offered a new grammar of decision-making that favoured the experts who possessed the data about performance and knew how to manipulate its parameters. It also involved a dramatic extension of managerial oversight, since optimization must quantify everything that it wishes to take into consideration in order to process it. Managerial governance can thus be defined both by the way it frames policy-making (as a practice of optimization) and by the managerial processes it requires to operate (i.e., the multiplication of audits and the systematic measurements of policy outputs). What we now understand as public management stems directly from this transformation of governance. Before the early 1980s, public management had been understood in a much more generic sense to refer to what is done to manage the public sector. However, this term then became inflected so as to denote a distinct approach to the operations of the public sector, one that was directly counterposed to the more traditional approach of public administration. The latter was criticized for being passive and for conceiving of public servants as mere executors of policy decisions handed from above. From this perspective, the old studies of public administration had little to offer for the making of policy or for the bigger questions of governance. By contrast, the new approach of public management challenged this divide in order to recast operations more directly in relation to the making of policy. The objective was to offer an action-oriented and prescriptive approach inspired by managerial tools of optimization and new data about outputs to help public officials think about policy-making. With time we have come to think of this managerial approach to governance as an application of corporate management to the public sector. As we pointed out, however, the roots of this transformation have little to do with neoliberalism or even the corporate sector. They were tied to new practices of planning developed in the 1950s and 1960s, and came out of the
What is neoliberal about new public management? 103 defence sector. At the centre of this development was a think tank, the RAND Corporation, that brought together economists, mathematicians, engineers, psychologists and computer programmers to research military strategy. RAND developed a new science of war-making known as systems analysis. Its aim was to facilitate decision-making about what strategy to pursue in uncertain conditions. To achieve this, RAND researchers set out to compile data about how tactics and weapon systems had performed in given circumstances. They would then create mathematical models, processing them through the latest advances in digital computing, to simulate how different courses of action would play out given what was known about past performances and the various parameters that had affected it. Rather than the speculative intuitions of experienced on-the-ground professionals reflecting on the wisdom of possible policy choices, systems analysis thus completely formalized the process, turning strategy-making into a highly mathematical and seemingly objective science. The new practice rapidly became controversial as decorated military generals found themselves challenged by youthful polymath academics whose claims to expertise lay precisely in their lack of on-the-ground experience. The rise of systems analysis culminated in Charles Hitch and other RAND intellectuals being tasked by Robert McNamara with restructuring the US Department of Defense in the early 1960s along RAND lines. This became known as the Planning, Programming, and Budgeting System (PPBS). In the process, military strategy was transformed into a quantitative ‘science’ that sought to quantify policy performance, the most notorious example of which was the ‘body count’ used to assess progress during the Vietnam War. Extending Systems Analysis from ‘Warfare to Welfare’ One of the key developments for the rise of public management was the fact that RAND economists quickly realized that there was great potential for systems analysis techniques to be used beyond military strategizing. Amorphous and multifaceted questions of ‘policy’ could be transformed through systems analysis into clearly demarcated quantitative problems. In keeping with the emergence of game-theoretical ideas of constrained optimization, the goal of policy-making was reoriented to make the best use of the limited (information) resources at hand, understanding that every option comes with opportunity costs. Optimizing – an organization doing the best it can within its restraints – was the goal, and the quantified assessment of systems analysis would determine the best way to optimize. This broad idea informed the creep of PPBS from, as Jennifer Light (2003) puts it, ‘warfare to welfare’. Starting in 1965, it became the driving force behind governmental interventions in health care, education, housing and urban development. The impact of these new practitioners of policy/systems analysis went beyond PPBS. John Lindsay, mayor of New York 1966–73, called in RAND researchers to radically overhaul city administration, policing, transport and fire services. Internationally, PPBS-style approaches were taken up under the banner of rationalisation des choix budgétaires in France in 1968, Programme Analysis and Review (PAR) in Edward Heath’s Britain in 1971, and likewise informed the early 1970s’ social reforms of Willy Brandt’s West Germany. In a similar spirit, British cybernetician Stafford Beer travelled to Allende’s Chile to develop Cybersyn – a radically ambitious project for a data-driven socialist planning system. Altogether, these transformations contributed to the creation and consolidation of a powerful network of promoters of managerial governance. Its impact on the policy-making environment
104 Handbook on critical political economy and public policy would prove particularly important because of the creation of a wide range of consultancies and think tanks seeking to fill the great demand in the late 1960s for the analytical skills of systems analysis. It also played a key role in the renovations of business schools in the 1960s that would become crucial to the formation of a new wave of corporate and financial managers. More importantly, for our purpose, systems analysis would also play a key role in the rise of public management and in new public policy schools that were established in the late 1960s and 1970s in the United States (Lynn, 2006). It was deemed at the time that there was a dearth of ‘managerial’ planning in the public sector. Of particular concern was the lack of expertise in social policy on microeconomics, mathematical modelling and computational skills. In response, new public policy schools were set up to produce a different type of civil servant trained in the analytical methods associated with managerial governance instead of the old ‘bureaucratic’ ways of public administration schools. The notion of public management itself has been credited to scholars at the Harvard Policy School, most notably to Mark Moore, who used it as a label for new courses focused on recasting the traditional issues of public administration from this new standpoint. He based his approach on the recognition that the operations of the civil service directly shape policy decisions and the making of policy more generally. How to think of public administrations if, to use a popular formulation in this approach, ‘policies are implemented when they are formulated and formulated when they are implemented’ (Peters & Pierre, 2012, p. 3). This rejection of the dichotomy traditionally opposing public policy to administration would, with time, become a widely accepted idea associated with public management (ibid.). Remaking Managerial Governance for the Neoliberal Age Scholars of public administration have often underestimated the impact of these developments despite recognizing that many themes from public management reforms in the 1980s had already been trialled in the 1960s (Gruening, 2001, p. 2; Kramer, 1983; Lynn, 2006). The reason for this is that PPBS, and its immediate imitators, rapidly collapsed, thus creating the impression that proponents of managerial governance and systems analysis simply moved on to new things. As a result, much more stock has been put into the influence of neoliberals, with the resultant conceptual problems we identified above. However, the researchers invested in managerial governance as well as the institutions mobilized for its promotion did not go away with the demise of PPBS. Instead, they developed further many of these ideas, seeking to address some of the limitations they experienced and, more importantly, repackage these ideas for a new political context. In particular, the planners inspired by RAND gradually reframed their ideas to respond to the growing critiques of planning by realigning their message with the pro-market rhetoric of neoliberals. Mirowski and Nik-khah (2017) have documented the process by which the architects of systems analysis evolved, gradually assimilating the rhetoric of markets as a means to present these practices under a different guise. In particular, it became convenient to recast the planning activities of managers as if their optimizing techniques of decision-making were simply mimicking the workings of markets rewarding well-performing initiatives and punishing those that performed badly. A good example of this mutation can be found in the trajectory of Alain Enthoven. After having a key role in developing PPBS in the US, Enthoven later developed the idea of managed competition to capture the important role of management planning in selecting the best-performing options for health care. Managed competition was a governance
What is neoliberal about new public management? 105 structure aimed at empowering managers in health care to assess performance data and make decisions for others (who generally do not have the time or the resources to research) about which service providers to select for services. This practice of managed competition was later picked up by neoliberal reformers, driving the creation of the ‘internal market’ of the UK NHS as an infamous example of NPM reforms. By focussing on ‘cost saving’, ‘value for money’, and ‘choice’, public management as it developed from system analysis proved highly influential in the age of neoliberalism. Yet, this apparent convergence of managerial governance with the (rhetorical) celebration of the market is what continues to mislead us in discussions about the actual practices of NPM today. The fact that public management quickly drifted away from public choice concerns from the 1990s onwards simply suggests instead that from the beginning public management had little to do with neoliberalism.
CONCLUSION The variety of practices associated with NPM, and the different ways in which they have been used, has often led scholars to raise doubts over whether we can really treat NPM as a specific phenomenon. A growing literature has thus become suspicious of the term, seeing it effectively as another vogue term that can be used for everything and nothing at the same time. Dawson and Dargie (2002, p. 34) lament the fact that it is now used to capture such broad social transformations that it makes it difficult to determine what it actually covers. Martin sees NPM as a ‘slippery concept susceptible to a multitude of overlapping and sometimes contradictory statements’ (Martin, 2002, p. 291), while Pollitt (1995, p. 133) advocates that we should simply think of NPM as a ‘kind of shopping basket for those who wish to modernize the public sectors of Western industrial societies’. By contrast, we have insisted on the importance of a clear historical lineage between changes in business management, public management and public policy to show that there was a deep paradigmatic shift. The fact that managerial governance mushroomed into a wide array of practices tailored to different problems, we contend, should not be read as a proof of the vacuity of this notion. On the contrary, it represents a sign of the powerful impact of systems analysis and managerial governance on a wide range of fields. Building on a tradition of scholars who have pointed to the links between managerialism and NPM, we have argued that the best way to understand this shift is not to frame it as an instance of corporate practices applied to the public sector, but instead as a paradigmatic transformation in the practice of governance that affected both the public and corporate sector and which stem from an earlier transformation connected to the rise of a paradigm that we have called managerial governance. Taking stock of this lineage can be disorienting since the political implications of this turn are not easily reducible to our traditional political reference points. Most notably, the fact that managerial governance has been used for seemingly divergent political ends (and by various social forces in different context), may blur the politics involved in the rise of NPM. Yet, we have argued that the managerial turn has nonetheless had a clear political impact. The implementation of managerial-friendly infrastructures along with the systematic consolidation of managerial authority and the dramatic rise in compensation for managers point to a broader phenomenon of great importance: the rise of a new managerial class that has shifted the coordinates of current political struggles (Dutta et al., 2018). NPM may have arisen amidst a market euphoria, but it has materialized as an emboldened managerial class flexible to shift-
106 Handbook on critical political economy and public policy ing political currents and an entire industry of public service provision that has profited from the outsourced state. Contesting NPM therefore means not just re-establishing the traditional ethics of public service, as public administration scholars might suggest, nor straightforwardly reversing the marketization of the public sector in the ways scholars of neoliberalism think. Rather, it means to address the political economy of NPM in terms of the conflicts it has opened between those who plan public services and those who receive them, and the forms of exploitation NPM makes possible by opening new avenues for accumulation.
NOTE 1.
This is also broadly the response of the literature inspired by Foucault (2008).
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What is neoliberal about new public management? 107 Foucault, M. 2008, The Birth of Biopolitics: Lectures at the Collège de France, 1978–1979, London: Palgrave Macmillan. Gruening, G. 2001, ‘Origin and theoretical basis of new public management’, International Public Management Journal, 4, 1–25. Hood, C. 1991, ‘A public management for all seasons?’, Public Administration, 69 (1), 3–19. Hughes, O.E. 2012, Public Management and Administration, London: Palgrave Macmillan. Hyndman, N. and Lapsley, I. 2016, ‘New public management: the story continues’, Financial Accountability & Management, 32 (4), 385–408. Jones, L. 2001, ‘Symposium on public management reform and e-government’, International Public Management Review, 2 (1), 1–52. Kearney, R.C. & Hays, S.W. 1998, ‘Reinventing government, the new public management and civil service systems in international perspective: the danger of throwing the baby out with the bathwater’, Review of Public Personnel Administration, 18 (4), 38–54. Knafo, S. 2020, ‘Neoliberalism and the origins of public management’, Review of International Political Economy, 27 (4), 780–801. Knafo, S., Dutta, S., Lane, R. and Wyn-Jones, S. 2018, ‘The managerial lineages of neoliberalism’, New Political Economy, 24 (2), 235–51. Kramer, F.A. 1983, ‘Public management in the 1980s and beyond’, The ANNALS of the American Academy of Political and Social Science, 466 (1) 91–102. Light, J.S. 2003, From Warfare to Welfare: Defense Intellectuals and Urban Problems in Cold War America, Baltimore, MD: Johns Hopkins University Press. Lynn, L.E. 1998, ‘The new public management: how to transform a theme into a legacy’, Public Administration Review, 58 (3), 231–7. Lynn, L.E. 2006, Public Management: Old and New, New York: Routledge. Martin, S. 2002, ‘The modernization of UK local government: markets, managers, monitors and mixed fortunes’, Public Management Review, 4 (3) 291–307. Mirowski, P. 2008, Machine Dreams: Economics Becomes a Cyborg Science, Cambridge, UK: Cambridge University Press. Mirowski, P. & Nik-Khah, E. 2017, The Knowledge We Have Lost in Information: The History of Information in Modern Economics, Oxford: Oxford University Press. Mudge, S.L. 2018, Leftism Reinvented: Western Parties from Socialism to Neoliberalism, Cambridge, MA: Harvard University Press. O’Flynn, J. 2007, ‘From new public management to public value: paradigmatic change and managerial implications’, Australian Journal of Public Administration, 66 (3), 353–66. Osborne, D. & Gaebler, T. 1992, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, New York/London: Plume. Osborne, S.P. 2006, ‘The new public governance?’, Public Management Review, 8 (3), 377–87. Osborne, S.P. & McLaughlin, K. 2002, ‘The New Public Management in context’, in K. McLaughlin, S.P. Osborne & E. Ferlie (eds), The New Public Management: Current Trends and Future Prospects, London: Routledge, pp. 7–15. Peck, J. 2010, Constructions of Neoliberal Reason, Oxford: Oxford University Press. Peters, B.G. & Pierre, J. 2012, The SAGE Handbook of Public Administration, London: SAGE. Pollitt, C. 1990, Managerialism and the Public Services: The Anglo-American Experience, Oxford: Oxford University Press. Pollitt, C. 1993, Managerialism and the Public Services: Cuts or Cultural Change in the 1990s?, Oxford: Blackwell Business. Pollitt, C. 1995, ‘Justification by works or by faith’, Evaluation, 1 (2), 133–54. Pollitt, C. 2000, ‘Is the emperor in his underwear? An analysis of the impacts of public management reform’, Public Management, 2 (2), 181–200. Pollitt, C. 2007, ‘The new public management: an overview of its current status’, Administratie si Management Public, No. 8, 110–15. Pollitt, C. 2016, ‘Managerialism redux?’, Financial Accountability and Management, 32 (4), 429–47. Pollitt, C.C., Thiel, S.V. & Homburg, V. (eds) 2007, The New Public Management in Europe: Adaptation and Alternatives, London/New York: Palgrave Macmillan.
108 Handbook on critical political economy and public policy Rindzevičiūtė, E. 2016, The Power of Systems: How Policy Sciences Opened Up the Cold War World, Ithaca, NY: Cornell University Press. Savoie, D.J. 2006, ‘What is wrong with the new public management?’, in E.E. Otenyo & N.S. Lind (eds), Comparative Public Administration, Research in Public Policy Analysis and Management, Bingley: Emerald, pp. 593–602. Triantafillou, P. 2017, Neoliberal Power and Public Management Reforms, Manchester: Manchester University Press. Wilson, W. 1887, ‘The study of administration’, Political Science Quarterly, 2 (2), 197–222.
PART II METHODS
8. Historical-materialist policy analysis of climate change policies Etienne Schneider, Alina Brad, Ulrich Brand, Mathias Krams and Valerie Lenikus
The world is increasingly riven by the effects of accelerating climate change such as unprecedented heatwaves, wildfires, storms, floods and droughts. In addition, we are experiencing an immense loss of biodiversity, amounting to an extinction crisis (Hayden, Fuchs & Kalfagianni, 2020; IPBES, 2019). At the same time, 2019 saw an unprecedented eruption of a global climate protest movement (Fridays for Future, Extinction Rebellion, but also the Climate Justice Now! movement that started in 2007). Against this background, the yearly Conferences of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) have been widely considered a failure (Gills & Morgan, 2020; Newell & Taylor, 2020), as it has not been possible to reach an agreement on decisive measures to tackle the climate crisis. Instead, climate engineering, particularly so-called negative emissions technologies (NETs) supposed to remove carbon dioxide from the atmosphere, are increasingly discussed as the only option left to prevent (even more) catastrophic effects of climate change (Carton, 2019). The failure of international climate policy seems to be paradoxical as there is a strong global consensus that the climate crisis seriously affects conditions of stable social life in many parts of the world, and that adequate public policies need to be formulated and implemented to cope with climate crisis-induced problems (Harris et al., 2018; Ripple et al., 2017). So far, however, the dominant growth-oriented, resource-intensive mode of production and living that lies at the heart of the climate crisis has remained largely intact, particularly as the formulated and potentially implemented policies themselves are insufficiently designed to address and effectively transform this mode of production and living (Brand & Wissen, 2021). The main argument of this contribution is that these insufficiencies cannot merely be remedied through better policy formulation, stronger political will, or stricter implementation. Instead, based on historical-materialist policy analysis (HMPA), they need to be understood as shaped by historically developed social power structures and contradictory social interests. The aim of HMPA is to analyse how specific policies are formulated against the background of essentially competing and contradictory interests of different social forces and how, if at all, they contribute to social reproduction and the regulation of contradictory social relations and crisis tendencies. The approach thereby focuses analytically on the institutionalized polity itself and its dynamic political-economic context. HMPA was first introduced by Brand (2013) and, as historical-materialist analysis of politics, by Buckel et al. (2017; see also Kannankulam & Georgi, 2014). Since its initial formulation, HMPA has instigated critical discussions and a lively debate (Bieler, 2014; Leubolt, 2014; Paul & Haddad, 2015; Spash, 2014). The approach has also sparked a variety of empirical studies, particularly in the German-speaking area (cf. Caterina, 2018; Georgi, 2019; Haas, 2019; Holzner, 2017; Syrovatka, 2021; Wissel, 2015). 110
Historical-materialist policy analysis of climate change policies 111 HMPA radically departs from conventional approaches to policy analysis, which have regarded policies as rational action to solve given problems and perceived power as a necessary resource (Greven, 2008, pp. 27–8), focusing on a set of public actors and the so-called policy cycle, conceptualized as a process of agenda-setting, policy formulation, decision-making, policy implementation and evaluation (Howlett & Giest, 2015). At the same time, it also differs significantly from interpretative policy analysis (IPA), which, with its focus on discourse and meaning, language and argumentation and rhetoric as essential elements in the policy process, has challenged the rationalist and positivist conception of problem-solving and the dichotomy of knowledge and policy in conventional approaches (Fischer & Gottweis, 2012; Fischer et al., 2015; Hajer & Wagenaar, 2003; Paul & Haddad, 2015; Wullweber, 2019). While both HMPA and IPA critically interrogate policy-making in its embeddedness in societal contexts and power relations and share an emancipatory interest in democratizing political and social processes, HMPA assumes material structures to be effective relatively autonomously from the social construction of knowledge and discourses (in the sense of a ‘weak constructivism’; Spash, 2014). This makes HMPA a ‘close relative’ of cultural political economy (see Jessop and Sum, Chapter 3 in this Handbook), paying closer attention to the role and constellation of political actors and projects, their strategic orientations as well as of conflicts in specific policy processes (cf. Caterina, 2018). This contribution first introduces some key theoretical concepts from historical-materialist theory that underpin HMPA and outlines their implication for a historical-materialist understanding of public policies in the second section. Subsequently, in the third section, it provides a necessarily very general discussion on how climate policy can be approached through the lens of these theoretical concepts and this specific understanding of public policies. Against this background, in the fourth section, it explains how HMPA can be operationalized for empirical research, relying in particular on but also going beyond the three-step process of context, actors and process analysis suggested by Buckel et al. (2017) and Kannankulam and Georgi (2014) from the research group ‘State Project Europe’. To make the approach of HMPA more palpable, the contribution illustrates how each of these steps of HMPA can be conducted by taking the contested integration of NETs into EU climate policy as an example.
KEY CONCEPTS UNDERPINNING HISTORICAL-MATERIALIST POLICY ANALYSIS1 In contrast to most approaches to policy analysis, HMPA assumes that the researcher needs a theoretically well-founded understanding of society in general and its modes of material reproduction. Such a comprehension allows researchers to understand the dynamics, contradictions and crisis tendencies of the investigated policy fields and policies and their interlinkages with other policy areas. Therefore, HMPA builds on a long tradition of historical-materialist theory development from which this chapter introduces some crucial concepts for HMPA. Beyond these main concepts, the analysis of specific public policies and their respective contexts – for example, migration, financial, family or environmental policies – require additional theoretical concepts deriving from the critical debates within the field.
112 Handbook on critical political economy and public policy Societal Reproduction, Relationships of Forces, Hegemony and the State On the most fundamental ontological level, HMPA builds on a pivotal assumption in the Marxist tradition of social theory: the existence of certain ‘relations which human beings enter into during the process of social life, in the creation of their social life’ (Marx [1887], 1998, ch. 51, p. 878). Within the capitalist mode of production, these social relations of production and reproduction are characterized by the following structural principles: private ownership of the means of production; wage labour; competition between individual owners of means of production; and imperative of accumulation (also referred to as profit maximization) in order to continue in this competition (Bieler, 2014; Heinrich, 2012; Marx [1867], 1996, sections 1.3, 5, 21, 23). These principles also imply certain societal relations with nature, as nature tends to be subordinated to the expansion of accumulation (e.g., in the form of exploitation of natural resources and sinks) irrespective of its specific qualities and finiteness (O’Connor, 1998; Pichler, Brand & Görg, 2020). To be clear, the core structural principles do not exist in ‘pure’ form. For instance, in many so-called ‘capitalist’ societies, certain means of production are owned by the public; various economic activities within the dominant gendered division of labour are not performed as wage labour (particularly reproductive tasks); and competition is often weakened by oligopolies and state regulation. Nevertheless, a key assumption is that in capitalist societies, the structural principles constitute and characterize the dominant mode of production. A second crucial assumption of HMPA is that capitalist societies and their specific relations with nature are inherently contradictory and crisis-prone. The contradictory element lies in the fact that the imperative to accumulate tends to continuously exacerbate the exploitation of nature as well as waged and unwaged (reproductive) labour, thus undermining their own preconditions. Therefore, interests between social groups, such as social classes, class fractions or genders, are not only competing, but are partly even antagonistic – that is, irreconcilably opposed. Capitalist societies are crisis-prone because the basic contradictions have continuously destabilizing effects. Moreover, as private production and accumulation by individual capitals are in principle not mutually coordinated, the propensity to crises of overproduction or overaccumulation always exists. Consequently, as regulation theory argues, capitalist societies require a form of regulation through specific institutional forms in which these contradictions and crisis tendencies can be anticipated, expressed and processed (Aglietta, 1979; Lipietz, 1988). Apart from securing the functioning of capital accumulation (which would be an economistic misrepresentation of the regulation approach), regulation additionally means stabilizing antagonistic and contradictory social relations. The third assumption of HMPA concerns the central role of the state. Most policy analyses focus generally on the policy-making process and related governance institutions of societal significance, respectively. However, the common notion of governance tends to reduce the role of the state to one actor among others. From a historical-materialist perspective, one pivotal, albeit certainly not the only way in which capitalist contradictions and crisis tendencies are dynamically processed and regulated, is the contested identification and construal of specific problems (‘problematization’) as well as the formulation, implementation and evaluation of public policies through the state. Following Nicos Poulantzas’s ([1978] 2000) approach to materialist state theory, HMPA assumes that the state is neither neutral nor simply an instrument in the hands of the ruling class. In fact, it is relatively autonomous, which provides the capitalist state under conditions of more or less functioning liberal democracy with
Historical-materialist policy analysis of climate change policies 113 the capacity to enable, articulate and express specific compromises between different social forces. In doing so, the state does not simply cumulate pre-given interests of different social forces. Rather, it translates the latent interests of social forces into specific policies. These policies then have the potential to contribute to the regulation of the contradictions and crisis tendencies in a social formation in line with particular interests (Hirsch, 2000; Lipietz, 1988). This translation through the state allows different social forces and political actors to represent themselves and to articulate their specific competing and contradictory political interests towards certain policies. Accordingly, the state is a strategic terrain in which rivalrous and opposite interests of social forces are being organized, articulated and translated into specific policies that contribute to the regulation of contradictions and crisis tendencies. The key point is that this terrain is highly asymmetric because, as Poulantzas claims, the state itself is a social relation – ‘a relationship of forces, or more precisely the material condensation of such a relationship among classes and class factions, such as this is expressed in the state in a necessarily specific form’ (Poulantzas [1978], 2000, p. 159; see also Aronowitz & Bratsis, 2002; Gallas et al., 2011; Jessop, 1990). The notion of material condensation means that social relations of forces are historically embedded in the material structure of the state (its institutional set-up, the law, the political orientation of state officials) – that is, in its various branches and apparatuses (ministries, central bank, etc.). This implies specific, asymmetric selectivities – that is, filter mechanisms with regard to the strategies, interests, discourses and forms of action of different social interests and political actors in their possibilities to access the state and shape public policies (see also Jessop, 1990; Krams, 2019; Leubolt, 2014; Offe, 2006, pp. 95–126). In this setting, the concept of hegemony is quite instructive for a historical-materialist understanding of policy-making. Hegemony according to Gramsci refers to the mechanisms through which dominant social forces universalize their particular interests (Gramsci, 1991, p. 101; Thomas, 2011). This includes asymmetric material compromises between classes and class fractions, establishing a system of moral beliefs and forms of knowledge (including subjectivities and identities; Sum, 2009). The system also ensures ‘a long-term durability of a certain power constellation, which makes it possible to settle “conflicts” in a rule-guided manner among the parties to a compromise’ (Demirović, 2007, p. 121, own translation). These compromises, convictions and conflict management mechanisms are embedded in the state and its apparatuses, but they also permeate the entire social formation and institutions of civil society (Gramsci, 1996, p. 1267). In this respect, the current forms of hegemony are an essential feature of the corridor of policy-making. The making and maintaining of hegemony and functioning forms of regulation imply a complex process of knowledge and knowledge production. To bring the socioeconomic and the state-political spheres together, the crucial question is how the state – as a decisive instance for the formulation of public policies – can know about the manifold social problems that need to be addressed (Brand, 2013; Lenhardt & Offe, 1977). In other words, how can a certain form of ‘correspondence’ (Álvarez Huwiler & Bonnet, 2018 use the term ‘adequacy’) be established between the object of policies and the subject? One answer is that the state is also an apparatus of knowledge. As it is not obvious which policies actually contribute to social reproduction and to the successful regulation of ongoing contradictions and crisis tendencies in the medium and long term, policy-making is a constantly contested process of searching for ‘adequate’ forms of regulation. This means forms of regulation that respond to and process underlying crisis tendencies in a way that is compatible with or even conducive to the interests
114 Handbook on critical political economy and public policy of dominant social forces. Therefore, and even though the eminence and relevance of scientific knowledge is often contested among state actors and drawn upon highly selectively – particularly regarding climate change – the state must constantly produce and evaluate knowledge through so-called knowledge apparatuses. This includes research departments in their own apparatuses as well as (semi-)public research institutions, think tanks, and so on (Lenhardt & Offe, 1977; Stützle, 2011). Consequently, struggles over public policies not only take place on the institutional terrain of the state, but also cross the entire complex networks of civil society (in this respect, policies are ‘relatively autonomous from the state’, as argued by Paul & Haddad, 2015, p. 50). Nonetheless, HMPA still insists that the state is a specific terrain that condenses (and thus also centralizes) power relations and social conflicts through the process of policy-making. Any critical policy analysis therefore requires a differentiated understanding of the state in capitalist societies.
IMPLICATIONS FOR A HISTORICAL-MATERIALIST POLICY CONCEPT These theoretical concepts from historical-materialist social theory provide the basis for a notion of public policy that takes the historical materiality of capitalist social relations into account, and, as a result, provides a better understanding of the context and corridors of policy-making and formulation. Four features of a historical-materialist concept of policy deserves to be highlighted. First, based on the concepts introduced earlier, public policies can be understood as unstable compromises between social forces formulated by specific state apparatuses or even groups or alliances within specific apparatuses. Fundamentally, HMPA therefore seeks to examine how specific policies are formulated against the backdrop of competing and contradictory interests of different social forces and their strategies, and how, if at all, they contribute to social reproduction and regulation of underlying contradictions and crisis tendencies. In this sense, our approach entails two different understandings of context: at an abstract level, context in the sense of the overarching structures of capitalist economies, societies and the state; and, more specifically, the specific policy context, for instance, of certain financial, migration or environmental policies (see also the subsection on context analysis). Second, it must be emphasized that there is no ‘grand strategy’ of the state due to its sectorization into different branches and state apparatuses. Rather, the material condensations in the state apparatuses are specific, as certain structures and power relations exist in the different policy fields and conflicts, and there are tensions among various political institutions. As a result, diverse and often contradictory policies are formulated by different state apparatuses with different selectivities. In other words, the heterogeneity of the state apparatuses is a central feature of the policy process. This multiplicity of contradictory and contentious policies, whose incompatibility can potentially destabilize the process of social regulation and reproduction, raises further questions: one might ask why and how specific policies could contribute to a more or less coherent alignment of state policy and, in a more general sense, how they maintain or create a degree of consistency within the state. Accordingly, Jessop has introduced the notion of ‘state projects’, ‘which give some operational unity to the state as an apparatus’, the ‘essential theoretical function [of which] is to sensitize us to the inherent improbability of the existence of a unified state’ (1990, p. 161).
Historical-materialist policy analysis of climate change policies 115 Third, specific procedures are declared as necessary, and particular apparatuses as competent for dealing with specific policy issues. In other words, the state claims competence for dealing with many societal conflicts and problems and gives a certain durability to the act of defining and dealing with conflicts and problems. Fourth and finally, a historically sensitive perspective enables an analysis of how particular forms of policy-making become hegemonic themselves. For instance, a comprehension of policies formulated and implemented by a centralized state during Fordism will be different from one that understands public policies as parts of broader structures and modes of governance in the post-Fordist era.
APPROACHING CLIMATE CHANGE POLICY THROUGH HMPA The theoretical notions and the concept of policy sketched above open a distinct perspective on climate change policies. The climate crisis is arguably one of the most paramount examples of the contradictory character of capitalist social relations and capitalist relations to nature. Most crucially, while the specific characteristics of fossil energy were pivotal to the ascent of capitalism in the first place (Malm, 2016), their ever-growing exploitation and use driven by the imperative to accumulation and growth has led to a sustained and by now dramatic surge in atmospheric greenhouse gas (GHG) concentrations. Ensuing extreme weather events such as heatwaves, wildfires, storms, floods or droughts have increasingly destabilizing effects, which not only incur mounting economic costs but also threaten capital accumulation in important sectors such as the insurance industry or construction and real estate. Against this background, climate change policy can be understood as attempts at dealing with and processing these underlying contradictions in a process of regulation that is inherently contested, unstable and dynamic. Climate change policies are formulated across a variety of institutional terrains and scales with distinct selectivities, ranging from the local and regional level to the national and EU level up to the level of international climate policy under the UNFCCC. A large body of research has focused on the trajectories and workings of international climate policy and diplomacy in particular (cf. Gupta, 2010), where the 2015 Paris Agreement now sets the goal to limit global warming to well below 2°C, preferably to 1.5°C. However, from the perspective of HMPA, the negotiations and agreements in international climate policy and diplomacy are but the ‘tip of the iceberg’ (Aykut, 2016). They cannot be adequately understood in an isolated manner but only against the background of structuring context and corridor of capitalist social relations and related competing and contradictory interests of different social forces. On a very general level, this pertains to the way the climate crisis is construed as a problem, or ‘problematized’, through the dominant international climate policy terrains. To be sure, in the sense of ‘weak constructivism’ (Spash, 2014), HMPA holds that the biophysical reality of anthropogenic climate change exists relatively independent from the way it is perceived and construed. However, the specific ways in which climate change has been constructed and perceived is relatively contingent and has far-reaching implications for how it is addressed politically. One of the most prominent hegemonic representations of climate change in this respect is the notion of the Anthropocene (Crutzen, 2002), referring to a geological epoch in which humankind has become the determining force for the earth system. Like other notions that address climate change predominantly from a global perspective in terms of ‘planetary boundaries’ (Rockström et al., 2009) or in terms of responsibilities of the entire collective
116 Handbook on critical political economy and public policy of earth population, the notion of the Anthropocene obscures that both the responsibility for causing climate change as well as its adverse effects are distributed highly unequally across the globe but also within societies of the Global North and South. As such, hegemonic representations of climate change foreclose a deeper understanding of specific social relations, interests and structures that lie at the heart of the climate crisis, such as emission-intensive processes of accumulation and related corporate interests or emission-intensive patterns of consumption as part of an ‘imperial mode of living’ (Brand & Wissen, 2021; Lövbrand et al., 2015; and on the alternative notion of ‘Capitalocene’, Moore, 2016). In a similar vein, the focus of international climate policy on global carrying capacities and temperature targets is highly abstract and overrides the discussion on which climate change impacts are tolerable in specific regions and how social relations would need to be transformed on the ground to effectively mitigate climate change (Bauriedl, 2015). The Intergovernmental Panel on Climate Change (IPCC), the most important ‘knowledge apparatus’ in international climate policy tasked with compiling and synthesizing existing knowledge about climate change and its consequences, has played a decisive role in this framing. By relying predominantly on highly complex integrated assessment models to assess the effects of specific mitigation scenarios and trajectories, it has become ‘an important player in making futures, not just forecasting them – in putting certain options on the table, while potentially obscuring others’ (Beck & Mahony, 2018, p. 12). Besides exploring hegemonic representations of climate change and how they are produced through specific knowledge apparatuses with respective selectivities, HMPA also offers an understanding of the associated hegemonic forms of climate policy-making. Both international and national climate policies have relied predominantly on market- and technology-based strategies that – at best – promote ecological modernization and ‘techno-fixes’ but are limited in addressing underlying social relations that drive climate change (Low & Boettcher, 2020; Markusson et al., 2017). A classic example of market-based ‘solutions’ are emission accounting and trading systems such as the international or EU Emissions Trading System (ETS), deemed to achieve climate targets in the most cost-effective way. International transfer of carbon credits has been facilitated by instruments such as ‘Joint Implementation’ or the ‘Clean Development Mechanism’, which help to compensate for failed emissions reductions by implementing or financing sink projects elsewhere (Røttereng, 2018). In terms of technology-based ‘solutions’, hegemonic climate policy-making has heavily relied on approaches such as carbon capture and storage (CCS) or biofuels. What all these strategies have in common is that they ‘functionally permit the delaying of comprehensive decarbonization’ (Low & Boettcher, 2020, p. 1) – not just by failing to trigger the disruptive destabilization of entire socio-technical systems actually needed (as in the case of emissions trading and carbon pricing; Rosenbloom et al., 2020), but also by permitting the ‘offset’ of failed emission reductions (Joint Implementation, Clean Development Mechanism) and even locking in carbon infrastructures and generating new accumulation potentials for fossil capital (CCS, biofuels). In a still rather general sense, these forms of climate policy-making can be understood as asymmetric, unstable compromises to address climate change without, however, challenging core vested interests or underlying dynamics such as economic growth. At the same time, they also seek or promise to unlock new fields for ‘green’ accumulation, based on the myth of decarbonized growth – that is, that economic growth can be absolutely decoupled from material throughput and GHG emissions (Haberl et al., 2020). Crucially, though, as these policies are formulated and implemented in a variety of international policy terrains and state appara-
Historical-materialist policy analysis of climate change policies 117 tuses that condense specific constellations of interests and relations of forces (Brunnengräber, 2013), they do not form a coherent overarching strategy. Rather, there are competing policies and strategies that in part undermine each other. For instance, while the EU ETS in principle aims at making emission-intensive production more costly, the German economics ministry makes sure that certain energy-intensive industries received comprehensive compensating state aid, thereby effectively thwarting the mechanism in this respect. Such policy incoherence implies a fundamental inconsistency between goal formulation and climate policy action (Geden, 2016) and has led to continued attempts to strengthen policy coherence through state projects such as climate policy integration frameworks (Adelle & Russel, 2013). Ultimately, since the hegemonic forms of climate policy-making have proven largely inadequate or insufficient to mitigate climate change, there is a constant and contested process of searching for new forms of regulation and compromise. As it is increasingly recognized that emission reduction targets can no longer be reached simply through at-source emission reduction and existing sink capacities, so-called NETs have been integrated into international and EU climate policy – a recent development that we will use below to illustrate how to operationalize HMPA for empirical research. NETs, also referred to as carbon or greenhouse gas removal technologies, also encompasses more recent ideas around using technological interventions such as bioenergy with CCS or direct air CCS to compensate for future residual emissions as well as an eventually inevitable overshooting of the CO2 budget (Minx et al., 2018). While prevalent in both IPCC and EU mitigation scenarios and strategies, NETs remain ‘largely technological imaginaries’ thus far (McLaren, 2020, p. 2412) and major uncertainties exist whether carbon dioxide removal through NETs can adequately substitute for at-source emissions reduction as well as whether sustainable and socially acceptable delivery of NETs is possible at all on a large scale (Anderson & Peters, 2016). Therefore, the inclusion of NETs in climate policy is highly controversial and deeply political. For instance, using NETs may not only help the fossil fuel industry reduce its amount of stranded assets but may also allow for higher residual emissions across various economic sectors, thus reducing the pressure to cut emissions (Carton, 2019), resulting in what has been discussed as ‘mitigation deterrence’ through NETs (Markusson, McLaren & Tyfield, 2018).
OPERATIONALIZING HISTORICAL-MATERIALIST POLICY ANALYSIS Based on the theoretical foundations introduced in the second section above, HMPA analyses public policies against the background of complex social relations of (re-)production (including societal relations with nature) that are contradictory, dynamic, crisis-prone and lead to latent or manifest conflicts. HMPA thereby understands conflicts as clashing of competing or antagonistic interests of two or more collective actors. These conflicts over particular societal problems and their political management through policies are, in turn, the point of departure in HMPA. To be clear: policy processes do not necessarily lead to manifest conflicts. Accordingly, not every social or political conflict results in policies. The decision to depart from conflicts in policy processes is therefore first and foremost a heuristic one. It is based on the assumption that policy processes that are associated with social and political conflicts are most likely to provide information about the crucial underlying interests and constellations of
118 Handbook on critical political economy and public policy forces that shape the contested reproduction of social relations (for a more detailed elaboration of how to operationalize HMPA, cf. Brand et al., 2022). As the key concepts of HMPA are mostly situated at a high level of abstraction, practical research with HMPA can rely on retroduction as a method of data analysis, a ‘continuous, spiral movement between the abstract and the concrete, between theoretical and empirical work, involving both an interpretative and a causal dimension of explanation’ (Belfrage & Hauf, 2017, p. 260). Retroduction consists of an inductive moment in the form of various methods of fieldwork, and of a deductive moment whereby the researcher applies existing theories to the research object to create an understanding of the context and processes of an investigated policy (Belfrage & Hauf, 2017; Kempster & Parry, 2014, p. 88). As a way to further operationalize HMPA for empirical research, a three-step process, consisting of (1) context analysis; (2) actor analysis; and (3) process analysis (as suggested by Buckel et al., 2017; Kannankulam & Georgi, 2014) has proven highly instructive in many analyses relying on HMPA. In the remaining subsections, we will introduce this three-step approach and illustrate it through the empirical case of NETs in climate policy. At the same time, we will also provide some suggestions on how to develop the three-step approach further. An HMPA analysis of the contested integration of NETs into climate policy radically differs from other approaches to policy analysis: while conventional approaches would focus on how rational policy-making actors judge the substitutability of NETs for mitigation in terms of climate solutions and design climate policies accordingly, IPA would specifically pay attention to how framings and sociotechnical imaginaries – that is, pictures, visions and promises of social futures that inform and shape research and technology development – mould climate policy-making in the context of NETs. HMPA, by contrast, provides the analytical tools for a granular exploration of the actors, strategies and interests that shape the integration of NETs into climate policy against the background of social relations that are contradictory, dynamic and crisis-prone. In terms of methods, the three steps of analysing the contested integration of NETs into EU climate policy with HMPA could rely on in-depth qualitative document analysis, focusing on and systematically classifying and analysing policy-relevant studies, policy papers, public statements, policy proposals and official policy documents (regulations, legislative texts). This should be combined with expert interviews with close observers of EU climate policy from think tanks, non-governmental organizations (NGOs), academia, EU policy advisers and policy-makers selected on the basis of document analysis. The exclusive knowledge obtained through these interviews will serve to uncover realms and dynamics of the policy-making process that are inaccessible through document analysis. It is crucial to note that the circular, iterative research process based on the three-step HMPA differs from the final presentation of results. The latter often suggests a high degree of coherence, while in reality the research process can be much messier. For example, the extended three-step method could also start with a process analysis, followed by context and actor analysis. The research interest defines the scope and role of each part of the analysis. The research may focus on the problem definition of certain policies to mitigate the impacts of climate change or on the power relations within an institution regarding a certain conflictual policy. Accordingly, the importance of one part of the analysis – process, context or actor analysis – increases in relation to the others. Hence, there is certainly no ready-made template for HMPA that can be reproduced regardless of the specific policy process being examined and the particular research interest.
Historical-materialist policy analysis of climate change policies 119 Context Analysis As societal or political conflicts serve as the main analytical point of departure of HMPA, the context analysis aims at reconstructing the particular conflict under investigation ‘as a specific historical situation to which social and political forces reacted differently and in opposition to each other, and which was brought about by a complex set of historical conditions and processes’ (Kannankulam & Georgi, 2014, p. 63). To this end, Buckel et al. (2017) and Kannankulam and Georgi (2014) suggest first locating these conflicts ‘in their broader historical context’ and explicating ‘the historical and material conditions that gave rise to the problems at the heart of the investigated conflict’ (ibid.). The guiding research question here is, why and due to what circumstances did a particular conflict arise at a specific time and in a specific form? Taking the contested integration of NETs into EU climate policy as an example, the context analysis would trace why and how NETs have occurred in climate policy discourse and policy-making in the context of major developments in international and EU climate policy. This would have to consider main trajectories of international climate policy as outlined above, particularly its focus on market-based and technological ‘solutions’, and how they have informed and shaped EU climate policy, relying particularly on critical literature on the dominant forms of international climate policy (cf. Moe & Røttereng, 2018). It would also identify the role of the main institutional terrains and apparatuses in EU climate policy as well as their specific selectivities, based on the literature on the multilevel and polycentric institutional architecture of EU climate policy (cf. Rayner & Jordan, 2013) as well as critical political economy (CPE) contributions on European (economic) integration more generally (cf. Cafruny & Ryner, 2017). The context analysis also pays attention to particular events and their impact, such as the issue-specific deliberations within the UNFCCC or the publication of the IPCC’s (2018) special report on the impacts of global warming of 1.5°C whose mitigation scenarios reinforced growing perception that targets can no longer be reached by means of ‘conventional’ mitigation only, while deep decarbonization is increasingly perceived as an existential threat to specific industries, particularly fossil industries. Actor Analysis The actor analysis starts by identifying the relevant political actors (see also Buckel et al., 2017): How and why have they reacted differently and oppositely to the conflict situation identified in the context analysis? Which actors became active, how do they perceive the upcoming key problems and how have they positioned themselves? Second, the actor analysis aims at analysing the entire actor constellation by clustering different groups or coalitions of actors. In particular, the following questions are addressed: Which groups of actors with similar positions and overarching goals can be identified? What is the main strategic orientation of these groups or coalitions, and with which political initiatives and projects do these actors follow their goals? What power resources – organizational, discursive, and symbolic as well as financial power resources, access to media and state apparatuses, systemic conflict capacities – do these actors possess or have access to? Third, the actor analysis examines the underlying interests of social forces and classes that significantly shape the conflicts between individual actors or actor coalitions. Linking political actors to social forces and their material interests is arguably one of the biggest challenges in HMPA. While HMPA presumes that con-
120 Handbook on critical political economy and public policy flicts over policies are part and product of social struggles and conflicts between social forces such as classes, class fractions and other social forces, political actors do not represent class interests and usually not even the interests of individual class fractions in any ‘pure’ or direct form. Rather, they generally already articulate and represent specific compromises between different social interests in a mediated form that involves complex intersections with lines of racism, gender and sexual orientation. Regarding the contested integration of NETs into EU climate policy, the actor analysis would look at policy-relevant actors, focusing not only on EU institutions and branches within these institutions, political groups in the European Parliament and member states, but also business actors of different industries (e.g., agribusiness, bioeconomy, fossil fuel industry, emissions-intensive non-energy industries and the ‘green economy’), NGOs and think tanks. The goal is to reveal which actors are the driving forces behind the integration of NETs into EU climate policy, why and through which political projects they promote NETs, and which actors are the key obstructors to this integration. This enables the assessment of lines of conflicts in the politics of NETs in the EU, alliances of actors in terms of shared framings, overarching strategic orientations as well as underlying material interests of social forces. Even though solid actor constellations do not exist yet (but see Geden & Schenuit, 2020), the fossil fuel industry will arguably be among the staunch supporters of NETs, as they not only allow the further delay of the devaluation of fossil assets (Carton, 2019), but also open new accumulation potentials, such as running CCS facilities or using captured CO2 as a tool in enhanced oil recovery (McLaren, 2020). They may enter political alliances with large agribusiness, benefitting from surging demand for biomass, or more generally with emissions-intensive industries such as the car and steel industry seeking to delay deep decarbonization. Progressive environmental NGOs but also ‘green industries’ whose business model is premised on providing infrastructures and technologies for deep decarbonization are likely to form resistance to the integration of NETs as a way to delay decarbonization, albeit for different reasons and with very different strategies and political projects. Process Analysis The process analysis ‘reconstructs the dynamic process in which the investigated conflict… unfolded through different phases and turning points, and against the background of its broader historical context’ (Kannankulam & Georgi, 2014, p. 67). As a first step, it is crucial to identify the key events and decisions in the policy process and derive a periodization from them. Second, the central questions are: How and why were certain actors or groups of actors able to prevail over others? Did relevant conflicts occur within the groups of actors or hegemonic projects identified in the actor analysis? What compromises emerged, who articulated them and how did they mediate the relevant conflicting positions and interests? Which selectivities of institutional terrains were decisive in this regard – that is, which structurally inscribed mechanisms of filtering were crucial in this process in that they determined priorities and favoured certain paths of action over others? Were there conflicts over which actors and apparatuses will be responsible for the implementation of specific policies and how they are evaluated, and how were these conflicts resolved? In the case of the integration of NETs into EU climate policy, the process analysis explores the decisive moments, turning points and important conflicts across different stages of the policy process. It identifies the role of crucial institutional terrains in this process (e.g.,
Historical-materialist policy analysis of climate change policies 121 ‘pre-institutional’ expert and civil society discourse, within the European Commission, in the European Parliament, the European Council and the Council of Ministers as well as the formal and informal trialogue process) and how their selectivities have shaped the policy process. In particular, it would seek to understand the selectivities through which specific expert knowledge over NETs is considered relevant and how specific political approaches and strategies towards NETs condition, and are translated into, policy formulation and implementation. This enables the understanding of which specific policy options regarding the integration of NETs were selected over their alternatives and how this occurred. In so doing, the process analysis traces across the different phases of the conflict how the relevant actors opposed or promoted specific framings and actions to introduce NETs into EU climate policy. Even though the integration of NETs into EU climate policy is still in its infancy, we could already discern some potential strategies in our initial research on the subject. For instance, actors promoting NETs may initially seek to dissociate NETs from largely negative connotations of geo- or climate engineering (Minx et al., 2018, p. 13). Another strategy is to refer to generic notions of ‘carbon dioxide removal’, which intentionally blurs the boundaries between ‘natural’ land-use sinks and ‘engineered sinks’ (Geden, Peters & Scott, 2019). These strategies could possibly provide the basis from which to forge broader political coalitions or split actor coalitions advancing ‘conventional’ climate change mitigation approaches in the near future. When analysing strategies to promote or prevent the integration of NETs into EU climate policy, it is also crucial to understand how actors in favour of NETs attempt to establish links to existing forms of EU climate policy. For instance, a pivotal political project in this regard, already elaborated by individual think tanks or knowledge apparatuses, could be the integration of NETs into the EU ETS, so that price dynamics determine how much emissions reduction is substituted by carbon dioxide removal through NETs (Rickels et al., 2020). If this political project gains traction, this may help to forge broader political coalitions behind NETs as important elements of ‘cost-efficient’ climate change mitigation. Thereby, the process analysis step takes into account the fact that the distribution of competences in climate policy between the EU institutions and the member states is essentially contested, paying attention to scalar strategies of up- or downscaling and forum-shifting in multilevel EU climate policy-making (Jessop, 2005).
CONCLUSION In this chapter we argued that HMPA is a theoretically informed research perspective that brings together CPE and a critical analysis of public policies. It focuses primarily on the socioeconomic and political context of particular policies: it pays particular attention to the dynamic ‘corridor’ of policy-making that must be taken into account without denying contingencies and the relative openness of political processes. The state is to be seen less in its problem-solving function, but rather as an ordering and structuring mechanism of policy against the background of essentially competing and contradictory social interests. HMPA is not primarily interested in the effective design of policy, but in its contested constitution and its role in the reproduction of societal relations of domination as well as in the regulation of structural contradictions and crisis tendencies. We have therefore suggested four key features of a historical-materialist notion of (public) policy. First, policies are unstable compromises among social forces, which are formulated
122 Handbook on critical political economy and public policy through specific state apparatuses. Second, (public) policies are formulated through different state apparatuses, making their heterogeneity a key element of the policy process. Hence, different structures and power relations exist in policy fields, resulting in tensions among different state apparatuses and political institutions. In this context, HMPA can detect, third, a contradiction between the state claiming competence in dealing with societal conflicts and being divided into specific policy fields, in which social actors must articulate demands, interests and values. Fourth, certain forms of policy-making themselves become hegemonic. Regarding NETs, such a perspective can reveal that the integration of NETs into EU climate policy is not just a result of ‘rational’ decision-making or the efficacy of sociotechnical imaginaries, but is shaped by actors, strategies and interests. Even though the integration of NETs into EU climate policy is still in the early stages, we can already observe how fossil capital such as Shell advance NETs (Carton, 2019), and how other capital fractions contribute to the ‘normalization’ of NETs by adopting seemingly ambitious ‘net-zero’ or even ‘climate-negative’ targets (Data-Driven EnviroLab & NewClimate Institute, 2020). At the same time, it discloses how key state apparatuses with distinct selectivities such as the European Commission (2018) or knowledge apparatuses such as Kiel Institute for the World Economy (Rickels et al., 2020) articulate different and in part competing approaches to how to introduce NETs into EU climate policy, both primarily within the confines of hegemonic market-based climate policy-making (i.e., by integrating NETs into the EU ETS). But HMPA also sensitizes us to the inherent contestedness of such policy-making processes and alternative political initiatives such as the political initiative of separate targets for emission reduction and negative emissions (McLaren et al., 2019) to counteract attempts at mitigation deterrence through NETs. We believe that HMPA offers important theoretical perspectives and methodological landmarks that can inform studies of policy-making processes that, while sometimes imponderable, can be highly instructive and compelling. Particularly important in the case of climate change policy, it enables us to go beyond narrow conceptions of policy failure in terms of inadequate implementation or poor design and provides opportunities to understand the structural, underlying determinants of such insufficiencies. As such, it offers important insights not only into how climate policy needs to be changed to become effective, but also how the terrains and apparatuses that formulate and implement them and the hegemonic forms of policy-making themselves need to be altered in the process of a comprehensive and radical social-ecological transformation.
NOTE 1.
This section as well as parts of the fourth section are a revised version of passages from Brand et al. (2022).
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Historical-materialist policy analysis of climate change policies 125 Malm, A. 2016, Fossil Capital: The Rise of Steam Power and the Roots of Global Warming, London: Verso. Markusson, N.O., Dahl Gjefson, M., Stephens, J.C. & Tyfield, D.P. 2017, ‘The political economy of technical fixes: the (mis)alignment of clean fossil and political regimes’, Energy Research & Social Science, 23, 1–10. Markusson, N., McLaren, D. & Tyfield, D. 2018, ‘Towards a cultural political economy of mitigation deterrence by negative emissions technologies (NETs)’, Global Sustainability, 1, e10, accessed 20 December 2022 at https://doi.org/10.1017/sus.2018.10. Marx, K. [1867] 1996, Das Kapital, Vol. 1, in Marx-Engels-Werke (MEW), Vol. 23, Berlin: Dietz Verlag for the Institute for Marxism-Leninism at the Central Committee of the SED. Marx, K. [1887] 1998, Das Kapital, Vol. 3, in Marx-Engels-Werke (MEW), Vol. 25, Berlin: Dietz Verlag for the Institute for Marxism-Leninism at the Central Committee of the SED. McLaren, D. 2020, ‘Quantifying the potential scale of mitigation deterrence from greenhouse gas removal techniques’, Climatic Change, 162, 2411–28. McLaren, D.P., Tyfield, D.P. & Willis, R. et al. 2019, ‘Beyond “net-zero”: a case for separate targets for emissions reduction and negative emissions’, Frontiers in Climate, 1 (4), accessed 20 December 2022 at https://doi.org/10.3389/fclim.2019.00004. Minx, J.C., Lamb, W.F. & Callaghan, M.W. et al. 2018, ‘Negative emissions – part 1: Research landscape and synthesis’, Environmental Research Letters, 13 (6), Article 063001. Moe, E. & Røttereng, J.-K.S. 2018, ‘The post-carbon society: rethinking the international governance of negative emissions’, Energy Research and Social Science, 44, 199–208. Moore, J.W. (ed.) 2016, Anthropocene or Capitalocene? Nature, History, and the Crisis of Capitalism, Oakland, CA: PM Press. Newell, P. & Taylor, O. 2020, ‘Fiddling while the planet burns? COP25 in perspective’, Globalizations, 17 (4), 580–92. O’Connor, J. 1998, Natural Causes: Essays in Ecological Marxism, New York: Guilford Press. Offe, C. 2006, Strukturprobleme des kapitalistischen Staates: Aufsätze zur Politischen Soziologie, Frankfurt am Main/New York: Campus-Verlag. Paul, K.T. & Haddad, C. 2015, ‘Marx meets meaning: a critical encounter between materialism and interpretative policy analysis. A reply to Brand’s State, context, correspondence’, Österreichische Zeitschrift für Politikwissenschaft, 44 (1), 46–52. Pichler, M., Brand, U. & Görg, C. 2020, ‘The double materiality of democracy in capitalist societies: challenges for social-ecological transformations’, Environmental Politics, 29 (2), 193–213. Poulantzas, N. [1978] 2000, State, Power, Socialism, London: Verso. Rayner, T. & Jordan, A. 2013, ‘The European Union: the polycentric climate policy leader?’, WIREs Climate Change, 4 (2), 75–90. Rickels, W., Proeßl, A. & Geden, O. et al. 2020, ‘The future of (negative) emissions trading in the European Union’, Working Paper No. 2164, Kiel Institute for the World Economy. Ripple, W.J., Wolf, C. & Newsome, T.M. et al. 2017, ‘World scientists’ warning to humanity: a second notice’, BioScience, 67 (12), 1026–8. Rockström, J., Steffen, W. & Noone, K. et al. 2009, ‘Planetary boundaries: exploring the safe operating space for humanity’, Ecology & Society, 14 (2), Article 32. Rosenbloom, D., Markard, J., Geels, F.W. & Fuenfschilling, L. 2020, ‘Why carbon pricing is not sufficient to mitigate climate change – and how “sustainability transition policy” can help’, Proceedings of the National Academy of Science (PNAS), 117 (16), 8664–8. Røttereng, J.-K.S. 2018, ‘The comparative politics of climate change mitigation measures: who promotes carbon sinks and why?’, Global Environmental Politics, 18 (1), 52–75. Spash, C.L. 2014, ‘Policy analysis: empiricism, social construction and realism’, Österreichische Zeitschrift für Politikwissenschaft, 43 (4), 401–10. Stützle, I. 2011, ‘The order of knowledge: the state as a knowledge apparatus’, in A. Gallas, L. Bretthauer, J. Kannankulam & I. Stützle (eds), Reading Poulantzas, Pontypool: Merlin Press, pp. 170–85. Sum, N.-L. 2009. ‘The production of hegemonic policy discourses: “competitiveness” as a knowledge brand and its (re-)contextualization’, Critical Policy Studies, 3 (2), 184–203. Syrovatka, F. 2021, ‘Labour market policy under the new European economic governance: France in the focus of the new European labour market policy’, Capital and Class, 45 (2), 283–309.
126 Handbook on critical political economy and public policy Thomas, P. 2011, The Gramscian Moment: Philosophy, Hegemony and Marxism, London: Haymarket Books. Wissel, J. 2015, Staatsprojekt Europa: Grundzüge einer materialistischen Theorie der Europäischen Union, Münster: Westfälisches Dampfboot. Wullweber, J. 2019, ‘Constructing hegemony in global politics: a discourse-theoretical approach to policy analysis’, Administrative Theory and Praxis, 47 (3) 148–67.
9. Beyond methodological Fordism: the case for incorporated comparisons Alexander Gallas
In the field of political economy, single-country case studies or comparative studies of a small number of countries are common currency. Both have contributed significantly to our understanding of different capitalist social formations and the fact that institutions and configurations of actors at the national level matter and differ. Through establishing differences and communalities across nation-states, they enhance our understanding of what the capitalist mode of production is, and what specificities of macro-regional or national contexts are. Many of those studies (see, for example, Esping-Anderson, 1990; Hall & Soskice, 2001; Streeck, 2009) exhibit a research strategy that can be called ‘methodological Fordism’. With this term, I refer to a set of methodological choices starting from the implicit assumption that Fordism is the standard mode of capitalist development. This does not mean that all research in this mould studies ‘Fordist’ or ‘post-Fordist’ configurations or uses the corresponding terminology. My point is that it has a family resemblance with much of the scholarship that explicitly does so (see, for example, Aglietta, 1979; Baccaro & Pontusson, 2016; Koch, 2006; Lipietz, 1996) and shares with it a number of guiding assumptions: the primary unit of analysis is the nation-state; the study of manufacturing and of the labour relations in the sector – frequently referred to as ‘industrial relations’ (see Nowak, 2021) – are key to understanding national political economies; and contemporary capitalism can be deciphered by focussing on a relatively small number of highly industrialized core countries. Notably, ‘methodological Fordism’ entails a specific mode of comparison. It starts from the presumption that capitalism consists of a collection of capitalist nation-states that form ‘discrete bounded units’, and whose relationship is ‘external’ (Hart, 2018, p. 376). In Philip McMichael’s words (1990, p. 389), these units are subjected to an ‘analytic comparison’ – clearly delimited cases are compared with the aim of identifying and separating case-specific and common traits. Due to this being research in the field of political economy, these traits are either national or macro-regional specificities or transnational invariances. They often refer to ‘varieties of capitalism’, the title of Peter Hall and David Soskice’s influential edited volume on the ‘comparison of national economies’ (2001, p. v). Due to its interest in institutions and regulation, research of this type tends to exhibit ‘a normative orientation to social democracy’ (Bruff, 2021, p. 1278). In a nutshell, it enhances our understanding about historical or geographical variation within capitalism, but also invites what often prove to be, on closer inspection, inadequate generalizations about its nature from a small number of cases. In particular, analyses that explicitly commit to examining ‘Fordism’ and ‘post-Fordism’ are indicted for making sweeping statements about the nature of capitalism in the second half of the 20th century. According to critics (Baca, 2004; Gambino, 2007), they have a tendency to disregard its instabilities, the specificities of different geographical and historical settings and the ‘path-shaping’ role of workers’ struggles. And conversely, important traits of capitalism become visible only if one takes a longer historical 127
128 Handbook on critical political economy and public policy and a broader geographical view – for example, the important fact that labour in capitalism often was, and still is, informal and bounded (Gordon, 2019; van der Linden, 2008). An alternative is offered by the assumption that there is one and the same global and capitalist social order, which exhibits a degree of ‘variegation’ (Jessop, 2014, 2015; Peck & Theodore, 2007), reflected in specificities located at the macro-regional, national, regional or local level. In the research process, this translates into a commitment to study together global political-economic mechanisms and tendencies as well as case-specific configurations. Against this backdrop, I discuss in this chapter how to conduct empirical research in the area of political economy from this global vantage point. I approach this challenge by drawing upon McMichael’s notion of ‘incorporated comparison’ and outlining a distinct research design based on it, which, in line with my own research interests and expertise, is located in the field of the political economy of labour. Accordingly, I will discuss, in the next section, a research problem concerning class relations in post-industrial settings, which serves as an exemplar for discussing general, methodological questions. I am going to present a research question, but I am not going to give a definite answer to it. Instead, I will use it to discuss, in the succeeding sections, critical problems that often occur in the process of doing empirical research from a global vantage point: the dangers of subsumptionism, an opportunistic mode of investigation where empirical research is reduced to seeking out evidence in line with one’s theoretical assumptions; the limitations of approaching global issues from a quantitative angle; the challenge of reconciling analytical breadth and depth; and the need to select suitable cases and data.
THE RESEARCH PROBLEM: WHERE IS THE WORKING CLASS IN POST-INDUSTRIAL SETTINGS? Materialist approaches to labour studies highlight the intrinsic link between the organization of work in capitalism and class relations; they look at labour relations as class relations. Karl Marx ([1867] 1976, p. 416) famously argued that the historical emergence of the working class as a collective actor was a reaction to the emergence of industrial production along capitalist lines and the tendency of capitalist competition to extend the working day ever more (‘the production of absolute surplus value’). In an age where parts of the world are marked by sustained processes of de-industrialization (Kollmeyer, 2018; Rodrik, 2016), this raises the question of what happens to the working classes in those areas. There are broadly two positions in the literature on this issue. One side argues that the type of collective agency that Marx and his followers used to ascribe to industrial workers is vanishing. This position can be found, for example, in Manuel Castells’s classic study The Rise of the Network Society ([1996] 2010; see Gorz, 1980; Mason, 2015). Castells argues that we have entered a ‘post-industrial period’ (p. 225) characterized by the emergence of ‘informational capitalism’ (p. 18) – and that class relations have changed fundamentally in the process: ‘Capital tends to escape in its hyperspace of pure circulation, while labor dissolves its collective entity into an infinite variation of individual existences’ (pp. 506–7). The counterargument is that the decline of manufacturing does not amount to an end to waged work, and that working classes are being reconstituted outside industrial production. Among others, Leo Panitch takes this position (2001, p. 367): ‘in the advanced capitalist world the decline in the size of the traditional industrial labour force is accompanied by the proletarianization of many service and professional occupations and the
Beyond methodological Fordism: the case for incorporated comparisons 129 spread of more unstable, casual and contingent employment’. This creates space for new forms of collective agency – or ‘new strategies for labour’, as Panitch puts it (ibid.; also see Arruzza, Battacharya & Fraser, 2019, p. 24; Moody, 2017). This debate may sound scholastic at first, but has far-reaching political implications: if the working class is in terminal decline thanks to de-industrialization, recent attempts to revitalize class politics (see, for example, Ainsley, 2018; Blanc, 2019; Candeias, Dörre & Goes, 2019; Demirović, 2020; Devine & Sensier, 2017) are futile; if new working classes are emerging, the opposite may be the case. To advance in both the class theoretical and political debates, it makes sense to resort to systematic empirical research. This may tell us whether it is possible to identify processes of class formation outside manufacturing, which would suggest that Panitch is right, or whether this is not the case, which would lend credence to Castells’ point of view. One possible area where this can be examined systematically is strike research. If we follow the Marxian line of argument, labour disputes are catalysts of class formation. Consequently, a research question worth investigating in this context is what the class effects of strikes in non-industrial sectors are – or in how far they contribute to working class formation.
THE TRAP OF SUBSUMPTIONISM The research question raised in the preceding section is not at the forefront of this chapter. Rather, it serves me as a reference point for a discussion on how to conduct empirical research from a global vantage point in the field of the political economy of labour. Arguably, such research is only possible if one operates on the grounds of a global conceptualization of capitalism (see Bieler & Morton, 2018, p. 94; Jessop, 2015, pp. 69–72). If we see the capitalist mode of production as a global phenomenon from the start – and if our conceptualization comprises the ‘world market’ as ‘the ultimate horizon of competition’ between capitals (Jessop, 2015, p. 66) – we are unlikely to mistake specificities of 21st-century capitalism in North America or Western Europe as general characteristics of capitalism. And yet, a new critical problem emerges. By definition, research from a global vantage point is further away from macro-regional, national, regional or local specificities than research based on theories with a more limited spatial field of validity (see McMichael, 1990, p. 391). From the perspective of research pragmatics, it is only possible to examine a global research field if one disregards a lot of information and resorts to abstraction and simplification. It is tempting to deal with the wealth of information one is exposed to by equating one’s abstract-simple conceptualization of global capitalism with its observable reality – that is, to see observations that conform to one’s theoretical assumptions about the nature of capitalism as ‘proof’ that the latter are full descriptions of social reality. This is often the case with ‘encompassing comparisons’ (Tilly, 1984, cited in McMichael, 1990, p. 386), which start from global structures and, in a second step, situate cases in them. Using a Jessopian turn of phrase (Jessop, 1982, p. 73; 1990, p. 251), research designs of this type run the risk of falling into the trap of subsumptionism. With this concept, I refer to a specific type of methodological opportunism: the function of empirical research is reduced to identifying cases and data sets that are fully in line with the predictions that follow from one’s theoretical assumptions; research becomes a tick-box exercise where cases and data are ignored that go against one’s assumptions. A classic example of subsumptionism provided by Bob Jessop (1982, pp. 71–2) is the ‘state monopoly capitalism’ (stamocap) literature from the 1970s. It presumed, at the
130 Handbook on critical political economy and public policy level of theory, the existence of a prescribed path of capitalist development, culminating in the emergence of state monopoly capitalism and, eventually, socialism (ibid., p. 51). Due to the multifaceted nature of the social world and the seemingly endless stream of information contained in it, one will usually find it easy to produce some evidence that appears to confirm one’s own hunches, preconceptions and predictions (see Sayer, 1992, pp. 60–61). But as any generic detective story tells us, some leads are not enough to demonstrate conclusively that a suspect is guilty. In these stories, new information tends to surface all of a sudden that throws into doubt what the protagonists have been assuming up to that point, which forces them to reconsider their assumptions. The practical experiences of social scientists resonate with this genre of literary fiction. Research is rarely a linear process in which we first describe our theoretical assumptions and then amass more and more data providing evidence that these assumptions are right. It is quite likely that there will be data directly challenging them, and other data that are contradictory and ambiguous and thus difficult to interpret (see Sayer, 1992, pp. 173–4, 222; 2000, p. 40). The critical problem with subsumptionism is not that researchers make propositions about the social world that are based on theoretical assumptions, but that they select cases and data with a view to preventing such challenges from occurring. In this sense, it is a highly biased practice. Taken to its logical conclusion, subsumptionism renders empirical research superfluous because everything there is to know has already been identified at the level of theory. This can be illustrated with reference to my research problem. A ‘subsumptionist’ approach following Castells’s observations would select non-industrial strikes that are occupation-driven and thus can be understood as signalling the absence of solidarity with workers from other sectors. These strikes could be used to show that there is fragmentation among workers and a relative absence of class-based solidarity. A strike that could serve as an example because it has been interpreted in this manner is the labour dispute between Vereinigung Cockpit (VC) [Cockpit Association], a pilots’ union in Germany, and Lufthansa, the national carrier. VC staged 13 strikes at Lufthansa in the years 2014 and 2015, leading to the cancellation of 8500 flights (Raehlmann, 2017, pp. 34–6; Wissenschaftlicher Beirat, 2016, p. 114). The reason was that the company was threatening to exit the existing pensions agreement for pilots. Commentators in the media claimed that the pilots were a small band of highly paid employees abusing their capacity to disrupt air traffic in order to defend their privileges (Obertreis, 2016; Sauer, 2014). If we follow this interpretation – and be it just for the sake of the methodological argument developed here – the strikes had limited expansive effects in the sense of creating ties with other groups of workers, in particular, outside aviation. In contrast, the Panitch position is, at the level of theory, that non-industrial labour disputes facilitate class formation. If one acted in a subsumptionist manner, one would select non-industrial strikes appearing to confirm this assumption – that is, strikes led by people with an uncompromising stance towards management and a radical, class-based rhetoric. One could focus, for example, on the frequent stoppages in recent years at London Underground, which are usually led by the National Union of Rail, Maritime and Transport Workers (RMT) (see Connolly & Darlington, 2012; Gallas, 2018, p. 248; Gordon & Upchurch, 2012). Importantly, the RMT is a union known for its deep hostility to austerity and neoliberal modes of public sector management – plus its commitment to militancy and socialist class politics. At the same time, it is a comparably successful union when it comes to winning concessions for its members. This turns the RMT strikes into a model case for arguing that processes of class formation are taking place in non-industrial labour disputes: its representatives use a language
Beyond methodological Fordism: the case for incorporated comparisons 131 of class and class struggle, and its demands are expandable beyond a narrow constituency of members. Arguably, the RMT is the most clear-cut example of a militant, socialist union in present-day Britain. Importantly, looking exclusively at the VC or the RMT is not a very good case for assessing the class effects of non-industrial strikes precisely because of the danger of subsumptionism. Both are specific cases in their national context and in the context of non-industrial trade unionism in de-industrializing countries. Ambiguities and contradictions are not visible to the same degree as in the cases of other unions, which are often less clear about their political agenda or more hesitant when it comes to militancy. The Union of German Train Drivers (GDL), for example, is a militant organization, but it also has an image of a conservative, occupational union when it comes to its politics. In contrast, the Railway and Transport Union (EVG), also from Germany, has been cooperating with management for a long time, but it has become more open-minded about strikes in recent years – and unlike the GDL, it is affiliated with the German Trade Union Confederation (DGB), the main union umbrella in Germany, which, compared with other confederations in the country, has by far the broadest base among workers (Birke, 2018; Deutsche Welle, 2018; Hürtgen, 2016). These examples show that we risk overriding contradictions and ambiguities if we try to settle the debate on the working class with reference to VC or RMT. Both unions may form part of the picture, but they (or similar cases) should not be the only objects of interest. My critique of subsumptionism gives rise to the question of what a sound conceptualization of the relationship between theory and empirical research would look like. Scholars operating on the grounds of a critical realist ontology (Bhaskar, 1979, p. 45; Sayer, 2000, p. 15) highlight that social systems are open systems. This corresponds with my critique of the biased, ‘locked’ nature of subsumptionist research. In a nutshell, critical realism is based on an anti-deterministic understanding of social determination: social systems do not have unavoidable effects that can be determined in advance; they exhibit tendencies with potential effects, but it may be the case that these tendencies remain ‘dormant’ due to countertendencies, contextual factors, coincidences and countermeasures taken by actors. This suggests that there is a degree of determinacy and contingency to any social setting, which is why theory (usually understood by critical realists as conceptualization) needs to be complemented with empirical research and vice versa (see Blaikie & Priest, 2017, p. 177; Collier, 1994, pp. 7–8; Sayer, 2000, pp. 121–4). Correspondingly, it is plausible to assume, at the level of an abstract-simple conceptualization of global capitalism, that strikes facilitate class formation. At the same time, however, this is only a general tendency, which means that the outcomes of any particular strike cannot be predicted firmly on its grounds. It is equally plausible to assume that there are mechanisms, processes and events working against this tendency, which is reflected in the fact that there are strikes deeply dividing workforces and different groups of workers. It follows that if we want to find out about outcomes, we need theory to provide us with guidance on what to look for, and empirical research for finding out about what is happening. This research should reflect, in the way it is designed, the openness of social systems and the difficulty of predicting their effects on actual, concrete social settings (see Sayer, 1992, pp. 138, 142, 190; 2000, p. 19). Taking the openness of social systems seriously has important implications for case and data selection: one must not look for ‘outcomes’ that are predicted by one’s theoretical assumptions. In this one respect, critical realist perspectives on empirical research resemble standard ‘comparative politics’ approaches. While ‘comparative politics’ usually rest on positivist ontological assumptions that critical realists do not share, it still offers methodological insights
132 Handbook on critical political economy and public policy from which critical realist scholars can learn. The debate on ‘selection bias’ is a case in point. Comparatists argue against ‘selection on the dependent variable’ – that is, the identification of suitable cases on the grounds that they fit with the purported explanation (Burnham, 2004, pp. 74–8; Landman, 2003, pp. 43–7). The critical problem with operating this way is that cases are excluded by default that could falsify the basic assumptions underpinning the research design. If selection takes place on the grounds of identifying the expected outcomes, researchers will only ever find what they know already. In my own terms, they operate in a subsumptionist manner.
THE LIMITATIONS OF QUANTITATIVE RESEARCH DESIGNS The existence of the subsumptionist trap underscores the need to carefully reflect on how to reconcile the need for a global vantage point of one’s research with the need to take into account a wealth of data about different strikes that allows us to capture context-related specificities. A standard way to proceed would be to conduct a statistical analysis based on large-N datasets concerning strike incidence that cover a great number of countries. In principle, they leave room for national specificities to deviate from global trends; it is possible for individual items that are compared to diverge significantly from predictions made at the theoretical level. Accordingly, important contributions to strike research operate on the grounds of quantitative research designs (Franzosi, 1992; Silver, 2003). However, there are practical obstacles to conducting such endeavours, which result from the specificity of different contexts and the difficulty of making generalizable observations. For many historical periods and geographical spaces, data are not available, and if they are, there are serious doubts over their reliability and comparability (Dribbusch, 2018; Gall, 2012, pp. 680–82; Hopkin, 2010, pp. 297–300). To choose two random examples, there were, in recent years, strikes for higher wages at the main Alaskan public ferry operator as well as political strikes against the authoritarian regime in Belarus. In both cases, people refused to work. But importantly, they engaged in this practice of protest under fundamentally different political, economic and cultural conditions and had very different goals. In the Alaskan case, it may be easier to discern class effects than in the Belarus case: the dispute concerned the conditions of the extraction of surplus labour. In contrast, the stoppages in Belarus were part of a broad popular protest movement, and the object of the dispute was not labour relations as such but a conflict over the mode of government (DeManuelle-Hall, 2019; Deutsche Welle, 2020). Would it be adequate to see both as instances of strikes that facilitate class formation? Notably, this is a point not just about strike research. The more global a research project becomes, the more difficult it is to ensure that data are measured in a similar manner across time and space, and that the categories used are capturing similar events. Large-N quantitative research struggles with temporal and spatial specificities. There is a danger of subsuming diverging events or practices under one and the same category (see Burnham, 2004, pp. 72–3; Hopkin, 2010, pp. 299–300). If one was interested in the degree to which liberalism as a political ideology shapes the policy of governments in different parts of the world, for example, one would quickly find that definitions and interpretations of what liberalism is vary hugely across countries, and that the political demands of self-professed ‘liberals’ in the US and Germany in the area of economic policy can be construed as opposites – in US politics, liberalism is commonly associated with state interventionism; in Germany, it is usually linked to the idea of
Beyond methodological Fordism: the case for incorporated comparisons 133 a ‘free’ market. One is then faced with a dilemma: one can either use a neatly defined category, which runs contrary to everyday understandings to such a degree that it becomes incomprehensible for political practitioners and non-experts in at least parts of the world (‘liberalism is a political ideology that is advocating state interventions in the economy for the common good’), or one can interpret a category in a broad manner, which may encompass a lot of cases, but may have little meaning and may be hard to distinguish from neighbouring categories (‘liberalism is a political ideology that is committed to fostering democracy’). In this context, it is important to highlight that strikes are, to a degree, contradictory events with contradictory effects: while some people are mobilized together in a strike effort and strong bonds between them emerge, others may be frightened by the consequences, unconvinced that it is possible to win or hostile either to individuals involved with the strike or to the idea of using collective force. Sometimes, the motives and strategic calculations of one and the same person can be fairly contradictory; the same goes for groups and organizations (see Bergmann, Bürckmann & Dabrowski, 2002, pp. 72–7; Fantasia, 1988, pp. 79, 116; Herkommer et al., 1979, p. 57). In a nutshell, strikes tend to polarize social forces along class lines, which contributes to making class relations visible, but they can simultaneously fragment such forces. Examples are the 1984–85 miners’ strike in Britain (Gallas, 2016, pp. 166–93) and the strike wave at French car maker Talbot from 1982 to 1984 (Najiels, 2019; Piciotto, 1984). It is practically impossible to build a strong base for a strike without excluding, to a degree, individual workers who are against walking out, which means that an expansive mobilization tends to be accompanied by a deepening of some divisions. This explains why militant labour activists are often in favour of both an expansive, class-based strategy and, at the same time, of isolating groups of workers who are not fully behind a strike. It is possible to see this as both an expansive and divisive – and, thus, a contradictory – approach. Such contradictions are hard to capture with quantitative data, which are generated by assigning numeric values to clearly defined variables (Sayer, 1992, pp. 176–8). This leads on to a more general point. If we follow Althusser ([1965] 1959), the capitalist mode of production is characterized by contradictions – that is, structurally inscribed mechanisms that work against one another. Most importantly, there is a need for capital to accumulate and for labour power to be reproduced, which creates the antagonism between capital and labour. Consequently, practices and perceptions emerge in capitalist surroundings that lead to conflict and sometimes defy neat categorization. This line of argument is at odds with the determinism implicit in a great number of contributions to quantitative research. Research designs based on quantitative data usually rest on a deductivist and positivist understanding of causation in the form of ‘a relationship between discrete events’ (Sayer, 1992, p. 104). They are based on a clearly defined, causal relationship between an independent and a dependent variable (A causes a, or A → a). The implication is that the social world is constituted by a set of causes that can be isolated from one another through analysis, and that produce clearly defined outcomes (A → a; B → b; C → c; D → d…). In other words, the causal relation itself is imagined as a natural force that can be identified in isolation through experimental research – for example, the force assumed to be behind the swing of a pendulum or the movement of a billiard ball that is hit by another. It follows that the social world, just like the natural world, is governed by laws that are clearly separable from one another. This also means that it is characterized by atomism and a strong degree of determinacy (Blaikie & Priest, 2017, pp. 67–71; Sayer, 1992, p. 173; Wullweber, 2019, pp. 290–91).
134 Handbook on critical political economy and public policy In contradistinction to positivist positions, critical realists highlight that there is structural causation, and that forces can be present without being actualized or activated. Accordingly, they highlight the systemic and tendential nature of the social world and the openness of social systems. It follows that research is an open-ended, exploratory process (see Blaikie & Priest, 2017, p. 177; Collier, 1994, pp. 7–8; Sayer, 2000, pp. 121–4). Accordingly, critical realists often use qualitative research techniques like interviews, participant observation or textual analysis. These are better suited, all in all, to capture the contradictions of capitalism social formations because they share a ‘naturalistic approach’ (Blaikie & Priest, 2019, pp. 159–61; Yilmaz, 2013, p. 312). Put differently, they allow for detailed, linguistic representations of social reality that are descriptive in nature and limit the need for the abstraction and simplification characterizing the generation of quantitative data. Consequently, they are far more context-sensitive. But this comes at a price, which is that they only ever present a very limited sample of the different processes, relations and interactions that constitute a case, and that they do not lend themselves to producing broad overviews (see Landman, 2003, p. 81). As a result, generalization is a serious challenge for qualitative research (see Blaikie & Priest, 2019, pp. 211–13; Rapley, 2014, pp. 52–3). This raises the question of how to reconcile the need to produce general observations with the specificities of the contexts in which social interactions take place.
THE METHOD OF INCORPORATED COMPARISON The method of ‘incorporated comparison’, developed by McMichael (1990, 2000), deals with the need to connect a global perspective with a sensitivity to context-specific divergences – or with the challenge of reconciling analytical breadth and depth. In contrast with the country comparisons common in political science (see Burnham, 2004; Landman, 2003), it sets out to achieve generalizability by examining global settings as well as comparing cases and considering their specificity. The attribute ‘incorporated’ refers to the fact that the objects of comparison form part of a larger social setting that is being mapped simultaneously and does not exist independently of the former. In this sense, ‘incorporated comparison’ is a multi-scalar method. Importantly, McMichael is aware of the dangers of subsumptionism. He stresses that our understanding of global capitalism cannot be fixed at the level of theory to be refuted or confirmed, in a second step, through empirical analysis: Rather than using ‘encompassing comparison’ – a strategy that presumes a ‘whole’ that governs its ‘parts’ – it progressively constructs a whole as a methodological procedure by giving context to historical phenomena. In effect, the ‘whole’ emerges via comparative analysis of ‘parts’ as moments in a self-forming whole. I call this incorporated comparison. (McMichael, 1990, p. 386; also see Hart, 2018, p. 380)
Accordingly, the three main assumptions anti-subsumptionist (McMichael, 2000, p. 671):
guiding
incorporated
comparison
are
First, comparison is not a formal, ‘external’ procedure in which cases are juxtaposed as separate vehicles of common or contrasting patterns of variation. Rather comparison is ‘internal’ to historical inquiry, where process-instances are comparable because they are historically connected and mutually conditioning. Second, incorporated comparison does not proceed with an a priori conception of
Beyond methodological Fordism: the case for incorporated comparisons 135 the composition and context of the units compared, rather they form in relation to one another and in relation to the whole formed through their inter-relationship. In other words, the whole is not a given, it is self-forming. This is what I understand we mean by historical ‘specificity.’ Third, comparison can be conducted across space and time, separately or together.
In my understanding, this approach resembles archaeological fieldwork. I am not referring here to Michel Foucault’s general observation ([1972] 1989, p. 8) that history is marked by discontinuities and ruptures, and that an ‘archaeological’ approach to history consists in drawing out the specificities of different ‘strata’ layered on top of each other. My point refers to the research practices of archaeologists. In Foucault’s terms, these consist in excavating ‘a mass of elements that have to be grouped, made relevant, placed in relation to one another to form totalities’ (ibid.). Archaeologists chart, compare and systematize traces and remnants of past human settlements and activities – and from doing so, draw broader conclusions about social formations of the past. In other words, they make inferences about wholes by looking at parts – and must deal with the fact that these parts are, to a large degree, incomplete. This means that they address significant gaps in information by making plausible assumptions about missing parts on the grounds of what has been found. Correspondingly, social scientists who make incorporated comparisons attempt to produce insights of a global nature on the grounds of incomplete information – that is, through the comparison of a limited number of objects. This can be done by (1) linking empirical research to social theory in the way described above; and (2) by zooming in and out – that is, by combining fine-grained case studies with broad-brush descriptions providing overviews. With reference to my object, I propose developing categories for assessing class formation on the grounds of materialist class theory, putting them to use by mapping non-industrial strikes around the world, and supplementing this mapping with detailed case studies of large-scale strikes or strike waves. Importantly, this mode of comparison is anti-subsumptionist because it does not start from presuming the existence of a functionally integrated whole, whose workings are illustrated by the cases. McMichael says that an incorporated comparison serves to reconstruct an ‘emergent totality’ (1990, p. 391), which implies that a full picture is not the precondition, but the outcome of a detailed research process. The role of theory in the research process is not to give full explanations of what is going on, but to guide researchers in the search for such explanations. The reference to ‘emergence’ demonstrates McMichael’s implicit affinity with critical realism. It implies that we are dealing with a whole at what critical realists call the level of the actual, which is constituted by the activation (or lack thereof) of deep structures through concrete practices in settings conditioned by institutions. This corresponds with McMichael’s critique of the positivist assumption that cases used in a comparison can be seen as discrete, separate entities (1990, p. 389; 2000, p. 672). Following him, they are always conditioned by a whole that connects them and has effects on how they evolve. At the same time, the workings of this whole are not presupposed in a strong sense. This means that there is space for an open-ended research process.
136 Handbook on critical political economy and public policy
LARGE-SCALE STRIKES AND MULTIPLE DATA TYPES: REFLECTIONS ON CASE AND DATA SELECTION My general observations on incorporated comparison as a method bring me to the question of what criteria should be used for case and data selection. Concerning cases, one could focus on Western Europe. This is not an arbitrary choice, or a choice reflecting research pragmatics – namely, the fact that I am based in Germany. It is an ideal research setting for my question because, globally speaking, it was the first macro-region around the world to become industrialized and, likewise, the first to witness sustained processes of de-industrialization. Accordingly, the country at the forefront of both processes is located in the region: Britain spearheaded the Industrial Revolution, but in technologically advanced areas, it fell behind Germany and the US as early as the second wave of industrialization starting in the late 19th century, and went through a sustained decline in manufacturing output and employment relative to other sectors from the 1960s onwards (Hobsbawm, 1968, pp. 172–94; Kitson & Michie, 2014, p. 10). Since my aim is to identify developments concerning class relations, the most important criterion is generalizability – that is, a choice of cases where it is reasonable to assume that they are somewhat typical and contribute to larger tendencies. In light of this, it makes sense to go for a ‘most different’ comparison, examining country cases varying greatly in terms of strike incidence – namely, a country with low (Germany), medium (Britain) and high strike incidence (Spain).1 Furthermore, these countries are also useful choices because each of them is described in the literature (see, for example, Frege & Kelly, 2004 or Hall, 2018) as standing for one of the three varieties of capitalism dominating in the macro-region: Germany is a coordinated market economy; Britain a liberal market economy; and Spain a Mediterranean mixed type. The case studies need to offer thick descriptions of strikes in the three countries (see Vromen, 2010), but these must be complemented with a less detailed mapping of strike activities not just in other Western European countries, but also around the globe. This is necessary to ensure that it is possible to differentiate potential macro-regional from truly global developments, and to check whether observations made with reference to the cases can also be made elsewhere. The aim is to produce a comprehensive picture of dominant patterns concerning the links between workers emerging in strike efforts. Importantly, comprehensive does not mean complete. What emerges is a globally informed account of strikes in Western Europe – and a broad-brush, rough description of strikes around the world substantiated with reference to the Western European cases. Put differently, the mode of incorporated comparison proposed here has global ambitions, but modest ones. It allows one to lend credence to tentative observations on worldwide developments with the help of more detailed and saturated analyses of specific cases in a macro-region. In terms of the actual strikes chosen, one could opt for choosing strikes and strike waves with pertinent effects. This is the case, in the area of strike research, if stoppages involve a lot of people – and if they are discussed in the political scene and the news media (see Gallas, 2018, p. 239). The latter point matters because it is plausible to assume that strikes have a significant social impact if they become politicized and an object of public debate. This is because one can assume that such strikes (1) are visible to workers outside the sector where they originate, which is important for arguing that they have the potential to expand beyond a narrow constituency of workers; and (2) affect society as a whole. In my view, these represent two necessary, but insufficient conditions for strikes to contribute to class formation.
Beyond methodological Fordism: the case for incorporated comparisons 137 Conversely, it is hard to argue that they have a significant impact on class relations if they do not reach other workers and do not have effects beyond local settings. It can be gauged whether the first criterion is met by assessing how striking workers reach out to other groups of workers, how these other groups react, and how all of this affects organized labour. For example, it can be argued that a strike is visible to other workers if union leaders from other sectors comment on it, or if there is evidence of responses from other groups of workers – be they supportive, dismissive or indifferent – in the form of conversations on picket lines or among colleagues belonging to other unions or other occupational categories or in the form of collective responses like demonstrations. The purpose of the second point is to ensure that the significance of strikes goes beyond local effects. This criterion is met if there is extensive coverage in the national news media of the strike, and if its effects reach the political scene. For this purpose, it is useful to check whether a dispute has been covered at least three times in three different national newspapers with a conservative, liberal and socialist orientation, respectively, and whether leading politicians representing conservative, liberal and socialist worldviews have commented on it. Admittedly, it may very well be the case that strikes taking place ‘under the radar’ and not meeting these criteria have a profound impact on class relations at the national level, but this may be very hard to gauge. In keeping with the general theme of de-industrialization, it makes sense to examine stoppages that diverge from the image of the ‘classical’ industrial strike in at least one crucial respect. Concerning the model of trade unionism, the 2014–15 strike in the German railway sector is a suitable case. Behind it was an occupational and not an industrial union, the GDL. As regards the social base, the 2016 junior doctors’ strike in England and Wales springs to mind. It was carried out by professionals, not by blue-collar workers. When it comes to demands, the general strikes in Spain in the 2010s are highly relevant because their goals were not primarily economic in the sense of concerning wages and working conditions, but political in nature. The aim is to identify, through a systematic comparison of disputes in these countries, general trends concerning strike activities in the research space. Furthermore, the identification of suitable data should not follow the subsumptionist template. In qualitative research based on case studies, this means that in principle any kind of available information relevant to the research topic needs to be considered (see Blaikie & Priest, 2017, p. 192), and that sources of information – for example, interview partners, descriptive statistics or observations – should not be selected on the grounds of fitting particularly well with one’s theoretical assumptions. Accordingly, I propose to research (1) statistics on strike incidence and key socio-economic markers (wage levels, inequality, unemployment etc.) that help elucidate the context in which strike take place; (2) online accounts of strike action – for example, social media postings, newsletters or blogs; (3) coverage of strikes in the news media; (4) press releases from political parties, employers’ associations and trade unions; (5) public statements from people involved with strikes; and (6) interviews with workers actively involved in organizing strikes. To avoid subsumptionism, it is also important to terminate data collection only once a degree of saturation of one’s analysis is reached – that is, if there is a repetition of patterns across different materials and the gains in knowledge made through adding material are limited (see Kvale, 1996, pp. 101–3; Rapley, 2014, p. 60). This is the point when we can say that evidence has been produced. Importantly, however, this does not mean that the resulting analysis is set in stone once and for all, as Norman Blaikie and Jan Priest point out: ‘The argument for affirm-
138 Handbook on critical political economy and public policy ing evidence rests on the preponderance of confirming data and the absence of contradictory data, notwithstanding the possibility of as yet undefined alternative explanations’ (Blaikie & Priest, 2017, p. 192). Through examining these cases and data, it becomes possible to give a meaningful response to the research question. A good indicator of the existence or absence of processes of class formation in the context of strikes are the forms of solidarity prevalent in them. If there are demands that address the conditions of workers in general as well as ties with workers that are not part of the constituency of the strike and a mobilizing dynamic characterized by broad popular support, one can see this as signs of expansive solidarity, which speaks for processes of class formation being in evidence. The opposite is the case if exclusive solidarity predominates – that is, whether the demands and activities of workers engaged in a strike effort focus on their interests as a clearly defined ingroup, there are no connections to other groups of workers and popular support is limited. Consequently, it is necessary to centre the comparison of the three cases and the mapping of strikes around the world on the forms of solidarity visible in them and establish what kind of pattern dominates across cases and countries. In the light of the contradictions surrounding strikes, it is necessary to carefully weigh up whether expansive or exclusive forms of solidarity predominate and leave room for ambivalences by allowing oneself, in principle, to give a qualified response.
CONCLUSION The research design and the criteria developed here for case and data selection – based on an ‘incorporated comparison’ and in line with critical realist assumptions – ensure that the research process remains open. It is possible, on their grounds, to circumnavigate the trap of subsumptionism and address the challenge of reconciling generality and specificity. With the help of McMichael’s approach, one can move beyond methodological Fordism with its focus on the nation-state, a small number of core countries and manufacturing. As I demonstrated with reference to my research design concerning non-industrial strikes and class formation, it is possible to capture, in one’s research, the global yet variegated nature of contemporary capitalism. Unsurprisingly, this creates new challenges. For one – and in contrast with positivist comparative politics approaches – incorporated comparisons are not based on easily transferable frameworks such as the ‘most similar’ and ‘most different’ research designs often used in political science. This is not an argument against using their underlying logic in processes of case selection, which I employed when I chose the cases compared in the project presented in this chapter. But to overcome the limitations of analytic comparisons, this logic must be embedded in a multi-scalar approach to analysis: each project requires a unique approach to ‘zooming in and out’ and working across scales; detailed case studies must be combined with less detailed descriptions of key institutions, events and developments from a global vantage point. Second, the aspiration to conduct global research is also a burden for researchers. They need to acquaint themselves both with highly abstract-simple theories with a global field of validity plus a wealth of empirical material, which is difficult to handle from a pragmatic point of view, and there are bound to be large gaps in their projects. A mapping of non-industrial strikes around the world combined with a comparison based on detailed cases in Western Europe produces a comprehensive account of what is going on, but comprehensive does not
Beyond methodological Fordism: the case for incorporated comparisons 139 mean without gaps. Nevertheless, this chapter is also a plea for scholarship that is trying to shoulder this burden. In an age marked by global economic, health and ecological crises, the social relevance of critical political economy hinges on the ability to produce analyses that move beyond the national and macroregional level.
NOTE 1. See the data supplied by the German Economics and Social Science Institute (WSI) (Schulten et al., 2019, p. 61); the British Office for National Statistics (ONS) (https://www.ons.gov.uk/ employmentandlabourmarket/peopleinwork/workplacedisputesandworkingconditions/datasets/ labourdisputeslabourdisputesannualestimates); and the Spanish Ministry of Labour and Social Economy (MITES) (https://www.mites.gob.es/estadisticas/Hue/welcome.htm). Accessed 19 December 2022.
BIBLIOGRAPHY Aglietta, M. 1979, A Theory of Capitalist Regulation: The US Experience, London: New Left Books. Ainsley, C. 2018, The New Working Class: How to Win Hearts, Minds and Votes, Bristol: Bristol University Press. Althusser, L. [1965] 1969, ‘Contradiction and overdetermination’, in L. Althusser, For Marx, London: Allen Lane, pp. 87–128. Arruzza, C., Battacharya, T. and Fraser, N. (2019), Feminism for the 99 Percent: A Manifesto, London: Verso. Baca, G. 2004, ‘Legends of Fordism: between myth, history, and foregone conclusions’, Social Analysis, 48 (3). 169–78. Baccaro, L. & Pontusson, J. 2016, ‘Rethinking comparative political economy: the growth model perspective’, Politics & Society, 44 (2), 175–207. Bergmann, J., Bürckmann, E. & Dabrowski, H. 2002, ‘Krise und Krisenerfahrungen: Einschätzungen und Deutungen von Betriebsräten und Vertrauensleuten’, Arbeitsheft No. 25, Otto-Brenner-Stiftung, accessed 21 May 2021 at https://www.otto-brenner-stiftung.de/fileadmin/user_data/stiftung/02_ Wissenschaftsportal/03_Publikationen/AH25_Krisenerfahrung_Bergemann_2002_03_03.pdf. Bhaskar, R. 1979, The Possibility of Naturalism: A Philosophical Critique of the Contemporary Human Sciences, London: Routledge. Bieler, A. & Morton, A. 2018, Global Capitalism, Global War, Global Crisis, Cambridge, UK: Cambridge University Press. Birke, P. 2018, ‘The strike wave of 2015 in Germany’, in P. Birke, M. Dutta & J. Nowak (eds), Workers’ Movements and Strikes in the 21st century, London: Rowman & Littlefield, pp. 221–6. Blaikie, N. & Priest, J. 2017, Social Research: Paradigms in Action, Cambridge, UK: Polity. Blaikie, N. & Priest, J. 2019, Designing Social Research, 3rd edition, Cambridge, UK: Polity. Blanc, E. 2019, Red State Revolt: The Teachers’ Strike Wave and Working-Class Politics, London: Verso. Bruff, I. 2021, ‘The politics of comparing capitalisms’, EPA: Economy and Space, 53 (6), 1273–92. Burnham, P. 2004, ‘Comparative methodology’, in P. Burnham, K.G. Lutz, W. Grant & Z. Layton-Henry (eds), Research Methods in Politics, London: Palgrave Macmillan, pp. 58–79. Candeias, M., Dörre, K. & Goes, T.E. 2019, Demobilisierte Klassengesellschaft und Potenziale verbindender Klassenpolitik, Berlin: Rosa-Luxemburg-Stiftung. Castells, M. [1996] 2010, The Information Age: Economy, Society, and Culture, Volume 1: The Rise of the Network Society, 2nd edition, Oxford: Blackwell. Collier, A. 1994, Critical Realism: An Introduction to Roy Bhaskar’s Philosophy, London: Verso.
140 Handbook on critical political economy and public policy Connolly, H. & Darlington, R. 2012, ‘Radical political unionism in France and Britain: a comparative study of SUD-Rail and the RMT’, European Journal of Industrial Relations, 18 (3), 235–50. DeManuelle-Hall, J. 2019, ‘“We believe in ferries”: Alaskan ferry workers walk off the job’, Labor Notes, 1 August, accessed 20 May 2021 at https://labornotes.org/2019/08/we-believe-ferries-alaska -ferry-workers-walk-job. Demirović, A. 2020, Undoing class: warum von Klasse, Klassenkampf und Klassenpolitik reden?’, Prokla: Zeitschrift für Kritische Sozialwissenschaft, 50 (3), 429–38. Deutsche Welle 2018, ‘Deutsche Bahn stellt Fernverkehr vorübergehend ein’, 10 December, accessed 18 May 2021 at https://www.dw.com/de/deutsche-bahn-stellt-fernverkehr-vor%C3%BCbergehend -ein/a-46661473. Deutsche Welle 2020, ‘Belarus strike action begins’, 26 October, accessed 20 May 2021 at https://www .dw.com/en/belarus-strike-action-begins/a-55396530. Devine, F. & Sensier, M. 2017, ‘Class, politics and the progressive dilemma’, The Political Quarterly, 88 (1), 30–38. Dribbusch, H. 2018, ‘Das Einfache, das so schwer zu zählen ist: Probleme der Streikstatistik in der Bundesrepublik Deutschland’, Industrielle Beziehungen, 25 (3), 301–19. Esping-Anderson, G. 1990, Three Worlds of Welfare Capitalism, Cambridge, UK: Polity Press. Fantasia, R. 1988, Cultures of Solidarity: Consciousness, Action, and Contemporary American Workers, Berkeley, CA: University of California Press. Foucault, M. [1972] 1989, The Archaeology of Knowledge, London: Routledge. Franzosi, R. 1992, The Puzzle of Strikes, Cambridge, UK: Cambridge University Press. Frege, C. and Kelly, J. (eds) 2004, Varieties of Unionism: Strategies for Union Revitalization in a Globalizing Economy, Oxford: Oxford University Press. Gall, G. 2012, ‘Quiescence continued? Recent strike activity in nine Western European economies’, Economic and Industrial Democracy, 34 (4), 667–91. Gallas, A. 2016, The Thatcherite Offensive: A Neo-Poulantzasian Analysis, Leiden: Brill. Gallas, A. 2018, ‘The politics of striking: on the shifting dynamics of workers’ struggles in Britain’, in P. Birke, M. Dutta & J. Nowak (eds), Workers’ Movements and Strikes in the 21st Century, London: Rowman & Littlefield, pp. 237–54. Gambino, F. [1996] 2007, ‘A critique of Fordism and the regulation school’, The Commoner, 12, 39–62. Gordon, A. & Upchurch, M. 2012, ‘Railing against neoliberalism: radical political unionism in SUD-Rail and RMT’, European Journal of Industrial Relations, 18 (3), 259–65. Gordon, T. 2019, ‘Capitalism, neoliberalism, and unfree labour’, Critical Sociology, 45 (6), 921–39. Gorz, A. 1980, Farewell to the Working Class: An Essay in Post-Industrial Socialism, London: Pluto Press. Hall, P.A. 2018, ‘Varieties of capitalism in light of the euro crisis’, Journal of European Public Policy, 25 (1), 7–30. Hall, P.A. & Soskice, D. (eds) 2001, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford: Oxford University Press. Hart, G. 2018, ‘Relational comparison revisited: Marxist postcolonial geographies in practice’, Progress in Human Geography, 42 (3), 371–94. Herkommer, S., Bischoff, J. & Lohauß, P. et al. 1979, Gesellschaftsbewusstsein und Gewerkschafen: Arbeitsbedingungen, Lebensverhältnisse, Bewusstseinsänderungen und gewerkschaftliche Strategie, 1945 bis 1979, Hamburg: VSA. Hobsbawm, E.J. 1968, Industry and Empire, London: Penguin. Hopkin, J. 2010, ‘The comparative method’, in D. Marsh and G. Stoker (eds), Theory and Methods in Political Science, 3rd edition, London: Palgrave Macmillan, pp. 285–307. Hürtgen, S. 2016, ‘Authoritarian defence of the German model?’, Workers of the World, 1 (8), 56–70. Jessop, B. 1982, The Capitalist State: Marxist Theories and Methods, Oxford: Martin Robertson. Jessop, B. 1990, State Theory: Putting the Capitalist State in its Place, Cambridge, UK: Polity. Jessop, B. 2014, ‘Capitalist diversity and variety: variegation, the world market, compossibility and ecological dominance’, Capital & Class, 38 (1), 45–58.
Beyond methodological Fordism: the case for incorporated comparisons 141 Jessop, B. 2015, ‘Comparative capitalisms and/or variegated capitalism’, in I. Bruff, M. Ebenau & C. May (eds), New Directions in Comparative Capitalisms Research: Critical and Global Perspectives, London: Palgrave Macmillan, pp. 65–82. Kitson, M. & Michie, J. 2014, ‘The deindustrial revolution: the rise and fall of UK manufacturing’, Working Paper No. 459, Centre for Business Research, University of Cambridge. Koch, M. 2006, Roads to Post-Fordism: Labour Markets and Social Structures in Europe, Farnham: Ashgate. Kollmeyer, C. 2018, ‘Trade union decline, deindustrialization, and rising income inequality in the United States, 1947 to 2015’, Research in Social Stratification and Mobility, 57, 1–10. Kvale, S. 1996, InterViews: An Introduction to Qualitative Research Interviewing, London: SAGE. Landman, T. 2003, Issues and Methods in Comparative Politics: An Introduction, 3rd edition, London: Routledge. Lipietz, A. 1996, ‘The new core–periphery relations: the contrasting examples of Europe and America’, in C.W.M. Naastepad & S. Storm (eds), The State and the Economic Process, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, pp. 112–50. Marx, K. [1867] 1976, Capital: A Critique of Political Economy, Volume One, trans. B. Fowkes, London: Penguin 1976. Mason, P. 2015, Postcapitalism: A Guide to Our Future, London: Allen Lane. McMichael, P. 1990, ‘Incorporating comparison within a world-historical perspective: an alternative comparative method’, American Sociological Review, 55 (3), 385–97. McMichael, P. 2000, ‘World-systems analysis, globalization, and incorporated comparison’, Journal of World-Systems Research, 6 (3), 668–90. Moody, K. 2017, On New Terrain: How Capital is Reshaping the Battle Ground of the Class War, Chicago, IL: Haymarket. Najiels, Y. 2019, ‘The demise of the international proletariat of France’, Salvage, 2 April, accessed 10 February 2021 at https://salvage.zone/in-print/the-demise-of-the-international-proletariat-of-france -talbot-as-political-turning-point/. Nowak, J. 2021, ‘From industrial relations research to Global Labour Studies: moving labour research beyond Eurocentrism’, Globalizations, 18 (8), 1335–48. Obertreis, R. 2016, ‘Die Zeit der Privilegien ist vorbei’, Tagesspiegel, 23 November, accessed 18 May 2021 at https://www.tagesspiegel.de/wirtschaft/pilotenstreik-bei-lufthansa-die-zeit-der-privilegien-ist -vorbei/14884258.html. Panitch, L. 2001, ‘Reflections on strategy for labor’, Socialist Register 2001: Working Classes: Global Realities, 37, 367–92. Peck, J. & Theodore, N. 2007, ‘Variegated capitalism’, Progress in Human Geography, 31 (6), 731–72. Piciotto, S. 1984, ‘The battles at Talbot Poissy: workers divisions and capital restructuring’, Capital & Class, 8 (2), 5–17. Raehlmann, I. 2017, Streiks im Wandel, Wiesbaden: Springer. Rapley, T. 2014, ‘Sampling strategies in qualitative research’, in U. Flick (ed.), The SAGE Handbook of Qualitative Data Analysis, London: SAGE, pp. 49–63. Rodrik, D. 2016, ‘Premature deindustrialization’, Journal of Economic Growth, 21 (3), 1–33. Sauer, S. 2014, ‘Die Privilegien der Lufthansa-Piloten’, Frankfurter Rundschau, 1 December, accessed 18 May 2021 at https://www.fr.de/wirtschaft/privilegien-lufthansa-piloten-11048921.html. Sayer, A. 1992, Method in Social Science: A Realist Approach, 2nd edition, London: Routledge. Sayer, A. 2000, Realism and Social Science, London: SAGE. Schulten, T., Bauer, G. & Föhr, M. et al. 2019, Statistisches Taschenbuch Tarifpolitik 2019, Düsseldorf: Hans-Böckler-Stiftung. Silver, B. 2003, Forces of Labor: Workers’ Movements and Globalization since 1870, Cambridge, UK: Cambridge University Press. Streeck, W. 2009, Re-Forming Capitalism: Institutional Change in the German Political Economy, Oxford: Oxford University Press. Tilly, C. 1984, Big Structures, Large Processes, Huge Comparisons, New York: Russell Sage Foundation. van der Linden, M. 2008, Workers of the World: Essays toward a Global Labor History, Leiden: Brill.
142 Handbook on critical political economy and public policy Vromen, A. 2010, ‘Debating methods: rediscovering qualitative approaches’, in D. Marsh & G. Stoker (eds), Theory and Methods in Political Science, 3rd edition, London: Palgrave Macmillan, pp. 249–66. Wissenschaftlicher Beirat beim Bundesminister für Verkehr und digitale Infrastruktur 2016, ‘Streiks und die Zuverlässigkeit der Verkehrsbedingung’, Wirtschaftsdienst, 96 (2), 114–21. Wullweber, J. 2019, ‘Monism vs. pluralism, the global financial crisis, and the methodological struggle in the field of International Political Economy’, Competition & Change, 23 (3), 287–311. Yilmaz, K. 2013, ‘Comparison of quantitative and qualitative research traditions: epistemological, theoretical, and methodological differences’, European Journal of Education, 48 (2), 311–25.
PART III ENVIRONMENT
10. Land grabbing, financialization and dispossession in the 21st century: new and old forms of land control in Latin America Karina Kato and Sergio Leite
The turn of the 21st century in Latin America was marked by intense political, economic and environmental transformations. Within a short time (2003–08), prices of energy, metal and agricultural products increased rapidly during the period termed the commodity boom. It was the result of a combination of multiple factors (climate change, decrease in agricultural innovations, devaluation of dollar, increase in oil price and energy crisis). In addition, it was linked to the financial dimension: lower interest rates promoted by the US Federal Reserve (Fed) at the start of 2000 and the search for profitable alternatives to replace financial investments strengthened strategies that relied on commodities (Fairbairn, 2020). This ‘financialization’1 of agriculture gained importance as institutional investors played a more prominent role in the monetary system in areas such as pension funds and sovereign wealth funds that are responsible for administering and channeling considerable amounts of resources into the market. The growing price of commodities led Svampa (2013) to characterize the period as a kind of new ‘consensus’ during the ‘left turn’ in a number of Latin American countries. The greater dependence on commodities (minerals, fuels, metals, agricultural raw materials, food, etc.)2 was great, especially in developing countries (UNCTAD, 2019). For Ocampo (2017), this resulted in reprimarization, with export agendas in Latin America returning to primary commodities as their core revenue as well as deindustrialization of a great part of the economy. Greater focus on the commodities sector in the economies of Latin America prompted relevant changes in the rural areas as well. The production, distribution and commercialization of food and raw materials through global chains transform landscapes and change the ways through which land and natural resources are appropriated. With reference to the literature from Latin America, we suggest a theoretical-analytical framework that examines land grabbing and contemporary capitalist dynamics, the commodification of land and nature and intensification of dispossession processes. We will focus on three analytical dimensions of this contemporary phenomenon. The first demonstrates that the capitalist turn in the 21st century was accompanied by the expansion of extractive corporations (agribusiness and mining enterprises, in particular) in rural areas and by processes of dispossession (first two sections). The second seeks to problematize how the accelerated financialization of extractive global chains reconceptualized land as a financial asset, with impact on regional land markets and on mechanisms of expropriation (third section). Finally, we point to the configuration of a new global governance of land transactions (fourth section).
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FINANCIALIZATION AND LAND GRABBING: COMMODIFICATION OF LAND (AND NATURE) AND DISPOSSESSION Fueled by the valorization of commodities and natural resources at a global scale, the recent race for land has attracted the attention of social movements, the media and academia, prompting a plethora of headlines and articles about the phenomenon, which came to be known as land grabbing (Edelman, 2013; Oya, 2013; Sassen, 2016; Sauer & Borras, 2016). It did not take long for the theme to enter the agenda of public institutions and international organizations such as the World Bank and Food and Agriculture Organization of the United Nations (FAO). In Latin America, this movement was called appropriation (Sauer & Borras, 2016) or açambarcamento de terras (Sassen, 2016). There were two landmarks in this discussion: the report written in 2008 by the organization GRAIN, titled ‘Seized! The 2008 land grab for food and financial security’, and the World Bank document titled ‘Rising Global Interest in Farmland: Can It Yield Sustainable and Equitable Benefits?’ (Deininger & Byerlee, 2011). The former denounced global land grab, seeing it as a result of the financial and food crises and as an important driver of privatization and concentration of land in the Global South. The latter sought to reply to those denunciations by highlighting the opportunities for large-scale investment in land (through technology transfers, job generation and increased public revenues) and advocating regulation to mitigate risk. While related academic studies have become more sophisticated regarding their methodological perspective over the last few years, there is still a great deal of contradiction around the definition and characterization of these processes (how to identify, characterize and account for these transactions) and little consensus regarding methodological and epistemological aspects (Edelman, 2013; Oya, 2013). Land grabbing refers to the recent process of appropriation of land and natural resources through the transfer of property rights and/or control over land and production. Borras et al. (2012) highlight that it resulted from a combination of crises (food, climate, energy and financial), which magnified the importance of land and natural resources in the capitalist dynamics. These processes triggered a series of mechanisms that enabled dispossession of land – for example, land purchase through legal tenure and property deeds; transfer in the rights of use through concession agreements; leasehold and production contracts that intensify new rentier-based strategies in rural areas; or even illegal transactions whereby public land was transferred to private hands (grilagem, in Portuguese), a common practice in Latin America where there are still large stretches of public land that have not as yet been mapped out. Attention has been given to land transactions involving both governmental and foreign actors (commonly, but not always, this involves the purchase of land in the Global South by countries in the Global North) leading to land foreignization (Chouquer, 2012; Flexor & Leite, 2017). The process of land and resources expropriation is not a new phenomenon in Latin America but a result of colonization. Part of a Latin American tradition, this historical dimension is emphasized, for example, in the perspective that focuses on neoextractivism (Svampa, 2019). Understood as a means of appropriation, neoextractivism, broadly speaking, emerges as an analytical category for transactions and land expropriation, and for transformations in the rural context. Land dispossession is therefore intrinsic to successive economic cycles, which in turn have been shaped according to trends in the foreign market, including the advancement of extractive boundaries and commodification of natural resources. As we will see later, besides
146 Handbook on critical political economy and public policy certain continuities, the 21st century has added new dimensions to old processes of land dispossession, in particular regarding the role of the state and that played by land and natural resources during the many crises of contemporary society (ibid.). We emphasize the historical dimension not only to relativize the ‘novelty’ of recent processes of dispossession, but also to reveal how such processes are motivated by former land disputes, by traditional patterns of land use and tenure, and by social and cultural configurations that predate all these later activities. This historical dimension debunks the assumption that such transactions are taking place in ‘empty’ areas. The field of political economy has been a fertile ground for these analyses. In particular, perspectives that converse with theories on imperialism are noteworthy, as are some analyses on the expansion of capitalism in the rural context, with relevant readings about expropriation, primitive accumulation, and the commodification of natural assets (Borras & Franco, 2012; Edelman, Oya & Borras, 2013). Thus, a great part of these analyses, informed by authors such as Lenin and Rosa Luxemburg, in particular, have problematized the structural role of areas external to the reproduction of capitalism, highlighting the perennial and structural character of the processes of primitive accumulation. The best-known elaboration on the matter is arguably that by the geographer David Harvey (2004, pp. 73–6). For this author, since the 1970s, a persistent crisis of capitalist over-accumulation has forced capitalists to constantly seek new arenas for accumulation. The author draws on Marx’s primitive accumulation, re-conceptualizing it. The search for accumulation alternatives creates permanent expulsion logics (Sassen, 2016) prompted by the material transformation of increasingly larger areas; and by the increasing mediation of opaque and complex financial networks, which intensify the financialization (and securitization) of land, agriculture and natural resources. These acquisitions and control are particularly taking place in countries in Latin America and Africa.3 Moving beyond property relations and land control, Edelman et al. (2013) call attention to the need for studies to address the dynamics of labor regimes in the rural contexts. Anseeuw and Ducastel (2013) remark that besides land purchase, new forms of highly financialized investment in agriculture have expanded both control over land and production processes (vertically and horizontally), which translates into an even more subordinated inclusion of farmers (who may own land) and gives rise to production grabbing (Chouquer, 2012). In line with these broader perspectives, and moving beyond discussion on land per se, land grabbing processes are, most importantly, about the access to natural assets seeing that land is the basis for the control of resources such as water, minerals and forests, hence the growing use of concepts such as water grabbing, green grabbing and resource grabbing. The focus on control, rather than exclusively on property, enables a broader understanding of contemporary dispossessions and transaction chains not limited to the property owner with the deeds. This broader reading includes financial and corporative networks that control the land without necessarily having title deeds or tenure. Thus, production and leasing contracts translate into loss of control over land, even if title deeds remain unaltered, and they may include spoliation or loss of control over a particular resource without necessarily evicting communities or transferring property ownership. Land transactions can obstruct the access by communities to public or collective areas where resources were previously extracted, even if land was not occupied. Furthermore, the synergic nature of such transactions is noteworthy: extractive projects benefit from economies of scale and of scope when implementing other projects.
Land grabbing, financialization and dispossession in the 21st century 147 Regardless of the differences in how to define land grabbing, the fact is that this phenomenon has accelerated in the 21st century. Sauer and Borras (2016) systematize the new mechanisms or processes of accumulation that drive land transaction: 1. Expansion and greater power by the agribusiness sector at a global scale, and capacity to incorporate new territories to its value chain. Countries such as Brazil and Argentina are the destination for transnational investment in agriculture and land and also promoting this type of investment in other developing countries in Latin America and Africa. 2. Extensive building of infrastructure through public and multilateral institutional investments, similar to the Initiative for the Integration of Regional Infrastructure in South America (IIRSA, in Portuguese), which sketches out economic corridors to open up yet-to-be-explored areas and guide national policies. 3. Need for new energy strategies with lower environmental impact (biofuel, as well as wind and solar power projects). 4. Concerns with food sovereignty in a world with a growing population and increasing homogenization of food habits, especially in developing countries. 5. Creation of new financial instruments that are increasingly focusing on land, commodities and nature as assets (agribusiness bonds, funds specialized in land and natural resources and other financial instruments that use land as collateral). 6. New environmental demands and mechanisms to address environmental mitigation and compensation needs. 7. Greater engagement by multilateral organizations such as the World Bank, which promote the organization of local and regional markets based on the logic of the individual private property. Contemporary processes of dispossession cannot be understood without taking into account the legal and regulatory component, or the state. Sassen (2016) reminds us that acquisitions take place in a scenario of independent states. For the author, measures by the International Monetary Fund and by the World Bank, particularly through cycles of debts and structural adjustments in the 1990s, work as disciplinary regimes in peripheral states. Subsequent weakening is due to the alignment of policies with neoliberal agendas and higher debts by the states, associated with greater legitimacy and interference by foreign institutions and global corporations in the national political agenda. When Levien (2014) conceptualizes dispossession regimes, he is interested in contemporary processes of accumulation by dispossession while also placing expropriation at the center of his theoretical analysis. He sees dispossession as a political process, which is in many ways extra-economic: it depends on a state to redistribute assets from one class to another. Fraser (2016) also highlights the political nature of expropriation and the structural role of the racial element (and we could also add the gender and ethnic elements). The imperative of infinite capitalist expansion requires a combination of strategies around exploitation (and appropriation of surplus value) and expropriation (mechanisms that involve the acquisition of labor force and means of production at lower than cost value or for free). The latter is particularly salient in moments of crisis. It is up to the state to organize these processes.
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STATE, EXPANSION OF BOUNDARIES AND DISPOSSESSION IN LATIN AMERICA Over the first decade of the 21st century, land transactions and farming investments became more attractive not only for actors already operating in the rural and agricultural sector, but most importantly, also for those who, until then, were unfamiliar with that type of investment (Wilkinson, Reydon & Sabbato, 2012). One of the main features of the current economic scenario is capital’s renewed interest in natural resources. Construction companies, oil and mining corporations, governmental companies of countries lacking natural resources, investment funds, sovereign funds, pension funds and administrators of financial portfolios are some examples of stakeholders investing in land and speculating on the valorization of commodities. According to the UNCTAD report (2019), the stronger dependence on commodities (more than 60 percent of export value results from transactions in this type of asset) could represent serious limitations for economic development. Between 2013 and 2017, 102 out of the 189 countries relied on commodities. Most of these countries are located in the Global South, as illustrated in Figure 10.1. In Latin America, the majority of the countries rely on export of agriculture, energy and mineral commodities. The degree of dependence on commodities is reflected on the way the level of development relates to the expansion of extractive projects (Svampa, 2019). In Latin America, Brazil is one of the main players in the market of agricultural commodities. The recent boom of these products strengthened extractive sectors and prompted the rewriting of the Brazilian export agenda (and the economy) centered around reprimarization (Flexor & Leite, 2017). The intensification of agribusiness in Brazil accelerated the expansion of this sector across different territories. Delgado (2012) examines the Brazilian case and demonstrates that the liquidity crisis in the late 1990s was the key for the prioritization of agribusiness in the Brazilian macroeconomic policy agenda, contributing to what he describes as the political economy of the agribusiness. The boost in agribusiness was prompted by (1) priority projects of public investment in regional infrastructure; (2) the channeling of public funds to agriculture and farming research; (3) the ‘loose’ regulation of the land market with little regulation of public land; and (4) changes in macroeconomic policies – in particular, in exchange rate policies (ibid.). This relaunching provided an institutional framework that supported the expansion of agribusiness, especially around border territories, with impact on the expansion of agribusiness in the national territory of Brazil, as can be seen in Figure 10.1. In Brazil, the areas with soybean cultivation went up from 1.3 million to 35.9 million ha between 1970 and 2019, subsequently occupying more than 50 percent of the area earmarked for temporary crops (Companhia Nacional de Abastecimento – CONAB, 2020). The soy production that in the 1980s was concentrated in the southern part of the country expanded towards the Brazilian Cerrado, initially in areas located in the center-west (the state of Mato Grosso in particular). Between 1990 and 2000, soybean crops expanded to the northeast and north, consolidating areas traditionally used for production, as in the case of the south and center-west, alongside the opening up of new areas for agriculture. On that note, it is worth highlighting the Matopiba region (which includes areas in the states of Maranhão, Tocantins, Piauí and Bahia, all located in the northeast) and areas in the Amazonian region, such as the south of Pará and Amazonas, and Roraima. Figure 10.1 clearly shows how the production sites on the map become progressively darker over the years, especially after 2000.
Land grabbing, financialization and dispossession in the 21st century 149
Source: Data from PAM/IBGE (over time). Elaboration by Valdemar Wesz Jr.
Figure 10.1
Cultivated areas with soybean production in Brazil (in hectares), 1973–2018
For Frederico and Gras (2017) the agribusiness expansion coincides with the arrival of a new stream of capitalists in rural areas in Latin America, which will be seen in greater detail in the next section. Increasingly, financial actors and mechanisms are transforming the agribusiness sector, configuring new modes of financing, accelerating the expansion of areas for commodity production, and transforming landscapes (Ducastel & Anseeuw, 2017; Harvey, 2004; Knuth, 2015). This process is accompanied by an important set of policies endorsed by the state. State and governmental agencies set in motion the ‘accumulation by spoliation’ in areas with similar characteristics throughout Brazil (Harvey, 2004; Levien, 2014). Levien (2014) highlights the little attention given in the literature to disappropriation and dispossession of land. The author underpins the importance of considering dispossession regimes, the means through which expropriation is carried out. To intensify expropriation, the state uses coercion and persuasion to enable asset transfer (land and natural resources) from one social group to the benefit of another. To understand the role of the state we need to look at different dimensions. The first is tied to the construction of an ideology associated with a narrative that justifies expropriation of a ‘commodity consensus’ (Svampa, 2013). The extractive activities in Latin American economies, now under the new guise of modernity and high capital investment, are promoted by the
150 Handbook on critical political economy and public policy government as the main requirement in the execution of policies for the promotion of social and economic development. Once extractive activities are perceived as vital items on balance sheets and subsequently in the national macroeconomy, they are promoted by national and local government through several sectorial mechanisms and public policies. The first step is to consolidate a safe and attractive environment for foreign investment, guaranteeing substantial fiscal exemptions and low taxes over capital, interest and dividends, and ensuring economic stability and contract guarantees. The elaboration of maps, administrative areas, and zoning of land ‘destined’ for extractive activities is another way to direct investments (special economic zones or land reserve zones). In addition, ‘empty’ and ‘unproductive’ areas are created, justifying the promotion of land transactions (Dwyer, 2013). More often, in several countries in Latin America we observe changes in legislation and in regulatory landmarks for land and natural resources aiming to facilitate land grabbing and privatization. To guarantee the legal protection of investments, many countries change their land regulatory framework to encourage the establishment and growth of the land market, the expansion of policies related to land regularization, and the concession of public land to private actors. We highlight the promotion of diversified sectorial public policies to support extractive activities as the concession of subsidized credit; deregulation of financial instruments tied to land and commodities; expansion of public investment in research and development; and elaboration of programs and plans to support public investment in logistical infrastructure. Furthermore, given that expropriation is always a violent phenomenon as it withdraws assets from a specific social group, the state must act during the process of disappropriation. This could be through the creation of settlements and the overseeing of compensation due to expropriated communities, or by criminalizing protests and putting the police force into action to ‘pacify’ manifestations (Muñoz & Villamar, 2018; Svampa, 2019).
THE CONSTRUCTION OF LAND AS A FINANCIAL ASSET: LAND MARKETS AND NEW FORMS OF DISPOSSESSION The application of this analytical framework to the rural sector is not trivial and is gaining more significance in recent times. The pioneering book by Guilherme Delgado (1985), titled Capital financeiro e agricultura no Brasil: 1965–1985 [Financial Capital and Agriculture in Brazil: 1965–1985] is an example of a ‘classic’ study on the agrarian thematic field in Brazil. In a recent book (Delgado, 2012), he developed this analytical framing in the light of new movements. As early as the 1980s, the author noted the role of rural credit and the characteristic ‘financial interference’ in the process of ‘conservative modernization’ in Brazilian agriculture. In fact, in the context of Brazil, the topic has been favored by researchers in the area of geography (Frederico & Gras, 2017; Pitta, Boechat & Mendonça, 2018; Pitta & Mendonça, 2014), even if studies in the area of social sciences have been increasing (Balestro & Lourenço, 2014; Kato & Leite, 2020). Beyond Brazil, there has also been an increase in research on related topics, particularly in the areas of sociology and economic sociology, of which two authors deserve special mention – Jennifer Clapp with studies focusing on agricultural products and commodity markets (Clapp, 2013, 2017; Clapp & Isakson, 2018), and Madeleine Fairbairn with several works about the financial dimension more specifically (Fairbairn, 2015). Her latest book, Fields of Gold: Financing the Global Land Rush (Fairbairn, 2020), in particular, is a noteworthy contribution.
Land grabbing, financialization and dispossession in the 21st century 151 Following on from these more recent works and considering research investment in the rural area per se (both in Brazil and abroad), the return to the ‘classics’ and their formulations of categories and concepts that were essential for a better understanding of movements related to land and the rural sector, has been timely. Though it is not within the scope of this chapter to delve into Karl Marx and his interpretation of land income and fictitious capital, especially as discussed in the third volume of Capital (Marx, 1984), as well as Karl Polanyi and his studies on the ‘market’ and the economy as a social process, their contributions cannot be overstated. Polanyi is particularly relevant, with his observation about the meaning and reach of land as a ‘commodity’, and its centrality for a broader understanding of social processes, as seen in the extract below: The rise of the market to the condition of dominant force in the economy is noticeable, which illustrates the extent to which land and food were mobilized by commercial exchanges and labor was transformed into a commodity that can be freely purchased in the market. This may help to explain the importance of theory, historically unsustainable, of the distinct stages of slavery, serfdom, and wage labor, a tradition in Marxism – an idea that results from the conviction that the type of the economy depended on the labor characteristics. The integration of land into the economy, however, is no less vital. (Polanyi, 2012, p. 310)
We have also included amongst the ‘classics’ an original Brazilian thinker who deserves more recognition for his contributions to the theme. Amongst his many works, Rangel (1986) is noteworthy for his innovating concept of a land ‘fourth income’, which he sees as a financial quasi-asset. Thus, he rehashes an approach that until then was restricted to well-known elaborations by David Ricardo on differential rent I and II, and by Marx on absolute rent. This opening to an elaboration of a ‘financial and speculative explanation’ of land is rather strategic, having already been formulated by Rangel even prior to David Harvey’s works, for example, who is well-aligned with Marx. As we update our perspective to the recent context, it is noticeable how the conjuncture of the 2000s with a confluence of crises (environmental, energy, food, climatic and financial), was accompanied by the surge of new markets and financial assets related to agriculture and land. The social construction of these new financial markets and instruments resulted from institutional innovations, the proliferation of conferences specialized in agricultural investments, and the strengthening of narratives that praise the land as an accessible and desirable component of institutional investment portfolios (Fairbairn, 2014a). While this is still a relatively minor phenomenon compared with the size of financial markets, the process is gaining ground due to its velocity and transformational potential regarding property and control over land (Fairbairn, 2014a, 2014b; HighQuest Partners, 2010). This is evident when we look at the exponential increase in the number of foreign investment funds with a focus on rural areas (Valoral Advisors, 2020). Frederico and Gras (2017) highlight that, in this process, alternative financial investments that deal with land and farming projects become the most important type of investments. They are considered alternative assets because they are based on financial investments that are not tied to traditional financial markets enabling investors to diversify their portfolios. They include a diversified set of instruments applied to the sector (future markets, hedge funds, bonds etc.) and they may involve investments in real assets such as agricultural, forestry, infrastructure projects and so forth. They attracted attention especially after the 2008 financial crisis (Kato & Leite, 2020). The works by Gomes (2020) and Siviero Vicente (2020)
152 Handbook on critical political economy and public policy provide detailed accounts of how pension and donation funds of American universities entered Brazilian territory, appropriating land in the northeast and using it to produce commodities. In addition, we could argue that a new ‘rural–urban relation’ is forged from these financial connections in an involuntary manner – in other words, through an association between pension funds of university professors, and the eviction of peasant farmers and subsequent establishment of new production plants. The resources are obtained in the financial market and invested in productive projects through partnerships with companies and specialized producers. Generally speaking, the institutional structure for land investment involves three groups of actors: different types of investors (who provide capital); companies that manage the assets (which create financial instruments such as funds); and companies operating in the farming sector (producers or production managers). These investments demonstrate unprecedented integration between the financial capital and land tenure. Funds with specialization in the agribusiness sector had a boom from 2005 to 2014, reaching a total of US$100 billion in investment value in 2013 (Frederico & Gras, 2017). In 2014, these investments cooled off, but the estimate for 2018 is that they will have surpassed US$31 billion (Steinweg, Kuepper & Piotrowski, 2018). In 2010, HighQuest Partners identified 54 private investors dealing with land and agriculture-related assets, a phenomenon described by Frederico and Gras (2017, p. 12) as the arrival of a ‘new crop of capitalists in Brazil’. These arrangements have proved to be significant drivers for contemporary land grabbing (Frederico & Gras, 2017; Knuth, 2015). Large transnational corporations continue to play a key role in the promotion of land transactions, with the creation of chains that are increasingly more financialized and oligopoly-oriented. However, non-banking institutions – in particular, institutional investors – are gaining ground. In a context of growing liberalization, these actors manage to seize large proportions of capital at the same time as they are subject to fewer regulations (Fairbairn, 2014a, 2014b, 2020).
NEW LAND GOVERNANCE, SOCIO-ENVIRONMENTAL CONFLICTS AND LAND INEQUALITY Alongside greater visibility of trades in land and land grabbing, discussions about the need to establish a global governance of these transactions also become more prominent (Borras et al., 2012). One of the perspectives is related to the strengthening of a narrative based on the need of a global regulatory framework to facilitate land transactions. The argument is based on the perception that there is a great deal of empty and marginal land in the world, particularly in poor countries, that could be approached as opportunities for development. Governance in this case is based on two assumptions: clear guarantee of property rights, which is a key aspect of the so-called legal protection of these investments; and greater support of land markets, particularly through private ownership rights. One example of the latter is the way the World Bank positions itself (Deininger & Byerlee, 2011), encouraging the establishment of property rights, compliance with environmental and labor standards, and undertaking consultations to facilitate transactions. The state has the key responsibility of creating these instruments and developing tools to identify, quantify, acquire and dispose of marginal land, thus promoting commercial land transactions.
Land grabbing, financialization and dispossession in the 21st century 153 The second narrative is supported by the fact that the design of certain regulatory instruments facilitates land-related transactions while mitigating risks. Borras et al. (2012) draw attention to how this strand is grounded in an understanding that large-scale land transactions are inevitable and land-related redistributive policies and those that promote small-scale rural development are impossible. They try to lower the risks and emphasize the urgency of promoting rural development in poor countries. Foreign investment is usually seen as an opportunity to carry this out. These actors defend the use of governance instruments such as the strengthening of property rights, particularly for poor communities and farmers, and of mechanisms that facilitate consultation of affected communities; and the establishment of environmental and labor legislations that impose conditions for such investments. According to Borras et al. (2012), Oxfam and other civil society organizations have been adopting this tactic approach in communities where the land transaction area is already under way. As for the third stream of narrative, it seeks regulatory instruments that can curb or revert land transactions. These actors argue that current solutions for the production of food, commodities, biofuel, fodder and other products are not addressing the problems of hunger, poverty or environmental degradation. In fact, they make problems worse because they follow the logic of large-scale agricultural models, evicting whole communities and creating ‘dead land’ (Sassen, 2016). They emphasize the use of governance instruments to paralyze and revert land transactions, protecting the rights of peasant farmers, and traditional communities, and their access to land. They defend the use of mechanisms that guarantee land rights for small producers, particularly those that are not restricted to the Western category of private property, including collective and communal regimes, high environmental and labor standards, and the undertaking of consultation through participatory and transparent mechanisms. This strand is embodied in the Global Alliance against Land Grabbing created by Via Campesina and its allies in 2011 (in Mali), to give one example. To foster a particular type of land governance, we have recently observed the creation of several voluntary international initiatives that promote ‘responsible’ private investments (Clapp, 2017). In 2010, the World Bank, the FAO and UNCTAD presented the ‘Principles for Responsible Agricultural Investment’ (PRAI). In 2011, a group of global investment funds signatory to the ‘Principles for Responsible Investment’ (PRI) supported by the United Nations, created the ‘Principles for Responsible Investment in Farmland’. In 2012, FAO defined its ‘Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of the National Food Security’, endorsed by the International Committee for Food Security. In 2014, this same committee elaborated the ‘Principles for Responsible Investment in Agriculture and Food Systems’ (PRIAFS). Clapp (2017) observes that these initiatives tend to become less effective because of their voluntary nature and low participation from private actors, which is made worse by the number of initiatives with similar aims. In addition, the author remarks that these guidelines end up being used ‘cosmetically’ and as a marketing tool, and not as effective principles to actually change production systems and corporate codes of conduct. The accelerated increase of land transactions, already discussed in previous sections, and the attempts to establish a global governance of land, unfold in a context whereby there is a permanent and persisting level of inequality in terms of access to and tenure of land in rural Latin America. Land inequality is a persistent and structural feature of Latin American societies (Frankema, 2009). While over the last few years, land inequality in the world appears to have increased, as shown in the latest report by the International Land Coalition (Anseeuw &
154 Handbook on critical political economy and public policy Baldinelli, 2020), Latin America continues to have the worst ranking in terms of land distribution. A study by Oxfam (2016) demonstrates that 1 percent of the largest rural enterprises in the 15 countries in Latin America control more than half of all arable land (with an average size of 2000 ha). In that context, we can observe a scenario of permanent tension in rural areas. Land conflicts in the rural context are characterized by dispossession, destruction of houses and fencing, killing of domestic and farm animals, violent action of gunmen, murders and threats, to name a few. Losekann (2016) highlights that in Latin America, the increase in socio-environmental conflicts is associated with the rise in export of agricultural and mineral commodities. Out of the 21 countries with recorded murders of environmentalists, most of them occurred in countries in Latin America (including Colombia, Brazil, Mexico and Honduras). The Global Atlas of Environmental Justice (EJAtlas, 2020) reveals conflicts in Latin America resulting from the expansion of commodity production and land investment. In Brazil, the Pastoral Land Commission (Comissão Pastoral da Terra – CPT) provides the total figure for the annual number of land conflicts in the country. Data collected by the organization shows that between 2002 and 2020, there was a significant increase in the number of conflicts related to land, water, rights and standards of labor or means of production in Brazil. In the first years of 2000 and from 2010 onwards (particularly, after 2014), there was a surge in land conflicts, which is also tied to the growth of extractive activities in the Brazilian rural context. Figure 10.2 is striking in terms of the increase in the number of conflicts over water (since 2011), which is directly related to agribusiness, mining, logging and dams, to name a few. Conflicts over water were prominent in the states of Maranhão, Pará and west of Bahia, areas where agriculture was advancing.
Sources: Canuto, Luz and Santos (2012) and Centro de Documentação Dom Tomás Balduíno (2021).
Figure 10.2
Conflicts in the Brazilian rural context, 2002–20
Therefore, as extractive activities and the dispute for control of assets and territory advance, a new language of territory valorization emerges, which Svampa (2019) calls the eco-territorial turn. The defense of land and territory enables the articulation of different perspectives such as
Land grabbing, financialization and dispossession in the 21st century 155 those from peasant farmers, indigenous peoples and other rural communities, feminists, environmentalists, as well as other rural and urban social disputes. These movements operate with strategic links to translate and interpret the territorial agendas and demands in order to influence governmental apparatuses, the implementation of these governance instruments, and the fate of these transactions. Because of its territorial size and agribusiness and mining sectors, combined with the remaining extensive forests and diversity of social groups inhabiting rural areas, Brazil has a central role in the future.
FINAL CONSIDERATIONS Throughout this chapter we have pointed out how recent financialization mechanisms related to agriculture and land have resulted from a more complex arrangement derived from capital accumulation processes at the international scale with direct impact on different territories and populations in countries in the ‘Global South’ – in particular, those located in Latin America, the area we focused on in this analysis. Such transformations were accompanied by a movement of dispossession, motivated by a number of entrepreneurial and governmental strategies, which dislocated, in a compulsory manner, traditional peoples and peasant farmers situated in these areas, which are now being explored for the production of agricultural, mineral and energetic commodities. This process was not voluntary; on the contrary, it relied on a decisive participation of multilateral states and agencies, despite the initiatives to ‘contemporize’ these investments by qualifying them with new adjectives, such as being ‘responsible’, in an attempt to minimize the strong environmental, social and economic impacts. This process was particularly marked after the strong expansion of these activities between the late 1990s and early 2010. Thus, moving beyond financialization per se, these changes in the rural landscape were fueled by the growing participation of foreign capital in the process of large-scale land appropriation, which came to be known as land foreignization. The financialization of these natural resources and assets is not something new strictly speaking, but with the emergence of the financial, food, energy and environmental crises after the second half of the 2000s, a significant number of rural territories became the object of speculative activities, including requirements of valorization of different forms of investment as evidenced in the growing number of funds specializing in this type of activity between 2005 and 2020. In that context, this financial dimension and the trend of dispossession that characterizes it acquires new meaning. With a greater number of transactions after 2000, it also gains in intensity, be it for the ways new actors get involved with farming and agricultural investments or the new conflicts that emerge, being triggered by the dispute over land and natural resources (including water). These practices gave rise to new narratives about global land governance in an attempt to better understand the different processes of dispossession, in Harvey’s words, or eviction, to use the well-known elaboration by Sassen, or even expropriation, a concept that encompasses extra-economic means of coercion and violence to meet the intended ends, as stressed by Levien. Thus, we have shown how the land dimension gained a central role in the international political-economic agenda, with the latter becoming a key area in the new set of ongoing strategies, prompting a revision of the former, and relatively dated perspectives about the character
156 Handbook on critical political economy and public policy and significance of agricultural activity for capitalist accumulation. If, on the one hand, it is not only a problem of food production and supply in domestic and/or international markets given that both land and commodities are the object of ever more sophisticated financial arrangements, on the other, it is not simply a matter of approaching the rural sector as a locus of production (usually for export). Instead, the rural context must be understood as vital for differentiated forms of lives and livelihoods, and for the preservation of natural resources, which implies the prevalence of a different mode of development that opposes the first formulation above (production/financialization). This tension explains in certain ways the emergence of new projects related to the rural sector that are in dispute within the international context.
NOTES 1. In this chapter, inspired by Epstein (2005), we use the term financialization to mean the increasing importance of financial markets, financial motives, financial institutions and financial elites in the operation of the economy, at international, national and local levels. Van der Zwan (2014) notes that the body of financialization studies are diversified, corresponding to at least three different approaches: a group that considers financialization as a regime of accumulation; studies that focus on the financialization of modern corporations (shareholder value); and a group that analyzes the social and cultural impacts of financialization (financialization of the everyday). As Clapp and Isakson (2018) stress, in recent decades, financialization profoundly affected food systems and agriculture in a process in which financial actors, markets and motivations are transforming agriculture and food provisioning. The financialization of agriculture is an ongoing process that transforms agrifood supply chains. 2. According to the United Nations Conference on Trade and Development (UNCTAD, 2019), a country is considered dependent on commodities if the latter represents more than 60 percent of the country’s export (in terms of value). 3. According to Land Matrix (2020), which has recorded land transactions of areas with more than 200 hectares since 2000, out of the 1610 land transactions across the world, 36 percent related to African countries and 21 percent to Latin American countries.
BIBLIOGRAPHY Anseeuw, W. & Baldinelli, G.M. 2020, Uneven Ground: Land Inequality at the heart of Unequal Societies, accessed 30 December 2022 at https://www.landcoalition.org/en/uneven-ground/report-and -papers. Anseeuw, W. & Ducastel, A. 2013, ‘Production grabbing: new investors and investment models in agriculture’, QA Revista dell Associazione Rossi-Doria, 2 (2), 37–55. Balestro, M.V. & Lourenço, L.C. 2014, ‘Notas para uma análise da financeirização do agronegócio: além da volatilidade dos preços das commodities’, in A.M. Buainain, E. Alvez, J.M. da Silveira & Z. Navarro (eds), O mundo rural no Brasil no século 21: a formação de um novo padrão agrário e agrícola, Brasília: Embrapa, pp. 241–66. Borras Jr., S.M. & Franco, J.C. 2012, ‘Global land grabbing and trajectories of agrarian change: a preliminary analysis’, Journal of Agrarian Change, 12 (1), 34–59. Borras, Jr., S.M., Kay, C., Gomez, S. & Wilkinson, J. 2012, ‘Land grabbing and global capitalist accumulation: key features in Latin America’, Canadian Journal of Development Studies/Revue canadienne d’études du développement, 33 (4), 402–16. Brazilian Institute of Geography and Statistics (IBGE), Municipal Agricultural Production (PAM) 1974–2020, accessed 20 January 2022 at https://www.ibge.gov.br/estatisticas/economicas/agricultura -e-pecuaria/9117-producao-agricola-municipal-culturas-temporarias-e-permanentes.html?edicao= 18051&t=publicacoes.
Land grabbing, financialization and dispossession in the 21st century 157 Canuto, A., Luz, C.R. & Santos, P.C.M. 2012, Conflitos no Campo 2011, Goiânia: CPT Nacional. Centro de Documentação Dom Tomás Balduíno 2021, Conflitos no Campo 2020, Goiânia: CPT Nacional. Chouquer, G. 2012, Terres porteuses: entre faim de terres et appétit d’espace, Paris: Editions Errance. Clapp, J. 2013, ‘Financialization, distance and global food politic’, paper presented at the International Conference on Food Sovereignty: A Critical Dialogue, Yale University. Clapp, J. 2017, ‘Responsibility to the rescue? Governing private financial investment in global agriculture’, Agriculture Human Value, 34, 223–35. Clapp, J. & Isakson, R. 2018, ‘Risky returns: the implications of financialization in the food system’, Development and Change, 49 (2), 437–60. Companhia Nacional de Abastecimento (CONAB) 2020, ‘Série histórica de produção’, accessed 20 February 2022 at http://www.conab.gov.br. Deininger, K. & Byerlee, D. 2011, Rising Global Interest in Farmland: Can It Yield Sustainable and Equitable Benefits?, Washington, DC: World Bank. Delgado, G.C. 1985, Capital financeiro e agricultura no Brasil: 1965–1985, São Paulo: ICONE- Unicamp. Delgado, G.C. 2012, Do capital financiero na agricultura à economia do agronegócio, Porto Alegre: Editora da UFRGS. Ducastel, A. & Anseeuw, W. 2017, ‘Investissements fonciers à grande échelle et financiarisation de l’agriculture: une analyse par les filières agro-financières’, in G. Allaire & B. Daviron (eds), Transformations agricoles et agroalimentaires, Versailles: Editions Quae, pp. 257–74. Dwyer, M.B. 2013, ‘Building the politics machine: tools for “resolving” the global land grab’, Development and Change, 44 (2), 309–33. Edelman, M. 2013, ‘Messy hectares: questions about the epistemology of land grabbing data’, The Journal of Peasant Studies, 40 (3), 485–501. Edelman, M., Oya, C. & Borras, Jr., S.M. 2013, ‘Global land grabs: historical processes, theoretical and methodological implications and current trajectories’, Third World Quarterly, 34 (9), 1517–31. Epstein, G.A. 2005, ‘Introduction: financialization and the world economy’, in G.A. Epstein (ed.), Financialization and the World Economy, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, pp. 3–16. Fairbairn, M. 2014a, ‘Just another asset class? Neoliberalism, finance and the construction of farmland investment’, in S.A. Wolf & A. Bonanno, The Neoliberal Regime in the Agrifood Sector: Crisis, Resilience and Restructuring, London/New York: Routledge, pp. 245–62. Fairbairn, M. 2014b, ‘Like gold with yield: evolving intersections between farmland and finance’, The Journal of Peasant Studies, 41 (5), 777–95. Fairbairn, M. 2015, ‘Foreignization, financialization, and land grab regulation’, Journal of Agrarian Change, 15 (4), 581–91. Fairbairn, M. 2020, Fields of Gold: Financing Global Land Rush, Ithaca, NY: Cornell University Press. Flexor, G. & Leite, S.P. 2017, ‘Land market and land grabbing in Brazil during the commodity boom of the 2000s’, Contexto Internacional, 39 (2), 393–420. Frankema, E. 2009, Has Latin America Always been Unequal?, Brill: Boston. Fraser, N. 2016, ‘Expropriation and exploitation in racialized capitalism: a reply to Michael Dawson’, Critical Historical Studies, 3 (1), 163–78. Frederico, S. & Gras, C. 2017, ‘Globalização financeira e land grabbing: constituição e translatinização das megaempresas argentinas’, in J.A. Bernardes, S. Frederico & C. Gras et al. (eds), Globalização do Agronegócio e land grabbing: a atuação das megaempresas argentinas no Brasil, Rio de Janeiro: Lamparina, pp. 12–32. Global Atlas of Environmental Justice (EJAtlas) 2020, accessed 20 January 2022 at https://ejatlas.org. Gomes, C.M.P. 2020, ‘Um “novo mercado global de terras” no Brasil: land grabbing e a “última frontera agrícola” – MATOPIBA’, PhD thesis, CPDA/UFRRJ, Rio de Janeiro. GRAIN 2008, ‘Seized! The 2008 land grab for food and financial security’, Grain Briefing, 24 October, accessed 15 November 2021 at https://grain.org/article/entries/93-seized-the-2008-landgrab-for-food -and-financial-security. Harvey, D. 2004, ‘The “new” imperialism: accumulation by dispossession’, Socialist Register: The New Imperialist Challenge, 40, 63–87.
158 Handbook on critical political economy and public policy HighQuest Partners 2010, ‘Private financial sector investment in farmland and agricultural infrastructure’, OECD Food, Agriculture and Fisheries Working Papers No. 33, Paris: OECD Publishing. Kato, K. & Leite, S.P. 2020, ‘Land grabbing, financeirização da agricultura e mercado de terras: velhas e novas dimensões da questão agrária no Brasil’, Revista da ANPEGE, 16 (29), 452–83. Knuth, S. 2015, ‘Global finance and the land grab: mapping twenty-first century strategies’, Revue canadienne d’études du développement, 36 (2), 163–78. Land Matrix 2020, ‘Brazil’, accessed 15 November 2021 at https://landmatrix.org/map/. Levien, M. 2014, ‘Da acumulação primitiva aos regimes de desapropriação’, Sociologia e Antropologia, 4 (1), 21–53. Losekann, C. 2016, ‘A política dos afetadospelo extrativismo na América Latina’, Revista Brasileira de Ciência Política, 20, 121–64. Marx, K. 1984, O Capital, São Paulo: Abril Cultural. Muñoz, E. & Villamar, M. 2018, ‘O desenvolvimento extrativista na América Latina e no Caribe: impactos, disputas e alternativas’, paper presented at the 42nd ANPOCS Annual Meeting, Caxambu (MG). Ocampo, J.A. 2017, ‘Commodity-led development in Latin America’, in G. Cabonnier, H. Campodonico & S.T. Vásquez (eds), Alternative Pathways to Sustainable Development: Lessons from Latin America, Leiden: Brill, pp. 51–76. Oxfam 2016, Desterrados: tierra, poder y desigualdaden America Latina, Oxford: Oxfam International. Oya, C. 2013, ‘Methodological reflections on “land grab” databases and the “land grab” literature “rush”’, Journal of Peasant Studies, 40 (3), 503–20. Pitta, F.T., Boechat, C.A. & Mendonça, M.L. 2018, ‘A produção do espaço na região do MATOPIBA: violência, transnacionais imobiliárias agrícolas e capital fictício’, Estudos Internacionais, 5 (2), 155–79. Pitta, F. & Mendonça, M.L. 2014, ‘O capital financeiro e aespeculação com terras no Brasil’, Mural Internacional, 5 (1), 46–55. Polanyi, K. 2012, A subsistência do homem e ensaios correlatos, Rio de Janeiro: Contraponto. Rangel, I. 1986, ‘A questão da terra’, Revista de Economia Política, 6 (4), 71–7. Sassen, S. 2016, Expulsões: brutalidade e complexidade na economia global, trans. Angélica Freitas, Rio de Janeiro/São Paulo: Paz e Terra. Sauer, S. & Borras Jr., S.M. 2016, ‘“Land grabbing” and “green grabbing”: uma leitura da “corrida na produção acadêmica” sobre a apropriação global de terras’, Campo-Território, 11 (23), 6–42. Siviero Vicente J. 2020, ‘Uma nova safra de proprietários rurais? O caso dos investimentos da Universidade de Harvard em recursos naturais no Brasil’, master’s dissertation, CPDA/UFRRJ, Rio de Janeiro. Steinweg, T., Kuepper, B. & Piotrowski, M. 2018, Foreign Farmland Investors in Brazil Linked to 423,000 Hectares of Deforestation, Washington, DC: Chain Reaction Research. Svampa, M. 2013, ‘Consenso de los commodities y lenguajes de valoración en America Latina’, Nueva Sociedad, No. 244, March/April, 30–46. Svampa, M. 2019, Las fronteras del neoextrativismo en América Latina: conflictos socioambientales, giro ecoterritorial y nuevas dependencias, Bielefeld: Bielefeld University Press. United Nations Conference on Trade and Development (UNCTAD) 2019, State of Commodity Dependence 2019, Geneva: UNCTAD. Valoral Advisors, 2020, Mapping the Global Opportunities in the Food and Agriculture Investment Space Post Covid-19, Luxembourg: Valoral Advisors. Van der Zwan, N. 2014, ‘Making sense of financialization’, Socio-Economic Review, 12 (1), 99–129. Wilkinson, J., Reydon, B. & Sabbato, A. 2012, ‘Concentration and foreign ownership of land in Brazil in the context of global land grabbing’, Canadian Journal of Development Studies, 33 (4), 417–38.
11. Extractive economies and public policies: critical perspectives from Latin America Bruno Milanez and Ana Garcia
Mining and extractive industries are usually presented as significant contributors to national economies. Yet, empirical and analytical studies developed throughout the 20th century have revealed the limits and challenges that they must deal with to ensure long-term economic growth. More recently, some works have focused on the territorial aspects and conflicts at the subnational scale, involving specific social groups around extractive projects (Graulau, 2008; Saes & Bisht, 2020; Santos & Milanez, 2020). In this chapter, we argue that despite the risks of resource-based growth, the emergence of neoliberalism and the economic rise of Asia have driven the restructuring of nation-states and public policies, which in turn has deepened the dependence on extractivism in several Latin American countries. This dynamic has resulted in new and complex territorial impacts and conflicts. It presents new challenges to the economic critiques formulated between the 1950s and the 1990s such as structuralism, dependence theory and the resource curse, among others, opening up a space for the construction of new paradigms that sought to complement such critiques as well as question some of their proposed solutions, including the development discourse itself. This chapter is organized into three main parts. We begin by briefly describing the main schools of thought on extractivism and economic development in the 20th century. Then, we address the main issues involving the economic and political context of mining in Latin America at the beginning of the 21st century, providing examples of public policies in the extractive sector. We conclude with a synthesis of new conceptual propositions on ‘post-extractivism’ and ‘post-development’, based on recent Latin American intellectual debates. Our analysis is based on our experience as academics with participatory research in extractivism and mining in Brazil and Latin America, as well as in international networks on mining multinationals in Brazil, Mozambique and Canada, of which the Articulação Internacional de Atingidos e Atingidas pela Vale [International Articulation of those Affected by Vale] is a major example.1 Although focused on Latin America, the debates presented here are applicable to other regions that experience the expansion of the mineral frontier, either to meet the infrastructure demands of emerging countries (Edwards et al., 2014; Rubbers, 2020) or to ensure the energy transition of countries of consolidated industrialization (Bazilian, 2018; Church & Crawford, 2020). In our view, despite the alleged legitimacy of extractive-oriented activities (mainly generated by promises of employment, infrastructure and modernization), the territorial nature of conflicts that emerged from them reveal the limitations of natural resource-based growth, and challenge social movements and academics to rethink the relationship between nature, society and economy.
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NATURAL RESOURCES AND GROWTH: MAIN CONCEPTUAL PERSPECTIVES IN THE 20TH CENTURY The Neoclassical School Neoclassical economics is based on theoretical principles of utilitarianism and equilibrium. It understands the economic system based on individuals seeking to maximize individual welfare. Its application in the field of environmental economics tends to understand environmental values from individual preferences, attributed mainly to market values (Amazonas, 2009). A subfield of environmental economics is natural resource economics. According to Devarajan and Fisher (1981), it can be traced back to Hotelling’s seminal paper of 1931 that debated the choice between immediate or future extraction, considering opportunity costs and future values. In another important work, Solow (1974) started from the premise that welfare is a function of consumption, whether it is produced by natural or manufactured capital. Since he saw the two as interchangeable, the depletion of mineral resources would not imply an obstacle to development. The welfare of future generations would be guaranteed if non-renewable resources were replaced by reproducible capital. On this assumption, he argued that under certain conditions, a competitive market could allow a time-efficient allocation of non-renewable resources since the price of resources would increase as their reserves became scarce. Further, as he considered that a mineral resource would not generate dividends while it was underground, the only way to create value would be to extract and trade these resources. Therefore, the main problem to ensure development would be to define the right time to extract a certain resource. As explained by Davis and Tilton (2005), when considered a capital asset, mineral resources would integrate production functions, together with other variables, such as labor and financial capital. In these functions, natural and technological characteristics would define the so-called ‘mineral rent’.2 Following this rationale, whenever the mineral rent was positive, mining would contribute to economic growth, therefore, the more ore extracted, the greater the wealth generated. Ross (1999) argues that in the 1950s, most economists assumed that poor countries were experiencing an imbalance between variables of the production functions (e.g., large amounts of mineral resources and scarcity of financial capital). They recommended that an equilibrium could be achieved by exporting the minerals and attracting international direct investment. According to Graulau (2008), this was also the path outlined by Rostow’s classic work of 1960 on stages of economic growth, added to borrowing international loans for the development of extractive projects (Rostow, 1960). This reasoning can still be identified in national mining policies in Latin American countries such as Brazil (Ministério de Minas e Energia, 2011) and Peru (Ministerio de Energía y Minas, 2010). Structuralism and Dependence Theory In the Latin American context, the first critiques of the neoclassical perspective were elaborated in the 1950s, largely conceived around the Economic Commission for Latin America and the Caribbean (ECLAC, known as CEPAL in Spanish and Portuguese), on the debate of structuralist economists and dependency theory (cf. Furtado, 1965; Prebisch, 1949). Although
Extractive economies and public policies: critical perspectives from Latin America 161 these theories were not developed to specifically discuss the role of mining, both were very critical of the subordinate position of the peripheral countries in the global market and their specialization in the commodities export, among which minerals would be included. Structuralism sustains that structural asymmetries in international trade would hinder the economic development of the peripheral countries. Raul Prebisch’s seminal works in 1949 identified that there would be, in the long run, a deterioration in the terms of trade between basic products (agricultural and mineral) and industrialized products that would benefit central countries in international trade (Prebisch, 1949). This deterioration would be associated with low labor productivity, reduced demand rate, limited elasticity of basic goods and high competition among raw material suppliers (Sachs & Warner, 1995; Wick & Bulte, 2009). Given this condition, to buy the same amount of manufactured goods, peripheral countries would need to export increasing amounts of basic products (Saes, 2017). Celso Furtado (1965) developed the concept of structural dualism. He identified that in peripheral countries, two very distinct sectors would coexist: on one hand, there were low-productivity sectors focused on supplying the domestic market; on the other, there were more dynamic and more productive sectors oriented towards the external market such as mining and agribusiness. The contradiction of this duality would occur because these countries would import technology, contract debts and invest in infrastructure that favor the export sector, relegating to second place the meeting of national needs and their capacity to increase productivity in other areas (Graulau, 2008). Dependency theory emerged under the influence of the ECLAC thinkers and, despite a strong developmentalist bias, proposed to counter the ideas of modernization theory that had been developed by neoclassical thinkers such as Rostow (1960). It refuses to see underdevelopment as the result of the inability of peripheral countries to reach the same productivity level of central countries, but as a consequence of the very expansion of capitalism in the periphery (Coelho, 2016). In one of his synthesis works, Theotônio dos Santos (1970) defined dependence as a situation in which the economy of a country is conditioned by the expansion of another country to which it is subordinated. In part, this situation is a result of monopolistic relations of foreign control of commodity, consumer goods and capital goods sectors in dependent economies. This context would generate an imbalance in trade, resulting in the transfer of surpluses from dependent to dominant countries. In addition, there is a domestic component: the dependent countries’ productive systems would also be defined in such a way as to guarantee the maintenance of such relations. In this way, both the structuralists and dependentists showed that among the key elements in this process, the value and power associated with the type of goods produced by each group of countries would maintain or even worsen the subordinate position of the peripheral economies. Ecological Unequal Exchange Built upon the complexification of the structuralist debate of the 1950s, the ecological unequal exchange proposal added to it elements of ecological economics and world-systems theory (Roberts & Parks, 2009). Based on the reflections developed by the economist Georgescu-Roegen in 1971, ecological economics seeks to present a systemic vision between environment and economy, defining the economy as a subsystem of a finite physical ecosystem. In general, ecological economics was
162 Handbook on critical political economy and public policy developed upon criticisms of instrumental proposals of monetary valuation of ecosystem services. Among its debates are the development of new metrics for assessing (in)sustainability (Martínez-Alier, 2002) and discussions concerning the conditioning of economic thinking to physical and moral limits (Daly & Farley, 2004). According to Hornborg (1998), another theory that was incorporated by the proponents of ecological unequal exchange was world-systems theory, based on the seminal works of Immanuel Wallerstein. According to Graulau (2008), world-systems theory would explain how the capitalist system involves an extensive division of labor that goes beyond territorial and political units. Looking from this angle, development and underdevelopment would not be two phases of a continuous process, but the manifestation of an unequal exchange relationship of products characterized by having differentiated quantities of labor. Rice (2007) points out that the beginning of the ecological unequal exchange proposal can be identified in the studies of Stephen Bunker (1985), who analyzed the global insertion of the Brazilian Amazon in the world economy, particularly the structuring of the iron ore export system, and warned that the extraction of natural resources would destroy values that could not be measured in economic terms. By combining different perspectives, the ecological unequal exchange proposal complements the economic unequal exchange concept, which looked at value exclusively through the metrics of wages, prices and profit. It suggests that this purely monetary view underestimates the value of the energy and natural resources embedded in such an exchange, as well as the specific direction of material and energy flows from peripheral to central countries. Processes, such as the undervaluation of natural resource flows, the transfer of environmental costs and the appropriation of environmental space end up granting central countries a disproportionate use of ecological systems, while imposing environmental damages on peripheral countries, where extractive activities are concentrated (Rice, 2007). The Resource Curse Rice (2007) points out that the junction of the environmental economics debate with the literature on development gave rise to the resource curse hypothesis. It states that those economies whose exports are highly dependent on natural resources, particularly oil and minerals, tend to have lower growth rates than others, where natural resources have a smaller share (Ross, 1999). Wick and Bulte (2009) trace the origin of this debate to three main works: Gelb (1988), who studied six oil-exporting countries and assessed that economic losses during periods of low prices did not offset the growth that occurred in the positive stages of economic cycles; Auty (1993), who studied the behavior of six peripheral countries (Chile, Peru, Jamaica, Bolivia, Zambia and Papua New Guinea) that were mineral (bauxite, copper and tin) exporters, and who underperformed economically compared to other peripheral countries that did not depend on minerals, thus suggesting economic diversification in those countries; finally, Sachs and Warner (1995), who analyzed the behavior of the economies of 97 countries, and identified that those with a large share of natural resources in their exports presented lower growth rates in subsequent years. Based on these studies, a large literature was established to understand which aspects were responsible for such performance. Some authors returned to the question of deterioration in terms of trade, as already identified by the structuralists (Ross, 1999). A second element was the high volatility of mineral prices, which would negatively impact economies by making the
Extractive economies and public policies: critical perspectives from Latin America 163 trade balance and government revenues unstable (Auty, 1993; Davis & Tilton, 2005). Finally, it would be associated with exchange rate impacts, often called the Dutch disease, which would negatively impact the economic competitiveness of other sectors, leading to an increasing dependence on the extractive export sector and to a reduction in local economic dynamism (Sachs & Warner, 2001; Wick & Bulte, 2009). Counter to these structural arguments, some authors have tried to point to domestic problems of ‘bad governance’. According to Davis and Tilton (2005), authors following this line argue that if there were ‘good governance’ and less corruption, this would reduce the risks of rent-seeking and ensure that mineral income is invested in a way that ‘promotes economic development’, which would include economic diversification and increase of labor productivity. This approach is, however, limited, because it treats the institutional aspects as if they were isolated from the other characteristics of these countries, such as high social inequality, small elites and concentrated economic power. For example, Leite and Weidmann (1999) argue that corruption is determined within the economic system, that it should be seen from the interaction between economic interests and the use of political instruments, and that the existence of capital-intensive extractive activities are important determinants of corruption.
PUBLIC POLICIES AND NEOEXTRACTIVISM Neoliberalism, Globalization and the Emergence of Asia Dependency theory and structuralist thought both had strong influence on the economic policies in Latin America between the 1950s and the 1970s, giving rise to the import substitution industrialization model. States sought to create a productive structure that would allow them to implement an industrial base and reduce the import of manufactured goods. These policies were largely based on protectionist import taxes, foreign investments, credit and state intervention. State-owned companies also had a special role, particularly in the extractive sectors (Sikkink, 1991). This model faced some wear and tear during the 1970s, particularly due to increasing public indebtedness. This became unsustainable with the rise in international interest rates in 1979, as a result of the new restrictive US monetary policy (Mattei & Santos Júnior, 2009). Important changes in economic policies occurred since the 1980s, with a reorientation of economic strategies for debt repayment. This movement was greatly influenced by the structural adjustment programs, promoted especially by the International Monetary Fund and the World Bank. These programs were deepened throughout the 1990s in what was conventionally called the Washington Consensus. From this standpoint, governments were seen as facilitators of foreign investment for which they were needed to guarantee institutional stability, reduce economic risks and facilitate the capture of mineral rent by international companies. In the mining sector, these changes referred to modifications in the legal framework for further market liberalization, reduced state intervention, privatization of state-owned companies, foreign investment protection and lower tax for commodities export (Graulau, 2008; Svampa, 2013). In Table 11.1 we present some of the main legislation and institutional changes in Latin America.
164 Handbook on critical political economy and public policy Table 11.1
Neoliberal institutional changes, selected countries, 1976–99
Country
Changes Aimed at Stimulating Private Activity Changes Allowing/Facilitating Foreign Investments
Argentina
Ley 24498/1995 de Actualización Minera
in Mining Alteração da Ley Nº 21382/1976 de Inversión Extranjera (Decreto Nº 1853/1993) Bolivia
Código de Minería (Ley 1777/1997)
Brazil
Privatization of Companhia Vale do Rio Doce Emenda Constitucional 6/1995
Ley de Inversiones (Ley 1.182/1990)
Chile
Código de Minerí (Ley 18.248/1983)
Estatuto de la Inversión Extranjera (Decreto Ley 600/1976)
Ecuador
Ley de Minería (Ley 126/1991)
Ley 12 de Cámaras de Minería (Decreto Nº 415/1993)
Peru
Ley General de Minería (Decreto Legislativo
Ley de Promoción de la Inversión Privada (Decreto Legislativo
(1996)
Venezuela
109/1992)
757/1991)
Decreto con rango y fuerza de ley de minas
Regulación de la inversión extranjera (Decreto 2095/1992)
(295/1999)
Source:
The authors based on Chaparro (2002).
Latin American countries went through a process of rapid government downsizing and a reversal in development strategies. The focus on the domestic market was reduced, a concern for outward growth was adopted, and exports were once again seen as the ‘new’ development strategy (Barton, 2006). Due to the recession in North America and Western Europe, the 1980s and 1990s were a period of a historically low commodity prices (Graulau, 2008), as shown in Figure 11.1. Even so, these products formed the basis of Latin America’s exports, given the lack of competitiveness of industrialized goods (Albavera, 2004).
Source:
The authors based on World Bank (2021a).
Figure 11.1
Real price variation of industrial minerals, 1970–2020 (index number)
Consequently, the adoption of neoliberal measures led to a specialization of the region in the production and commercialization of resource-intensive products, with significantly depreci-
Extractive economies and public policies: critical perspectives from Latin America 165 ated prices. The expectation was to guarantee the inflow of foreign exchange necessary for the import of technology-intensive goods (Schaper & Vérèz, 2001). The global trade scenario changed, however, in the early 2000s, with the exponential growth of China. The Asian country became one of the main industrial centers in the world, both transforming large amounts of raw materials into products for export and carrying out large internal infrastructure works (Saes, 2018). Global demand for mineral commodities increased exponentially, coupled with financial speculation, resulting in extremely appreciated prices during the period 2003–11 (Figure 11.1). In this context, relations between China and Latin America were intensified. The region became a supplier of minerals and agricultural commodities to China, which in turn became the second largest trading partner and the main source of credit and financing for the region (Myers & Gallagher, 2020; Ray & Wang, 2019). Thus, Chinese demand for ores, metals and fossil resources boosted export-oriented commodity producers in Latin America, generating debates about the (re)primarization of the region’s economic base. In 2017, only five products accounted for 70 percent of Latin America’s exports to China: soyabeans, copper and iron ores, refined copper, and oil (CEPAL, 2018). Regarding investments, data collected by the China Global Investment Tracker point out that 74 percent of the total Chinese investment in Latin America between 2005 and 2019 was directed to agriculture, energy and mining.3 The energy sector (oil, gas and renewables) accounted for more than half of it, with Brazil as the main destination, and Peru and Chile for mining projects. Additionally, credits provided by the China Development Bank and Exim Bank have strengthened these sectors, particularly oil and related infrastructure, mainly in Venezuela, Brazil and Ecuador (Myers & Gallagher, 2020). The extractive sectors and their infrastructure are precisely those that present social and environmental conflicts in the territories, as we will discuss in the next section. In previous work, we’ve identified 57 cases of socio-environmental conflicts involving Chinese companies in Latin America, concentrated in the energy (44 percent), mining (37 percent) and infrastructure (10 percent) sectors (Pereira & Garcia, 2021). The official Chinese narrative is one of complementarity between the regions, which we consider to be, in fact, a deepening of the international division of labor. The literature indicates that China seeks, in its relations with Latin America, to meet its strategic needs that respond to its development project (Slipak, 2014; Wilson, 2013). However, China alone cannot be held ‘responsible’ for the concentration of the production matrix in Latin America in extractive primary products. As shown in Table 11.1, Latin American governments have undertaken efforts to restructure their legislation and institutions to facilitate the entry of foreign capital, as well as to stimulate the export of agricultural and mineral commodities with tax exemption, as exemplified by the Lei Kandir of 1996 in Brazil. In turn, the commodity cycle in the 2000s, related to Chinese demand, generated development strategies based on extractivism by ‘progressive’ governments in the region, as we will see in the next section. In assessing the mineral commodity price fluctuations of the 2000s, Cooney et al. (2008) put forward two explanations that would complement each other: first, a demand shock would have occurred due to the increase in consumption; conversely, the reduction in the Chinese growth rate, starting in the early 2010s, would have led to an increase in supply and a consequent reduction in prices. A second explanation would be associated with the increasing financialization of the commodity sector. The development of increasingly complex and diversified financial instruments, as well as the growth of commodity index funds, would have caused a speculative bubble, leading to artificially high prices. As of 2012, with the reduction in profit
166 Handbook on critical political economy and public policy expectations, such financial market operators have migrated towards other options, leading to falling prices (Milanez, 2017). Despite the significant drop in prices, the ten-year boom showed that, in the new global context of Asian expansion, high mineral profitability rates were to be expected. At the same time, the ephemeral nature of these profits no longer frightened investors, already accustomed to the volatility of the financial system. Moreover, the possibility of extraordinary new gains from the increased demand for strategic (rare) minerals to ensure the energy transition in central countries (Klare, 2012), created an expectation for new high demand cycles. Thus, the sharp variation in prices resulted not only in the consolidation of the centrality of the extractive sector in Latin American economies in the 2000s, but also in the deepening of these countries’ dependence on the export of raw materials. ‘New’ Development Strategies: Extractivism Back to the Center Within the Latin American literature, this ‘new stage’ of a development strategy is commonly referred to as neoextractivism:4 rapid economic growth based on the appropriation of natural resources, undiversified production networks and subordinate international insertion. The concept usually refers to the extraction of mineral resources and oil, as well as agrarian, forestry and fishing activities (Acosta, 2011; Gudynas, 2015). It describes ventures structured in export-oriented enclaves with low economic linkages and high social and regional fragmentation (Svampa, 2013). Gudynas (2015) differentiates two main variations of neoextractivism. One would be the readjusted ‘conservative neoextractivism’, which means a deepening of the neoliberal model of the 1980s and 1990s, still present in countries governed by the center-right in the 2000s such as Colombia, Peru and Mexico. In these countries, there were adjustments to reduce social control and environmental regulations, in order to facilitate even more foreign investments in the extractive sectors, without any compensation in terms of social policies expansion. The other variation is identified as ‘progressive neoextractivism’ among countries identified as the ‘pink tide’ in the 2000s (Argentina, Bolivia, Brazil, Ecuador, Venezuela). In this case, the state would be responsible for ‘controlling access’ to natural resources, either through regulation, nationalization of reserves or the operation of state-owned companies. The state would also act as a ‘compensator’, capturing part of the extractive rent to implement programs to diminish poverty and reduce social inequalities. In this narrative, the fight against social inequality would end up being used to legitimize extractive projects, overshadowing social and environmental impacts of such activities (ibid.). Both have failed in terms of a long-term development strategy that could improve the livelihood of the majorities. The failure of ‘progressive extractivism’ has led to the post-development critique that will be discussed in the next section. Svampa (2013) argues that Latin America has replaced the ‘Washington Consensus’ with the ‘Commodities Consensus’, centered on the large-scale export of primary goods. For the author, ideas such as ‘economic opportunities’ and ‘comparative advantages’ overflowed the political-ideological frontiers, as even for leftist governments, neoextractivism consists of a resignation to ‘progressive capitalism’, and the acceptance that there would be ‘no alternatives’ to extractive development. Slipak (2014) points to the ‘Beijing Consensus’, which refers to the idea that deepening trade relations with China would have become an ‘inevitable path’ for the region’s economic growth. The consensus manifested itself through strategies of ‘cooperation’, marked by
Extractive economies and public policies: critical perspectives from Latin America 167 a pattern of subordination and dependence. Such strategies were adopted both by conservative governments, based on a liberal vision of foreign trade, and by progressive governments, which would defend to break with the omnipresence of Western powers. Even after the drop in mineral prices after 2012, the importance of minerals continued to grow in Latin America’s export agenda. Between 2010 and 2018, the amount of iron ore exported by Brazil grew by 25 percent, mostly controlled by the mining company Vale. In the same period, Chile’s copper exports increased, in quantity, by 570 percent, and Peru’s by 366 percent. Similarly, Chile’s gold sales, in tonnage, to global consumers increased by 1556 percent, Mexico’s by 226 percent, and Argentina’s by 130 percent (ITC, 2021). To ensure this growth, significant changes have occurred in public policies, promoting further spoliation of land, territories and natural assets (Svampa, 2013). Consequences for Public Policies and Territories The rise in commodity prices and the prospect of export as a source of quick revenues reinforced a convergence of interest between mining companies and states. Tacit partnerships were created in the formulation of environmental public policies that had impacts on the role of the state, the construction of legitimacy for extractive activities, conflict resolution, disaster management, (non-)remediation of impacted areas and damage to workers’ health. To a large extent, these policies were primarily aimed at stimulating and facilitating extractive activities, and not to lessen their social-environmental impacts. An important element of this process was the institutionalization of public–private partnerships in the formulation of public policies. For example, in Colombia, the Canadian Energy Research Institute, linked to mineral and energy-based companies, was one of the institutions that actively participated in changes to environmental, mineral and petroleum legislation in the early 2000s (Gordon & Webber, 2016). Similarly, when the Brazilian government made the proposals to change its Mining Act, all director positions in the Secretariat of Geology and Mineral Transformation of the Ministry of Mines and Energy were held by former employees or former consultants of mining companies (Milanez, Coelho & Wanderley, 2017). Consequently, governance changes were advocated to downsize states’ responsibilities and to turn them into self-regulated activities of mining companies. In Peru, Bebbington (2010) identifies that as mining industries installed their activities in remote areas, they began to assume the role normally attributed to the state, such as territorial planning, conflict management and provision of public services. The author also noted that these initiatives went beyond the immediate vicinity of the mines and could include regional or even national actions. This process would result in a greater legitimization and acceptance of the mining companies’ projects. An emblematic case of this ‘responsibility transfer’ in Brazil took place after the collapse of the Fundão dam of the mining company Samarco S.A. in 2015. According to Santos and Milanez (2017), this case presents elements of the transition from a ‘weak’ model of state regulation to self-regulation: a private foundation (Renova) was created by the company and given the responsibility to identify affected people and define the amount of compensation (Milanez, Ali & Puppim de Oliveira, 2021), which ended up establishing a regime of captured regulation (Mattli & Woods, 2009). Expropriation of territories to ensure the expansion of extractive activities ended up intensifying territorial conflicts in the region. By analyzing data compiled by EJOLT (2016) up
168 Handbook on critical political economy and public policy to 2016, González (2019) identified that, of the 526 environmental conflicts located in Latin America, about 40 percent were involved in mining projects. According to the author, these conflicts were mainly derived from unequal use of natural resources, unfulfilled expectations about the distribution of project benefits, differences in worldview and perspectives of development models, and the lack of state capacity to regulate this sector. By the same token, the main causes of conflict involving Chinese multinationals in extractive projects in Latin America were water pollution, failure to conduct an environmental impact study or public consultation, as well as operation in protected areas or indigenous territories (Pereira & Garcia, 2021). To deal with an increase in conflicts, governments began to adopt conflict resolution methods based on mediation and arbitration. Such instruments would be justified by the idea of ‘mutually beneficial alternatives for communities, businesses, and public institutions’ (González, 2019, p. 368). However, Ferreira (2020) explains that the adoption of these instruments may result in disqualification of the jurisdictional sphere, reinforcing the principle of a ‘minimal state’ advocated by neoliberal canons. Thus, one of the main motivations for the adoption of such instruments would be cost reduction (for companies and the state) and not the full reparation of damages suffered by the affected people. One of their results would be the construction of a ‘coercive harmony’ (Nader, 1990), guaranteeing the acceptance of extractive projects. In this context, agreements on the liberalization of extractive activities in indigenous territories stand out. Both the United Nations Declaration on the Rights of Indigenous Peoples from 2008, and the American Declaration on the Rights of Indigenous Peoples from 2016 state that in order to authorize extractive activities, states need to obtain their free and informed consent. However, these standards are non-binding and are rarely followed. Aranibar, Avila and Pavez (2011) conducted an evaluation of legislations on extractive activities in indigenous lands in Bolivia, Colombia, Peru and Ecuador. The results showed that in these four countries, the legal framework was limited to following International Labour Organization (ILO) Convention No. 169, which provides only for consultation with these indigenous peoples, ignoring the possibility of veto. Consequently, it indicates the removal of the decision-making power of indigenous peoples and the transformation of their participation into a merely bureaucratic process. The expansion in number and size of extractive projects in Latin America has drawn attention to the problems associated with abandoned mines and other activities halted without proper environmental control, with consequent safety problems for communities and the environment. According to Miguel and Pereira (2019), few countries have regularly updated inventories of mining environmental liabilities, such as abandoned tailings dams and open pits. Past studies have identified 449 environmental liabilities in Colombia (2015), 492 in Chile (2014), 973 in Bolivia (2011), and 8854 in Peru (2016). This situation, in large part, would be a consequence of the companies’ decision to abandon exploited areas, or to declare bankruptcy when the projects no longer proved profitable, coupled with poor control by governments. One way to prevent mines in operation from being abandoned in the future is to require financial guarantees from the companies (e.g., trust funds, letter of credit or insurance). However, these instruments are rarely used in the region, with some exceptions in Argentina, Chile and Peru (ibid.). The convergence of private and governmental interests to guarantee extractive activities also seem to overlap against the protection of workers’ health. With the emergence of the COVID-19 pandemic, many risks were identified for workers (Bainton, Owen & Kemp, 2020;
Extractive economies and public policies: critical perspectives from Latin America 169 F.F. Castro et al., 2020). Despite this, just over a month after the first alerts of the disease in Latin America, the governments of Argentina, Brazil, Chile, Colombia and Ecuador, among others, declared mining an essential activity (BNamericas, 2020), preventing operations from being interrupted. The only field where some disagreement between companies and governments has arisen was in the dispute over the distribution of mineral revenues. Throughout the 2000s, it was possible to identify the rise of ‘resource nationalism’, defined by Haslam and Heidrich (2016a, p. 1) as ‘a wide range of actions and policies through which the state seeks to enhance its influence over the development of the resource sector’. Table 11.2 illustrates some of the legal initiatives implemented with these objectives. Table 11.2 Country
Legal changes aimed at extractive income appropriation, 2005–13 Legal Changes
Argentina
Nationalization of energy firm YPF’s shareholding control (Ley 26741/2012)
Bolivia
Creation of a direct tax on hydrocarbons (Ley 3058/2005) Hydrocarbon nationalization (D.S. Nº 28701/2006)
Brazil
Modification of the royalty calculation basis (Lei 13540/2017)
Chile
Creation of the new specific tax regime for the operating income from mining activity (Ley 20.469/2010)
Ecuador
Hydrocarbons Reform Law (Ley 85/2007)
Peru
Percentage increase and change in the royalty calculation basis (Decreto Supremo 209/2011)
Venezuela
Law for a tax on extraordinary prices in the international hydrocarbon market (Ley 40114/2013)
Source:
The authors based on Viale and Cruzado (2012).
In Latin America, the manifestation of resource nationalism could be identified in its radical (Bolivia and Venezuela), moderate (Brazil and Peru) and limited (Colombia and Mexico) modality (Haslam & Heidrich, 2016b). Three factors have motivated and made this movement possible: the price of commodities, changes in the dynamics of countries’ international integration (international trade and direct investments) and sectoral aspects (existence and quality of reserves, participation of extractive sectors in national economies, among others). Depending on these factors and the institutional capacities of governments, they would be able to capture adequate income from extractive corporations (ibid.).
FINAL CONSIDERATIONS: THE CONSTRUCTION OF POST-EXTRACTIVISM Despite promises of employment, infrastructure and modernization, mining activities have generated conflicts centered on the defense of nature, territories and traditional modes of life. From the perspective of resistance movements, this has resulted in a greater rapprochement between social movements, environmental organizations, peasant and traditional communities. As a result, there is a growing number of national and regional organizations in Latin America that directed their struggles to the extractive sector. Some examples are the Movimento Pela Soberania Popular na Mineração (Brazil); Red Mexicana de Afectados por la Minería (Mexico); Observatorio de Conflictos Mineros de América Latina (regional); Red Iglesias y Minería (regional); Alianza Centroamericana frente a la Minería Metálica (regional); Articulação Internacional de Atingidos e Atingidas pela Vale (global). In addition, other exist-
170 Handbook on critical political economy and public policy ing movements have given more centrality to the discussion of extractive activities in their agendas such as Centro de Documentación e Información Bolivia (Bolivia); Observatorio Latinoaméricano de Conflictos Ambientales (Chile); CENSAT Agua Viva (Colombia); Acción Ecológica (Ecuador); and CooperAcción (Peru) (OCMAL, 2021). The adoption of ‘progressive neoextractivism’ by countries in the region has generated considerable disappointment among social movements with directions taken by center-left and left governments. These frustrations occurred both in the practical field of public policies and in the sphere of theories and ideologies. From the public policy point of view, most countries did not achieve substantive changes in their socioeconomic structure. There were no significant modifications in the tax or land ownership configurations. In some cases, these policies even intensified aspects of inequality, either through tax incentives for extractive projects, or through land concentration in the hands of agribusiness or mining projects. In part, with the end of the commodity cycle, compensatory social measures, which were guaranteed by the rent from commodity exports, were reduced. Consequently, these governments lost some of their social support (Peters, 2016). Theoretical proposals, elaborated throughout the 20th century, centered on economic growth and the nation-state (Burchardt, 2016), were contested by many social movements. In general terms, the prescription for overcoming problems identified by those theories involved the verticalization or thickening of production chains, adding value to raw material and industrialization. While this made sense in some situations, within the new political-economic context and the territorial expansion of extractive projects, some of these ‘solutions’ further deepened existing impacts and conflicts, such as, for example, the implementation of steel mills along the Carajás Railroad in the Brazilian Amazon (Monteiro, 2005). Therefore, they failed to identify socio-ecological effects on a subnational scale, or differentiated impacts on the livelihoods of specific social groups, such as women, indigenous people, black people, and so on (Peters, 2016). In contrast, Latin American thinkers elaborated on concepts such as ‘post-development’. Escobar (1995) understands development as an instrument of thought and action characterized by three main axes – forms of knowledge, systems of power and forms of subjectivity – all of which would lead people to recognize themselves as ‘developed’ or ‘underdeveloped’. In this way, according to Escobar (1995), reality has been colonized by the discourse of development. To break this cycle, it would be necessary to build alternatives to development that take into account local knowledge and cultures, adopt critical perspectives to exclusively positivist discourses, and promote local and plural movements for a deeper analysis on the post-colonial critique of development (see Chapter 25 by Aram Ziai in this Handbook). Svampa (2013) argues that the construction of post-development would be based on three fundamental challenges: (1) to advance the construction of a ‘horizon of desirability’; (2) to identify successful experiences in the construction of alternatives at the local and regional levels; (3) and to create a transition agenda to ‘post-extractivism’. In this sense, post-development would unite a number of currents in decolonial thought and become a meeting point for distinct debates that would seek to build another relationship between society, nature and economy such as good living, common good, rights of nature, ecofeminism, environmental justice (Svampa, 2018), and popular sovereignty (Alves et al., 2020). Such elements are fundamental to deconstruct ideas like ‘mineral vocation’, ‘locational rigidity’, and ‘essentiality of mining’, among others.
Extractive economies and public policies: critical perspectives from Latin America 171 Another relevant challenge concerns the identification of successful alternative experiences. Although still limited, it is important to consider that there is a large accumulation of concrete experiences in Latin America such as solidarity economy, family farming, agroecology, and community-based tourism, among others (Alves et al., 2020; Svampa, 2013). Many of these initiatives began to recognize themselves as ‘mining-free territories’ (G.F. Castro et al., 2020), generating a new political meaning for these organizational forms. In building a transition to post-extractivism, Gudynas (2012) argues for the need to break with depredatory extractivism and create a transition to ‘sensible extractivism’, in order to achieve ‘indispensable extractivism’. To this end, the author proposes the promotion of territorial zoning according to social, environmental and economic criteria; the recognition of the rights of traditional communities; the guarantee of effective participation of society; the internalization of environmental and social externalities; and the review of subsidies, among others. Finally, we highlight the important debate on popular sovereignty in mining, which proposes strategies and policies for deepening popular participation, both in areas where there is no mining and in those where extractive activities already occur. In the first case, the ‘right to say no’ is defended as well as the primacy of direct participation in the licensing of projects through consultation protocols designed by the communities themselves. In areas where extractive projects already exist, the population should be able to decide on the scale, pace, technologies and limits to extraction. Also proposed are the possibility of transferring assets to workers; support for community-based mining; the correction of tax injustices; social control over the use of mineral royalties; as well as the reduction of economic dependence and the conversion of workers to other activities (Alves et al., 2020). In this context, the dispute over the renationalization of extractive companies and assets, which were privatized during the neoliberal period, remains relevant, as is the case of the mining company Vale, privatized in 1997, undervalued, in a bid that was contested in court (Articulação Internacional de Atingidos e Atingidas pela Vale, 2010). In this chapter, we sought to show a renewal of Latin American social thought and initiatives with respect to political economy and public policies aimed at extractive economies. Critical theories elaborated in the 20th century were fundamental in presenting the problems and contradictions of the liberal ideology. For the most part, their analyses remain valid and contribute much to the debate. However, they also began to present limitations in dealing with the increased complexity of extractive chains within the neoliberal context and the diversity of actors involved, the ideological domination of development, as well as the increasing expansion of extractive projects into territories not previously incorporated into the dynamics of global capitalism. If there is a ‘new cycle’ of extractivism in Latin America, there is also a renewal of debates, theoretical constructions and social action strategies that attempt not only to prevent the expropriation of territories, but also to guarantee an improvement in the quality of life of the communities that live there.
NOTES 1. See https://atingidosvale.com; last accessed December 12, 2022. 2. The World Bank (2021b) defines mineral rent as the difference between the value of production of a mineral at world prices and its total costs of production.
172 Handbook on critical political economy and public policy 3. Calculations based on data from the American Enterprise Institute and the Heritage Foundation (2020). 4. Although we describe (neo)extractivism as a ‘development strategy’, it has not been proposed as a normative development program. On the contrary, the concept was created as an analytical framework to describe the set of initiatives adopted by some Latin American countries.
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174 Handbook on critical political economy and public policy Mattei, L. & Santos Júnior, J.A. 2009, ‘Industrialização e substituição de importações no Brasil e na Argentina: uma análise histórica comparada’, Revista de Economia, 35 (1), 93–115. Mattli, W. & Woods, N. 2009, ‘In whose benefit? Explaining regulatory change in global politics’, in W. Mattli & N. Woods (eds), The Politics of Global Regulation, Princeton, NJ: Princeton University Press. Miguel, C. & Pereira, M. 2019, ‘Pasivos ambientales mineros: retos para la sostenibilidad’, in R.J. Sánchez (ed.), La bonanza de los recursos naturales para el desarrollo: dilemas de gobernanza, Santiago: CEPAL, pp. 373–94. Milanez, B. 2017, ‘Boom ou bolha? A influência do mercado financeiro sobre o preço do minério de ferro no período 2000–2016’, Versos – Textos para Discussão PoEMAS, 1 (S2), 1–18. Milanez, B., Ali, S.H. & Puppim de Oliveira, J.A. 2021, ‘Mapping industrial disaster recovery: lessons from mining dam failures in Brazil’, The Extractive Industries and Society, 8 (2), Article 100900. Milanez, B., Coelho, T.P & Wanderley, L.J.M. 2017, ‘O projeto mineral no Governo Temer: menos Estado, mais mercado’, Versos – Textos para Discussão PoEMAS, 1 (2), 1–15. Ministerio de Energía y Minas 2010, Plan estratégico institucional del viceministro de minas 2021, Lima: Ministerio de Energía y Minas. Ministério de Minas e Energia 2011, Plano nacional de mineração 2030, Brasília: Ministério de Minas e Energia. Monteiro, M.A. 2005, ‘Meio século de mineração industrial na Amazônia e suas implicações para o desenvolvimento regional’, Estudosavançados, 19 (53), 187–207. Myers, M. & Gallagher, K. 2020, China-Latin America Finance Databases, accessed June 2021 at https://www.thedialogue.org/map_list/. Nader, L. 1990, Harmony Ideology: Justice and Control in a Zapotec Mountain Village, Stanford, CA: Stanford University Press. Observatorio de Conflictos Mineros de América Latina (OCMAL) 2021, ‘Miembros OCMAL’, accessed June 2021 at https://www.ocmal.org/miembros-ocmal/. Peters, S. 2016, ‘Fin del ciclo: el neo-extractivismo en suramérica frente a la caída de los precios de las materias primas. Un análisis desde una perspectiva de la teoría rentista’, in H.J. Burchardt, R. Domínguez, C. Larrea & S. Peters (eds), Nada dura para siempre: neo-extractivismo tras el boom de las materias primas, Quito/Kassel: Universidad Andina Simón Bolívar and International Center for Development and Decent Work, pp. 21–53. Prebisch, R. 1949, El desarrollo económico de la América Latina y algunos de sus principales problemas, Santiago: CEPAL. Ray, R. & Wang, K. 2019, China-Latin America Economic Bulletin 2019 Edition, Boston, MA: Boston University. Rice, J. 2007, ‘Ecological unequal exchange: consumption, equity, and unsustainable structural relationships within the global economy’, International Journal of Comparative Sociology, 48 (1), 43–72. Roberts, J.T. & Parks, B.C. 2009, ‘Ecologically unequal exchange, ecological debt, and climate justice: the history and implications of three related ideas for a new social movement’, International Journal of Comparative Sociology, 50 (3–4), 385–409. Ross, M.L. 1999, ‘The political economy of the resource curse’, World Politics, 51 (2), 297–322. Rostow, W.W. 1960, The Stages of Economic Growth: A Non-Communist Manifesto, Cambridge, UK: Cambridge University Press. Rubbers, B. 2020, ‘Mining boom, labour market segmentation and social inequality in the Congolese copperbelt’, Development and Change, 51 (6), 1555–78. Sachs, J.D. & Warner, A.M. 1995, ‘Natural resource abundance and economic growth’, NBER Working Paper No. 5398, National Bureau of Economic Research. Sachs, J.D. & Warner, A.M. 2001, ‘The curse of natural resources’, European Economic Review, 45 (4–6), 827–38. Saes, B.M. 2017, ‘Comércio ecologicamente desigual no século XXI: evidências a partir da inserção brasileira no mercado internacional de minério de ferro’, PhD dissertation, Universidade Estadual de Campinas. Saes, B.M. 2018, ‘El boom de las commodities ante la fragmentación internacional de la producción: una perspectiva ambiental desde el Sur global’, Puentes: análisis e información sobre comercio y desarrollo sostenible, 19 (6), 8–11.
Extractive economies and public policies: critical perspectives from Latin America 175 Saes, B.M. & Bisht, A. 2020, ‘Iron ore peripheries in the extractive boom: a comparison between mining conflicts in India and Brazil’, The Extractive Industries and Society, 7 (43), 1567–78. Santos, R.S.P. & Milanez, B 2017, ‘The construction of the disaster and the privatization of mining regulation: reflections on the tragedy of the Rio Doce Basin, Brazil’, Vibrant: Virtual Brazilian Anthropology, 14 (2), Article e142127. Santos, R.S.P. & Milanez, B. 2020, ‘Corporate power and economic action: considerations based on iron ore mining’, in W. Laube & A.R.B. Pereira (eds), ‘Civilizing’ Resource Investments and Extractivism: Societal Negotiations and the Role of Law, Vienna/Zurich: LIT Verlag GmbH & Co. KG, pp. 255–76. Schaper, M. & Vérèz, V.O. 2001, Evolución del comercio y de las inversiones extranjeras en industrias ambientalmente sensibles: Comunidad Andina, MERCOSUR y Chile (1990–1999), Santiago: CEPAL. Sikkink, K. 1991, Ideas and Institutions: Developmentalism in Brazil and Argentina, Ithaca, NY: Cornell University Press. Slipak, A.M. 2014, ‘América Latina y China: cooperación sur-sur o Consenso de Beijing?’, Nueva Sociedad, No. 250, 102–13. Solow, R.M. 1974, ‘The economics of resources or the resources of economics’, The American Economic Review, 64 (2), 1–14. Svampa, M.N. 2013, ‘Consenso de los commodities y lenguajes de valoración en América Latina’, Nueva Sociedad, No. 244, 30–46. Svampa, M.N. 2018, ‘Latin American development: perspectives and debates’, in T.G. Falleti & E.A. Parrado (eds), Latin America Since the Left Turn, Philadelphia, PA: University of Pennsylvania Press, pp. 13–32. Viale, C. & Cruzado, E. 2012, La distribución de la renta de las industrias extractivas a los gobiernos subnacionales en América Latina, Lima: Revenue Watch Institute. Wick, K. & Bulte, E 2009, ‘The curse of natural resources’, Annual Review of Resource Economic, 1 (1), 139–56. Wilson, J. 2013, Governing Global Production: Resource Networks in the Asia-Pacific Steel Industry, London: Palgrave Macmillan. World Bank 2021a, ‘Commodity markets: Pink sheet data – annual prices’, 2 February, accessed June 2021 at https://www.worldbank.org/en/research/commodity-markets. World Bank 2021b, World Development Indicators, accessed June 2021 at https://databank.worldbank .org/reports.aspx?source=2&type=metadata&series=NY.GDP.MINR.RT.ZS.
12. Ecological perspectives on sustainability in China1 Lau Kin Chi
The People’s Republic of China’s spectacular growth has been regarded as a miracle to be emulated by countries on the periphery or semi-periphery. However, in terms of the global division of labour, China is still playing the role of the world factory, importing raw materials and exporting material goods. This has meant that the contamination and pollution in physical production have burdened China. While China’s total carbon dioxide emissions in 2019 topped the world, at 10.5 billion tons, its per capita carbon dioxide emissions were 7.3 tons, in contrast to the per capita figure of 16 tons for the USA. Furthermore, trade-adjusted consumption-based carbon dioxide emissions for China in 2019 were 10 per cent lower than its production-based carbon dioxide emissions, while for the importing USA the figure was 7 per cent higher.2 According to the Inclusive Wealth Report 2014 produced by the United Nations Environmental Programme (UNEP), between 1990 and 2010, China’s growth in terms of gross domestic product (GDP) was 523 per cent, but only 47 per cent in terms of inclusive wealth, taking environmental factors into consideration. The Inclusive Wealth Index (IWI) adjusted average growth rate for China was negative during this period. In the Inclusive Wealth Report 2018, the IWI adjusted growth rate for China had somewhat improved, with IWI-adjusted per capita growth rate at 10.2 per cent for 1990–2014. China’s Ministry of the Environment had estimated that redressing and preventing water contamination would cost US$320 billion and take at least 40 years, and experts estimated that the three most severe contaminations – water, air and soil – would take US$960 billion to remedy. In 2017, China invested a total of RMB953.9 billion (US$146 billion) in decontamination of the environment, an approximately 7.2 times increase on 2001, and an annual increase of 14 per cent (State Statistics Bureau, 2019). These severe contaminations foreground not only the question of remedial expenses, but also the ways different social sectors are impacted by both the contaminations and the responsive efforts by the government. It is therefore necessary to take subaltern and ecological perspectives in challenging statist, elitist and anthropocentric discourses and practices in relation to the question of sustainability in China. This chapter will examine issues of air pollution and water diversion in China and reflect on the ways China may confront the dangers of modernization.
AIR POLLUTION AND LUNG CANCER In the last two months of 2017, two news items related to Beijing drawing popular attention and causing massive anxiety were the expulsion of over 3 million so-called ‘low-end’ members of the population within a few days after the Daxing fire in Southern Beijing, and the coercive conversion of combustion of solid fuels for cooking from coal to gas in Northern 176
Ecological perspectives on sustainability in China 177 China, causing massive numbers of people in towns and villages to go without heating in the freezing cold. The former was a move to expel migrant workers, as well as small and medium industries, from Beijing. The latter was a move to improve air quality with the immediate consequence of hitting the poor hard. Both moves could find a justifiable rationale. In the first case, the Daxing fire taking 19 lives exposed the risks of fire hazards in slum-like sites in peripheral Beijing, where migrant workers at the ‘low end’ of society lived in cramped but inexpensive lodgings. After the fire, in the name of assuring safety, residents were speedily evicted, and the slum-like structures were demolished. Among the reported millions of migrant workers forced to move further away to the periphery, or to return to their home village, for example, were scavengers. It was estimated that there were 3.5 million scavengers all over China, with 150 000 to 300 000 working in about 400 garbage sites around Beijing. In 2008, there was only one waste incinerator in Beijing; by 2018, there were 11, with a capacity to annually incinerate 5.97 million tons of garbage. According to the Social Cost Assessment Report on Beijing Municipality Livelihood Garbage Incineration published in March 2017, the dioxin produced caused 3779 persons in Beijing to contract cancer every year, at a social cost of over RMB37.3 billion yuan, estimated at 1.3 per cent of Beijing’s GDP in 2018. It is not known what percentage of scavengers had left Beijing after the eviction and if they would return; Beijing had a target of containing its population within 23 million, hence the eviction was not an interim measure, but a long-term policy (Han, 2018). The paradox is, while more and more incinerators pump dioxin into the air, the Beijing government had vowed to improve air quality. Thus, in the second case, the rationale was more convincing: there was a dire need to clean up the air. A documentary, Under the Dome, produced by Chai Ling, became a major cultural and political event in March 2015. In the first 48 hours after its posting on major websites in China, it received over 200 million online hits, which meant that one in three of the 637 million netizens in China had watched the documentary. The documentary was about particulate matter levels of PM2.5 and lung cancer and heart diseases related to the catastrophic pollution. The World Health Organization (WHO) stated that China, home to 19 per cent of the global population, accounted for 30 per cent of world cancer deaths. Disability-adjusted life years (DALY) globally was 53/100 000 persons in 1990 and 77/100 000 persons in 2017, while for China, the two figures, respectively, were 75/100 000 and 220/100 000 (WHO, 2020, pp. 118, 253). The burning of coal was identified as one main cause of air pollution. In 2017, an estimated 40–50 million population in Hebei Province and 1.2 million families in Beijing and Tianjin relied on an estimated 10 million small coal burners for heating in the winter. This means that 300 000 tons of coarse coal would be burnt in 24 hours. The annual amount of coarse coal burnt in this region was 36 million tons. Central heating was not available to scattered rural households. To eliminate 80 per cent of small coal burners, 300 million of the rural population from Northern China need to be ‘urbanized’. In addition, the cost of replacing coal by gas as fuel would be tripled, hence a burden for the 150 million population whose monthly livelihood expenses were between 600 and 1000 yuan (75 to 125 euros). Heating for four cold months per year would cost around 6000 yuan (750 euros) (Hualiang, 2017). The Beijing government’s Five-year Plan (2013–17) to do away with all coal burners was to be accomplished in December 2017, hence a bureaucratic directive was issued to implement, by the end of October, a ‘no-coal zone’ for Beijing, Tianjin and 26 cities in the provinces of
178 Handbook on critical political economy and public policy Hebei, Shanxi, Shandong and Henan (the ‘2+26’ scheme), involving 3 million families (ibid.). An official from the Energy Department of Hebei Province estimated a 26 per cent shortage of gas supply.3 By the time the government relented on 4 December 2017 on the hitherto uncompromising policy of banning all coal burning, conceding that heating for the population should be prioritized,4 most coal burners had already been destroyed. The good news, at least for those who had access to heating, was that air quality in Northern China seemed to have improved.
THE SOUTH-TO-NORTH WATER DIVERSION PROJECT If the conversion of coal to gas reveals bias against the rural population and the urban poor, the question of water diversion demonstrates the bias in favour of metropolitan centres at the expense of provincial regions. The South-to-North Water Diversion Project is a marked example. It is, like the Three Gorges Dam project, a mega project that is potentially catastrophic, but launched with a deep faith in what benefits science and technology can bring (He et al., 2012; Hui et al., 1997). The modernization paradigm that China pursues has been characteristically privileging industry over agriculture, urban over rural, and middle class over subaltern, hence growth statistics and resource emphases are all geared to such a development paradigm. ‘Modernization’ itself is not questioned, and it justifies the ‘price’ that needs to be paid. What underpins the modernization fantasy is science and technology, which is nothing but ‘progressive’. Emanating from a mindless exploitation of nature is an arrogance and vanity coming from an anthropocentric urge to control. There is an exhilaration about human control over nature, and ‘science and technology’ hides such arrogance under the guise of progress. Building a dam at the Three Gorges of the Yangtze River had been in the minds of leaders since Sun Yat Sen in the early 20th century. One deterrent was a strategic concern of national defence – the fear that a mega dam would be an obvious military or terrorist target. The consequence would be devastating: the population along the Yangtze River is around 400 million, one-third of China’s total. Average population density is 220 persons/sq km, 600–900 persons/ sq km in downstream regions, and 4600 persons/sq km in Shanghai. There have been many disagreements among scientists and engineers on the pros and cons of the project. When the project was finally put to a vote at the National People’s Congress (NPC) in April 1992,5 the approval rate was the lowest in NPC history: of the 2633 deputies, 67 per cent voted in favour, and 33 per cent against, in abstention or no vote. Three Gorges Dam was built to be the largest in the world: the dam is 185 m high and 2.15 km long, with the dam reservoir extending 600 km in length and on average 1.12 km in width. There was conjecture as to whether the Wenchuan earthquake of 2008 was a consequence of the Three Gorges Dam, although ‘scientifically’ it is difficult to prove. The Three Gorges Dam project is for hydroelectricity, while the South-to-North Water Diversion Project is about concern for water. China’s per capita access to fresh water is only 25 per cent of the world average. Climate change and weather extremities in the last two decades, with droughts in the north and floods in the south, add to the severity of the uneven distribution of water. Furthermore, since the early 1980s, the decentralization of industries and mining to be run by township and village enterprises (TVEs) was for some time seen as an impetus for developing China’s manufacturing sector and giving the rural regions an opportunity for ‘development’. Per capita income in many rural regions increased from the mid-1980s
Ecological perspectives on sustainability in China 179 onwards. However, rural industries exploit not just local labour, but also water resources, a consequence of which is soil contamination. Apart from industrial contamination, which is the first major source, untreated urban sewage disposal, and excessive use of pesticides and chemical fertilizers, are the second and third major sources of water contamination. The quality of water resources has deteriorated rapidly since the early 1980s, and by the mid-1990s, the situation was so grave that the state announced the first major clean-up initiatives. According to Environmental Quality Standards for Surface Water in China, surface water is classified into five grades. Grade I stands for the best quality, while ‘Worse than Grade V’ represents the worst. Grade III or above cannot be used for drinking. Water quality reached an alarming level in 2001–02, when 40 per cent of water from the seven main rivers in China was worse than Grade V. Even with state efforts to clean up, in 2010, 20 per cent of the water quality was still worse than Grade V, and 42 per cent of water was Grade III or above. In the case of Beijing, the seven rivers it relied on half a century ago are now almost dried up or so polluted that they can no longer provide its consumption of 3.6 billion m3 per year. Excessive drawing of underground water had caused the underground water level of Beijing to drop from around 12 m in 1999 to around 24 m in 2010. In Northern China, the proportion of water surface to land area had dropped from 5 per cent 50 years ago to 0.35 per cent. According to the China Statistical Yearbook 2020, of China’s 31 provinces, around half were below the water stress line – that is, less than 1700 m3 per capita – with nine provinces having access to per capita water resources below the severe water scarcity line – that is, less than 500 m3. This was the background to the argument for the mega South-to-North Water Diversion Project. With construction beginning in 2002, the water to be diverted for all three Eastern, Central and Western Routes was planned to amount to an annual 44.8 billion m3 by 2050 on the eventual completion of the entire project. The Central Route is 1264 km long and takes one-third of water from the Han River to the north; Beijing and Tianjin will each get over 1 billion m3 per year, while Hebei and Henan Provinces will also have a share of 3 billion m3 each. The first phase of the Eastern Route began diverting water in November 2013, and the first phase of the Central Route started in October 2014. The Eastern Route covers 1476 km. The challenge is to channel Yangtze water upwards by 65 m, through 13 pumping stations, to Dongping Lake in Shandong Province, before sending it flowing downwards to the north, crossing the Yellow River through an underground tunnel, and then one route would go north to Beijing, Tianjin and Hebei, while another route would go east to Shandong Province. One positive consequence of this project was remedial work to clean the water. Nansi Lake, the main water collection nexus of the Eastern Route, had water quality worse than Grade V when the project started. To turn it into Grade III water quality, a major project was introduced to remove highly polluting industries, such as 700 paper factories in Shandong Province, which together accounted for 70 per cent of the province’s pollution (Weiqi, 2016). Water diversion would not be possible until water quality could be improved to Grade III. In the first three years, a total of 18.766 billion m3 of water had been pumped from the Yangtze River for the Eastern Route. Of this, a total of 1.1 billion m3 was channelled to Shandong Province. By contrast, water along the Central Route does not have to climb before it flows down to the north. The main difficulties of this Central Route of 1400 km are raising the dam height of the Danjiangkou Reservoir to 162 m, and channelling the water under the Yellow River. Water flowing into the reservoir had to be above 150 m before the downward flow could start. Water flowing into the reservoir was 40 billion m3 but it varied with the years; in 2014, it was
180 Handbook on critical political economy and public policy 32 billion m3, bringing with it 100 million tons of silt. An estimated 95 per cent of silt would settle in the reservoir.6 As was the case with the Eastern Route, decontaminating the water was an arduous task. Before the project started in December 2003, water flowing into the Danjiangkou Reservoir was rated Grade IV. Over the three years of the operation of the Central Route, a total of 10.858 billion m3 of water was supplied to the north. Government official statements on the project were mostly reassurances that the project was effective, acknowledging, for example, that there would be a 16 per cent loss of water; water evaporation indeed happened, but this would not qualify as ‘wastage’. At the end of 2019, the government reported that the diversion of water to Beijing had resulted in an obvious benefit, with the underground water level rising by 2.88 m as compared with five years earlier, now reaching 22.78 m.7 The Western Route of the project was even more controversial, not only in that its disruption on the environment would be even more serious, but it would also substantially reduce the hydroelectricity generation capacity in Southwest China. A 2006 book contesting the project by 60 experts managed to convince the government to be more prudent (Lin & Liu, 2006). Some high-ranking government officials had articulated their reservations about the project. Chou Baoxing, vice-minister of the Construction Ministry, said in 2006 that if the cities could recycle one-third of the water they were consuming, it would be equivalent to the total water supply of the South-to-North Water Diversion Project.8 This is a classic example of metropolitan cities being unsustainable in terms of water and energy resources, and instead of reducing metropolitan population, deurbanization, or finding local alternatives, the supreme human will is asserted, and resources are mobilized to the centres to cater for their needs. In March 2018, the government announced a plan for another mega water diversion project, which, in the government’s words, would have to encounter even more challenges. The project to divert water from the sources of the Yangtze River to the northwestern regions of Xinjiang is estimated to cost ten times that of the Three Gorges Dam. The entire distance is 6188 km, including 200 km of current river segments, and the expected volume of water diversion is 60 billion m3, constituting 21 per cent of water taken from major rivers. The project is planned to irrigate the northwestern arid region of Xinjiang, Inner Mongolia and Yan’an, creating an oasis of 200 000 sq km (length 10 000 km and width 20 km.) The project is named the ‘Red Flag River Project’. The second assessment conference of experts was convened in Beijing in January 2018, and reports about experts’ views were positive. The main goal of the project, according to experts, is to develop over 50 000 hectares of irrigated farmland. They also conceded that the cost of 1 trillion yuan would be exorbitant.9 Beyond its huge cost, the project is founded on a contempt for nature that is sure to invite nature’s revenge. The south-to-north diversion crosses over 7000 rivers, tributaries and streams that flow largely from west to east. It is not difficult to imagine the huge disruptions and engineering challenges involved in channelling the water to run above, below, or across west–east flowing rivers. In some regions, water will flow in a tunnel under the Yellow River, while in others elevated pipes will hang in the air, and if they were to break, these areas would face catastrophic floods. Some scientists also warn that the mixing of river waters entailed by such diversions could cause disastrous contamination. Supply to Beijing and cosmopolitan cities causes huge disruption in the habitats sustaining the livelihood of rural and provincial populations. Yet, as long as Beijing and cosmopolitan cities continue to obtain enough water, these projects are considered ‘sustainable’, however
Ecological perspectives on sustainability in China 181 irrational the project may be in terms of its costs, technological flaws, or burden on other sectors. The ‘sustainability’ of Beijing is vital to the vision of the state leadership and urban middle class, the upper echelons of the social and political hierarchy: the partial ‘sustainability’ in the power centre is presented as universal ‘sustainability’ for the rest of the nation. The rural, the marginalized, and those who cannot afford to live in cities and pay for highly priced water do not come into the picture. The only value is Beijing’s sustainability in its supply of water, energy, clean air and clear skies.
THE DANGERS OF MODERNIZATION China’s single-minded pursuit of modernization and GDP growth is thus fraught with paradoxes. For example, its investment in pollution control increased steadily: according to the Chinese Academy of Environmental Planning, the total investment in environmental pollution management (including investment in urban environmental infrastructure construction and industrial pollution source management) increased from RMB557.9 billion in 2010 to RMB663.3 billion in 2019. Nevertheless, the proportion of GDP is still very low, from 1.36 per cent in 2010 to 0.67 per cent in 2019 (CAEP, 2020). The reality of the ecological crisis is thus too grave for the ruling elite to ignore. In response, however, they resort to technocratic management by experts serving the status quo. These experts come with a very different agenda from that of the communities worst affected by these problems. Where will the experts lead us in their effort to avoid any disruption in the steady rise in national ‘affluence’? According to André Gorz, the exit from capitalism will happen one way or another. ‘De-growth is…imperative for our survival. But it presupposes a different economy, a different lifestyle, a different civilization and different social relations. In the absence of these, collapse could be avoided only through restrictions, rationing and the kind of authoritarian resource-allocation typical of a war economy’ (Gorz, 2010, p. 27). In the modernization discourse in China, ‘de-growth’ is almost unthinkable, even as China’s vaunted ‘growth’ under the market reforms of the last 40 years has undeniably fostered gross economic and social injustice, incurred environmental devastation that renders large sections of the population vulnerable, and undermined the quality of life for the majority. Human-made ecological catastrophes could in one moment wipe out the gains of these decades of so-called ‘progress’. In the discourse of the ruling elite and mainstream intellectuals, these policies are often justified with a litany of familiar slogans: that China must rise above its humiliation and violation by imperialist powers; its only salvation lies in movements starting in the late 19th century, unequivocally articulated during the May 4 Movement of 1919 under the banner of ‘For Science and Democracy’, and practically pursued after 1949. Especially since the 1980s, with a modernization path modelled on that of the West, Deng Xiaoping reinforced the national policy of Four Modernizations – that is, to strengthen the fields of agriculture, industry, defence and technology in China. In other words, the ambition to resume being a strong power takes the development paradigm of the Western powers as virtually its only point of reference, and the only viable path for China’s nation-building. The mentality is crystalized in the popular documentary River Elegy by China Central Television in 1988, which portrayed the decline of the Yellow River as symbolizing traditional Chinese culture, in contrast to the triumph of blue
182 Handbook on critical political economy and public policy or marine economy symbolizing the Western ‘progressive’ model. There needs to be an ‘exit’ from capitalism if serious efforts are to be taken to avoid ecological collapse. China’s situation is one in which, as C.A. Bowers writes, ‘what appears to be a progressive development may contribute to destructive consequences that generally go unrecognized’ (Bowers, 2001, p. x). To understand how the negative consequences of development in China ‘generally go unrecognized’ by the ruling elite, we must question the shaping of subjectivity. This implies much more than a question of knowing what was previously unknown, which rarely requires any deep change of mindset, or a redrawing of the boundaries of one’s perspective. In the words of Gregory Bateson, the challenge is to change the unconscious rules that govern one’s ways of relating to others and to the self, critiquing the rules that govern one’s ways of thinking, seeing and experiencing, as well as facilitating the breaking of such rules and the forming of new rules (Bateson, 2000, pp. 274–8). This radical change must address what Felix Guattari (2000) calls the three ecologies: not only the ecology of the social and of nature, but also the ecology of the self. From the subject position of the ruling elite, China is forced to modernize itself to protect its national pride and sovereignty. But China’s forced modernization is not simply a cure with calamitous side-effects. It is destructive such that those made to embrace it are also made oblivious to its destructive power, deprived of any other vantage point except those permitted by the dominant forces of capitalist development. Indeed, the dangers of modernization in China today should be obvious enough for anyone willing to confront them, yet those who so identify with the criteria, norms and values of the discourse of developmentalism still allow their capacity for experience and imagination to be held captive by notions of modernity and linear progress, the benevolent power of science and technology, and monetized notions of ‘wealth’ and ‘poverty’. In China’s development paradigm, ‘wealth’ is increasingly a monetary term, and the determining factor of poverty is the simple absence of money. Under marketization, money is the ‘god’ that produces poverty. Markets determined by capitalist relations can only thrive on the basis of socioeconomic polarization, deprivation and marginalization. Such polarizations and inequalities have increased in China, concurrent with ‘growth’ and ‘poverty reduction’. With marketization as the driving force of the country’s modernization and development, greater growth can only bring deeper socioeconomic and ecological injustice. Antonio Negri and Michael Hardt argue that ‘modernity must be understood as a power relation: domination and resistance, sovereignty and struggle for liberation’ (Negri & Hardt, 2009, p. 67). They further argue that: the project of modernity and modernization became key to the control and repression of the forces of antimodernity that emerged in the revolutionary struggles. The notions of ‘national development’ and the ‘state of the entire people,’ which constantly held out an illusory promise for the future…merely served to legitimate the existing global hierarchies. (Ibid., pp. 92–3)
Indeed, they observe that ‘“really existing socialism” proved to be a powerful machine of primitive accumulation and economic development’ (ibid.). It is no accident that the ruling elite in China succumbed long ago to the developmentalist ideology of ‘growth’ and ‘development’; the pursuit of modernization after the fashion of ‘the West’ provides powerful tools to establish hierarchical structures that produce and maintain inequality, privilege and systems of inclusion and exclusion. The forces of the state and capital that gain from and defend such a development paradigm represent power blocs with deep
Ecological perspectives on sustainability in China 183 vested interests. The ways that finance capital has permeated China’s economy and wreaked havoc deserve intense scrutiny and analysis.10
ARTICULATING SOCIOECONOMIC JUSTICE WITH ECOLOGICAL JUSTICE Rather than being relegated to the level of ‘superstructure’ or a place of secondary or complementary importance, the cultural dimensions of Chinese society and political economy should be considered part and parcel of the development paradigm. A radical change in the perceptions, values and preferences of the popular majority is necessary for any meaningful reversal of the current developmentalist trajectory. Most people might subscribe to the idea of ‘sustainability’ because this buzzword is so much in vogue in the mass media, in education, and in official discourse. The questions we have to probe are: How is this term so widely accepted but so little heeded? How do we enable the majority to see how in the hegemonic interpretation of ‘sustainability’, the interests of an elite minority displace those of the majority, thus rendering ‘sustainability’ void of ‘justice’? How can people be convinced to struggle instead for a paradigm of sustainability with justice, seeing the two as interdependent? How can the relations between humans, and relations with nature, be de-monetized? In debates among progressive intellectuals in China, discussion of the issue of modernization itself remains inadequate. The evils of modernization may be considered or regarded in a specific way: it is a logic of an elite minority plundering the majority within and among nations; it is savagery clothed in suit and tie; it is taking the human species, along with the earth itself, toward imminent destruction – yet, modernization is still largely accepted as a necessary evil. Perhaps this is a Marxist formulation of ‘revolution by stages’: that only after passing through a period of capitalism can the foundation be laid for socialism and communism; or a nationalist formulation: that only through modernization can China become strong enough as a nation-state to rival the imperialist powers; or a Darwinist formulation: that the faster China is modernized, the higher it goes up the global chain. Even a utopian formulation is conceivable: that when China is sufficiently modernized, it can progress to an ‘alter-modernity’ or even ‘anti-modernity’. The examples elaborated above show that the path of modernization has left China deeply mired in the mud of ecological and socioeconomic injustice. The question confronting China is not one of more progress or more growth, but of the multiple tasks of reversing the dire damage already done to its ecology, society and culture. In 2002, the Law of the People’s Republic of China on Promoting Clean Production was promulgated, signalling the state’s attention to the question of contamination. Since then, laws related to the clean-up of the environment had been promulgated in the Five-year Plans. For example, while the Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste was passed in 1995, it was only in July 2017 that the State Council issued a notice on Prohibiting the Entry of Foreign Garbage. In 2018, the total import of solid waste in China was 22.64 million tons, a 46.5 per cent decrease from the previous year. Zero import was effective in January 2021. This has helped improve China’s environment. As for the decontamination of rivers, in 2018, water of Grades I to III amounted to 71 per cent, an increase by 3.2 percentage points compared with 2016.11
184 Handbook on critical political economy and public policy Alternative ways of reading history and defining sustainability are needed. Besides pressurizing the government on policies and funding, the movements and struggles for socioeconomic and ecological justice require the active participation of the people, not as individuals but as communities. The last two decades have seen the rise of people’s initiatives to counter adverse effects of developmentalism and marketization, through self-organized peasant cooperatives, local trading of organic food products, community-supported agriculture, food safety campaigns, rural–urban interactions, and environmental protection efforts (Wong & Sit, 2015). The rural reconstruction movements that began some 20 years ago have involved tens of thousands of people. In particular, urban youth voluntarily moved to the countryside or took up organic farming (Wen et al., 2012). Nevertheless, these efforts are inadequate if they cannot be articulated as part of an agenda for ecological justice with socioeconomic justice (Herrera & Lau, 2015).
NOTES 1. The author would like to thank Jin Peiyun for assisting with research. 2. See https://ourworldindata.org/co2/country/china?country=CHN~USA; accessed 30 December 2020. 3. Caixin (2017, 12 December), ‘Hebei admits “excessive” conversion of coal to gas, this winter’s gas demand is 234% of last year’s’, accessed 12 December 2017 at http://china.caixin.com/2017-12-12/ 101183936.html [in Chinese]. 4. Caixin (2017, 9 December), ‘An ill calculated coal to gas conversion scheme: an environmental protection battle losing on all fronts’, accessed 9 December 2017 at http://china.caixin.com/2017-12 -09/101182801.html [in Chinese]. 5. In the immediate aftermath of the repression of the 1989 pro-democracy movement, when dissent was generally silenced, the Three Gorges Dam project was pushed through at the NPC in 1992, while it was only in March-April 1989 that an NPC meeting decided to postpone consideration of the project for five years after the book Yangtze, Yangtze was published in February 1989 by prominent intellectuals and scientists to publicly lobby against the project. 6. Xinhua News (2014, 27 December), ‘South-North water transfer failure’? Academician responds to three major questions”, accessed 27 December 2014 at http://www.xinhuanet.com//politics/2014 -12/27/c_1113798357.htm [in Chinese]. 7. Xinhua News (2019, 22 November), ‘Five years of “moistening Beijing” with the southern water: groundwater in the Beijing plain area rebounded by 2.88 meters’, accessed 22 November 2019 at http://www.xinhuanet.com/politics/2019-11/22/c_1125262657.htm [in Chinese]. 8. Wang, Y. (2014, 20 February), ‘South-North water transfer project not sustainable, says Chinese official’, China Dialogue, accessed 22 February 2014 at https://chinadialogue.net/en/cities/6737 -south-north-water-transfer-project-not-sustainable-says-chinese-official/. 9. Sina News (2019, 18 February), ‘The largest project in history, radically changing Xinjiang, changing China!’ accessed 20 February 2019 at https://k.sina.com.cn/article_1455428062 _56c011de02700joej.html#/[in Chinese]. 10. Wen (2021) has conducted an excellent review of the ten crises in China’s economic development in the seven decades of the People’s Republic of China. An evaluation of China as an emerging country compared with six other emerging countries is a project I have been part of, and the Chinese edition of the book was published in January 2021. For related research reports, please see www.our -global-u.org. 11. State Statistics Bureau, 18 July 2019, accessed 20 July 2019 at http://www.stats.gov.cn/ztjc/zthd/ bwcxljsm/70znxc/201907/t20190717_1676715.html [in Chinese].
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BIBLIOGRAPHY Bateson, G. 2000, Steps to an Ecology of Mind, Chicago, IL: University of Chicago Press. Bowers, C.A. 2001, Educating for Eco-Justice and Community, Athens, GA: University of Georgia Press. Chinese Academy of Environmental Planning (CAEP) 2020, National Environmental Economic Policy Progress Assessment Report 2020, Beijing: CAEP. Gorz, A. 2010, Ecologica, London: Seagull. Guattari, F. 2000, The Three Ecologies, London: Athlone. Han, Z. 2018, ‘Where are 200,000 scavengers gone after the “Beijing eviction”?’, Initium.com, 8 January, accessed 10 January 2018 at https://theinitium.com/article/20180109-mainland-beijing -scavengers-after-eviction/ [in Chinese]. He, G., Lu, Y., Mol, A.P.J. & Beckers, T. 2012, ‘Changes and challenges: China’s environmental management in transition’, Environmental Development, 3, 25–38. Herrera, R. & Lau, K.C. (eds) 2015, The Struggle for Food Sovereignty: Alternative Development and the Renewal of Peasant Societies Today, London: Pluto Press. Hualiang, L. 2017, ‘Winter in Northern China: no more coal burning even if the policy is relaxed’, Weixin, 12 December [in Chinese]. Hui, P.-K., Lau, K.-C. & Yiu, C.S. et al. 1997. ‘Three Gorges Dam: case study’, in V. Raina, A. Chowdhury & S. Chowdhury (eds), The Dispossessed: Victims of Development in Asia, Hong Kong: ARENA, pp. 37–44. Lin, L. and B. Liu (eds) 2006, A Memorandum on the Western Route of the South-to-North Water Diversion Project, Beijing: Economic and Science Press [in Chinese]. Negri, A. & Hardt, M. 2009, Commonwealth, Cambridge, MA: Harvard University Press. State Statistics Bureau 2019, ‘The effect of environmental protection continues to appear, and the construction of ecological civilization is increasingly strengthened – the fifth report of the series of reports on the achievements of economic and social development for the 70th anniversary of the founding of the People’s Republic of China’, accessed 18 July 2019 at http://www.stats.gov.cn/ztjc/ zthd/bwcxljsm/70znxc/201907/t20190717_1676715.html [in Chinese]. United Nations Environment Programme (UNEP) 2014, The Inclusive Wealth Report 2014, Nairobi: UNEP. United Nations Environment Programme (UNEP) 2018, The Inclusive Wealth Report 2018, Nairobi: UNEP. Weiqi, Y. 2016, ‘Survey on the third anniversary of the launch of the first phase of the Eastern route of the South-to-North Water Diversion Project’, Jinji Daily, 15 November [in Chinese]. Wen, T. 2021, Ten Crises: The Political Economy of China’s Development (1949–2020), Singapore: Palgrave Macmillan. Wen, T., Lau, K.C. & Cheng, C. et al. 2012, ‘Ecological civilization, indigenous culture, and rural reconstruction in China’, Monthly Review, 63 (9), 4–8. Wong, E. & Sit, J.T. 2015, ‘Rethinking “rural China”, unthinking modernization: rural regeneration and post-developmental historical agency’, in R. Herrera & K.C. Lau (eds), The Struggle for Food Sovereignty: Alternative Development and the Renewal of Peasant Societies Today, London: Pluto Press, pp. 83–108. World Health Organization (WHO) 2020, World Cancer Report: Cancer Research for Cancer Prevention, Geneva: WHO.
13. Looking south: megaprojects, borders and human (in)mobilities1 Ana Esther Ceceña and Sergio Prieto Díaz
WHEN NATURE BECOMES RESOURCE From the beginnings of modernity, the force of nature and the relative weakness of humans to control it, instead of coupling with it, led to the search for tools, technical knowledge and the production of technology that would contribute to its disciplining, placing it at the service of humanity. Nature ceased to be the vital environment of human beings, their natural home, to become the other that limits and threatens them. Rational thought, typical of modernity, seeks to eradicate the magic of the inexplicable and uncontrollable natural, and throughout history, of the 500 plus years of capitalist modernity, it has reached the point of modifying the climate, changing the vocation of the earth, altering the geography and even penetrating the genetic essence of living beings to alter, replicate and correct it, or even pretend to replace it by artificially generating living beings. Modernity is erected on societies that are considered backward and superstitious (read non-scientific), victims of the magic of natural phenomena, which are signified by intersubjective and plurisubjective relations, in many points conflicting, but intrinsically with horizontal rather than hierarchical tensions. The conception of the human as one more of the creatures that inhabit the Earth and the particular home habitat of the human subject effectively supposes the recognition of a necessary complementarity towards which the human is not always disposed. There is no unidirectionality but intertwining and interaction, not binary but complex, crossed, interwoven and with multiple possible paths and drifts, which from the Western perspective is understood as a disordered and chaotic reality. One of the central lines of modernity consists, precisely, in putting things in order, as James Scott refers to it in his research Seeing Like a State (1998). This is one of the most eloquent studies of the process of ordering, which he observes in the forests of Northern Europe. Forests that, paradoxical as it may sound, are transformed into forests by the capitalist hand. It may well seem absurd, but the natural, primary forests, chaotic as they are, enter into a dynamic of disciplining in order to be exploited and managed: the trees are aligned by type, the so-called weeds or plants of no apparent use – that is, unprofitable – are eliminated, and in the end we have a productive forest in which, however, its components have been individualized and weakened by the impoverishment of their interactions with the other members of the collective. Hence, this produced forest must be subjected to artificial fertilization to maintain its value. The forest, or the individuals that compose it, have been converted into resources; they have ceased to be, in fact, nature. From that moment on, they are objects that can be valorized. The concept of useful nature as a resource that can be appropriated and used at will is in tune with the founding principles of modernity that exalt the subject–object relationship, assuming as an absolute universal the verticality, hierarchy, subjugation and de-subjugation of life. 186
Looking south: megaprojects, borders and human (in)mobilities 187 Now, everything is a potential resource: energy resources, water resources, and even human resources, everything appears as an appropriable object susceptible to becoming merchandise. Based on this conceptual edification, and taking into account the increasing dimensions of the process of material reproduction of capitalism, which reveals the threat of scarcity in various fields (of course, always relative and as a function of capitalist reproduction itself), the term strategic resources was coined in the mid-20th century. It operates, with this, a hierarchization in the general field in which everything can be considered a useful object or resource, to identify among that wide universe that whose qualities give the possessor some kind of power over the rest. Hence the status of strategic resources. Strategic resources are the indispensable elements for guaranteeing the broad reproduction of capitalist materiality and the reproduction of its innovative capacity or, in other words, that of the technological avant-garde. The qualitative criteria by which to define them come then from the massiveness and essentiality of their use (Ceceña & Porras, 1995). Possessing them allows us to place ourselves in a position to impose conditions on the rest of the world, since they are indispensable elements for life, or for general reproduction. Considering that competition has been organized around the state apparatus for the protection and promotion of capital and not only the direct capital of companies, and that global disputes take the form of disputes between nations, another geopolitical criterion linked to the geographical location of these resources is added to the above-mentioned criteria. The case of rare earths in China and Afghanistan, cobalt in the Democratic Republic of Congo or oil in Iran, Iraq or Venezuela moves the pieces on the chessboard to the point of provoking wars or various interventions, imposing sanctions, generating financial asphyxiation or any other form of harassment of the countries where these resources are located. The awareness of the importance of possessing these resources was very present in the German military leadership. The circumstances of the two World Wars of the 20th century and the importance of metal supplies for the war industry and communications, as well as the defeat of Germany, led the United States to create an institutional apparatus organized around what could be called the preventive supply of strategic goods. Politicians, military, geographers, geologists and the like, grouped in the so-called think tanks, design the best methods to ensure the control of such resources and the listing of them, which varies over time according to the needs of the productive apparatus, technological leaps or with the incorporation of new elements, as may be the case of lithium today. Public policy, responsible for guaranteeing social welfare within the prevailing structural, political and cultural circumstances, is organized around the material axis of reproduction and focuses primarily on ensuring the supply of strategic resources, nodal in the dispute for world hegemony, and indispensable resources for common use. Given the dimensions acquired by the process of global reproduction, the extraction of resources requires large-scale works that reorganize territorial logics to make the best use of them. Hence the proliferation of large projects, which propose the articulation of a set of sectoral, local or specific policies to redesign lifestyles, reproductive alternatives, care and environmental disciplines. Public policy is thus presented as a package. These large integrated projects or megaprojects are implemented in regions whose wealth justifies and attracts large investments. From the public policy discourse, megaprojects are large territorial redesign projects justified by the promotion of development and the attraction and support of public and private investments that translate into processes of dispossession of common goods (land, territory,
188 Handbook on critical political economy and public policy language, culture, seeds) for their accumulation as private goods. Some of the evident forms that these megaprojects can take, which threaten both the territories and the populations that inhabit them, are large-scale mining, oil exploitation, fracking, gas pipelines, hydroelectric plants, renewable energies with dependent technologies, nature conservation programs, agroindustry and the use of agrochemicals, transgenic monocultures, real estate and tourism developments, highways, but with an irreversible and definitive impact on territorialities and ways of life. In other words, they mark the frontiers of coloniality. The critique of political economy in contemporary times requires addressing the dynamics of life in its broadest complexity, discovering its diversities, folds, counterpoints and bifurcations. Hence, our starting point is the complex territory (Ceceña, 2004, 2017) and the territorialities generated in the interacting of societies and the natural, cultural, geographical and political environments in which they unfold. In this framework, we will focus on the study of a large megaproject, presented in two parts, which covers a broad region of South-Southeast Mexico: the Tren Maya Integrated Development Project and the Interoceanic Corridor of the Isthmus of Tehuantepec.
TERRITORY, GEOGRAPHY AND ECOSYSTEMS: THE CASE OF MEXICO Southeastern Mexico2 is part of the Mesoamerican Biological Corridor that unites the tropical rainforests of the north and south of the continent through the Central American isthmus to the Darien in Panama, which is home to 10 percent of the world’s biodiversity (Comisión Nacional para el Conocimiento y Uso de la Biodiversidad [CONABIO], 2020). Adjacent to the northern temperate strip, it closes the tropical territory of the continent, which extends to the Amazon Basin, forming a jungle continuum of immense biological richness and diversity. The Maya Forest, which extends 42 300 km2 from Southeastern Mexico to Guatemala, contains 20 different ecosystems and a great variety of endemic species. In a large cave called the ‘El Volcan de los Murcielagos’ [Volcano of the Bats], very close to Calakmul, the splendid archeological site, there are around 3 million bats (Medellín, 1996), known to be seed dispersers and pollinators of great importance, as well as pest controllers, since they feed on insects. The Yucatán Peninsula, representing only 6.9 percent of the national territory, is home to 24.3 percent of the vertebrates, 38 percent of the birds, 22.3 percent of the mammals, 10.7 percent of the plants and 14.1 percent of the reptiles in Mexico (Domínguez, 2020). The second largest coral reef in the world and the largest bacterial reef on the planet, this one inside Bacalar Lagoon, are both located on the eastern coasts of the peninsula (Hernández, 2020). The region is also very culturally diverse: of the 61 ethnolinguistic groups recognized by the National Institute of Indigenous Peoples, 44 have their communities in this area (Comisión Nacional para el Desarrollo de los Pueblos Indígenas & Programa de las Naciones Unidas para el Desarrollo [CDI-PNUD], 2006), where some of the most significant pre-Columbian civilizations of the American continent flourished. Three years ago, when the megaprojects we will analyze were presented and put into execution, the National Institute of Anthropology and History (INAH) recognized 7274 points of archaeological value, among which are large and extensive buildings of housing or ceremonial sites that have yet to be fully explored, indicating the magnitude of the sociocultural organizations and structures subsumed by the establishment of colonial rule since the 15th century. Surprisingly, 528 years after the conquest and
Looking south: megaprojects, borders and human (in)mobilities 189 the beginning of colonization on these lands, monuments, habitation or ceremonial centers (e.g., El Universal, 2020) and cultural manifestations are still being discovered throughout Southeastern Mexico.
CONTINENTAL TRANSIT MEGAPROJECTS IN SOUTH AMERICA The turn of the millennium coincided with the launching of two major infrastructure and territorial reorganization projects for the great American continent. In the south, the construction of an entire system of interoceanic and transcontinental routes was proposed to incorporate the region more fully into the world market. The Initiative for the Integration of Regional Infrastructure in South America (IIRSA) designed routes that connected the many natural riches with the markets that demanded them, as well as the manufacturing centers with the ports. The idea was to make the heart of the jungles or the depths of the mines flow towards the industrial centers and, conversely, to bring the industrial and competitive spirit to the furthest reaches of the territories. Unlike Panama, which is the narrowest part of the continent at 80 km long, one of the most promising and ambitious IIRSA routes crosses the 20 000 km of the Amazon region from side to side (Ceceña, Aguilar & Motto, 2007). Evidently, the aim was not to speed up transit but to take advantage of it. A mercantilist vision, at the height of the commodities boom, condemned the territory to a profitable and productivist reconversion that immediately generated a large number and variety of conflicts. Simultaneously, in Mexico, the Plan Puebla Panama (PPP) was announced with the objective of eliminating poverty and promoting employment and development, installing a maquiladora (offshore) region from the Central American strip to Puebla, in the center of Mexico, but with an organizing axis in Tehuantepec (Presidency of the Republic, 2002). The PPP was markedly energetic: oil in the region of Tabasco and the Gulf of Mexico and a great hydroelectric potential in the area of Chiapas and part of Central America. It took up the essence of the Megaproject of the Isthmus of Tehuantepec, launched by President Ernesto Zedillo in 1996, which consisted of a multimodal corridor of interoceanic passage that would turn the isthmus into a hub of world stature (Ceceña, 1997; Ochoa & Asociados, 1996), with wide strips of maquiladoras on the sides to territorially fix the local population, or those passing through the area on their way to the United States. The two projects focused primarily on interoceanic transit, the installation of hydroelectric plants along the routes and the extraction of the natural wealth of the entire region, which has historically been linked to the North American economy. The routes in the PPP flowed northward and in the IIRSA to the oceans, to reach the markets of the Global North. Both projects failed, partly because their ambition exceeded realistic calculations of economic feasibility; partly because they unleashed a territorialized social effervescence, which combined with anti-neoliberal protests and the emergence of indigenous subjects who questioned the capitalist system of domination and organization of life and, with it, the megaprojects of development and the idea of progress. However, although circumstantially they did not prosper, in part because of their ambitious dimensions and impacts, much broader than the national capabilities of their proponents, governments have continued to seek to revive them with new names and styles.
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MEGAPROJECTS IN THE SOUTHEAST OF MEXICO The Mayan Train (Tren Maya, TM) is part of a large infrastructure and economic and population planning project in the southeast of Mexico, a ‘territorial reorganization project’ as the official discourse highlights. The National Development Plan (PND) 2019–2024 includes it among the six regional programs ‘guaranteeing employment, education, health and welfare’, so that the TM is only one piece of a broader project (Presidency of the Republic, 2002, p. 20). According to the PND, the project includes 1525 km and will require an investment of between 120 and 150 billion pesos (between 5.8 and 7.3 billion dollars)3 to connect the states of Yucatán, Quintana Roo, Campeche and Tabasco in cargo transportation, tourists and local people, although the heart of the project is to detonate the creation and articulation of new development poles (industrial, productive, urban), which would reach the coast of Chiapas. The TM would connect the entire Yucatán Peninsula with its twin project, the Transisthmian Corridor (TC), planned between the ports of Salina Cruz in Oaxaca (Pacific) and Coatzacoalcos in Veracruz (Gulf of Mexico). These two projects are articulated by the connection of railroads and highways, by the port network and by the economic activities projected for the area, among which the transfer of cargo and manufacturing processes linked to the transit of goods stand out. They have, at the same time, continuity with a long-standing project that seeks the colonization of the peninsular territories and their subordinate insertion into global commercial circuits (Prieto Díaz, Benítez & Leal Gómez, 2020; Rajchenberg & Héau-Lambert, 2002). The purpose of the TC, an updated version of the 1996 Isthmus Megaproject, is to complement and substitute in some cases for the overwhelmed Panama Canal as the main interoceanic passage connecting the Atlantic and the Pacific.4 Panama’s geographical characteristics, open coasts and a narrow passage of 82 km, once so favorable to accommodating the huge flow of commercial vessels transiting between the two great oceans, have begun to be insufficient for the trade volumes reached by the world economy as the wait time ranges between seven and 15 days and the canal is already at its maximum dredging level. In 2018, it received 13 795 vessels with a cargo of 255 049 145 long tons, of which 155 993 881 transited from the Atlantic to the Pacific and 94 404 596 in the opposite direction (Centro de Estudios Sociales y Opinión Pública [CESOP], 2019). However, while Salina Cruz is an open coast, Coatzacoalcos is an enclosed port. An activity of the magnitude of Panama, with 40 cargo ships and 698 765 tons of cargo per day, would be unthinkable in the TC. A quarter of that would already be intense, and it is necessary to calculate the constant increase in demand due to the growth of physical exchange of goods. In these circumstances, more than the port of Coatzacoalcos, we must think of a hypothetical system of ports on the inner coast of the Gulf of Mexico from there to Cancun, which could disembark containers to be transported in the TM to Coatzacoalcos and the same the other way around.5 The Environmental Impact Assessment (EIA) Phase 1 presented by Fondo Nacional de Fomento al Turismo (FONATUR), despite the fragile soil,6 registers a load for the Palenque to Izamal route of 2.5 million tons per year at the beginning and a growth of up to 10 million tons per year when the train is operating (FONATUR, 2020). In addition to the socio-ecological, cultural, territorial and geological impacts that such a project would have, the structural economic impact must be considered. The dimension reached by transit activities in Panama, which is the immediate reference, has oriented the economic dynamics of that country towards services or activities related to the operation of
Looking south: megaprojects, borders and human (in)mobilities 191 the Panama Canal. This type of economic organization and logic has been characterized as transitist, highlighting its fragility and almost no self-sufficiency. Transitism is understood as an economic logic organized around the quality of a link or passage that some territories such as Panama or Suez have. Actually, this economic modality refers to rent and not to profit; it comes from a particular pre-existing geographic condition that grants the possibility of organizing the economy and survival based on the right of passage. This feature, which is characteristic of isthmian territories, is what allows Tehuantepec to be valued geopolitically to the detriment of its cultural history and the exploitation/devastation of its environmental riches. If world trade were to change its path, the Panamanian economy would be ruined, as could happen in any of the other similar transit routes. Strategically, from the perspective of continental territorial organization, the interoceanic corridor is of great importance. Although a good part of the raw materials comes from the southern countries, the world is grouped into three large economic blocs that trade with each other: the United States with a gross domestic product (GDP) of 20 894 billion dollars; the Pacific Basin with 23 726 billion dollars; and the European Union with 15 292 billion dollars in 2020 (World Bank, 2021). Throughout the 20th century, trade was mostly organized around the Atlantic Basin; however, with the emergence of the Asian tigers (Singapore, South Korea, Hong Kong and Taiwan), with the development of California (15 percent of US GDP) and with the power of Japan and China, economic dynamism shifted definitively towards the Pacific Basin, leaving the East Coast of the United States – responsible for 38 percent of the country’s GDP – geographically disconnected. The most expeditious connection between the Eastern United States and the Asian bloc is undoubtedly that of the Isthmus of Tehuantepec, which is reached through the Gulf of Mexico, a sort of internal sea of the North American region, where a route connecting the Mexican port of Coatzacoalcos, Veracruz and the US port of Mobile, Alabama, has already been established (Figure 13.1). The south-southeast region of Mexico (92 billion dollars of GDP in 2019; 123 billion dollars in 2020; Instituto Nacional de Estadística, Geografía e Informática [INEGI], 2022) does not represent any economic interest compared to the size of the three aforementioned blocs. However, what may be of interest is not only Mexico’s oil wealth located in Tabasco and the surrounding area of the Gulf of Mexico, going up the coast towards the United States, and the mineral wealth located in that area and the country’s very important cultural and biotic wealth, which is concentrated in that region, but also, and perhaps of most interest, the infrastructure of passage between economic blocs that would reduce the costs of going down to Panama and facilitates the transfer between regions of the United States itself without having to cross the Rocky Mountains. The very rich south-southeast region, with these megaprojects, will be a strategic transit route for the world market (Figure 13.2).
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Source:
Ceceña et al. (2021).
Figure 13.1
Pacific–US East Coast connection
MEXICO’S SOUTHERN BORDER Strictly speaking, the southern border, understood as the territory that defines Mexico’s limit, has an extension of 1138 km, 962 km bordering Guatemala and the remaining 176 km with Belize, established in boundary treaties at the end of the 19th century. From south to north, with respect to Guatemala, it involves the Mexican states of Chiapas (654 km), Tabasco (108 km) and Campeche (194 km), and the Guatemalan departments of San Marcos, Huehuetenango, Quiché and Petén. With respect to Belize, Quintana Roo (193 km) and Campeche (14 km) border the Belizean districts of Corozal and Orange Walk. This border stands out for its diversity and richness both in natural resources and in cultures, peoples and traditions. On the Mexican side, in addition to Spanish, are Cakchiquel, Chol, Jacalteco, Konjabal, Lacandon, Mame, Mochó, Tojolabal, Tzeltal, Tzotzil and Zoque (Chiapas); Zoque, Tzotzil, Tzeltal, Chontal and Chol (Tabasco); and Maya (Campeche and Quintana Roo). In Guatemala, Mayan, Quechí, Chuj, Mam, Kanjobal and Ixil, in addition to Spanish. And in Belize, Spanish, English, the Mennonite variant of Flemish, Mayan and a variant of Chinese (Fábregas Puig, 2005). The 1990 census (INEGI, 1990) reflected a total of 1 336 312 people living in these territories: 61.3 percent in Chiapas, 7.1 percent in Tabasco, 18.6 percent in Campeche and 12.9 percent in Quintana Roo. The 2010 census (INEGI, 2010) estimates a population of 1.6 million
Looking south: megaprojects, borders and human (in)mobilities 193
Source:
Ceceña et al. (2021).
Figure 13.2
Wealth in the Mayan Train–Transisthmian Corridor region
people, with 74 percent in Chiapas (42 percent in Tapachula and Ocosingo alone), 7 percent in Tabasco, 4 percent in Campeche and 15 percent in Quintana Roo. When comparing these data, the internal population displacement from Campeche is striking, as well as the progressive relative population concentration in Chiapas and, to a lesser extent, in Quintana Roo. A detailed analysis of other characteristics indicates that the population in the region is unrepresentative in relation to the territory it occupies, being 8 percent of the national total in the four states, which cover 11 percent of the territory (Comisión de Asuntos Fronterizos Sur, 2016). In contrast, the region has a very high value in terms of natural wealth: 19 of the 50 priority rivers and hydrological regions; 70 percent of the biodiversity of North America (reaching 80 percent of all biodiversity in Mexico); 69 percent of the available fresh water; 99 percent of hydrocarbons; 90 percent of the diversity in cultivated species of American origin (CONABIO, 2020; Comisión Nacional del Agua [CONAGUA], 2018). This context of low population density and high diversity in valuable resources awakens the eagerness to promote the profitable occupation of territories. Meanwhile, the space of Mexico’s southern border, historically catalogued, like other border spaces of the Global South, as ‘nature’, ‘source of resources’, ‘demographic vacuum’, ‘backward/unproductive region’, stands out for its complex ecosystemic, historical, social and cultural diversity: the control of the territory and the exploitation of its riches entails complex demographic dynamics and conflicts over its occupation. This merits problematizing the
194 Handbook on critical political economy and public policy processes that impact the territories in order to understand the dynamics and characteristics of their respective geopolitical projects, as well as the results of territorial, ideological, social, political, cultural, economic and even cosmogonic struggles, tensions and conflicts, each with its own uses and understandings of spaces, biodiversity and social relations, and whose encounter and definition entail an accelerated socio-geographic transformation and multiple processes of re-territorialization.
FRONTIERS OF THE SOUTHERN BORDER The continental geography that gives Mexico the virtue of a narrow interoceanic passage also provides it with optimal conditions as a border to contain human displacements, the only transit still ‘controllable’ by the different nation-states in the context of neoliberal globalization. With a length 15 times shorter than that of the northern border, the Isthmus of Tehuantepec is ideal as a dike in the migrant crossing to the United States. Borders constitute privileged spaces for the analysis and approach of multiple phenomena and social processes, as they are historically disputed territories that reflect the complexity, flexibility, dynamism and secular conflict between nations and regions. These boundary spaces for the exercise of sovereignty and the definition of citizenship are defined more or less arbitrarily as a result of the great conflicts and tensions of all historical evolution, and although their political delimitation may not change, their scope and concrete expressions are under permanent reconstruction. The border(s) are paradox and paradigm, as they delimit and differentiate constructions between the ‘us’ and the ‘others’ that seem to have no place in the ‘global village’, between what is socially established and admitted, and what at any given moment is to be ignored, despised or feared. Together with walls, they seem to be remnants of a past world. Perhaps to a greater extent in the context of contemporary globalization, which advocated its dissolution (Appadurai, 1996), the traditional idea of border has given way to a multiplication of resignified and complex borders-others (Szary & Fourny, 2006). For this reason, it will make sense to think of Mexico’s southern border in terms of borders within the southern border. The notion of frontier (and the border) has a central value as a relational category as a space of articulation of the geopolitical, and as a semantic space that gives meaning to the processes that take place in it (Nail, 2016). Among other regions of the Global South, borders in the Americas were imposed as a way of ordering the ‘New World’ (Popescu, 2011), so it is essential to consider their epistemological reconstruction. Furthermore, it is necessary to consider the relevance of their extreme geographies in territories usually far from the centers, sparsely populated, with lower development indexes and considered empty (Szary & Rouvière, 2009), as constructions that justify and legitimize centralist interventions without consideration of their local realities. In many ways, and more so in the case of the borders of the Global South, they are understood as spaces of ‘ungovernability’, in which the lack of capacity or interest in the presence of the states involved is made explicit. This allows the emergence of ‘other borders’ not specifically linked to state power and control, or where the state tries to control the uncontrollable. In this sense, borders defined in terms of geopolitics, linked to the distribution of territories, such as that which occurs with megaprojects, are particularly relevant. And if we talk about the results of geopolitical territorial conflicts, ‘uncontrollable’ border transits, and paradoxes of globalization, a paradigmatic case is undoubtedly the migrant populations
Looking south: megaprojects, borders and human (in)mobilities 195 from the Global South, which have originated, transit, or are detained and controlled in the territories of Mexico’s southern border.
BORDERS AS GEOGRAPHIES OF DEVELOPMENT It is necessary to reflect on the meanings and scope of the notion of frontier, since it is around it that we define the territories on which we focus our attention, being the spaces where the ways of life and human (in)mobilities7 of our interest are generated, attracted or transformed, as well as the public policies and megaprojects. Reconstructing the notion of frontier implies considering the dialectic that occurs between the parts that this frontier separates, between the ‘we’ and the ‘others’, the known and the unknown, the sovereign and the strange. The reconfigurations and their role as a differentiating mark, allow the articulation and better understanding of the relationships between the central categories of our theoretical perspective: territory, territorialities, geopolitics and (in)mobilities. Throughout the history of humanity, territories have been geo-graphed (Porto Gonçalves, 2003) by all the creatures that inhabit them. With modernity, the human creature stands as an index to deploy its organizing criteria on the territories, on the rest of the creatures and on the physical dimensions of the planetary matter. The civilizing principles of modernity grant the human species the privilege of designing territory and society. Materiality and territoriality are written (graphed), adapted, subjected to the illustrious task of controlling what has since been called nature, in order to place it at the service of the progress of humanity. As territory is a historical-cultural and not only geographical concept, territoriality indicates the way of inhabiting, geo-graphing and signifying the space of construction of social life. Capitalist territoriality, as the basis of an expansive world-system, differs, contradicts, subjugates or confronts the territorialities that are pre-existing or that resist, are actualized and coexist with it. The materiality of a way of life or of a civilization marks its possibilities and its limits; the way of molding, using, enhancing or relating to the material elements and reorganizing them on the basis of the epistemological criteria (worldview) on which the way of life is based. The powerful forces of that material, geological, ecological and even cultural complex that was circumscribed in the idea of nature were converted into resources, into useful objects. It was the human being overcoming the magic of uncontrollable events, multiplying the reproductive cycles of species, manipulating the climate, modifying genetic or molecular structures and denying the humanity of peoples with different cultures and visions: semi-human, superstitious or simply backward for not understanding the march of progress. The systematization of these structuring principles of modern civilization, in relation to the occupation and design of territories, is called development. Development is then only a way of mapping territories, of constructing territorialities or ways of life and coexistence with and in the physical, biological and astrological environment. It is a territorialization criterion, for now dominant, but certainly not unique or superior. In the epistemic framework of modernity, which permeates all spheres and dimensions of human life, development has been positioned as an unappealable purpose, unequivocally linked to an idea of unlimited growth. Synonymous with urbanization, when cities are the main emitters of greenhouse gases; synonymous with capital investment, when investments are increasingly destructive and toxic for society and the environment; and synonymous with
196 Handbook on critical political economy and public policy order and well-being at the expense of the processes of collective disciplining necessary so that the victims of development cannot question it. Development within the framework of capitalist modernity sets itself up as the only way of producing materiality. It ignores the epistemic and cultural diversity present in the ways of life and social dynamics with different civilizing principles, which negotiate with modernity in a tense and conflictive manner. The advance of the megaprojects of (this) development over the territories also implies the advance of an unfinished colonization process, as perhaps the last step in the de-structuring of the so-called indigenous worlds: Mayan, Zoque, Olmec and all those who coexisted and coexist in these lands. This idea of development, and the ways in which it is made explicit, justified and naturalized, is the clearest exponent of the quadruple characterization of Western modernity with its hierarchies and discriminations of class; race, ethnicity or culture; gender and species. Under this same logic, the expansion of the frontiers of this hegemonic imaginary unequivocally entails the expulsion of populations that lived outside its influence. Within this broad perspective, it is interesting to focus on the dimension of forced (in)mobility and its link with the historical processes of expansion of modernity-coloniality to border territories. This dynamic inexorably entails different processes of expulsion and relocation, both of the people who inhabit them and of the new populations that embody and lead these processes. In particular, certain territorial reorganization initiatives, such as megaprojects, inevitably operate as mechanisms of expulsion, attraction, retention and instrumentalization of populations in a situation of local, national, regional and global (in)mobility. It could be argued that every territorial reorganization project has at least a couple of population redistribution processes associated with it, one of expulsion and the other of attraction (which are undoubtedly much more complex and diverse within themselves). It is, therefore, a matter of a historical structurality that is analytically relevant for the Mesoamerican region and territories (Prieto Díaz, 2017). From this logic inherent to megaprojects, a historical pattern is identified that integrates the creation, justification and instrumentalization of human (in)mobilities. Once displaced, the marginality of these populations is constituted through a double movement that first barbarizes them and then incorporates them into the various social spaces in which they will be useful. Their displacement must first be justified (for the sake of development), then their control (for their own security), and finally their subordinate instrumentalization (for the common good).
FROM THE PLUG TO THE VORTEX:8 NEW FRONTIERS OF CONTINENTAL MIGRATION In the territories of the southern border of Mexico, millenary cosmovisions, ways of life, global interests and public policies that actualize inherent and constitutive conflicts of the modern-colonial system meet and intertwine in complex ways. The conjunctural and the structural are related in diverse and changing ways, making it necessary to look at and use tools that bring together particularities and generalities, and at the same time consider the ‘human’ in its intimate interrelationship with the socio-environmental context in which it develops (Lander, 2000). With the Isthmus of Tehuantepec as its border, the region encompassed by the two megaprojects in the southeast aims to become a confinement zone in which it is proposed to develop
Looking south: megaprojects, borders and human (in)mobilities 197 conditions for the retention (or immobilization) of both the local population with a migrant spirit and the caravans passing through between any other place and the United States. Urbanization projects, industrial parks, maquiladoras, tourist services, construction work at first, and even the sale of handicrafts in the train stations, are activities that are announced as anchorage destinations for those displaced by labor, ecology, culture and violence who, like migratory birds, will have to pass through the Strait of Tehuantepec. In this sense, Mexico’s traditional border with Guatemala and Belize, which due to its own geographical characteristics has never been considered a border (as a space of separation and control), has been deterritorialized and reconceptualized on at least three occasions. First, considering Mexico, in its entirety, as a border country, or vertical border (Varela Huerta, 2018), in which migratory control policies are not applied on the horizontal line of national separation, but along the entire territory, from south to north. Subsequently, as a buffer country: a characterization emanating from the application of the Southern Border Plan, in the six-year term of President Enrique Peña Nieto, which armored the surveillance of ‘The Beast’9 and exacerbated the control policies focused on migratory detention south of the Isthmus, immediate antecedent of the militarization policies of the current six-year term. And more recently, as a ‘migratory vortex’ (Prieto Díaz & Camargo, 2021), given the confluence of policies that affect the emergence, multiplication and interrelation of a broad set of (in)mobilities: internal displacement of native settlers, control and deportation of migrant populations from the Global South, attraction of new migrants, both internal and international, destination of large contingents of tourists, alienation of national territories for foreign use, destination space for repatriations from the United States and other similar ones. This notion does not focus on highlighting as structuring any particular type of displacement, but rather defines the region of this new southern border of Mexico according to the articulation and simultaneity of a diversity of articulated and complementary transits in a territory undergoing a process of permanent (de)borderization, to which the definition of the megaprojects underway as projects of ‘territorial reordering’ refers. This territorial, political and socially complex context between the political borders and the new isthmian frontier heralds a confluence of all these elements of tension. It grows there a kind of enclosure zone or territory of population containment in which imaginary, institutional, political or other borders are built, including those imposed by organized crime, which together guarantee confinement. In the case at hand, these confinement zones are permeable to entry but, in the meaning of migrants policy, not to exit. They cannot be transited. They are confinement spaces. The attraction of workers to the industrial parks has as its counterpart the disarticulation of communities and a profound change in lifestyles, which will significantly alter the region. Displacements are inevitable in projects of this nature and will move populations that will not necessarily be incorporated into the activities of the industrial parks or the new services, but will foreseeably lose their previous places of settlement. In turn, the external migrants who will be detained in the isthmus will have to find a place to settle and some remuneration that will allow them to endure an exile in which they are forced to remain in the intermediate space, unable to return to their place of origin, but unable to reach their intended destination. Their conditions of documentation and displacement point to their instrumentalization in new undocumented and highly precarious labor markets. These classic mobilities, with decades (if not centuries) of recurrence, will not be the only ones that are detonated and framed in the process of multiplication of megaprojects in the region: the concession of large infrastructure
198 Handbook on critical political economy and public policy works to foreign capital companies promises the arrival of qualified personnel from the places of origin of these companies, as well as other specialized workers from other parts of the Republic. The surveillance and control needs that will be required not only for border supervision, but also for the protection of ongoing infrastructure, threatens to multiply the militarization of the region, most likely with troops from the new National Guard, most of whom are not from the region but from other parts of the country.
RISKS A process of this nature, such as the one that will be generated by the Tren Maya Integrated Development Project, will inevitably – and even deliberately – produce profound, substantial and irreversible modifications in the ways of life and in the ecological dynamics and equilibrium of the affected region, with repercussions for the territories with which it maintains connectivity relations (Mesoamerican and Amazon biological corridor; or Mayan peoples on both sides of the border, among others). In particular, the impacts in terms of (in)mobility of regional and immigrant populations announce an increase in the levels of conflict and tension that even before starting the project have led to the military occupation of the area, aggravated by the presence of paramilitary groups that threaten the inhabitants of places with locations of great geostrategic value (Ocosingo, Chiapas; Xpujil, Campeche; or Bacalar, Quintana Roo would be some examples). In addition to the militarization of the region promoted by the Mexican state, the economic, migratory and strategic interests that would be crossed in these territories, belonging to the North American area, jurisdictionally integrated by treaties such as the T-MEC and the Merida Initiative, could justify the presence of personnel from the security forces of the other countries that make up this macro-region. Even more so when the TC is destined to become a strategic step in the world market and, with it, a space of dispute of the first order in the international competition for planetary hegemony. In this case, the sovereignty of the nation over the entire territory and the processes that take place in it would surely be subjugated. In such circumstances, and in a situation such as the one that seems to be emerging for the southeast of Mexico with these modernizing projects, the resistance of communities, peoples, researchers and scientists who warn of the risk of crossing, or continuing to cross, the points of no return, both in the environmental and socio-cultural fields, is understandable, which would make the damage irreversible and contribute to aggravate the global socio-environmental catastrophe manifested in climate change, in the pandemics resulting from the profound ecological imbalances and the varied alterations to the environment, as well as in the massive, recurrent and growing migrations of displaced laborers, environmentalists and those fleeing from the multiple incidences of expropriating violence. What is happening today on the southern border of Mexico is a relevant example of the complexity in which the processes of global population (in)mobility and the disjunctions between ways of life inspired by different civilizational keys are generated, developed and characterized in a remarkable way; where the native people of the place and those expelled from the historically dependent countries meet with the geopolitical interests of the great hegemonic powers (national or mercantile). In the middle (not mediating), the United Nations, the International Organization for Migration, the Economic Commission for Latin America and the Caribbean (ECLAC, or CEPAL in Spanish), insist on a ‘right to migrate’ in a ‘legal,
Looking south: megaprojects, borders and human (in)mobilities 199 orderly and safe’ way. This rhetoric defends a functional logic of territorial occupation, the multiplication of extractivist projects, and the generalization of precarious labor markets, specifically oriented to the migrant population. In the face of this discourse, a true policy to combat the causes of migration would have to guarantee the ‘right to remain’, ‘safe, calm and happy’ wherever one chooses, not where one is pushed. In the middle, too, is the unresolved conflict of the colonization of all non-capitalist organization of life and the desire to transform ways of life, unilaterally, with the justification of development as the only possible entrance to the future. The non-profitable territorialization present in the south-southeast of Mexico, which has allowed the maintenance of complementary and creative relationships among all the species that make up the socio-ecosystems of the region, are today confronting the policies of progress characteristic of modernity in the process of crumbling. It is still pending, in the face of the imaginaries of this modernity in decadence, to think of territorial projects for our continent that are not based on the precariousness, violence and forced displacement of those who have resided, sometimes for millennia, in these lands, and that, instead, raise their sights towards a formulation of life organization capable of recognizing the creative power of diversities and mobilities and of stopping the socio-ecocide to which modernity in development has led us. It is interesting to review, given the magnitude of the projects that claim to seek the welfare and development of the south-southeast, the essential and realistic requests of the communities and populations of this region, who understand welfare in other terms and with other epistemologies: ● ● ● ● ● ● ● ●
address basic needs such as health and education; remedy ecological damage and stop devastation; establish the rule of law and fight corruption; promote socio-environmental care and the ways of life that have preserved it; eradicate transgenic crops and the use of agrochemicals; eradicate harmful and polluting projects such as poultry and pig farms; discourage the growth of urban concentrations; respectfully and adequately consult with indigenous communities, in accordance with ILO Convention 169 signed by Mexico; and ● use scientific knowledge and community knowledge to achieve a healthy environment and social milieu.
CONCLUSION Public policies have been designed based on different criteria: they do not identify the real problems that communities, academics, social activists and the local population are pointing out, nor are the proposals included in the megaprojects related to their requests or demands for public services. They ask for remediation works for the damages already caused by progress in the region and in exchange they offer to deepen those same dynamics of progress or development. There is no correspondence between local needs and the projects undertaken. Instead, this eagerness to bring development to what are recognized as backward areas, with a clear colonizing bias, is destructuring local societies and territories and placing the region at risk of
200 Handbook on critical political economy and public policy becoming a zone of large-scale devastation and plundering, and a zone of passage and dispute for the great world powers. From the critical political economy, it is unavoidable to discover and assume the complexities of the system drawn both in the territories and in the institutionalities, treatment of borders and public policies, but also to open the horizons to the discovery of other worlds or systems of life coexisting with the modern capitalist system. Systemic bifurcations are not an imaginable future but a vigorous present that resists the onslaught of coloniality and developmentalism and struggles to preserve, recreate and defend life. However global and omnipresent the modern capitalist world-system may be, its borders and limits are increasingly evident. Every complex system is finite. We have our own development. On the coast we have fishing, we have cornfields, handicrafts, a little tourism… We don’t need jobs, we want our freedom. We live well, we just want the government to comply with good health care, education, that there is no corruption when it comes to the MIAs.10 (Alberto Rodríguez Pisté, Organización Chikin Ha)
NOTES 1. This is part of wider research developed at the Observatorio Latinoamericano de Geopolítica (Project AG300318, DGAPA-UNAM). Our thanks to Sandy Ramírez for helping with calculations. 2. For this chapter, the term includes the states of Chiapas, Oaxaca, Tabasco, Campeche, Yucatán and Quintana Roo, leaving out the area of Los Chimalapas in Oaxaca, particularly rich in biodiversity, and Los Tuxtlas, Veracruz (Ceceña et al., 2021). 3. The initial amount presented by the PND has gradually increased to more than double for the time being. However, CG/LA Infrastructure’s magazine, an important reference for potential investors, reports an initial cost of 6.3 billion dollars for the TM (CG/LA Infrastructure, 2020/21). 4. We did not consider in the analysis the Nicaraguan interoceanic canal project because it is no longer pursued. Its Chinese infrastructure construction company, CCCC Second Harbour Consultants, is part of the China Communications Construction Company Ltd, which has obtained contracts for the construction of Section 1 of the TM despite being accused of corruption in other contracts. 5. On a smaller scale is the so-called ‘Escalera náutica’, a network of ports in the same territory for American yacht tourism. 6. Yucatán soil is particularly fragile. It’s a calcareous and porous soil in a karst landscape, hit by a meteorite impact around 70 million years ago. It presents as many underground sinkholes called ‘cenotes’ that could cave in because of train weight and velocity. 7. The notion of ‘(in)mobility’ (Gustafson, 2009) covers the whole range of possible population movements: internal displacement, international migration (temporary and definitive), forced mobility, pendular and cross-border mobility, tourism, and so on; and its counterpart, non-displacement, voluntary or forced. 8. Vortex is a concept in the natural sciences that refers to the movement of circulation or rotation of large scales of air or fluid around a point or area. The sense in which we transfer this concept refers precisely to the connection, circulation and rotation of different types, scales and intensities of human (in)mobilities attracted, contained and retained in the regional space delimited by the large megaprojects/frontiers in the southern border region of Mexico. 9. The train that connects the southern and northern borders of Mexico used by migrants, mostly undocumented, on their journey to the United States. It is called ‘The Beast’ because it is a very dangerous train for these migrant populations, as they can be murdered, enslaved or extorted along the way. The route of part of ‘The Beast’ (particularly the sections known as Chiapas and Mayab) is the same as that of the TM project. 10. Manifestación de Impacto Ambiental, an environmental impact statement by a developer.
Looking south: megaprojects, borders and human (in)mobilities 201
BIBLIOGRAPHY Appadurai, A. 1996, Modernity at Large, Minneapolis, MN: University of Minnesota Press. Ceceña, A.E. 1997, ‘El Istmo de Tehuantepec: frontera de la soberanía nacional’, La Jornada del Campo, May, 11–22. Ceceña, A.E. 2004, ‘Estrategias de construcción de una hegemonía sin límites’, in A.E. Ceceña (ed.), Hegemonías y emancipaciones en el siglo XXI, Buenos Aires: CLACSO, pp. 35–56. Ceceña, A.E. 2017, ‘Poder, emancipación, guerra y sujetidad’, in E.L. Hernández (ed.), Efraín, Praxis espacial en América Latina: lo geopolítico puesto en cuestión, Mexico City: UNAM-Itaca, pp. 21–60. Ceceña, A.E., Aguilar, P. & Motto, C. 2007, Territorialidad de la dominación: Integración de la Infraestructura Regional Sudamericana (IIRSA), Buenos Aires: Observatorio Latinoamericano de Geopolítica. Ceceña, A.E., Barrios, D. & Franco, A. et al. 2021, El Istmo de Tehuantepec en Riesgo, Mexico City: Observatorio Latinoamericano de Geopolítica. Ceceña, A.E. & Porras, P. 1995, ‘Los metales como elemento de superioridad estratégica’, in A.E. Ceceña & A. Barreda (eds), Producción estratégica y hegemonía mundial, Mexico City: Siglo XXI, pp. 141–6. Centro de Estudios Sociales y Opinión Pública (CESOP) 2019, El proyecto del tren transístmico, Mexico City: CESOP. CG/LA Infrastructure 2020/2021, Top 100 North American Strategic Infrastructure Projects, Washington, DC: CG/LA Infrastructure. Comisión de Asuntos Fronterizos Sur 2016, Programa de trabajo LXIII legislatura, Mexico City: Cámara de Senadores. Comisión Nacional del Agua (CONAGUA) 2018, Estadisticas del Agua en México, edición 2018, Mexico City: Secretaría de Medio Ambiente y Recursos Naturales. Comisión Nacional para el Conocimiento y Uso de la Biodiversidad (CONABIO) 2020, ‘El Corredor Biológico Mesoamericano México’, Biodiversidad Mexicana, 17 December, accessed 1 June 2022 at https://www.biodiversidad.gob.mx/region/cbmm. Comisión Nacional para el Desarrollo de los Pueblos Indígenas & Programa de las Naciones Unidas para el Desarrollo (CDI-PNUD) 2006, Informe sobre Desarrollo Humano de los Pueblos Indígenas de México, New Mexico: CDI-PNUD. Domínguez, C. 2020, ‘Presentation at the “Foro Virtual de discusión y análisis sobre el futuro de la Península de Yucatán”’, YouTube, 28 August, accessed 1 June 2022 at https:// youtu .be/ YNZs9WOQnpM. El Universal 2020, ‘Descubren seis pirámides mayas en Yucatán’, 26 September, accessed 1 June 2022 at https://www.eluniversal.com.mx/cultura/descubren-seis-piramides-mayas-en-yucatan. Fábregas Puig, A. 2005, ‘Vivir la frontera sur de México’, in P. Bovin (ed.), Las fronteras del istmo: fronteras y sociedades entre el sur de México y América Central, Mexico City: Centro de Estudios Mexicanos y Centroamericanos, pp. 343–9. Fondo Nacional de Fomento al Turismo (FONATUR) 2020, Manifestación de Impacto Ambiental Modalidad Regional (MIA-R). Tren Maya Fase 1. Palenque-Izamal. Mexico City: FONATUR. Gustafson, P. 2009, ‘Mobility and territorial belonging’, Environment and Behavior, 41 (4), 490–508. Hernández, J. 2020, ‘Presentation at the “Foro Virtual de discusión y análisis sobre el futuro de la Península de Yucatán”’, YouTube, 28 August, accessed 1 June at 2022 https:// youtu .be/ YNZs9WOQnpM. Instituto Nacional de Estadística, Geografía e Informática (INEGI) 1990, El Censo General de Población y Vivienda 1990, accessed 1 June 2022 at https://www.inegi.org.mx/programas/ccpv/1990/. Instituto Nacional de Estadística, Geografía e Informática (INEGI) 2010, El Censo General de Población y Vivienda de 2010, accessed 1 June 2022 at https://www.inegi.org.mx/programas/ccpv/2010/. Instituto Nacional de Estadística, Geografía e Informática (INEGI) 2022, ‘Sistema de Cuentas Nacionales de México’, accessed 1 June 2022 at https://www.inegi.org.mx/programas/pibent/2013/ #Datos_abiertos. Lander, E. 2000, La colonialidad del saber: eurocentrismo y ciencias sociales. Perspectivas lationamericanas, Buenos Aires: CLACSO. Medellín, R. 1996, ‘La Selva Lacandona’, Arqueología Mexicana, IV (22), 64–9.
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PART IV FINANCE
14. Challenges for monetary policies in the 21st century: financial crises and shadow banking Joscha Wullweber
Monetary policy today bears little resemblance to central banking at the end of the 20th century. Interest rate policy, the main policy tool until the global financial crisis (GFC), is mostly irrelevant. Instead, central banks buy assets on a large scale (quantitative easing), and act as dealers of last resort – that is, they shape markets and asset prices as active market makers. The reason for this radical shift in monetary policy is that since the GFC, the financial system has been in deep crisis. The main source of instability comes from the shadow banking system. Shadow banking implies money lending by non-bank institutions via repurchase agreements (repos). Repos, in turn, are short-term contracts for the sale of securities with the seller’s obligation to repurchase the securities at the end of a specified term (usually overnight) at a predetermined price. In this way, shadow banking interrelates the money market and the capital market. For the past 20 years, the shadow banking system has been growing at a steady pace. Short-term repo market funding has been greatly accelerating. The crisis susceptibility of today’s financial system can mainly be explained by the fact that the stability of this financial system is strongly grafted on the stabilization of the shadow banking system, and that although the shadow banking system, is inherently prone to crisis, it nevertheless remains largely unregulated. While the paucity of financial reforms of the last 30 years confirms the assumption of a crisis-driven status quo (Helleiner, 2014; Moschella & Tsingou, 2013; Scherrer, 2014; Stellinga & Mügge, 2017), something radical has changed: the leading central banks have meanwhile become the only institutions that take forceful action to guarantee the stability of the financial system. To stabilize the system, however, central banks must stabilize the shadow banking system. This implies that central banks must regularly act as market makers of last resort to secure market liquidity in collateralized securities to stabilize the market for repurchase agreements. Although the legal frameworks regulating the financial system remain weak, the highly unconventional measures taken by the leading central banks to safeguard the system have substantially strengthened the security framework in which the financial system is embedded (Mehrling, 2011; Pozsar & Sweeney, 2015; Tett, 2019; Wullweber, 2021a). Nevertheless, as the chapter demonstrates, these measures also have problematic side-effects, which, in turn, increase the likelihood of further crises (IMF, 2019). The chapter starts with a short introduction to the notion of liquidity, money as well as a taxonomy of credit relations. This section is necessary in order to provide a basic understanding of the prevailing logics in the financial system. Furthermore, without a basic knowledge of money creation the instruments of central bank policy are incomprehensible. In the following section, the chapter engages with different forms of monetary policies. It starts by reviewing the traditional policies. However, these forms of monetary policy are no longer sufficient to stabilize the global financial system. For this reason, the main section of the chapter will deal with unconventional central bank policy. The final section discusses from a critical 204
Challenges for monetary policies in the 21st century 205 political-economic perspective how this new dimension of central bank intervention is to be classified politically and what policy implications follow from it.
LIQUIDITY, MONEY AND CREDIT In general, when banks grant credit, they book the amount borrowed in the form of a deposit. In this way, money is created out of thin air. As demonstrated below, the function of banks as intermediaries between lenders and borrowers is almost negligible (McLeay, Radia & Ryland, 2014a, p. 15). Any institution that borrows short and lends long is vulnerable (a private bank or a non-bank creditor institution). The central bank is an exception, for it can create as much liquidity as needed, at least in its own currency. This is because the central bank is located at the top of the credit hierarchy. The very moment a run occurs on private banks or shadow banking entities, such institutions tend to collapse, because the cash available almost never meets all liabilities, in the form, for instance, of deposits. A bank run can become contagious, and contagion, in turn, can lead to the breakdown of the entire financial system. In such a situation, the central bank is the ultimate source of liquidity – the lender and market maker of last resort. Why is that the case? Why can private banks create money anew? And finally, why can financial liquidity suddenly vanish and when does this situation pose a risk to the system? Liquidity Stable financial markets are a fundamental condition for a functioning domestic and global economy. The indicator for measuring the functionality of financial markets is liquidity. A liquid market is one that functions smoothly and optimally: ‘Liquidity, like efficiency, is considered one of the great virtues of perfectly competitive markets’ (Carruthers & Stinchcombe, 1999, p. 353). Until the GFC of 2007–09, regulatory intervention on the part of the state was regarded with scepticism based on a market liberal understanding of government responsibilities that guided most of the policy programmes. According to the prevailing assumption at the time, the less those markets are regulated, the more liquid they become: ‘[Liquidity] is associated with free and laissez-faire markets, and hence with the absence of an intrusive institutional or regulatory apparatus. If exchange constitutes the elementary form of market life, liquidity means that exchange occurs easily and frequently – markets are operating smoothly and properly’ (ibid.). This predominant notion of self-regulating market forces further assumes that it is impossible to centralize the complexity of the information required to understand market conditions, and that consequently the market should be left to operate as freely as possible: ‘Markets aggregate diffuse information more effectively and set prices more efficiently than any central planner possibly could’ (Bernanke, 2007, p. 1). Before the GFC erupted, it was believed that such intervention would most likely distort market rationality (Dowd & Hutchinson, 2010; Taylor, 2009; Wullweber, 2019a). This changed in the course of the crisis when it became clear that central banks were the only institutions capable of stabilizing the financial system. During the COVID-19 crisis, intervention on the part of central banks has been very welcome. At first glance, hardly any market conforms as closely to the postulates of general equilibrium theory as some sectors of global financial markets, especially the stock markets. General equilibrium theory assumes that as long as the state does not intervene, equilibrium will
206 Handbook on critical political economy and public policy establish itself on a market with rational actors through the price mechanism, which quantitatively balances out the supply and demand of goods. In this way, the market becomes cleared. According to this assumption, prices are an exact reflection of the relation between supply and demand, and consequently represent an equilibrium. As the Turner Report of the UK’s Financial Authority Services observes, regulatory authorities had long been convinced of the soundness of the concept of market equilibrium: ‘The predominant assumption behind financial market regulation – in the US, the UK and increasingly across the world – has been that financial markets are capable of being both efficient and rational…and that the overall level of prices as a result has a strong tendency towards a rational equilibrium’ (Financial Services Authority, 2009, p. 39). The GFC, however, revealed the shortcomings of these market concepts and showed that ‘efficient markets can be irrational’ (ibid.). In times of economic upswing, all possible forms of assets seem to be highly liquid. This perception can have dramatic consequences. When confidence turns into uncertainty over the future value of assets, their liquidity decreases (Minsky, 1982). The outbreak of the COVID-19 pandemic was marked by a sharp reduction in the high level of liquidity that prevailed shortly before the crisis began. In a crisis, liquidity can quickly vanish. Within days after the outbreak of the COVID-19 crisis in March 2020, a bull market developed into a credit crunch. Without massive government intervention led by the central banks, financial markets would have collapsed. In uncertain times, the demand increases for assets that are still perceived as having a high level of liquidity. This refers primarily to money, but normally also to assets such as gold and other precious metals as well as government bonds. Even such assets, however, can lose liquidity, as was demonstrated in mid-March 2020 by the COVID-19 financial crisis. Liquidity in financial markets exists as long as confidence prevails. Confidence – market confidence – thus constitutes a core element of the financial system (Bernanke, 2008, p. 1; Wullweber, 2016). This confidence strongly depends on the ability of promisors to convince others that their promises will be kept and that payment will be made when it falls due: ‘Promises form the core of finance. One party promises to pay a sum of money to another. Much financial activity involves, one way or another, the design, production, distribution, evaluation, acceptance (or rejection), enforcement, and modification of promises’ (Carruthers & Kim, 2011, p. 240). Besides performance criteria, confidence in financial markets is largely dependent on global socioeconomic and political factors such as the monetary policy of central banks, particularly that of the US Federal Reserve (Fed), the political regulation of financial markets, economic decisions made by governments and especially by ministries of finance and economy (Gill, 2003). Money Banks are often regarded as intermediaries that bring together creditors and debtors and act to optimally match the supply of and demand for money (Mankiw, 2017). According to this interpretation, banks are neutral, cost-reducing intermediaries. As Schumpeter ([1954] 1986, p. 303) points out, however, banks not only lend the money they have received, but they also, much more importantly, create new money via the loans they grant. Nowadays, all central banks confirm this statement (Bundesbank, 2017; McLeay et al., 2014a, 2014b). In modern-day economies, money is mainly created by way of debt contracts between banks and borrowers. Within this context, the state-backed private system of money creation can react quite flexibly to the demand for money. Privately issued debit notes and state-issued money
Challenges for monetary policies in the 21st century 207 are linked through state-guaranteed convertibility. The banking system thus turns private debt into public money: ‘[W]hat the banker does with money cannot be done with any other commodity…for no other commodity’s quantity or velocity can be increased in this way’ (Schumpeter [1954], 1986, pp. 304–5). This is a complex link between the banking system and the state, and between the state and its creditors (the owners of state bonds). It is mediated by the central bank, which accepts private bank credit for central bank money at par on demand. As the Bank of England clearly states: ‘Rather than banks lending out deposits that are placed with them, the act of lending creates deposits’ (McLeay et al., 2014a, p. 15). When a bank issues a loan, both sides of the balance sheet change. The newly issued bank credit increases the assets of the borrower on one side of the balance sheet in the form of a new deposit entry. The borrower’s obligation toward the bank to pay back the debt is recorded on the other side of the balance sheet as an increase in liabilities. In terms of the bank balance sheet, the book entries are simply mirrored. The new credit appears on the asset side of the bank’s balance sheet, while the new deposit shows up on the liability side. The bank’s money is a promissory note – an IOU (I owe you) from the bank to the borrower. Keynes observed that bank money is ‘simply an acknowledgement of a private debt, expressed in the money of account, which is used…to settle a transaction’ (Keynes [1930], 1971, p. 5). A special feature of a bank loan that sets it apart from a simple credit between two persons is the fact that the promissory note issued by the bank is recognized as legal tender. In this way the bank loan becomes money that can be used as a universal equivalent for all assets within the given currency area. It comes to represent ‘a debt owing by the State’ (ibid.). There are no natural limits to the creation of money. In practice, however, a bank with too little equity capital and too many high-risk investments has no sound basis for investor confidence in the bank’s capacity to make disbursements or meet its payment obligations. Apart from this, ‘it is evident that there is no limit to the amount of bank money which the banks can safely create provided they move forward in step’ (ibid., p. 23). The limits of money creation are, again, subject to investor confidence and trust, and above all to policy restrictions that lie mostly within the framework of statutory regulations and therefore within the domain of the state. Credit Hierarchy Although money is a form of credit, it is obvious that not all forms of credit constitute money (Wullweber, 2019b). Where does the dividing line lie between money and credit? In other words, when does a credit become money? A credit is considered money if it can be used to settle debts. It follows that no clear distinction can be drawn between money and credit, considering that this depends on the level at which the credit is located in the hierarchy of money (Mehrling, 2013; Pozsar, 2014). During the era of the gold standard, the hierarchy was designed so that gold was regarded as the only real money, and cash represented the promise to be converted into gold at any time. At this level, gold is money, while cash is credit. At the present-day bank level, money is represented by the reserves that banks hold at the central banks, since banks can only settle their debts with each other by drawing on central bank reserves. For consumers or the productive economy, in turn, deposits at the bank and cash represent money. Market actors make payments through deposits. Deposits imply a promise on the part of the bank that the deposited assets can be exchanged at any time for central bank money. In the absence of the gold standard, central bank reserve money today is no longer backed by gold. Reserve money has now come to serve as base money that is underpinned by
208 Handbook on critical political economy and public policy confidence in the ability of the central bank or the state to maintain stability in the value of money (again: confidence and trust!). Internationally, however, the US dollar represents the primus inter pares. The dollar is the global currency. It is situated above the other currencies (see Figure 14.1). This becomes evident during global financial or economic crises when there is a great need for US dollars on behalf of corporations and financial players all over the world. In such situations, central banks that have a standing currency swap line with the Fed are in a privileged position. This refers specifically to the ‘C5’ group, which includes the European Central Bank (ECB), the Bank of England, the Bank of Japan, the Swiss National Bank and the Fed. The general conclusion that money represents a form of credit can now be expressed in more precise terms depending on the form it takes: money in the form of cash is an IOU from a central bank to a cash holder. Reserves at the central bank are an IOU from a central bank to a private bank. A bank deposit is an IOU from a commercial bank to an account holder. These IOUs, however, are not equivalent. Rather, they can be represented as standing in hierarchical relation to one another and, in a more general sense, in their relation to various assets insofar as concerns their potential for being converted into money at the next higher level in the hierarchy at a desired point in time without loss in value (Bell, 2001; Mehrling, 2013; Figure 14.1).
Note: C5: Fed, ECB, Bank of England, Bank of Japan, Swiss National Bank. Source: Adapted from Wullweber (2021b).
Figure 14.1
Global credit hierarchy
Central bank money stands at the top of the hierarchy. Bank deposits follow central bank money at the level just below the top. Despite the fact that there is a direct relation through bank reserves between bank deposits and central bank money, bank deposits are not central bank money (Mehrling, 2013). The next level down in the hierarchy is occupied by the different types of assets that represent a promise to pay at a specified time in the future. According
Challenges for monetary policies in the 21st century 209 to Bell (2001, p. 159), the degree to which a given asset approximates the money-form of value depends on the extent to which that asset can be converted, upon need, without substantial loss of the value paid – that is, at its original nominal value (= book value) – into the money issued by the next higher level in the hierarchy – in other words, the degree to which said asset can be traded at par on demand (Wray, 1990). As a rule, deposits with banks in the form of demand deposits can at any time be converted into (central bank) money at least as long as the bank has access to central bank reserve money. This means that through the central bank, the state accepts the convertibility of bank deposits into money: ‘Because the central bank guarantees that demand deposits will trade at par with government currency and because they are accepted in payment of taxes, bank promises (demand deposits) are nearly as liquid as state money’ (Bell, 2001, p. 160). The factor that determines the special features of today’s monetary system is the elastic and dynamic manner in which the system responds to the demand for liquidity. Liquidity is vital for maintaining financial stability. While cash is the most liquid asset, it does not generate any interest (Keynes [1930], 1971). In their quest for yields, financial players try to hold on to as little money as possible and prefer to invest in less liquid assets. In a bull market, all assets tend to become highly liquid. Some of them become almost money-like. Especially in times when asset prices keep rising, financial players grow confident that they will be able to sell such assets on demand with profit. When a bull market turns into a bear market, however, investors with highly illiquid investments have a problem. As they cannot settle their debt contracts with securities, they suddenly find themselves in great need of money (see Figure 14.1). When this happens, financial players must sell their assets at any price they can get in order to avoid insolvency. This, in turn, exerts downward pressure on asset prices, and the acquisition of money becomes even more complicated. The inevitable consequence is a run on liquidity that can then lead to a financial crisis.
CONVENTIONAL MONETARY POLICY The traditional crisis reaction of central banks consists of lowering the key interest rate. Reducing key interest rates is based on the hope that lower rates will stimulate lending. The explanation lies in the need on the part of commercial banks for central bank money to settle transactions between one another, and also, in some jurisdictions, to meet the minimum reserve requirements: ‘For banks, the survival constraint takes the concrete form of a “reserve constraint”’ (Mehrling, 2011, p. 13). As a rule, a central bank’s interest rate influences the rate at which commercial banks lend money to one another and to private individuals. Other factors being equal, it is assumed that the lower the interest rate, the higher the demand for credit. Central banks seek to achieve a macroeconomic effect on lending practices by adjusting their interest rates, and thus the price for central bank money (Bank of England, 2015; McLeay et al., 2014a). When key interest rates approach the zero lower bound, however, the control effect from interest rate cuts is lost. When the COVID-19 financial crisis struck, the leading central banks were confronted with the problem that key interest rates were already very low. This is because after the 2007–09 financial crisis, the global financial system never really emerged from crisis mode, and interest rates were already hovering around zero. The ECB and a few other central banks had set negative interest rates for reserve deposits. The Bank of England had fixed its key rate at 0.75 per cent. The Fed had only raised its rates modestly to 2.5 per cent. At the beginning of March
210 Handbook on critical political economy and public policy 2020, the Fed decided to react in a very traditional manner and cut rates to a modest half a percentage point. This had no positive effect. Shortly thereafter, the Fed and also the Bank of England lowered their rates to 0.25 per cent – once again, however, to no avail (Wolf, 2020). Central banks quickly realized that they would have to make use of much stronger monetary ammunition than interest rate policies, and that above all they would have to expand their policies relating to lender of last resort, quantitative easing, market maker of last resort, and the provision of liquidity swaps. Central banks are able to pursue these powerful tools because they occupy a unique position among financial players. Unlike other financial institutions, central banks do not have a liquidity problem during a crisis, at least not in their own currency, because they are located at the top of the credit hierarchy. For this reason, during times of crisis, central banks have the capacity to act as lenders of last resort, and – at least theoretically – to provide unlimited amounts of credit (Giannini, 2011). The idea behind the concept of lender of last resort is to provide liquidity to credit institutions that are solvent in principle, but which have longer-term liabilities that make it impossible for them to meet short-term obligations. Under certain circumstances, institutions in this position may then be forced to pay a high price for the funds they need. Especially in times of crisis, however, it is difficult to distinguish between insolvent and illiquid financial players, considering that periods of prolonged illiquidity can lead to bankruptcy (BIS, 2014). One of the most important monetary policy decisions at the very beginning of the COVID-19 financial crisis was the provision of emergency liquidity assistance as a short-term measure to help institutions cope with money shortages and to prevent a credit crunch on the financial markets. At the beginning of April, the Fed set up a new facility to provide term financing in order to buy loans made by banks to support small businesses (Fed, 2020a). This programme, which included 454 billion US dollar loan guarantees provided by Fed lending facilities, was meant to support the fiscal stimulus package that the US Congress had passed. The Fed had also started to buy commercial papers from business concerns under the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF), the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). All these policies were highly unconventional and provided credit of up to 2.3 trillion US dollars to support the economy (Boyarchenko et al., 2020b). While some monetary policies were similar to the financial crisis of 2007–09, the purchase of corporate loans and commercial paper provided credit directly to non-financial firms. These policies once again moved Fed policies into a new domain where it began providing liquidity directly to the productive economy. This underscores how serious the situation was. The same is true for the ECB, the Bank of England and the Bank of Japan, the Bank of China and many other central banks that have implemented similar programmes. In effect, central banks around the world provided a huge amount of money to financial players as well as to non-financial players to stabilize financial and economic systems (Tett, 2020). In addition to these measures, the Fed had gone even one step further, and for the first time in its history had launched a Fed-backed vehicle to buy investment-grade exchange-traded funds to counter over-reactions in equity trading (Ablan, Greeley & Henderson, 2020).
Challenges for monetary policies in the 21st century 211
UNCONVENTIONAL MONETARY POLICY When financial markets panic, market players themselves are not capable of curbing the crisis. The stakeholders are deeply entangled, myopic and driven by emotions of fear, panic and irrational behaviour. Given that many investments are linked to indices or bound to track certain assets or portfolios, the freedom of investors is diminished. Even if ratios suggest otherwise, they are forced to execute operations in the way their algorithms dictate because they are obliged to replicate the object of their fund guidelines. In panic situations, the downward spiral of asset prices affects most assets (MacKenzie & Spears 2014a, 2014b). Today’s financial assets are mostly rated mark to market. This means that falling prices are factored into asset value almost in real time. Accordingly, as long as investors follow the profit logic of shadow banking, in a crisis, they have little choice but to follow the path from hedge finance to speculative finance and last to Ponzi finance. They are not in full charge of the destiny of their investments. The steeper the journey becomes, the more it endangers the financial viability of the investment: bid–offer spreads widen, bids and/or offers disappear entirely, and the exit door for common investors closes. Assets become unsaleable, and the whole system grinds to a halt. Since assets – in the form of collateral – are the lubricant of repo markets, and hence the cornerstone of shadow banking financing, this translates into a massive squeeze on shadow bank liquidity. Credit lines are pulled, collateral is pledged, there is no new financing available and financial markets become dysfunctional. Market makers in the repo market are especially prone to illiquidity spirals because they do not regularly have access to central bank reserves or other short-term central bank lending emergency facilities. If these institutions reduce or even cease trading, the entire shadow banking sector is affected. As the shadow banking system is now at the heart of the financial system, it can bring the overall global financial system to collapse. The stress tests for banks in recent years appear rather weak in light of what took place in March 2020 during the COVID-19 financial crisis. What is more, during the month preceding the crisis, the Fed began to relax the capital, liquidity and stress test obligations for banks in a move that in retrospect appears to be a case of bad timing (Systemic Risk Council, 2019). The only institutions that do not have a liquidity problem (in their own currency) are central banks, which makes them the stabilizer and lender of last resort in times of crisis. When the COVID-19 financial crisis hit, central banks acted forcefully in an attempt to halt the crisis and curb the economic impact of the crisis. They advanced into uncharted and unconventional monetary terrain even further than they did in the wake of the 2007–09 financial crisis, crossing the red line that has strictly separated fiscal and monetary policies since the 1980s. The fear that government access to the central bank balance sheet might lead to overspending was replaced – and rightly so – by the much greater and more imminent fear of a total collapse in world trade and a subsequent severe deterioration of all economic activities. Prevailing ideology over the past three decades has not allowed central banks to directly finance government spending. This was based on the assumption that governments might abuse such a privilege as an opportunity to increase public debt in unsustainable ways. It was argued that central banks should instead act independently from governments as neutral guardians of their respective currencies and keepers of price stability. The neutrality of central banks, however, has always been a political myth, making it possible to delegate complicated and unpopular political decisions regarding monetary policies to seemingly apolitical central bank technocrats (Krippner, 2007; McNamara, 1998, 2002; van’t Klooster & Fontan, 2020). In the light of a historical
212 Handbook on critical political economy and public policy effort to curb a global pandemic without destroying entire branches of industry, this approach is no longer tenable (Wullweber, 2021a). Quantitative Easing Already during the GFC of 2007–09, the policy of quantitative easing (QE) was introduced in order to complement key interest rate policies. QE is a form of open market operations by central banks, albeit a very special and unconventional form. In open market transactions, money is made available to financial actors – both banks and non-banks – through the purchase of securities – for the most part, government bonds. The key difference in QE is the scale of asset purchases. End of 2021, balance sheets of leading central banks amounted to 25 trillion US dollars, around six times higher than in 2007 (Wullweber, 2021a, p. 238). Central banks finance such transactions by creating money. This implies that they can create money at will and bring it into circulation by purchasing assets, in most cases domestic government bonds, but ultimately by buying an asset of their choice (Stigum & Crescenzi, 2007). Unlike in the case of interest rate policy, when central banks purchase government bonds or other assets from private holders of those bonds, it has a direct impact on the amount of money in circulation. The idea behind QE, besides the purchase of otherwise illiquid securities, is that the money acquired through the sale of securities will be reinvested, and the seller will use the funds to purchase assets such as shares or corporate bonds. It is assumed that this will increase the value of the shares, and, in turn, will facilitate access to money on the markets for business concerns, which they can then invest in areas such as production (Bank of England, 2015). Optimally, this should stabilize the financial markets and stimulate the economy. However, in the case of the USA, the goal was also to stabilize the Treasury market. Financial players as well as business entities in the productive economy were in such great need of cash that they even sold their safest and most liquid assets – assets such as Treasury bonds and other government bonds that previously counted among the most sought-after securities: ‘We may be witnessing the biggest dash for cash the world has seen’ (Financial Times, 2020, n.p.). In response to this dilemma, central banks around the world had again launched or intensified their QE programmes. Besides creating the 750 billion euro Pandemic Emergency Purchase Programme (PEPP), the ECB, for example, had initiated a new round of QE measures that involved the purchase of bonds in an amount of more than 1 trillion euros (ECB, 2020). Similarly, the Bank of England had set up a term funding scheme for small and medium-sized firms, and a COVID Corporate Financing Facility to support larger firms. In addition, it was also providing liquidity to the financial sector (FSB, 2020). Market Maker of Last Resort In mid-March 2020, when the security market became dysfunctional, and there was a breakdown in typical relationships – for example, between Treasury yields and stock prices – and the Treasury market, which is the largest and most important government securities market in the world, became progressively more illiquid, the Fed once again adopted a strategy employed for the very first time during the GFC: alongside its role as lender of last resort, it began to serve as dealer of last resort (Kaminska, 2020). This implies that the Fed has stepped in to trade on both sides of the repo market by dramatically increasing the size and the terms of its repo transactions. Cash-rich vehicles such as money market funds, which had retreated
Challenges for monetary policies in the 21st century 213 from the market as money suppliers, are on one side. On the other are financial players such as security dealers and hedge funds that are in need of cash. The expansion of open market operations along with liquidity support, through auctions, for example, presents an alternative to the bilateral provision of liquidity, and in this way has also reduced the risk that financial operators will be stigmatized. The Commercial Paper Funding Facility (CPFF) was set up in mid-March 2020 to enhance the liquidity of the commercial paper market and provide a liquidity backstop for this market by supporting financial players to roll over outstanding commercial paper (Boyarchenko et al., 2020a). Most of the primary dealers do not have a reserve account, and, accordingly, are not eligible for the Fed’s discount window. To obtain funding, these financial players are able to access another debt instrument that has been revived, the Primary Dealer Credit Facility (PDCF) (Martin & McLaughlin, 2020). Especially for the shadow banking sector, the Fed has strengthened its overnight reverse repo facility (ON RRP) as well as its overnight repo facility (ON RP) (Bernanke & Yellen, 2020). It has also established two further debt instruments: the Money Market Mutual Fund Liquidity Facility (MMLF), which is very similar to an instrument initiated during the GFC but with a broader range of eligible assets (Cipriani et al., 2020; Politi, 2020), and the Term Asset-Backed Securities Loan Facility (TALF), which is designed to tackle the capital market by enabling the issuance of asset-backed securities collateralized, among other things, by student loans, auto loans, or credit card loans (Fleming, Sarkar & Van Tassel, 2020). Both facilities are specifically geared to shadow banking institutions, making it possible for the Fed to serve as a counterpart for both borrowers and lenders on the money market and on the capital market (Wullweber, 2020). As in 2008, the Fed has once again moved the wholesale money market onto its own balance sheet (Mehrling, 2011). The Fed also announced that it would purchase Treasuries, agency mortgage-backed securities (MBS), and agency commercial MBS to the extent necessary (Fed, 2020b). Between 15 and 31 March 2020 alone, the Fed bought 775 billion dollars in Treasury bonds and 291 billion dollars in agency MBS (Fleming & Ruela, 2020). These policies helped to calm the market, which bounced back very quickly (Cipriani et al., 2020). It was also possible to narrow the spreads for the one-week overnight indexed swap (OIS), a further sign that the financial markets have once again regained a semblance of calm (Boyarchenko et al., 2020a). The US Treasury market also calmed down (Fleming, 2020). Liquidity Swaps Global crises are often associated with US dollar funding problems (Pozsar & Sweeney, 2020). With demand and revenues dominated in US dollars falling worldwide, many firms (and also countries) have been struggling to meet their dollar-denominated liabilities. For this reason, the Fed has established new currency exchange agreements (swap lines) with other central banks to facilitate their access to US dollars and to ensure US dollar liquidity. Currency swap lines that the Fed had already set up with several central banks in 2008 were once again revived in March 2020. In the current crisis situation, however, the Fed has taken its policies even one step further. With so many businesses around the globe in dire need of US dollars, and with banks outside the USA holding nearly 13 trillion dollars’ worth of dollar-denominated assets (Aldasoro, Ehlers & Eren, 2019), the Fed has opened a new temporary facility for Foreign and International Monetary Authorities (FIMA). FIMA will enable foreign central banks to access US dollars by using their existing stocks of Treasury bonds to transact repurchase agreements
214 Handbook on critical political economy and public policy with the Fed (Fed, 2020c). Accordingly, the Fed has revived and significantly strengthened swap lines with other central banks while at the same time broadening the range of eligible central banks. Eligibility has now been extended to include central banks in large emerging markets such as Brazil and Mexico, for example, as well as to central banks in European countries such as Denmark, Norway and Sweden.
OUTLOOK More than ever before, the demand and supply of credit, and thus the functioning of financial markets as a whole, are determined by central bank monetary policy. Monetary policies, needless to say, cannot stop a virus pandemic like COVID-19. But they are able to keep the measures that are required to curb such an event from causing a financial crisis. And there is no doubt that they can mitigate economic crises and fight global recession. This, of course, changes central bank balance sheets. The Federal Reserve balance sheet, for example, has reached a record amount of 8.8 trillion dollars in January 2022 (Fed, 2022). Similar numbers may be found for the ECB and the Bank of England (Bank of England, 2021; ECB, 2021). Central banks must now intervene in markets to an extent never previously imagined. They must also employ measures that were unthinkable before the COVID-19 crisis. In the current situation, they reacted with unparalleled speed, power, and variety of policy measures. They cut interest rates, introduced government bond and security buying programmes, created liquidity facilities, and opened credit lines for various financial and non-financial actors. Will the immense expansion of central bank balance sheets become a problem for financial stability? Central banks can create money at will in their own currency. In the wake of the COVID-19 crisis, this money can be used to revive the productive economy, support people who have lost their jobs, strengthen health care systems, plus a whole lot more. Although central banks all over the world have exercised their power to implement a diverse range of monetary policy options to counteract the effects of the COVID-19 crisis, the measures they have introduced have been complemented only in part by forceful fiscal policies. Unlike fiscal policies, however, monetary policies do not directly translate into economic activities. When monetary measures introduced by central banks fail to reach the productive economy and, as has happened before, are diverted instead into the financial sector as excess reserves, the pattern of boom-and-bust cycles is bound to continue, with serious negative implications for the entire productive economy. The implications of the COVID-19 crisis for economy and society have led to the most severe global recession since the global depression of the 1930s. And yet, since April 2020, financial markets all over the world have begun to rally, again, reaching peak records in 2021 (Samson & Smith, 2021). Hence, even if central bank intervention does manage to stabilize financial markets, that stability will remain highly precarious. However, some central banks have recently come under strong political pressure. This applies first and foremost to the ECB. As the only institution capable of stabilizing the eurozone in the uncertain times of COVID-19, the ECB is currently undergoing a deep legitimacy crisis itself, owing to the very measures it has taken to stabilize the eurozone. Several governments, including that of Germany, have accused the ECB of overstretching its mandate and illegitimately financing weak Member States by buying too many of their government bonds. This is particularly astonishing considering that when the scale of the COVID-19
Challenges for monetary policies in the 21st century 215 pandemic became apparent, the EU was not in a position to take concerted action to buffer the impact of the ensuing economic downturn. Instead of being based on European-wide coordination and joint economic policies, responses to the coronavirus crisis were organized almost exclusively on the national level. Possibilities for countering the economic downturn in the EU, however, vary widely from country to country. While some Member States have considerable capacity to offer the various branches of industry and commerce as well as wage and salary earners financial support, other countries have only limited financial flexibility. As a result, already existing weaknesses within the eurozone have led to an increase in inequality among the Member States, driving the eurozone further into severe crisis. It was only the swift and forceful action on the part of the ECB with a diverse set of unconventional policy measures that made it possible to at least provisionally restabilize the eurozone. National governments continue to wrangle over possible EU-wide instruments and programmes. Back in March 2020, for example, the EU was asked by the president of the ECB to consider issuing so-called ‘corona bonds’, a version of Eurobonds designed to finance government recovery programmes. Even this proposal, however, is no longer on the table. The ECB is the only institution left that is currently capable of and willing to enforce stabilizing euro-wide measures in the face of the COVID-19 crisis. At the same time, as an institution that remains largely independent of democratic control, its increasing power and influence have given rise to such notions as unelected power, technocratic exceptionalism, and central bank-dominated order. The overall problem remains that financial markets are not adequately regulated. The weak regulation of the financial sector is not solely, but at least partly, based on the market-liberal monetary policy of the central banks. Mass hysteria tends to govern how financial markets react, both in good times and bad. And that explains the build-up of asset bubbles. It is the demand created by consumers, employees, state institutions and private firms that vitalizes supply chains. To ensure the stability requisite to meet this demand and to avoid recurrent crises, urgent action will be needed to establish strong and appropriate rules for financial markets, and to distribute the world’s wealth more justly. Monetary policies alone cannot realize these tasks. They must go hand in hand with fiscal policies, and regulatory policies. The Bank of England has taken an important step in this direction: for the first time in its history, it has directly financed government spending to fight the coronavirus pandemic (Giles & Georgiadis, 2020). If we expect the financial system to cushion the impact of unforeseen disasters and public emergencies such as the COVID-19 pandemic, it will be necessary to create a much more comprehensive framework of safety buffers in the form of equity, excess reserves, emergency funds and other collective crisis management instruments. The maintenance of such buffers will be costly. Moreover, they will exert considerable pressure on bank profitability, and the profits by other financial players. But in the end, it is not a question of whether costs will arise, but of who will have to bear the expense – public or private institutions.
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216 Handbook on critical political economy and public policy Bank for International Settlements (BIS), 2014, ‘Re-thinking the lender of last resort’, BIS Paper No. 79, September, accessed 6 July 2017 at http://www.bis.org/publ/bppdf/bispap79.pdf. Bank of England 2015, The Bank of England’s Sterling Monetary Framework, accessed 17 December 2022 at https://www.bankofengland.co.uk/-/media/boe/files/freedom-of-information/2016/sterling %20monetary%20framework%20june%202015.pdf. Bank of England 2021, ‘Bank of England balance sheet and weekly report’, accessed 5 January 2022 at https://www.bankofengland.co.uk/weekly-report/balance-sheet-and-weekly-report. Bell, S. 2001, ‘The role of the state and the hierarchy of money’, Cambridge Journal of Economics, 25 (2), 149–63. Bernanke, B.S. 2007, ‘Financial regulation and the invisible hand’, speech at the New York University Law School, New York, Board of Governors of the Federal Reserve System, April, accessed 12 September 2014 at http://www.federalreserve.gov/newsevents/speech/bernanke20070411a.htm. Bernanke, B.S. 2008, ‘Liquidity provision by the Federal Reserve’, remarks at the Federal Reserve Bank of Atlanta Financial Markets Conference, Sea Island, Georgia, 13 May, accessed 7 October 2014 at https://fraser.stlouisfed.org/scribd/?item_id=8994&filepath=/docs/historical/bernanke/bernanke _20080513.pdf. Bernanke, B. & Yellen, J. 2020, ‘The Federal Reserve must reduce long-term damage from coronavirus’, FT.com, 18 March, accessed 18 March 2020 at https://www.ft.com/content/01f267a2-686c-11ea-a3c9 -1fe6fedcca75. Boyarchenko, N., Crump, R. & Kovner, A. 2020a, ‘The Commercial Paper Funding Facility’, Liberty Street Economics, Federal Reserve Bank of New York, 15 May, accessed 30 May 2020 at https://li bertystreeteconomics.newyorkfed.org/2020/05/the-commercial-paper-funding-facility.html. Boyarchenko, N., Crump, R. & Kovner, A. et al. 2020b, ‘The Primary and Secondary Market Corporate Credit Facilities’, Liberty Street Economics, Federal Reserve Bank of New York, 26 May, accessed 2 June 2020 at https://libertystreeteconomics.newyorkfed.org/2020/05/the-primary-and-secondary -market-corporate-credit-facilities.html. Bundesbank 2017, Geld und Geldpolitik, Frankfurt am Main: Deutsche Bundesbank. Carruthers, B.G. & Kim, J.-C. 2011, ‘The sociology of finance’, Annual Review of Sociology, 37, 239–59. Carruthers, B.G. & Stinchcombe, A.L. 1999, ‘The social structure of liquidity: flexibility, markets, and states’, Theory and Society, 28 (3), 353–2. Cipriani, M., La Spada, G., Orchinik, R. & Plesset, A. 2020, ‘The Money Market Mutual Fund Liquidity Facility’, Liberty Street Economics, Federal Reserve Bank of New York, accessed 10 May 2020 at https://libertystreeteconomics.newyorkfed.org/2020/05/the-money-market-mutual-fund-liquidity -facility.html. Dowd, K. & Hutchinson, M. 2010, Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System, New York: Wiley. European Central Bank (ECB) 2020, ‘Pandemic Emergency Purchase Programme (PEPP). ECB announces €750 billion Pandemic Emergency Purchase’, accessed 2 April 2020 at https://www.ecb .europa.eu/mopo/implement/pepp/html/index.en.html. European Central Bank (ECB) 2021, ‘Annual consolidated balance sheet of the Eurosystem’, accessed 5 January 2022 at https://www.ecb.europa.eu/pub/annual/balance/html/index.en.html. Federal Reserve (Fed) 2020a, ‘Federal Reserve will establish a facility to facilitate lending to small businesses’, 6 April, accessed 5 January 2022 at https://www.federalreserve.gov/newsevents/ pressreleases/monetary20200406a.htm. Federal Reserve (Fed) 2020b, ‘Federal Reserve issues FOMC statement’, 23 March, accessed 30 March 2020 at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm. Federal Reserve (Fed) 2020c, ‘Federal Reserve announces establishment of a temporary FIMA Repo Facility’, 31 March, accessed 5 January 2022 at https://www.federalreserve.gov/newsevents/ pressreleases/monetary20200331a.htm. Federal Reserve (Fed) 2022, ‘Recent balance sheet trends’, accessed 5 January 2022 at https://www .federalreserve.gov/monetarypolicy/bst_recenttrends.htm. Financial Services Authority 2009, The Turner Review: A Regulatory Response to the Global Banking Crisis, March, accessed 17 December 2022 at http://www.actuaries.org/CTTEES_TFRISKCRISIS/ Documents/turner_review.pdf.
Challenges for monetary policies in the 21st century 217 Financial Stability Board (FSB) 2020, COVID-19 Pandemic: Financial Stability Implications and Policy Measures Taken, 15 April, accessed 20 April 2020 at https://www.fsb.org/wp-content/uploads/ P150420.pdf. Financial Times 2020, ‘The Fed must act to keep markets functioning’, 18 March, accessed 18 March 2020 at https://www.ft.com/content/3608d546-691e-11ea-800d-da70cff6e4d3. Fleming, M. 2020, ‘Treasury market liquidity and the Federal Reserve during the COVID-19 pandemic’, Liberty Street Economics, Federal Reserve Bank of New York, 29 May, accessed 4 June 2020 at https://libertystreeteconomics.newyorkfed.org/2020/05/treasury-market-liquidity-and-the-federal -reserve-during-the-covid-19-pandemic.html. Fleming, M. & Ruela, F. 2020, ‘Treasury market liquidity during the COVID-19 crisis’, Liberty Street Economics, Federal Reserve Bank of New York, April 17, accessed 27 April 2020 at https://li bertystreeteconomics.newyorkfed.org/2020/04/treasury-market-liquidity-during-the-covid-19-crisis .html. Fleming, M., Sarkar, A. & Van Tassel, P. 2020, ‘The COVID-19 pandemic and the Fed’s response’, Liberty Street Economics, Federal Reserve Bank of New York, 15 April, accessed 20 April 2020 at https://libertystreeteconomics.newyorkfed.org/2020/04/the-covid-19-pandemic-and-the-feds -response.html. Giannini, C. 2011, The Age of Central Banks, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Giles, C. & Georgiadis, P. 2020, ‘Bank of England to directly finance UK government’s extra spending’, FT.com, 9 April, accessed 9 April 2020 at https://www.ft.com/content/664c575b-0f54-44e5-ab78 -2fd30ef213cb. Gill, S. 2003, Power and Resistance in the New World Order, New York: Palgrave Macmillan. Helleiner, E. 2014, The Status Quo Crisis: Global Financial Governance after the 2008 Meltdown, Oxford: Oxford University Press. International Monetary Fund (IMF) 2019, Global Financial Stability Report, October, Washington, DC: IMF. Kaminska, I. 2020, ‘When central banks take over securities markets’, FT.com, 26 March, accessed 27 March 2020 at https://ftalphaville.ft.com/2020/03/25/1585143723000/When-central-banks-take-over -securities-markets/. Keynes, J.M. ([1930] 1971), A Treatise on Money, London: Macmillan. Krippner, G.R. 2007, ‘The making of US monetary policy: central bank transparency and the neoliberal dilemma’, Theory and Society, 36 (6), 477–513. MacKenzie, D. & Spears, T. 2014a, ‘The formula that killed Wall Street: the Gaussian copula and modelling practices in investment banking’, Social Studies of Science, 44 (3), 393–417. MacKenzie, D. & Spears, T. 2014b, ‘A device for being able to book P&L: the organizational embedding of the Gaussian copula’, Social Studies of Science, 44 (3), 418–40. Mankiw, G.N. 2017, Macroeconomics, 9th edition, New York: Worth. Martin, A. & McLaughlin, S. 2020, ‘The Primary Dealer Credit Facility’, Liberty Street Economics, Federal Reserve Bank of New York, 19 May, accessed 2 June 2020 at https://libertystreeteconomics .newyorkfed.org/2020/05/the-primary-dealer-credit-facility/. McLeay, M., Radia, A. & Ryland, T. 2014a, ‘Money creation in the modern economy’, Bank of England Quarterly Bulletin, 54 (1), 14–27. McLeay, M., Radia, A. & Ryland, T. 2014b, ‘Money in the modern economy’, Bank of England Quarterly Bulletin, 54 (1), 4–13. McNamara, K. 1998, The Currency of Ideas, Ithaca, NY: Cornell University Press. McNamara, K. 2002, ‘Rational fictions: central bank independence and the social logic of delegation’, West European Politics, 25 (1), 47–76. Mehrling, P. 2011, The New Lombard Street: How the Fed Became the Dealer of Last Resort, Princeton, NJ: Princeton University Press. Mehrling, P. 2013, ‘The inherent hierarchy of money’, in L. Taylor, A. Rezai & T. Michl (eds), Social Fairness and Economics, New York: Routledge, pp. 394–404. Minsky, H.P. 1982, Can ‘It’ Happen Again? Essays on Instability and Finance, Armonk, NY: Sharpe. Moschella, M. & Tsingou, E. (eds) 2013, Great Expectations, Slow Transformations: Incremental Change in Financial Governance, Colchester: ECPR Press.
218 Handbook on critical political economy and public policy Politi, J. 2020, ‘Federal Reserve sets up facility to make loans to banks’, FT.com, 19 March, accessed 5 January 2022 at https://www.ft.com/content/0e6029be-6995-11ea-800d-da70cff6e4d3. Pozsar, Z. 2014, ‘Shadow banking: the money view’, Working Paper No. 14-4, Office of Financial Research. Pozsar, Z. & Sweeney, J. 2015, Global Money Notes #3: Flying Blind, Credit Suisse Economic Research, accessed 27 May at 2020 at https://research-doc.credit-suisse.com/docView?language=ENG&format =PDF&source_id=csplusresearchcp&document_id=1056163871&serialid=nJE4HbsOHC8EO jrRyzTJUUMTRzwRyi9dZj03jBgPdfI%3D&cspId=null. Pozsar, Z. & Sweeney, J. 2020, Global Money Notes #27: Covid-19 and Global Dollar Funding, Credit Suisse Economic Research, accessed 15 March 2020 at https:// research -doc .credit -suisse .com/ docView?language=ENG&format=PDF&sourceid=em&document_id=1082246841&serialid=0b2M %2FIRv1F1JMLaFoTy3mEGVTSi%2B3ukuNkZS%2F9SbuUw%3D&cspId=null. Samson, A. & Smith, C. 2021, ‘Wall Street stocks close week at record highs’, FT.com, 16 April, accessed 5 January 2022 at https://www.ft.com/content/863f1a6c-c612-467d-ad35-ea9bf0bdea76. Scherrer, C. 2014, ‘Neoliberalism’s resilience: a matter of class’, Critical Policy Studies, 8 (3), 348–51. Schumpeter, J.A. ([1954] 1986), History of Economic Analysis, London/New York: Routledge. Stellinga, B. & Mügge, D. 2017, ‘The regulator’s conundrum: how market reflexivity limits fundamental financial reform’, Review of International Political Economy, 34 (3), 393–423. Stigum, M.L. & Crescenzi, A. 2007, Money Market, New York: McGraw-Hill. Systemic Risk Council 2019, ‘Comment on Federal Reserve and FDIC proposals to relax resolvability requirements for US regional banks’, 16 July, accessed 22 February 2020 at https://www.federalreserve .gov/SECRS/2019/October/20191008/R-1660/R-1660_071719_134341_534842034749_1.pdf. Taylor, J.B. 2009, Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Stanford, CA: Hoover Press. Tett, G. 2019, ‘The repo markets mystery reminds us that we are flying blind’, FT.com, 19 September, accessed 19 September 2019 at https://www.ft.com/content/35d66294-dadc-11e9-8f9b -77216ebe1f17. Tett, G. 2020, ‘Markets contemplate a future in which stimulus does not work’, FT.com, 13 March, accessed 13 March 2020 at https://www.ft.com/content/0f511530-64cd-11ea-a6cd-df28cc3c6a68. van’t Klooster, J. & Fontan, C. 2020, ‘The myth of market neutrality: a comparative study of the European Central Bank’s and the Swiss National Bank’s Corporate Security Purchases’, New Political Economy, 25 (6), 865–79. Wolf, M. 2020, ‘The virus is an economic emergency too’, FT.com, 17 March, accessed 18 March 2020 at https://www.ft.com/content/348e05e4-6778-11ea-800d-da70cff6e4d3. Wray, R.A. 1990, Money and Credit in Capitalist Economies, Aldershot, UK and Brookfield, VT, USA: Edward Elgar Publishing. Wullweber, J. 2016, ‘Performative global finance: bridging micro and macro approaches with a stratified perspective’, New Political Economy, 21 (3), 305–21. Wullweber, J. 2019a, ‘Monism vs. pluralism, the global financial crisis, and the methodological struggle in the field of International Political Economy’, Competition and Change, 23 (3), 287–311. Wullweber, J. 2019b, ‘Money, state, hegemony: a political ontology of money’, New Political Science, 41 (2), 313–28. Wullweber, J. 2020, ‘Embedded finance: the shadow banking system, sovereign power, and a new state-market hybridity’, Journal of Cultural Economy, 13 (5), 592–609. Wullweber, J. 2021a, Zentralbankkapitalismus: Transformationen des globalen Finanzsystems in Krisenzeiten, Berlin: Suhrkamp. Wullweber, J. 2021b, ‘The politics of shadow money: security structures, money creation and unconventional central banking’, New Political Economy, 26 (1), 69–85.
15. Governance of the eurozone in the face of transnational crises dynamics Hans-Jürgen Bieling
With the establishment of the Economic and Monetary Union (EMU), the European Union has undergone major changes. This process of change did not start suddenly, nor did it come as a surprise. It was already inherent in the negotiation process on the mode of operation of the EMU. Different views clashed (Verdun, 2000, pp. 5–6). The so-called ‘monetarists’, represented by France, saw monetary union as a first step, to be followed by a subsequent communitarization of economic policy, up to and including a European economic government. In contrast, the so-called ‘economists’, represented by Germany, advocated first aligning economic policy strategies and then, as a ‘crowning touch’, introducing a common currency. After the convergence towards neoliberal concepts during the 1980s (McNamara, 1998, pp. 122–58), the path to the EMU, as concretized in the Delors Plan, represents a compromise between these two views. Through the fulfilment of the convergence criteria defined in the Maastricht Treaty, the member states made certain advance contributions. But it was also clear that even after the institutionalization of the EMU, further instruments and resources were needed – hence the Stability and Growth Pact, the Employment Strategy and Lisbon Strategy or the Cohesion Fund – to organize economic policy convergence. With a certain time lag, it can be seen that the instruments and resources originally envisaged are far from sufficient to balance the uneven development in the eurozone (Stiglitz, 2016). Especially in times of crisis – such as the financial and sovereign debt crisis, but also the coronavirus pandemic – uneven capitalist development becomes a problem and threatens to destroy the EMU (Jäger & Springler, 2015). To prevent this, political decision-makers have repeatedly agreed in tedious and cumbersome negotiations to provide additional resources, competences and steering instruments. Whether these are sufficient remains uncertain. So far, however, the governance of the eurozone has undergone a crisis-mediated transformation. In the following, it will be shown that this transformation is not only a functional adjustment, but also at the same time an interest-led and discursively framed process that corresponds to a change in transnational power relations and forms of domination. To this end, the first step is to explain (1) how the governance of the eurozone presents itself from a critical political economy perspective, inspired by neo-Gramscian and regulation theoretical concepts. (2) The focus is then on the processes of crisis and transformation inscribed in the eurozone. (3) These are reconstructed as an expression of a ‘European crisis constitutionalism’ by reference to the financial and sovereign debt crisis and (4) the coronavirus pandemic. (5) The chapter concludes with some reflections on the changed character and perspectives of European economic governance.
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220 Handbook on critical political economy and public policy
UNEVEN CAPITALIST DEVELOPMENT IN THE EUROZONE In the process of negotiating and establishing the EMU, a so-called ‘Brussels–Frankfurt consensus’ emerged in the 1990s (De Grauwe, 2006, pp. 724–5). This consensus referred to a specific division of tasks that was considered appropriate and sufficient for the EMU’s mode of operation. Thus, the economic union, narrowed to the internal market, was to be shaped by the Brussels apparatuses – the European Commission, the European Parliament and the Council of Ministers. The monetary union, on the other hand, was to be the primary responsibility of the European Central Bank (ECB) based in Frankfurt. This division of labour was based on three assumptions: first, that the ECB – combining inflation and money supply management – can concentrate on primarily fighting inflation and achieving the goal of stable prices; second, that temporary disturbances in the EMU can be countered sufficiently effectively by the fiscal policy requirements of the Stability and Growth Pact (SGP); and third, that structural imbalances or asymmetric shocks in the EMU can be absorbed by strengthening the flexibility of national capitalist models – that is, structural reforms within the framework of the internal market. In the financial crisis of 2007–08 at the latest, these assumptions about the effectiveness of the available instruments proved to be incorrect. This came as little surprise to many economists (Stiglitz, 2016). Some had pointed out early on that the EMU did not meet the criteria of an Optimal Currency Area (OCA), in which participating countries have a similar economic structure and in which the processes of uneven economic development are balanced by a common budget and high labour mobility (Jager & Hafner, 2013, pp. 315–16). This assessment can certainly be agreed with from the perspective of a critical political economy. However, the inherent instability of the EMU cannot be explained by macroeconomic imbalances alone, as they existed for quite a while. They only became a serious problem under conditions of the financial crisis, when it became evident that political institutions and decision-makers were ill-prepared and not ready to rapidly adapt to the crisis by changing the overall approach and generating the resources and instruments for an effective and solidaristic European economic and monetary policy management. This highlights that next to the macroeconomic imbalances the interests, discourses and power relations play an important role as well. In some regards, they have been decisive for the trajectory of the EMU. To include these dimensions in the analysis, it makes sense to look at the crisis-ridden development of the European economy, especially the eurozone, from a neo-Gramscian, expanded regulation-theoretical perspective. At the centre of this perspective is the specific – hegemonic – articulation of economic, societal and political processes. To grasp these, the structures and organizational forms of capitalist accumulation and regulation in the national space must be considered. In regulation theory, capitalist development models are characterized by the interplay between the regime of accumulation and mode of regulation, an interplay that has repeatedly changed because of technological and work-organizational innovations, shifts between economic sectors and industries, and changing hegemonic patterns of interpretation. Important foci of discussions in regulation theory have been the processes of transnationalization and financialization of national development models (Bieling & Guntrum, 2020; Brown, Spencer & Passarella, 2017). In this regard, regulation theory has generated numerous insights. Nonetheless, most regulationist work came up against analytical limits insofar as it clung to a nation-state–world-market dichotomy that proved ill-conceived to consider the manifold political-economic, societal, and political-institutional dynamics in the trans- and
Governance of the eurozone in the face of transnational crises dynamics 221 supranational space. To compensate for this analytical weakness, a neo-Gramscian extension of regulation theory seems appropriate. By such an extension the transnational patterns and forms of accumulation and regulation within the EU can also be captured, including the hegemonic interpretive struggles that affect them, without suggesting that national capitalist models of development have simply become obsolete. For some time now, national development models have been overlaid by elements of a ‘Euro-capitalism’ (Bieling & Deppe, 2003) or ‘European financial market capitalism’ (Bieling & Guntrum, 2020). In a way, the genesis of this capitalism was inherent in the process of European integration from the very beginning, as it represents an arena in which the contradiction between the narrowness of national markets and the limits of the nation-state on the one hand and the requirements of the internationalization of capital on the other could be mediated (Bieling, 2010, pp. 57–84). The extended re-launch of European integration since the 1980s has significantly strengthened the elements of European financial market capitalism. Supported by economic integration projects, above all the EU internal market, EMU, eastward enlargement of the EU, and financial market integration, transnational value chains have been promoted. Hence, the national regimes of accumulation – that is, the forms of organization and distribution of social value creation – took on an increasingly cross-border character, especially since the forms of regulation subsequent to European law-making – directives, regulations and decisions – have also been harmonized or converged in many areas. This applies particularly to commodity, money and capital relations, but also indirectly to wage relations through the competition-induced change in the organization of work and production and the operation of the welfare state systems. The market-driven convergence, but even more the shift of political-institutional and legal competences to the supranational level – that is, to the European Commission, the European Parliament, the European Court of Justice, the ECB and many regulatory or supervisory committees – signifies the evolution of a European mode of regulation. The shaping of these regulations is also partially subject to the influences of an emerging European civil society, which is, however, very much limited to transnational associations, especially business associations and business-related think tanks. The processes of economic, political and social-discursive transnationalization, which have been stimulated by major integration projects such as the single market or the EMU or by broadly discussed strategies such as the Employment Strategy or the Lisbon Strategy or more recently the European Green Deal, are quite remarkable. However, they should not be misinterpreted as an expression of a comprehensive and substantial material convergence and political harmony. Rather, within the common European setting, transnational interdependence has a hierarchical character and generates specific conflicts resulting from the persistence of the different profiles of national models of capitalism as well as from the dynamics of uneven development. Both aspects – the hierarchical character of transnational interdependence and the dynamics of uneven development – become apparent when the specifics of the national models of capitalism are examined more closely (Becker & Jäger, 2012; Hall, 2017). Then it becomes clear that some of the national accumulation regimes occupy a very dominant position on the basis of their high-tech, productive-intensive orientation and active integration into the international and European division of labour – that is, current account surpluses. This holds even more as these surpluses are accompanied by capital outflows – to a large extent in the form of loans – corresponding to cross-border creditor–debtor relationships. In turn, other accumulation regimes are less productive, sometimes more financialized and oriented
222 Handbook on critical political economy and public policy towards the national domestic market, which often entails current account deficits and external indebtedness. The centre–periphery relations constituted in this political-economic way are constitutive for the mode of operation of the EMU (Bieling, 2013; Marks, 2012). They are based on the specific material profile – the most important industries, the technological know-how, the infrastructural conditions – of the national economies and partly on divergent economic, social and collective bargaining strategies, which can no longer be balanced within the framework of a uniform monetary policy and an abolished realignment of the currencies within the eurozone. Even before the outbreak of the financial crisis, many conflicts over the further political development and design of the EMU were sparked by the question of how to deal appropriately with the accumulating imbalances. Basically, two concepts and strategies confronted each other (Bellofiore, Garibaldo & Halevi, 2010; Heine & Sablowski, 2015): on the one hand, those political actors – for example, the governments of Germany, the Netherlands, Austria and the Scandinavian countries but also influential Directorates-General within the European Commission and parts of the European Parliament and the ECB – who represented the interests and views of the transnational export economy and creditors pushed to force and channel the pressure for reform on the national models of capitalism through various procedures of European coordination such as the Employment Strategy or the Lisbon Strategy. On the other hand, the representatives of the deficit and debtor countries – the governments of Greece, Italy, Spain, Portugal and also France – tried to alleviate this pressure through additional common instruments and resources – above all, through the mechanism of transnational transfers and credit flows. Transnational credit relations thus counteracted market-based disciplinary pressures and political economy centrifugal forces in the eurozone for a time. Ultimately, however, this mechanism reached its limits: namely, at the time when the outbreak and management of the transatlantic financial crisis – the economic stimulus packages and the costly bailout of many banks – caused the government debt burden in many countries to skyrocket, raising doubts about the stability of the financial systems and the guarantee of debt service.
CRISIS-CONSTITUTIONALIST TRANSFORMATIONS With the outbreak of the financial crisis, especially the transition to the so-called ‘sovereign debt crisis’, the conflicts over the appropriate transformation of European economic governance intensified. This is hardly surprising, since crises suggest a change in existing conditions. By definition, they are phases of deep uncertainty – that is, periods of decision or turning points, in which, from a medical point of view, in the course of a disease the patient either gets well or dies, or more generally formulated: ‘the old dies [while]…the new…cannot yet come into the world’ (Gramsci, 1991–99, vol. 2, p. 354). According to the motto, ‘Never let a serious crisis go to waste’ (Mirovski, 2014), different groups of actors responsible for the governance of the eurozone tried to use the crisis constellation in their own interest. The crisis diagnoses and crisis narratives they launched were mostly presented in the form of a functional solution to the problem, but at the same time they were always guided by particular social interests (Jessop, 2010, p. 343). Different social groups suggested specific policy choices to push the transformation of European economic governance in the desired direction.
Governance of the eurozone in the face of transnational crises dynamics 223 Very roughly, the proposals introduced into the discussion were oriented towards two different models (Schneider & Syrovatka, 2019, pp. 24–5): on the one hand, the model of a European ‘fiscal union’, which, in the sense of practising cross-border solidarity, envisages a further communitarization of competences, instruments and resources in order to make the potentials of the EMU usable in economic and socio-political terms; and on the other, the model of a European ‘stability union’, which is primarily defined by the goals of austerity policy consolidation and improved competitiveness. This shows that the euro, as any other official currency is by no means only a socially ‘neutral’ means of payment, but to the extent that it always functions as capital and credit at the same time, constitutes social relations of power and domination, the use, protection or weakening of which is being fought over. The compromises negotiated in the sovereign debt and euro crisis, in the shadow of ordoliberal principles (Ryner, 2015), were overall more oriented towards the model of the stability union, but also contained elements of stronger political control and correction of market dynamics. The latter aspects in particular make it clear that the ‘new constitutionalism’, which as an ‘international governance framework’ locked in neoliberal reforms by separating ‘economic policies from broad political accountability in order to make governments more responsive to the discipline of market forces and correspondingly less responsive to popular-democratic forces and processes’ (Gill, 1998, p. 5), gave way in the euro crisis to a changed mode of crisis constitutionalism (Bieling, 2013). European crisis constitutionalism implies a further strengthening of the disciplinary elements of the legal and institutional order in terms of economic and financial policy. In doing this, however, it breaks away from just technocratically flanking the processes of market integration. Instead, in view of a permanent economic state of emergency (Žižek, 2010), a multitude of new intervention instruments – often with strong authoritarian features (Oberndörfer, 2020) – have been created to manage the instability of European financial market capitalism.
THE POLITICAL MANAGEMENT OF THE FINANCIAL, SOVEREIGN DEBT AND EURO CRISIS The activities and focal points of European crisis management generally correspond with the course of the financial crisis and the subsequent transition to the so-called sovereign debt and euro crisis. Roughly speaking, two phases can be distinguished. The first phase began in 2007 with the bursting of the subprime bubble in the USA. The economic ‘earthquake’ triggered by this burst spread very quickly from there to Europe via two contagion channels – the capital and credit markets and trade relations. The reactions of European political actors were prompt and relatively comprehensive (Schelkle, 2012, pp. 42–9). In 2008 and 2009, most national governments launched stimulus packages to cushion the economic slump. In addition, rescue funds were set up in almost all EU states to stabilize distressed banks through state recapitalization, mostly in the form of share purchases, loans or guarantees. Both processes were supported by the ECB, which reacted in particular to the drying up of the interbank market, with a significantly loosened, liquidity-securing monetary policy (Bieling & Heinrich, 2015). The European Commission flanked these elements of discretionary state interventionist crisis management with a targeted mobilization and reallocation of funds from the Structural and Cohesion Fund, set up a small fund to secure the liquidity of Central and Eastern European
224 Handbook on critical political economy and public policy states, but otherwise limited itself to accompanying the national activities with communicative and coordinative mediation. The second phase of crisis management began with the transition to the so-called sovereign debt and euro crisis – the public debt burden had risen dramatically due to the costs of bailing out banks in some countries – and implied the threat of an existential shake-up of the EMU. At the same time, political priorities changed. From then on, the primary concern was no longer to prop up the financial sector and employment, but to save the euro. Attention was accordingly focused on rising sovereign debt and the increasing fragility of the EMU (Overbeek, 2012, pp. 38–40), although the exact link between the two phenomena of the sovereign debt crisis and the euro crisis remained disputed: some saw the causes of the crises primarily in the instability of the financial system and the structural current account imbalances – that is, the problem that one group of surplus and creditor countries was confronted with a second group of deficit and debtor countries that had growing difficulties in refinancing government debt on capital markets through new loans (Becker & Jäger, 2012). Others, however, held primarily unsound budgetary policies of national governments and a too loosely defined European framework of economic, fiscal and monetary policy coordination responsible for the increasing tensions in the EU (Heinemann, Moessinger & Osterloh, 2012). Divergent considerations and strategies for reforming European economic governance corresponded with the different crisis diagnoses. Somewhat simplified, the initiatives taken since 2010 can be assigned to the aforementioned reference points or guiding principles of the stability union and fiscal union (Schneider & Syrovatka, 2019). Numerous initiatives were oriented towards the guiding principle of the stability union, which aimed above all at austerity policy consolidation and improved competitiveness. They were already at stake following the continuation of the Lisbon Strategy by the ‘Europe 2020 Strategy’ and in the more comprehensive discussions of a working group chaired by Herman Van Rompuy (2012), the then president of the European Council. Only a little later the implementation of stability-oriented reforms took place. It was decided to coordinate and control national budgetary policies at an earlier stage in a European Semester by the Commission and the Council of Ministers. The criteria of the SGP were made even more restrictive through the adoption of a so-called ‘Six Pack’, consisting of five regulations and a directive, and partially related to the problem of current account imbalances. But that was not all: the ‘Fiscal Compact’ transferred the German debt brake to the eurozone; and with the ‘Euro plus Pact’ – although only a discursive declaration of intent – it was agreed to extend the competition-oriented reform agenda to further areas of labour and social policy. The reform conditions and controls imposed by the so-called ‘troika’ of the Commission, the ECB and the International Monetary Fund (IMF) in some highly indebted countries dependent on external loans proved to be much stricter. This process affected Ireland, Portugal, Cyprus, and especially Greece, but only partially Spain, which was able to limit conditionality to financial sector reforms. Other proposals can be assigned to the guiding principle of the fiscal union, such as the creation of Eurobonds or the establishment of a European economic government, which were introduced in the crisis discourse, but were ultimately rejected (Matthijs & McNamara, 2015). Some other proposals, however, were realized. This applies above all to the European Stability Mechanism (ESM), which emerged in summer 2012 from the previously established European Financial Stability Facility (EFSF). It has a considerable intervention volume of €750 billion and allows highly indebted countries to receive additional loans. Likewise, the transformation of the ECB (Bieling & Heinrich, 2015) also partially points in the direction of a fiscal union.
Governance of the eurozone in the face of transnational crises dynamics 225 Thus, to counteract the euro crisis, the ECB has not only stabilized the credit system through interest rate cuts and active liquidity management up to specific purchase programmes of securities. It has also taken on ‘lender-of-last-resort’ tasks for public institutions – that is, it actively supported states in payment difficulties. It is also involved in the Banking Union, as it is now responsible for the supervision of transnational systemically relevant banks. The Banking Union also includes a European procedure for the reorganization or resolution of credit institutions, although its third element, the European communitarization of national deposit guarantee schemes, has not yet been realized. Some initiatives to re-regulate the financial markets have also been averted or watered down (Bieling, 2014). Ultimately, however, it has been partially possible to make the financial market players take responsibility in this area as well. These two guiding principles or reference points for the reform of European economic governance – that is, the fiscal union and the stability union – have been introduced into the discussion and supported by different political alliances (Heinrich, 2015; Syrovatka, 2022). The governments, trade unions and social movements in the highly indebted crisis countries – with partial support from parts of the European Commission, especially DG Employment – argued primarily for strengthening elements of joint liability – also through the provision of additional competences, resources and instruments such as Eurobonds or a European economic government – but rejected the disciplinary requirements of the stability union. The position of the governments of the surplus countries and the associations of (trans)national industrial and financial capital, which was supported by DG Finance and Single Market in the European Commission, was a mirror image. This second group of actors emphatically demanded stricter guidelines for austerity and further structural reforms to strengthen competitiveness. It conceded elements of the fiscal union only to the extent that these were indispensable to avoid a collapse of the eurozone. If one looks at the results so far – that is, the composition of the European reform packages – it is difficult to overlook the asymmetry inscribed in the negotiated compromises. Obviously, the supporters of the stability union have won the day on key points, while the supporters of the fiscal union have been fobbed off with rather modest concessions. Given the existing balance of power within the EU, this is hardly surprising. At the same time, however, it cannot be overlooked that the governance of the eurozone has changed significantly because of the above-mentioned reform steps in the course of crisis management. The original procedures and practices institutionalized with the establishment of the EMU have not disappeared but have certainly been modified. If this modification is interpreted here as an expression of a European crisis constitutionalism, then this is done not least to highlight the structural ambivalence of the process. On the one hand, the elements of the stability union underline that the austerity- and competition-oriented elements of European economic governance have been further strengthened in a quasi-constitutional way and that the individual member states – especially when they become dependent on capital inflows and European financial support – hardly succeed any more in evading the tightened European specifications and procedures. On the other hand, however, the steps in the direction of a fiscal union also show that additional community instruments and resources were mobilized in the process of ‘rescuing the euro’, including the unconventional monetary policy measures of the ECB. Thus, a certain expansion of the scope for political action has been initiated, which for the time being, however, has only been used to a very limited extent. This signals that the reform of European economic governance was primarily concerned with stabilizing European financial market capitalism and the power relations inscribed in
226 Handbook on critical political economy and public policy it, but not with organizing a medium- and long-term sustainable, broadly accepted, and thus hegemonically supported development of European integration. The effect of the economic and monetary policy measures taken to stabilize the European political economy thus remained precarious. Thus, it was possible to temporarily balance the existential shock to the eurozone. However, in the wake, or rather in the aftermath, of the crisis-constitutionalist reforms outlined above, further crisis dynamics unfolded. They can be interpreted as the expression of a third phase, which had already been initiated in 2012/13 and thus overlapped with the second phase of crisis management. The further crises dynamics result not only but also from the fact that the ad hoc interventions and initiated reforms of economic governance generated considerable economic, social and democratic costs. The economic effects were particularly severe and long-lasting in Southern Europe due to a long phase of economic stagnation – in most countries from 2009 to 2013, sometimes even longer – and a considerable increase in public debt. Compared to the United States, the stagnation phase lasted a relatively long time due to a lack of competences, resources and instruments. Apart from the early economic stimulus packages, other crisis interventions were relatively late, hesitant, and partly incoherent, thus perpetuating the uncertainty for the economic actors. Furthermore, the European actors almost exclusively relied on concepts of austerity – that is, on a reduction of public spending, which had the consequence that economic activities were not stimulated but additionally slowed down. The long phase of stagnation implied that the economic potentials of many countries were not being used or were even being destroyed (McBride, 2015) – through insufficient investments or processes of deindustrialization. In some countries of the Southern European periphery, the public debt burden increased despite all austerity efforts, as tax revenues plummeted due to the economic situation. The economic crisis – mediated through the slump in employment and the crisis of the social security systems – ultimately affected the working and living conditions of many people. While the crisis-related cuts in the countries of the European centre – that is, the internationally competitive economies – could still be absorbed to some extent, they were in part very dramatic in the countries of the Eastern European, but especially the Southern European periphery (Bieling & Buhr, 2015; Lehndorff, Dribbusch & Schulten, 2018). The combination of austerity policies and structural reforms forced the sharp rise in unemployment and youth unemployment, so that existing qualifications were devalued over time. At the same time, comprehensive labour and social policy cuts were made. On the one hand, these affected the public sector, where investments were reduced, jobs were cut and wages and employment relationships were made more flexible. On the other hand, the cuts were directed at the social systems, especially old-age security, which not only affected the everyday life of the older population, but also reduced the possibilities of family support. As a result of these structural reforms, working and living conditions became more precarious in many cases; and social inequality continued to increase in most societies (Perez & Matsaganis, 2018). This combination of economic stagnation and increased social inequality and insecurity had quite different effects in the political arena. In most societies in Eastern Europe, these reform processes were mostly accepted without major resistance, while in the Southern European periphery – at least during the culmination of austerity – public waves of protest were articulated (Bailey et al., 2017). The central actors of these protests – social movements and trade unions – primarily represented social democratic or left-wing populist positions in their critique of reform policies. In contrast, the political discussion developed quite differently in the Nordic surplus countries of the centre. There, and even more so in the Eastern European
Governance of the eurozone in the face of transnational crises dynamics 227 societies, right-wing populist parties and movements gained in importance (Hopkin & Blyth, 2019). The EU and the euro became the focus of criticism, as they appeared to the right-wing populist actors as the symbol, often even the decisive cause, of national disempowerment and a future transfer union, an assessment that has been further reinforced by the crisis of the European migration regime since 2015.
THE CORONAVIRUS PANDEMIC: ON THE WAY TO MORE SOLIDARITY? The economic, social and political implications of the crisis management condensed into an ‘erosion crisis’ marked by tendencies of a gradual weakening of European integration through processes of discursive or de facto – keyword Brexit – renationalization. The existential threat to the EMU and the EU could be averted, but dissatisfaction with national and European policies remained at a relatively high level in many countries. In response to the economic stagnation and the social and political disintegration tendencies, as well as to the escalation of the global conflict between the USA and China, the European Commission under Jean-Claude Juncker set some new political accents. First, it initiated an ‘Investment Plan for Europe’, of which one element is the European Fund for Strategic Investments (EFSI, so-called ‘Juncker Fund’) that aimed to mobilize about €315 billion in private and public investment until 2018 (European Commission, 2014). Second, it has significantly upgraded ‘industrial policy’ – that is, a selective political promotion of individual sectors or companies through tax breaks, subsidies, research institutes, modernized infrastructure, and so on. The national industrial policy pushes such as the Altmaier-Le Maire paper, the programmes at the European level (European Commission, 2014, 2020) as well as the strengthening of national and European development banks (Mertens & Thiemann, 2018) are an expression of the effort to counteract the processes of uneven development and deindustrialization in the EU and to harness the positive experiences in other countries. Third, the Commission also launched a social policy offensive from 2017 onwards (Syrovatka, 2022) by advocating a ‘European Pillar of Social Rights’, promoting a socially progressive revision of the Posted Workers Directive and flanking the institutionalization of a European Labour Authority (ELA), as well as supporting discussions on a European Unemployment Insurance and a European Minimum Wage. It could certainly be argued to what extent the initiatives and measures mentioned are only symbolic or whether they have a substantial effect. Irrespective of this, they first and foremost testify to the fact that the crisis-constitutionalist transformation of economic governance was perceived as insufficient. Not only the European Commission, but also most national governments saw the need for further integration steps to put the EMU and the EU as a whole on a more sustainable footing and discussed at least flanking procedures of a solidarity-based reconciliation of interests to this end. In other words: compared to the 1990s and 2000s, not all, but many, of the actors involved in the governance of the euro area had become more politically aware of the economic and social foundations of the EMU. This was also evident in the management of the coronavirus pandemic (Seikel, 2020; Syrovatka, 2022). Some of the steps taken, such as the national design of the aid and stimulus packages (Anderson et al., 2020), may well be reminiscent of the crisis management of the financial crisis, but there are also clear differences. A first difference, for example, is the smoothness by which governments decided very quickly to launch extensive economic stimu-
228 Handbook on critical political economy and public policy lus programmes. These were supplemented as early as April 2020 by European credit lines provided by the ESM (€240 billion) and the European Investment Bank (EIB) (€200 billion). The ECB also reacted very quickly to prevent a possible destabilization of the eurozone, as early as March 2020, with the Pandemic Emergency Purchase Programme (PEPP), a non-standard monetary policy instrument, the volume of which was increased from €50 billion to €1850 billion in the following months (Wullweber, 2020, pp. 57–8). Second, on the initiative of the European Commission, the fiscal rules of the SGP were lifted for the time being. Likewise, the Commission worked to suspend the prohibition of state aid under competition policy for the time being. The recommendations defined in the European Semester procedure were also much more moderate than in previous years. In addition to these pragmatically motivated procedural differences, a third difference is that two new Community instruments and resources will be made available to combat the economic and social consequences of the pandemic. One instrument, already decided in May 2020, is called SURE (Support to Mitigate Unemployment Risks in an Emergency) and provides €100 billion in loans to member states to finance national short-time work programmes. The other programme is a Community Recovery Fund (NextGenerationEU, NGEU), which the EU member states agreed on in July 2020 and which has a total volume of €750 billion. The money will flow from 2021 – €390 billion in grants €360 billion in loans – to those countries and sectors that are particularly suffering from the economic consequences of the coronavirus pandemic. The allocation of the funds remains conditional on the recipient countries’ compliance with the established procedures and reform requirements of the European Semester. Nevertheless, the Recovery Fund is an unusual step towards communitarization (Saraceno, Semmler & Young, 2020, pp. 583–94). It is part of the EU’s multi-annual financial framework, which is increasingly tailored to the promotion of ecological projects in the sense of a ‘European Green Deal’. In financial terms, the fund represents an innovation in that it allows the EU to take on debt. The Commission takes out its own loans on the financial markets, which will only be paid off again from the end of the 2020s through additional revenues – for example, a digital tax or through emissions trading. The institutionalization of both funds can be understood as an expression of changed political priorities and power relations in the EU. The modified strategy of the Commission under Juncker has already been pointed out; it is in principle continued by the new Commission under Ursula von der Leyen and extended to ecological issues. Equally, perhaps even more importantly, the German government, above all the Ministry of Finance, positioned itself differently in the coronavirus pandemic (Schoeller & Karlsson, 2021, pp. 201–2). The tough, authoritarian-disciplinarian strategy of Wolfgang Schäuble has given way to a more Keynesian-inspired strategy of Olaf Scholz. This change in strategy was cautious. It reflected the view that the costs of the coronavirus pandemic are difficult to manage alone in many countries and that instead a joint effort is needed to strengthen the eurozone through a common investment policy, including the modernization of central sectors and infrastructures. However, the changed balance of power should not be interpreted as meaning that the EU has abandoned its old development path and is now being reprogrammed in solidarity. In the negotiations on the Recovery Fund, the opposition between the creditor and donor countries on the one hand and the debtor and recipient countries on the other was still quite tangible. The so-called ‘frugal four’ – Austria, Denmark, the Netherlands and Sweden – had gone out on a limb and pushed up the share of loans and demanded greater conditionality in the use of the funds. However, due to the change in the German government’s attitude, this resistance
Governance of the eurozone in the face of transnational crises dynamics 229 was much weaker and ultimately had only limited success. This can be seen as an indication that the solidarity elements of European crisis constitutionalism have been strengthened in the coronavirus pandemic. Whether this is a temporary or longer-lasting development will depend on whether the newly established funds will not be abolished after the pandemic, but last in the long run.
CONCLUSIONS: PROSPECTS FOR EUROPEAN ECONOMIC GOVERNANCE The crisis-constitutionalist development of the governance of the eurozone presents itself differently in the constellations outlined. In the transition from the financial to the so-called sovereign debt and euro crisis, an austerity policy agenda with authoritarian and disciplinary elements was implemented. At the same time, however, new instruments and resources had to be provided to keep the EMU alive. It is precisely on this second aspect, the provision of additional instruments and resources, that the management of the coronavirus pandemic has most recently focused. The reasons for this lie in the economic, social and political consequences of austerity, or more precisely – in the change in the balance of power and political priorities triggered by the erosion crisis of European integration. The turn away from neoliberal concepts of European economic governance is not sweeping, but moderate. It is only partially the product of social movements – such as Fridays for Future – that initiate new social and European policy discourses and thus push in the direction of a paradigm shift in economic and monetary policy. In most debates on the future of the EU and the eurozone, the basic problem that the still very influential Brussels–Frankfurt consensus outlined at the beginning does not work in European policy practice, is rarely openly addressed. When this does happen, it is often with opposing perspectives: very competitive sectors and surplus countries tend to harden the governance mode in neoliberal and austerity terms – that is, to make the Brussels–Frankfurt consensus even more rigid; and the less competitive sectors and deficit countries, with an eye to the economic and social consequences, push for the development of instruments of joint burden-sharing. In the coronavirus pandemic, larger parts of the public and politicians seem to realize that only the latter perspective will allow for a sustainable eurozone. If this is the case, however, the question of democratic control on the additional instruments and resources of European economic governance needs to be discussed more intensively soon.
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Governance of the eurozone in the face of transnational crises dynamics 231 Mertens, D. & Thiemann, M. 2018, ‘Market-based but state-led: the role of public development banks in shaping market-based finance in the European Union’, Competition & Change, 22 (2), 184–204. Mirowski, P. 2014, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown, London: Verso. Oberndörfer, L. 2020, ‘Between the normal state and an exceptional state form: authoritarian competitive statism and the crisis of democracy in Europe’, in S. Wöhl, E. Springler, M. Pachel & B. Zeilinger (eds), The State of the European Union, Wiesbaden: VS Verlag für Sozialwissenschaften, pp. 23–44. Overbeek, H. 2012, ‘Sovereign debt crisis in euroland: root causes and implications for European integration’, The International Spectator, 47 (1), 30–48. Perez, S.A. & Matsaganis, M. 2018, ‘The political economy of austerity in Southern Europe’, New Political Economy, 23 (2), 192–207. Ryner, M. 2015, ‘Europe’s ordoliberal iron cage: critical political economy, the euro area crisis and its management’, Journal of European Public Policy, 22 (2), 275–94. Saraceno, F., Semmler, W. & Young, B. 2020, ‘European economic, fiscal, and social policy at the crossroads’, Constellations, 27, 573–93. Schelkle, W. 2012, ‘Good governance in crisis or a good crisis for governance? A comparison of the EU and the US’, Review of International Political Economy, 19 (1), 34–58. Schneider, E. & Syrovatka, F. 2019, ‘Die Europäische Wirtschaftsunion zwischen Vertiefung und Desintegration: blockade und wachsende Asymmetrie zwischen Deutschland und Frankreich’, in H.J. Bieling & S. Guntrum (eds), Neue Segel, alter Kurs?, Wiesbaden: VS Verlag für Sozialwissenschaften, pp. 21–59. Schoeller, M.G. & Karlsson, O. 2021, ‘Championing the “German model”? Germany’s consistent preferences on the integration of fiscal constraints’, Journal of European Integration, 43 (2), 191–207. Seikel, D. 2020, ‘Maßnahmen der EU in der Corona-Krise: Kurzbewertung,’ WSI Policy Brief No. 39, Düsseldorf: WSI. Stiglitz, J.E. 2016, The Euro. How a Common Currency Threatens the Future of Europe, New York: W.W. Norton & Company. Syrovatka, F. 2022, Neue Europäische Arbeitspolitik: Umkämpfte Integration in der Eurokrise, Frankfurt am Main: Campus Verlag. Van Rompuy, H. 2012, Towards a Genuine Economic and Monetary Union: Report by the President of the European Council, Brussels: European Council. Verdun, A.C. 2000, European Responses to Globalization and Financial Market Integration: Perceptions of Economic and Monetary Union in Britain, France and Germany, London: Palgrave Macmillan. Wullweber, J. 2020, The COVID-19 Financial Crisis, Global Financial Instabilities and Transformations in the Financial System, Berlin: Finanzwende/Heinrich-Böll-Foundation. Žižek, S. 2010, ‘A permanent economic emergency’, New Left Review, 64, July/Aug, 85–95.
16. Chinese capitalism and the global economic order: the impact of China’s rise on global economic regulation Jenny Simon
The perception of China’s role in the global economy changed drastically at the peak of the global crisis starting in 2008, not only in terms of China’s economic weight, but also as an actor in global economic rule-making. The People’s Republic of China (PRC) not only stands for a mode of development deviating from market-liberal principles in central aspects, but the Belt and Road Initiative (BRI), the Asian Infrastructure Investment Bank (AIIB), and the Regional Comprehensive Economic Partnership (RCEP) – currently the world’s largest, though shallow, free trade area – have also provoked discussions about China’s growing influence on global economic governance. In the rapidly developing literature, two opposing views dominate. One view proposes that China with its growing economic role and resources threatens the global role of the US and undermines the market-liberal economic order (e.g., Allison, 2018; Kurlantzick, 2016). The opposing perspective sees China as a rule-taker and expects its (dependent) integration within the hegemonic market-liberal order. Here, the focus lies on structural problems of China’s economy, its dependence on global markets, or China’s considerable adaption to and participation in international institutions (Ikenberry, 2018; Liu & Tsai, 2021; Zeng & Liang, 2013). It is against the background of these contradicting interpretations that this chapter analyzes the impact of China’s rise on global economic regulation since 2008. Following a process-oriented power-sensitive perspective and by building on Antonio Gramsci, I focus on the impact of China’s integration with global economic regulation in two central fields: global trade and finance. This allows one to go beyond the analysis of China’s behavior in international institutions, consider the impact of existing structures and changing dynamics in the global economy as well as the strategies pursued, and enables a nuanced analysis of different rules and sectors. In terms of method, the chapter integrates results from qualitative document analysis, expert interviews in China and the US (finance case), and a secondary analysis of descriptive statistics and recent empirical studies. I first describe the theoretical perspective and analyze the context of China’s integration into processes of global economic rule-making from two aspects (which I consider have a decisive impact on how China integrates): the prevailing configuration of global economic regulation and China’s development model and its integration into the global economy. Third, I discuss the empirical results of the process analysis of China’s integration into global economic regulation in global trade and finance. The analysis shows that the Chinese state neither followed a grand strategy to overthrow the global economic order, nor did China’s rise lead to its fundamental transformation. On the contrary, China’s increasing integration into the global economy and economic regulation resulted in an expansion of capitalism and a reproduction of the prevailing economic order on both fields. However, below the level of the grand order, China’s rise clearly had an impact: 232
Chinese capitalism and the global economic order 233 I argue that it led to a profound incremental transformation of the hegemonic nexus of global economic regulation based especially on China’s development of parallel regulatory arenas and regimes with a regulatory rationale shaped by the Chinese mode of development. This limited the reach of the market-liberal paradigm and rule-making capacities of US or EU actors. It also led to a more fragmented, multipolar nexus of regulating global capitalism.
ECONOMIC REGULATION AS POWER RELATION To investigate the impact of China’s rise on global economic regulation, it is necessary to reflect on what economic rules are and how they are enforced. Building on Antonio Gramsci, economic regulation can be understood as the actions involved in establishing, enforcing, and securing worldviews, norms, and interests that regulate economic activities in (global) capitalism. This includes institutionalized rules and visible actions as well as informal practices or the ideational orientation in what the economy is and how it should be organized. While, on an abstract level, the capitalist mode of production is characterized by specific regulatory logics, it concretizes in different modes of development – (inter)nationally as well as historically. Within these modes of development, economic regulation is shaped by power struggles over the generalization of particularist interests of social forces, interests and especially the accumulation strategies of dominant class fractions (Cox, 1987; Scherrer, 2001). For a successful generalization, economic capacities, such as the ability to organize a profitable accumulation regime, are just as central as (structural) means of coercion. Moreover, the consent of others to a specific form of economic regulation promotes its enforcement and stability. If such a consensus-based generalization succeeds, Gramsci speaks of hegemony as a specific form of rule. The generalized interests inscribe into the concrete institutional arrangements and regulative rationalities, solidifying into a more or less stable structure (Gramsci, 1991–99, vol. 1, pp. 101–18; vol. 4, pp. 771–83; vol. 7, pp. 1561–84). To grasp the inner workings of such a configuration of economic regulation, I introduce the concept of hegemonic nexus. It maps the ways in which hegemony is articulated in the particular modus operandi of a specific field of global economic regulation along different dimensions, such as the material configuration, the ideational paradigm, and the concrete institutional and regulatory arrangements (Simon, 2019, pp. 105–12). However, hegemonic formations and their articulation at the level of the hegemonic nexus are not static. Even a relatively stable configuration is subject to the necessity for a process of continuous political reproduction implying the possibility of change. From this perspective, the Chinese economy, understood as a specific capitalist mode of development with particular regulative logics, integrates into a pre-structured terrain of global power relations and related forms of economic regulation shaping the terrain for economic competition and conflicts over the regulation of global capitalism. It impacts not only the Chinese development model but can also be changed vice versa in China’s integration process. Neo-Gramscian authors operationalize this interrelation in terms of three analytical levels: the historic bloc, the (hegemonic) power bloc, and political projects with a transformative or reproductive impact on the historic bloc and power bloc (Bieling & Steinhilber, 2000). I study how far and in which form the respective political projects of China’s integration reproduce, contest, or transform the global hegemonic configuration of economic regulation and focus on the regulative hegemonic nexus in trade and finance to grasp how far and in what way China’s rise impacts specific dimensions of global economic regulation more concretely.
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THE MARKET-LIBERAL ECONOMIC ORDER China’s rise takes place in the context of the historical bloc described as neoliberalism or financial capitalism (Bieling, 2013; Gill, 2002). It is roughly characterized by an accumulation regime that tends to be globalized and is asymmetrically structured with different modes of development, pronounced international economic interdependencies, and the expansion of the market-liberal economic order as well as transnational and supranational patterns of stabilizing it. This expansion is organized, among other things, through an offensive transnationalization of the property order and (market-)liberal principles characterizing the state–civil society complexes of the Global North led by the US, the ‘Lockean heartland’ (van der Pijl, 2006), a legal structure that separates the private and the (self-)limiting state, privileges property and contract law, and safeguards entrepreneurial freedom and competition. For actors in the heartland, these principles create the basis for economic activities within competing economies, especially with regard to what van der Pijl calls the Hobbesian contender states. In these state–civil society complexes, dominant social forces strive for an economic catch-up strategy to prevent subordination or expropriation and to compete with heartland economies. To support domestic accumulation, mobilize resources, steer investment, and protect emerging industries from global competition, economic policies follow, at least partially, a Listian strategy in which state apparatuses exert far-reaching influence on the organization of the economy and economic regulation is oriented towards developmental and economic policy goals (van der Pijl, 2006, pp. 6–21). Against the backdrop of persistent problems of valorization in the manufacturing sector, structural excess liquidity, and the shift of capital to financial markets, financial relations developed into a social control center whose rationalities considerably changed the functioning of the global economy. At the same time, global production was increasingly relocated to (semi-)peripheral economies such as China. On the level of ideas, the historical bloc is secured, above all, by the neoliberal paradigm that defines the discourse terrain for struggles over economic regulation. The transformation to financial capitalism was related to a shift in the power bloc in favor of capital fractions oriented towards global markets, asset owners, and financial market-oriented groups. In this process, an entanglement of the hegemony of the market-liberal heartland led by the United States, the US bourgeoisie led by financial capital, and the interests of transnationally oriented capital fractions can be observed (Scherrer, 2001; van Apeldoorn & de Graaff, 2012). The hegemonic nexus of rule-making in global trade is characterized by a private corporate agenda strengthening (intellectual) property rights and the free trade paradigm aiming at reducing or eliminating trade barriers. As the share in global trade, the absolute purchasing power, and the relative dependence on foreign trade impact the bargaining power in trade policy issues, the US and later the EU were the primary states to advance initiatives pushing the expansion of the liberal trade regime by using market access as leverage (Scherrer, 2016). Since 1994, the World Trade Organization (WTO) has been the institutional backbone of regulating global trade through which market-oriented principles were generalized and enforced internationally. While WTO agreements are formally reached by consensus and equal vote of member states, the most significant negotiations take place between an inner circle of states – until recently, the so-called Quad – the US, EU, Canada, and Japan. However, coalitions between countries of the Global South increasingly rejected further liberalization. In particular, the so-called Singapore issues, behind-the-border issues, such as competition policy, government procurement rules, investment regulations, or the protection of intellectual prop-
Chinese capitalism and the global economic order 235 erty rights, became increasingly contested (Hopewell, 2015, p. 317; Scherrer, 2016). While these enable transnational companies to expand their accumulation strategies by influencing economic regulation behind the borders of other economies, from the perspective of many (semi-)peripheral economies behind-the-border issues tackle important regulatory strategies to support domestic accumulation, mobilize resources, steer investment, and pursue economic policy goals. The US, and later also the EU, reacted to the blockade of the WTO negotiations by focusing on bilateral and regional deep free trade agreements (FTAs) to enforce the generalizing of market-liberal behind-the-border regulations (Claar & Nölke, 2013). The hegemonic nexus in global finance is based on the Dollar-Wall Street Regime (DWSR) and the related market-liberal mode of financial regulation attaching particular importance to the liberalization of international capital movements (Gowan, 1999, pp. 19–25). At the level of ideas, the hegemonic nexus is secured especially by a monetarist reading of the neoliberal paradigm. The associated hands-off mode of regulation focuses on the abolition of restrictions of international capital movements, the introduction of flexible, market-based exchange rates, the generation and regulation of liquidity via capital markets and international organizations (e.g., the International Monetary Fund [IMF]), and structures and measures to prevent or mitigate financial crises (Armijo, 2002, p. 3ff.; Drezner & McNamara, 2013, pp. 156–7). At the national level, it aims at introducing a monetary policy supporting monetary value and price stability as well as regulation of national financial markets oriented toward the functioning of the heartland’s financial systems with a far-reaching leeway for financial market players. These regulative approaches opened up markets of (semi-)peripheral economies, secured the repayment of loans of the private sector in case of crisis, and via IMF loan conditionality presented an important mechanism to further generalize a market-liberal form of regulating finance on the global scale (Peet, 2009). However, individual economies, most notably China, continued to use capital controls and the regulation of currencies as a central element of their mode of development. While the regulative nexus of global trade and finance expanded in geographical scope until 2008, growing tensions and instabilities in the global economic order became visible. On the field of trade, these are fueled by the increasing importance and competition by rising economic powers. On the field of global finance, the structurally crisis-ridden nature of the DWSR particularly poses problems for the stability of the global economic configuration. In terms of global economic regulation, these tensions increased the contestation of the market-liberal approach by important players such as China.
CHINA GOING GLOBAL To understand the Chinese state’s approach to economic regulation, we must consider the character of China’s mode of development and international integration. Today’s competing modes of market-liberal and Chinese development came into being not in rivalry, but in an asymmetrical interdependency. The crisis-driven transition of capitalism in the 1970s was accompanied by a deepening of the free trade regime, the liberalization of capital flows, and the restructuring of global production. While the latter promoted deindustrialization in the centers and the import of cheap consumer goods from the new production locations, the inflow of capital, the relocation of production and know-how in the context of China’s market economy reform processes contributed significantly to the emergence of an export-oriented
236 Handbook on critical political economy and public policy industrialization and growth strategy (ten Brink, 2019, p. 56ff.). The liberalization of capital flows enabled growing foreign direct investment (FDI) in the new production locations and later the investment of foreign exchange reserves of China and other semi-peripheral economies in US government bonds. This, in turn, contributed significantly to the expansion of US financial markets and indirectly financed the import of Chinese goods (Hung, 2008; Ivanova, 2013, p. 65). The market-liberal development model and China’s mode of development emerged in a reciprocal relationship and, to a certain extent, enabled each other. Against this background, China increasingly integrated into the global economy, albeit with a clearly different mode of development. While the organization of China’s economy is in flux and various hybrid economic forms were developed with market mechanisms playing a central role, a strong coordinating role of state together with a strategy of investment-driven industrialization and growing export surpluses have been important features of China’s mode of development. Value creation took place based on a low-wage regime in a setting of heterogeneous types of companies that were mainly dominated by national capital. While the state sold off state-owned enterprises (SOEs) on a large scale, central sectors remained in the state’s hands (Nölke et al., 2015, p. 546ff.). The highly regulated financial system, largely shielded from the global financial markets, was geared to support development and industrial policy goals. The export strategy was underpinned by a managed exchange rate (Naughton, 2007, pp. 449–81). The Chinese state followed a strategy of asymmetrical integration into the world economy: domestic market and key sectors initially remained protected and were only gradually internationalized (ibid., p. 181ff.). Exports have grown at double-digit rates since the mid-1980s, with a significant share coming from foreign companies, which remain dominant in the Chinese export sector. In the 1990s, China also experienced an FDI boom. A diversified industrial structure gradually emerged, ranging from labor-intensive industry to capital goods and a high-tech sector. In 1999, the ‘Going Global’ strategy – the promotion of Chinese companies’ involvement abroad, and growing lending to (semi-)peripheral states – deepened internationalization of China’s mode of development. China joined the WTO in 2001. To do so, substantial adaption to the hegemonic nexus in trade-related regulation was necessary. China abolished its system of state-planned foreign trade, admitted private sector players, and lowered import tariffs and the quotas of goods subject to import restrictions drastically. The SOEs, as well as the intellectual property rights and competition law, were reformed fundamentally (Cho, 2005, pp. 166–97). However, the Chinese government rejected liberalization demands that contradicted central policy objectives and made the pace of trade liberalization dependent on domestic economic objectives. Despite the partial adaption to the market-liberal rules, key characteristics of the Chinese development model were reproduced. Based on its gradual and selective world market integration, China – though still in a subordinate position and depending on foreign technologies in important fields – developed into one of the most important locations of global capitalism. However, the Chinese mode of development was by no means free of contradictions and crises. In addition to social conflicts, tendencies toward overinvestment and overproduction arose as a result of the specific growth strategy. Growing indebtedness, the emergence of speculative bubbles, and minor financial crises also posed a problem. In addition, strong export orientation was associated with a high dependence on global economic developments and foreign trade policies of other economies (Simon, 2018).
Chinese capitalism and the global economic order 237 While on the one hand, the market-liberal global economic order, the accelerating globalization, and China’s selective integration and partial adaptation were an important basis for China’s dominant accumulation strategy and economic success, the coordinating role of state apparatuses and the form of their micro- and macropolitical regulation guided and secured China’s specific path of economic development. However, state–market relations are in flux and the degree of market reforms contested within China (Simon, 2019, pp. 377–420). Economic growth and stability together with the control of central economic sectors and resource flows constitute a central momentum in the retention of China’s political elites’ power. The concrete form of power relations within the Chinese state civil society complex, China’s development model and its regulatory rationales, and the form of China’s international integration are inextricably linked.
CHINA’S CHANGING ROLE IN GLOBAL ECONOMIC REGULATION Until the outbreak of the global crisis in 2008, the Chinese state was barely actively involved in global economic rule-making. This changed with conflicts over the regulatory responses to the global crisis, a shift in China’s internationalization strategy, and its growing economic importance. China’s Integration in the Regulation of Global Trade Since the Chinese state has made considerable concessions in adapting to WTO regulations and has kept a low profile in the early rounds of the Doha negotiations, China’s role changed after the outbreak of the global crisis. The material basis was further increasing China’s importance in global trade as well as the changing pattern of global competition. With 14.7 percent global exports, the Chinese economy developed into the largest exporter in merchandise trade in 2021. In commercial service trading, China ranked third. China has also grown into one of the most important domestic markets globally, not only for resources and intermediate products, but also for consumer goods (WTO, 2021, pp. 58–61). China today is among the most important trading partners of the US and the EU, Latin American and several African economies as well as the most important destination for exports from Asian countries and ASEAN’s most important trading partner and largest export market. In addition to China’s continued rise as a trading power, the composition of the goods traded by the Chinese economy changed. The share of imported capital goods declined significantly, while the share of consumer goods increased. China has also shifted its exports from labor-intense consumer and low-tech products to those with higher added value (Eurostat, 2021). The industrial policy ‘China 2025 Strategy’ also signals China’s goal to gain higher shares in key high-tech industries (Schmalz, 2019, p. 27). With this shift, China is competing more directly with the US and EU capital. This is accompanied by increasing conflicts over market access, strategic objectives of Chinese SOEs, or state support of Chinese companies. Within the WTO, these disputes were reflected in conflicts over different approaches to the regulation of trade and production. In 2008, China was invited to join the core group in the WTO. This was mainly motivated by expectations that China could function as an ally for further liberalization if it were granted a seat at the table. However, China, in alliance with
238 Handbook on critical political economy and public policy other (semi-)peripheral economies, rejected the Quad’s demands concerning the liberalization of the Singapore issues, which was interpreted as an escalation in the blockade of trade liberalization and a weakening of the Quad (Hopewell, 2015, pp. 328–31). Nevertheless, the Chinese government tended to agree to a traditional approach to liberalization focusing on reciprocally reducing tariffs, such as the expansion of the WTO Information Technology Agreement in 2015 (Weinhardt & ten Brink, 2020, p. 269). This approach of agreeing to traditional liberalization strategies focusing on reciprocal tariff reduction while mostly rejecting the liberalization of behind-the-border issues was also visible in China’s involvement in trade conflicts and dumping claims. Most important topics were the system of state subsidies for Chinese companies, the organization and role of SOEs, and the regulation of government procurement, services, e-commerce, and technology transfer (European Commission, 2017; Weinhardt & ten Brink, 2020, pp. 258–9; WTO, 2018). However, practices such as subsidies, support of SOEs, the regulation of services, or technology transfer are often not covered by WTO rules or are vaguely formulated in the Chinese protocol of WTO accession (Choukroune, 2012, p. 52f.). Also, the distinction between public and private entities in WTO law is ambiguous and does not reflect the ways in which Chinese SOEs are organized (Wu, 2016, pp. 265–8). While the US and the EU argue that these practices keep prices of Chinese products low and distort international trade, Chinese officials defend China’s economic regulation as compatible with WTO rules (Weinhardt & ten Brink 2020, pp. 266–7). In turn, Chinese officials criticized the heartland for legitimizing measures against Chinese imports with its ongoing treatment as a non-market economy (NME) initiating own anti-dumping proceedings with the EU and the US (Choukroune, 2012, pp. 52–3). While Chinese officials called for an acceptance of China’s SOEs and the legitimacy of state intervention following developmental and industrial policy goals within the WTO (Weinhardt & ten Brink, 2020, pp. 265–8), the US, the EU and Japan started a trilateral initiative to reform the WTO regulation of subsidies, SOEs and technology transfer alongside their interests. This was, however, blocked by China and other semi-peripheral economies. The track of record of the WTO’s Dispute Settlement Body rulings shows a pattern of ‘selective contestation’ (Weinhardt & ten Brink, 2020) along the same lines. While in general, China was largely complying or changed regulations even before a formal dispute (Zeng & Liang, 2013, pp. 145–8) and agreed to a traditional liberalization focusing on reducing tariffs, the Chinese state tended to contest the liberalization of behind-the-border issues. This applied above all to sectors that were central for the reproduction of the Chinese development model, domestic economic policy goals or national autonomy (Weinhardt & ten Brink, 2020, pp. 260–68). Outside the WTO, the Chinese state increasingly integrated into processes of global economic rule-making by concluding a growing number of FTAs with countries around the world (Ministry of Commerce, n.d.). In 2020, China together with 14 Asia-Pacific states also signed the RCEP, which came into force in 2022. With its member states accounting for around 30 percent of the global trade, the RCEP is the largest free trade area. While the FTAs concluded by China aim at securing a stable market and supplies of raw materials and intermediate products (Tay, 2010, p. 35), the approach differs from most Organisation for Economic Co-operation and Development (OECD) countries. The FTAs negotiated by China focus on reciprocal reduction of tariffs and the facilitation of cross-border trade in goods while systematically lacking clauses on labor standards. The more recent agreements also include investment and the service sector, albeit to a rather limited extent. Moreover, the Chinese government uses FTAs to enforce the recognition of the One China policy1 as well
Chinese capitalism and the global economic order 239 as China’s status as a market economy, directed against China’s NME treatment by the Quad (Tiezzi, 2018, pp. 41–53). A specialty of the RCEP is the support of the reorganization and deepening of regional supply chains. In bilateral treaties, especially with Latin American and African economies but also in the context of the BRI, China tended to negotiate agreements that are linked to investment agreements and contracts on long-term commodity supply. The network-oriented strategy supports the creation of an infrastructure of production, trade, and investment (Schmalz, 2018, p. 34). This is supported by the Chinese export-credit regime, conflicting with and undermining OECD regulations (Hopewell, 2021). In 2017, the Trump administration turned to an aggressive strategy to enforce an opening of Chinese markets and their adjustment to market-liberal rationales, leading to an escalation in global trade conflicts. The US government introduced high punitive tariffs, partly considered illegitimate by the WTO, and sanctions against Chinese companies, such as supply bans or depriving them of market access. This was also motivated by domestic policies. However, the strategy was not successful. The Chinese government reacted by also installing punitive tariffs and did not fundamentally shift its economic regulation on the contested fields. Despite the Phase 1 Agreement signed in 2020, most tariffs remain effective in 2022 and China did not meet the negotiated increase in US imports (Scherrer, 2022). Altogether, China’s impact on the hegemonic nexus of regulating global trade is ambivalent: on the one hand, China’s considerable adaptation to WTO regulations, its active participation within the WTO, and far-reaching compliance with existing WTO regulations mirror the heartland’s successful expansion of the generalization of the free trade regime. This is especially true for the traditional liberalization approach focusing on reciprocal tariff reduction and also applies to China’s strategy to regulate trade outside the immediate reach of the WTO. On the other hand, however, China’s selective rejection of liberalizing behind-the-border issues, the demand to accept the regulation of its SOEs or export credits, or the request for the legitimacy of developmental and industrial policy goals reflect not only China’s resistance to being incorporated in and its contestation of the ‘deep’ approach to trade liberalization. With China becoming a central player in global trade and increasingly also in trade regulation, there has been a partial transformation of the hegemonic nexus: against the background of growing economic competition, conflicts over the global regulation of trade increased while the capacities of the heartland’s trade-related regulatory initiatives within the WTO and further liberalization of behind-the-border issues became restricted. This contributes to a deepening of the already existing blockade of the WTO and the fragmentation of the universalist approach to trade regulation, which is further fueled by the heartland’s shift to regional FTAs and the aggressive trade policies of the US. At the same time, the Chinese state’s trade-related regulatory strategies are increasingly inscribed into the patterns of global economic regulation. China’s Integration into the Regulation of Global Finance While China’s outward-oriented economic strategy was based on the DWSR from the very beginning, China continuously deviated from its rules – for example, by maintaining capital controls or the regulation of the renminbi (RMB) as a central feature of its development model. Against the background of the global crisis, the Chinese state started to actively engage in the regulation of global finance. On the field of global monetary relations, the Chinese state actively stabilized the dollar-based order during the global crisis, started to engage in different fora of global monetary regulation,
240 Handbook on critical political economy and public policy such as the IMF and the G20, and supported their initiatives to counter the crisis (Simon, 2019, pp. 285–9, 364–74). At the same time, Chinese representatives offensively criticized the dollar-based monetary order and US monetary policies and proposed reforms – for example, introducing a more multipolar monetary system by strengthening the IMF’s special drawing rights as a supra-sovereign reserve unit (Zhou, 2009). However, the initiatives failed due to the blockade of the G7 and its allies (Chin, 2014; Simon, 2019, pp. 285–302). As a reaction, the Chinese government focused on the internationalization of the RMB to reduce its dollar dependency. Despite increasing pressure to adapt to market-based regulation, the Chinese state used a unique, policy-driven strategy of an offshore internationalization of the RMB without fully abandoning the regulation of the RMB exchange rate or the capital controls. It focused on a selective and controlled expansion of possibilities for cross-border capital flows and foreign investment, a RMB-based trade policy, and the development of an RMB offshore market (McNally, 2015). To achieve the inclusion into the IMF’s basket of currencies, effective in 2017, the Chinese state initiated gradual monetary policy reforms including concessions to the IMF’s demands to move to a more market-based determination of the RMB exchange rate (People’s Bank of China, 2015; Simon, 2019, pp. 308–15). In 2021, China systematically anchored the use of home currencies in FTAs or investment treaties and developed a financial infrastructure that enables the settlement of RMB-based transactions. The RMB ranked third in trade finance market with a 2 percent share while the US dollar ranked first with 86.6 percent. As a global payment currency, the RMB ranked fourth with 2.7 percent, while the US dollar ranked first with 40.5 percent (SWIFT, 2021). While its relative share remained low, the RMB expanded significantly in international trade and China increasingly trades in its own currency, circumventing the US dollar. In Asia, the RMB developed into the second most important reference currency after the US dollar. The emergence of a new RMB-led currency bloc in Asia is also being discussed (Eichengreen & Lombardi, 2017, p. 43). While the heartland was clearly able to reproduce the hegemonic configuration of global monetary relations, and the regulation of China’s domestic finance gradually transformed towards an increasing role of market mechanisms, the Chinese state rejected outright incorporation into DWSR’s regulatory approach, and reduced China’s dollar dependency by RMB internationalization, leading to a relative pushback of the role of the US dollar in global trade, especially within Asia. In international organizations of global finance, the Chinese state also moved towards active integration after the outbreak of the crisis in 2008. In the IMF, China considerably increased its financing beyond its formal obligations and supported the IMF’s measures to contain the crisis while trying to reach endogenous reforms – for example, by pushing the IMF voting-share reform (Simon, 2019, pp. 285–302). After the US Congress abandoned its blockade, China increased its formal power and now holds around 6 percent and the BRICS countries (Brazil, Russia, India, South Africa, including China) 14.5 percent of the total voting shares (IMF, 2021, p. 17). Although the US maintained its veto power, important semi-peripheral economies are now able to form their own veto bloc if they include other allies. Also, the Chinese government started to use the fund as a policy forum problematizing rules of the IMF and in a wider sense also the DWSR. While the US representatives, in particular, increased the pressure to introduce a more market-based monetary policy and liberalize its capital to account within the IMF or the G20 (Chin, 2014, p. 195ff.; Simon, 2019, pp. 302–14), the Chinese government allied with other semi-peripheral economies to propose a more multipolar monetary
Chinese capitalism and the global economic order 241 system and argued for the legitimacy of capital controls and monetary policies oriented on macroeconomic goals (see above). During the blockade of the IMF reform, the Chinese state shifted to a strategy of creating alternative organizations and mechanisms outside the existing governance structures shaped by the heartland: China pushed the institutionalization of the BRICS Forum, the founding of the New Development Bank (NDB) and the AIIB. Within the heartland, this was interpreted as competition to the Bretton Woods Institutions (BWIs). In 2021, the AIIB has more than 80 members and focuses on promoting infrastructure projects and regional financial cooperation especially in Asia and Eurasia. China has the largest share of voting rights and a blocking minority (AIIB, 2016). While governments of the heartland became involved in developing the institutional design of the AIIB, the Chinese state succeeded in placing its interest in infrastructure investment and its credit-based financing on a multilateral footing while assuming a leading position in the organization and institutionalizing economic policy rationales of China’s development model. These include a focus on infrastructure investment, the acceptance of capital controls, regulated currencies, and a prominent state role in the projects to be financed. In addition, the AIIB supports the regionalization of the RMB and the diversification of Chinese assets and investment opportunities for Chinese companies (Simon, 2019, pp. 315–42). China’s active integration into the institutions of global finance thus led an incremental transformation of the hegemonic nexus. While the power relations within international institutions did not change fundamentally and China’s engagement during the crisis even contributed to a stabilization and legitimization of the IMF and the G20, the establishment of alternative international organizations institutionalized a terrain outside the immediate influence of the heartland and successfully integrated other (emerging) economies. It also institutionalized economic policy rationales of China’s mode of development and thereby changed the landscape of international organizations of global finance. This is related to China’s rise as international investor and creditor. The growing opportunities for cross-border capital flows, a state-supported internationalization of Chinese companies and diversification of investment away from the US led to an increase of and shift in capital flows from China. In 2019, China accounted for approximately 10 percent of global outward foreign direct investment (OFDI). The possibility of acquiring shares in ailing companies at favorable prices during the crisis supported the growing investment in European and US enterprises, especially in the logistics and infrastructure sector, but also in high-tech companies (Schmalz, 2019, pp. 26–8). China’s investment in Latin America, Africa, and Asia also continued to grow. Here, the commodities sector and infrastructure projects played an important role (China Power Project, n.d.). Of particular importance, however, is the BRI. Initiated in 2013, the project bundles the development of infrastructure, trade, and production networks in Asia, Africa, and Europe. The BRI reduces China’s dependence on traditional trade routes and supports the internationalization of Chinese infrastructure and investment policy (Hoering, 2018). Over the past decade, China has also emerged as one of the world’s most important donors in development finance with a policy approach that differs from that of the center. Central is the principle of non-interference in the political affairs of recipient states, as well as a focus on infrastructure development, China’s access to resources, and the expansion of sales markets for China’s export industry (AIDDATA, 2017; Bräutigam, 2011). China’s growing role as creditor and investor is supported by a range of political activities. Accompanied by a discourse on win–win options and soft power diplomacy, the Chinese state
242 Handbook on critical political economy and public policy supports OFDI through bilateral agreements and investment contracts of SOEs negotiated at the government level. The Chinese state and state-led banks also cooperate in developing financing mechanisms for which the Chinese state supports financing indirectly via guaranties and the creation of markets for the newly created instruments, while the capital is mainly provided by the Chinese interbank bond market (Chen, 2020). Together, these strategies established a new regime of international investment and development finance parallel to that of the heartland. The approach produced a material lock-in effect within the investment destinations, without pursuing deep integration with rules considered universally valid (Schmalz, 2018, p. 34). China’s international lending and investment exceeding that of the BWIs has led to implicit competition. China offers an alternative access to liquidity limiting the potential enforcement of market-liberal principles – for example, related to IMF loans and structural adjustment programs. Even though Chinese investment into the US and the EU accounts for a low share of their total inward FDI, China’s changing role also caused political conflicts and regulatory responses by the heartland. Several economies introduced systems to monitor Chinese investment, and the US government, partly also EU economies, increasingly blocked Chinese FDI, especially in the high-tech sector. The US and EU governments also established support programs to strengthen the competitiveness of domestic tech companies as well as large-scale financing projects to counter China’s role in infrastructure financing (Grieger, 2021; Schmalz, 2019, pp. 28–32), reflecting on the increasing competition and conflict over the forms of regulating global access to liquidity. Altogether, the political project of China’s integration into rule-making in global finance did not lead to a fundamental shift in the hegemonic nexus of the DWSR; the Chinese state even contributed to its stabilization during the global crisis. China’s support can largely be explained by the lack of alternatives and the structural power anchored within the DWSR. While the heartland’s strategy aimed at integrating the Chinese economy by asserting its adaptation to the principles of the DWSR, China’s rejection to do so, and the obvious attempts to change specific features of the DWSR, clearly mirror the limited success of the generalization of DWSR’s rationales with regard to the Chinese state. The central resource to withstand the pressure was the financial capabilities of the Chinese economy. They also formed an important basis for the strategy to establish parallel structures and arenas in global finance. While the success of the Chinese government to reform the DWSR from within was limited, the strategy of establishing parallel structures outside the immediate reach of the heartland caused a profound incremental transformation of the hegemonic nexus in global finance: the hegemonic structures have been complemented by new arenas and an alternative approach to regulate the access to liquidity linked to the Chinese development model and related economic strategies and interest. With China’s growing importance in global investment and lending, this resulted in a tendential fragmentation of the regulative hegemonic nexus in global finance.
CHINA’S IMPACT ON GLOBAL ECONOMIC REGULATION Albeit the political projects of China’s integration into global economic rule-making clearly impacted the economic order and its regulative hegemonic nexus, their analysis showed that the Chinese state neither pursued a grand strategy to overthrow the market-liberal economic order nor did China’s rise lead to its fundamental transformation. On the contrary, China’s increasing integration into the global economy, its adaptation of its rules and involvement in
Chinese capitalism and the global economic order 243 global economic rule-making resulted in an expansion of capitalism and globalization dynamics as well as the reproduction of the prevailing economic order on both fields analyzed. This can largely be explained by the impact of the pre-structured terrain of the market-liberal global economic order and the structural power and constraints inscribed in it. However, interests of Chinese capital factions and those within the Chinese state to pursue the Chinese mode of development and related economic strategies based on the market-liberal global economy also played a crucial role. This was particularly evident with regard to China’s approach towards global trade. However, a shift in the reproduction of global capitalism becomes visible: the Chinese economy has not only developed into a gravity pole for global accumulation, but also profoundly impacted the hegemonic nexus of global economic regulation below the level of the historic bloc. While the strategy of the heartland’s power bloc aimed at integrating China into the global economic order, and further generalizing market-liberal rationalities, the outbreak of the crisis in 2008 can be interpreted as a critical juncture for the integration strategy of the Chinese state. It not only integrated into the existing fora of global economic rule-making actively and showed an own agenda to reach reforms. The Chinese state also developed a second track of integration by establishing parallel structures, institutions, and an alternative investment and lending regime linked to the Chinese development model and related economic strategies outside the immediate reach of the heartland – often in cooperation with other (semi-)peripheral economies. While the attempts to reform existing institutions had a limited impact, China’s parallel strategy of establishing alternative governance mechanisms has been profoundly transforming the landscape of global economic regulation. China’s state-mediated integration strategy developed a network of regulatory infrastructures for production, trade, and investment that was stabilized by a material lock-in effect (Schmalz, 2018, p. 34) and also created new dependencies within the (semi-)periphery. The regulatory rationalities of the Chinese mode of development and the related accumulation strategies became inscribed in the global economy and its regulation. Besides the emergence of new institutions and regulatory regimes organized along the rationales of China’s mode of development, the shifts led to more limited rule-making capacities of the heartland within the WTO and the deepening of its already existing blockade, and also limited the heartland’s structural power – for example, to impact the regulation of other economies through the IMF’s role as the lender of last resort or to regulate export credit via the OECD. At the same time, the scope and proclaimed universality of market liberalism has become limited as the approaches to economic governance promoted by the Chinese state have gained importance and present an alternative – for example, in (regulating) the access to liquidity. These shifts result in a more conflict-ridden, fragmented, and multipolar regulative nexus. The conflicts over different approaches to regulate the global economy accompanied by these dynamics, as reflected in the recent trade disputes or the shift to a more aggressive approach in asserting trade and investment-related interests of the US and European companies in opening Chinese markets and hampering its high-tech catch-up strategy, cannot be explained by a Chinese exceptionalism disturbing a generally desirable market-liberal order. From a power-sensitive perspective of international political economy (IPE), such a view follows the generalization of the market-liberal order as universally valid, othering alternative approaches. It renders invisible that different approaches in organizing capitalism are linked to power relations, dominant accumulation strategies, and powerful economic interests within the respective state–civil society complexes. Rather, the current conflicts mirror power struggles
244 Handbook on critical political economy and public policy for the generalization of regulative interests against a background of changing global competition dynamics between different ways of organizing capitalism. Free movement of capital, market access, and the possibility of unimpeded engagement abroad are central prerequisites of the accumulation strategies of leading capital factions of the heartland. However, these regulative approaches are conflicting with regulative strategies of the Chinese state and other (semi-)peripheral economies that aim at supporting domestic accumulation, pursuing developmental and economic policy goals and catching up in global competition. The regulation of the capital account and domestic financial relations, the (regulatory) support for (state-owned) enterprises and an active industrial and technology policy, or a controlled internationalization are central elements for China’s mode of development and related accumulation strategies – but limit the expansion of heartland’s capital. The tension of the competing regulatory rationales is accompanied by increasing geoeconomic and geopolitical competition. We are in a phase of a restructuring of global capitalism. What the competing approaches share, however, is the surge for securing profitable accumulation for (domestic) capital.
NOTE 1. The One China principle reflects the position that there is only one China, which includes the Chinese mainland, Hong Kong, Macao, and the Republic of China (ROC) – as opposed to two states, the PRC and the ROC.
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17. Taming dollarization hysteresis: evidence from post-socialist countries Ia Eradze
Dollarization has a long history, and it is widely spread among developing countries. Financial dollarization refers to the replacement of the functions of a national currency (NC) by another currency, where the dollar is used as a general term for all the foreign currencies (FCs). Dollarization can be expressed in terms of currency and asset substitution, where an FC is either used for exchange or savings and lending (Levy-Yeyati, 2006, pp. 63–4). Dollarization has been one of the top policy challenges in the post-Soviet space, as well as Central and Eastern European (CEE) countries since the 1990s. It not only increases financial risks for numerous households and firms, who borrow in FC, but it also hinders the economic development and wealth creation in the NC, while restraining the function of the central bank as a lender of last resort, increasing liquidity risks and limiting monetary sovereignty of dollarized states. Even though post-socialist economies differ in terms of economic and political structures, and historical and cultural preconditions, one can observe a common trend, the roots and trajectory of dollarization. This chapter focuses on one common pattern of dollarization in this region – FC lending to households. The domination of foreign-owned banks and their access to hard currencies such as the dollar and the euro has encouraged lending in FC, especially towards households (mostly mortgages and consumer loans), which led to a credit boom and rising debt of unhedged borrowers in euros, US dollars or Swiss francs. After the financial crisis of 2008, CEE countries started to implement de-dollarization policies than were mostly directed at the stronger regulation of banks and their lending policies, empowerment of borrowers through financial education and legal changes, as well as attempts to develop local currency markets to reduce the dependence of banks on foreign financing. However, these policies have not turned out to be very effective, and dollarization still remains a challenge in the region. In 2016, loan dollarization reached 70 per cent in Serbia, while it exceeded 60 per cent in Croatia and was around 60 per cent in Belarus and Albania (International Monetary Fund [IMF], 2019a, p. 3). While the share of FC debt among the total debt was 16 per cent in the euro area in 2014, this indicator reached almost 50 per cent for the CEE countries (Kolasa, 2021, p. 2). Successful de-dollarization policies have a high relevance for dollarized countries. Therefore, this chapter engages with two inter-related questions: why does dollarization persist and how can the political economic conceptualization of dollarization contribute to de-dollarization policies? The persistence of dollarization is a well-known phenomenon, which has been referred to as dollarization hysteresis in the academic literature. It is mostly perceived as a direct result of macroeconomic and financial instabilities, and it is expected to decline after the improvement of the macroeconomic situation. Yet, this assumption has been proved to be false over recent decades (Havrylyshyn & Beddies, 2003; Oomes, 2003; Uribe, 1997; Valev, 2007; Winkelried & Castillo, 2010). Common explanations of dollarization hysteresis remain trapped within the logic of neoclassical economics. The dominant literature identifies such major factors as 247
248 Handbook on critical political economy and public policy inflation, network externalities and under-development of the financial system as reasons for the persistence of dollarization. These explanations are reflected in de-dollarization policies, as well. This chapter argues that the disregard of historical, political, social and cultural issues, as well as the importance of the positioning of dollarized economies and their currencies in the global hierarchy, hinders the understanding of dollarization and accordingly constrains the success of de-dollarization policies. Therefore, this chapter engages with the methodological critique of the dollarization literature, and develops an alternative analytical framework, which conceptualizes dollarization within a peripheral state theory. The state and state institutions appear in terms of their regulatory role in the dollarization debate only. Yet, the state is not just an external factor that interferes in monetary affairs from time to time, but is also the vessel for currency relations. Such a conceptualization of dollarization helps to unravel currency-related power relations and struggles on national and global levels, which are embedded within political and socioeconomic historical structures. It also provides guidance for successful de-dollarization policies.
FOREIGN CURRENCY LENDING IN THE CEE AND POST-SOVIET COUNTRIES A high level of dollarization is a common issue in the post-Soviet and CEE countries. The roots of this phenomenon lie in the early transition policies, which were in line with the requirements of the Washington Consensus: abolishment of restrictions on currency convertibility, liberalization of interest and exchange rates, privatization of former state banks and the emergence of new types of commercial banks (Buiter & Taci, 2003, p. 14), as well as the opening of capital accounts. The liberalization of balance of payments and increased capital inflows drove these economies into import dependency and made exchange rates of national currencies vulnerable to trade shocks (Gabor, 2010, p. 819). Thus, most countries in the region turned out to be dependent on imports, foreign capital and FC. Moreover, the idea of a minimal state within the transition paradigm and the retreat of the state from social spheres such as health, education or housing led to the increased demand for household loans. For example, ‘the tightening of eligibility criteria for housing subsidies in Hungary in 2004 is believed to have induced consumers to switch to cheap foreign currency loans’ (Rosenberg & Tirpák, 2008, p. 10). Unofficial dollarization limits the monetary sovereignty of dollarized countries, weakens the power of local central banks as a lender of last resort, disables the usage of exchange rate as a policy tool (for example, boosting exports through currency depreciation), creates barriers for the development of local economies, hinders the accumulation of wealth in NC, increases risks of financial crisis and makes households, firms and governments vulnerable to exchange rate fluctuations. Even though the region is rather diverse economically and politically, one can still identify common trajectories and driving forces of dollarization. While the dollar has played an important role in many post-Soviet states, euros and Swiss francs have been prominent in the CEE, where, by 2007 more than half of the loans and around 40 per cent of savings were denominated in FC. Even after the financial crisis and the depreciation of local currencies, retail loans in FC did not decrease significantly (Brown, Kirschenmann & Ongena, 2014, p. 1502), CEE states experienced rising loan dollarization in the early 2000s.
Taming dollarization hysteresis: evidence from post-socialist countries 249 For example, in Bulgaria, from 2000 to 2004, FC deposits were declining (from 54 per cent to 43 per cent), while loans in FC were on a rise (from 35.5 per cent to 47.6 per cent). The same trend took place in the same time period in Romania (Duenwald, Gueorguiev & Schaechter, 2005, p. 8). Thus, FC loans have led to rising levels of dollarization in the region (Rosenberg & Tirpák, 2008, p. 4). One of the key factors that explains the rise of FC lending is the presence of foreign-owned banks (Duenwald et al., 2005; Mihaljek, 2007), and commercial banks dominate the region’s financial markets (Bonin & Wachtel, 2003, pp. 7–9). Not just transition countries but also developing countries experienced a significant increase in the share of foreign-owned banks, from 24 per cent to 46 per cent between 1995 and 2009 (Beck & Brown, 2015, p. 467). From the end of the 1990s, international organizations such as the IMF and the World Bank called for the presence of foreign-owned banks to improve the performance and stability of the financial sector (Stein, 2010, p. 270). During the transition, introduction of good governance and banking practices was one of the main reasons for selling banks to foreign investors. By 2013, more than 50 per cent of bank assets were in foreign ownership in the CEE, while in some states (Estonia, Albania, Croatia, Macedonia) almost all domestic banks were taken over by foreign investors (Škarica, 2014, p. 46). Austrian, Italian, Belgian, French and German banks are most present in the region (Beckmann, Roitner & Stix, 2015, p. 25). In some cases, international institutions and development banks such as European Bank for Reconstruction and Development (EBRD), International Financial Corporation (IFC), Dutch Entrepreneurial Development Bank (FMO), and Deutsche Investitions- und Entwicklungsgesellschaft (DEG) also appear as major shareholders of local banks (for example, in Georgia; European Investment Bank [EIB], 2013, pp. 7–8). The domination of foreign-owned banks in transition economies led to mass lending to households in FC since the early 2000s (Backé & Zumer, 2005, p. 94; Beck & Brown, 2015, pp. 467–8; Duenwald et al., 2005, p. 3; Enoch, 2007, pp. 3–7; Sõrg & Tuusis, 2009, p. 4). FC lending was mostly financed by the international interbank market and not with local savings (Buszko & Krupa, 2015, p. 125; European Central Bank [ECB], 2010, p. 162). Capital inflow from abroad – encouraged by high global liquidity and low interest rates, as well as the expectation of EU membership – stimulated credit booms in FC in the CEE in the beginning of the 2000s (Duenwald et al., 2005, p. 13). A similar trend unfolded in post-Soviet countries a while later. For example, in Georgia, the credit boom and mass lending to households in FC started in 2005 and resulted in the over-indebtedness of households by 2015 (IMF, 2015, p. 18). Along the deregulation of financial markets, the guarantee of stable exchange rates by currency boards (for example, in Bulgaria or pegged exchange rate in Ukraine) and interest rate differentials between national and FC loans encouraged borrowing in FC (Backé & Zumer, 2005, p. 94; Duenwald et al., 2005, p. 14). Moreover, FC lending has been stimulated not only through carry trade activities of foreign-owned banks, but also by securitization. A case study of FC loans of Bulgarian small firms demonstrates that banks preferred to issue euro loans (especially long-term loans) to make them eligible for securitization. The study also revealed that around one-third of FC loans of these firms were requested in a local currency, but securitization motivated banks to issue loans in FC instead (Brown et al., 2014, pp. 1503–4). Aggressive lending by European banks also contributed to the credit boom (Smith & Swain, 2009, p. 3). Unhedged household borrowers were often not informed about interest rate risks related to exchange rate fluctuations (Barrel et al., 2009, p. 12; Enoch, 2007, p. 9; Mihaljek, 2007, pp. 277–9), and currency risks were shifted towards borrowers (Józon, 2015, p. 87).
250 Handbook on critical political economy and public policy Most loans were composed of mortgages (Beck, Kibuuka & Tiongson, 2010, p. 2). In Poland, Romania and the Baltic States, household debt in FC was increasing faster than that of the corporations until the financial crisis (Rosenberg & Tirpák, 2008, p. 6). Before adopting the euro, Estonia and Latvia demonstrated very high shares of FC loans for households, 85.2 per cent in 2010 and 88.8 per cent, respectively, in 2013 (Kolasa, 2021, p. 33). By 2010, more than 80 per cent of private sector loans in Belarus, Latvia and Serbia were in or linked to an FC, and in Bulgaria, Hungary and Romania were only slightly lower (Brown & De Haas, 2012, p. 59). Before adopting the euro, countries like Estonia and Latvia demonstrated very high shares of FC loans for households, 85.2 per cent in 2010 and 88.8 per cent, respectively, in 2013 (Kolasa, 2021, p. 33). The household debt constituted 32.56 per cent of gross domestic product (GDP) in Hungary in 2012, of which FC loans were 18.5 per cent of GDP. Hungarian households with a mortgage were spending 19 per cent of their income on loan payments (Józon, 2015, p. 85). In Georgia, around 30 per cent of retail borrowers spent more than half of the income on serving loans in 2015 (IMF, 2015, p. 18). Rising lending in FC and, accordingly, dollarization, created threats to macroeconomic instability (Backé, Égert & Zumer, 2006, p. 112), inflation, negative impacts on international competitiveness of exports, and damage to trade balance in the region. Yet, the growth of demand for credit was often framed as a ‘natural’ development (Detragiache, Tressel & Gupta, 2006; Duenwald et al., 2005; Kiss, Nagy & Vonnák, 2006; Sõrg & Tuusis, 2009) or contextualized within the framework of democratization of finance (Erturk et al., 2007) and financial deepening (Beck et al., 2010, p. 3), and the threat of increasing dollarization was underestimated.
DOLLARIZATION DEBATE Dominant approaches to dollarization – a portfolio view, a market failure view and an institutional view – explain the phenomenon through the decisions of rational agents, market imperfections and improper regulation, as well as the quality of institutions (Levy-Yeyati, 2006, pp. 82–3). These approaches offer a limited scope of understanding of dollarization, as they assume that actors are rational and markets are efficient. The dollarization literature treats actors as a homogeneous group, not as persons with diverse rationalities (Winkelried & Castillo, 2010, p. 1598) who are supposed to be perfectly informed about the possible risks and returns of their portfolios and make currency choices accordingly. A further methodological issue of the dollarization literature is the focus on deposit dollarization (for some exceptions, see Geng, Scutaru & Wiegand, 2018; Luca & Petrova, 2008; Naceur, Hosny & Hadjian, 2015; Winkelried & Castillo, 2010). However, deposit and loan dollarization do not always match (Geng et al., 2018, p. 4). It has been empirically proven that foreign ownership of banks and lending in FC strongly encourage loan dollarization in the CEE as well as in the post-Soviet space (Basso, Calvo-Gonzalez & Jurgilas, 2011; Luca & Petrova, 2008). Government debt in FC, and the issue of ‘original sin’ – that is, borrowing in foreign currencies (Eichengreen & Hausmann, 1999) – also make dollarization inevitable for developing countries (Priewe & Herr, 2005, pp. 167–8). Most dollarization studies are rather economistic with quantitative empirical premises and positivist epistemology (Kubo, 2017; Ozsoz & Rengifo, 2016; see Eradze, 2022, p. 12). Even though the institutionalist view integrates the role of institutions into the analysis, it is still limited to the economic institutions. Dollarization’s persistence – so-called hysteresis – is the
Taming dollarization hysteresis: evidence from post-socialist countries 251 best manifestation of these shortcomings. It remains puzzling why dollarization persists after macroeconomic and financial stability is achieved (Havrylyshyn & Beddies, 2003; Winkelried & Castillo, 2010). Theoretical approaches to dollarization’s persistence can be clustered into two groups: models where inflation rate or its volatility plays a key role and those that are based on network externalities. Even though these models offer heterogeneity of actors and asset portfolio diversification (Winkelried & Castillo, 2010); transaction costs (Guidotti & Rodriguez, 1991); lack of confidence in local currency in the long term (Havrylyshyn & Beddies, 2003); negative past experiences of inflation and crisis (Winkelried & Castillo, 2010); network externalities in currency usage (Oomes, 2003; Valev, 2007); the rate and volatility of inflation (Brown, De Haas & Sokolov, 2017; Duffy, Nikitin & Smith, 2006; Ize & Yeyati, 2003); fear of depreciation (Feige et al., 2003); and under-development of the financial system as reasons for dollarization persistence, they do not provide a comprehensive explanation for the ‘hysteresis’. Gaps in the understanding of dollarization are also reflected in de-dollarization policies. Macroeconomic and financial stability is widely seen as a solution in the literature (Levy-Yeyati, 2006; Naceur et al., 2015). As effective de-dollarization measures, scholars also suggest the creation of future foreign exchange markets for banks to hedge against the exchange rate risks (Luca & Petrova, 2008, pp. 868–9), the introduction of reserve requirements for both deposits and loans in FC, as well as interest rate ceilings for loans in domestic and foreign currencies (Havrylyshyn & Beddies, 2003, pp. 352–3). Some authors argue for the prohibition of deposits in FC (Aslanidi, 2008; Havrylyshyn & Beddies, 2003). Measures such as capital controls and forbidding FC loans are considered effective, ‘but clearly undesirable’, as it could lead to capital flight (Havrylyshyn & Beddies, 2003, p. 352). These de-dollarization policies are in line with suggestions of the IMF for the dollarized countries in the region: prudential regulation for banks (through reserve requirements), flexible exchange rates, and central bank liquidity management, fiscal consolidation, public debt management and the development of a local currency bond market (IMF, 2019a), as well as the ‘unbiased taxation of foreign currency instruments’ (Horton et al., 2016, p. 28). Finally, confidence-building towards the NC is perceived as one of the central factors of successful de-dollarization (Stix, 2013, p. 4094; see Eradze, 2022, pp. 11–13). Thus, most de-dollarization policies focus on macroeconomic stability through introducing new regulations on FC loans and deposits, fiscal consolidation and increasing trust in the NC. However, these approaches are underestimating the importance of the fundamental structural change, readiness of the political and civil societies to de-dollarize, re-thinking of central bank mandates, dependence on foreign capital, global currency hierarchy, and the functioning of the accumulation regime.
A POLITICAL ECONOMIC CONCEPTUALIZATION OF DOLLARIZATION The state is usually missing in the economic models of dollarization, and if it enters the debate then it should only be in terms of the prudential regulation. Yet, national currencies have been historically entangled with nation-states, and they have been used as a tool of governance and communication (Cooper, 2009; Gilbert & Helleiner, 2011; Helleiner, 1998, 2011). Therefore, an analytical linkage between dollarization and the state draws on the historical interconnect-
252 Handbook on critical political economy and public policy edness of nation-states and the national currencies. The state is both a context and a structure, where a currency takes shape. Moreover, the state has an agency – expressed in various forms on different levels of action – and it should not be reduced to its monetary power (Eradze, 2022). Furthermore, the meaning and power of currencies depends on their positioning in the currency hierarchy, and also in global power relations, where both state and non-state actors participate. Even though it is crucial to acknowledge global power asymmetries in monetary affairs (Helleiner, 2008; Strange, 1971b, 1971a), it is misleading to view states and (financial) markets as opposite categories (Wullweber, 2020). Therefore, the analysis of dollarization in this chapter is not guided by the question – how much power do national governments have in currency affairs against the global pressures? (Cohen, 2011; Hayek, 1990; Robinson, 2009; Strange, 1996). The aim is rather to show the entanglement of states with currency relations, where a state is simultaneously an actor and a terrain for currencies to be produced and reproduced. The state is conceptualized here within a peripheral perspective of the state (Becker, 2008; Bohle, 2018), drawing on the regulation school and dependency theory. The state is understood as a social power relation – embedded in production and other types of social relations. The regime of accumulation and the state are entangled and mutually dependent on each other (Becker, 2008, p. 10). ‘Each regime of accumulation represents a distinct pattern of economic evolution which…is relatively stable… Each mode of regulation is constituted by a historically developed, relatively integrated network of institutions, [that] governs the accumulation process’ (Brenner & Glick, 1991, pp. 47–8; original emphasis). The concept of regulation dispositive broadens the meaning of the mode of regulation, where dispositive is ‘a thoroughly heterogeneous ensemble consisting of discourses, institutions, architectural forms, regulatory decisions, laws, administrative measures, scientific statements, philosophical, moral and philanthropic propositions’ (Foucault, 1980, p. 194; on regulation dispositive, see Becker, 2002, p. 277). Moreover, a successful regulation is not intentionally created by the capital or the state, but through hegemony, which is neither independent nor completely determined from societal structures. The logic of capital accumulation is embedded in social struggles. These hegemonic struggles underlie the mode of regulation along with other social relations (Brand, 2005, pp. 31–4), and take place simultaneously on local and global levels, where currency-related struggles are also embedded (Scherrer, 2011). An important terrain for these relations is a civil society, where struggles take place ‘over social norms and over the pre-formation of legal norms and forms of state intervention’ (Becker et al., 2010, pp. 226–7). The concept of peripheral state highlights the asymmetry of power relations between the Global North and the Global South, which is reflected in the currency hierarchy, as well. Most dollarized countries are peripheral economies that struggle with a myriad of dependencies on the core – technologies, know-how, goods and services, capital and hard currency. Therefore, most of these states face challenges of trade and current account deficits (Becker, Jäger & Weissenbacher, 2013). Import dependent accumulation regimes, referred to as passive extraversion in the regulation theory, require foreign capital to deal with the mentioned deficits. This explains the domination of foreign-owned banks in the CEE and post-Soviet space, where local economies and financial systems are dependent on foreign capital. These banks enjoy easy access to international money markets via parent banks and engage in carry trade; they borrow money in hard currency at low interest rates, and issue loans in FC at higher interest rates, without bearing exchange rate risks. Yet the increasing foreign debt (mostly denominated in FC) leads to further increase of the level of dollarization, and enables creditor coun-
Taming dollarization hysteresis: evidence from post-socialist countries 253 tries or organizations to shape their political and economic policy field via debt-restructuring programmes (Becker, 2008, p. 14; see Eradze, 2022, pp. 20–26). As the dependence on foreign capital is one of the key common patterns of dollarization in post-socialist economies, the issue cannot be solved through strict rules on FC loans and deposits only. The reasons for capital scarcity in national economies, underdevelopment of production base (in post-Soviet economies), political instabilities (that have spillover effect on the trust placed in the central bank and the NC), negative historical experiences with hyperinflations, improper housing policies within neoliberal states (that triggers demand for mortgages) cannot be tackled through local central bank regulations in the economies with liberalized capital accounts and floating exchange rate regimes. Conceptualization of dollarization within a state theory opens up new terrains of analysis of dollarization hysteresis beyond central bank or government regulations. A political economy understanding of dollarization helps to identify the long-term and sustainable de-dollarization policies, which can be embedded within institutional changes, accumulation regime and its mode, political and civil societies, as well as global power dimensions.
DE-DOLLARIZATION POLICIES The financial crisis of 2008 was a turning point in terms of de-dollarization policies in the CEE countries. Yet, in some post-Soviet states, like Georgia, it took longer until dollarization was acknowledged as an issue (after the currency crisis of 2015). While in 2004 hardly any policies were designed to decrease FC borrowing in Czech Republic, Estonia, Hungary, Latvia, Poland, Slovakia, Slovenia, Bulgaria, Croatia and Romania, in 2007 half of these countries (Czech Republic, Hungary, Latvia, Romania, Croatia) had started to monitor foreign exchange risks in loans and also increase reserve requirements for FC for the banks (Latvia, Romania, Croatia) (Rosenberg & Tirpák, 2008, p. 11). Even though Bulgaria, Romania and Ukraine tried to tackle the credit boom already before the financial crisis through tight fiscal policies, prudential regulation, interest rate hikes, stricter rules for households to access loans in FC (e.g., stricter requirements for a collateral), increased reserve requirements on FC liabilities for banks, these measures were not effective. Interest rate hikes led to further increase in loans in FC due to lower inflation and increased capital inflows (Duenwald et al., 2005, pp. 28–9). While Latvia, Estonia, Slovenia and Slovakia overcame the issue of dollarization by adopting the euro, in countries like Serbia, Bosnia Herzegovina, Romania and Bulgaria the share of FC loans did not decrease between 2006 and 2015 (Geng et al., 2018, p. 4). Table 17.1
De-dollarization policies
Empowerment of Borrowers
Limitation of FC Loan Supply
LTV and PTI indicators
Increase of FX reserve requirements
Development of NC Money Resource Capital market reform
Financial education
Interest rate ceilings
Pension fund
Disclosure of exchange rate risks to
Price de-dollarization
Inflation targeting
Conversion of FC loans into NC
Prohibition of FC loans
Purchase of FC debt by the government
Higher risk weights for FC loans
Personal bankruptcy law
Monitor risks of FC lending
household borrowers
Ceiling for sanctions on delayed payments
Note: PTI = payment to interest; LTV = loan to value.
254 Handbook on critical political economy and public policy Common de-dollarization policies in the CEE countries and the post-Soviet space after the financial crisis can be grouped into three main categories: strengthening the rights of borrowers, limiting the supply of foreign currency loans, and developing local currency markets (Table 17.1). Thus, dollarized states tried to tackle the domination of foreign currencies through legal changes and macroprudential regulations without tackling the core issues, such as the responsibilities of the state or rethinking the mandate of the central bank. New laws were introduced in the frame of responsible finance, and consumer protection for the empowerment of borrowers. For example, Latvia issued a new personal bankruptcy law, while Hungary provided a guarantee for the repayment of mortgages for those who were struggling to service their debt. The Hungarian government started to work on a mortgage relief plan, so that borrowers would be able to increase the time of mortgage repayment by five years, without paying additional fees. Also, a bank solidarity tax was introduced for large banks that were mostly foreign owned (Brown & Lane, 2011, p. 40). Hungary started obligatory conversion of FC loans after the appreciation of the Swiss franc. The Hungarian government made banks convert FC loans (in Swiss francs) into the NCcal at an exchange rate that was below the market rate (Buszko & Krupa, 2015, p. 126). In 2013, the Polish financial authorities issued a recommendation to the banks, suggesting they should not issue FC mortgages to those who did not earn in an FC, which had a positive impact on reducing the level of dollarization of mortgages (Kolasa, 2021, p. 2). Georgia introduced a ceiling for annual effective interest rate on all loans (at 100 per cent) and a maximum penalty on delayed payments was defined (National Bank of Georgia, 2017a). Moreover, payment to interest (PTI) and loan to value (LTV) indicators were introduced for household borrowers in the frame of responsible finance (National Bank of Georgia, 2016, pp. 61–3). Financial education was also widely perceived as a de-dollarization policy (National Bank of Georgia, 2017b, pp. 15–17). Some other measures related to empowering borrowers include FC loan conversions into national currencies, or ‘purchase of debt by the state with the possibility of use and subsequent repurchase of the immovable by the debtor’ (Józon, 2015, p. 94). For example, in Georgia, a charity fund of the political leader Bidzina Ivanishvili bought the debt of hundreds of thousands of Georgians in 2018 who were blacklisted due to difficulties in repaying the loans (Civil.ge, 2018). Even though it is important to introduce consumer protection laws and regulations to limit aggressive lending to unhedged households in FC, these measures are a late reaction to the credit boom and in some cases to over indebtedness. Furthermore, getting the lending conditions right or providing more information to the borrowers on possible currency risks rests on the assumption that the choice to make on debt is solely a matter of the availability of the right kind of information (Duenwald et al., 2005; Detragiache et al., 2006; Kiss et al., 2006; Sõrg & Tuusis, 2009). This does not address the reasons for the increased demand for FC loans, such as unaffordable housing or health treatments. Moreover, loans in the NC remain expensive due to the underdevelopment of the local bond market and the lack of long-term savings in NC. The second set of de-dollarization policies aims to limit the supply of FC loans. Poland, Hungary, Latvia, Croatia, Kazakhstan and Romania decided to set strict rules on FC lending after the crisis, and obliged banks to disclose currency-related risks to customers (Brown & De Haas, 2012, p. 60). In Georgia, a floor was set for loans in FC, and FC reserve norms were increased by the central bank. Prices had to be announced in the NC and a special programme was launched to encourage real estate transactions in the NC (National Bank of Georgia, 2016, pp. 61–3). Countries like Hungary, Moldova and Ukraine went for more radical measures and prohibited certain loans in FC after the financial crisis. In Ukraine, households could not
Taming dollarization hysteresis: evidence from post-socialist countries 255 borrow in FC anymore. In Hungary, mortgages were forbidden in FC (Brown & Lane, 2011, p. 40). Belarus also banned household borrowing in FC for households in 2009. Moreover, differentiated reserve requirements on deposits in NC and FC, stricter rules for FC corporate lending, and limits for open foreign exchange positions were adopted. Despite achieving macroeconomic stability, low inflation, and increase in trust in the NC, the share of FC deposits in Belarus were still at the highest level (70 per cent) in the CEE, and lending in FC was around 60 per cent in 2016. According to the IMF, the country still lacks a national de-dollarization strategy, and the domestic capital market remains underdeveloped (IMF, 2019a, p. 3). In Armenia, strict rules were set on FC transactions, reserve requirements were adjusted asymmetrically for NC and FC liabilities, FC loans were attributed to higher risk weights and the monitoring on currency mismatches was also improved (Horton et al., 2016, pp. 29–30). In Serbia, the dinarization strategy of 2012 was updated in 2018 to tackle the issue of euroization. This strategy is based on three pillars: macroeconomic stability, development of the dinar bond market, and promotion of hedging instruments. Moreover, higher reserve requirements were set for deposits in FC and the society was informed about the risks of borrowing in FC, as well as the benefits of saving in NC. The government has increased the public debt share in the local currency through dinar securities at longer maturities. However, the level of euroization reached 67 per cent in 2019 (IMF, 2019b). Limiting the supply of FC loans might be effective for a short period, yet it does not address the core issues, such as the ownership structure of banks or the accumulation regime of dollarized countries, which remain dependent on foreign capital and imports in most cases. When banks are predominantly in foreign ownership, they are neither responsive towards central bank policy rates, nor sensitive to the overall macroeconomic developments in the country. Therefore, it is difficult to limit the FC loan supply in the long term if banks have access to the cheap money in FC; they usually continue mass lending even during the crisis. Moreover, current account deficits drive dollarized countries towards further indebtedness and national currencies, volatile to trade shocks. Here, the development of local capital markets can be helpful to reduce the dependence of banks on foreign funding. Even though the CEE countries started to put emphasis on these issues after the crisis (Brown & Lane, 2011, p. 40), the question is how exactly the local market will be developed and which specific measures will be deployed. For example, in Georgia, a set-up of a pension fund is perceived as an important measure for de-dollarization and the creation of long-term money resources in NC (Ministry of Economy of Georgia, 2017, p. 18). Yet the success of de-dollarization through such a policy is rather doubtful. The establishment of an investment fund, where the conditions of investments are not transparent, can encourage capital flight through investing abroad instead of creating long-term resources or the accumulation of wealth in NC. The above-discussed de-dollarization measures do not question institutional structures and do not lead to the re-thinking of the mandate and functions of such an important institution as the central bank. Quite the opposite, in several countries, the inflation targeting regime is considered as a way of de-dollarization (for example, in Armenia, Georgia, Kazakhstan and Kyrgyz Republic, with a high level of dollarization of around 60 per cent in 2014; Horton et al., 2016). Yet, there are no clear-cut results of empirical studies that would prove positive impacts of inflation targeting on de-dollarization (see Epstein & Yeldan, 2008; Lin & Ye, 2013). In fact, inflation targeting hinders de-dollarization as it obliges central banks to focus on price stability as their primary policy aim and the stability of the exchange rate becomes subordinated to the predefined inflation targets (Bonizzi, Kaltenbrunner & Powell, 2019;
256 Handbook on critical political economy and public policy Kaltenbrunner & Painceira, 2017). Therefore, one cannot expect successful de-dollarization policies from a central bank that does not primarily focus on the stability of the NC.
ALTERNATIVE POLICY OPTIONS: HOW TO DE-DOLLARIZE? Even though post-financial crisis de-dollarization policies were important, they did not address the core causes of dollarization and, most importantly, they did not question the neoliberal state. The de-dollarization discourse in the transition countries mirrored the blind spots of the dollarization literature. First, most of the policies were implemented as a reaction to financial crises, currency depreciations, or over-indebtedness of households and thus were reactive and not proactive. Second, regulations on FC lending are important, but legal changes and stricter rules are usually not sufficient for tackling dollarization, as they mostly address technicalities of lending and borrowing. These regulations do not lead to fundamental changes in institutions like technocratic central banks or rethinking of the state as a ‘watchdog’. They do not overcome import and FC dependency and thereby fail to strengthen the NC. Moreover, these policies do not address the root causes of the demand for loans: increased need of households to borrow for housing, education, or health issues due to the retreat of the state. Third, responsible finance and financial education is necessary, but not sufficient, as even financially educated borrowers might decide to borrow in FC as loans in national currencies are either too expensive or not accessible. Thus, even though strict regulations on FC lending are important to limit loan dollarization and, thereby, the vulnerability of firms and households to exchange rate fluctuations, these de-dollarization measures constitute just a temporary fix. Fourth, dollarization needs a solution on the global level to address the issues of the ‘original sin’, domination of foreign banks and dependency of dollarized countries on foreign capital. The role of the state is crucial in all the above-mentioned issues. Dollarization is, to a great extent, a product of ill-functioning states, which enable FC domination through deregulating financial markets. The neoliberal state’s denial of social responsibilities drives the demand for mortgages or loans for education and health. Therefore, if dollarization is perceived in political economic terms and conceptualized within the state theory, de-dollarization policies will go beyond the (re)regulation of banking. The state is not an outsider that solves the issue of FC domination through new laws, but changes will have to occur at the level of political and civil societies, within the accumulation regime, as well as in terms of global power imbalances. First, it is up to political and civil societies to acknowledge dollarization as an issue and debate its deeper causes. This implies a recognition of the importance of currency stability and its entanglement with political stability, as well as trust in government and state institutions. Furthermore, the government and political society groups can play a crucial role in enforcing structural institutional changes – for example, in rethinking the mission of the central bank – so that it will primarily focus on currency stability and consumer rights. Moreover, if the central banks of dollarized countries manage to overcome the pressure of inflation targets, unconventional central bank policies, such as quantitative easing, can be helpful for boosting the economic output and supporting the value of the NC. Second, changes in the accumulation regime are needed to tackle dollarization in the long term. Especially for import-dependent economies, it is crucially important to develop local production, reduce trade and current account deficits to decrease their dependence on foreign capital and strengthen their national currencies. Otherwise, import-dependent economies with
Taming dollarization hysteresis: evidence from post-socialist countries 257 current account deficits can hardly extricate from the dollarization spiral or reduce vulnerability to exchange rate fluctuations. Third, a rearrangement should happen on the global level. It is difficult to tackle the domination of FC in the context currency hierarchy, free capital flows and liberalized capital and currency accounts in developing countries. Therefore, dollarized countries should consider measures such as capital controls, which have been acknowledged lately as necessary by the IMF as well (Independent Evaluation Office of the International Monetary Fund, 2015, p. 16). A global coordination of the monetary policy is important, in terms of dealing with the implications of FC lending, as local monetary policy can affect FC lending only to a very limited extent (Ongena, Schindele & Vonnák, 2020). Moreover, the issues of the ‘original sin’ will be addressed on a global level, so that the developing countries have the possibility to borrow in their national currencies.
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PART V LABOUR
18. Global exploitation chains in agriculture Praveen Jha and Paris Yeros
Global agriculture has undergone a range of profound changes in its structure, composition and drivers during the post-World War II era. Since the early 1960s, global agricultural production has approximately tripled, driven in large measure by the so-called Green Revolution, which promoted technological packages of seed–water–fertilizer–pesticide combinations, accompanied by large-scale expansion of areas under cultivation. Despite these efforts, however, output expansion as well as access to food security, as defined by the Food and Agriculture Organization, has been quite uneven across the globe, with close to 800 million people reported to be chronically hungry, many more millions malnourished, and almost 2 billion suffering from micro-nutrient deficiencies. In other words, the trajectory of agricultural growth during the last half-century or so has been quite uneven, and large sections of the population in the Global South continue to be food insecure and vulnerable. Furthermore, the increase in aggregate output has come with massive costs to the overall natural environment, which is reflected in the erosion of biodiversity, depletion and contamination of sources of water, large-scale deforestation and soil degradation. It is obvious that an appropriate understanding of such vulnerabilities and developments must come to terms with the fact that the problem lies not in the technology per se, but in its embeddedness in deep-rooted structural and other critical changes at the global and national levels, broadly within the framework of the combined and uneven development of capitalism. We need to engage with these transformation trajectories to understand the changes in the nature of global agriculture and its outcomes; in particular, shifts in overall macroeconomic policy regimes, especially during the ascendency of neoliberalism since the early 1970s. Our focal concern in this chapter is with the significant acceleration of transnationalization of agricultural systems, with remarkable extension of supply, procurement and other channels along with intensification of the global division of labour, with respect to so-called backward and forward linkages. In other words, the structure of ‘farm to plate’ has been considerably globalized with new power equations, largely driven by big capital and agri-corporations. In fact, the big story in global agriculture for more than half a century, in particular during the last three decades, has been the phenomenal rise of corporate agri-businesses, from one end of the sector to the other, driven largely by the transnational corporations (TNCs), headquartered in the Global North. This is not only with respect to agriculture, of course, but also every important sector of contemporary capitalism. A dramatic restructuring of economic arrangements between the Global North and Global South has taken place through a reordering of the relations of production, trade, investment and employment. This is what analysts have often described as the ascendency of global commodity chains (GCCs). One of the core features of these so-called chains, as already mentioned above, is ever-growing transnationalization of economic activities and deepening of integration across the North and South in almost every sphere. As we have suggested elsewhere, ‘[e]ssentially, this restructuring of world economy implies that components of a single end-use commodity/final output are conceived, designed, produced, procured and processed in different parts of the globe, before being assembled together at 262
Global exploitation chains in agriculture 263 a specific destination for ultimate consumption, which again may have a global reach’ (Jha & Yeros, 2019, p. 15). This is, operationally speaking, the essence of what we conceptualize as global value systems (GVSs), which go by many other names in the contemporary scholarship such as GCCs, global supply chains (GSCs), global value chains (GVCs), or global production networks (GPNs). As with other major sectors, agriculture has been subjected to significant restructuring along the above-mentioned lines. Growing industrialization of agriculture and ascendancy of agribusinesses became quite prominent by the mid-20th century in advanced capitalist countries, where a process of profound global reach was already underway. This has gained further momentum during the ascendancy of neoliberalism since the 1970s. The current phase of capitalism is marked by an aggressive push by agribusinesses to integrate agriculture in the Global South on uneven and unequal terms; such a development is best contextualized as the strengthening of imperialism, one of whose hallmarks is financialization of accumulation. Neoliberal globalization through its multiple strategies and processes – in particular, the ascendancy of finance capital and deepening of transnationalization driven by large corporations – has impacted on petty producers and smallholder farmers in every part of the world, especially in the Global South, in a range of adverse ways. At the heart of the process of adverse incorporation of agriculture at large in the Global South is the system of increased value capture by TNCs, mostly headquartered in the Global North. This chapter engages with some of these core issues pertaining to contemporary global agricultural value systems (GAVSs); our central claim is that the neoliberal GVSs are intensifying exploitation chains for agriculture in the Global South. The chapter investigates a couple of important features pertaining to the contemporary GAVSs and, in doing so, highlights some of the specific channels and conduits of adverse incorporation through some illustrations from the Global South. The analysis emphasizes the overarching role of the neoliberal macroeconomic policy regime, which is organically connected with contemporary imperialism. But before we come to the current juncture, a peep into the past and some analytical considerations are in order to get a better grip over the present; we do so in the next section.
PAST IN THE PRESENT It is important to emphasize that the contours of globally connected value systems, in their rudimentary forms, have a long history, going back to at least the early days of capitalism itself; we highlight this point here, as such an understanding is either absent or seriously inadequate in much of the literature outside political economy discourses. For an appropriate engagement with the relevant issues, it is absolutely critical to locate these in the longue durée of capitalism, and its immanent tendencies, as is typically done in Marxian political economy. As we have suggested elsewhere (Jha & Yeros, 2019), colonial excursions from approximately the late 15th century onwards by European powers to several regions, most of which constitute the contemporary Global South, were significant in creating and shaping early forms of GVSs. It is quite evident that the early prototypes of worldwide and systemically intertwined processes of value generation and appropriation, going beyond hitherto-known arm’s-length channels of trade, started taking root with the transition to capitalism. Insertion of merchant capital into production processes through multiple channels, for instance, putting-out (subcontracting) systems, may be considered a significant moment in this respect. Through advancing
264 Handbook on critical political economy and public policy raw materials or its costs, contracts pertaining to intermediate products or finished goods at predetermined prices, and other aspects of production processes, European merchants managed to increase their worldwide economic control during what is generally identified, in Marxist scholarship, as the mercantilist phase. As is well documented, during approximately the first couple of centuries of capitalism, a number of trading houses headquartered in Europe, such as the British East India Company, the Hudson’s Bay Company, the Dutch East India Company, the Dutch West India Company, the Royal African Company, among others, became extremely influential in shaping the global trade and consequently production systems (Bagchi, 2005; Chaudhri, 1978; Prakash, 1997; Subramanian, 2016; Thomson, 1994; Tracy, 1991). Raw materials or semi-processed intermediate goods were sourced from colonies for final processing/manufacturing in Europe or colonial outposts, and some of these finished commodities were traded globally. Much of it was on the back of crusades and wars of plunder in the 16th and 18th centuries, and well beyond that, which, as Marx suggested, were central to the processes of primitive accumulation, and signalled ‘the rosy dawn of the era of capitalist production’ (Marx [1887], 1995–96, p. 555). Thus, it should be evident from a basic familiarity with the evolution of capitalism that since its early days, we had global supply/commodity/value chains, with merchant capital from the Global North as the key actor, straddling continents, and hence it is difficult to comprehend that, outside Marxist discourses, such a recognition remains muted/absent. Furthermore, to the extent that there is passing acknowledgement in some of the non-Marxist literature of these supply chains as ‘internationally integrated networks of production operations’ or ‘global interdependencies’, recognizing that such arrangements go back at least a couple of centuries (e.g., see contributions in Elms & Low, 2013), explanations are often framed in superficial ways, such as significant technological changes – for example, see Baldwin (2013) – with little engagement with the relevant issues in a systemic sense. These analyses remain seriously innocent of starkly uneven and hierarchical consequences historically engendered by these commodity chains that contributed significantly to stratifying the world into North and South. To put it simply: since the inception of capitalism, these globally connected ‘networks’ and ‘chains’ have been a most powerful vehicle as global exploitation chains, with the South at the receiving end, and also continue to be so in the present, albeit in substantially and radically different ways, as we discuss later. The key argument underscored here is: the metaphors such as ‘chains’, ‘networks’ and so on need to be contextualized as GVSs by locating these processes in the deeper and systemic tendencies of capitalism, instead of remaining trapped in firm- or industry-specific attributes in particular market structures, or aspects of ‘governance and relationships’ in superficial, techno-managerial ways, as is common in much of the mainstream economic analyses. To be sure, there are considerable and valuable insights to be gained from these approaches – for instance, about ‘power imbalances’ linked to market structures, asymmetry in bargaining power between different parties, the shots being called either by the ‘sellers or buyers’, and several other market-related attributes – but these remain seriously inadequate in the comprehension of structural and holistic accounts of capitalism, its immanent tendencies, institutions, and class contestations locally and globally. At best, most of these accounts are akin to counting the trees while missing the forest. Our claim is that the range of theoretical apparatus and contributions in critical political economy tradition are substantially more rewarding, by going beyond fetishism of appearances, and investigating systemic determinants of GVSs in historical capitalism, and within the current stage when a handful of large corporations, mostly headquartered in Global North, wield immense power.
Global exploitation chains in agriculture 265 Thus, ceaseless transformation of capitalism across centuries has obviously implied that the nature, content and underlying processes shaping global connectedness have been evolving continually, and the so-called supply/value chains indeed reflect these in profound ways. With the transition from the broad phase of merchant capitalism to that of industrial capitalism, there were significant reconfigurations in the constitution of these networks, and ever-more deepening of these with the maturing of the latter phase through growth of multinational/transnational (MNC/TNC) corporations with relatively greater emphasis (compared to the prominent trading houses in the earlier phase), on production-related activities in their operations. After World War II, there was a burgeoning of literature focussing on these issues, and the crux of some of the important Marxist contributions has been to explore ascendency of TNCs/MNCs, reconfiguration of channels of appropriation and exploitation between North and South, and strengthening of imperialism (Amin, 1974; Bagchi, 1982; Baran, 1957; Hymer, 1979; Magdoff, 1978; Patnaik & Patnaik, 2021; Sweezy & Baran, 1966). In Marxian political economy, analytical engagement with transnationalization of capital has a long and distinguished history, and several first-generation major Marxist scholars – Lenin, Bukharin, Luxemburg, among others – made pioneering contributions to evolving GVSs and MNCs/ TNCs; this theoretical history has been continually nourished in profound ways by the subsequent generation. With these brief remarks pertaining to the historical backdrop, we now sketch a couple of critical features relating to the currently dominant forms of GVSs, and concomitant exploitation processes, in the next section. As indicated at the outset, our core concern here is with agriculture. A couple of brief words may be in order to locate it in the currently dominant regime of accumulation on a global scale.
GLOBAL VALUE SYSTEMS AT THE CURRENT JUNCTURE An Analytical Sketch It is generally well acknowledged that the global capitalist system started transitioning to a new episode of globalization by the early 1970s, after a brief high-tide of regulated regimes post-World War II, which was also coupled with spates of decolonization across the South. With the progressive weakening/demise of regulated regime, checks and balances on TNCs’ operations have largely disappeared, and there has been a dramatic surge in forces strengthening centralization and concentration of capital worldwide, mostly led by the TNCs headquartered in the North; thus, with the ascendancy of neoliberalism, a major feature that the global economy has to contend with is a phenomenal, and ongoing, increase in the power of TNCs across all economic sectors. In fact, it would be appropriate to use Samir Amin’s expression, ‘capitalism of generalized monopolies’, to capture the essence of the contemporary context (Amin, 1997, p. 116). The accelerated transnationalization of capital has assumed different trajectories and forms, and both its broad categories – namely, ‘capital-in-production’ and ‘capital-as-finance’ – have become significantly far more mobile, both in terms of scale and speed, than ever before in the history of capitalism, but it is the latter that has witnessed a disproportionately large increase in its magnitude, influence and power, compared to the former. Thus, it has become common for analysts within critical political economy and heterodox traditions to characterize con-
266 Handbook on critical political economy and public policy temporary global regimes of accumulation as predominantly financialized (see Lavinas et al., Chapter 31 in this Handbook), which tends to undermine/subordinate the ‘real economy’ and its positive spinoffs through a range of macroeconomic outcomes for the well-being of citizens at large (Amin, 2013; Epstein, 2005; Magdoff & Sweezy, 1987; Mazzucato, 2017; Patnaik, 2016; Pollin, Baker & Epstein, 1998; Sweezy, 1994). The dramatic transformations in the overall technology regime have been extremely critical in shaping the contemporary global regimes of accumulation. To use the standard Marxist concept, these ‘productive forces’, in transportation and communication, have taken quantum leaps, and have reconfigured in fundamental and dramatic ways economic structures and processes, and consequently mechanisms underlying valorization of capital on a global scale. The last point we wish to flag here is that with the ascendancy of neoliberal globalization, there has been an intensification of the depth and breadth of imperialism, by which we mean global capitalist accumulation driven by monopoly capital located in metropolitan countries and characterized by extra-national spheres of influence and exploitation, in peripheral countries through multiple economic mechanisms. Starting with this elementary conception, the relevant details across time and places, with appropriate complexities, can easily and suitably be accommodated in such a framing of imperialism as is common in Marxian theoretical tradition. With these brief remarks, we now highlight a couple of core features pertaining to the current phase of connectedness underlying GVSs. Most obvious, aspects have to do with the overall intensity and speed of interactions; scale, depth and breadth across countries between North and South, and within regions, have been of a much higher order and acquired huge significance during the last half-century or so. Global interdependencies pertaining to major economic indicators such as national gross domestic product (GDP), trade and so on have intensified way beyond what existed prior to the last quarter of the 20th century. The current phase of economic interactions is characterized by hugely enhanced mobility of capital in production from the North to select destination in the South, on a scale hitherto unknown in the history of capitalism; this relocation from core to periphery, or de-centring of production on a significant scale, is a novel and profound feature of the current phase. It is important to recall that prior to the 1970s, there was rarely any significant investment in production from North to South,1 as it remained confined to metropolitan countries and its ‘colonies of settlement’. Furthermore, the de-centring – that is, a shift from centre to periphery – of production is not always accompanied by mobility of capital, and it is through incorporation of the producers in the South across a whole range of activities; these suppliers generally cater to the requirements specified by the transnational actors located in the North, with pre-specified tasks and responsibilities, without any external investment support. Thus, through both these channels – namely, investments in production and incorporation of suppliers without any capital flows – producers in the South have been integrated across almost all economic sectors, including quite a few high-end manufacturing and services, which have been central to the reconfiguration of GVCs at the current juncture. Finally, with regard to mobility of capital, untrammelled and increasingly larger flows of finance since the demise of the Bretton Woods monetary system in the 1970s have been among the most important features of contemporary capitalism, and thus reconfigured GVSs across sectors in dramatic ways. Essentially, it has meant increasing power of capital-as-finance over real economy, and financialization as the key driver of the architecture of accumulation; financialization has resulted in fundamental and unprecedented restructuring of contemporary GVSs, with financial markets and actors playing
Global exploitation chains in agriculture 267 a profound role in all aspects of economy and, in fact, expanding the scope of commodification incessantly (Amin, 2019). It needs to be stressed here that the above-mentioned current forms of the scale and nature of direct engagement by the metropolitan capital in the South has implied profound weakening of the division of labour that had accompanied evolution of capitalism until the middle of the 20th century, and this has had very important implications for the world of work, and mechanisms of surplus appropriation, everywhere. We must note that a powerful tendency central to the phase of neoliberal capitalism has been a strong divergence between the vector of labour productivity and the vector of wages across the globe, along with a decline in wage share almost everywhere in the world (Basu, 2016; Patnaik, 2009); in short, there has been a deepening of exploitative processes, for working people at large, but disproportionately so in the South, and these are inscribed, in multiple ways, on forms and textures of current GVSs. As we see it, central to the neoliberal project since the 1970s has been the reconstitution of class power, nationally and globally, through the changing mechanisms of imperialism, in which globalized monopoly-finance, particularly international finance capital, is the key actor. Within the broad analytical frame sketched above, we would like to mention one issue that has drawn considerable attention – namely, huge differences in wage costs worldwide, which has become central to the overall accumulation strategy in the arsenal of global corporations. The argument, as such, has a long ancestry, going back to Marx’s address to the First International Workingmen’s Association in 1864, and in several allusions in his writings related to relative surplus population; these are also further echoed in important contributions among the first generation of Marxist scholars. However, the relevant arguments are engaged with in a much more focused and rigorous manner in the post-World War II seminal contributions by Barnet and Muller (1974), Hymer (1979) and Sweezy and Baran (1966), among others. Their analyses examined the deepening of transnationalization of capital, and evolving strategies of accumulation by MNCs, often highlighting the search for low unit labour costs internationally as a key element in oligopolistic rivalry and a powerful mechanism to extract super-profits and rent, especially from the Third World. Since the 1980s, there has been a large body of work by several Marxist scholars investigating the importance of global wage hierarchies, and marshalling impressive evidence to buttress the argument that significant differences in wages between North and South have indeed been critical to the accumulation strategies of TNCs in the recent decades.2 All major data sources corroborate that comparable unit-level costs in the South are a fraction, often in single digits in percentage terms, of those in the North (Ness, 2015; Suwandi, 2019), which has been critical in extraction of rents and super-profits by the global corporate giants in the recent years. We may also note that global wage hierarchy is generally considered the key factor in explaining mobility of capital from North to South in non-Marxist discourses (Baldwin, 2013, 2016; Roach, 2004). In fact, the expression ‘global labour arbitrage’ is frequently attributed to Stephen Roach (2004), erstwhile chief economist of Morgan Stanley, who emphasized the huge differences in wages across countries as the major explanation for mobility of capital and global dispersion of production as well as procurement. The fact that resorting to lower unit cost for labour or substituting relatively high-paid workers from the North with low-paid workers in South, assuming that several other prerequisites such as relevant infrastructure, political climate and so on are conducive is obviously a potent and significant element in the armoury of capital. However, it is important to analyse the larger context of structural and other constellations of features and processes that have
268 Handbook on critical political economy and public policy propelled global labour arbitrage as a hugely significant component of overall strategy of accumulation by the TNCs in the current episode of globalization. After all, wage hierarchy between North and South has been a prominent feature of capitalism for a considerable part of its history, without any significant transnationalization of capital from the former to the latter; if anything, the direction of flows, as noted above, was in the opposite direction. Furthermore, not only with reference to differences in unit labour costs, but also overall cost advantages, it would have been economically ‘rational’ for capital from the North to invest in the South, when it was looting and plundering the latter of its abundant resources and raw materials, to transport these to the North; such rational calculations with respect to cost hierarchies would have implied that the global economic system would have escaped the division between North and South, in general, or as we know it for sure. In short, without a deeper contextualization of wage hierarchy, in the overall architecture of accumulation, in the past or at the present juncture, phrases like ‘global labour arbitrage’ remain superficial if not empty slogans from the point of view of making sense of the important processes underlying different phases of historical capitalism. Additionally, search for low labour unit costs has worked in tandem with several other significant attributes pertaining to the current neoliberal era. Essentially, transition from regulated to neoliberal macroeconomic regimes has changed the rules of the game everywhere, but also with very significant differences in the ways in which these function (Phillips & Mieres, 2015), both in a de jure and de facto sense, between North and South. This has resulted in a variety of ‘arbitrage’ beyond labour along multiple axes. In an earlier work (Jha & Yeros, 2021), we have suggested that it would be much better to use the expression, ‘labour-nature-regulation arbitrage’ to contextualize some of the core elements in contemporary GVSs. Through accelerated primitive accumulation, and thus grabbing of natural resources including land at throwaway prices, weakening of environmental, industrial and social regulations and so on, the landscape of checks and balances has been greatly damaged in several countries of the South compared to the North, thus aggravating the gap in the costs between the two; in short, the overall regulatory regimes in the South have become dramatically weaker, compared to the North, around many critical ‘social cost axes’, and are important elements of