Forced labor and multinational corporations

What role did American multinational auto companies play in the rearmament of Germany during the early period of Nazi rule? And to what extent did these companies participate in Nazi practices like forced (slave) labor and Aryanization for which they should have been held morally responsible?

An early discussion of the responsibility of American corporations for their conduct in Nazi Germany was provoked by Bradford Snell’s testimony to Congress in 1974 (link, pp. 16-23). Snell, a specialist Congressional staff member, argued that the auto companies played a crucial role in supplying the German state with the vehicles and equipment needed for its conduct of war in Europe:

In Germany, for example, General Motors and Ford became an integral part of the Nazi war efforts. GM’s plants in Germany built thousands of bomber and jet fighter propulsion systems for the Luftwaffe at the same time that its American plants produced aircraft engines for the U.S. Army Air Corps. (17)

Snell makes clear the economic and business cost of non-cooperation by the auto companies:

Refusal to aid in prewar preparations, of course, was unthinkable. It would have resulted in confiscation and irreparable economic harm to GM and Ford stockholders. In any event, due to their concentrated economic power in both economies, they were able to shape the conflict to their own private corporate advantage. Whether in fact their profit-maximization determinations were also in the best interests of international peace or, more specifically, in accord with the national security objectives of the United States at that time is entirely unclear. (17)

It was, of course, in the best interests of GM and Ford to cooperate in the Axis war effort. Although GM, for example, was in complete management control of its Russelsheim warplane factory for nearly a full year after Germany’s declaration of war against the United States on December 11, 1941, its refusal to build warplanes at a time of negligible demand for automobiles would have brought about the economic collapse of its Opel plant. (22)

Here is Snell’s summary conclusion: “In sum, they maximized profits by supplying both sides with the material needed to conduct the war” (16). Importantly, however, Snell does not provide detailed evidence or analysis of the degree to which the US-based corporate headquarters of these companies were in a position to exert management control over their German subsidiaries. And he does not address the question of internal management decision-making at these companies and their use of forced labor. In fact, significant data about forced labor in these plants only became available to researchers in the 1990s.

In 1974 there was only limited documentation of the decision-making and management structure of the auto companies in their German subsidiaries. However, a series of class-action lawsuits emerged in the 1990s that prompted the auto companies to open their private business archives to inspection, and several books have been written since 1998 that document the kinds of collaboration that occurred between multinational companies and the Nazi regime. Two in particular are of special interest here: Billstein, Fings, Kugler, and Levis, Working for the Enemy: Ford, General Motors, and Forced Labor in Germany during the Second World War (2000), and Henry Ashby Turner, Jr., General Motors and the Nazis: The Struggle for Control of Opel, Europe’s Biggest Carmaker (2005). Also important in this context is Neil Gregor’s book, Daimler-Benz in the Third Reich (1998), which provides a great deal of documentation of Daimler-Benz’s willing use of forced (slave) labor in its factories. 

These books are important for our concerns because they address the issue of how to understand the evils of the twentieth century, including mass killings, slave labor, and the destruction of human lives and dignity on a grotesque and massive scale. There is the question of evil state action to consider; the question of the evil deeds of particular individuals, from Rudolph Hoess to the ordinary policemen of Reserve Police Battalion 101 described by Christopher Browning (link), to the question of the public that accepted these horrendous actions. But along the way, there is the question of the actions and decisions of business firms that continued to operate in Germany, supplying the crucial war materials needed for blitzkrieg and operating according to Nazi principles. Those principles included official anti-Semitism and the use of forced labor of civilians and prisoners of war. There are many important questions that need to be addressed in this field, but the most important is the question of responsibility and culpability. To what extent were the US-based corporate executives aware of these practices, and to what extent did the company have effective control over their German subsidiaries?

The use of forced labor in auto and truck manufacturing plants

Labor shortages were a critical problem throughout wartime Germany, and at the Russelsheim Opel plant in particular. (Extensive documentation of Nazi use of forced and slave labor between 1933 and 1945 is provided by Ulrich Herbert, Hitler’s Foreign Workers: Enforced Foreign Labor in Germany under the Third Reich.) Billstein et al and Turner provide a good deal of detail about the practices of Opel with regard to forced labor. Skilled workers were drafted into the armed forces from the GM-owned Opel ranks in large numbers, and plant managers were unable to persuade the labor control authorities Arbeitsamt to exempt skilled workers from further conscription cohorts. Conscription then broadened to include unskilled workers. A possible solution was seen in enemy prisoners of war. The first Opel Russelsheim prison camp was built in July 1940 and was soon occupied by 600 French and Belgian prisoners (Billstein et al, 47). In October 1941 the state authorized the use of Soviet POWs as industrial workers under severe conditions of oversight and confinement, but few of the several million POWs taken during the Barbarossa operations survived to be deployed as industrial slave workers (Billstein et al, 54). In February 1942 the SS central agency approved the Ostarbeiterlasse permitting the conscription of Soviet civilians (and later other civilians from Eastern European conquest zones), and Opel Russelsheim was the first location to receive a consignment of forced workers from the East. A report from September 1942 lists 2449 forced laborers, including Russian civilians, French POWs, and other foreign civilians (Billstein et al, 56). Opel did not make use of concentration-camp labor, according to Billstein et al:

Opel was the only large German vehicle producer not to employ KZ camp prisoners in the period that followed, at either of its two production plants. The company’s tradition was conservative, and not at all anti-Semitic. Opel’s forced laborers, both prisoners of war and civilians, were guarded by company Werkschutz. Concentration camp prisoners were guarded by SS henchmen. (Billstein et al, 63)

What about Ford Motor Company and the extensive use of forced labor in Ford Werke Cologne? More insight into this question has emerged as a result of the same class-action lawsuits initiated in 1998 by former forced workers. In 2001 Ford Motor Company completed a very extensive review of its corporate archives as well as those of Ford Werke and German and US government sources (link), in a report supervised and validated by Simon Reich, a well known scholar of the period. The findings of this review are quite different from those offered by Billstein et al. The Ford Archive Report provides a fairly extensive set of facts about the use of forced and slave labor at Ford Werke Cologne. Here is an overview:

The use of foreign and forced labor at Ford-Werke began in 1940, and generally followed the same pattern as at other industrial facilities in Germany. Foreigners from Eastern and Western Europe, as well as Italian and French POWs were put to work at Ford-Werke. These men and women lived in barracks constructed by Ford-Werke adjacent to its plant site, in what became known in Cologne as the “Ford camp.”[308] After the Reichsbahn [the German railways], Ford-Werke was the next largest employer of forced workers in Cologne.[309] Late in the war, men from the concentration camp Buchenwald worked at Ford-Werke as slave laborers. (See Section 7.7.) (49)

Postwar reports indicate that the first civilians from Eastern Europe began working at Ford-Werke in the spring of 1942. An internal Ford-Werke memorandum written in June 1945 stated, “As far as we can remember, the first Russian men and women came to us in March 1942.”[319] Other postwar documents reported that the Eastern[320] workers arrived in April 1942.[321] In oral history interviews conducted during the 1990s, several Russian and Ukrainian former workers recalled arriving between April and June 1942.[322] Wartime financial records from Ford-Werke reported 320 Eastern workers in May 1942, with the numbers increasing each month to a maximum of 900 workers in October 1943. Between November 1943 and August 1944, the number of Eastern workers indicated in these records varied between 777 and 882.[323] (50)

Forced and foreign workers were a sizable percentage of the total workforce at Ford Werke. The Archive Report indicates that “the highest number of foreign and forced workers at any point during the war was approximately 2,000. This peak occurred in August 1944” (51). This is roughly 40% of the workforce. Here is a graph of the composition of the Ford-Werke labor force from 1941 to 1944 (52):

The report makes an attempt to assess pay rates and living conditions, and notes consistently that conditions and pay were substantially worse for eastern workers than western workers. Food rations for Russian and eastern European workers were especially poor:

Statements from denazification files report that Russians – children as well as adults – received poor food rations.[439] In an interview conducted in the 1990s, one former Eastern worker recalled that her rations typically consisted of three slices of bread and unsweetened coffee for breakfast, soup made from turnips and flour siftings for lunch, and bread and coffee again for dinner. (64)

This is clearly a starvation diet for an adult worker, amounting to perhaps 700-800 calories per day.

The report also provides clear documentation that Ford Werke made use of slave labor from the Buchenwald concentration camp:

On the same day that Schmidt and von Gusmann attended the Schaaf meeting [8/1/1944], the main Buchenwald concentration camp prepared a list of 50 prisoners to send to Ford-Werke.[467] Included in the group of prisoners deployed to Ford-Werke were Russian and Czech political prisoners, Poles, and two Germans, one of whom was described as a “criminal” and the other as “work shy.” Among them were carpenters, bricklayers, a painter, a tailor, a cabinet maker, plumbers, electricians, agricultural workers, shoemakers, a barber and a nurse.[468] Their first day of work was August 13, 1944.[469] … Buchenwald transfer lists show that at least 65 different men were assigned to the Ford-Werke satellite camp at one time or another, and that several were transported elsewhere or fled from Ford-Werke and new prisoners brought in to replace them.[470] Most documentation from the period indicates that there were 50 or fewer Buchenwald inmates at Ford-Werke at any given time from August 1944 through the end of February 1945.[471] A 1944 list of Buchenwald satellite camps designates “Ford-Köln” with a capacity of 50 prisoners. (68-69)

This is a long list of moral wrongs committed by Ford Werke — extensive use of forced labor, including POWs and civilians from occupied countries; some use of slave labor from the Buchenwald concentration camp; and a pervasive and dehumanizing differentiation across groups of workers concerning their treatment, housing, and food, with harsh and meager conditions for eastern workers and more moderate conditions for workers from France, Belgium, and other countries of western Europe. It would seem evident that the corporate directors of those companies in Germany bear significant moral and legal responsibility for these actions. In a later post I will turn to the question of the possible culpability of the parent companies, General Motors and Ford Motor Company. It will emerge there that careful review of company archives by independent researchers strongly suggests that the US-based corporate leaders had neither knowledge nor control over events in their German subsidiaries after 1940.

Small farmers in Indian agriculture

Agriculture remains the primary source of income for India’s population, and the majority of India’s farmers subsist on small farms, less than two hectares (five acres). It is all but self evident that these facts imply continuing poverty and low quality of life for rural Indians. And yet the basic facts and economics of the small farm sector are poorly understood. 

The most recent product of the Project on Agrarian Relations in India (PARI) focuses on exactly this question (link). Madhura Swaminathan and Sandipan Baksi’s recent volume, How Do Small Farmers Fare?: Evidence from Village Studies in India, attempts to provide a multidimensional appraisal of the complex realities of the small farm economy in India, including labor, crop productivity, incomes, costs, fertilizer use, credit, climate change, education, living standards, and an overall assessment of how small farmers fare. The book draws upon largescale statistical data collected by the Indian government, but the fundamental insights offered in each chapter are drawn from the intensive village studies conducted by PARI researchers over the past dozen years (link). And, as the resolution and quality of the essays in this volume attest, the PARI village studies constitute an enormously valuable source of information on the rural economy in India in spite of the small number of villages included.

T. Sivamurugan and Madhura Swaminathan provide an excellent survey of the methodology and scope of the PARI project in their chapter on this subject. Their chapter provides detailed information about the methodology pursued in designing and carrying out these village studies in a range of regions in the country.

The Project on Agrarian Relations in India (PARI) began in 2006. One of the objectives of the Project is to analyse village-level production, production systems and livelihoods, and the socio-economic characteristics of different strata of the rural population. As of 2016, 25 villages from 11 States of the country, covering a wide range of agro-ecological regions in the country, have been studied under PARI. In this volume, we have used data on 17 villages from 9 States. (25)

It is apparent that the PARI project considers only a small percentage of India’s villages and farming regions. However, the locations chosen have been selected to provide a useful indication of the economic status of villages and farm households in a variety of locations.

The summary data provided by this research are striking:

According to the Agricultural Census of 2010–11, there were a total of 138.35 million operational holdings in India. The total area operated was 159.59 million hectares and the average size of an operational holding was 1.15 hectares. The average size of all holdings of size 2 hectares or less – which constituted small and marginal holdings as per the official definition – was 0.60 hectare. Holdings of size 2 hectares or less accounted for around 85 per cent of all holdings and 45 per cent of the total area operated. The number of persons who were part of small farmer households was close to half a billion. (2)

Almost 50% of India’s total population consists of small farmers and their families, and 85% of all farms are less than two hectares. Plainly the situation of small farms is of enormous importance to the overall social wellbeing of India.

A particularly important topic in this volume is the assessment of small farmers’ incomes that the studies permit. The summary conclusion is that India’s hundreds of millions of small farmers earn incomes only slightly higher than subsistence. Rural manual workers earn even lower income.

The levels of income received by small farmer households were low, in both absolute and relative terms. The average incomes received by small farmers were not much higher than the minimum wages in agriculture stipulated by State governments. Minimum wage in India is defined as subsistence wage; hence incomes received by small farmer households were inadequate to meet investments or any requirements other than daily consumption needs. (162)

An important measure of quality of life of poor people is number of years of schooling. The PARI studies show that children in small farmer households have extremely low levels of schooling, and that there are significant difference between boys and girls. Chapter 11 finds similar evidence of deprivation with regard to other material features of quality of life: access to clean drinking water, toilets, electricity, and living space and housing.

Moreover, the studies demonstrate that these kinds of deprivation are further exacerbated by facts of caste and religion.

While small farmer households are the worst off among the peasantry, there exist disparities and differences within the class of small farmers on the basis of social identity. The analysis presented in this chapter shows that SC, ST, and Muslim households among small farmers are far more deprived in terms of housing and access to basic household amenities than households belonging to other social groups. This points to the fact that in Indian society, and more so in rural society, deprivation is not merely economic but social as well. Even though a uniform criterion was used to define small farmer households, we find that higher levels of deprivation among SC, ST, and Muslim households are an outcome of the historical exclusion and accumulated disadvantages faced and inherited by these social groups. Continued practices of untouchability, physical and residential segregation, and isolation shape current outcomes for these groups. (327)

It has sometimes been maintained that small farming is potentially as productive as largescale commercial farming. It is maintained that intensive family labor has the potential for producing crops as efficiently as mechanized capital intensive farming — presumably because of the lack of efficiencies of scale in farming. The research reported here by Venkatesh Athreya and colleagues rebuts this longstanding assumption about small-scale farming:

At the core of the argument in favour of small-scale farming in terms of its efficiency is the alleged inverse relationship between land productivity and size. It states that small farms are more efficient, de ned in terms of yield per acre, than large farms. It is argued that this relationship holds true more or less universally. This assertion was also the basis of the debate in India on farm size and productivity based on findings from the Farm Management Studies. This argument, which continued through the 1960s, has seen a recent revival. Apart from the empirical challenge posed to this formulation (especially by the green revolution), it has also been theoretically rebutted by Terence Byres…. The body of empirical evidence from FAS surveys too does not support the hypothesis of an inverse relationship between farm size and output per unit of land.

One thing that is noteworthy in this collection is the significant use that the authors make of classical Marxist analysis of agricultural development and the peasantry. Unlike other national traditions in the social sciences, Indian researchers continue to find insights and valuable frameworks in the writings of Marx, Lenin, Kautsky, and other Marxist writers on these topics. And, as the many texts cited in the introductory chapter illustrate, these figures were in fact careful observers of the agrarian systems of Europe. Here is how Athreya et al summarize the Marxist perspective in the Indian context:

The attitude towards the peasantry in the context of India’s development, especially after the country won political independence, has been a matter of much discussion in Indian Marxist literature. Comprehensive land reform is essential to the completion of the democratic revolution in India. Achievement of the democratic revolution under a working class leadership in alliance with the peasantry, especially poor peasants and agricultural labourers as key rural classes in this process, is necessary for further democratic advance. Such a view envisages the continued presence of a large population of small and middle peasants for a long time. We need public policy that supports the peasantry, especially focusing on developing the productive forces among them. (14)

This volume is a very important contribution to development studies in India and other parts of South and Southeast Asia. The dynamics of agriculture remain a critical factor in the social progress of these countries, and this careful and detailed research will provide a basis for constructing more effective development policies in India and elsewhere. And the data suggest that the situation of the rural sector in India is in crisis: incomes for small farmers and landless workers are extremely low with few indications of improvement, and measures of quality of life mirror these findings.

Measuring happiness internationally

One reasonable way of thinking about the most fundamental goal of international economic development is to increase the level of human happiness in all countries, and to reduce the degree of inequality of happiness within and across countries. But, as Aristotle asked several millennia ago, what is happiness? And how can we measure it, either in a given individual or in a population? Utilitarians and economists chose to avoid the problem of measuring subjective happiness, and the associated problem of comparing utilities across persons, by substituting preference satisfaction for subjective happiness. And worries about the challenges of measuring subjective happiness led philosophers like John Rawls and economists like Amartya Sen to prefer to focus on the objective prerequisites of life satisfaction — primary goods, in the case of Rawls, and capabilities and functionings, in the case of Sen.

And yet the idea of happiness, or life satisfaction, is too important to dispense with. New efforts have been made to develop survey tools and methods that permit assessment of the average level of life satisfaction for groups of people in different countries. Among others Jeffrey Sachs has played a lead role in conceptualizing and furthering this project. The result is a series of World Happiness Reports, beginning in 2012 (link), which can be seen as a counterpart to the World Development Reports (link) and the Human Development Reports (link). Here are some orienting thoughts from Jeffrey Sachs’s introductory essay in the 2012 report.

Most people agree that societies should foster the happiness of their citizens. The U.S. Founding Fathers recognized the inalienable right to the pursuit of happiness. British philosophers talked about the greatest good for the greatest number. Bhutan has famously adopted the goal of Gross National Happiness (GNH) rather than Gross National Product. China champions a harmonious society.

Yet most people probably believe that happiness is in the eye of the beholder, an individual’s choice, some- thing to be pursued individually rather than as a matter of national policy. Happiness seems far too subjective, too vague, to serve as a touchstone for a nation’s goals, much less its policy content. That indeed has been the traditional view. Yet the evidence is changing this view rapidly.

A generation of studies by psychologists, economists, pollsters, sociologists, and others has shown that happiness, though indeed a subjective experience, can be objectively measured, assessed, correlated with observable brain functions, and related to the characteristics of an individual and the society. Asking people whether they are happy, or satisfied with their lives, offers important information about the society. It can signal underlying crises or hidden strengths. It can suggest the need for change.

Such is the idea of the emerging scientific study of happiness, whether of individuals and the choices they make, or of entire societies and the reports of the citizenry regarding life satisfaction. The chapters ahead summarize the fascinating and emerging story of these studies. They report on the two broad measurements of happiness: the ups and downs of daily emotions, and an individual’s overall evaluation of life. The former is sometimes called “affective happiness,” and the latter “evaluative happiness.” (6)

Sachs reports that the research team preparing the ground for a World Happiness Report finds that life satisfaction is affected by a number of intangibles — for example, “community trust, mental and physical health, and the quality of governance and rule of law” (7). The contributors emphasize that GNP per capita is a component, but not the most important component, of variations in life satisfaction across countries and regions.

What has always been challenging in prior discussions of promoting happiness is the problem of measurement. How do we assess an individual’s level of happiness or satisfaction? And how do we assess the level of these goods for a population or group? The second large task, once the measurement problem has been addressed, is to uncover the social factors that account for variations in satisfaction and happiness levels. This problem is a more familiar one, since it can be treated using epidemiological and statistical tools to identify the factors most strongly correlated with positive or negative variations in satisfaction levels.

The World Happiness project relies on value-survey instruments to measure population life satisfaction. Existing surveys include the Gallup World Poll, the World Values Survey, and the European Social Survey and European Values Survey. The primary instrument used in the 2012 report is the Gallup World Poll (GWP). GWP uses a 0-10 scale and asks adults to place their current quality of life on this scale (the Cantril ladder).

In the Gallup World Poll respondents are asked (using fresh annual samples of 1,000 respondents aged 15 or over in each of more than 150 countries) to evaluate the quality of their lives on an 11-point ladder scale running from 0 to 10, with the bottom rung of the ladder (0) being the worst possible life for them and 10 being the best possible. (11) 

Here are distributions across the Cantril Ladder for the world and for several regions:

As the researchers recognize, there is a serious question here of how to calibrate and interpret the responses offered by thousands of Brazilians, Finns, and Thais for this question. What justifies us in thinking that a respondents’ ratings of 5 in Brazil and Thailand mean that Brazilians and Thais are about equally happy? Similarly, what justifies us in thinking that a 0 (“worst possible life I can imagine”) means the same in the two countries? Hypothetically, if a Brazilian can imagine a quality of life that includes arbitrary incarceration and torture, whereas a Canadian cannot, doesn’t this imply that the Canadian’s score of 5 reflects a higher level of absolute life satisfaction than the Brazilian? Intuitively it seems that possibilities like these (cultural or circumstantial differences in worst and best life circumstances in different countries) imply that cross-national comparisons of satisfaction levels based on this kind of survey are suspect.

Here is an OECD research report that directly addresses some of the issues raised by the life satisfaction survey methodology; link. This report focuses on several methodological issues, including this comment on the effects introduced by alternative question wording:

In contrast, Helliwell [one of the authors of the 2012 report] and Putnam (2004) examined the determinants of responses to both a global happiness and a life satisfaction question in a very large international data set (N > 83 500), drawn from the World Values Survey, the US Benchmark Survey and a comparable Canadian survey. They found that, although the main pattern of results did not differ greatly between the two measures, the life satisfaction question showed a stronger relationship with a variety of social indicators (e.g. trust, unemployment) than did the happiness question. However, in this work happiness was measured on a four-point scale and life satisfaction was measured on a ten-point scale; it is thus not clear that question wording, rather than scale length, produced this difference. (70)

Helliwell and Wang respond to this concern about question wording in the report:

The bottom line of our comparisons among life evaluations is that when life satisfaction, happiness and ladder questions are asked about life as a whole, they tell very similar stories about the likely sources of a good life. The information base for these comparisons is still growing, however, so there may be some systematic differences that appear in larger samples. (15)

Helliwell and Wang also address the questions of reliability (consistency across measurements of the same variable at different times) and validity (accurate correspondence to the unobservable variable under scrutiny). Their strongest case for the validity of these survey-based attempts at measurement of satisfaction is the fact that it is possible to demonstrate that variations in life satisfaction measures are largely correlated with a small number of factors that are plausibly relevant to the creation of life satisfaction.

As will be shown in the next chapter, more than three-quarters of the cross-country differences in national average measures of happiness can be explained by variables already known through experimental and other evidence to be important. (17)

Perhaps more credible than international comparisons are within-country comparisons of satisfaction levels. We might feel more confident in thinking that Canadians share a conceptual space of worst and best outcomes with each other, and this shared framework means that their assessments of their personal situations along the Cantrel ladder will be comparable. But even here, it seems likely that there are cultural and circumstantial differences within a country that might lead to the same kinds of inconsistencies. Are Brazilian favela dwellers likely to identify the same worst and best outcomes as residents of the elite neighborhood of Botafogo? Helliwell and Wang make a brief reply to this kind of concern (19), but more needs to be said.

Beyond measurement is causal explanation of differences across sub-groups. In Chapter 3 Richard Layard, Andrew Clark, and Claudia Senik attempt to tease out the material and circumstantial factors that account for variation in levels of life satisfaction across groups and countries. The factors that they identify include (59):

  • income
  • work
  • community and governance (trust, equality, freedom, bonding, …)
  • values and religion
  • mental health
  • physical health
  • family experience
  • education
  • gender and age

They find that these factors serve to explain a substantial amount of the variation in life satisfaction in different groups. Here is a sample regression table based on data from three different surveys.

And here is their effort to recast most of these factors in a comparative analysis, estimating the effect of a given factor as a multiple of a 30% increase in income.

The largest positive effect identified here on life satisfaction is an increase in social support; whereas the largest negative effects are becoming unemployed and becoming separated in a marriage.

This approach to economic development assessment seems important for the outcomes it wants to be able to measure and assess. It is certainly true that average income is a poor measure (to say the least) of the wellbeing of a population. So it is worth exploring other approaches that attempt to get at wellbeing in a more direct way. It remains to be seen, however, whether survey research based on questions about levels of happiness or life satisfaction can do the job. There are certainly interesting statistics coming out of this research pertaining to the level of importance of various factors in causing a higher or lower level of reported satisfaction in a group. But whether the conceptual problems of interpretation mentioned above can be solved is still uncertain. This comes down to the familiar question of validity of the measurement instrument; but in order to assess validity, we need to have better answers to the original question — what is life satisfaction? And can it be defined in a way that makes sense across persons or groups?

Capitalism 2.0?


Capitalism is one particular configuration of the economic institutions that define production and consumption in a society. It involves private ownership of firms and resources, and a system of wage labor through which individuals compete for jobs within the context of a labor market. In its nature it creates positions of substantial power for owners of capital, and generally little power for owners of labor power — workers. In theory capitalism can be joined with both democratic and authoritarian systems of government — for example, France (democratic) and Argentina 1970 (military dictatorship). (Here is an earlier post on alternative capitalisms; link.)

As Marx himself noted, capitalism brought a number of powerful and emancipatory changes into the world. But it is plain that there are substantial deficiencies in our contemporary political economy, from the point of view of the great majority of society. For example:

  • Rising inequalities of income and wealth
  • Disproportionate power of corporations in political and economic life
  • Persistence of racial and ethnic segregation and discrimination 
  • Slow rates of social mobility
  • Pervasive inequalities of opportunity
  • Overwhelming influence of money in electoral politics
  • Inability to address the causes of climate change
  • Inability of the state to effectively regulate products and processes to ensure health and safety
  • Manipulation of culture and values for the sake of profit

What kinds of institutional changes might we imagine for our current political economy that do a better job of satisfying the demands of justice and human wellbeing?

A number of philosophers, political scientists, and economists have addressed the question of how to envision a more just form of capitalism. Kathleen Thelen considers the prospects for an “egalitarian capitalism” (Varieties of Liberalization and the New Politics of Social Solidaritylink); Jon Elster had an important contribution to make on the question of alternatives to capitalism (Alternatives to Capitalism; link); and John Rawls put forward a view of a preferable alternative to capitalism, which he referred to as a property-owning democracy (O’Neill and Williamson, Property-Owning Democracy: Rawls and Beyond; link).

So what might capitalism 2.0 look like if we want a genuinely fair and progressive society in the 21st century? Several features seem clear.

  • Something like decentralized markets in labor and capital seem unavoidable in a large modern society. So the 21st-century economy will be a market economy.
  • Rawls is right that extreme inequalities of property ownership lead to unacceptable inequalities of political participation and human capability fulfillment. So the 21st century will need to find effective ways of distributing wealth and income more broadly.
  • Market mechanisms generally leave some disadvantaged sub-populations behind. A key goal of the 21st century state must be to find effective ways of improving the prerequisites of opportunity for disadvantaged groups. This means that a substantial equality of availability and access to education, nutrition, housing, and other components of quality of life need to be secured by the state.
  • Existing market institutions do not automatically guarantee fair equality of opportunity. So the political economy of capitalism 2.0 will need to use public resources and authority to ensure equality of opportunity for all citizens.

What kinds of political and economic institutions would serve to advance these social goals?

One approach that is gaining international attention is the idea of a universal basic income for all citizens. Belgian philosopher Philippe van Parijs makes a powerful case for the need for universal basic income (link) in the world economy we now face. Here is his definition in the Boston Review article:

By universal basic income I mean an income paid by a government, at a uniform level and at regular intervals, to each adult member of society. The grant is paid, and its level is fixed, irrespective of whether the person is rich or poor, lives alone or with others, is willing to work or not. In most versions–certainly in mine–it is granted not only to citizens, but to all permanent residents. 

The UBI is called “basic” because it is something on which a person can safely count, a material foundation on which a life can firmly rest. Any other income–whether in cash or in kind, from work or savings, from the market or the state–can lawfully be added to it. On the other hand, nothing in the definition of UBI, as it is here understood, connects it to some notion of “basic needs.” A UBI, as defined, can fall short of or exceed what is regarded as necessary to a decent existence. (link)

Swiss voters narrowly defeated such a proposal for Switzerland this spring (link), but serious debates continue. 

Another approach results from politically effective demands for real equality of opportunity. Equality of opportunity requires high-quality public education for everyone. So capitalism 2.0 needs to embody educational institutions that are substantially better and more egalitarian than those we now have — ranging from pre-school to K-12 to universities. Consider this fascinating county-level map of the United States combining per capita income, high school graduate rate, and college graduate rate (link):


The map makes clear the strong association between county income and educational attainment, which implies in turn that children born into the wrong zip code have substantially lower likelihood of attaining high-quality educational success. A more just society would show little variation with respect to educational attainment, even when it also shows substantial variation in per-capita incomes across counties. Achieving comparable levels of educational attainment across rich and poor counties requires a substantial public investment in schools, teachers, and educational resources.

Another determinant of equality of opportunity is universal access to quality healthcare. Poor health affects both current quality of life and future productivity; so when poor people are in circumstances in which they cannot afford or gain access to high-quality healthcare, their current and future life prospects are at risk.

All of these ideas about a more just capitalism require resources; and those resources can only come from public finance, or taxation. The wealth of a society is a joint product which the market allocates privately. Taxation is the mechanism through which the benefits of social cooperation extend more fully to all members of society. It is through taxation that a capitalist society has the potential for creating an environment with high levels of equality of opportunity for its citizens and high levels of quality of life for its population. The resulting political economy promises to be the foundation of a more equitable and productive society. (Here is a post on the moral basis for the extensive democratic state; link.)

Global inequality

image: scenes from Mumbai, April 2016

Inequalities of wealth and income throughout the world have generated a great deal of attention in the  past several years, in both the media and the scholarly world. Thomas Piketty’s Capital in the Twenty-First Century gave this set of debates a huge impetus when it appeared in 2013. Branko Milanovic treats this subject in his very recent book, Global Inequality: A New Approach for the Age of Globalization. (Here is a review of the book in the Financial Timeslink.) Some of the core arguments were presented in an earlier World Bank white paper (link). Global inequality refers to the distribution of income over the world’s population as a whole, pooling together the populations of all nations. And, as Milanovic observes, this distribution can be understood as the sum of within-nation inequalities and inequalities of the mean incomes of all nations. Piketty’s analysis is focused on within-nation incomes, and he highlights the fact that many OECD countries are experiencing a rapid increase in inequalities. But Milanovic demonstrates that the picture is quite different for global inequalities, where there has been a significant decrease in inequalities over the past two decades or so.

An earlier post considered and rejected a similar argument in the New York Times by Tyler Cowen (link). Cowen endorsed the idea that the world is becoming more equal in terms of income, and I argued that this conclusion misses the point of current concerns about inequality. It is not the size distribution of the whole world’s population that is of primary concern, but rather the distribution of income within national economies that is of concern. Milanovic provides data supporting a similar conclusion as one part of his analysis. But his arguments are much more substantive and data-rich. And his analysis makes it clear that both trends concerning income inequalities are important.

Milanovic directly addresses the relevant contrast here under the heading of “within-country” and “cross-country” inequalities, or what he designates as class inequalities and location-based inequalities. And, very interestingly, he suggests that the relative importance of the two sources of inequality changes over time, but both are important.

Here is the key graph representing much of the central argument in Milanovic’s book. (Milanovic refers to this as the “elephant” graph.)

The graph is reasonably clear once you understand its logic. The chart represents the income segments of the entire global population by percentile, and it represents the growth in income various percentiles have experienced during a recent decade. This means mixing populations globally; so, for example, the 40th percentile group includes rich Malians, middle-income Chinese, and poor Canadians. And, since different economies grew at different rates during that decade, the mix for a given percentile in the global income distribution changes from beginning to end. The x-axis represents percentiles of global income — the 10th percentile, the 30th percentile, etc. The y-axis represents the real increase in income experienced by that percentile in the period 1988-2008. So the 20th percentile experienced a 40% increase in income during the period; the 75th percentile experienced 29% growth; the 85th percentile is 4% growth; etc. And it is indeed striking to see that different segments or strata of the global income distribution had such very different growth profiles over this twenty-year period.

Milanovic thinks the turning points A, B, and C are particularly revealing about important current economic trends (11 ff.). Here is how he analyzes the segments: Point A encompasses people in the emerging Asian economies, with rapidly rising incomes in the middle range. Point B encompasses middle-income workers in OECD countries. And point C is the “global plutocrats” (22). Framed in these terms, Milanovic’s analysis has major implications for global politics and the way we understand the winners and losers of globalization.

The book offers a useful theoretical innovation for development economics. The Kuznets curve was thought to represent a one-time feature of economic development through a process of modernization: the view that inequalities within a national economy increase during the early phase of modernization and structural transformation, and then decline over an extended period of time. The theory seems to be refuted by the sustained period of rising inequalities in OECD economies from the 1980s. Milanovic argues for a revision of the concept by introducing the variation of a Kuznets wave or cycle, or “alternating increases and decreases in inequality” (50ff.). The intervening variable causing this fluctuation in Milanovic’s account is rising per capita income and the new social and economic forces this rising level of wealth creates. Two important elements of this dynamic are the paired forces of rising power in the hands of wealth holders on the one hand and mass organizations like labor unions on the other, leading to a struggle between pro-rich policies and pro-worker policies. He explains the current resurgence of inequalities as the consequence of technology change and buy the rapid expansion of international trade (globalization) (103). But key to his approach is a recognition of the extensive complexity of the processes of growth that economies experience — what Bhaskar called the open character of social causation.

Milanovic goes into substantial detail in explaining the elephant graph in this extensive lecture at Peterson Institute for International Economics (link). The discussion of the slide occurs at 7:45.


Milanovic is one of the most expert analysts of economic inequalities anywhere, and Global Inequality is a contribution that anyone interested in inequalities will want to read.

International relations and complexity theory


Hilton Root has published some very interesting ideas about systems thinking in international relations theory in Dynamics among Nations: The Evolution of Legitimacy and Development in Modern States. Here he offers an approach to social, political, and economic change through a set of ideas that are not yet strongly integrated into IR theory — the perspective of complexity theory, worked out in a clear and useable form.

The three sources of theoretical argument which he introduces — complexity theory, social network theory, and evolutionary ecology — represent a significant innovation in comparative history. The novel approach Root takes consists of three large ideas: that social systems at all levels display “adaptive complexity”; that the structure of the social networks (governance systems, information systems, economic inter-dependencies) that are embedded in a specific society have important and unexpected consequences for the behavior of the system; and that complex social developments have much in common with “landscape ecology”, by which he means that there are multiple next steps that can be taken at any point leading to an improvement of performance.

His fundamental claim is that communities, states, and international systems need to be understood as dynamic systems with emergent properties. A society is not simply the linear sum of the behaviors of its component systems.

The system of international relations, like most complex ecosystems, such as the nervous system or a rain forest, is yielding to its rules of complexity. In complex systems, a central administrator rarely guides the collective behaviors that characterize development processes. The system itself has a collective behavior that depends on all its parts. Rather than convergence toward a dominant model, or “global optimum,” the interactive dynamics are coevolutionary; their interactions result in reciprocal and evolving change. (2)

One consequence of these ideas is that international relations and economic and political development processes show substantial path dependency and contingency. Another consequence is that some leading metaphors for large-scale historical change are implausible and misleading: in particular, modernization theory, “uniqueness of the West,” and “end of history.” Finally, Root argues that we should expect substantial variation in the strategies and structures that nations choose, given their own geopolitical environments.

Competition in highly interdependent global environments produces far greater local variation and diversity of structures and strategies than modernization theory ever anticipated. (3)

The book uses numerous episodes from the political, military, and economic histories of Europe and Asia to illustrate and validate the approach he takes. As a particularly interesting example of this, Root interprets Napoleon’s decision to invade Russia, not as folly, but as an intuition of the nodal character of the traditional European state system (126 ff.). He also makes repeated use of periods in Chinese imperial history to illustrate his notion that system dynamics and the structure of the governance network create very powerful obstacles to innovation and change.

So what does Root mean by “complexity”? His central concept is that of a “complex interactive adaptive system” (CIAS) within a heterogeneous environment. Here is a useful description of international relations through the lens of CIAS theory.

A network is comprised of agents. The agents interact according to shared and evolving rules of behavior that in turn define the larger environment or system. That behavior generates continuous feedback loops that enable agents to learn and to adjust their behaviors to others’ actions, thereby re-creating the system in which they operate. Complex adaptive systems are created by interactions and communications of self-adjusting agents. Continuous “feedback” motivates agents to re-evaluate their positions. Because agents are constantly reacting to other agents’ behaviors, nothing in the environment is ever fixed or finite. In order to fully understand the impacts of these agents, their behaviors must be understood as they interact with the broader system. (16)

A key analytical idea the author brings forward repeatedly is the notion of “co-evolution”. This concept captures one important aspect of a complex interactive adaptive system. CIAS’s show two types of unpredictability. First, the mutual interactions of the parts lead to “chaotic” courses of development of the system, as A, B, and C interact to produce unexpected outcome D. But second, the “adaptive” part introduces another kind of indeterminacy, as organisms, actors, and institutions change their characteristics in face of changes in the environment. So the properties of A, B, and C are not fixed over time; rather, selection and purposive adaptation lead to organisms and actors who respond differently over time to ecological opportunities and threats.

Features of uncertainty, time framing, rule change, and novel behavior all contribute to a set of system characteristics: unpredictability, path dependency, and sensitivity to initial conditions. And Root believes that these factors have important implications about the feasibility of reducibility or micro- to macro- reconstruction:

When a state’s interactions shift from being locally based to being regionally or nationally based, its behaviors change across the network and the greater system. Thus a general theory of the system cannot be deduced from the properties of its constituent parts, just as the universe cannot be reconstructed from the fundamental laws of physics. (31)

Root’s treatment of “New Institutional Economics” in Chapter 5 is important for several reasons. Most important, he demonstrates the harm that comes from incorporating a questionable theory of change into a comprehensive agenda for policy. The guiding idea of “creating institutions of good governance” as a panacea for slow economic growth and widespread poverty led policy makers to ignore other important causal factors, including locally rational but myopic strategies pursued by sub-actors. Root seems to agree with Dani Rodrik in concluding that NIC is limited when it comes to serving as a guide for positive policy design:

Assessing the legacy of new institutional economics, Harvard economist Dani Rodrik concludes that beyond “a very aggregate level of generality,” these ideas do not provide much policy guidance. (81)

Instead of looking for a general theory that can be used by centralized planning ministries to guide their economic and social policies, Root favors a more evolutionary approach: allow for a diversity of development experiments at the middle level of society, and then favor those experiments that appear to have the best results.

Chinese planners never attained the celebrity status of their Indian peers, but by trying multiple paths and starting with smaller interventions from the top, they found a better way to determine what worked. After Deng declared the opening of the Chinese economy, he instituted a multi-level process that facilitated both change and stability, and strengthened social organization and social learning through local experimentation. (108-109)

(Contrast this with the “single experiment” approach associated with land collectivization in the 1950s, resulting in massive agricultural failure and famine during the Great Leap Forward.)

Root’s treatment of Imperial China’s history is intriguing but controvertible. His central premise is that China’s Imperial system was a hierarchical network of control, and systems like this are substantially less resilient and open to change than multi-nodal networks. The interpretation is reminiscent of the theory of Oriental despotism: an all-powerful imperial system suppressed both challengers and change-agents. But contemporary China historians would probably give the Imperial system more credit in terms of its degree of flexibility in face of challenges. Take peasant uprisings. The state was generally successful in its response to large peasant rebellions, even if the military response was often flat-footed. The Taiping Rebellion is an example that probably supports the author’s interpretation best, since it was local militias organized and funded by local gentry which were most successful in opposing the Taipings. But China’s history is littered with hundreds of peasant and ethnic uprisings, and its military eventually prevailed in most of them.

One way of reading Root’s book is as a guidebook for administrators in a time of complexity. Root correctly emphasizes the difficulty or impossibility of “solving” a set of social and political problems simultaneously, and the parallel difficulty of making confident predictions about medium- or long-term consequences of various policy interventions. Second best, in his account, is an evolutionary approach: try a diversity of approaches, and cautiously increase the volume of those approaches that seem to work best. But even this approach is uncertain; evolutionary processes lead to dead-ends that are unforeseen in earlier stages of the process.

(See this post about decision-making under conditions of deep uncertainty; link. And here is a series of earlier posts about social complexity; link.)

The global city — Saskia Sassen

London financial district

Saskia Sassen is the leading urban theorist of the global world. (Here are several prior posts that intersect with her work.) Her The Global City: New York, London, Tokyo (1991) has shaped the concepts and methods that other theorists have used to analyze the role of cities and their networks in the contemporary world. The core ideas in her theory of the global city are presented in a 2005 article, “The Global City: Introducing a Concept” (link). This article is a convenient place to gain an understanding of her basic approach to the subject.

Key to Sassen’s concept of the global city is an emphasis on the flow of information and capital. Cities are major nodes in the interconnected systems of information and money, and the wealth that they capture is intimately related to the specialized businesses that facilitate those flows — financial institutions, consulting firms, accounting firms, law firms, and media organizations. Sassen points out that these flows are no longer tightly bound to national boundaries and systems of regulation; so the dynamics of the global city are dramatically different than those of the great cities of the nineteenth century.

Sassen emphasizes the importance of creating new conceptual resources for making sense of urban systems and their global networks — a new conceptual architecture, as she calls it (28). She argues for seven fundamental hypotheses about the modern global city:

  1. The geographic dispersal of economic activities that marks globalization, along with the simultaneous integration of such geographically dispersed activities, is a key factor feeding the growth and importance of central corporate functions.
  2. These central functions become so complex that increasingly the headquarters of large global firms outsource them: they buy a share of their central functions from highly specialized service firms.
  3. Those specialized service firms engaged in the most complex and globalized markets are subject to agglomeration economies.
  4. The more headquarters outsource their most complex, unstandardized functions, particularly those subject to uncertain and changing markets, the freer they are to opt for any location.
  5. These specialized service firms need to provide a global service which has meant a global network of affiliates … and a strengthening of cross border city-to-city transactions and networks.
  6. The economic fortunes of these cities become increasingly disconnected from their broader hinterlands or even their national economies.
  7. One result of the dynamics described in hypothesis six, is the growing informalization of a range of economic activities which find their effective demand in these cities, yet have profit rates that do not allow them to compete for various resources with the high-profit making firms at the top of the system. (28-30)

Three key tendencies seem to follow from these structural facts about global cities.  One is a concentration of wealth in the hands of owners, partners, and professionals associated with the high-end firms in this system. Second is a growing disconnection between the city and its region. And third is the growth of a large marginalized population that has a very hard time earning a living in the marketplace defined by these high-end activities. Rather than constituting an economic engine that gradually elevates the income and welfare of the whole population, the modern global city funnels global surpluses into the hands of a global elite dispersed over a few dozen global cities.

These tendencies seem to line up well with several observable features of modern urban life throughout much of the world: a widening separation in quality of life between a relatively small elite and a much larger marginalized population; a growth of high-security gated communities and shopping areas; and dramatically different graphs of median income for different socioeconomic groups. New York, London, and Hong Kong/Shanghai represent a huge concentration of financial and business networks, and the concentration of wealth that these produce is manifest:

Inside countries, the leading financial centers today concentrate a greater share of national financial activity than even ten years ago, and internationally, cities in the global North concentrate well over half of the global capital market. (33)

This mode of global business creates a tight network of supporting specialist firms that are likewise positioned to capture a significant level of wealth and income:

By central functions I do not only mean top level headquarters; I am referring to all the top level financial, legal, accounting, managerial, executive, planning functions necessary to run a corporate organization operating in more than one country. (34)

These features of the global city economic system imply a widening set of inequalities between elite professionals and specialists and the larger urban population of service and industrial workers. They also imply a widening set of inequalities between North and South. Sassen believes that communications and Internet technologies have the effect of accelerating these widening inequalities:

Besides their impact on the spatial correlates of centrality, the new communication technologies can also be expected to have an impact on inequality between cities and inside cities. (37)

Sassen’s conceptual architecture maintains a place for location and space: global cities are not disembodied, and the functioning of their global firms depends on a network of activities and lesser firms within the spatial scope of the city and its environs. So Sassen believes there is space for political contest between parties over the division of the global surplus.

If we consider that global cities concentrate both the leading sectors of global capital and a growing share of disadvantaged populations (immigrants, many of the disadvantaged women, people of color generally, and, in the megacities of developing countries, masses of shanty dwellers) then we can see that cities have become a strategic terrain for a whole series of conflicts and contradictions. (39)

But this strategic contest seems badly tilted against the disadvantaged populations she mentions. So the outcomes of these contests over power and wealth are likely to lead, it would seem, to even deeper marginalization, along the lines of what Loic Wacquant describes in Urban Outcasts: A Comparative Sociology of Advanced Marginality (link).

This is a hugely important subject for everyone who wants to understand the dynamics and future directions of the globe’s mega-cities and their interconnections. What seems pressingly important for urbanists and economists alike, is to envision economic mechanisms that can be established that do a better job of sharing the fruits of economic progress with the whole of society, not just the elite and professional end of the socioeconomic spectrum.

How to think about work

Work defines a large portion of life in any society, traditional or modern.  How should we think about the social and economic forces that create “work”? What are the institutions and practices through which individuals use their bodies, brains, skills, and talents to create value within a given set of economic relationships? These questions are just as relevant in consideration of the medieval economy — serfs and freemen, artisans, highwaymen, retainers, soldiers, the odd banker — as they are for the contemporary economy. (It would be very interesting to analyze Marc Bloch’s account of feudalism from the point of view of the kinds of skilled work he identifies in the medieval manorial economy in Feudal Society: Vol 2: Social Classes and Political Organisation.)

So what does the division of labor look like in the contemporary economy? And how is it changing?

The Bureau of Labor Statistics maintains a “Standard Occupational Classification System” encompassing tens of thousands of job types, organized into 23 major groups (link). (My own profession, philosophy professor, falls in category 25-1120 “Arts, Communications, and Humanities Teachers, Postsecondary”.) Here is the table of major groups of occupations:

The International Labour Organisation maintains a different classification system of occupations (link).  This system includes managers, professions, technicians and associate professionals, clerical support workers, service and sales workers, skilled agricultural, forestry, and fishery workers, craft and related trades workers, plant and machine operators and assemblers, elementary occupations, and military workers.

It is interesting and important to observe the trends of change that can be observed in the distribution of tasks across categories of worker over time — the evolution of the division of labor in society. A good beginning would be a table indicating the percentage of the labor force in each category.  It would be very interesting to see the shifting distribution across these categories over the past 75 years — though I can’t easily locate a study that provides this kind of analysis.  Presumably a century-long comparison would demonstrate a major shift in the BLS groups from group 45 (agriculture) to groups 47, 49, and 51, and a later shift to service occupations like groups 31, 35, 37, 41, and 43 in the past thirty years. (The BLS SOC is revised periodically, most recently in 2010, so comparison across time is presumably non-trivial.)

It is evident that there is a generally falling scale of authority, compensation, skill, and prestige across both sets of categories. So the division of labor, as expressed in these classification systems, proceeds from low-skill, low-specialization at the bottom, to high-skill, high-specialization at the top.

So the question of skill and division of labor is not exclusively one of sociological theory; it is a statistical feature of the social order that is amenable to direct empirical research. But the arrangement of the occupations in a society is not solely a question of economic efficiency. It is also directly tied up with the distribution of power and authority in society. Assigning a person the title of “manager” or “director” not only reflects the individual’s skills; it also assigns him or her a measure of power and authority.

(It is mildly interesting to note that there is a whole slice of specialized work in contemporary society that is not included in either classification: extra-legal activities like smuggling, piracy, gambling, organized crime, drug dealing, etc. These activities also have their own specialized division of labor, ranking of skills, and rates of return.)

The talent supply chain

The talent supply chain

I had an interesting discussion with a senior executive of Kelly Services that provided some very striking new perspectives on the world of work. Kelly Services is a global workforce solutions company, providing temporary and medium-term workers with a very wide range of specialized skills (link). One thing that was particularly striking is the fact that Kelly provides advanced technical and scientific expertise to corporations and government agencies as independent contractors. In fact, according to their website they have over 11,000 scientists and engineers available for placement. On any given day they have placed roughly 150,000 workers around the world, and are administering another 100,000 or so who are provided by independent contractors. So Kelly Services has a strong real-world knowledge base about the talent needs of the current global economy.

The most striking part of our conversation is this. Our traditional thinking about a job and a career is badly out of date. We think of the normal work situation as fulltime longterm employment in a specific location and with a salary and benefits. But this situation isn’t even the majority situation anymore. We know that a lot of employers don’t offer benefits, but that isn’t the big news. According to this executive, almost half of workers in the US economy are self employed or part-time or temporary. These workers don’t have benefits usually, and they don’t have job security. What they have is a specific set of talents to sell in a national or global market, and their standard of living depends entirely on the value of this set of talents.

Think of the crowdsourcing system that has gained some visibility recently. Amazon’s Mechanical Turk system is an example (link), and InnoCentive provides an example for problems at a higher level of difficulty (link). Here is how it works. A company has a problem to solve. It formulates a clear and unambiguous description of the problem and posts a prize for the first one or two people who come up with a solution. There are an unknown number of people who are earning their livings through his kind of work.

Or think of this challenging idea. A company like Kelly can reposition itself as a “talent chain management” company. They enter into contract with a large corporation to take on some or all of the company’s talent supply needs, from custodians to junior accountants to research scientists. The company is relieved of the costs of recruitment, human resource management, benefits, and sometimes supervision. The company gets high quality work at the time and place it needs, and Kelly manages the process. (Here is a report from the Wharton School on “Talent on Demand” (link).)

So what are the foreseeable social consequences of these changes in the ways that work and talent are mobilized? Several are quite straightforward. These developments imply a rapid deepening of inequalities in the future between people with good education and training and those without. As governors in many states are saying, high school dropouts won’t find decent jobs in the future because they haven’t cultivated the skills and talents that bring a high rate of return. And as Secretary of Education Arne Duncan says on every possible occasion, all workers need some post-secondary education or training. Simply a willingness to show up and perform repetitive labor won’t support a decent life. 

But this also has consequences beyond income. If more and more work is performed by private contractors and freelance individuals, the elements of the social security net that have traditionally been provided by employers will be gone — retirement contributions, healthcare insurance, longterm disability insurance, etc. All of these would need to be funded by the individual or socially through national insurance plans. Self-funding works for workers at the high end of the salary range; but it doesn’t work for people at the lower end. 

These tendencies are at work already. The growing separation between incomes in the top end of the distribution and the lower quintiles reflects these tendencies; so does the shrinking labor market for “good” manufacturing jobs; and so does the declining percentage of employers who offer health insurance to their workers.

So the conclusions are stark. Encourage all young people to invest in their educational opportunities; make sure that these opportunities are provided for rich and poor alike; but prepare for a world in which there is more and more deprivation for the bottom 60% of society. Progressives will want to address this coming crisis of poverty and deprivation directly by reinforcing the safety net and improving educational opportunities for disadvantaged people, and conservatives seem more willing to ignore or even justify the inequalities that we will see. But one way or another, it’s hard to see where the opportunities for a “middle class” life will come for more than half of society.

(Kelly Services has created an iPad app called Talent Project (link).  The app provides a portal into a collection of research papers and data on the future of work.  There is a mountain of interesting data and research on the talent economy here.)

Many capitalisms?

Professor Luciano Segreto lectured in Michigan this week on the subject of a comparison between US and European capitalisms.  Segreto is professor of International Economic History, Financial History, and the History of Regional Economic Development at the University of Florence.  His lecture was fascinating in many ways, but of special interest here is whether there is one capitalism or many.  Segreto’s view is that there are multiple capitalisms that have been implemented in various countries — England, France, Germany, Italy, the United States, and Japan, to consider a short list; and that these systems of political economy differ in significant ways.  He identifies different structures of the markets, different relations between technology and economic development, and significantly different ways in which finance and banking systems have been implemented as important dimensions of difference across these systems of political economy. 

The idea that there are distinct versions of capitalism is not a new one. Peter Hall and David Soskice’s Varieties of Capitalism: The Institutional Foundations of Comparative Advantage looks at recent work on the important institutional variations that exist across existing forms of market economies.  Charles Sabel’s historical investigations of alternative pathways of capitalist development represent one important line of thought on the question, and Frank Dobbin’s investigation of the different ways that the technology of the railway were incorporated in Britain, France, and the United States represents another important line of thought.  For Sabel the distinctions have to do with the ways in which skilled labor and workers were incorporated into the political economy (World of Possibilities: Flexibility and Mass Production in Western Industrialization (Studies in Modern Capitalism)link); for Dobbin it is the differences in political culture defining the role of state involvement in central economic institutions that made the largest difference (Forging Industrial Policy: The United States, Britain, and France in the Railway Agelink).

In listening to Professor Segreto I was drawn to a different way of analyzing the differences across historically realized capitalisms in the past century and a half.  We might imagine that there are three “attractors” that define a modern capitalist political economy: the values associated with the market and independent decision making by corporations and entrepreneurs; the value associated with the establishment of regulations protecting the common good and the safety and health of the public; and the value associated with securing the welfare of the whole population, involving a social security system and a willingness to redistribute income and wealth through taxation. This suggests the following diagram:

 Graph of capitalisms

The graph is offered only for the purpose of illustration of the idea. I have included the country’s 2011 HDI (link) and 5-year growth rate (link), but I don’t have data to allow scaling of these economies according to the three dimensions mentioned here.  But I’m sure that a capable graduate student would be able to come up with some available measures to do a much more rigorous job of pacing national economies in this tri-polar graph.  Measures of regulation might include degree to which key industries like energy, chemicals, pharmaceuticals, and food are effectively regulated by independent agencies. Measures of welfare-state commitments would include breadth of health system coverage, unemployment coverage, old age coverage, and percentage of GDP devoted to social programs.  And measures of free markets might include the degree to which companies can make choices unencumbered by regulations on safety, labor relations, market concentration, etc., as well as the effective rate of corporate taxation.

The United States and the United Kingdom seem to be on the low side among OECD countries in terms of both effective regulation and commitment to social welfare principles; Russia and China seem to afford quite a wide scope of business freedom but limited regulation of environment and safety and limited commitment to a social safety net; Sweden, France, and Germany have substantially greater commitment to effective state regulation of industry and to a high social minimum; Greece seems to have had high social welfare commitments but relatively low regulation of industry; and so forth.

We might label the three extremes of the diagram as “unencumbered business/corporate system,” “technocratic state,” and “social welfare state.”

It is significant that the political ideology of the right in the United States has for the past three decades waged a determined struggle against two of the poles of this analysis — regulation and social welfare policies.  Under the legislative and executive influence of politicians with this “small government” ideology, the political economy of the United States has been pushed further and further into the corner of untrammeled free market activity by corporations and individuals. Along the way the idea that government serves as a key guarantor of the public good has dwindled in importance.
Is this a useful way of characterizing the political economies of the contemporary world? And how would readers readjust the locations of the twelve economies listed relative to the poles of the diagram?
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