Economic Cycles and Social Movements: Past, Present and Future 0367528266, 9780367528263

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ECONOMIC CYCLES AND SOCIAL MOVEMENTS

Economic Cycles and Social Movements: Past, Present and Future offers diverse perspectives on the complex interrelationship between social challenges and economic crises in the Modern World System. Written with a balance of quantitative, qualitative and theoretical contributions and insights, this volume provides a great opportunity to reflect upon the ongoing conceptual and empirical challenges when confronting the complex interrelations of various economic cycles and social movements. By engaging wide-ranging ideas and theoretical points of view from different disciplines, different countries and different perspectives, this study breaks new ground and offers novel insights into the way the capitalist world economy functions as well as the way social and political movements react to these constraints. Different chapters in this volume bring about novel interdisciplinary approaches to study business cycles, economic changes and social as well as political movements, offer new interpretations and, while examining the complexity of socioeconomic cycles in the long run, present epistemological challenges and a wide variety of empiri­cal data that will increase our understanding of these complex interactions. Eric Mielants is Professor of Sociology in the College of Arts and Sciences at Fairfield University and Research Associate of the Maison des Sciences de l’Homme in Paris. He has written articles and essays on racism, capitalism, social theory, political economy and contemporary migration issues which have also been published in Dutch, French, German, Spanish, Korean, Turkish and Japanese. His comparative and historical social science research deals with the origins and nature of globalization/capitalism and the mass migration of people. How the modern world economy came into existence and how it continues to function in terms of political economy as well as racial formations is part of his ongoing research agenda. He also writes about the epistemological challenges of studying the world economy in all its complexity. Katsiaryna Salavei Bardos received a PhD in Finance from the University of Connecticut. She is an Associate Professor of Finance at Fairfield University where she teaches Introduction to Finance, Financial Management and a Seminar in Real Estate at undergraduate level and Corporate Finance at graduate level. She serves as a faculty advisor to students competing in the Charted Financial Analyst Investment Research Challenge and Real Estate Club. Her research interests are real estate and corporate finance. She has published articles in top journals such as Journal of Financial and Quantitative Analysis, Journal of Urban Economics, Journal of Real Estate Finance and Economics, Journal of Financial Research and Journal of Behavioral Finance. Her research received an outstanding paper award at a national conference and at the Dolan School of Business; has been discussed in CFO magazine and a Harvard legal forum, presented at the US Securities and Exchange Commission and referenced in a US Treasury White Paper.

Political Economy of the World-System Annuals Immanuel Wallerstein, Series Editor

Asia and the Transformation of the World-System Edited by Ganesh K.Trichur (2009) Mass Migration in the World-System Past, Present, and Future Edited by Terry-Ann Jones, Eric Mielants (2010) Global Crises and the Challenges of the 21st Century Edited by Thomas Reifer (2012) Overcoming Global Inequalities Edited by Immanuel Wallerstein, Christopher Chase-Dunn, Christian Suter (2014) Social Movements and World-System Transformation Edited by Jackie Smith, Michael Goodhart, Patrick Manning, John Markoff (2016) The World-System as Unit of Analysis Edited by Roberto Patricio Korzeniewicz (2017) Global Inequalities in World-Systems Perspective Edited by Manuela Boatcă, Andrea Komlosy, Hans-Heinrich (2017) Economic Cycles and Social Movements Past, Present and Future Edited by Eric Mielants and Katsiaryna Salavei Bardos (2020)

ECONOMIC CYCLES AND SOCIAL MOVEMENTS Past, Present and Future

Edited by Eric Mielants and Katsiaryna Salavei Bardos

First published 2021 by Routledge 52 Vanderbilt Avenue, New York, NY 10017 and by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Taylor & Francis The right of Eric Mielants and Katsiaryna Salavei Bardos to be identified as the authors of the editorial material, and of the authors for their individual ­chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or ­utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data A catalog record for this title has been requested ISBN: 978-0-367-52827-0 (hbk) ISBN: 978-0-367-52826-3 (pbk) ISBN: 978-1-003-05854-0 (ebk) Typeset in Bembo by Wearset Ltd, Boldon, Tyne and Wear

CONTENTS

Acknowledgmentsvii

 1 Introduction Eric Mielants and Katsiaryna Salavei Bardos   2 Cycles Within Structures vs. Structural Crises Immanuel Wallerstein   3 The Crisis of the Neoliberal Order? On the Structural Crisis of the Modern World-System Matías Vernengo

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22

  4 Business Cycles and Militarism in Historical Capitalism35 Ganesh K.Trichur   5 The Dialectics of Political Economy Taylor Mann   6 Brazil: From the Vicissitudes of Systemic Rebalancing to the Crossroads of Conservatism Rodrigo Luiz Medeiros da Silva and Lucimara Flavio dos Reis

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vi Contents

  7 Space, Transport, and the World-Market: Maritime Transportation, Freight Rates, and the Global Control of Foreign Trade Flows in the Capitalist World-System Luis Garrido Soto   8 Polanyi’s Minskyian Monetary System Daniel H. Neilson   9 An Embedded-Systems Approach to the Socio-Economic Cycles of the World System Daniel Gugan

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134

10 A Source for Greater Peripheral Sovereignty or a New Axis of Dependency Relations? China and Latin America in the Context of the Readjustment of Forces in the World System: The Case of China–Ecuador Relations146 Juan Pablo Vásquez Bustamante and Luis Clavería 11 Rethinking Core and Periphery in Historical Capitalism: ‘World-Magnates’ and the Shifting Centers of Wealth Accumulation Roberto Patricio Korzeniewicz and Corey R. Payne 12 Alternatives to Western Economic Models? Latin-American “Buen Vivir/Good Living” and the Opening of the Social Sciences María José Haro Sly, Julien Demelenne and Eric Mielants

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Notes on Contributors 184 Bibliography189 Index202

ACKNOWLEDGMENTS

The 42nd Annual Conference on the Political Economy of the World System was held in April 2018 at Fairfield University, USA. As co-organizers we would like to acknowledge our gratitude to the financial support of the Center for Social Impact, the Department of Communication, the History Department, the ­Politics Department, the Economics Department, the Department of Sociology and Anthropology as well as International Studies, Latin American and Caribbean Studies, American Studies, the Humanities Institute, the Honor’s Program, and the Public Lectures and Events Committee. Ms. Michelle Lesko, Program Coordinator of the Department of Sociology and Anthropology, provided invaluable logistical support. Dean Mark Ligas (Dolan School of Business), Dean Richard Greenwald (College of Arts and Sciences) and Provost Christine Siegel, were enthusiastic in their support for this event and contributed a large portion of the resources that made such an international conference possible. To everyone, including all participants, our sincere appreciation.

1 INTRODUCTION Eric Mielants and Katsiaryna Salavei Bardos

The 42nd Conference of the Political Economy of the World System provided a great opportunity to reflect upon the ongoing theoretical and empirical challenges confronting the complex interrelations of business cycles and social movements. Our international conference brought together scholars from different disciplines, different continents, and different perspectives, offering a wide variety of analytical contributions to the world system perspective broadly conceived. We welcomed and included theoretical as well as empirical studies that offered novel insights.The scholarship that follows in this volume utilizes, reformulates or engages the world system approach in stimulating ways. In Chapter 2, Immanuel Wallerstein considers “Crisis” as a concept that has multiple meanings. The most common meaning is the downturn in major phenomena, which he labels “Cycles within structure”. Business cycles are one such widely studied phenomena. One can consider two types of structures: eternal or non-eternal. Eternal structures imply that cyclical ups and downs are part of the long-term upward or downward trend. The non-eternal structures of Fernand Braudel imply a conceptual framework of “events” and “cycles within structure”. It assumes a life-span of structures: they come into existence, function according to rules, and come to an end.Wallerstein reminds us here of the significance of the Braudelian conceptual framework. He also argues that the modern world-system is in a structural crisis, and that this crisis is not a recurrence of a business cycle, and adds that the upturn after a downturn returns the measurement to a higher place, which results in an upward movement of the measurement (called “secular trend”). In the period of normal functioning of the system relative stability is the norm. Once the system enters into structural crisis small efforts have big effects and, as the result, the overall situation is chaotic. To properly analyze the structural crisis one must look at three

2  Mielants and Salavei Bardos

arenas – the economy, the polity and the socio-cultural – for the world-system as the unit of analysis. In the capitalist system the main goal of those who produce is to realize a profit. This can be done by maximizing price or minimizing cost. There are three costs of production: remuneration of personnel, inputs of production and taxation. There are three kinds of personnel: unskilled labor, intermediate cadres, and senior management personnel. Remuneration of all three have been on an upward trend. Unskilled labor can increase pay through syndical action, however, producers can transfer production to zones of lower historical cost of production until that is no longer possible (in essence due to urbanization). Cadres experience increases in cost due to technological improvement and for political reasons (to help contain pressures of the syndical actions of the unskilled workers). Chief management officers experienced an increase in income owing to the increasing ability to take rent from the shareholders. The cost has also been constantly rising, with the most costly inputs being toxic removal, replacement of raw materials or semi-finished products; and infrastructure. Taxes have also experienced an overall increase. The combination of all these elements at the level of world-system is what accounts for the structural crisis. To conclude, Wallerstein argues there are two camps competing for the determination of the outcome of a battle to construct a new stable system that will end the transitional period: Davos and Porto Alegre. Davos wants a structure that is not capitalist, but preserves its worst features: hierarchy, exploitation and polarization. The spirit of Porto Alegre wants a system that is relatively democratic and relatively egalitarian (which has not existed before). Both camps are divided. The key to success in a transitional situation is to tilt in the direction of one of the two basic camps so that a new stable world-system is established. In Chapter 3, Matías Vernengo argues it has been over ten years since the Great Recession, which many have suggested is a terminal crisis of capitalism or a structural crisis of the modern world-system, which differs from normal business downturns. Many claim that it will lead to persistently lower growth. Vernengo argues that rather than being the end of capitalism itself, we are experiencing the crisis of neoliberal capitalism. For him, it is plausible that the current structural crisis of the modern world-system is a change within the economic system. There are several economic theories of the business cycle.The dominant views on the economic cycles stress the effects of real and monetary external shocks, ignoring historical, institutional and geopolitical factors. The two most famous economists’ views on the economic cycle are Schumpeter’s synchronization of the three cycles view, and Friedman and Schwartz’s view of the failure of the ­Federal Reserve. Heterodox views suggested that a crisis can occur in the absence of shocks due to inherent fluctuations. Marxian views highlighted the role of profit maximization and the predator–prey mechanism. A heterodox Keynesian views profits as the result of the process of investing. Fluctuations exit because there is delay in the delivery of capital goods. Both Marxist and radical Keynesian theories of the cycle relate to a cyclical crisis within a given structure of production,

Introduction 3

but recognize the possibility of a structural crisis of capitalism. As such the Gold Standard and Breton Woods eras can be viewed as cyclical crises, while the Great Depression is an example of a structural crisis. One hegemonic cycle occurred with the decline of the United Kingdom and the rise of the United States after World War II. Many authors argue that another such turn of the hegemonic cycle is the decline of the United States and the rise of China. However,Vernengo suggests that the current crisis may not represent the end of the Neoliberal era, rather the final stages of the rise of the American hegemony. The nature of the current crisis can be best understood by looking at the evidence.There is a clear decline in the economic growth after the Bretton Woods era. There has been a deceleration of growth in the United States and other advanced economies, as well as the collapse of the Soviet bloc, poor performance of Latin America and the Middle East. Some important trends are the deindustrialization of the core, associated with the rise of Global Value Chains (GVC) and the industrialization of the periphery (i.e. Asia). Development of GVC led to an increase in exports from China. Despite these trends, the driving force behind global GDP growth is still the growth of US’s GDP. The reason for this is that economic growth is driven by expansion of demand. Even though the US constitutes only 4 percent of the global population, it accounts for a quarter of all demand. Alternative views of economic growth include the neoclassical view, which emphasizes the role of the rule of law, institutions and property rights. Vernengo argues that technical innovation in the West was in large part due to the expansion of demand, which resulted from military advantages that permitted the opening of foreign markets.This is an important reason to doubt the rise of the Sinocentric world, the decline of the US’s technological dominance and the rise of China. The main evidence of the crisis of the Neoliberal order is the growing inequality and the erosion of the middle class in the US. The characteristics of the crisis of the Neoliberal order are clear: low average output growth (with exceptions in China and India), high growth in Asia (the result of the transformation of the global value chains) and relocation of production, which is accompanied by increasing inequality, in turn stimulating political resistance to Neoliberal policies and the rise of populism, both from the far right and the far left. There is also a greater probability of financial crises. Interestingly,Vernengo argues that these features were, to some extent, what Neoliberals wanted to achieve. The real problem with Neoliberal order is that it has created a mass of excluded people, which may react against the system. In conclusion,Vernengo argues that the current structural crisis does not suggest the end of capitalism or of the hegemonic dominance of the United States, while acknowledging contradictions in the capitalist system. Secular stagnation has been used by economists to explain the current situation. The argument is that the balance between investment and savings has been altered, resulting in low interest rates. In particular, low interest rates result from a slowed rate of population growth in the US, an increase in the propensity to save and the excess of global

4  Mielants and Salavei Bardos

reserves in dollars. Bernanke argues that with free capital mobility global imbalances will disappear. Summers is skeptical of global rebalancing and the role of the dollar as reserve currency, and emphasizes the importance of the surplus countries expanding consumption. An alternative view is the lack of demand in the core economies stemming from inequality and private indebtedness. Stiglitz argues that secular stagnation is a political rather than economic problem. Vernengo suggests that it is unlikely that the dollar will be challenged by the yuan or euro as a key currency. Ultimately, Vernengo doesn’t believe in the end of American hegemony and the end of capitalism. This suggests that crises will continue to happen and the instability as well as the retreat of democracy are possibilities in the near future. In Chapter 4, Ganesh Trichur focuses on Schumpeter’s Long Economic Waves (LEWs) and examines how far a purely economic history can explain the capitalist process and its crisis, excluding all external factors, such as wars, population growth, and governmental policies. He claims that capitalist business cycles are definable only after 1786 in England and the US, and after 1871 in Germany. Trichur argues that external factors interacted greatly with Schumpeter’s purely economic innovations in capitalist history. Drawing upon McNeill’s (1982b) military history,Trichur suggests that Schumpeter’s exclusion of war-making military dynamics and the dismissal of entrepreneurial opportunities created by “primitive accumulation” distorts capitalist history. Trichur follows McNeill (1982b) to jointly examine the origins of capitalism and the rise of a military-commercial complex in fourteenth-century Northern Italian city-states, as well as the evolution and rise of the military-commercial complex in sixteenth- and eighteenth-century transalpine European States during the 300 years (1486–1786) preceding the First Long Wave. Military expansion of these states synchronized with the French Revolution and with England’s Industrial Revolution, which propelled the First LEWs (1786–1842). Military expansion continued through Bourgeois Kondratieff (1843–1897) and the Neo-Mercantilist Kondratieff wave (1897–1929), culminating in a full-blown military–industrial complex. Trichur describes in significant detail military history and the rise and evolution of capitalism during these periods. He argues that there was significant military innovation as a result of the pursuit of power of war-making states, just as there was significant commercial and industrial innovation as a result of the profit seeking behavior of the private-property economy. Moreover, there was significant collaboration between the military and the private-property economy. Trichur concludes that the connection of military expansion with each of K ­ ondratieff ’s cycles casts doubt on Schumpeter’s claim that capitalist history over the long run is entirely explained by economic processes. Thus, business cycles are at best only one part of the capitalist process and the militarist dynamic is almost entirely internal to the capitalist process. In Chapter 5, Taylor Mann articulates the interconnectedness of political economy and cultural environments. The chapter examines the post-revolutionary

Introduction 5

period and presents both macro and micro case studies, and argues that the changes in cultural conditions indicate the tails of the systemic cycles. It also applies the principal of contradiction on both international and national basis and examines a variety of variables, ultimately attempting to explain the rise of nationalism. In this text Mann argues that mankind encompasses both good and bad, which shape one another and are therefore dialectical. The two polarities are contradictory and complementary and contain elements of each other. The primary hypothesis studied in the chapter is that “the abundance of one polarity in relation to the other is self-reinforcing in the short-term, and self-undermining in the long-term” raising interesting questions about future developments. Mann defines political economy world systems (PEWS) as the study of interrelationships within the macro sociological structure.The dialectics of PEWS are the contradictory relationships that shape and are shaped by the macro sociological structure. One of the primary contradictions of the world system is the dialectical relationship between business cycles and political trends. The power of every institutional structure is self-reinforcing in the short-term and self-­ undermining in the long-term. Mann breaks the homologies of the post-war era into three political structures: (1) the labor regime (1945–1970s) – centered on full-employment policy; (2) the capital regime (1980–2016) – centered on price-stability; (3) (2016–present). The key economic indicators in the first two periods are mirror images of each other. However, Mann argues that it was not only the economic, but also political and cultural trends that were different in those two periods. The labor regime brought economic issues into politics, with pro-labor parties dominating during this period. This resulted in the lowest rates of inequality in modern history. However, class politics were replaced with identity politics and pro-capital elites gained control of both parties. Mann argues that the pro-­capital regime that emerged during the 1980s was part of a broader structural shift that began during the mid-1960s. Mann argues that these trends provide support for Inglehart’s Material Insecurity Hypothesis, which posits that high stress environment leads to closed collectivism, xenophobia, and obedience. Low stress environment, on the other hand, leads to openness, individualism, xenophilia and freedom. Mann argues that a labor regime is an example of a closed system and that when the high stress is resolved there appears an appetite for more openness (capital regime). He also emphasizes that the political system in the US can be characterized by two phases: integrative and disintegrative. The former is a period of economic equality, social cohesion and political bipartisanship. The latter is the period of economic inequality, social stratification, and political polarity. Macroeconomic regimes shape and are shaped by income. To conclude, Mann argues that politics are not static. Rather, following Miller and Schofield, it is a dynamic process with the interaction of economic and social dimensions. He argues that a pro-labor regime requires the suppression of social issues because it requires a ­unified coalition of workers. A labor regime, on the other hand, requires the

6  Mielants and Salavei Bardos

s­uppression of economic issues. Ultimately, the cultural environment plays an important role in business and political trends. In Chapter 6, Rodrigo Luiz Medeiros da Silva and Lucimara Flavio dos Reis focus on Brazil and the recession of 2018 as well as the increasing crime rates and corruption scandals that elected a far-right politician, Jair Bolsonaro. ­Bolsonaro appeared to be pro US and Israel and hostile towards China, ­Brazil’s largest commercial partner. He visited Taiwan, which worsened relations with China. They explain Bolsonaro’s rise to power by examining economic trends in Brazil. After a decade of economic growth and poverty reduction, Brazil experienced a deep recession. However, the shift in political preference ­precedes recession. The authors argue that the economic crisis has in fact political roots. They assume that destabilizing factors are structural because the deterioration of political equilibrium arose during economic prosperity and institutional ­stability. Brazil experienced a decline of the Gini Coefficient from the millennium to 2015. The decline in inequality implies that the salary of the lower tier of income increased faster than the salaries of the higher tier, which increases inflation. However, the increase of trade with China resulted in a downward pressure on global prices. China bought large amounts of raw materials from Brazil, provoking a persistent valuation of Brazilian domestic currency, leading to a reduction of prices of all tradable goods, offsetting the rising prices of lowskilled services. Given these trends, the authors argue that the rise of Bolsonaro in Brazil cannot be limited to the study of the internal structure of Brazilian society. Instead, they argue that it should be examined in conjunction with an examination of changes in the inter-regional and transnational division of labor. The rise of the conservatism in Brazil is understandable given the structural changes in Brazil in the twenty-first century. The authors follow Wallerstein’s World-System analysis considering the world system as one unit of division of labor and multiple cultural systems. The authors conclude that the crisis in Brazil was not caused by the economic cycle because it began during the period of prosperity. The protests of 2013 were based on ideological and socio-distributive motives.The increase in wages of blue collar workers reduced the standard of living of white collar workers, which also affected women who used cheap labor to help with household duties.The middle class started to reject the top-down structure of power and offered opportunities for economic liberalism. They conclude that the main characteristic of Jair ­Bolsonaro’s election is the involvement of an intermediary segment with ideas of a decaying global order. In Chapter 7, Luis Garrido Soto analyzes the significance of transportation to commodity chains and world markets. Surprisingly this approach has had a relatively marginal place in world-system analysis. Most scholars of the world economy include transportation in empirical analysis but largely ignore it in ­theoretical frameworks. It is often viewed as an “external shock.”

Introduction 7

In his contribution, Soto attempts to provide a holistic approach to transportation within the framework of historical capitalism. First, based on Marx’s volume II of Capital he disentangles the transportation process and points out its productive moment and the commodification process in the capitalist world system. Second, he describes how this process goes from being a labor/production process to a valorization process. Third, he links the transportation process with a geographical substratum of the capitalist world economy. One can infer that the control of foreign trade flows is an interstitial dimension of capitalist accumulation on a world-systemic scale. Throughout the lifecycle of historical capitalism, technological improvements enhanced the movement of goods, people and capital. In this chapter, Soto develops the “spatial implications” of foreign trade, where market exchange becomes the geographical transfer of value.While transportation has been increasingly considered in studies of historical capitalism, it has been subordinated to the cyclical relocations of productive capital and the extractive moment. Soto points out the importance of “lateral” appropriation of ever longer distances from the sixteenth century onwards. The fact that the cycles become shorter with time might be explained by the absolute dimensions of the world-system and the increasing mobility of capital. The challenge is to understand the absolute and relative magnitudes of transport value through the core–periphery magnitudes. When the geographical substratum of the capitalist world-system is taken into account then the world-market acquires other determinations. This is because it not only adds circulatory mediations of transportation to the core–periphery relations, but also because these same mediations are crossed by core–periphery divisions. The activity of transport incorporates more than special integration of the markets. It might be suggested that conjunctural TimeSpace covers the phases of geographical expansion and densification of the world market. Soto concludes that the production of space and geographical landscapes through the circulation of capital plays an important role in the world-systems analysis. In Chapter 8, Daniel H. Neilson suggests we revisit the question why peace gave way to war after World War I. He argues that the cause of breakdown of the political-economic order between 1815 and 1914 was rooted in the failure of liberal principles. He critiques nineteenth-century liberalism and the idea of the self-regulating market. The collapse of the Gold Standard was the precipitating event of the failure of the self-regulating market. The financial crisis of 1929 was accompanied by bank failures and economic contraction. In this text, ­Neilson shows that Polanyi’s and Minsky’s criticisms of capitalism share a distinctive emphasis on the mechanism of payment. The Gold Standard should be understood as a payment system facilitating international exchange backed by the Bank of England or the central bank. Gold served as an anchor of value. The goal was to allow for global exchange without the movement of gold itself. The main goal of policymakers was to preserve the Gold Standard, even if that led to the occasional crisis. Domestic systems were

8  Mielants and Salavei Bardos

mechanically maintaining the Gold Standard. There was a blind trust in the Gold Standard, which failed after World War I.The self-regulating market was not much affected by the removal of the Gold Standard. Minsky studied the tendency of the financial system to go through crises and the incompatibility of such instability with the economic doctrines of his time. Minsky argued that the crisis originates from the survival constraint – the need to pay debt at its maturity. One borrows under uncertainty, hoping to realize profits. In good times, both borrowers and lenders extend themselves. The contracts become more interdependent. However, even a small surprise can trigger bankruptcies, defaults and failures. Minsky pointed out the importance of the survival constraint – the need to pay the debt or face legal consequences. The survival constraint triggers the search for payments. In good times there is a lot of liquidity and hence the means of payment can be easily obtained. However, in a crisis, liquidity dries up and it is impossible to obtain the means of payment, and a wave of bankruptcies follows. The crisis can be aided by a lender of last resort. Neilson argues that Minsky’s survival constraint framework can be applied to earlier periods, such as the Gold Standard system. Polanyi described the monetary system as hierarchical. The US overtook Britain as the center of the international monetary system in the 1920s. Defeated European countries relied on the US and other victorious countries. Neilson argues that is a Minskyian trend. In a way, the center of the system became the lender of last resort. However, the US faced a constraint of its own. It was able to issue more dollars only by abandoning the Gold Standard. According to Neilson, by focusing on the Gold Standard, Polanyi did not see the payment itself, the premise of the liberal order, enduring, thus preserving the US’s position at the center. Hence, the central bank and the issuer of international money can serve as lenders of last resort. In Chapter 9, Daniel Gugan develops a comprehensive framework of world system analysis that embeds the socio-economic phenomena into technological, biological and physical systems and shows both “exterior” and “interior” structures above/below the world-systems level. He also uses the framework of the layers and their interactions developed in this chapter to analyze historical and current world systems. The chapter also zooms in onto the analysis of the two analytical layers: the socio-economic orders (world systems) and their underlying metaphysical structures (metanarratives). It studies how they shape and are shaped by each other. The main contribution of the chapter is the combination of the analytical apparatus of world-systems analysis and the study of metanarratives. Gugan analyzes the societal system as part of the technological, biological, and physical systems. He also shows further embedded systems bellow the societal level. The chapter focuses on the concept of embeddedness and its effects. It outlines the following embedded societal systems: natural reality, technological reality, socio-economic reality, social cognition and individual cognition/perception level.The chapter proceeds by explaining the interactions among these levels.The

Introduction 9

interactions point to co-evolution of the embedding and embedded structures, which is circular rather than one-directional (dynamic mutual embeddedness). This is similar to the chaos approach to social science. This framework is capable of bi-directional analyses. The text uses this framework to study the economic cycle of late-capitalism. In doing so Gugan focuses on the three middle levels: technology, socio-­ economic systems and metanarratives. It examines late-capitalism. The text starts from the “exterior” towards “inwards” and shows how technological changes re-shape metanarratives through altering a socio-economic setup. Then it reverses the analysis and starts from the “interior” by working “outward” and shows how the changes in metanarrative affect social and economic orders, which generate needs for new technologies. It thus shows the bi-directional nature of the connections. For Gugan, the decline of the current metanarrative is in close bi-directional relationship with the embedding and embedded layers that it operates in. Recently, automation and jobless growth presents a challenge to the late capitalistic metanarrative. The current trends can be explained by the labor–capital dualism. This points to the renewal of the current metanarrative because of changes in the socio-economic setup. The author agrees with the statement made by Wallerstein regarding the fact that the existing capitalist system cannot survive and that there are two possible outcomes: the “Spirit of Davos” or a more democratic and egalitarian system. Gugan disagrees with Wallerstein, however, regarding the claim that the class struggle will be at the center of the replacement of capitalism. He argues that instead of pure class struggle, he sees the long-term solution in a new metaphysical structure, in which even when work is no more needed, people can achieve a secure and fulfilling life. The task for the global left is to provide a radically new narrative, breaking from the older neo-Marxist/neo-Keynesian approach. In Chapter 10, Juan Pablo Vásquez Bustamante and Luis Clavería focus on the last few decades, when China has emerged as an important player on the world economic stage, raising questions such as what is China’s ultimate destination, will it become a new hegemonic power, and is China moving into the core? Are we moving into a new post-capitalist world system? China’s role in Latin America has increased over time and it became the main trading partner of several countries. There are several views regarding China’s presence in Latin America, with some suggesting an asymmetrical relation in favor of China, while others suggest that the relation between China and Latin America is an opportunity for Latin America to break through and “develop.” The question emerges of whether China represents the opportunity for greater sovereignty for the peripheral countries or to what degree it is a new source of dependency that will replace previous core hegemonic powers. There are several views on the emergence of China as an important economy in the last few decades. One view is skeptical about China becoming a new

10  Mielants and Salavei Bardos

­ egemonic power. The other view suggests a movement towards a new historical h social system. Both views have two elements in common: the decrease of US hegemony and the increase of China’s power. The authors ask us to reflect upon what the emergence of China means for Latin America and Ecuador in particular.The US is still the main importer to and exporter from Ecuador, despite the increased presence of China. However, the percentages of exports and imports to the US are decreasing while the percentages of exports and imports to China are increasing. A similar pattern is observed for direct foreign investment. Ecuador decreased its debt from 70.1 percent of GDP in 1999 to 20.8 percent of GDP in 2007. However, the bilateral debt has increased where China’s presence was evident. Ecuador set up a number of “emblematic” projects, some of which were financed by Chinese capital. The authors conclude that during the Citizen’s Revolution, from 2007–2016, the role of China in the Ecuadorian economy has increased; however, up to this point, the relations with core economies such as the US were not replaced. In Chapter 11 Roberto Patricio Korzeniewicz and Corey R. Payne argue that the traditional analysis of the world systems often assumes a static and territorially fixed depiction of the “core” versus “periphery.” It assumes that “core” and “periphery” throughout the longue durée of historical capitalism had the same kind of processes, activities and/or spaces. In this text, the authors analyze the dataset of shifting centers of wealth accumulation. They find that throughout the longue durée there has been a constant process of spatial differentiation, which was a mani­festation of the uneven ability of relevant factors such as workers, capitalists and rulers to protect their control of resources. In the 1970s, world systems scholars identified a tri-partite structure that consists of the core, semi-periphery and periphery, resulting from the world division of labor. Some economic activities produced high (low) profits and thus gained most (least) benefit from the division of labor. Such a depiction emphasizes change over time. There has also been a tendency to use these categories (core, semi-periphery and periphery) as entailing three persistent attributes: (1) zones contain states that become permanently specialized; (2) labor is free and better paid in the core and is coerced and poorly paid in the periphery; and (3) states are strong in the core and weak in the periphery. This approach tends to portray the attributes of the core, semi-periphery and periphery as constant through time. The appeal of this approach is its simplicity. However, the authors argue that such classification should constitute only a preliminary step in the research process. An approach that is based on global, relational processes is more difficult because, in such an approach, whether the activity is core or peripheral is contingent on constantly changing forces of production and competition. The authors argue that core and peripheral activities are constantly transforming in the process of Schumpeterian “Creative Destruction.” They define core activities and spaces by identifying the shifting centers of wealth accumulation in the world-economy over time.

Introduction 11

This text uses data for world-magnates – the historical equivalents of today’s billionaires – as the indicator of centers of wealth accumulation. Using historical records, the authors compiled the data on approximately 700 world-magnates operating between 1500 and 1930.These individuals are the primary beneficiaries of the creation of the new centers of wealth accumulation. This allows us to use the impact of core-like activity on the world system. The data allow the authors to not assume either a spatial-temporal location or the type of activity in the core versus periphery. Rather they start with magnates and identify the shifts in centers. Their approach allows them to figure out the most profitable activity in a given time and identify its “creation” and “destruction” of profitability and its innovativeness. Such activities include well-known examples such as banking, aristocratic landholding, shipping and precious metals. But it also includes activities not traditionally identified as core-like: the production of sugar and the slave trade, which created extra-ordinary profits. Thus, the method of this chapter allows us to identify activities and locations in the world commodity map that may have been previously overlooked.The authors can also uncover who is b­ enefiting from the core-like activities and where the rewards are observed. The data analyzed in this chapter suggest that the nation-states became the “container” for capitalist accumulation in the late nineteenth century. Prior to that, beginning in the ­sixteenth century, core-like activities operated in international networks of trade and colonial empires. An example of an early network in which core-like activities were contained is sugar and slavery example. Tracking world-magnates who obtained wealth in 1550 shows that there were few centers concentrated in Europe. In this period, core-like activities were the sales of sugar, slaves and spices, with linkages flowing through urban centers. By the early nineteenth century, the data show expansion of centers related to manufacturing and raw material. Over the nineteenth century and by the mid-twentieth century, the data show a dramatic change: while the centers are widespread, the global linkages between centers experienced a decline. As nation-states became dominant they emerged as containers of economic activities, reaching the culmination under US hegemony. The authors conclude by offering an alternative mapping of the changing political constellations and contained economic activities – international networks, city-states, empires and nation-states. In Chapter 12, Jose Maria Haro Sly, Julien Demelenne and Eric Mielants raise the question of to what extent Latin American debates regarding “Buen Vivir/ Good Living” pose genuine alternatives to traditional economic growth models, and, in doing so, contribute to a novel opening of the social sciences. They argue that the institutionalization of the social sciences and the multiple Eurocentric perspectives it created in the modern university system cannot be separated from what occurred economically in the modern world system. Real colonization emerged in tandem with epistemological colonization, as the modern university system was institutionalized during the last 200 years. Focusing on recent debates in Latin America, along with subsequent policy proposals and legal reforms, and

12  Mielants and Salavei Bardos

decentering traditional Eurocentric values in Bolivia as well as Ecuador, they argue that a different way of life as well as a new way of understanding the world calls into question traditional models focused on economic growth and development. The institutionalization of the social sciences between the nineteenth and twentieth centuries and the scientific naturalization of the model of liberal society may have led to a series of great exclusions of social realities that are distant from the hegemonic centers of knowledge production, yet despite all this they point out that the twenty-first century has witnessed an ongoing debate regarding the concept of Good Living, “Buen Vivir”. The authors hope that this debate may not only be useful to Latin America, but also to the “West” by bringing about a fruitful dialogue with the non-West about the problematic ways it has studied and ruled the non-West. In conclusion, different chapters in this volume call for new interdisciplinary approaches to study business cycles, economic changes and social movements, offer new interpretations and, while examining the complexity of socio-­economic cycles in the long run, offer new epistemological challenges as well as a variety of empirical data that will increase our understanding of these complex interactions. The editors hope that the chapters in this volume will generate more dialogue between different social science disciplines and world system studies in general. As this volume was being finalized, Professor Immanuel Wallerstein, the founder of World System Analysis, passed away, on August 31, 2019. His erudition, integrity, intellectual leadership, generous but rigorous feedback, and above all his humility, will always stay with us and continue to inspire us. Owing to his ill health during the last year of his life, the PEWS conference at Fairfield University was the very last one in which he was able to participate. Given his dictum “it is encouraged to encourage”, we hereby encourage a younger generation of s­cholars to expand on his scholarly oeuvre, in order to better confront the intellectual as well as social, economic and political challenges that will arise in the years to come. As a final tribute to his legacy, we hereby dedicate this volume to him.

2 CYCLES WITHIN STRUCTURES VS. STRUCTURAL CRISES Immanuel Wallerstein†

All analysts use concepts. And virtually all concepts have multiple meanings, which always results in difficult communication between the writer of a text and the writer’s readers. It is made even more difficult to the degree that the writer is unsure or unaware of who the multiple possible readers are. Some concepts particularly lend themselves to confusion because they are widely used but with radically different meanings by different writers. One of these especially confusing concepts is “crisis.” It therefore seems to me useful at the outset to discuss the two major meanings of the term crisis in order to maximize our mutual communication. The most common meaning of crisis is a cyclical concept that calls all downturns in major phenomena “crises.” It is used essentially to say that something undesirable is happening. In this usage, it therefore behooves persons to assess the trajectory of the downturn and try to reverse the direction of the cycle as rapidly as possible. I label this kind of cycles as “cycles within structures.” What causes this downturn is to be sure a subject of debate, even the subject of debate. In the twenty-first century, given the technology that has been developed, we can turn on the television or open our computers each morning and discover all kinds of downturns or upturns in, say, the price of stocks in a given country. We can assess the downturn and argue that it is normal or unusual.We can suggest beneficiaries and losers of the shift in prices.We can advise others how they might best be winners rather than losers. We can debate on television all these questions with other analysts. Or conversely, we can argue that there are long-term trends in such prices because of this or that. We can then say that the daily ups and downs are of little importance for most people. We can be optimists believing that if we respond appropriately the crisis will not last long. Or we can be pessimists believing that

14 Wallerstein

there is little we can do to speed up an upturn.We can even suggest that engaging in constant analysis of the immediate situation keeps us from seeing what really is going on. If we insist on analyzing the cycle, we can suggest that there are different cycles of different lengths and different modes of operation. Business cycles are one prominent such cycle widely used at the present time, but of course it is not the only one. There are whole literatures that exist about such cyclical crises. Over time, these literatures have become far more sophisticated than the original version of this kind of cycle. Or, as some critics suggest, rather than becoming more sophisticated, they have become mired in their self-definition and have resisted seeing the theoretical and practical limitations of the concept. Of course, when I call them cycles within structures, that assumes we mean something by the concept of structures. Some analysts insist that the cycles are eternal and in a sense never change. That is, the cyclical ups and downs occur all the time but they are part of a long-term upward or downward trend that we should applaud or deplore, but which constitutes a basic reality of the real world. Alternatively, we can consider that there are long-term structures that precisely are not eternal. Fernand Braudel’s (1992) conceptual framework of “events” and “cycles within structures” assumes a life-span for structures. They come into existence; how this happens needs to be explained. They function according to rules; what the rules are needs to be explained. They come to an end; for what reason and by what process needs to be explained. I am a partisan of the Braudelian conceptual framework. If one uses that framework, then the concept of “cycles within structures” makes sense. It is a concrete mode of analysis that can be applied to a concrete situation. Braudel used it, for example, to analyze the Mediterranean region over time. One doesn’t have to agree with what he says about the Mediterranean to accept the utility of the mode of analysis. Faruk Tabak (2008) did just that. He accepted the Braudelian mode of analysis but offered an alternative explanation of the actual cyclical realities of the Mediterranean. If we are to proceed then in this discussion of differing usages of the concept of cycles, I think I need first of all to restate what I mean when I say that the modern world-system is in a structural crisis, and that this structural crisis is not simply one more recurrence of a business cycle. This requires that I restate how I have been using the pair of concepts of cyclical rhythms and secular trends in the period of normal functioning of a historical social system. Fluctuations are normal in the sense that they always occur. Here we agree with those who speak of business cycles. Furthermore, some fluctuations are more important than others. This too is the basic argument of those who speak of business cycles. And I agree that business cycles are one of the most important regularly recurring cycles.

Cycles Within Structures 15

I then add one element which is not emphasized in most of the literature on business cycles.The upturn after a downturn never returns the measurement to the same place. It always is higher. That is, if say we measure some phenomenon as p at its nadir, then q at its apex, it always more than p but less than q at the next nadir. The reason this is so is that the many who have benefited from the higher advantages of distributions at the apex resist politically losing all these advantages during the downturn. Their resistance suffices to guarantee that the subsequent nadir is more than p if less than q. Now, reflect on what that means quantitatively. If after each business cycle (or other kind of regular cycle) successive nadirs are higher, it follows that over time there is an upward movement of the measurement.This is what I (and others) call “secular trends.” To understand the crucial importance of the secular trends, we have to imagine a two-dimensional rectangular space. There are multiple languages to describe such a space. Some speak of an abscissa and an ordinate. Others speak of horizontal versus vertical locations. And others talk of an x-axis and a y-axis. This last is the easiest to visualize. The x-axis measures location in time; the x-axis moves forward implacably over time. The y-axis measures (or can measure) the percentage that a given measurement is of the whole. It has an in-built limit (unlike the x-axis). It cannot record a number higher than 100 percent. We can call this limit the asymptote. The fact that the y-axis has an asymptote means that it is impossible for systems to be eternal. They all run into difficulty as they approach the asymptote. We are interested in analyzing a particular variety of system, which I call a historical social system. It seems that when a system reaches approximately 80 percent of its way on the y-axis, it begins to oscillate more and more extensively. We can call this moment the beginning of the structural crisis. In the period of normal functioning of the system there is strong pressure to minimize the deviation from the equilibrium. The system thereby maintains its essential structure over this time. Big efforts to change the character of the system have limited effect. Relative stability is the norm. Once, however, the system enters into structural crisis the opposite is true. Small efforts have big effects. As the structural crisis proceeds, the violence and frequency of the oscillations becomes bigger and bigger. The overall situation is chaotic, meaning that there is less and less predictability of what will happen at the next moments in time. Chaotic unpredictability transforms the behavior of actors in the system. Since they cannot be sure what the situation will be in the near future (say, three years), they engage in behavior that best promises to improve their situation in the immediate present (say, one day or one second or one millisecond). Look at what we now discuss constantly – the fact that the stock market currently seems to rise despite what had been historic expectation of more stable behavior. We can note that investors are no longer willing to take short-run losses

16 Wallerstein

in order to preserve middle-run purchasing power within the system, and thereby middle-run profits. By being recalcitrant to short-term losses, they amplify the gap between the upper 1 percent (and in fact even more to the upper 0.1 percent) and the 80 percent at the bottom of the population. A political battle ensues. For well over a century, this battle was phrased as a class struggle between the upper stratum (or capitalists/bourgeoisie) and the lower stratum (or workers/proletariat). In this battle, it was said that the largest part of a middle stratum, called the petty bourgeoisie, was dispossessed and became proletarians, and this permitted the transformative revolution of the system into something more progressive (communism). We have come to see that there was much that was empirically incorrect about this scenario. It mischaracterized the behavior and motivation of the lowest stratum of the population, who were labelled the “lumpenproletariat.” It misunderstood the historical trajectory of productive systems, seeing the so-called factory as the inevitable outcome of technological development. It was a picture primarily geared to urban life and omitted the structures of peasant life. In addition, this traditional view was unable to cope with the politico-cultural centrality of nationalism. Nor could it deal usefully with what we have come to call identity politics, including feminism, ethnicity, affirmation of racial groupings, and ever-increasing newly-proclaimed modes of dividing up the world’s population. It was also the case that the traditional debates reified the boundary lines of states, making of them something called nations. It therefore was unable to speak to the centrality and volatility of geopolitical alliances, something that becomes more visible and, to many, disconcerting as we move forward in the structural crisis. Finally, the traditional analysis rested on an untenable separation of three arenas of social life – the economy, the polity, and the sociocultural. It therefore found it necessary to determine the interrelation of these three arenas in terms of which determined which. This traditional view emphasized the priority of the economic arena (considering it the structure), calling all else the superstructure, and thereby insisting that their analysis was secondary to the analysis of the economic arena. Instead of this no longer very useful mode of analysis, let us look at what is going on during the structural crisis. To do this, we must unfortunately use the three arenas, insisting that they produce parallel sets of behavior in all three arenas without a priority assessment. And we must do this not for states but for the world-system as the unit of analysis, a world-system that became in the late nineteenth century finally a global system. In a capitalist system, the basic objective of those who produce is to realize a profit. This is done by maximizing the price of sales and minimizing the costs of production.This seems obvious but is not as easy to do as it sounds. For one thing, it is easier to reduce costs than to increase sales prices.

Cycles Within Structures 17

Increasing sales prices poses a basic contradiction for the capitalist producer. In order for him to sell at a higher price, there must be effective demand for the product. But effective demand depends on the income level of potential purchasers. And their income level in turn depends on their levels of remuneration, which, as we shall see, is precisely one of the costs that producers seek to reduce. The only way this contradiction can be resolved is by combining lowered remuneration costs in the short run with some increased remuneration in the middle run. Only quite large producers are capable of playing this game, which is one of the reasons that there is increased concentration of production over time. The decisions of individual purchasers as to the allocation of their income is termed the elasticity of demand. Purchasers are under various kinds of pressure to opt to allocate income in ways that benefit large producers, which expands the costs for all producers. Still, this combination worked for a long time – until it reached points of exhaustion. We should now turn to the exhaustion of methods to reduce the costs of production. There are three basic and unavoidable costs of production for any producer: remuneration of personnel; inputs of production meaning both machinery and purchasing materials of production; and taxation. Let us take them one by one. There are three kinds of personnel: unskilled labor, intermediate cadres, and senior management personnel. All three have been on an overall upward curve of remuneration despite all the short-term ups and downs. Reducing the costs of unskilled labor is a widely-noted phenomenon. Unskilled labor can increase their pay by syndical action in periods of expanding surplus-value (sometimes called Kondratieff a-phases). This is because producers do not wish to slow down production for any reason when profits are high and are therefore ready to make concessions to workers’ demands. However, in Kondratieff b-phases, producers resist strongly all such demands and, on the contrary, undertake measures that will reduce syndical demands. The principal method is what is called the runaway factory. They transfer production to zones of lower historical costs of production. There, they are able to obtain employees at costs that are lower than costs elsewhere in the world-system. How is this possible? In areas where there exist large numbers of persons operating largely outside the market system, they can offer such persons income that exceeds their previous levels but is still lower for the employer than he would have to pay in his previous location. This win-win situation depends on two things. There must be a pool of such persons available. And the newly-employed persons must be relatively ignorant of world levels of remuneration. Ignorance of the wider world scene does not last forever. Sooner or later, the new employees are ready to engage in syndical action to raise their pay levels. There is however a more important reason why this doesn’t last. Each time a new group is incorporated into the world employment system, there is a reduction of the number of such zones. This is sometimes called deruralization. When it

18 Wallerstein

reaches a certain level (on the y-axis), it is no longer available as a way to reduce costs of production. Cadres also face similar cost rises. This is the result of several factors. One is technological improvement, which requires a constant increase of the numbers of semiskilled and highly skilled personnel. They are needed both to produce effectively and for political reasons, to help in containing the pressures of the syndical actions of the unskilled workers. The third kind of personnel, chief management officers, have also been rising in income levels. This has been possible because, although technically employees receiving a wage, they have been increasingly able to take rent from the shareholders, who are technically the owners but in practice are simply recipients of interest on their shares. And the level of interest is determined by the chief management officers. Inputs show a similar constant rise in costs. Machinery gets more complex and costly all the time. But it is the material inputs that are the worst problem from the point of view of the producer.The producer seeks to reduce costs by not paying the full bill. They externalize them, something that becomes more and more difficult, as these zones become fewer. The three most costly inputs are toxic removal; replacement of raw materials or semi-finished products; and infrastructure. At first the producer was able to not pay the bill to any significant extent for all three material inputs. The producer thus had a free ride at the expense of the mass of the inhabitants of a given zone. This free ride became more and more difficult as time went on. The producer tended to deal with toxic removal by dumping all that is toxic into the nearest public space. The problem here is parallel to the problem of lostcost unskilled labor. World public space gets rarer each time dumping occurs. Eventually the amount of public space approached the asymptote. At that point, the impact of toxicity became more visible to those in the more privileged areas of the world. They reacted by organizing to respond to so-called environmentalist demands. This of course increased the cost to producers, who resisted. Politically, there were calls for a clean-up. This is costly. It was basically paid by state institutions. To pay for these clean-ups, the states had to increase taxation, which again increased cost for the producers. In addition, the movements and the states called for producers to internalize these costs. This increased even more the costs to the producers. Their resistance slowed the internalization but was unable to refuse it altogether. The costs of replacement followed a similar pattern, especially as concerns the cost of inputs. As the amount of world production increased, the availability of raw materials became less. In this case too there was a call for efforts to find new ways of replacing inputs. This is also costly, requiring more taxation and more pressure to internalize costs. In this case too, there was resistance, which was only partially successful. Cost begin to approach the asymptote.

Cycles Within Structures 19

Finally, taxes rise inexorably despite their unpopularity. In addition to all the calls already noted for increased taxations, there is one that comes from the fundamental democratization of world politics. There are three basic demands of the mass of the world population.They want education, believing correctly that higher education leads to higher income.They want health provisions, believing correctly that this makes possible a longer and more pleasant life. And they want guarantees of lifetime income, believing that both children and the elderly cannot pursue a decent living without it. All of these demands are costly. What happens often is that higher taxation demands are shifted downward from higher political structures to lower ones.The higher structures claim the credit for reducing taxes.The lower political structures begin to buckle under the weight of financial shortage. Once again, taxation demands get worse as they approach the asymptote. If the lower structures go bankrupt, which they often do, the taxation pressure goes upward again. The combination of all these elements at the level of the world-system is what accounts for the structural crisis of the world-system, to which we must now turn. The patterns of behavior during a structural crisis are quite different from the patterns during the “normal” operation of a historical system. Indeed, they are almost opposite. The first and most obvious difference is the very high volatility of behavior. That is called chaotic behavior and is extremely unpredictable in the short or even middle run. Chaotic behavior is not irrational but rather uncertain and uncertainable. The one thing that is certain is that the existing historical system is coming to an end and cannot be salvaged. It is not the case that it ceases to function or that persons within the system recognize the reality of the non-salvageability of the system. So we have a curious situation in which participants attempt to obtain goals pursuing the modalities of the system’s “rules.” They seek profit from production. States seek to become hegemonic. This actually exacerbates the dilemmas. They are frustrated by their failures to achieve these goals and shift to any behavior that works in the short run. Even though few people are truly cognizant of what is happening, they find themselves organizing (or being organized) into two camps competing for determining the outcome of a battle of constructing a new stable system (or several systems) that will end the transitional period. I call the two camps the spirit of Davos and the spirit of Porto Alegre.The two want a very different kind of successor system. The spirit of Davos camp wants a new system that, while no longer capitalist in structure (something that would-be impossible), still reproduces all the worst features of a capitalist system: hierarchy, exploitation, and polarization. The spirit of Porto Alegre camp wants a new system that is relatively democratic and relatively egalitarian. I say relatively because there will always be some

20 Wallerstein

deviation from the norm. The point is that such a system would be an enormous improvement over the existing capitalist system. While there have been many undemocratic and inegalitarian systems on the planet previously, there has never been a largely democratic, largely egalitarian system. It would be something previously unknown, untried, and untested in its operations, but theoretically possible. The actual current transitional situation has turned out to be even more complicated that a simple struggle between two camps. Each of the camps is undergoing an internal battle about the optimal tactical stance to take in pursuing its objective. One group in the spirit of Davos camp, possibly the largest group, argues that the optimal way to win the battle is by employing a maximum of brutal strength. This group says that the spirit of Davos camp controls the institutions, the finances, and the armed forces worldwide at the present time and they can readily win an open battle. The other group within the spirit of Davos camp argues that a tactic of brutal strength is self-defeating. If pursued, it would arouse ever-increased resistance by an ever-wider group. It would begin to arouse resistance within the armed forces themselves and undermine totally the ability of the camp to prevail. Instead, they argue for a tactic of co-optation. They propose changes that are not changes, concessions that are minor, expecting that this would undo creeping resistance. They would proclaim themselves revolutionaries when they are in fact intelligently counter-revolutionary. The argument is cogent, but it may not be attractive to members of the other group in their camp. The spirit of Porto Alegre camp is similarly divided. The Porto Alegre meetings were founded on the horizontalist principle.These meetings have no officers, no specific political views, no spokespersons, and no internal elections. But after more than a decade of ever-larger meetings, another faction has proclaimed the futility of these meetings. They insist that nothing can change without organized overt positions seeking to obtain control of the state institutions. This latter group has been called the verticalists since they claim that no positive results will be obtained without organizing a counter-force to the organized state institutions controlled by the spirit-of-Davos camp, and this requires a disciplined vertical structure. It seems clear that the current split within the spirit of Porto Alegre camp simply replicates the split of over 150 years first made visible in the Marx-Bakunin debates within the First International. We therefore find ourselves faced not with two competing positions but with four. This is of course enormously confusing and for many disheartening. But it is what we face. The key to success in such a transitional situation is the ability to tilt enough super-mega-actions in the direction of one of the two basic camps so that the situation is resolved in its favor and a new stable world-system (or systems) is established.When this will happen is unknown, but it will probably come suddenly and definitively sometime in the coming decades.

Cycles Within Structures 21

This outline of the struggle in which we find ourselves illustrates the ­difference between the two kinds of crises – those crises within structures and those in structural crises of a historical system. The clearer we are about this distinction the more useful our further empirical research will be. And the wiser our sense of overall political tactics will be.That is the immensely difficult road ahead for us all.

Note † Professor Immanuel Maurice Wallerstein passed away on August 31, 2019.

3 THE CRISIS OF THE NEOLIBERAL ORDER? On the Structural Crisis of the Modern World-System Matías Vernengo1

It has been more than ten years since the collapse of Lehman Brothers, and the bursting of the subprime real estate bubble, and the so-called Great Recession. The aftershocks of the global crisis have affected almost the whole world, with a significant crisis in the European periphery, tied to the woes of the euro, and the decline in growth in many peripheral countries that were over-reliant on high commodity prices and export-led growth strategies. Even China’s growth has slowed down in the transition to a growth strategy more dependent on domestic markets. Many have argued that this is a terminal crisis of capitalism, or a structural crisis of the modern world-system (Wallerstein, 2013 and 2020). It is indeed quite clear that the current crisis is not simply a normal business cycle downturn, and many economists have suggested that the economy will be persistently on a lower growth trajectory (Gordon, 2016) while others have recovered the notion of secular stagnation, to suggest that low growth might be the new normal (Summers, 2014). This chapter suggests that while it is true, as argued by Wallerstein (2020) in Braudelian fashion, that it is important to distinguish crises within structures and structural crises proper, it is also possible that what is taking place is one more round of the long crises of the Welfare State capitalism that was consolidated after World War II. Rather than the end of capitalism itself, what is underway is the crisis of neoliberal capitalism. It is, however, very likely that neoliberal capitalism is more resilient than most analysists would think. Further, while the Chinese challenge to the financial-technological-military hegemony of the United States is evidently strong, it is also unclear, and one could even say unlikely, that a new Sinocentric world order would emerge, as for example suggested by Arrighi (2007). In other words, since the structure of

The Crisis of the Neoliberal Order? 23

capitalism has not been invariable over its long history, it is plausible that the current structural crisis of the modern world-system is in fact a change within the economic system. The rest of the chapter is divided in three sections. The first provides a brief description of economic theories of the business cycle, including the limitations of mainstream economics, the advances within heterodox economics, and its relation with World Systems tradition, while the following presents a discussion of the general characteristics of the current structural crisis, and the changing nature of the economic cycle in the 21st century. The final section looks at the reasons for of the persistence of the crisis, and the resilience of neoliberalism in the policy arena – even with the rise of populism in many parts of the globe.

Theories of Cycle and Crisis The dominant views on the economic cycles in economics emphasize the effects of external shocks, real (technological innovation) and monetary (monetary, associated with central bank behavior). They also tend to analyze business cycles and economic growth, fluctuations and the change in the output trend, as separable and independent phenomena. Broader historical, institutional and geopolitical factors are often neglected. Perhaps the two most famous expressions of economists’ views on the economic cycle were Schumpeter’s notion that the Great Depression was the result of the synchronization of the three cycles (i.e. Kitchin, Juglar, and Kondratieff, which differ in regards to duration, going from the short to the very long-term) and Friedman and Schwartz’s notion that the same event could be explained by a failure of the Federal Reserve, in part associated with the death of the key central banker, Benjamin Strong.2 Heterodox3 views of the business cycle build on the old classical political economy4 notion that the economic system is inherently unstable. Contrary to the mainstream view that the cycle is a result of shocks, either monetary or real, which affect the economy, heterodox scholars suggest that the system has mechanisms by which fluctuations are inherent and will occur even in the absence of shocks, even if it is evident that shocks do occur all the time. Marxian models of the cycle emphasize the role of profits in the explanation of economic fluctuations. An important mechanism that allows for recurrent fluctuations is based on the predator–prey mechanism. The behavior of investment, which is dependent on the profit rate, and the effects of a growing economy on the bargaining power of workers and the wage share, are combined to create the conditions for cyclical movements. A booming economy with a higher rate of profit leads to investment, which, in turn, implies that output and employment grow. Higher employment leads to stronger unions with greater bargaining power, and to higher wages. These higher wages are the predator, so to speak, that eats the profits, and leads eventually to lower investment and a

24 Vernengo

recession. But the downturn in time creates an unemployment problem, eroding the strength of the unions, and leading to lower wages, and the conditions for a recovery.5 In the heterodox Keynesian view, output fluctuates because investment is affected by expected demand, leading through the accelerator to an adjustment of capacity to demand, but investment affects actual income through the multiplier. Higher than expected demand leads to higher income, and higher income leads to more demand, and vice versa when expected demand falls. The Keynesian story suggests that profits are the result of spending decisions, as in Michael Kalecki’s famous dictum, according to which workers spend what they get and capitalists get (profits) what they spend (invest). In other words, profits are the result of the process of investing, not its driving force. Fluctuations then occur from the fact that there are lags in the delivery of capital goods. As the economy booms, investment is required to adjust the productive capacity to the growing demand. But eventually, less demand for capital goods is necessary, as the delivery of machinery, equipment and installations takes place, and that in turn implies less demand, and less investment. In the upturn, the fact that capital depreciates and become obsolete implies that even with dwindling demand, at some point, capitalists would be required to invest, increasing demand, and leading to a recovery. Both Marxist and radical Keynesian theories of the cycle are often associated with discussion of financial fragility and the dynamics of debt accumulation, exacerbating even further the natural tendency of the capitalist economy to recurrent crisis. Both theoretical models discussed above essentially relate to cyclical crisis within a given structure of production. However, both clearly recognize that recurrent crisis could eventually lead to a structural crisis of capitalism, and a demise of the system. Vercelli (1991), for example, refers to the idea of structural instability as being central for radical Keynesian ideas. Structural instability, in contrast with dynamic instability, implies that the qualitative nature of the behavior of the system changes after a shock. Dynamic instability would be simply the moving towards or away from equilibrium. In that sense, one can think of the business cycles of the Gold Standard and/or the ­Bretton Woods eras as being related to dynamic instability, with movements away and towards equilibrium, according to predator–prey and/or multiplier–accelerator mechanisms. However, the inter-war crisis, including the Great Depression, can be seen as a moment of structural instability, in the sense that the qualitative way in which the system worked had changed.6 Kindleberger (1973) famously argued that the main reason for the change in the qualitative behavior of the cycle was the hegemonic transition, with the decline of the United Kingdom, and the eventual rise of the United States after World War II. In that sense, these categories reflect the Braudelian ones used by Wallerstein (2020), and arguably cycles within structures are related to dynamic instability, while the structural crisis would be a case of structural instability.7

The Crisis of the Neoliberal Order? 25

The idea is that the system is undergoing, as in the inter-war period, a qualitative change in the behavior of the economic system, perhaps associated with another shift in the hegemonic cycle. And, indeed, many authors have suggested that the global economy is on the verge of another such turn of the hegemonic cycle and that the decline of the United States, and the rise of China underpin the changes in the global economy that have been recently observed. Tavares (1985), in a somewhat neglected contribution, argued that the end of the Bretton Woods era, and the rise of what might be termed the Neoliberal era, unleashed not the demise of United States hegemony, but contrarily the reaffirmation of American hegemony. In that view, the central element of hegemonic power was related to the control of the global reserve and vehicle currency, which ultimately relied on military power (Fields and Vernengo, 2013). If that is the case, the collapse of Bretton Woods was not the beginning of the end of American hegemony, and the start of the rise of China, with its reopening to the global economy, but the final stage of the rise of American hegemony that had started in the inter-war period. That process was complemented by the collapse of the Soviet Union, and the end of the Cold War. But the process is still not over. In that sense, the current crisis may not represent the end of the Neoliberal era, even if it shows the limits to American hegemony. It is clear that in many advanced economies, including the United States, the vestiges of the Welfare State Capitalism, in its social democratic and New Deal versions, still resists the Neoliberal attacks. Neoliberal attacks, often related to cutting social benefits, are still part of the right-wing political agenda, and the Neoliberal deconstruction of the administrative state, as it has been called more recently in conservative circles, is an incomplete agenda. In the same vein, the Chinese challenge might prove to be at an early stage, and even their process of economic catch up might end up in what has been termed as a middle-income trap, with the trade war under way.

The Nature of the Current Crisis In order to analyze the type of crisis the system has been going through, it is worth looking at the evidence. One way in which the crisis can be understood is a slowdown in economic growth, admittedly as a preliminary indicator. The decline in economic growth after the so-called Golden Age of Capitalism during the Bretton Woods era is clearly visible. Between 1951 and 1973 global economic growth was, on average, 5.1 percent per year, and it has fallen to 3.0 percent ever since (Figure 3.1). Note that since certain countries in the periphery, particularly China and India, have accelerated their GDP growth in the latter period, the explanation is associated to some extent with lower rates of growth in the core, and other regions in the periphery and semi-periphery.

26 Vernengo

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 0.0 –1.0

1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

1.0

–2.0 –3.0 FIGURE 3.1 

Global GDP.

Source: Conference Board/Total Economy Database.

In other words, the deceleration of growth in the United States and other advanced economies, the collapse of the Soviet bloc, and the poor performance of Latin America and the Middle East, should be qualified. In particular, the rise of the so-called Asian Tigers, and more importantly of China and India starting in the 1980s, may suggest that the global economy is not in a terribly precarious position.That is why the stagnation and the crises in the core has been seen as the other face of the relative decline of the United States, and a reflection of the deindustrialization of the core, associated with the rise of Global Value Chains (GVCs) and the industrialization of the periphery, in particular in Asia (with important consequences for some parts of the semi-periphery, e.g. Latin America). The deindustrialization of the core and the industrialization of the periphery – or reindustrialization, since China and India were the core of global manufacturing before the so-called Industrial Revolution in the West (Allen, 2011) – are interrelated phenomena, reversing a two-centuries-old process. However, there is an inherent danger in measuring the deindustrialization of the core merely as resulting from the number of workers in the manufacturing sector. For example, it is clear that the share of the United States in global production (see Figure 3.2), and the share of global manufacturing production has fallen. It is fairly clear that the development of GVCs, or what Hopkins and ­Wallerstein (1986) basically referred to as Commodity Chains, over the last 40 years has led to a significant increase in exports from China, in particular when manufacturing exports are taken into consideration. And that has led to a significant increase of the Chinese share of global exports, catching up with the United States in this

The Crisis of the Neoliberal Order? 27

39.0 37.0 35.0 33.0 31.0 29.0 27.0

1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

25.0

FIGURE 3.2 

United States (percentage World GDP).

Source: World Bank/World Development Indicators.

category (Figure 3.3). However, while the Chinese economy plays an increasing role in global production, and trade, it seems that the driving force behind global GDP is still the growth of the American Economy, as shown by the correlation between the US and World GDP fluctuations (Figure 3.4). 18.00 Share of World Exports (%)

16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Year Share of World Exports (USA) FIGURE 3.3 

Share of world exports.

Source: World Bank/World Development Indicators.

Share of World Exports (China)

28 Vernengo

25.00

GDP Growth (%)

20.00 15.00 10.00 5.00 0.00 –5.00

Year

GDP Growth USA (%) FIGURE 3.4 

GDP Growth China (%)

GDP Growth World (%)

GDP growth (China, USA, World).

Source: World Bank/World Development Indicators.

The reason for that is that what drives global economic growth is the expansion of demand. Mainstream economics, dominated by neoclassical or marginalist views, suggests that the economy is supply constrained. In this view, the forces behind the process of economic growth, often exogenous, are ultimately connected to technological development. In other words, in the conventional view it is the supply side of the economy that rules the roost. Technological innovation would allow one to produce more efficiently, reduce prices and allow for expansion of demand.8 In this view, the rapid increase in the Chinese supply capacity, and its role in the global supply chains indicates that the United States is falling behind.9 Yet, if the emphasis is on demand growth, then the share of consumption becomes a more relevant variable, and the United States, with about 4 percent of the global population still maintains a disproportional quarter or so of it (Figure 3.5). To understand the alternative views, that emphasize either the supply constraint versus the demand-pull arguments in the process of economic growth, it is necessary to revert to the main theoretical arguments. The neoclassical view suggests that the profound causes of economic growth are associated with ­institutions, in particular, the rule of law, and property rights, following the work of Douglass North (e.g. Acemoglu and Robinson, 2012). Some authors, like Deirdre ­McCloskey (2016) have emphasized, in Weberian fashion, the cultural aspects linked to what she terms bourgeois values that allowed for the so-called Great Divergence since the nineteenth century. Joel Mokyr (2016) provides a synthesis referring to two types of growth, Smithian and Schumpeterian. The former would result from the expansion of trade related to human interaction, and would rely on trust, which

40.00 35.00 30.00 25.00 20.00 15.00 10.00

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The Crisis of the Neoliberal Order? 29

Year Final consumption expenditure (USA Share of World) Final consumption expenditure (China Share of World) FIGURE 3.5 

Share of world final consumption expenditure.

Source: World Bank/World Development Indicators.

would be enhanced by institutions such as property rights, while the latter would come from the interactions of humans with nature, and would be associated with technological innovations, the famous process of creative destruction. In this view, the rise of the West would be associated with a culture of growth, which could be traced to some extent to the Scientific Revolution within the context of a fragmented polity that promoted inter-state competition.10 Contrastingly demand driven stories suggest that the changing patterns of consumption during the sixteenth and seventeenth centuries (Berg, 2005), and the role of state procurement in pushing demand, were crucial in explaining the rise of the West. This suggests that what John Brewer famously referred to as the “Fiscal-Military State,” in particular the military spending associated with the maintenance of the navy, is at the heart of the rise of the West. When we look at the emergence of new patterns of consumption and the role of the state as the engines of growth it is reasonable to assume that technical innovation in the West was, to a great degree, the result of expansion of demand, and that in turn was the result of military advantages that permitted the opening of foreign markets, as in the infamous Opium Wars (Vernengo and Fields, 2016).11 And that is at least one important reason to harbor doubts about the rise of a Sinocentric world, and the decline in the American technological dominance, since it is far from clear that the US military supremacy is under contention, or that China has the capabilities to challenge the US globally in the near future.12 Further, while in Russia, Eastern Europe, and good parts of the periphery and semi-periphery, the State retreated from the 1990s onwards, in the US the existence of what Block (2008) refers to as a hidden Developmental State created the conditions for the continuous use of industrial policies to promote American

30 Vernengo

corporations.13 In fact, if China is seen as a possible threat to US hegemony, it is because it has its own Developmental State that has intervened in the economy, and has gone against the grain of the market friendly policies promoted by the Washington Consensus. The problem, then, with the Hidden Developmental State is less that American corporations are not still competitive, but that the benefits of US hegemony have not been widely shared by all Americans. It is this rise of inequality and the erosion of the middle class that many see as the fundamental evidence of a crisis of the Neoliberal order.

The Neoliberal Order and Secular Stagnation From our discussion in the previous section, the characteristics of what some see as the crisis of the Neoliberal order can be summarized as follows. There are low levels of output growth on average (particularly in advanced economies), with the main exceptions being China and India. The rapid growth in Asia is related to the transformation of the global commodity chains (or global value chains). This relocation of production went hand in hand with increasing inequality of income and wealth, particularly when measured in terms of head count and not by country.14 Inequality has fueled the political resistance to Neoliberal policies and the rise of populism, both from the right, with neo-Fascist tendencies, and the renewal of Socialist and Social Democratic ideas on the left.15 And last, but not least, the crisis has been fundamentally associated with financialization and increasing financial volatility. Here, it is suggested, contrary to other interpretations, that the structural crises under way does not reflect the end of capitalism, or the end of the hegemonic dominance of the United States. However, it is true that the elements described above make explicit certain contradictions in the capitalist system that point to the limits of the Neoliberal order that emerged from the collapse of Bretton Woods in the 1970s. Many economists have suggested that the reasons for the current situation are rooted in what they have termed secular stagnation. Even though the concept of secular stagnation is relatively old, related to the work of Alvin Hansen, who had been influenced by Frederick Jackson Turner’s notion of the closing of the ­American frontier, and some old Keynesian ideas, the modern version can be associated with the work of Summers (2014), and to a lesser extent Robert Gordon (2016). The fundamental argument, in this view, is that changes in the economic structure have altered the balance between investment and saving and that this has caused the fall of the natural rate of interest. This is the central thesis of the so-called secular stagnation argument. Summers (2014) contends that the natural rate of interest fell as a result of the rate of population growth in the US, which has slowed. As a result, the capital-to-labor ratio has increased, and that has led to an increase in the cost of labor and a reduction of the cost of capital (the natural rate), according to the simple logic of the marginalist principle of substitution.16

The Crisis of the Neoliberal Order? 31

In addition, Summers argues, more plausibly, that the worsening of income distribution has led to an increase in the propensity to save (less consumption), which has also put downward pressure on the natural rate of interest.17 A final important reason adduced by Summers for the lower natural rate of interest is the accumulation of foreign exchange reserves by central banks to deal with the heightened international financial volatility. This argument was also put forward by Bernanke (2015a; 2015b). Bernanke and Summers agree that secular stagnation is related to the excess of global reserves in dollars, what the former refers to as the global savings glut. Bernanke (2015b), however, is more optimistic, and argues that with further financial liberalization and the increase in capital flows, there would be an increase in the investment opportunities and the natural rate of interest would increase (with a dislocation of the marginal productivity of capital schedule, i.e. the investment curve). Further, according to Bernanke, with free capital mobility, there would be capital flight from the US, a depreciation of the dollar, an appreciation of the yuan, and a rebalancing of the global current accounts. The optimist of elasticities implies that the depreciation of the dollar would be sufficient to rebalance the US Current Account (CA), and reduce the Chinese accumulation of dollar reserves, an argument along the lines of Pettis (2013). In other words, the global imbalances, which are seen as the main problem, would tend to vanish as a result of the functioning of the market economy on a global scale. Further, in this view, excessive Chinese savings, and the low interest rates would be the cause of the excessive private indebtedness in the US and other advanced economies, and the driving force behind the last global financial crisis. Summers is skeptical about the possibility of a dollar depreciation leading to a global rebalancing, and he is also more conscious about the role of the dollar as a reserve currency. For him, the solution (not unlike Keynes’ Bretton Woods plan) is for surplus countries to expand consumption. Both Bernanke and Summers see the global imbalances as a problem, while their solutions are different. An alternative view would suggest that the problem is lack of demand in the core economies. In the United States, part of the problem is associated with income inequality, and the unsustainable nature of private indebtedness (Barba and Pivetti, 2009). This suggests that Stiglitz (2018) is correct when he claims that Summers’ argument cannot be sustained, and secular stagnation is less an economic problem, the low natural rate of interest, and more a political one, associated with the economic policy decisions. Further, the notion that the yuan, and/or even more reasonably the euro are close to taking over the role of the dollar as a key currency, something that is closely connected to the pricing of key energy commodities and to military hegemony, is difficult to defend at this point (Fields and Vernengo, 2013). In that sense, the trade war initiated under president Trump seems to indicate that American elites are aware of the Chinese challenge to its hegemony, and that the retreat of the Neoliberal order will disrupt the global commodity chains established

32 Vernengo

over the last four decades, but would lead to a recreation of those chains with a decreased role for Chinese contributions to value added in production. The question at hand, then, is less about whether the current crisis of ­Neoliberalism has caused lower growth, greater inequality, redistribution of ­production towards the periphery and greater chances of financial crises. All of these features were to some extent what the Neoliberals in fact wanted to achieve. Lower growth and the relocation of production, with the consequent deindustrialization of the core were necessary to weaken the labor class, and to allow for the inequality that reflects the ultimate goal of these policies, the accumulation of wealth at the top.The financial instability, even if it can be seen as a bug of the system, is also required in the sense that it is a side effect of financial deregulation, and the whole process of financialization, which was also instrumental in the accumulation of wealth at the top. Provided central banks continue to work as lenders of last resort in a crisis, there is little push back on the notion of an independent central bank and a deregulated financial market. The real problem seems to be that the very success of the Neoliberal project has created a mass of excluded people that, in Polanyian fashion, may react against the system. On the one hand, there is the reaction against globalization and austerity in many places in the core and the periphery. Yet, it is far from clear that a progressive or a reactionary alternative to Neoliberalism has the capability of bringing back a Great Transformation, similar to the one encountered in the 1930s. In fact, part of the reason that was possible back then is that a serious alternative to capitalism existed. As suggested here, China does not pose at this point such a challenge, being both a variation on the capitalist model, and also not yet quite capable of challenging American hegemony.The possibility of a long agony of the Neoliberal order under American hegemony cannot be ruled out, and it may be the most likely scenario for the near future. That suggests that, on the economic front, recurrent crises will continue, and on the political front instability and the retreat of democracy, in its more substantive form, are very likely.

Concluding Remarks The current crisis can be seen as a structural crisis of capitalism, and not merely a cycle within the existing structure of the economic system. But it represents the final stages of the imposition of the Neoliberal order. Although there is a challenge to American hegemony, there is no eminent danger of a collapse of the hegemon, be that military or to the international position of the dollar, or even, and perhaps more polemically, to the industrial and technological dominance of the United States. It is fairly evident that at the core of the capitalist system, the United States grows at a slower pace, that the income distribution has worsened considerably, with the consequent incongruence that the society that boasts about the dream (the American one) has very low social mobility. Yet, that does not imply that

The Crisis of the Neoliberal Order? 33

Neoliberalism has failed. Au contraire, the objective of Neoliberalism was to subvert the institutions created during the Golden Age of capitalism, and that is an unfinished project to some extent. Right-wing populism is an important element in that project, to use the popular forces to reduce the benefits that were obtained during the previous era. Not only that, but it is also far from obvious that the current economic crisis, or the subdued cycle, will lead to the end of Neoliberalism as the intellectual reservoir for economic policy. For example, in spite of the talk about changes in the power structure within the International Monetary Fund (IMF), and about its policy practices, very little has effectively changed. There are no reasons to believe that mainstream (neoclassical) economics will change any time soon.And hence the importance of the Political Economy of the World Systems, together with strands of heterodox political economy, as tools for understanding the nature of the current crisis.

Notes   1. Matías Vernengo, Professor of Economics, Bucknell University and Editor in Chief of The New Palgrave Dictionary of Economics.Versions of this chapter were presented at the Escuela de Verano, Asociación de Economía Crítica, Valladolid, July 5, 2017, and the 42nd Political Economy of World-Systems (PEWS) Conference, Fairfield University, April 26, 2018. The author thanks without implicating Lourdes Benería, Óscar Carpintero, Ángel Martínez González-Tablas, Eric Mielants, Daniel Neilson, Jordi Roca, Immanuel Wallerstein and other conference participants for stimulating questions and discussions. The author would also like to thank Harrison Olle and Yiwei Wang for their research assistance.   2. See Schumpeter (1939) and Friedman and Schwartz (1963). Essentially Schumpeterians argue that the Great Depression was a technological collapse, while Friedmanites suggest it was a great monetary contraction. The notion that patterns of debt accumulation, associated with the expansion of mass consumption, and that the functioning of the Gold Standard, in a global economy that was transitioning from British to ­American hegemony played a role in the crisis of the 1930s is, to a great extent, neglected. For an important exception see Kindleberger (1973).   3. Vernengo (2017) provides a short introduction to heterodox views of the business cycle. There are essentially two main heterodox views of the cycle, a Marxist and a radical Keynesian view.   4. Classical political economy here is used to refer to the authors from William Petty in the seventeenth century to Karl Marx in the nineteenth century, including particularly Richard Cantillon, François Quesnais, Adam Smith and David Ricardo. The common characteristic is that these authors, in contrast to marginalist or neoclassical authors that have dominated the economics profession since the 1870s, assumed that real wages were exogenous, often at subsistence level, and that history and institutions were central in the determination of income distribution.Their work was re-evaluated in the twentieth century in the contributions by Piero Sraffa. For a discussion of this tradition, often referred to as the surplus approach, see Garegnani (1987).  5. For a critique of Marxian models, including the Goodwin predator–prey, for its emphasis on profits, see McColloch (2017).   6. Other contributions that suggests that cycles could be categorized as part of a given structure would be the French Regulation and Social Structures of Accumulation schools.

34 Vernengo

  7. O’Brien (2003) has criticized the idea that it is possible to discuss global economic history as a sequence of hegemonic cycles.   8. There are several variations of the mechanism that allows supply to create its own demand, an idea known as Say’s Law in economics. In modern economics, the adjustment of demand to supply depends more often than not on the effect of deflation on wealth, which allows for an increase in demand. Some classical political economists also believed in Say’s Law, but a few were critical, in particular Marx, even though some Marxists do believe that the system is supply constrained. Adam Smith preceded Say’s Law, and his notion that the extent of the market (demand) limits the division of labor, i.e. supply-side productivity, suggests a demand-driven approach. Brenner (1977) criticized Marxist views that emphasized the role of demand in the expansion of capitalism and termed them neo-Smithian. It was only with Maynard Keynes and Michael Kalecki in the twentieth century that an alternative to Say’s Law was developed. See Green (1992) for a discussion of classical theories of output.   9. It is important to note, however, that even in that case foreign corporations play a significant role in the structure of production in China, in ways that Chinese corporations are not in the structure of production of advanced economies (Nolan, 2013). Think of the ubiquitous example of the Apple iPhone, assembled in China by the Taiwanese Foxconn, and with parts sourced from several countries. 10. Similar stories that emphasize the role of science in the rise of the West can be found in Jack Goldstone (2008). For an alternative view see Pérez Caldentey and Vernengo (2017). 11. The idea that demand creates the need for technological development is firmly established in the literature and is often known as the Kaldor–Verdoorn law. It harks back to Adam Smith’s idea that the division of labor is limited by the extent of the market, i.e. demand. For the European advantage on firearms see Chase (2003). 12. As noted by Vine (2015), US military bases cover the whole globe.The recent publication of the National Defense Strategy, a document that focuses on the eroding of US military advantage with regard to Russia and China, has raised some doubts. It seems, however, that the level of anxiety with respect to the Chinese challenge is similar to the infamous missile gap debate of the late 1950s and early 1960s and the anxiety over the Sputnik launch, which led many to suggest that the Soviet Union was militarily and technologically ahead of the US. Skepticism about Chinese techno-military capabilities, of course, does not mean the US is invulnerable. 13. On the role of military spending on technological innovation see Ruttan (2006). For a more recent discussion of the role of the state in promoting technological development see Mazzucato (2015). The Department of Defense, and its research arm, the Defense Advanced Research Projects Agency (DARPA), has been central for ­American continuous technological leadership (Jacobsen, 2015). 14. For a discussion of inequality see Galbraith (2016), who argues that macroeconomic factors, in particular what has been termed financialization, played a crucial role in rising inequality. 15. On the rise of populism see Judis (2016). 16. There are logical problems with the argument raised in the so-called capital debates, which go beyond the scope of this chapter. For a full discussion of the capital debates and their meaning for the notion of a natural rate of interest see Kurz (1987). 17. Keynes was keen in suggesting that the concept of the natural rate of interest had to be abandoned. Note that in Keynesian fashion the effect of lower consumption would be lower output and employment, but would have no impact on the monetary interest rate controlled by the monetary authorities.

4 BUSINESS CYCLES AND MILITARISM IN HISTORICAL CAPITALISM Ganesh K. Trichur

Joseph Schumpeter defines Capitalism as “that form of Private Property Economy in which Entrepreneurs carry out Innovations by means of borrowed money, which in general implies Credit Creation” (Schumpeter, 1939, 223). In the ­economic history of capitalist society, “Innovation is the outstanding fact … or what is purely economic in that history” (Schumpeter, 1939, 86, emphasis added). Schumpeter’s chronosophy (Pomian, 1979) makes the progressive time of capitalist history “identical with the sequence of events that gives rise to the business cycle” (Schumpeter, 1939, 224) which links the past, the present, and the future as it unfolds through alternating phases of Prosperity and Recession; and more generally through Prosperity, Recession, Depression and Revival phases when the effects of Secondary Waves – speculation, business failures, banking, price level, unemployment, total production, and so on (Schumpeter, 1939, 221) – are incorporated. Schumpeter’s Long Economic Waves (LEWs) draws upon Kondratieff ’s (1926) periodization,1 to ask how far a purely economic history can explain the capitalist process and its occasional breakdowns, without invoking “External Factors” such as Wars, Population Growth, Governmental Policies and interventions in the private economy that distort and disturb the business cycles. The device of External Factors extends to anti-Capitalist tendencies emerging out of the ­“rationalizing, leveling, mechanizing, and democratizing effects of capitalist evolution” itself (Schumpeter, 1939, 707). Excluding all External Factors helps Schumpeter identify a causal mechanism internal to economic history triggered by profit-driven private sector innovations that underlie three long interrelated but different cyclical upswings and downswings – the LEWs from 1786 to 1842; from 1843 to 1897; and from 1898 to 1929/1932 – in England and the US after 1786, and in the German principalities where “Statecraft” “directly filled the entrepreneurial function” and conditioned private enterprise (Schumpeter, 1939, 235).

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Although Schumpeter (1939, 222) notes briefly that any satisfactory history of capitalism must take account of Italian and Dutch origins and later developments in France, he claims that capitalist business cycles are clearly identifiable only after 1786 in England and the US, and in Germany after 1871. In general, External Factors – especially Wars – only disturbed and distorted but did not undermine, the creative destruction process embodied in business cycles until the 1929–1934 World Crisis. In this chapter I draw upon McNeill’s military history to claim that throughout each of Schumpeter’s Business Cycles, External Factors interacted powerfully with the innovations that Schumpeter identifies as “purely economic” in capitalist history. It is not clear why entrepreneurial actions are “purely economic”; nor is it clear why and how the economic system remains autonomous of innovations in the socio-political system.2 Schumpeter’s project simply excludes military innovations and violent entrepreneurs even if they have economic dimensions. His remarks on German “Statecraft” as a form of entrepreneurship invite comparisons with Chinese Confucian Statecraft that until at least the nineteenth century successfully conditioned market-based non-capitalist development, whereas German “Smithian” Statecraft appears to have strongly promoted an anti-Market capitalist development. Be that as it may, Schumpeter’s exclusion of war-making military dynamics through the device of External Factors, and dismissal of entrepreneurial opportunities created by “primitive accumulation” (Marx 1867) distorts capitalist history. For instance, to claim that the effects of the influx of American Silver into Spain (an External Factor) until about 1630 only produced inflation and social disorder, and “retarded the evolution of Capitalism” in the seventeenth century (Schumpeter 1939, 232), fails to see the relationship between the American­ Silver, which fueled Spain’s empire-building project, and the “Dutch Wars” (1568–1609), whose outcome consolidated capitalist power in the Netherlands. It fails to see how Dutch, French, and Elizabethan England’s (1558–1603) privateering ­enterprises successfully combined trading with raiding (a “New Combination”) the American Silver carried by the Spanish Main. It also fails to see how the military innovations introduced during the Thirty Years War (1618–1648) defeated ­Catholic Spain’s imperial project and thereby helped consolidate a politically fragmented European interstate system of sovereign states.The political fragmentation of Europe, in turn, created the necessary spaces for the emergence of military and non-military innovations while subsequent arms races in Europe diffused these innovations. The diffusion and competitive adoption of the latest military innovations by rival States generated a balance of military power so that no single political command structure – of the kind that successfully prevailed in China until the nineteenth century – ever emerged in Europe in the form of an Empire to restrain the “endless accumulation” of capital, although three brief instances of world-Hegemony did prevail over the capitalist world-system (Wallerstein, 2000). As a result, the capitalist dynamic – in which collaboration between rulers pursuing territorial power and a private property economy pursuing profits from

Cycles and Militarism in Capitalism 37

trade and industry created powerful synergies – succeeded in Europe in a way that it never did in China, where command management combined with Confucian ideology to restrain and regulate endless capitalist accumulation, even as it promoted massive commercialization and market-based dynamics in East Asia (McNeill, 1982b, 24–61; Arrighi, 2007). As McNeill (1982b) argues, the upsurge of market-related behavior regulated and managed by a State that prevented capitalist and military dynamics from asserting itself, “allowed spectacular increases in total productivity, as all the advantages of specialization that Adam Smith later analyzed so persuasively came into operation” (McNeill, 1982b, 29). In Europe, the absence of an overarching political command structure created “objective conditions” for military entrepreneurship in dozens of scattered places of refuge from command mobilization and arbitrary taxation. For instance, Amsterdam became the seventeenth-century center of the capitalist world economy only after entrepreneurs and financiers relocated to that Dutch rebel stronghold following the sack of Spanish-held Antwerp (1576) by mutinous soldiers in the aftermath of King Philip’s bankruptcy.3 The bishopric of Liege became a largescale armaments-producing center after 1492 when its political neutrality invested it with the autonomy necessary to supply the weapons demands of warring rivals during the “Dutch wars” of 1568–1609. In general, Europe’s political fragmentation promoted a successful capitalist-militarist synergy that shaped its economic expansion; and determined its military expansion beyond its frontiers where the application of this synergy to non-European spaces – such as China towards the end of Schumpeter’s First Long Wave – reinforced endless accumulation in Europe, promoted Europe’s world-systemic imperialism, and intensified Europe’s capitalist-militarist synergy. The limits of this military expansion emerged in the Vietnam War (1965–1975) when US military defeat combined with an over-­ accumulation crisis to signal the structural crisis of the Eurocentric world system. The other side of this structural crisis is “the Rise of East Asia”, which unfolded in three interrelated phases: 1968–1984; 1985–1994; and 1995–2007 and beyond (Trichur 2009). In this chapter, I follow McNeill (1982b) to trace the roots of historical capitalism to the emergence of a military-commercial complex in the fourteenth century Northern Italian city-states; and its diffusion and bureaucratization in the sixteenth to eighteenth centuries transalpine European States during what Schumpeter (1939, 224–50) calls the 300 years (1486–1786) preceding the First Long Wave. Frontier military expansion of these transalpine States (1700–1848) induced by demographic pressures – which Schumpeter discards from his analytical apparatus – synchronized with the French Revolution and with England’s Industrial Revolution and drove the First LEW (1786–1842). Both the “initial Industrialization of War” (1840–1884) and the transition to a full-blown military-­ industrial complex (1884–1914) emerged during the Bourgeois Kondratieff (1843–1897) and the Neo-Mercantilist Kondratieff wave (1897–1929).This close fit of military developments with each of the Kondratieff Cycles throws considerable

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doubt on Schumpeter’s claim that purely economic processes shaped capitalist history over the long run. I argue that business cycles are at best, only one part of the capitalist process; and that the Militarist Dynamic far from being external, remained almost entirely internal to the capitalist process.

Schumpeter’s Theory of Long Waves Schumpeter’s Entrepreneurs comprise a special type in capitalist society whose function is to carry out Innovations (“new ways of doing things”) while the ­Banker’s Function is to extend credit to the entrepreneur at a positive rate of interest, to invest in Innovations. New Innovations “trigger” new Business Cycles. Entrepreneurs are New Businessmen who start new business firms to launch Innovations from a “Neighborhood of Equilibrium”. These New Businesses combine existing resources in new ways to generate New Combinations (New Production Functions) that upset the stationary time of the Circular Flow. These New Combinations upset the existing Neighborhood of Equilibrium by introducing New Commodities (or an old one through a New Technique of Production), or a new form of Organization of productive services (such as Mergers), or a New Market, a New Trade Route, a New Railway line, and so on. Embodied in New Plant and Equipment, the New Combinations entice land, labor, raw materials out of their existing employments, by bidding up their prices – rents, wages, and raw material-prices – and increasing their Employment for increasing Output in the new uses. Such entrepreneurial leadership “ignites” an Upswing, disrupts the existing Equilibrium by leading the economic system in a new direction, and encounters Resistance from established Firms. Entrepreneurial Profits express the success of Innovations in overcoming Resistance. This success lures other Businesses to follow on the tracks laid out by the Entrepreneur, making for disharmonious and discontinuous4 advance by a leading sector in which prices, employment, output, wages and profits increase disproportionately in relation to the rest of the economic system. As Followers join in the tracks of the Innovator, an avalanche of New Commodities pours out of the New Combinations, which appears as “Overproduction” but does not necessarily indicate a crisis. It points to the end of the Prosperity phase – a general fall in prices, profits, output, employment, wages and interest rates – as well as an expansion of mass-consumption possibilities in the turn toward a Recession. In general, the Downgrade comprises induced and completing developments on lines chalked out before and attended by strong increase in quantities; marked improvement in qualities;‘rationalization’5 all around; and an indefinite number of individually small innovations producing a variety of new specialties, the phenomenon called ‘conquest of new economic space’. (Schumpeter, 1939, 753)

Cycles and Militarism in Capitalism 39

Recessions eliminate established but inefficient firms unable to adapt successfully to the new economic environment. However, if speculative phenomena associated with a “secondary wave” intrude into the Recession, a Depression often takes over the Downgrade and completes its work of “abnormal liquidation” before a Revival can assert itself in a newer Neighborhood of Equilibrium. Schumpeter points out three “deep depressions” in capitalist history – 1825–1830; 1873–1877; and 1929–1934: in each a Juglar (9–10-year industrial cycle) depression coincided with a Kondratieff (Long Wave) depression.

Military History and the Rise of Capitalism before 1786 Schumpeter claims that although credit creation – “as old as deposit banking” – goes back as far as capitalism does, the Italian city-states that pioneered credit creation between the twelfth and thirteenth centuries were small capitalist enclaves embedded in a “pre-capitalist world”. The political preponderance of that pre-­capitalist world prevented cyclical fluctuations characteristic of the capitalist process from asserting themselves (Schumpeter, 1939, 224–225). This claim does not however, prevent Schumpeter from invoking the “Principle of Historical Continuity” to argue that the innovations that carried the industrial upswing of the 1780s and 1790s, emerged much earlier in a preparatory stage6 in agrarian England in the three centuries before the first Kondratieff wave, even though those innovations may not have displayed a cyclical mechanism (Schumpeter, 1939, 240, 254–255). Schumpeter invokes the “Continuity Principle” to link the organizational innovation of early Enclosures (1455–1607) of some 3 percent of common farm-land – which he concedes had no clear cyclical effects – with the resistance to this innovation, and the great wave of ­Enclosures after 1760 – alongside the Rise of the Factory7 (1550–1660) and the modern Joint Stock Company – as simply favorable conditions preceding the Upswing of the First Long Wave (Schumpeter, 1939, 237–238). In confining his research project only to innovations that produce identifiably long cyclical fluctuations, Schumpeter excludes from the capitalist process the military innovations pioneered in the Northern Italian city-states between ad 1000 and 1300 and the effects of the impersonal market relationships they promoted. These military Innovations significantly reduced what Lane (1979) calls “Protection Costs” associated with the defense of the Italian towns and with the uncertainties of long-distance trading. By about 1350, Italian city officials replaced their civic militias – the military expression of primary group solidarity in the defense of Italian towns against trans-Alpine armed adventurers – with mercenary captains commanding professional troops. Rulers of Italian city-states n ­ egotiated long-term contractual payments with these entrepreneurs in organized violence8 to produce a successful merger of these Military enterprises into the Italian ­commercial-capitalist system between 1380 and 1450. These mergers produced the earliest form of the military-commercial complex embodied in the medieval

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Italian city-states. The resulting “military Keynesianism” with “multiplier effects” intensified the cash-nexus, dissolved primary solidarities, and transformed Italian city-states into rapidly growing containers of wealth and power (McNeill, 1982b, 69–70). This growing wealth of the capitalist city-states drew transalpine European territorial states into the affairs of the Italian peninsula following an Artillery Revolution that grew out of the arms race between France and Burgundy in 1465–1477. In the Artillery Revolution, the innovation of mobile siege-guns firing iron cannonballs – deployed in the French invasion of Italy in 1494 – rendered all existing Italian fortifications useless.The Italian riposte to the new mobile siege guns was the expensive but effective innovation (1500) of the trace italienne – the formidable formation of stone bastions that rose vertically out of deep ditches that contained and re-deployed the fortifications that fell under siege gunfire. Although the tactical innovation of the tercios – a new combination of pike-men and musketeers – made the Spanish Infantry formidable enough to intervene in the “Italian wars” (1499–1559) and drive out French armies in Italy by 1525 (Parker, 1976, 198– 99), the adoption of the trace italienne by other European states diffused cannon-proof fortifications that eventually stultified the Spanish H ­ apsburg bid for an empire over Europe. Even more importantly, a new combination of m ­ ilitary innovations introduced into Dutch Armies after 1585 by Maurice of Nassau (1567–1625) – the spade for digging ditches and burrowing forward towards the besieged fort or town; a military academy for the training of officers (1619); the division of the army into smaller tactical units comprising battalions, companies, and platoons coordinated by a chain of command extending from the person of the sovereign to the lowliest noncommissioned officer; and the systematic Drill that required soldiers to practice 42 separate and successive motions while loading and firing matchlock guns, which anticipated the specialization and division of labor in industrial manufacturing – created “a New Leviathan” in the seventeenth century (McNeill, 1982b, 133). Army administration in the seventeenth century pioneered standardization – of drill, uniforms, hand guns (1599), and caliber of musket-balls – and routinization at least a century before industrial ­factory production adopted it in the eighteenth century. A profound mechanical solidarity that these Dutch military innovations produced among common military­ laborers – especially in the routine practice of the drill in peace and in war – forged strong artificial primary communities that effectively substituted for the breakdown of primary group solidarity associated with the intensifying cash-nexus in Europe’s proliferating military-commercial complexes. The diffusion of these Dutch ­military innovations bureaucratized standing armies in France and enabled decisive French victories against Hapsburg armies at Rocroi (1643) during the Thirty Years War, whose conclusion institutionalized Europe’s fragmented p­ olitical geography (1648 Peace of Westphalia). Bureaucratically managed standing armies also enforced domestic stability – demonstrated by the successful suppression of the Fronde (1648–1653) in France (McNeill, 1982b, 125) – and facilitated

Cycles and Militarism in Capitalism 41

Europe-wide economic growth in the decades following the 1701–1714 War of Spanish Succession. The adoption on the seas (1568–1603) of the Artillery Revolution by English, Dutch and French ships, rapidly generated an intimate relationship between sea trade and profitable privateering enterprises with a “quasi-public” character, directed against Iberian merchant ships in the Mediterranean. Each privateering enterprise comprised an innovation in Schumpeter’s sense, because each voyage required new decisions by investors who bought shares to finance the costs of fitting out the ship and hiring the crew (McNeill, 1982b, 105). Whenever a m ­ ilitary ­entrepreneur such as Francis Drake (1577–1580) returned with spectacular windfalls, the Elizabethan State shared in the booty from private raiding enterprises. Between 1514 and 1584, English all-weather ships equipped with the new cannons became “floating bastions” that defeated King Philip’s Spanish armada in 1588 and transformed England into a great naval power. In France, Colbert’s attempts (1662–1683) to build a great navy rivaling the Dutch also involved close collaboration between public authority and private entrepreneurs. However, after its decisive defeat by the Anglo-Dutch Navy in 1692 at the Battle of La Hogue, France stopped investing in its Navy, and turned to privateering as a cheaper way to wage naval war, at exactly the moment that England went the opposite way by founding the Bank of England (1694) as a centralized credit mechanism for investing in the British Navy (McNeill, 1982b, 178). Moreover, England’s ability to mobilize resources from India (following the Plunder of Plassey in 1757) and North America and to invest it in its naval capabilities helped it sweep French commerce from the seas during the Seven Years War (1756–1763). French military defeats in the Seven Years War stimulated important military innovations between 1750 and 1789, which deepened the bureaucratization of organized violence through the creation of military schools, military maps, written orders, and a divisional structure for the Army – comprising Infantry, Cavalry, Artillery, an Auxiliary division (engineers, medics, communication experts), as well as a Light Infantry division of Skirmishers. Under the military leadership of de Gribeauval (1763–1767), the French Army’s systematic experimentation with field tactics and sample weapons led to the standardization of different ­calibers of cannon; casting cannon as a solid piece of metal; and, in the 1750s, cannon-boring machines for straight and uniform cannon-bores that made guns safer. In France, planned invention under military leadership attempted to create a new weapons system surpassing existing capabilities. Despite strong resistance to these n ­ ovelties – in the form of “aristocratic reactions” (in France in 1781; and in Prussia) against military reforms that raised the status of gunners deploying field artillery to equality with Infantry and Cavalry – “planned invention, organized and supported by public authority became an unmistakable reality”. If such ‘command technology’ organized by military bureaucrats was profoundly new in the late eighteenth century, it nevertheless prefigured the technological arms race of the twentieth century (McNeill, 1982b, 173). The rapid diffusion

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of bureaucratized military-commercial complexes within the cockpit of Europe created a temporarily stable military equilibrium as “one improved modern-style army shouldered hard against its rivals”. On the frontiers of Europe however, the formidability of the new armies translated into systematic expansion into India, Siberia, and the Americas. Frontier expansion in turn sustained an expanding trade network, ­enhanced taxable wealth in Europe, and made support of the armed establishments less onerous. … Europe in short launched itself on a self-reinforcing cycle in which its military organization sustained, and was sustained by, economic and political expansion at the expense of other peoples and polities of the earth. (McNeill, 1982b, 143) This economic and political expansion globalized Capitalism in ways that make it futile to rely upon a purely “economic history” for any adequate understanding of the capitalist process.The relationship between military innovations and historical capitalism makes the “Rise of Capitalism” in the centuries before 1786 anything but what Schumpeter calls a “spurious question”.

The First Long Wave 1786–1842 In Schumpeter’s schema, developments in English Agriculture, Industry, and ­Transportation triggered the Upswing (1786–1799) and dominated developments elsewhere. The Downgrade starts with the onset of Recession about 1800 followed by a “deep depression” (1826–1830), until the onset of Recovery around 1842. Schumpeter (1939, 266–267) argues that in the Upswing, the passage of 1,699 Enclosure Acts (1780–1810) “completed the task” of Enclosures begun in Elizabethan England. Enclosure enabled large-scale application of improved agricultural methods that expanded wheat production, followed by “an invincible tendency for prices to fall in the Downgrade”. This, along with foreign competition in wheat and wool, accounts for England’s Agricultural depression after 1815, especially in the spaces of innovation. But why was there no resistance to these Enclosure Acts that peaked in 1800–1815? Schumpeter does not offer an explanation. In fact, their smooth passage in England was in large part because the dispossessed “could join the army, go on relief, or find employment in a booming civilian economy stimulated by war demand” (McNeill, 1982b, 212). For the US, Schumpeter points to foreign demand and an abundance of cheap credit supplied by “Reckless Banking” that stimulated a great boom in wheat production (1790–1795) in new grain-growing regions (OH and the Great Lakes), and in large-scale cotton production around 1800 – followed by an agrarian depression (Schumpeter, 1939, 269–270). In German provinces, Schumpeter claims, State-sponsored development of large landed estates made for a unique agrarian depression.9

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What sectors spearheaded the Upswing in England? Schumpeter points to cotton textiles and the wrought iron industry as “leading sectors” – even though all the major stages of innovation in cotton textiles and the wrought iron-­making puddling process, as well as the steam engine,10 preceded the Upswing in 1786. It was only during the Downgrade, after 1800, that all the potentialities in cotton, iron, and steam, realized themselves fully. In Transportation, a “canal mania” in 1790 followed the launch of the Duke of Bridgewater’s canal (1759–1761), followed by a mania in Company Promotions (1807–1808) centered on canals, docks, bridges, and roads. Transportation costs fell following the canal mania, followed by speculative excesses that led to the 1825 crash. Joint Stock Deposit Banks appeared and boomed during the 1826–1830 depression, while the 1837 Act sanctioned their limited liability. Stephenson’s 1835 iron locomotive ­immediately induced speculative excesses and contributed to the 1837 crash (Schumpeter, 1939, 275–280). In the US, small craft workshops transformed in the 1780s into cotton and wool factories using power machinery, contributing to a “cotton mania” in the 1790s, connected intimately with developments in Transportation and a strong fall in transportation costs between the east and midwest in 1812–1842. The cotton textiles industry expanded vigorously into new economic space during the Downgrade (1800–1840) alongside the extension of waterpower developments, the rise of Midwestern industry, and diffusion to the US South (Schumpeter, 1939, 288–292). In Germany, State-appointed officials filled the entrepreneurial gap. What role did external factors play in the Long Wave? Schumpeter (1939, 255) argues that although the Anglo-French Wars (1793–1815) dominated the period 1800–1820, the accompanying “wastage, dislocation and inflation” did not prevent a distinct process of economic evolution from unfolding in England.11 The “wastage-effect” applies only to Germany where the Napoleonic Wars compounded the perdurable effects of the Thirty Years War – that annihilated most of the bourgeoisie – to produce “a battered Kondratieff prosperity” that preceded typical downgrade developments (Schumpeter, 1939, 285). For the US, the economic process revealed itself only after 1786, following the American War of Independence, whose effects resembled that of prohibitive tariffs. Schumpeter admits that states and municipalities offered land grants, loans and subsidies to European capital and to the huge European immigrant inflow,12 to participate in the boom of the 1790s which led to rampant land speculation. Although the Federal Government followed sound money policies from 1780 until the Civil War, it could not regulate the inflationary mentality that dominated the states, which promoted different banks of issue (1782–1840) and encouraged “reckless banking” – issuing notes or creating deposits through legislation without regard to ability to repay loans. Schumpeter defends such reckless banking as the only available method to finance innovations; and that the effects of bank expansion at each time led to increased output and exerted a downward pull on the price level (Schumpeter, 1939, 286–287; 261; 293–295).

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Schumpeter writes nothing about the effects of population growth in relation to business cycles. He claims that population growth changes but slowly and is per se incapable of producing fluctuations in industry and trade. In general, increases in population occur “so continuously as to be capable of current absorption” (Schumpeter, 1939, 74, 84). Schumpeter (1939, 255) also claims that the effects of social unrest in England were only of local or minor moment. ­Schumpeter says nothing about France. Nevertheless, fundamental disturbances in Old Regime relations between population growth and the means of subsistence affected England;13 and France – where a Jacobin Revolution (1789–1795) coincided exactly with Schumpeter’s dating of the first Juglar Cycle (1787–1795) during the Upswing. Both the large floating population of 100,000 in 1789 Paris, and ­London’s poverty-stricken multitude, which grew along with the 56 percent increase in the city’s population between 1750 and 1801, provoked crowd action and social riots (McNeill, 1982b, 185–186). In this milieu, the recruitment through press gangs of 4 percent of the entire active male workforce into the British army and navy in 1814 (McNeill, 1982b, 207–208), and social innovations such as the Speenhamland system (1795–1832) of parish outdoor relief (Polanyi, 1944) stabilized English society during the war, recession, and “deep depression” of 1826–1830. In France, the military levee en masse of August 1793 (adopted by Napoleon in 1798 as the Annual Draft) exported surplus Frenchmen and ameliorated social frictions while the revolutionary slogan (liberty, equality, fraternity) infused a radically new nationalist elan that almost swept away Europe’s feudal monarchies14 (McNeill, 1982b, 196–198). In England, war preparations strongly supported innovations instrumental in creating the factory system and facilitating the rise of large-scale industry, such as Cort’s puddling process and Watt’s steam engine. The British navy and ordnance offered a captive market for Cort’s wrought iron experiments throughout the war and post-war period. Wilkinson’s 1774 invention of the cannon-lathe emerged out of ten years of work in ordnance; it not only turned out more accurate artillery, it also bored the first cylinders perfect enough to serve Watt’s steam engine (Trebilcock, 1969, 477). Without the assured market for iron cannon that the British State provided, “the men who built the new coke-fired blast furnaces in previously desolate regions of Wales and Scotland would probably not have undertaken such risky and expensive investments. … At any rate, their initial markets were largely military” (McNeill, 1982b, 211). War-making expenditures in fact accounted for nearly 30 percent of British GNP in 1814, while war demand created excess capacities in the iron industry, as the postwar depression (1816–1820) showed. It offered incentives for ironmasters to find new uses for the cheaper iron their large-scale furnaces turned out. Moreover, British expenditures abroad during the war paved the way for British exports, while British subsidies allowed allies to buy British goods and equip their armies. Military Keynesianism shaped the possibilities of the iron industry “at a time and under conditions which simply would not have existed without the wartime impetus to iron production” (McNeill, 1982b, 212).

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The Second Long Wave 1843–1897 What industrial innovations drove the Second Long Economic Cycle? Schumpeter argues that Railroad developments, alongside Steam, Steel and Organizational Innovations shaped the Upswing that spanned the period 1843–1860. English railroads triggered the Upswing in 1843. However, the most important organizational innovations associated with Railroads – consolidations, mergers, vertical and horizontal combinations – unfolded during the Downgrade (1860–1897) in Germany after its unification in 1871. In the US, the massive immigration of capital and men – some 14 million immigrated into the US from 1865 to 1900 – along with the harvest and the Civil War, account for practically all the fluctuations and trends (Schumpeter, 1939, 383). A recession started in 1860 followed by depression (1873–1896), including a deep depression (1873–1877). A new “neighborhood of equilibrium” emerged in 1897, when recovery asserted itself. Although Schumpeter labels the second LEW “a Bourgeois Kondratieff ” – because the interests and attitudes of the industrial and commercial classes controlled economic policies and anti-capitalist opposition was powerless – I will argue that in Europe, state and military interests shaped and subsumed “economic” innovations and bourgeois interests in the 1880s and beyond. The depression of the 1870s and 1880s not only facilitated democratic male suffrage in liberal England in 1884, which gave the vote to rich and poor alike, it also coincided with the first of three successive “Five Year Plans” adopted by both Liberal and Conservative governments for naval expansion and employment during the depression, prefiguring official Keynesian policies of the 1930s. Schumpeter (1939, 308–309) argues that Free Trade Policies created liberal environments congenial for business innovations.15 And yet, in the late 1880s, it was not liberal Free Trade but the British Navy’s protected market that served as a lifeline for British steel-makers in the face of competition from more efficient German and American steel-makers (McNeill, 1982b, 208–209). Schumpeter argues that England’s Railroad-led Boom dominated the first ­Juglar cycle (1843–1851), created the conditions for a ‘railway mania’ (1843–1847), and ended with the 1848 crisis of England’s railroads: after 1848, railroad expansion merely adapted to the general business situation instead of shaping it. Although railroad construction continued in England until 1860, by 1857 England’s investments in US railroads amounted to $400 million. In fact, from the beginning of the 1860s, England’s acquisition of foreign securities increased absolutely and relatively. The financing of foreign railroad development governed British business interests during 1860–1897, because “England had an Industrial Revolution to liquidate” (Schumpeter, 1939, 380), which it did by strongly increasing its export of capital during 1875–1890, especially to the US (Schumpeter, 1939, 329; 343–345). But this liquidation of its Industrial Revolution proceeded in tandem with huge investments in British naval war machinery after the mid1880s; and the English State did so through close collaboration with its domestic

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private arms manufacturers. As McNeill (1982a, 1982b) argues, the English Navy pioneered the innovation of the first modern military-industrial complex that diffused across the Continent. How did this happen? Between the 1891 AngloFrench rapprochement when the French State-supported private arms manufacturer Schneider-Creusot invested hugely in modernizing Russian railroads and steel industries (Trebilcock, 1973, 262–265), and the 1898 Naval bill introduced by Admiral Tirpitz for the expansion of the German Navy, the military-industrial complex launched by the British Navy diffused across the European Continent. Schumpeter claims that although Railroad expenditures significantly conditioned German cyclical fluctuations until the crisis of 1873, the Prussian State acted on “Smithian principles” to collaborate with private entrepreneurs “to prune promotion, to sober finance, and to steady advance”. German State leadership unified rates, rationalized administration, and regulated credit creation, while German Banks closely collaborated in financing and supporting new enterprise. From the 1870s on, Organizational Innovations – the concentration of ownership, industrial mergers, cartels and “communities of interest”, and vertical integration of industries – dominated German industry.16 I want to note here that Schumpeter’s concept of a German State acting on“Smithian principles”,which included c­ ollaborating with private sector capitalists and facilitating the emergence of industrial cartels, contrasts strongly with the very different “Smithian principles” that Imperial China adopted, where instead of collaborating with capitalists, the Imperial State strongly regulated capitalist development, which allowed market-based developments to unfold in Imperial China.The Organizational Innovations associated with industrial mergers and cartels that the German State facilitated in fact appears to go against “Smithian principles” of benevolent regulation (Arrighi, 2007). As we will see, in both Germany and in England, organizational mergers unfolded in relation to the State and its war machine. What happened in the US? Schumpeter claims that US railroad enterprises displayed “leadership in getting things done” during the second Juglar cycle (1852–1861). But such leadership in getting things done depended crucially, as Schumpeter reluctantly recognizes, on those State subsidies and loans that financed the early stages of US Railroads; and they depended on the huge flows of English capital that combined with reckless banking and stock exchange speculation, to trigger a panic in August 1857 that came close to a catastrophe, followed by a revival in 1859 after abnormal liquidation! Schumpeter admits that the Civil War (1861–1865) initiated the first transcontinental railroad route and the unprecedented increase in railroad tracks that followed in 1869–1871. From 1867 to 1873, Schumpeter recognizes the role played by “the careless method of financing railroads” – European capital invested $2 billion on American railroads in these years – that induced not only abnormal speculation but also the abnormal liquidation associated with “the crisis of 1873”, and deep depression in 1873–1877. Schumpeter claims that the unusually long and painful adjustments associated with the deep depression were an inevitable effect of the system-transforming

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effects by 1870 of the larger process associated with railroads. He argues that “the system recovered on its own once it made those adjustments”. For instance, a new burst of railroad investments followed in 1878, peaked in 1882 following the peak in inflow of new capital in 1881, and then peaked again in 1887, although thereafter, until 1893, investments in railroads continued at a decreasing rate. Railroad freight rates fell between 1868 and 1885 – followed by consolidation, efficient administration, and sound finance. The 1893 Crisis became – like the 1848 crisis in England – a crisis of the US railroads. A final construction boom followed the crisis and lasted until 1910 to contribute to the upswing of the third LEW. By 1897, net capital of US Railroads amounted to over $50,000 per mile in operation (Schumpeter, 1939, 336–341, 383). Schumpeter wants to highlight how US Railroads and Industrial Machinery combined with the post-1865 Land Settlement Policy to produce great increases in agricultural production in 1867–1880 and 1890–1898. Consistent upward shifts in world demand for wheat and cotton and the persistence of old firms (England and Germany) along with falling ocean freight rates (1873–1894) led first to agrarian overproduction and then to agricultural depression (1882–1890 for the US). Finally, several important Organizational Innovations in the US – in the form of Vertically Integrated business concerns such as Carnegie Steel (1891); Standard Oil (1879–1888); and, in 1892, General Electric (out of the merger of Thomas-Hudson Electric and Edison General Electric) – resulted in standardized mass production in the Downgrade. But, contra Schumpeter, I want to note here that standardized mass production had much earlier origins, going back to the Crimean War, which Schumpeter simply dismisses as a minor external factor. Schumpeter in fact assets that apart from the US Civil War of 1861–1865 and the Franco-Prussian War of 1870–1871 every other war in this period represented a minor event. The importance of the Franco-Prussian War, for Schumpeter, lies in the effects of the huge war-indemnity that France paid Germany. This “adventitious liquidity” combined with “joyous optimism” to accentuate amplitudes of the Secondary Wave and produce a violent German crash in 1873. Nevertheless, Schumpeter claims, the effects of the 1871 War did not alter the cyclical rhythm in Germany. Compared with the US, no spectacular crisis or spiral emerged in 1873 Germany. Powerful industrial change revolutionizing everything in German economic life, produced another industrial depression in 1893, but, by 1897, the German economic system approached another “neighborhood of equilibrium” (Schumpeter, 1939, 313–314, 363–366).The US Civil War, similarly, had “very little cyclical importance” – most of its effects were “drowned in the rise and break of [the third Juglar 1861–1869] wave” (Schumpeter, 1939, 314).17 How do we evaluate these claims? Two initial remarks are in order. First: the US Civil War served as the first full-fledged example of an industrialized war, in which machine-made arms dictated new defensive tactics, while railroads competed with waterways as arteries of supply for millions of armed laborers (McNeill, 1982b, 243). Second: the Franco-Prussian War demonstrated the successful

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a­ pplication of new technologies such as rifled steel breech-loading guns that gave tactical advantage to the Prussian soldier who could fire crouching or lying down, whereas French soldiers had to stand erect while reloading muzzle-loading guns – with far-reaching military consequences. More importantly, Prussia launched a managerial revolution in European armies when it created a military General Staff that centralized war-planning for mass mobilization of armies equipped with mass-produced small arms; and coordinated battlefield communications through the electromagnetic field telegraph (invented in the 1840s) while deploying the new railroads to full capacity according to planned schedules (McNeill, 1982b, 249).These developments paralleled the managerial revolution inaugurated by US captains of industry in the 1880s (Chandler, 1977). Much more important is the significance of the Anglo-French intervention in the Crimean War (1854–1856) after Russia altered the post-1815 balance of ­military power by destroying the Turkish fleet – using the new French explosive shells (1837) that made all wooden warships vulnerable18 – in the Black Sea at the Battle of Sinope (1853). The Crimean War that Schumpeter dismisses as a minor event, is crucial for several reasons.19 One of its most important results is the introduction in Europe of mass production of standardized weapons following the crisis in small-scale artisanal organization of finished gun manufacture at Birmingham and London which could not respond to the large-scale demands made by the British State Arsenal at Woolwich. This crisis led to the reorganization of the war arsenal and the installation of a new plant in 1859 at Enfield for the import of the “American system” of mass production of standardized rifles, bullets, and cartridges with milling machines. The American system of manufacturing guns evolved in the US Army’s Armory at Springfield, MA – where the integrated production of all parts of a gun (“lock, stock, and barrel”) within a single establishment created the prototype of the modern American factory20 (Chandler, 1977, 72–75) – and among private manufacturers of small arms in the CT River Valley between 1820 and 1850 (McNeill, 1982b, 233). Although British private arms manufacturers also adopted the American system, to stay in business, following the 1864 decision that entrusted the Woolwich State Arsenal with the monopoly of artillery production to supply British services, they had to rely upon foreign arms contracts (McNeill, 1982b, 235–237, 263–264); and, to install the expensive ­American system of mass manufacturing, they merged to form the Birmingham Small Arms Company in 1861 and the London Small Arms Company in 1867. The use of steel as a new gunmetal emerged as a second by-product of the Crimean War, but large-scale steel production became possible only in the late 1870s, after which a global ­armaments business in mass-produced steel guns spread across Europe like wildfire. Given England’s official free trade policy, private arms firms such as Armstrong sold state-of-the-art ships (cruisers) to foreign governments. This intensified ­British strategic insecurity in the 1880s when 65 percent of British grain came from overseas (McNeill, 1982b, 262–263). Under these circumstances, the successful orchestration of a “naval scare” in 1884 – which promoted the idea that

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British naval superiority was severely compromised – led to a decision in 1886 permitting not only close collaboration between British Naval Ordnance and private British arms suppliers, but also transforming private British arms makers into monopoly producers of heavy naval weapons for the captive British Navy market (McNeill, 1982b, 270–271). During the Kondratieff depression in 1884, the liberal British State passed a bill for a ‘Five Year Plan’ for naval expansion, which a Conservative government renewed in 1889 followed by another five-year renewal of naval expansion in 1894. These successive renewals came at a time when both German and American steel-makers out-competed British steel-makers – to the point where by the end of the nineteenth century Britain was importing substantial amounts of cheap foreign steel per annum. Under these circumstances, the British Navy’s offer of a guaranteed market for hard-pressed British firms, such as the steel-maker Vickers, as well as other steel makers, ship-builders and metal workers, became an indispensable lifeline. The captive British naval market also encouraged private arms firms, such as Vickers and Armstrong, to amalgamate so that by 1897 they not only dominated the business of heavy armaments in Britain, and built vast bureaucratic structures to deal with the British Admiralty on a quasi-public basis (McNeill, 1982b, 290–291); they also became pioneers in all the new technologies in steel metallurgy, industrial chemistry, electrical machinery, radio communications, turbines, diesels, optics, calculators (for fire control), hydraulic machinery and the like (McNeill, 1982b, 292–293). Naval spending as an antidote to the effects of the downswing amounted to Keynesianism before Keynes, in the sense that private arms firms with guaranteed naval contracts employed as much as one-sixth of the British workforce by 1913 (McNeill, 1982b, 208–209). In addition, as British naval officers entered into systematic collaboration with innovative engineers and designers from private industry, they laid down desired performance characteristics for everything ranging from ship’s engines and guns to hydraulic and electric systems for pointing the guns; optical range finders, fire control devices as well as radio, and “the first approach to the modern computer as an aid to gun laying” (McNeill, 1982b, 209). Such deliberate invention induced the private economy to follow the designs demanded by the British Navy; in the process, the first military-industrial complex emerged in England in the 1880s. In 1898, when the German Admiral Tirpitz improved upon the British prototype of the military-industrial complex by organizing support from industry, party, newspapers and the academy for his successive Naval Bills, while offering the industrial armaments giant Krupp – which as late as 1891 sold 86 percent of its arms to foreign governments – a captive German military market (McNeill, 1982b, 211–212), the military-industrial complex had diffused throughout Europe. Moreover, the growing nationalistic mood strongly politicized private arms firms, and induced them to produce solely for their “national” States. In 1898 – after the German economic system entered its “neighborhood of equilibrium” – Krupp increasingly produced to meet the captive demands of the Tirpitz Naval Program. “Big Industry” everywhere during the late Kondratieff

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downgrade became politicized, as much as State-sponsored war-making became industrialized. Schumpeter’s exclusive emphasis on the private property economy and its putatively autonomous innovations driving a “bourgeois Kondratieff ” thus appear substantially misplaced with respect to both “the industrialization of war and the politicization of economics” (McNeill, 1982b, 285–302).

The Third Long Wave 1898–1932 What innovations drove the Third Long Economic Cycle? Schumpeter argues that industrial and organizational innovations in electricity, automobiles and their subsidiaries, chemistry, and industrial mergers – in the US and Germany more than in England – shaped the third Kondratieff Wave, along with “completing developments” in railroads and agriculture. The Industrial Upswing spans the 1898–1913 period; Schumpeter remarks that a recession would have emerged around 1914 (the war created an artificial boom); and that if there had been no World War, a new neighborhood of equilibrium would have emerged in 1925 when aviation, prefabricated housing,21 and a revolution in pneumatic tire-­making (which led to the expansion of the long-distance trucking industry) achieved commercial success (Schumpeter, 1939, 807, 785, 777). Schumpeter does upgrade external factors (the First World War) to the status of a determining role in the third LEW. In fact, he calls the Third Long Wave a “Neomercantilist Kondratieff ”, to highlight the recrudescence of protectionism, nationalism, and increased expenditure on armaments – all budgets since 1899 represented “war budgets” that interfered with the Gold Standard (Schumpeter, 1939, 400). But he also claims that post-1918 protectionism in Europe played a minor part in the cyclical process. Far more important for Schumpeter were “the anti-capitalist tendencies and attitudes” since the late 1890s – political radicalism, socialism, and growth of trade unions – that asserted themselves strongly if unevenly, especially in the post-1918 period, in the form of the fascist state in Germany, and the rise of the labor interest and socialism in England, which exposed the capitalist organism to progressive taxation. A new middle class (clerical white-collar) hostile to capitalists, but not necessarily labor-friendly, ­ the growth of an “anti-saving attitude” and the “loosening of the family tie within the bourgeois stratum” itself, worked to undermine the Capitalist system (Schumpeter, 1939, 697–707). How did anti-capitalist tendencies unfold in England and with what effects? Schumpeter claims (1939, 400) that even before the First World War these tendencies showed themselves in England in the form of a falling birth rate in the upper social strata, and Liberal Party policies (1905) of a “people’s budget” with unemployment insurance and old-age pensions. These symptoms of “decay of capitalist civilization” prevented England from participating in the Upswing as vigorously as Germany and the US. Domestic entrepreneurial activities in England in the fundamental lines of advance – automobiles, chemistry and electricity – evolved weakly.

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Weak entrepreneurial evolution combined with a strong sensitivity to foreign booms and slumps – the 1907 breakdown in the US produced an English crisis – to shape the English business pattern. While the London Money Market and the great issuing houses “practically abstained from the issues of domestic industries”, colonial enterprise and lending became the “dominant feature of the period” (Schumpeter, 1939, 429–430) with ambiguous outcomes. In the British colonial rubber plantations in Malaya for instance – during the 1910 plantation boom that coincided with the new demand from motor cars – the Chinese overseas business diaspora controlled a substantial percentage of ownership of these rubber plantations (Schumpeter, 1939, 431). Post-1918, England continued to increase income and inheritance taxes and social welfare expenditures; subsidies to Building Societies peaked in 1927, while loss of foreign investment and a native Indian capitalism depressed the English textile industry. In 1926–1927, an economic paralysis gripped England (Schumpeter, 1939, 729–731, 757). How did Germany fare in the Third Long Economic Cycle? In Germany, the Upswing of 1897–1913 is associated with the formation of giant industrial concerns: the continuation of the merger movement resembled developments in the US. The differences concerned the large German investments in armaments and in social betterment (Sozialpolitik) policies; direct patronage of and participation in German industrial enterprises by big German banks; and State regulation of speculation and haute finance embodied in the 1896 German Stock and P ­ roduce Exchange Act. The shock to the German Stock Exchange following the US breakdown in 1907 led to swift readjustment without any slump. In German electrical enterprise, only the biggest concerns (A.E.G. and Siemens) with their banks produced electric current, and induced expansion of mining and heavy industries, including iron and steel.These electrical concerns also controlled 40 percent of total public supply in 1914 alongside public control of power generation and transmission (Schumpeter, 1939, 436–442). In the chemical industry, which “ignited” the third LEW, big concerns such as I.G. Farben dominated throughout; during the Downgrade, I.G. Farben (Dye Trust) controlled 85 percent of the production of synthetic nitrogen, 90 percent of sulphuric acid, and 100 percent of dyes. In the potash industry, three businesses that grew out of mergers produced 80 percent of all German potash (Schumpeter, 1939, 765–766). In Germany, beyond the war,22 external factors dominated the 1918–1923 period when the ruling Social Democratic Party averted social breakdown but steered away from the logic of the capitalist engine. Loss of all foreign investment, the withdrawal of capital from industry, and the excessive consumption of public bodies induced in 1925–1929 a “prosperity of consumption” (Konsum-Konjunktur). German agricultural debt mounted sharply during the downgrade decade (1919–1929) with 78–90 percent of all agricultural holdings in debt (Schumpeter, 1939, 741).The pulse of German business became dependent on the rate of inflow of foreign US funds which shaped the German situation in 1927–1929 when “short capital … rushing about like a hunted hare” fled Germany (Schumpeter, 1939, 703–704).

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For Schumpeter, the US is clearly the great success story of the Third Long Wave because both in the Upswing and in the Downswing, it remained immune to anti-capitalist tendencies. In the Downgrade, the US displayed leadership in running the capitalist machine: it reduced taxes and the Federal debt even though Federal expenditures increased from 1925 to 1930. The US also abolished wartime controls and regulations and kept out of foreign entanglements thereby creating a congenial business atmosphere. A technological (and organizational) revolution between 1900 and 1915 expanded US wheat acreage overall by 33 percent, especially in Montana, KS, Nebraska, and TX (Schumpeter, 1939, 708–710, 738). Cotton acreage and yields increased as well (Schumpeter, 1939, 401). In the Downgrade, innovations forced upon agriculture – the internal combustion engine, new fertilizers, machinery and electrical power – fully realized themselves to “solve the food problem of humanity”. Further expansion of wheat production in the Great Plains (1917–1928) coupled with the general increase in world wheat production to create overproduction in wheat – and in cotton – after the World War. However, no American agrarian depression followed until 1926, when rising unproductive agricultural debts worsened the situation (Schumpeter, 1939, 733–734). Schumpeter argues that the US Upswing phase (1898–1913) divides naturally into two periods. Two classes of innovations dominate the first period between 1898 and 1907, one in the field of electricity production, the other in the field of industrial mergers. The automobile industry and its subsidiaries dominated the second period between 1908 and 1913. In the first period ­1898–1907, a monotonic increase in electrical power production and long-distance transmission transformed steel-making and steam engineering; induced innovations in aluminum and expansion in copper production; spread the use of electric power into established industries; and enabled the construction of hydroelectric and thermoelectric plants of increasing capacity. Industrial mergers comprised the second class of innovations in 1898–1907, when a final railroad boom associated with “New Men” (organizers, administrators, financial groups) led to consolidations following the 1893 Crisis of the Railroads. Although these consolidations expanded productive capacities, they utilized methods of financial control that resembled the “wildcat banking” of the 1830s in the systematic abuse of the financial apparatus that led to the breakdown in 1907, which resembled the breakdown of 1857 (Schumpeter, 1939, 423–427). Schumpeter nevertheless notes that ­“innovation in the formative stages of Trustified Capitalism will produce such events”, which are “necessary for the entrepreneur to get his hand on the wheel” (Schumpeter, 1939, 407). Industrial mergers led to increasing concentration of ­production everywhere in the Upswing – in electricity (dominated by GE and Westinghouse); in steel; and in glass-making, paper-making, aluminum, and cement. In the second period, 1907–1913, the innovations associated with the automobile industry transformed “the style and the outlook on life probably more than any prophet did” (Schumpeter, 1939, 411) by turning existing technology – internal combustion engines, interchangeable parts, machine tools, and steel-making – into

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new uses. After 1912, the automobile effect diffused to auto-motors, auto-body parts, and the rubber industry where more mergers took place (Schumpeter, 1939, 415–418). In the US Downswing (1919–1932), the increasing Concentration of production in automobiles, heavy chemicals, and electrical industries accounted for 90 percent of the changes in the industrial organism in 1919–1929, along with labor-saving rationalizations such as Taylorization, which contributed to increasing US manufacturing output (1912–1929) by at least 135 percent of its 1899 figure (Schumpeter, 1939, 753–754, 783).This “overproduction” of manufactured commodities (1912–1929) combined with an excess supply of liquidity whose sources are traceable to the 1917 amendment to the Federal Reserve Act, which devalued the dollar (by drastically reducing the average reserve requirements of member banks from 21 percent to 9.76 percent), and the 1915–1929 abnormal gold influx from the Philippines (Schumpeter, 1939, 885–888). At the same time, the “mass of profits” showed a steadily rising trend (1923–1929) even though the rate of profits (2–4 percent for 1924–1926) was as low as one would expect it to be in the downgrade (Schumpeter, 1939, 832). Commercial loans stagnated while security loans (bank loans to buyers of stocks and bonds) increased throughout the period, and investment in productive issues declined during 1924–1928 despite the tendency of the interest rate to fall in 1921–1927 (Schumpeter, 1939, 812). Business operations entered the depression with a luxurious financial outfit and contracted in 1930 amidst a plethora of money (Schumpeter, 1939, 858–860). Schumpeter does not say it, but all these signs suggest that the Great Depression of 1929–1934 represented an “Overaccumulation crisis” – too much capital accumulated in established lines of production in relation to its profitability so that speculative excesses in the absence of financial regulations and strong financial institutions triggered the crash in 1929 – much like the 1997 Asian Financial Crisis.

External Factors in the Third LEW and Beyond Schumpeter claims that the First World War is an external factor in the sense that “it did not create any of the fundamental social features of the postwar world”; and that the boom that followed the onset of the First World War “had nothing to do with Innovation”, although it expanded credit and stimulated US domestic consumption (Schumpeter, 1939, 693, 701).These claims however do not measure up with the dramatic managerial metamorphosis in the West, that institutionalized the primacy of command mobilization over market mobilization of resources; and a profound social metamorphosis that unfolded during the emergency conditions produced by the First World War and beyond (McNeill, 1982b, 330–345). In the first place, emergency military demands in 1914–1918 for a vast number of identical items “from shell fuses and telephones to trench mortars and wristwatches”, expanded the scale and scope of mass production methods in Europe beyond all precedent (McNeill, 1982b, 331). Second, if leading European navies pioneered in patronizing deliberate invention in the downgrade of the Second

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Kondratieff, the First World War “brought deliberate invention ashore” through the large-scale use of trucks for military supplies and tanks that crossed enemy trenches; and it extended to newer devices such as U-boats and airplanes.The war, in short, generalized command mobilization. Third, extensive social engineering through collaboration between government, labor and business bureaucrats on conjoint matters of warfare and welfare of armed laborers, accompanied the technical changes. By 1914, each national economy transformed into a single national firm for waging the business of war; and “command relations” – rather than market relations – organized the coalescence of formerly independent bureaucratic structures – business corporations, labor unions, and government ministries and war administrators. Fourth, transnational management of the war effort began in the First World War – in the form of the Allied Maritime Transport Council that coordinated Anglo-French economic planning by December 1917 – and a common military command structure linked the Allied war bloc. These warbased patterns of political management reappeared during and beyond the Great Depression of 1929. The Second World War fully realized the possibilities of ­transnational management when the US organized, after 1941, the transnational Lend-Lease Act to make supplies available for the Allies, on the one hand. On the other hand, transnational management of the Anglo–US business of war siphoned and channeled resources from British colonies in India (including military soldiers), as well as from Africa and Latin America. As war managers summoned scientists, technologists, and design engineers to the task of improving existing weapons and inventing new ones on a scale far greater than ever before, a holistic weapons system materialized.The management of war created a “complete w ­ eapons system in which each constituent fitted conveniently with all the rest”: standardized ammunition with standard package sizes to fit standardized cargo spaces in railway cars, airplanes, and trucks extended in scale and scope the principles of business management developed since the 1880s for organizing the production and distribution of goods for private consumption (McNeill, 1982b, 317, 356–357, 345). “War in short became well and truly industrialized as industry became no less well and truly militarized” (McNeill, 1982b, 358–359). The end of the Second World War only reinforced transnational economic and military organization since planned demobilization demanded conscious redeployment of resources. As the four transnational war economies (1939–1945) dissolved, new transnational Cold War blocs formed around the US-led NATO (1949) and the USSR-led Warsaw Pact (1955). During the 1950s, the Korean War (1950–1953) gave the Cold War arms race further impetus, intensifying a “balance of terror” that unfolded with the “space arms race” (1957–1972), which coincided with the 1950–1975 boom in universities and the boom in electronics and aerospace industries (McNeill, 1982b, 361). By the mid-1960s, both Germany and Japan – the two productive protectorates of the US after 1945 – caught up with US productivity growth; and Japan outpaced the US in the crucial sector of consumer electronics, itself an outgrowth of the Second World War, along with

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the computer revolution (Chandler, 2000). As the US escalated its anti-Communist crusade by leading a war in Vietnam (1965–1975), its military defeat produced an over-accumulation crisis which combined with a legitimacy crisis to produce a crisis of world hegemony (Arrighi, 1994). This world-hegemonic crisis – and the neoliberal financial expansion (late 1970s to 2007) that coincided with the revolution in computers and information technology that accompanied the crisis – persisted throughout the late twentieth century and created the “objective conditions” for the “rise of East Asia” in the late 1960s and beyond (Trichur 2009).

Conclusions In this chapter, I have argued that contrary to Schumpeter’s claims, the innovations that marked his three long business cycles seldom possessed a purely private property economy character. The pursuit of endless power by war-making States drove military innovations as much as the pursuit of endless profits in the private property economy drove commercial and industrial innovations. Even more important in the unfolding of these long cycles, is the collaboration between the State and the private property economy in their different but increasingly complementary pursuits. By the late nineteenth century, such active collaboration transformed into powerful symbiosis which produced military-industrial complexes. These complexes represented a purposeful and technological rationality in the war-driven European interstate system. Innovations became embodied in projects of “deliberate invention” spearheaded by inextricably intertwined ­governmental and business organizations that combined the pursuit of power with the pursuit of profits. In the First World War and beyond, national and transnational ­ “command management” principles – rather than market economy principles – came to dominate the bureaucratized socio-economic structures of all Western societies. This contrasts interestingly with the case of China. In the long history of Imperial China, command management principles were driven by Confucian or Smithian principles of Statecraft and good governance that held in check both profit-maximizing Capitalists and power-driven military commanders. “The ­governmental command structure, balanced … atop a pullulating market economy, never lost ultimate control” (McNeill, 1982b, 48). Governmental successes in restraining both the unbridled pursuit of profit and the unrestrained pursuit of power resulted in remarkable commercialization of the Chinese ­economy, which until the mid-nineteenth century remained the largest market economy in the world-system. The eleventh-century upsurge of China’s market articulation of its economy diffused across East Asia and connected with a similar upsurge of commercial activity in the eleventh-century Mediterranean (McNeill, 1982b, 53). In Western Europe however, the absence of a Continent-spanning command structure – despite repeated attempts to create one – facilitated the growth of a private property economy driven by “the endless accumulation of capital” which increased the taxable income of rulers and made them protect the

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capitalist accumulation of wealth. Rather than seeing private economy innovations as separate from rulers’ interests, the combining of private capitalist interests with rulers’ interests drove European innovations as well as its military and industrial expansion beyond the frontiers of Europe. One interesting outcome of these long-run developments is that while the development trajectory of the West moved toward command management principles in the twentieth century, the trajectory of China and the East Asian region appears to have moved in the opposite direction after the end of the Maoist period (1949–1976) and the introduction of the Deng reforms (1978 and beyond). Market economy-based growth appears to have returned to China, although its reappearance comes with a whole host of complexities that lie beyond the scope of this paper.

Notes   1. N.D. Kondratieff in 1926 argued for the existence of long waves of an average length of about 50 years in the capitalistic economy in England, Germany, the US, and France. Schumpeter leaves out France. Kondratieff ’s periodization spans 1789–1849 (60 years for the First Long Wave); 1849–1896 (47 years for the Second Wave); and he dates 1896–1920 as the Upswing of the Third Long Wave.  2. In Capitalism, Socialism and Democracy, Schumpeter (1942) appears aware of the symbiosis between the political and economic spheres when he points out that the feudal ruling class that ‘ruled the roost’ up to the First World War protected the interests of the bourgeoisie while benefiting from those interests.   3. McNeill (1982b, 72) notes – without offering any details – that the bankruptcy of English King Edward III in 1339 at the onset of the Anglo-French 100 Years War (1337–1453), “triggered a general financial crisis in Italy and provoked the first clearly recognizable business cycle in European history”.   4. Schumpeter nevertheless invokes the “Principle of Historical Continuity” to explain the English “Industrial Revolution” – “a revolution never can be understood … ­without reference to the developments that led up to it” – to dismiss what he calls “spurious problems” such as the Rise of Capitalism; the transition from Commercial to Industrial Capitalism; Primitive Accumulation; Mercantilism and Statecraft. Although commercial enterprise preceded the factory and, up to the sixteenth century, predominated over industrial enterprise, “the entrepreneur of the commercial type imperceptibly shades off into the entrepreneur of the industrial type”. As for the problem of “accumulation before capitalist accumulation”, pre-industrial enterprises required quite small means of production, the capital for which accumulated through “industriousness” as well as “parsimony” (Schumpeter, 1939, 229–230).   5. Rationalization is a typical Downgrade development. It expresses a conscious national effort sponsored by all classes to exploit to the utmost existing possibilities of technological and organizational innovations on lines and principles established before but steadily improved in the process’ (Schumpeter, 1939, 759). Building booms generally occur during Kondratieff downgrades and revivals, stimulated by falling interest rates, higher real incomes, and by new demand for construction generated by internal migration (Schumpeter, 1939, 744).  6. Agrarian innovations in Elizabethan England (1558–1603) laid the ground for the Industrial Revolution of the 1780s through improvements in sheep- and cattle-­ rearing; better forms of crop rotation; the introduction of new commodities (clover, turnip, flax); large-scale production (hops, fruits and vegetables); and the relocation of the woolen textile industry to country districts while keeping intact the small masters’

Cycles and Militarism in Capitalism 57

methods of production. During the Kondratieff recession in 1800, entrepreneurship overcame the technological shortcomings of key inventions – such as the flying shuttle, the spinning jenny, and Barker’s loom. Schumpeter argues that an emphasis on inventions – as distinct from innovations – is misleading, as is the emphasis on “objective opportunities” because what matters is the capacity and willingness to make use of the opportunities available (Schumpeter, 1939, 271–272). Misleading or not, inventions tended to become deliberate, as McNeill (1982b) argues, when sponsored by the State. “Command inventions” shaped private entrepreneurship in the armaments industry during the 1880s and beyond, with a cascade of “spin-off ” effects (Trebilcock, 1969). Schumpeter admits that the English State dominated the Money Market and the Bank of England (1694), maintaining an “iron grip” on new commercial and industrial companies throughout the first Business Cycle ­(Schumpeter, 1939, 247–250). This “iron grip” of the English monarchy resembles at least to an extent, “the preponderance of a pre-capitalist world” on capitalist processes.   7. The Rise of the Factory (1550–1650) entailed the crushing of small crafts and guild monopolies; transplanting best practices in mining and in iron and steel from abroad into an uncongenial native environment, overcoming resistance, and conquering the home market. The breaking of the monopoly of small-scale craft guilds created new monopolies such as the foreign trading maritime enterprises (1490s–1550s) that ­prefigured the modern seventeenth century Joint Stock Company whose successes help understand the 1688–1719 boom in Company promotions (Schumpeter, 1939, 247–250).  8. “[B]y spending their pay, the hired soldiers put tax monies back in circulation. Thereby, they intensified the market exchanges that allowed such towns to commercialize armed violence in the first place. The emergent system thus tended to become self-sustaining” as long as mutually acceptable contractual forms and practical means for enforcing contract terms were implemented (McNeill, 1982b, 74).  9. In Germany, where nearly 80 percent lived by Agriculture, the German State helped large Prussian landed estates expand in size following the Seven Years War (1756–1763), the State-organized Land Banks offered easy credit to launch innovations that rationalized management, and, by 1786, created grain and wool factories for export. Favorable prices explain the Prosperity of these large Prussian estates; and the behavior of German agricultural prices is inconsistent with expectations in the Downgrade (Schumpeter, 1939, 267–269). 10. Innovations between 1721 and 1774 include the introduction of Indian cotton fabrics by the East India Company, which aroused strong resistance from established wool and silk industries; and the production of pure cotton fabrics by 1774. The major inventions whose technological shortcomings impeded their immediate adoption include the flying shuttle, the spinning jenny and Barker’s loom. The English Iron Industry and the success of wrought iron unfolded in the Downgrade some 20 years after Cort patented (1784) the Puddling process.Watt’s improvement over the Newcomen Steam Engine (with a separate condenser dating from 1765) succeeded only after 1782 when the ironmaster Wilkinson – with knowledge of improved cannon-boring techniques – came to his aid (Schumpeter, 1939, 273–274). 11. Schumpeter argues that most of the industrial innovations in England began well before the onset of the Anglo-French Wars in 1793; and they would have produced a peak of Prosperity, and afterward Recession around 1800 based upon the work of the economic mechanism alone. Although legal tender or credit instruments created ad hoc financed public expenditure with inflationary effects that peaked between 1800 and 1810, they did not shake the confidence in the Pound or prevent a fall in the interest-rate or the fall in the prices of domestic commodities produced by Innovating sectors (Schumpeter, 1939: 261–262).

58 Trichur

12. Some 225,000 Scot-Irish Protestants emigrated from Ulster to the US between 1718 and 1775, following the 1717–1718 Irish famine. This emigration served as an effective safety valve for Irish unrest (McNeill, 1982b, 208). 13. England’s Population grew from 5.8 million to 9.15 million (1700–1801), and intense poverty in Ireland and the Scottish Highlands in the last decades of the eighteenth century failed to provoke any commercial and industrial growth (McNeill, 1982b, 185). 14. Command mobilization of French resources alongside new military innovations in ­1793–1794 – the manufacture of saltpeter (a key ingredient in gunpowder), a balloon corps for aerial observation, a semaphore telegraph connecting Paris with the front; and the use of Skirmishers in the battles of September–October 1793 – generated “a breaking wave” that almost swept away the feudal monarchies of Europe. Command mobilization however, backfired when the ideal of “a people in arms” in Prussia stimulated a Befreiungskrieg. Following the defeat at Jena in 1806, the Prussian General Scharnhorst instituted important military reforms such as the new General Army Staff; and promoted limited democratization of the Prussian army (McNeill, 1982b, 196–198). 15. Schumpeter notes that German institutional Changes – such as the Zollverein and the Norddeutsche Bund – also removed fetters on the economy and promoted, after 1870, a persistent undercurrent of free trade along with deregulation of German Joint Stock Companies. Although the US retained Protection throughout the period, Free Trade within the country, especially in the West and Mid-West regions, mattered most (Schumpeter, 1939, 309). 16. In Germany, during 1873–1880, ownership of ship-engine factories was concentrated in 24 Hamburg and Bremen concerns. The Borsig Concern vertically integrated coal, iron, blast furnaces, puddling plant and rolling mill. Great expansion of all manufacturing industries – iron and steel, coal, structural materials, shipbuilding – and urbanization accompanied the Kondratieff downgrade in Germany, along with Chemical and Electrical Industries that “carried” the third Long Wave. 17. Although neither deflation nor inflation were problems at the end of the Civil War, the Greenback Standard (1862–1878) and “Silver Interests” offered resistance (1876–1896) to the US Treasury’s Gold Standard policy, until the repeal of the Silver Standard in 1893 (Schumpeter, 1939, 317–318). 18. French investments in new steam-powered warships following the 1839–1841 Near Eastern crisis, provoked England to install auxiliary steam engines in its ships. In 1849, the French innovation of the elongated Minie bullet increased the range of rifle-fire. 19. First, Anglo-French deployment of trench systems, field fortifications, and artillery barrages prefigured the First World War. Second, the innovation of the new rifled gun-barrels with Minie bullets used by the Allies completely outclassed in firing range the old-fashioned smoothbore muskets used by Russian soldiers and prefigured the Prussian victory in Koniggratz – after Prussia re-bored its existing stock of muskets and converted them into rifles using the new bullets between 1854 and 1856 – during the 1866 Austro-Prussian war. Prussia took 20 years to complete the change from muzzle-loading rifles to the new breech-loading rifles. In England, the setting up of a new plant at Enfield in 1859 helped it make the switch in record time thanks to imports of the new milling machinery from the US. 20. The systems and controls developed at the US Springfield Armory extended to the production of axes, shovels, and other implements in the mid-1830s and 1840s, and in the making of sewing machines and firearms for the commercial market in the 1850s. In the 1880s, modern scientific factory management perfected the practices and procedures developed at Springfield. “Modern factory management … had its genesis in the United States in the Springfield Armory” (Chandler, 1977, 75). 21 The success of Prefabricated housing coincided with the boom in residential construction, which peaked in 1925 – associated with the increase in US population by

Cycles and Militarism in Capitalism 59

15 million in 1920–1929, “the largest absolute amount of increase per year in the history of the country” (Schumpeter, 1939, 745). Schumpeter observes that along with electricity, the potential of prefabricated housing will spill over into other cycles in the future. 22. Schumpeter (1939, 760) admits that First World War innovations in Germany include the radio and the airplane; large-scale production of aluminum; and of synthetic nitrogen after the 1913 Haber-Bosch invention.

5 THE DIALECTICS OF POLITICAL ECONOMY Taylor Mann

“Peace makes plenty, plenty makes pride, pride breeds quarrel, and quarrel breeds warre: Warre brings spoile, and spoile povertie, povertie pacience, and pacience peace: so peace brings warre and warre brings peace.”

( Jean de Meun in Puttenham, 1869) “All the goodness and heroisms will rise up again, then be cut down again and rise up,” wrote a reflective Steinbeck on the first-day of 1941 (Steinbeck et al. 1975). “It isn’t that evil things win,” he adds, “but that it doesn’t die.” And why should we expect it do? He asks, “It seems fairly obvious that two sides of a mirror are required before one has a mirror, that two forces are necessary in man before he is man.”What Steinbeck refers to here is the natural contradiction that is inherent in not only man, but in mankind as well; that good and bad are two sides of the same mirror – they define one another, and shape one another (e.g., predator–prey, yin–yang); they are, in other words, dialectical. The principles of dialectics tell us that each polarity in a dialectical relationship contains some elements (seeds) of its opposite; freedom requires elements of limitation, stability requires elements of change, goodness requires elements of evil, etc. The two polarities are measured in relation to the other and thus cannot exist without the other; they are contradictory (opposites) and complementary (mutually enabling). As the relative power of one polarity grows, so does the seed of its opposite; too much freedom, for example, breeds chaos (need for limitation) and too much limitation breeds stagnation (need for freedom); see Figure 5.1. To apply this dialectic to Steinbeck: goodness is not the absence of evil; rather, evil is the source of goodness (Goldstein, 2015). This dynamic underlies the primary hypothesis that will be argued throughout this chapter: the abundance of one polarity

The Dialectics of Political Economy 61

Corrective Action

Polarity FIGURE 5.1 

Dialectical dynamics: an illustration.

in relation to the other is self-reinforcing in the short-term, and self-undermining in the longterm; when the polarity inevitably reaches an extreme, it converts to its opposite via corrective action (politics); this is how homeostasis is achieved in world systems, by promoting stability via change (Farjoun, 2010). The same dynamic can be applied to world-systems: TABLE 5.1  Dialectical dynamics: world systems application

Open System: 1865–1913

Closed System: 1945–1980

Open System: 1980–2016

World peace Global markets High immigration Capital mobility Strong corporations International convergence Declining inflation

World war National markets Low immigration Labor mobility Strong governments National convergence Rising inflation

World peace Global markets High immigration Capital mobility Strong corporations International convergence Declining inflation

Notes Derived from the “Macro Regimes” concept from Mark Blyth (Blyth and Matthijs, 2017).

The Dialectics of Political Economy World Systems (PEWS) Political economy is the study of relationships between individuals and society and between markets and the state; the world system, in contrast, is a social system made up of conflicting forces which hold it together by tension and tear it apart as each group seeks eternally to remold it to its advantages (Wallerstein, 1976); we can combine the former with the latter to conclude that PEWS can be understood as the study of interrelationships within the macro sociological structure; furthermore, it follows that the dialectics of PEWS can be understood as those primary contradictory relationships that shape, and are shaped by, the macro-­ sociological structure and thereby provide fuel to the coevolutionary process of system development.

62 Mann

The dialectical relationship between business cycles and political trends is one of the primary contradictions of the world system. Traditional theorists of International Political Economy (IPE) interpreted the relationship between markets and institutions via reductionist methods, and thus see a world of stasis defined by its individual components. The world that I see is fundamentally different from this traditionalist perspective in that I choose to make observations not through the lens of reduction but through the spectrum of dialectics; where the former regards constancy as the condition without exception, while the latter expects change but accepts constancy. In contrast with the traditionalist view, a dialectical interpretation of political economy recognizes the relationship between business cycles and political trends as an interdependent one; in terms of the world system, a dialectician would argue that the inherent “tension” within the system is generated by the internal contradiction between the established political order, which reinforces its dominance via ­compounding-effects from initial advantages (path dependency), and the evolving market system and cultural ideals that such institutional homology produces. Political economist Mark Blyth applies the concept of “coupling” to highlight the feedback mechanism within the contradiction (Blyth and Matthijs, 2017); in simple terms, the mechanism can be understood as follows: the internal contradiction between the established structure and the evolving system produces growing imbalances within the system that inevitably leads to a structural crisis, a fundamentally different institutional structure is created to resolve the internal contradiction and reverse the structural imbalances; the post-crisis structure changes the political environment by coupling a range of institutions around a specific policy target (i.e., a policy target opposite of the previous structure); the coupled institutions (i.e., growth regime) apply the policy target to rebalance the system, creating new clusters of winners and losers – the winners recycle this initial advantage to reinforce the established structure, creating new contradictions and future imbalances (Table 5.1). The dialectics of PEWS can explain the endogenous and coevolutionary process of the world-system; per this endogeneity, it follows that each institutional structure (regime) flows out of the conditions, and contradictions, of the regime before, and then prepare the way for the next recurrence (Schlesinger, 1986).To apply the principle of contradiction: the power of every institutional structure is self-reinforcing in the short-term, and self-undermining in the long-term.This essay will apply this hypothesis on both an international and national basis and focus on a variety of variables from economic, political, and cultural subsystems, and then conclude by applying these relations and dynamics to explain the rise of nationalism.

International Macroeconomic Regimes: Past, Present, and Future Blyth contends that the “global macroeconomy is an evolutionary system driven by dynamics of inflation and deflation that directly influence and links across space

The Dialectics of Political Economy 63

and time”; I will argue here that the inflationary/disinflationary mechanisms are but part of a much larger homology of the evolving system – namely, in changing cultural values and thus electoral conditions (Inglehart, 1977, 1990, 1997). The international homologies of the post-war era can be bifurcated into two political structures that are mirror images of one another: (1) the labor regime (1945–1970s) – a set of coupled institutions around a full-employment policy target that aimed to resolve the economic imbalances of the pre-war era (e.g., union rights, financial repression, capital immobility, antitrust, high taxes, fiscal support, etc.); and (2) the capital regime (1980–2016) – a set of institutions coupled around a price-stability policy target that aimed to resolve problems of stagflation that were generated by full-employment (e.g., employer rights, labor suppression, capital mobility, offshore trust, low taxes, monetary support, etc.). We are now witnessing the emergence of a third regime; more on this later. Figure 5.2 illustrates the evolution of international regimes in terms of inflation/disinflation (pro-labor vs. pro-capital) in advanced post-war countries. 15

Good for Debtors Real Growth > Real Yields

10

Good for Creditors Real Yields > Real Growth

15 10

5

5

0

0

–5

Real Bond Yields

–10 –15 1945 140

Real Output Growth

Post-War Leaders, Population-weighted

Post-War Leaders, Population-weighted

1980

Debt/GDP

16

Top 1%

2015 Valuations

1

Monopolies

–5 –10 –15

1

80

20 1945 1980 2015 FIGURE 5.2 

7 1945

1980

2015 1945

1980

0 0 2015 1945 1980 2015

International macroeconomic regimes.

Sources: Real Growth, Real Yields, Debt, and GDP: Jordá-Schularick-Taylor Macrohistory Database, 2018; updated via FRED and IMF databases. Top 1%:World Inequality ­Database, 2018. Valuations:Various sources: Global Financial Data, Deutsche Bank, prior database ­(Jordá-Knoll, Kuvshinov, Schularick, and Taylor, 2018). All for post-war debtors: Australia, B ­ elgium, France, Italy, Japan, United Kingdom, and United States. Monopoly (US Only): Index created by (1) the ratio of Antitrust cases per Merger/Acquisition; (2) Total capital expenditure on Mergers/ Acquisitions as a share of fixed capital formation; (3) Monopoly Surplus, profit implied share of surplus income in output (Kurz, 2017; Compustat); (4) Average mark-up weighted by market share of sales (De Loecker and Eeckhout, 2017; Compustat); note: the ratio (2) to (1) is almost identical to the trends of both (3) and (4).

64 Mann

The two regimes are effectively mirror images of one another, as illustrated by Figure 5.1. The mirror images, however, are not exclusive to economic variables; political and cultural trends follow the same trends – in fact, they precede it. Just as stagflation provided the necessary trigger for Neoliberalism, and the Great Financial Crisis (GFC) a trigger for Global Trumpism, it is my contention that the conditions for a general backlash, and a reformation of the status quo, was already in advanced stages prior to the “triggering” event. Like all regimes, the labor regime failed precisely because it succeeded. The post-war full-employment structure was based on the class imbalances that preceded it; these imbalances brought economic issues to the forefront of politics, and thus forced parties to differentiate themselves solely on class lines – with labor constituting one polarity, and capital the other. The pro-labor parties dominated during this phase of development, resulting in the lowest level of inequality in modern history. Ironically, it was this great convergence of class that eventually led to its reversal: labor coalitions were comprised of the lower- and working-classes who, despite agreeing on economic issues, had extreme differences in terms of social issues (an internal contradiction). When the differences between classes declined, the unity between those groups eroded with it. New issues replaced class (Carmines and Stimson, 1989), and the older generation that had experienced economic turmoil were gradually replaced with a generation that had experienced the complete opposite (Abramson and Inglehart, 1992). The combination of economic prosperity and generational replacement reformed electoral conditions and led to a qualitative shift in the primary dividing line between parties. In sum, class politics was replaced with identity politics, which over the course of four-decades, created a party system that was the exact opposite of the one prior: with the lower classes bifurcated, and pro-capital elites controlling both parties. Figure 5.3 illustrates the dialectical relationship between macroeconomic regimes and political cleavages.The figure on the left shows two population-weighted indexes of (1) the level of class-based voting, and (2) the ratio of economic issues to cultural issues in party platforms (i.e., the share of class-based issues in political debates); the figure on the right shows (1) the population-weighted vote share for populist candidates, and (2) the share of populist vote shares going to left-wing candidates (shaded area). Class-based voting and class-based issues have steadily declined since the mid-1960s, the share of left-wing populism follows a similar trend. Although populism has spiked recently, it has steadily risen since the early-1990s. The purpose of this comparison is to argue that the pro-capital regime that emerged during the 1980s was in fact part of a much broader structural shift that began during the mid-1960s. In The Silent Revolution (1977), Ronald Inglehart brings together a consortium of data, which would eventually become the World Values Survey Database, to argue that much of the political activism that emerged during the 1960s was a symptom of a much broader shift in the values of the post-war generation.These findings provided the foundation for Inglehart’s Material Insecurity Hypothesis – that is, “Growing up taking survival for granted makes

The Dialectics of Political Economy 65

Class Politics

2.5

35

Populist Votes

40

100

Class-Based Voting Populist Vote Share Pop-weighted, LHS

Class-Based Issues 0 1945 FIGURE 5.3 

1980

2015

–10

0 1945

Left-wing Share 1980

2015

0

Political cleavages, issue salience, and populist vote share.

Notes Class Politics: Class Voting: proportion of the working class voting for Labor/Democratic Party less the proportion of the middle class voting for the same party (Alford, 1962; Inglehart, 1997); weighted for population. Class-based Issues: ratio of economic issues to social issues in party ­manifestos/platforms (Manifesto Project Database). Populist Vote Share: Anti-establishment vote shares, population-weighted (Funke, Schularick, and Trebesch, 2016; as of November 11, 2018).

people more open to new ideas and more tolerant of outgroups. Insecurity has the opposite effect.” A duo of evolutionary biologist, Randy Thornhill and Corey Fincher, believe that an evolutionary explanation underlies Inglehart’s hypothesis. Over the course of several highly cited papers, the duo argue for what they call parasite-stress theory – noting, “Natural selection crafted conditional psychological adaptations (behavioral immune system), instantiated in the human nervous system, yielding widespread devaluation of out-groups and associated authoritarianism under high (parasite) stress and widespread high valuation of out-groups and anti-authoritarianism under low (parasite) stress” (Thornhill and Fincher, 2009). A “high stress” environment, in other words, creates the conditions for in-group loyalty (to take care of one another) and out-group fear (to prevent contagion); a “low stress” environment, in contrast, corresponds to the opposite behavior (e.g., openness with out-groups, individualism) (see Table 5.4). If threat Æ high stress: closed – collectivism, xenophobia, obedience If no threat Æ low stress: open – individualism, xenophilia, freedom I contend that the evolutionary adaptation put-forward by Thornhill and Fincher can be applied to threat prevalence (war, economic insecurity) or threat absence (peace, prosperity). A closed system (labor regime), for example, is predicated on “high stress” – so when that threat is resolved, we should expect a natural backlash for a more open system (e.g., the culture revolution during 1960s); an open system (capital regime), in contrast, is predicated on “low stress” – so when a new treat emerges (economic insecurity), we would expect a backlash for a closed system (e.g., Global Trumpism). Both examples highlight the evolutionary mismatch that generates change (development) as well as the cultural preconditions that are necessary for an economic event to “trigger” a macroeconomic regime shift.

66 Mann

450

–60

25

–4

Inflation

Inverse, RHS

Collectivism

Birth Cohort, Pop-weighted

Para. Deaths

Individualism

per 100K (LHS)

0 1900

FIGURE 5.4 

1960

10 2020

Average, Pop-weighted

–60 16 1970 1980 1990 2000 2010 2020

On parasite prevalence, individualism/collectivism, and inflation.

Notes Parasite Prevalence: Mortality rate from infectious disease epidemics (Center for Diseases Control, WHO, and various other government agencies; downloaded from Our World In Data, 2018). Collectivism: Percentage of Materialist less the percentage of Post-Materialist by birth ­cohort, inversed (Inglehart, 1990; Updates via World Value Surveys). Individualism: Percentage of ­ Materialist less the percentage of Post-materialist (Inglehart, 1990; Updates via World­ Value ­Surveys). Inflation: Inflation rate for same countries, weighted by population (JordáSchularick-Taylor Macrohistory Database, 2018; updated via FRED and IMF databases).

National Regime Formation: The Dynamics of American Politics The evolutionary development of the American political system can be understood as the alternating cycle of integrative and disintegrative phases: that is, long periods of economic equality, social cohesion, and political bipartisanship (integrative phase) are succeeded by periods of economic inequality, social stratification, and political polarity (disintegrative phase), and vice versa (Turchin, 2016). Both phases are driven by incomes: rising labor share promotes integration (closedness), and rising capital share promotes disintegration (openness). Income shares are determined, in part, by macroeconomic regimes – the reverse is also true: income shares determine electoral conditions (i.e., what type of issues divide parties), and electoral conditions determine the configuration of the subsequent regime. Therefore, income shares shape, and are shaped by, macroeconomic regimes via electoral conditions (partisan alignments). Traditionalists perceive partisan alignments as static, suggesting that politics is inherently one-dimensional and thus all political actors should gravitate towards the ideological-center to maximize votes; I take the opposite view. The perception of one-dimensional politics is partly explained by the fact that both parties actively organize themselves around the one dimension that separates them (e.g., labor vs. capital, culture vs. tradition); the source of unidimensionality lies in the weak correlation between social and economic issues (e.g., knowing a voter’s stance on abortion will unlikely explain their stance on social security).Therefore, if parties actively disagree on economic issues, it is likely that they passively agree on social issues; or, if parties actively disagree on social issues, it is likely they passively agree on economic issues. In a 2003 paper titled Activist and Partisan Realignment in

The Dialectics of Political Economy 67

the United States, political scientist Gary Miller and Norman Schofield presented a revised political spectrum to deal with this issue; the new spectrum consisted of not one, but two-dimensions (divisions): economic policy (distribution of collective benefits) on the horizontal axis, and social policy (implementation of collective values) on the vertical axis; with both axes on a liberal–conservative spectrum (see Table 5.5). The key insight from Miller and Schofield was that politics is not a steady-state, but a dynamic process; any majority coalition must be comprised of two groups with opposite views on alternative dimensions.When the issues that dominate politics change, so does the political alignment – and so does the regime. Figure 5.6 illustrates the dialectical relationship between integrative (labor/ closed) and disintegrative (capital/open) phases. You will notice that the macroeconomic regimes are constructed when the partisan alignment is either vertical (class politics: labor vs. capital) or horizontal (identity politics: social liberals vs. social conservatives); this is because vertical and horizontal party systems create economic lock-in effects that allows the regime to reinforce itself. In the Fifth Liberal Liberals

Cosmopolitan

Social Liberal Economic Liberal

Social Liberal Economic Conservative

Economic Dimension

Conservative Populist

Social Conservative Economic Liberal

Conservative

Social Conservative Economic Conservative

Social Dimension FIGURE 5.5 

American party systems, 1800–2018.

Notes shaded regions represent the majority party of the system; the shaded region in the capital alignment (parties 3 and 7) are unlike the others, in that neither exist on one side of the primary cleavage (thick line), for two reasons: (1) both periods experienced extreme majority volatility; and (2) both parties represented the economic conservative side of the spectrum – in other words, both favored pro-capital policies, but differed on social/regional issues; this is why both periods are known as “multiple-elite party systems”. Commoner Index (black) is a standardized index comprised of the following variables: labor share (median wage scaled by per capita GDP), average age at first marriage, life expectancy, and height. Elite Index (dot) is a standardized index comprise of the following variables: political polarization, largest fortune to median income, political violence, and the cost to attend Yale University scaled to median wages.The methodology for both indexes is derived from Peter Turchin (Turchin and Nefedov, 2009). Important: the first- and second-party systems exist on one-dimensional axis; the second dimension, the social axis, did not emerge until Abraham Lincoln in 1860. Party Systems 1–8: Introspection based on a variety of spectrums provided by Gary Miller and Norman Schofield. Commoner and Elite Index: See Figure 5.4 – notes.

68 Mann

1: 1880–1828

2: 1828–1860

3: 1860–1896

4: 1896–1932

Elite

D-Rs

Feds

Elite

5: 1932–1964 Labor

6: 1968–1992

Capital

7: 1992–2016

Liberal

8: 2016–20XX Globalist

Elite

Consv.

Elite Nationalist

1

1800

2

1825

3

1850

1875

4

1900

Labor alignment (I) Capital alignment (–) Commoner index (Labor)

5

1925

1950

6

1975

7

8

2000

2025

Social Sorting (/) Economic Sorting (\) Elite Index index (Capital)

FIGURE 5.6 The

dialectical relationship between integrative (labor/closed) and disintegrative (capital/open) phases.

Party System (New Deal Era, 1932–1964), for example, Democrats (left-side of spectrum) held absolute power almost entirely throughout the era; this is in contrast to the Third/Seventh Party Systems (Gilded Age, 1865–1896; Neoliberal, 1992–present) where neither party held power for more than about four-years, however, both parties always represented the pro-capital (right) side of the political spectrum; in terms of the political spectrum, regimes are mirror images of one another. Both of these alignments are formed with an internal contradiction: a pro-­ labor regime presupposes the suppression of social issues because it requires a coalition of workers with social differences; a pro-capital regime, in contrast,

The Dialectics of Political Economy 69

p­ resupposes the suppression of economic issues because both parties are comprised of a ­coalition of either social liberals or social conservatives with economic differences. The key point to understand is the dialectical relation in partisan alignments and political issues: if economic issues are important, social issues must be less important, and vice versa. In other words, when economic issues dominate politics, labor wins; when economic issues do not dominate politics, capital wins. The dialectic is recursive: when labor wins, economic issues are resolved – making it less relevant in political debate; when economic issues fall, parties must realign on the social axis, which is exactly what occurred with the collapse of the New Deal and the rise of the New Left in 1968 (Rorty, 1997; Cohen, 2016). As argued previously, the shift to the pro-capital regime in 1980 was preceded by a much larger shift in the cultural environment. Figure 5.7 highlight the two major characteristics of this trends: cohesion – the post-1963 decline in social cohesion and the rise of individualism (Putnam, 2000; Murray, 2012); membership to management – the transition from chapter-based membership groups, which represented the broad economic interest of ordinary citizens, to ­professional-class management groups, which represented the narrow interest of the political and economic elite (Skocpol, 2003); political equality – the difference in average income between red states and blue states (Piketty, 2018); majorities – the stability of majority coalitions (Fiorina, 2017); dotted line in the final chart of Figure 5.7 is congressional productivity (Grant and Kelly, 2008).

Cohesion

1900

1963

Membership

2026 1900

FIGURE 5.7 Cohesion, civic

1963

Political Equality

2026 1900

1963

2026 1900

Majorities

1963

2026

reorganization, political geography, and majority coalitions.

Notes Cohesion: Membership rate for 31 chapter-based associations (Putnam, 2000; updates are my own); Group-to-Individual Term Prevalence, Group: Cooperation, Membership, Tribal, Unity, Union; Individual: I, Me, Myself,You, and Your (based on Twenge, et al., 2012); both standardized indexes (average). Membership: Dot: Ratio of membership rate to cross-class associations to management rate in non-profit organizations among elites (Skocpol, et al. 2005); Black: Ratio of economic interest groups to social interest groups in Washington, DC (Baumgartner et al., 2003). Political Equality: Ratio between average income of Democrat and Republican states (Index=ABS(1-Ratio); inverse). Majorities: Steps: (1) coded the party majority for President, House, and Senate for every US election – e.g., 2016: R, R, R; (2) created six bins to sort each election on a spectrum from majority stability to majority instability; and (3) created aggregate index for (+) if stability and (–) for instability.

70 Mann

Conclusion This chapter began by exploring the interrelationships in man and then proceeded by applying the same logic to political economy; it is only fitting that we conclude by expanding on the cultural mechanism that connects the two. As stated previously, the core argument of this chapter is that the relationship between business cycles and political trends is mediated, or embedded in, the cultural environment. After all, it is the cultural environment that constrains, and enables, the evolutionary processes of both markets and institutions. In the first section, I presented a model for explaining the natural occurrence of imbalances within political economies; i.e., the imbalance that is caused from the growing gap between the established political structure and the evolving market system. It is my contention that the dynamic occurs between the politi­ cal economy and the cultural environment; the political economy, for example, evolves at a much faster rate than human beings – if the feedback between the two is broken, which I believe is the case today, then the adaptive capacity of the system will continue to decline (giving the false impression of stability), structural imbalances will continue to grow, and eventually – like the economic shock in 2008, or the political shock in 2016 – a cultural shock will occur, and few, if any, will ever see it coming. And this shock, not unlike that cultural-quake we call the “Sixties” – which marked the beginning of one era and the b­ eginning 17

40

16

35

15

30

14

25

13

20

12

15

11

10

10

5

9 1900

1920

1940

Economic crisis FIGURE 5.8 Economic

1960 Year Suicide rate

1980

2000

0 2020

Populist share

crisis, suicide rates, and populist vote shares (less one election

cycle) Notes Economic Crisis: Share of those same countries experiencing a “systemic crisis” as defined by Reinhart and Rogoff (2009). Suicide Rate: Suicide mortality rate, both sexes. Populist Vote Share: See, Figure 5.2.

The Dialectics of Political Economy 71

of another – will leave in its wake a half-century of political transformation and market reorientation; once again, planting the seed of its opposite, and setting the stage for its next recurrence. So – do political and market systems interact? Are structural imbalances possible? Can negative externalities be hidden? Some say no – I take the opposite view (Figure 5.8).

6 BRAZIL From the Vicissitudes of Systemic Rebalancing to the Crossroads of Conservatism1 Rodrigo Luiz Medeiros da Silva and Lucimara Flavio dos Reis

In the beginning was the Word, and the Word was with God, and the Word was God. Yet to all who did receive him, to those who believed in his name, he gave the right to become children of God. ( John 1:1 and 1:12)

6.1  Introduction: Objectives and Methodological Option On October 28, 2018, a far-right politician was elected the 42nd president of the Brazilian Federation. Jair Bolsonaro’s victory is the climax of one of the most polarizing and violent presidential campaigns in the country’s history, amidst continued recession, increasing criminality and frequent corruption scandals. Bolsonaro is a 63-year-old retired Army Captain, who served seven terms as a Federal Deputy. His vice-president, General Hamilton Mourao, also served in the Army and commanded its Sixth Division, as well as the Southern Military Command of Brazil. His campaign motto, “Brazil Above Everything, God Above Everyone” apparently signals a nationalist and conservative message. However, Bolsonaro pompously saluted the United States’ flag during a trip to America in 2017, a gesture that for an Army Captain supposedly cannot be meaningless. Indeed, he did express his commitment in approaching Israel and the United States, promising to visit both countries in the early days of his office. During the presidential campaign, he has considered moving the Brazilian embassy in Israel from Tel Aviv to Jerusalem. Considering what concerns the Palestinian embassy in Brazil, he observed: “Is Palestine a country? Palestine is not a country, so there

Brazil: Systemic Rebalancing 73

should be no embassy here.”2 Simultaneously, Bolsonaro described China, Brazil’s largest commercial partner, as a predator, destroying crucial sectors of its economy. He also defended a self-ruled, democratic Taiwan and visited the island to meet local business and political leaders. Soon after, Beijing sent Bolsonaro a letter saying that the trip provoked “possible turbulence in the strategic partnership between Brazil and China.”3 On the other hand, President Donald Trump soon signaled that “Brazil and the United States will work closely together on Trade, Military and everything else”.4 To understand Brazil’s ongoing turnover of power, we should first consider that, after a decade of economic growth and poverty reduction, this country has plunged into one of the deepest recessions of its history. An intuitive explanation for the political crisis is the economic contraction, delegitimizing Dilma Rousseff ’s administration, and triggering a cycle of harsh competition for power among myriad social forces. However, it must be observed that the destabilization of political process dates back to 2013, prior to the first signs of recession. Consequently, the political schism cannot be explained by the economic adversity. Different from the eight other recessions that occurred in the country since 1980,5 this one seems to have a predominant political component. That is to say, even if there are noteworthy fiscal–financial complications that contributed to the economic deceleration, these were immeasurably amplified by the intensification of a previous political crisis, which blocked any consistent program to restore the economic growth. Briefly, economic conjuncture is not enough to explain the recent Brazilian crisis. Conversely, the economic crisis arguably has political roots. As the deterioration of political equilibrium arises in a scenario of economic prosperity and institutional stability, we should presume that the destabilizing factors are structural. A possible agenda of research concerns the transformation of stratification mechanisms, after 15 years of income inequality reduction, declining unemployment and welfare policies. Class conflict is obviously latent in a society that becomes less and less unequal. In 2015, the movie titled The Second Mother (in Portuguese: Que Horas Ela Volta?) portrayed the tensions that arise when a housemaid’s daughter lodges in the wealthy house where her mother worked, so as to participate in the admission exams of the University of Sao Paulo. Her application is successful, whereas the bosses’ son fails the exam. The sociology of stratification shall undoubtedly illuminate, in the near future, important sociological aspects of the political crisis that led to Bolsonaro’s election. In Brazil, the Gini Coefficient declined consistently from the Millennium to 2015.6 The reduction of social inequality means that the salaries payed to the workers of the inferior deciles of income distribution should grow faster than those of white-collar workers. A practical consequence is that the cost of several urban services, such as the carwash or plumbers, will rise faster than the general level of prices. If this rise is persistent, as it was in Brazil, it will increase the inflation rate. At least that will be the prospect if no other group of prices decline. ­Brazil’s experience of income inequality reduction with moderate inflation would be

74  Medeiros da Silva and Flavio dos Reis

unthinkable without a compensatory deflation in a set of relevant prices. Luckily, right when Brazil’s government targeted inequality reduction, observers increasingly indicated China as a source of downward pressure on global prices.7 At the same time, China bought enormous volumes of raw materials from ­Brazil, flooding Brazilian exchange markets with foreign currency, and ultimately provoking a persistent valuation of Brazilian domestic currency. The valuation of the Brazilian Real then contributed to reducing the prices of all tradable goods, compensating for the rising prices of low-skilled services. Taking these facts into account, the social transformations that occurred in Brazil in the 2000s are unthinkable without synchronic transformations in the international economy, following the emergence of China. For that reason, the study of the internal structures of the Brazilian society should include the analysis of changes in the inter-regional and transnational division of labor. These two dimensions should be inseparable in the construction of our knowledge concerning the study of contemporary societies. Nevertheless, there persists a strong bias towards the study of social phenomena as events happening in secluded social systems. This chapter intends to offer a different approach, inspired by Immanuel Wallerstein’s World-System analysis. We invite the reader to think about the electoral victory of Jair Bolsonaro as part of the international dynamics, considering the global arena as “a unit with a single division of labor and multiple cultural systems”.8 Furthermore, we want to stress that this “single” division of labor has suffered rapid and profound changes since the Chinese reforms of 1979. And naturally, these changes indicate the destabilization of previous “cultural systems” of all peripheral zones. Brazil has countless symbolic motivations to miss the golden years of American hegemony. What other country developed so rapidly between 1929 and 1979? Japan? If China’s affirmation as a world power did mean equally bright opportunities for Brazil, it is clear that the occupation of open economic niches has presumed deep socio-cultural and socio-distributive adjustments, promoting social mobility. Ultimately, Brazilian society has distanced itself from its “Order and Progress” ideal, which had structured the country’s life since it became a Republic in 1889. A wave of hysteric conservatism, to be true, is perfectly understandable and even foreseeable, given the magnitude of the structural changes demanded from Brazil in this new century. In section 6.2, our World-System Analysis of the ongoing Brazilian crisis starts with a review regarding the importance of cultural and institutional flows in the relation between a “core” and a “periphery”. We will revisit several classic studies concerning this topic, as well as illustrate their conclusions with symbolic examples in Brazil’s cultural history. In section 6.3, we will draw a timeline of the political crisis that led to the election of Jair Bolsonaro. While presenting the main happenings, we will illuminate the presence of misplaced or anachronistic ideas and ideals in the repertoire of political actors. An exacerbated conservatism, a true Cold War nostalgia, will be identified. In section 6.4, we make our

Brazil: Systemic Rebalancing 75

conclusions, supported by acknowledged references in World-System analysis and historic examples.

6.2  A First Theoretical Frame: Peripheral Condition between Mimicry and Creativity The first representation of the international order as a system formed by a “core” and a “periphery”, interacting in unequal terms, dates back to Werner Sombart in 1902. His masterpiece, Der moderne Kapitalismus (Sombart, 1928) defined the “core” as a specific group of capitalist nations in Western Europe, and predicted the imminent promotion of Eastern United States to this category. Even so, ­Sombart’s distinction between a “core” and a “periphery” of global economy did not embed a theory of such asymmetry. As a historicist thinker, he narrates the international cleavage as a formative process producing Modern Capitalism. According to his perspective, a class of entrepreneurs located in a certain part of the World, with the leitmotiv of profit seeking, achieved fundamental changes in – to use his own words – “economic life”. Helped by particular and irreproducible circumstances, merely accidental conditions, they managed to change the modus operandi of the economy in the regions where they maintained business ventures. A new business protocol was defined, including changes in the commercial and financial practices, thus reforming the managerial ethos. The technological patterns could at that point be modernized. By the unparalleled affluence caused by this breakthrough framework, this unbeatable class of entrepreneurs could thereafter dictate the rhythm and direction of global economic transformation. Their counterparts in the remaining countries, passively, had their own “economic lives” (re)shaped by a continuous flow of stimuli determined by the lead of central business industries. Accordingly, other regions of the world were automatically engulfed by persistent international dynamics that arise from an innovative nucleus, guaranteeing the nucleus its privileged position in business. We must […] distinguish a capitalist Center—the central capitalist ­nations—from a mass of peripheral countries viewed from that Center; the former are active and directing, the latter, passive and serving. […] We have to accept certain basic facts of economic development as historically accidental conditions. [And] that these conditions correspond at the present time, broadly, to the premises of the idea of ​​capitalism. […] Varieties of people, nature of states and technology. I call them the bases. (Sombart, 1928, xiv–xv) Sombart’s point-of-view of the historical formation of a cleaved world economy is a tribute to the rich tradition of German historicism. Friedrich List,9 half a century earlier, had narrated Europe’s economic history as the emergence of

76  Medeiros da Silva and Flavio dos Reis

leading nation-states, dislocating their rivals out of the best niches of trade, production and finance. His vision of a German Nationalökonomie, to be constructed in the future, advocated ingenious economic strategies against a handful of foreign opponents, not against a systemic dynamics that intrinsically disfavored a periphery. The “economic lives” would be discrepant in different countries, but not interconnected as in Sombart’s description of modern capitalism. Sombart’s preferential interlocutor, Max Weber,10 offers us another Historicist perspective. In this case, the narrative line concerns the affirmation of a sedentary class of entrepreneurs during the tumultuous European society of late middle Ages. Thenceforth, any other segment of humanity aspiring to challenge these pioneers had to incorporate behavioral traits favoring a real compulsion for accumulation.Weber’s most renowned thesis identifies in North American settlers an archetypic religiosity, historically shaping an instinctive impulse for calculated work, as well as a permeant refusal of impulsive expenses. This Kapitalistischer Geist was supposed to be compared with his description of the managerial ethos of Chinese Mandarins or the religiosity of Hindu Brahmins. In these last cases, local conventions would be dysfunctional to the structurally required task, namely, accumulation. The narrative highlights, as in Sombart, the historic emergence of a leading class of businessmen. But contrarily to him, purely local obstacles undermine the development of capitalist practices in India or China. There is no systemic dynamics (re)shaping the peripheral “economic life”. Sombart’s insight about the nature of the international order is thus completely original. Still, its seminal appeal would take several decades to be identified and developed. Since its original formulation by the German sociologist, the “center” and “periphery” dichotomy has been described as an international relation that produces an international cleavage. The opposition between the two categories would stem from the self-interested action of innovative economic actors, which encounter conditions to liberate their businesses from established constraints.The liberation of the forerunners, however, compelled their equivalents to adjust business practices in their respective influence zones. At that moment, the leadership of the precursors had been firmly established, conditioning the evolution of the rest. This interpretative proposal would be revisited only in the late-1940s, by the Latin American Structuralism. In a 1961 book, Desenvolvimento e Subdesenvolvimento – Development and Underdevelopment – translated as Development and Underdevelopment (1971) – Celso Furtado consolidates ECLAC’s11 appropriation of Sombart’s referential. The advent of an industrial nucleus in eighteenth century Europe disrupted the world economy of the time and eventually conditioned later economic development in almost every region in the world. […] Underdevelopment is, then, a discrete historical process through which economies that have already achieved a high level of development have not necessarily passed. (Furtado, 1971, 115)

Brazil: Systemic Rebalancing 77

In Sombart’s original formulation, changes in the core’s “economic life” p­ recipitated and conditioned analogous changes in the periphery. In this new ­version, a “structural” breakthrough in a proto-centric region, caused by histori­ cally irreproducible factors, allowed the economic and political affirmation of a “centric” entrepreneurial class. That is, the narrative starts with a fundamental change in the “structures” that would frame the economic activity – the ­“economic life” – in the precursor region. The definition of “structures”, here, refers to attributes such as the educational system, the design of the transport network, the legal order, the laws concerning the appropriation of assets, etc. This type of conditioners of economic activity would have to suffer deep changes prior to the emergence of a globally dominant entrepreneurial class. Once consolidated in their business niches, their activities would precipitate changes in the equivalent structures that organize business in other areas of the world. This second wave of structural breakthrough would “depend” on the past and current evolution of the dominant structures. Here, central structures condition the transformation of the dependent ones. The relative autonomy of structural change becomes ECLAC’s very referential of development. A dependent bourgeoisie, explains Furtado,12 would be “acculturated” by the wave of structural stimuli irradiated from the core. A long-lasting process, definitely, would define a certain ethos for the elites of the dependent areas. Andre Gunder Frank (1972), using the label Lumpen-bourgeoisie, critically characterized the mentality of the Latin American neocolonial elites. In this occidental periphery, entrepreneurial culture would be marked by an instinctive predilection for a subordinate role in respect of the chief players of the world economy. With a Marxist approach, he connects this passive spirit, detrimental to profit margins, and an inherent reluctance to incorporate socially redistributive advances in the horizon of business. By an autocratic predisposition to obstruct Prussian-style social progresses, the life conditions of local wage class would be confined to poverty, as super-exploitation meant a strategy to recuperate profit margins. By the portrayal of this oligarchic ethos, Frank characterized the pattern of political process in dependent societies. Here lies the very keystone of Dependence Theory, i.e., the correspondence between subordinate positions in world businesses and an autocratic or elitist political order in the periphery. According to Frank’s version of Dependence Theory, economic dependency would be transmitted to the local political process through the cultural ethos of the elites. In addition, the narrow internal markets would be regarded by the elites as an invitation to concentrate their capitals in the production of exportable raw materials, thus deepening economic dependency. Marked by a neocolonial heritage, the elite’s ethos would inspire mediocre business horizons and a fatalist understanding of worker’s pauperization. The region’s position in the international division of labor and the internal political order interact dynamically, in a bidirectional flow. The dependent cultural order would be the intermediary between both facets of

78  Medeiros da Silva and Flavio dos Reis

such Lumpen-capitalism: respectively, economic dependency and super-exploitation of workers. The dependent cultural horizon of Brazilian elites has long been highlighted by Brazilian social sciences. Giberto Freyre’s (1986) The Master and the Slaves, for example, supports the proposition of colonized minds with countless descriptions and empiric testimonials.13 The validation of this proposition to urban-industrial Brazil, though, is far more complex than what concerns the scarcely differentiated ethos of local elites of the early 1800s.The complexity of Brazil’s urban kaleidoscope categorically “deauthorizes” generalizations. Something like Pierre Bourdieu’s La Distinction14 would be required to convert Frank’s proposition regarding the Lumpen-bourgeoisie into a real thesis anchored in convincing data. Nevertheless, the mere identification of decontextualized foreign references, shaping the peripheral elite’s cultural or intellectual preferences, requires far less pretentious research than the complete characterization of its cultural ethos. For example, it is not so difficult do demonstrate how political rhetoric in ­Brazil is deeply influenced by imported ideas, mechanically mimicked, independently from the dissimilarity of context. In 1977, Roberto Schwarz published Ao vencedor as batatas – The Winner gets the Potatoes – arguing that economic ­liberalism was a “misplaced idea” in late-1800s Brazil. This book is a literary and cultural analysis of Machado de Assis’ Posthumous Memories of Bras Cubas, published in 1880. Following a Marxist line, he convincingly demonstrates how the novel’s iconic characters reveal the ambiguous appropriation of British economic liberalism by a class of slave-owners. His metaphoric explanation is brilliant: “European wallpaper was pasted or hung on slave-built walls of earth, or paintings were hung, in order to create the illusion of modern interiors, like those of industrial Europe.”15 Like parrots, the peripheral elites reiterated foreign models of speech, ignoring the undesired logical corollaries whenever they denoted limits to the survival or archaic behaviors. Schwarz’s literary critique of Brazilian laissez-faire is thus far the most acknowledged censure, apropos economic liberalism in Brazil. But it should be remembered that Machado de Assis, the creator of the characters analyzed by Roberto Schwarz, did realize how inconsistent they were in cosmological terms. A member of the imperial intellectual vanguard and a “self-made man”, Assis started as a poor mulatto boy who apparently worked in his neighborhood’s bakery in order to learn French, since the owner was a Frenchman. The same self-contradictory elite that shaped his biography also produced brilliant esthetic and intellectual solutions to adjust Brazil’s “economic life” to the torrent of stimuli emanated by the “core”. Machado’s legacy is a perfect example of such enlightenment. Maybe the labeling of a country as “central” or “peripheral” is excessively dichotomist. As Celso Furtado argued, the relative autonomy of a given society in defining the goals and priorities of State action is directly related to its degree of development. A society can be more or less developed; it can become more or less developed in the course of history.

Brazil: Systemic Rebalancing 79

In 1808, the Brazilian José da Silva Lisboa, first Baron and Viscount of Cairu, published the first Portuguese-written book inspired by Adam Smith’s works.16 A top official of the Portuguese Empire, the Viscount partially assimilated Smith’s libertarian ideals. For example, he echoed his encouragement of free trade, playing a chief role in the opening of Brazilian harbors to foreigners, after the exile of Portuguese Court in Rio. Following the Scottish philosopher, he also condemned slavery, emphasizing the rational aspects of employing free laborers. On the other hand, committed to defending the Portuguese monarchy, religion and aristocracy, he denounced The gallomania17 that tried to equalize all classes and individuals, ­denying the Providence [of God] which varied […] men’s merits […], proclaiming false equality and liberty, as to usurp the established government, and to fade the just authority of patriarchal regime.18 Lisboa, expurgating Smith’s most progressive points of view, proposed an interesting combination of social conservatism and economic liberalism. In terms of logical consistency, the work is unquestionably poor, with superficial conclusions that do not derive from Smith’s philosophical foundations, supposedly presented in an apologetic way. Cairu’s ideas definitely evoke Schwarz’s “slave-built walls of earth”, although covered with European wallpaper. But what to say about Oswald de Andrade’s solution for the paradox of a nation that, pursuing intellectual autonomy, contemplates the reactionary choice of ignoring all foreign references? “Tupi or not Tupi, that is the question” was the motto of the Anthropophagic Manifesto that founded Modernism in Brazil. Tupi was the language used by several indigenous tribes, which inhabited coastal regions in South and Southeast Brazil. The use of Tupi, instead of the colonizers’ language, could represent a radical affirmation of Brazilian identity. The motto transforms the dilemma into a joke, signaling that Brazilian arts would have to extract their specificity first from an eclectic observation of foreigners, and second from the acceptance of the exoticism of the country’s roots. First, it is a reference to Shakespeare. Second, Brazil’s unique heritage as a tropical civilization is visited. Finally, Anthropophagy is also allusive to the fear felt by the first European explorers of being devoured by savages in the tropical rainforests of Brazil.19 This entire message is delivered in eight words. Who would dare label Oswald de Andrade Lumpen-anything? Evidently, the country with the international record of GDP growth during the trente glorieuses arguably had to be culturally more complex than a mere imitative reproducer of decontextualized ideas. But, at the same time, as the speeches of Jair Bolsonaro clarify, Roberto Schwarz’s metaphor regarding the “slave-built walls” with imported wallpaper is sometimes irresistible to describe the Brazilian elites. Celso Furtado believed in a definitive crisis of (mental) underdevelopment along the I Republic of 1889–1930, opening a long phase of progressive

80  Medeiros da Silva and Flavio dos Reis

c­ omplexification of Brazil’s structural set, and ultimately leading to development. This forecast seemed instinctively plausible, for Brazilians and for foreigners who visited Brazil, during the heydays of Lula’s administration. In 2003, Brazil’s Minister of Culture, the composer, singer and guitarist ­Gilberto Gil, performed in the United Nations’ General Assembly Hall in memory of those who lost their lives in the attack on the United Nations complex in Baghdad.20 Instead of traditional speeches, he preferred the language of Brazilian popular music, played inside a building designed by Oscar Niemeyer, and close to Candido Portinari’s War and Peace panels. Oswald de Andrade’s plan seemed to have materialized. Until then, when Celso Furtado passed away,21 the possibility of Brazil’s abrupt and irreversible structural decay would not sound verisimilar. After that, what happened? How can World System Analysis explain the plague of Dissociative Identity Disorder22 that seemingly took control of contemporary Brazilian elites? We will revisit this question after retelling the cycle of political instability that started in 2013, which ultimately led to the election of an extremeright political president of Brazil in 2018. While telling this story, we shall highlight the presence of “misplaced” foreign references in the political repertoire, advocating essentially inconsistent modifications in “economic life”.

6.3  The Timeline of Brazilian Ongoing Political Crisis until Bolsonaro’s Election In August 2012, the mayor of Natal, in northeastern Brazil, decided to increase the local bus fare. Riots took place all through the following month, ultimately convincing the municipal authority to reduce the cost of tickets to the previous level. Similar protests occurred in the southern city of Porto Alegre, in March 2013. Even before the city administration could re-evaluate the fares, they were also brought back to their previous value, when a judicial decision favored the protesters’ claim. In May, the city of Goiania, in the Central Plateau, had the streets filled with demonstrations with the same motivation. Once again, a judicial decision forced the reduction of local bus fares. In June 2013, increases in bus, train, and metro ticket prices were the spark for similar protests in Sao Paulo23 and Rio.24 Particularly in Sao Paulo, demonstrations were organized by the Movimento Passe Livre (Free Fare Movement), a local social movement that advocates the adoption of free public transportation. Given the magnitude of the demonstrations in Rio and Sao Paulo, their agenda instantly became a national issue. At that point, the presence of so many people in the streets stimulated the expression of almost all kinds of discontent. Once the terrain was cleared and opened up by the first demonstrators, other actors came together to make their own complaints (Figure 6.1). The scope of protests evolved rapidly, as to include almost all sources of disenchantment with the political class. In particular, demonstrators evoked issues such as the common cases of corruption, the rising prices of basic consumer goods, the supposedly high level

Brazil: Systemic Rebalancing 81

FIGURE 6.1 Banners

used in the 2013 demonstrations. Left: “We want more schools, more security and better healthcare! Not a stadium which costs 1.5 billion reais”; Right: “If the fares do not decrease, Rio will stop”.

of ­taxation, the poorly functioning health services, the low quality of public education, and the elevated cost of sport facilities – then under construction for the 2014 FIFA World Cup and the 2016 Summer Olympics.25 Additionally, police brutality incited additional agitation. In Brazil, urban transportation is a constitutional responsibility shared between municipalities and state governments. It is not a direct concern of the Federation. However, there was political alignment between the mayors of the two cities and the president, Mrs. Dilma Rousseff. In the case of Sao Paulo, Mayor Fernando Haddad had been Rousseff ’s education minister. Both are affiliated to the same party, the Workers’ Party – PT in Portuguese. In Rio, Mayor Eduardo Paes was not one of Mrs. Rousseff ’s party fellows, but he represented a local coalition of roughly the same parties which then supported her administration. Therefore, there was no mutual blaming between the two levels of government. As a technocrat with poor communication skills, Dilma Rousseff took a rather long time to address a pronouncement to the nation. When she finally did,26 somewhat unexpectedly, bold changes to the country’s political system were ­proposed. Namely: a constituent assembly to reform the voting system and ­campaign-finance methods. The idea of proposing deep political reform during a political turmoil was pure nonsense, but she also announced concrete measures aimed at rooting out systemic fraud in the government’s expenditure.27 The new measures included plea bargaining: prosecutors would be allowed to make deals with suspects, reducing their sentences in return for information that could lead to more important figures. After meeting the unusually young leaders of the Free Fare Movement, the president reaffirmed her call for major political reforms, which thus far lacked minimal congressional support, to be earnestly considered, but were soon forgotten. Specifically for transportation fares, allegedly the original motivation of demonstrators, a considerable increase in government’s investment in public transportation was also announced. Even so, it would take years to transform projects into new transportation facilities. There was no discussion of how to finance the

82  Medeiros da Silva and Flavio dos Reis

70 60

Percentage

50 40 30 20

Good/Great FIGURE 6.2 Opinion

Nov-13

Sep-13

Oct-13

Jul-13

Aug-13

Jun-13

Apr-13

May-13

Mar-13

Jan-13

Feb-13

Dec-12

Nov-12

Sep-12

Regular

Oct-12

Jul-12

Aug-12

Jun-12

Apr-12

May-12

Mar-12

Jan-12

Feb-12

Dec-11

Nov-11

Sep-11

Oct-11

Jul-11

Aug-11

Jun-11

Apr-11

May-11

0

Mar-11

10

Bad/Terrible

poll: evaluating the performance of President Dilma Rousseff.

Source: CNI/IBOPE.

systematic improvement of urban transportation networks, or the desired affordability of fares.This agenda has simply not emerged. Not even in Sao Paulo, where an old discussion on creating a congestion tax for cars meant a concrete alternative to finance public transportation. All over the country, increases in the fares of public transportation were merely postponed and protests gradually calmed down. Despite that, the political inability of the president became flagrant, and her popularity simply collapsed (Figure 6.2). Such an abrupt deterioration in approval ratings hit virtually all levels of ­government in all Brazilian regions. Apparently, it expressed a progressive unpopularity of the entire political class, and, correspondingly, a fading trust in political institutions. Dilma Rousseff ’s popularity has never recovered from the so-called “2013 protests”. Yet she was endorsed by her Party to run for re-election. Shortly before the election date, a former executive of the state-run oil company, ­Petrobras, blamed several politicians from the Workers’ Party (PT) and several coalition allies of having accepted kickbacks. On March 17, 2014, these charges led to the launching of the so-called Operation Car Wash – in Portuguese: Operação Lava Jato – a criminal investigation carried out by the Federal Police of Brazil, Curitiba Branch, and local federal prosecutors, under the jurisdiction of Judge Sergio Moro. Aided by the new legal instrument of plea-bargaining, the prosecutors first petitioned the pre-trial detention of dozens of executive officers from

Brazil: Systemic Rebalancing 83

major suppliers of Petrobras, then used their statements to sue several politicians. The political situation in Brazil had already become pre-apocalyptic when it was announced that the country had been in recession since the first semester of 2014. In Brazil, the scarce national media outlets – two television news broadcasters, three newspapers and a handful of entertainment channels – have a clear inclination towards negative media coverage of left-wing politicians. After the Petrobras scandal and the deterioration of economic indicators, this trend was gradually reinforced.28 Daily, the media compared the dirty world of politics with an idealized version of the judiciary, where high-minded judges and brave prosecutors would represent the national discontent with corruption. Indeed, just about every major party was implicated in multiple, interrelated structures of corruption dating back over the four earlier administrations.29 Even so, the editorial line of major press outlets insisted on an exceptional predisposition of the Workers’ Party to get involved with corruption, by trying to connect its leader, the ex-president Lula, to all the major cases of corruption then unveiled. Such was the scenario in the months before the general elections of 5 October and 26 October 2014. The unmatched charisma of ex-president Lula certainly contributed to boosting the voting results of the Workers’ Party candidates, partially compensating for Mrs. Rousseff ’s low rates of approval. Moreover, the very items of PT’s political platform still attracted a major segment of Brazilian society: state-led development through Federal subsides of key economic sectors and the continuous expansion of welfare programs. Consequently, after a very polarized campaign, Dilma would be re-elected in November 2014, after narrowly defeating center-right challenger Aecio Neves.The center-left Workers’ Party was then given a fourth term in the Planalto Palace, endorsing its important achievements in poverty and inequality reduction and lowering the unemployment rate. ­Nevertheless, the election meant no honeymoon period for the government. The Congress remained polarized, as the defeated presidential candidate immediately resumed his role as an oppositionist leader at the Senate. Moreover, his party filed a legal complaint against the recently elected president, referring to alleged cases of political and economic abuse of power during the campaign. Their aim was to evict the president from office, although the defeat had been admitted by Mr. Neves on a phone call to the reelected president. In chorus, almost every day details on the investigations carried out in Curitiba splashed across the newspapers’ front pages. The poorly institutionalized controls over the public statements of prosecutors, police officers and chief officers transformed them into pop stars,30,31 giving systematic interviews to the press, receiving awards in media-promoted events, using social media to reveal politic opinions on the investigated politicians, etc. The legitimacy of the future verdicts would be seriously affected by such (unpunished) inappropriate behavior, but only for intellectuals and legal experts. In what comes to the masses, the media diligently worked to defend their image as national heroes. In the headlines, a daily catastrophist narrative about the economic crisis tried to link it with corruption, an

84  Medeiros da Silva and Flavio dos Reis

alleged intensification of government’s inefficiency, and public indebtedness.32 At the same time, the defects of public administration were typically presented as a particularity of Brazil or Latin-America vis-à-vis an idealized version of politics in the United States. For the emerging middle classes that prospered in this decade of welfare policies, the anti-statist reproof of Brazilian political ethos has been more and more convincing, until becoming almost inescapable common sense. The political temperature increased even more in March 2016, when e­ x-president Lula was appointed cabinet chief of President Rousseff, allegedly to strengthen her government in an increasingly difficult relationship with parliament. In Brazil, government ministers can be prosecuted only in the so-called “privileged forum” of the Supreme Court. Many believe that any trial in Brazil’s highest court is likely to progress slower than in other courts. So, the controversial move can be seen as an attempt to shield him from prosecution by Judge Moro. As a response, this judge simply released nearly 50 audio recordings to the media, containing several calls between the president and the ex-president. These conversations revealed their intimate opinions on many allied politicians, judges and prosecutors. Politically, it was a disaster for Mrs. Rousseff and Mr. Lula. In one of the talks she tells him that she would send him his ministerial appointment bill “in case of necessity”. Newspapers and the political opposition interpreted these words to mean that she was giving him the papers quickly, so that he could show them to police to avoid detention. Denying it, Mrs. Rousseff stated that she would send him those papers for him to sign, in case he was unable to attend the ­swearing-in ceremony, due to take place the following morning.33 Politically, Judge Moro’s political stratagem was very successful. Given the political controversy then created, Lula’s appointment ended up being cancelled by a judicial decision. In the same month, the vice-president, Michel Temer, withdrew his support of the government, starting the political realignment that would seal the fall of president Rousseff. It is interesting to register here that Brazil has a continental legal system. Judges are supposed to observe detailed constitutional principles, which are organized in comprehensive codes as the primary source of law. Owing to the rigidity and ­fixity of codification, judges are only authorized to apply the law, and therefore cannot legislate. Conversely, in the Anglo-Saxon tradition – the so-called ­“Common Law” – judicial process is more malleable, allowing judges to legislate while filling in the voids that the legislature left behind. Judge Moro and the members of Operation Car Wash are part of a generation of Brazilian jurists that tend to associate the rigidness of the continental system with impunity. The guarantees of civil liberties prescribed by civil law would be excessive, making it too difficult to convict someone who can pay the services of good lawyers. This generational trend has certainly been deepened by their frequent participation in postgraduate courses in American universities. Judge Moro, for example, studied at Harvard, and also attended a course on money-laundering offered by the United States Department of State. The very expression of his legal Zeitgeist is

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the current division of Brazilian judges into two main groups: pro-guarantees and pro-­punishment – in Portuguese: garantistas and punitivistas. Without a consistent reform, the Brazilian legal system has been slowly eroded from within, by legal operators that do not believe in the parameters that have structured the judiciary in Brazil. More and more, judges act like their colleagues in Anglo-Saxon countries, while the rigidity of a system based exclusively on written law is ignored. Six months after vice-president Temer withdrew his support of the government, the 13 years of Brazil’s Worker’s Party rule would come to an end.34 The instrument used was a constitutional mechanism, presidential impeachment. In Brazil, however, the use of this institutional instrument requires the existence of a crime of responsibility, an unconstitutional act directly attributable to the president. Two crimes were cited as fundamental to start the presidential trial. First, the president was charged with postponing the repayment of R$3.5 billion to the Bank of Brazil, in order to finance an agricultural program. It was interpreted as a sort of illegal loan, or unauthorized credit operation. Second, the other charge consisted of authorizing, without prior congressional approval, three supplementary credit decrees, supposedly determining R$2.33 billion additional spending. This amount was used on education, social security, and various activities of executive and judiciary organs. In Brazil, the president can only sign a decree once it has gone through a long process, involving technical and legal analyses. When these decrees reached the presidential office, there was no unequivocal understanding that they violated any legal parameter. On a technical basis, moreover, there is substantial controversy over the characterization of such operations as effective additional spending, instead of mere reallocation of funds. Also, the president’s individual responsibility is highly controversial. Some even argued that the impeachment was made necessary by Rousseff ’s mismanagement of the economy, although mismanagement does not constitute a valid legal basis for impeachment. Controversies apart, with the streets taken by daily demonstrations, there emerged a congressional majority unambiguously determined to remove Mrs. Rousseff (Figure 6.3). As the political forces responsible for Mrs. Dilma’s election separated, vice-­ president Temer urged them to reunite into a coalition to support his future government. Providentially for him, this very same coalition would be able to pass president Dilma’s demise. For obvious reasons, the main political parties that supported Mrs. Rousseff had to be excluded from this alternative alliance. The future cabinet would then include visceral oppositionists of the impeached president, thus pursuing a drastic shift of agenda without electoral legitimation. Elected with the proposal of improving Brazilian welfare state agencies, Mr.Temer had no institutional (or political) obstacle to announcing the deepest neoliberal reforms ever envisaged in Brazilian history. For the political forces that long supported such reforms, it seemed that their opportunity was then or never (or at least not for a long while). Not surprisingly, the political crisis that once originated in the debate on Mrs. Rousseff ’s deposition continued under the new government.

86  Medeiros da Silva and Flavio dos Reis

FIGURE 6.3  Banners

used in the 2016 demonstrations. Left: “Out with Dilma!”; Right: “Brazilians against corruption”.

The impeachment was confirmed by the Senate at the end of August 2016. Subsequently, the vice-president formed a new government. The impeachment ended up being a successful instrument to override the results of the country’s preceding presidential elections. Still, the prolonged political instability under President Temer partially stems from the lack of legitimacy of a vice president to redefine policy priorities. Moreover, the periodic Car Wash revelations have originated extreme political unpredictability. Temer’s popularity has always remained at minimal levels, despite the open support of the main media outlets. Daily, press headlines excused Brazil’s poor economic performance by associating the former center-leftist governments with inefficiency, corruption and public indebtedness. According to this view, the crisis would result from a heritage of maladministration. The collective memory of the prosperous decade between 2003 and 2013 was diligently undermined by the press. But there was a secondary consequence: the essence of political activity was demoralized too. Day by day, an irreconcilable antagonism between the extremes of political representation started to develop, as the locus of political centrism gradually disappeared. The Brazilian streets still received constant demonstrations, and their repertoire metamorphosed into paranoiac narratives according to whichever divergent points of view were presented as frauds (Figure 6.4). The paranoia could be easily transposed from national to international politics. For the leftists, the judiciary would be full of conspirators in service of the yankees. For the conservatives, the Venezuelan government was an imminent risk to mankind. The imaginary Cold War reappeared. It was in this context that, in September, Harvard-educated Mr. Deltan ­Dallagnol, a prosecutor of the Car Wash team, gave a press conference to explain the complaint filed against the former President Lula.35 To be exact, Mr. Lula da Silva was accused of agreeing to receive a beachfront penthouse triplex, together with fully paid renovation works and refurbishment, from a large construction

Brazil: Systemic Rebalancing 87

FIGURE 6.4  Banners

used in the 2016 demonstrations. Left: “Trump win and help ­ razil”; Right: “Hillary is the American Dilma”. Dilma’s name is written B with a stylized D evoking the hammer and sickle, an old reference to USSR.

company seeking public contracts (named O.A.S). As it is widely agreed that he never officially owned or used such an apartment, and that it is technically admissible that he would still pay for it if he ever did, the prosecutors argued that he had been instrumental in a big corruption scheme, by appointing certain officers later implicated in corruption, and that the mere existence of an apartment that was reserved for him by a big corporation would be enough evidence that he was part of the scheme. More than this: the “ultimate commander” of kickback schemes allowed his PT to build political coalitions and win successive elections. To sustain such a thesis, the attached pieces of evidence comprised mostly newspaper articles on the vices of Brazilian policymaking, inferring hidden political motivations behind the nomination of top-bureaucrats – like gaining votes to pass a specific congressional project, or pleasing important members of the government’s coalition. As mere pieces of journalistic material, they protect sources’ anonymity and do not commit to political neutrality, in sharp contrast to the attitude one might expect from prosecutors that represent the state. Apart this insubstantial sort of material, several invoices testify the cost of furbishing and renovating the apartment, indeed proving something that nobody was trying to deny.There is also the picture of a wooden box with the word “beach” written on its surface, supposedly used to dispatch presidential belongings from Brazil to the apartment. As the presidential couple maintained from the beginning that they once considered the acquisition of another apartment in the same building, later deciding to cancel the transaction, this picture does not indicate any contradiction in their version. In fact, the most substantial piece of evidence contained in Mr. Dallagnol’s bill of indictment is the testimonial of the owner of the previously mentioned construction company, Mr. Leo Pinheiro, who indeed declared that this apartment had been reserved for the President with his acquiescence. However, Mr. Pinheiro was then jailed, attempting to bargain a penalty reduction, and did not formally commit to tell the truth. Tens of other testimonials by his executive officers contradict his statement, which becomes a rather fragile element to determine the

88  Medeiros da Silva and Flavio dos Reis

jailing of any person. Finally, the bill of indictment, a pdf document comprising 149 pages, was released in a press conference held in a business hotel, instead of using the Police facilities. On this occasion, the prosecutor showed a provocative PowerPoint presentation,36 with several arrows linking various allusions inside bubbles to a central bubble with Lula’s name. Among the ideas in the surrounding bubbles there are: “criminal perpetuation in power”, “corrupted governance”, “bribe-ocracy”. Seemingly, a political analysis citing newspapers and a single ­relevant testimonial played the role of proof of a specific charge. The prosecutor’s technique was criticized even by articles and editorials of press outlets that always opposed Lula’s administration. In his trial, the former president’s five-hour testimony was broadcast live on television. He energetically reaffirmed his innocence and denied ever owning the apartment. It is important to remark that Mr. Dallagnol, as part of this conflict between the values of Common Law and the Continental System, usually reveals skepticism concerning the rigidness of the Brazilian legal system. In July 2017, Lula was convicted by Judge Moro, on the basis of Dallagnol’s petition, without significant supplementary proofs. His conviction was presented by the leading media vehicles as a victory of citizenship against corruption, disregarding controversial processual aspects as details of minor importance. Part of the population interpreted the trial as an injustice, which exposed a sort of legal conspiracy against the popular politician. Another part of it, already skeptical in respect to the quality of public administration in Brazil, would understand Lula’s conviction as a definitive moral censure against his Worker’s Party – described as a gang – against all leftist politicians, and eventually against all members of all major parties. Part of the population delegitimizes the judiciary. The other part delegitimizes the political system, thus requiring the imprisonment of virtually all politicians, no matter how. In January 2018, Southern Brazil’s Federal Court of Revision, in Porto Alegre, judged Lula’s appeal. His conviction was unanimously maintained. The trial, i.e. the monotonic reading of three judges’ almost identical votes, was broadcast live. After that, the Supreme Court rejected a habeas corpus request, to keep him out of jail as he pursued further appeals. Lula was finally arrested37 on April 7, 2018. The Supreme Courts in Brazil will still judge several procedural appeals con­ cerning the ex-president’s arrest, but they do not have a specific term to do so. In jail, the former president continued to lead the polls regarding the 2018 presidential elections. His eligibility to run for presidency was also analyzed by the Superior Electoral Court, considering the Clean Slate Law, which states that someone criminally convicted cannot run for office after the sentence is confirmed by an appeals court. Moderation has then almost disappeared from the menu of political opinions (Figure 6.5). At the beginning of the presidential campaign, far-right candidate Jair Bolsonaro was stabbed in the stomach at a presidential campaign rally. His life was saved, but afterwards he has not been able to join the other candidates in presidential

Brazil: Systemic Rebalancing 89

FIGURE 6.5   Banners used in the 2018 demonstrations. Above: “Armed Forces, Free

­ razil or the World will bleed – The Union of Latin American Socialist B ­Republics is a threat to world peace”; Below: “Do you still believe in the Republic”. A pun is made with the word “Ré”, meaning “defendant”. The seal was used in Brazil’s imperial flag.

debates. His main adversary, ex-president Lula, could not take part on presidential debates either. In jail, Mr. Lula had to wait for a final judicial decision after formally endorsing his party colleague, Fernando Haddad, as the Workers’ Party presidential candidate. Brazil’s supreme electoral court would take until August 31 to decide that Lula could not run for a third race, only five weeks prior to the election’s first round. In the meanwhile, presidential debates were occupied by the remaining candidates, which failed to attract the public’s empathy. At the same time, the use of social networks and WhatsApp – a messaging and voice tool that became widely used in Brazil – became the real arena where the two narratives collided. Free from the constraints imposed by moderators, the aggressiveness of both narratives became flagrant. The leftist segment of the population continued to support Fernando Haddad, or another leftist candidate who ultimately would support him in the election’s second round. For this sort of elector, the new president’s main task would be the celebration of a wide political accord, in order to reform the judiciary and defend democratic values, thus continuing with the edification of Brazil’s welfare state. Despite this seemingly moderate agenda, left-wing sympathizers were in fact absorbed by an alarmist understanding of the choices involved in the election, identifying the victory of any of the right-wing candidates as the imminent annihilation of civil guarantees, starting a judicial tyranny. In the other hand, the right-wing segment of public opinion radicalized their points of view. Absurd ideas such as the restoration of monarchy gained relative visibility.38 The paranoia of “URSAL” – The Union of Latin American Socialist Republics – a c­ onspiracy

90  Medeiros da Silva and Flavio dos Reis

t­heory regarding the socialist takeover of Latin America, was even discussed during a presidential debate. The discrediting of all moderate and right-wing parties would redirect conservative votes to far-right politicians, with no relevant political ­backgrounds. With a long record of inflaming opinions condemning the left and questioning human rights, Jair Bolsonaro would attract the majority of these voters, winning the presidential election and humiliating other conservative candidates, who received no more than a tiny fraction of votes.39 Resisting the conservative tsunami, the only traditional political force to endure was, paradoxically, the Workers’ Party.40 On ­September 11, 2018, Judge Moro accepted Mr. Bolsonaro’s invitation to be his future Minister of Justice, therefore renouncing his career as a magistrate.

6.4  Theoretical Conclusions: Peripheral Conservatism in a Changing International Order Werner Sombart’s characterization of peripheral conditions highlights an “economic life”, which originally tends to be reproduced according to its own parameters, but whose actors are harassed with ideas and values originating at the “center” of modern capitalism. The peripheral actors would become “passive and serving”, given their incapacity to absorb and re-elaborate such novelties, which would inevitably be decontextualized in the different circumstances of the periphery. Half a century later, Celso Furtado argued that this passiveness is not uniform throughout all peripheral regions. In addition, the degree of autonomy may vary in a single region as history follows its course. In section 6.2, we offered important historical examples of reproduction, ­identification and overcoming of peripheral “mimicry” in Brazil. The relative ­creativeness of Brazilians in respect to the shaping of their “economic lives” can be understood as an attribute of what Immanuel Wallerstein41 defined as ­“semi-­periphery”. Modernism, ECLAC’s Structuralism and even Dependency Theory can be regarded as cultural innovations that successfully shaped in Brazil an archetypic “political structure for semi-peripheral nations adapted to stage four of the capitalist world-system” – to paraphrase Wallerstein (1974a, 413). Ouriques et al. (2017) demonstrate that “from 1950 to 2014, Brazil has remained in a semi-peripheral condition”, but consider that this position can possibly be at risk in this new century. For not being an organic part of the core, Brazil’s intermediate situation in the World System actually depends on its relative success in finding theoretical and practical alternatives that cope with the continuous transformation of the core, in order to avoid the country’s downgrading into a strictly peripheral state. In the explanation of Manuela Boatcă: […] intermediate world-system’s positions have in this respect been subjected to the same contradictory yet stimulating tendencies that characterize their social and economic development. Historically, this has meant benefiting from two conditions: first, not being the core entailed

Brazil: Systemic Rebalancing 91

experiencing situations of political and economic domination akin to the ones in peripheral areas and facing the need to develop theoretical and practical solutions to them. Second, not being the periphery amounted to a certain degree of visibility in the production of knowledge […]. (Boatcă, 2006, 327) In section 6.3, we revisited all major events of the political crisis that climaxed with the election of Jair Bolsonaro, from 2013 to 2018. Several conclusions should be highlighted. First, the crisis was not caused by the economic cycle, as its first manifestations emerged during a phase of prosperity.The political reconfiguration which led to Dilma Rousseff ’s impeachment was probably reinforced or justified by the deterioration of economic indicators, but the incentives behind the wave of protests that begins in 2013 are clearly ideological and socio-distributive. In what concerns its socio-distributive roots, we should emphasize the unrest of professional middle classes. It should be mentioned that the increase in blue-collar workers’ income actually meant that white-collar workers had to pay more for urban services, reducing their relative standard of living. Moreover, gender issues concerning the division of household tasks – such as cleaning or cooking – had not been discussed by the Brazilian middle classes earlier. The inexpensive salaries paid to domestic workers allowed Brazilian housewives to transfer the burden of housekeeping to maids. The recent regulation of domestic labor, as well as the rising minimum wage, brought the tension of these tasks’ redistribution to the upper-middle class families. Under such types of tension, any intelligible argument to criticize the government would be received by members of this segment as a way to express their malaise. It should not be forgotten that judges and prosecutors are classical members of these so-called “traditional” middle classes. On the other hand, the emergent middle classes, recently introduced to the pleasures of mass consumption, had income gains that arguably would make then prone to political conformism. However, these new members of intermediate strata, now a major segment of Brazilian society, were gradually inculcated with the anti-statist values propagated by eminent members of the upper-middle classes, through their strategic positions in the market of opinions. Little by little, the newcomers’ modal opinions have mimicked the traditional middle classes’ instinctive rejection of top-down structures of power. But together with their peers’ traditional criticism against corruption, the emergent strata partially absorbed their inconsequent advocacy of laissez-faire, their naïf idealization of North Atlantic countries, their anachronist sense of esthetic inferiority, and so on. Hence, the incorporation of a large fraction of Brazil’s masses to the intermediate positions of society offered an opportunity for economic liberalism, which a few years ago had been labeled as an “almost-lost cause” by The Economist.42 No qualified observer of Brazil’s society is allowed to say that this phenomenon is unexpected. The founding father of Brazilian sociology, for instance, had

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warned that the intensification of individualism and the reluctance of the old elites to negotiate more democratic political practices would open a structural trend to ­fascism. Yet, according to his view, socially inclusive policies, such as the ones ­envisaged by the Workers’ Party, would constitute the very antidote against this risk. Two opposite behavioral orientations prevail, and, as both intersect, they are as terrible for the nation’s survival as a bombing offensive. On the one hand, there is the perversion of individualism and selfishness. Everyone wants to gain something for themselves, for better or for worse, blindly. However, nobody but the owners of power may get what they desire, increasing the misery of the exploited, the anomie of civil society and the unviability of the nation. It does not matter! After us, the Flood … In this context, the ones from below are pissed off. It’s a vulgar concept, but a precise one. Either they have lost everything, or they have never come to reach anything. In their horizons, nothing is foreshadowed. What to wait for? Their reaction to the deep crisis, by now, is mere discouragement and ambiguity. And what about the next months, the next years? Many have thought about pre-Hitler Germany, and the manipulation of potential fascism by the elites of the ruling classes. Likewise, they could consider pre-Bolshevik Russia. Or, alternatively, they could contemplate our reality. Above all, the Brazilians are the ones pissed off; they can reach the rock bottom, and they can emerge from there with the solution to their dilemma in their hands. (Fernandes, 1987b) In a different level, we have popular mobilization: the direct grassroots struggle to push Brazil out its state of anomie, of chronic disorganization, to bravely face its historic dilemmas. (Fernandes, 1987a) Florestan Fernandes had this insight more than three decades ago. His clever ­predictions concerning the structural trends of Brazilian society did not incorporate, however, the simultaneous trends of international order. Along the last quart de siècle, a new superpower has emerged in the East, demanding deep cosmological adjustments in what Antonio Gelis-Filho has defined as “capitalist geo-culture”. According to him, the traditional middle classes of semi-peripheral countries have historically identified with values related to what we called here “central economic life”. The recent weakening of United States’ pre-eminence in the World System strengthened these actors’ attachment to such values, now menaced by the possible rise of an alternative “geo-culture”. As devout proselytes of a religion that may be at the edge of extinction, these “abandonat” preach social reforms aimed at modernizing Brazil while the source of such models is in a deep crisis.

Brazil: Systemic Rebalancing 93

The abandonat is a loose semiperipheral social group characterized by its strong support and identification with values that can be traced to the core of the world-system, by a lack of identification with the masses of their own countries, by its mostly middle-class roots, by its pseudo-­ revolutionary behavior during the recent political springs and by its ­opposition to popular movements in their countries.43 I call that social group “abandonat” […] because they act and speak often as if they had been “abandoned” by the core in semi-periphery, where many do not feel, at least up to a point, that they belong in, almost as if they were “souls from the core” trapped inside passports from the semi-periphery.44 A remarkable characteristic of Jair Bolsonaro’s election, which could not be foreseen by Antonio Gelis-Filho, was the abandonat’s success in involving the new members of intermediary segments with their ideals of a decaying global order.The nature of this rhetoric contagion is the key to understanding how the ghosts of the Cold War have come to haunt the imaginary of social segments that emerged together with the rise of China. In any case, this kind of regressive hysteria is not a new historical phenomenon in semi-affluent zones during the demises of preceding hegemons. The attitude of Korean or Ottoman officials during the mid-nineteenth century is definitely allusive to the current Brazilian dystopia.45 As in these two precedents, the future is unavoidable under the semi-peripheral point of view.Their rhetoric deadend will most probably pave the way for the true reformers.

Notes   1. A first draft of this paper was prepared for the 42nd Conference of the American Sociological Association’s Section on Political Economy of the World-System (PEWS), April 26–28, 2018, Fairfield, Connecticut. A second draft, translated into Portuguese, was prepared for the 12th Brazilian Colloquium of Political Economy of the World System, August 27–28, 2018, Florianopolis, Santa Catarina, Brazil.   2. BBC News. Jair Bolsonaro beyond the sound bites:What are his policies? October 28, 2018 [www.bbc.com/news/world-latin-america-45982501].  3. The Washington Post. Radical plans, risks in foreign policy of Brazil’s Bolsonaro. ­October 31, 2018 [www.washingtonpost.com/world/asia_pacific/radical-plans-risks-in-foreignpolicy-of-brazils-bolsonaro/2018/10/31/f82df252-dd4a-11e8-8bac-bfe01fcdc3a6_ story.html?noredirect=on&utm_term=.0abf5f4836a2].   4. Reuters. Trump vows close ties with Brazil’s Bolsonaro on trade, military. October 29, 2018 [https://uk.reuters.com/article/uk-brazil-election-usa/trump-vows-close-tieswith-brazils-bolsonaro-on-trade-military-idUKKCN1N31L3].   5. Respectively, in 1981–1983, 1987–1988, 1989–1992, 1995, 1998–1999, 2001, 2003 and 2008–2009.  6. Oxfam. 2017. Inequalities in Brazil: the divide that unites us. [www.oxfam.org.br/ sites/default/files/arquivos/relatorio_a_distancia_que_nos_une_en.pdf].   7. Kamin, S.B. et al. 2004. Is China “exporting deflation”? Board of Governors of the Federal Reserve System.

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  8. Wallerstein (1974b).   9. List (1856). 10. Weber (1913, 1951 and 1958). 11. The United Nations Economic Commission for Latin America and the Caribbean. 12. See Cunha (2018). 13. For example, the iconic testimonial of Father Lopes Gama, registered in the distant 1830s: “Any Frenchman, any Englishman, any Swiss, etc., any cunning creature from those countries, coming to Pernambuco and having no other mode of livelihood, at once announces that he is going to share with us his great enlightenment” (quoted by Freyre, 1986, 412). 14. Bourdieu (1979). 15. Schwarz (1980). 16. His work’s title was Observações sobre o Comércio Franco no Brasil, that is, Observations on Free Trade in Brazil. 17. A strong prejudice in favor of what is French. 18. Lisboa, J. S. (1808, 85). 19. Hans Staden (1525–1576), a German voyager of the sixteenth century, was captured by the Tupinamba people, and later released to return to Europe. In a widely known book describing his voyage and captivity, he claims that they practiced cannibalism, and decided not to eat him because they presumed that the consumption of a coward’s flesh would make them cowards too. 20. On 19 August 2003, a suicide bomber drove a truck full of explosives into the United Nations headquarters in, Baghdad, Iraq. 21. Celso Furtado passed away in 2004. 22. It is a severe psychiatric condition that produces a lack of connection in thoughts, sensations, memories and actions, fragmenting a person’s sense of identity. 23. CNN. Protesters, police clash in Sao Paulo streets over fare increases. June 12, 2013. [https://edition.cnn.com/2013/06/12/world/americas/brazil-protests/index. html]. 24. Le Monde. Brésil: manifestations contre la hausse du prix des transports. June 14, 2013. [www.lemonde.fr/ameriques/article/2013/06/14/bresil-manifestations-contre-lahausse-du-prix-des-transports_3430069_3222.html]. 25. New York Times. Sweeping protests in Brazil pull in an array of grievances. June 21, 2013. [www.nytimes.com/2013/06/21/world/americas/brazil-protests.html]. 26. The Guardian. Brazil protests: president hears call for change but warns against violence. June 22, 2013. [www.theguardian.com/world/2013/jun/22/brazil-protest]. 27. Reuters. Fresh protests in Brazil despite government concessions. June 26, 2013. [www. reuters.com/article/us-brazil-protests/fresh-protests-in-brazil-despite-governmentconcessions-idUSBRE95P19W20130626]. 28. See Albuquerque (2016). 29. Financial Times. Brazil’s Petrobras: Tarred by corruption. August 11, 2014. [www. ft.com/content/6d00da0c-1c7c-11e4-98d8-00144feabdc0]. 30. The Guardian. Brazil’s anti-corruption prosecutor: graft is ‘endemic. It has spread like cancer’. December 30, 2015. [www.theguardian.com/world/2015/dec/30/brazilanti-corruption-prosecutor-deltan-dallagnol-lava-jato-investigation]. 31. Wall Street Journal. Court ruling threatens to hamper Brazilian judge Sergio Moro’s anticorruption success. October 18, 2015. [www.wsj.com/articles/court-ruling-threatensto-hamper-brazilian-judge-sergio-moros-anticorruption-success-1445213553]. 32. Forbes. 5 Reasons Why Brazil’s President Dilma Rousseff Should Not Be Re-Elected. September 11, 2014. [www.forbes.com/sites/andersonantunes/2014/09/11/5-reasonswhy-brazils-president-dilma-rousseff-should-not-be-reelected/]. 33. It was not explained why the president used a non-encrypted telephone, or how a Court of First Instance could determine the tapping of the presidential telephone.

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Judge Moro has been reprimanded by the judge that supervises his cases at the Supreme Court, but he has never been effectively punished. 34. The Guardian. Brazil’s Dilma Rousseff impeached by senate in crushing defeat August 31, 2016. [www.theguardian.com/world/2016/aug/31/dilma-rousseff-­impeachedpresident-brazilian-senate-michel-temer]. 35. New York Times. Lula, Brazil’s ex-president, is charged with corruption. September 15, 2016. [www.nytimes.com/2016/09/15/world/americas/brazil-lula-corruption-charges. html]. 36. Forbes. Lawyer’s PowerPoint slide accidentally creates a classic Brazilian meme. ­September 15, 2016. [www.forbes.com/sites/shannonsims/2016/09/15/lawyers-­powerpoint-slideaccidentally-creates-a-classic-brazilian-meme/#5e8ffbdb57a2]. 37. Independent. Ex-Brazilian president Lula da Silva in police custody after tense showdown. April 8, 2018. [www.independent.co.uk/news/world/americas/lula-brazil-formerpresident-police-custody-prison-sentence-surrender-a8294311.html]. 38. Jair Bolsonaro openly considered inviting the “Imperial Prince” Luiz Philippe de Orleans e Bragança to run for vice-president. The old Brazilian Empire’s flag started to be seen in demonstrations, and several monarchist demonstrations were organized. 39. The candidate of Brazil’s main right-wing party, PSDB’s Geraldo Alckmin received no more than 4.7 percent of votes. 40. The Worker’s Party remained the main party in the political spectrum. Fernando Haddad won in the majority of Brazilian cities, and his party continued to count the largest number of members of the Chamber of Deputies. 41. Walllerstein (1974a, 401) argued that “The three structural positions in a world-­ economy—core, periphery, and semi-periphery—had become stabilized by about 1640.” 42. The Economist. The almost-lost cause of freedom – why is economic liberalism so taboo in socially liberal Brazil? January 28, 2010. [www.economist.com/the-americas/ 2010/01/28/the-almost-lost-cause-of-freedom]. 43. Gelis-Filho (2017). 44. Gelis-Filho (2016). 45. See Huh and Tiknonov (2005) and Ghazal (1999).

7 SPACE, TRANSPORT, AND THE WORLD-MARKET Maritime Transportation, Freight Rates, and the Global Control of Foreign Trade Flows in the Capitalist World-System1 Luis Garrido Soto The Transportation Process and the World-market as “Missing Links” in World-systems Analysis The transportation process has had a marginal place in world-systems analysis. This might be paradoxical considering that commodity production and exchange in the capitalist world-economy occur on a spatial basis (in constant expansion), which implies asserting that transportation is the trans-local material process par excellence that geographically links the rest of the commodity chains which compose the world division of labor/world-market. Both Wallerstein and Arrighi (just to name the most well-known practitioners of this perspective) share a certain dualism in this regard: in empirical-historical terms they include it as a material moment in the development of capitalism as a world-system, but in theoretical-­ abstract terms it remains mostly external or under-theorized. A good example of this can be found in Historical Capitalism. Although that aspect is included within the set of processes that lead to the geographical expansion of, with the simultaneous incorporation of external arenas to, the capitalist world-system, Wallerstein (1983a, 38) in the end considers that “this explanation at best gives us a necessary but not sufficient condition for the process”.2 The following remarks by maritime historian Yrjö Kaukiainen are completely relevant about the initial treatment of this dimension (actually as an “external shock”) within world-systems studies, an issue that has progressively come to be covered (or endogenized) by some scholars within this approach: [T]here has been a long tradition of regarding transport costs as an ­exogenous factor and thus of seeing the causal relationship as operating in only one direction, from ocean shipping to international trade. And it has been equally common to explain the decline of transport

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costs ­primarily in terms of technological developments which resulted in more efficient and economical ships.Yet it must also be remembered that the demand for shipping services depends primarily on the volume of trade, which means that the price of these services will in the short run be determined by the respective levels of demand and supply. (Kaukiainen, 2008, 2) Clearly, world-systems studies is (to some extent) part of that tradition too. This forces us to ask why this topic has been addressed so tangentially and as an “external shock”. This is not the place for an “intellectual history” of world-systems analysis, but I would say that the most theoretical and methodological texts from this perspective seem to downplay the importance as well as the specificity of transportation (despite the fact that this approach has a spatial component) partly as a result of the “orthodox” Marxist critique against Wallerstein’s The Modern World-System.The focus on this dimension would imply an unjustified relevance to a process that belongs to the circulation sphere because “the development of trade does not determine a transition to new class relations in which the continuing development of the productive forces via accumulation and innovation become both possible and necessary” (Brenner, 1977, 40). Of course, capitalist development entails the longue durée development of the productive forces, but within this long-term trend the growth of the means of transport (or means of production in, and for, the sphere of circulation as Marx would say) also becomes a material process within the circuit of capital that allows us to spatially link the world division of labor within the capitalist world-system. This aspect, indeed, was already suggested by Hopkins and Wallerstein in “Patterns of Development of the Modern World-System” by highlighting it especially as a productive moment internal to commodity chains (Hopkins and Wallerstein, 1977, 128, emphasis added): Let us conceive of something we shall call, for want of a better conventional term, “commodity chains”. What we mean by such chains is the following: take an ultimate consumable item and trace back the set of inputs that culminated in its item—the prior transformations, the raw materials, the transportation mechanisms, the labor input into each of the material processes, the food inputs into the labor. This linked set of processes we call a commodity chain. If the ultimate consumable were, say, clothing, the chain would include the manufacture of cloth, the yarn, etc., the cultivation of cotton, as well as the reproduction of the labor forces involved in these productive activities. In the following remarks it seems that Hopkins, on the one hand, acknowledges tangentially the required mobility (of capital, commodities, and labor) considering

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the global reach of the division of labor while, on the other, the specificity of the transportation process in historical capitalism remains unclear (1979, 48): Where trade between two points disposes of irregular surpluses or makes up for irregular shortages is one thing. Where it is the continuing link between two serially related production processes is of course something very different. In the latter, the end product of one may be the raw ­material of the other (and so “consumed” by it); or the finished product of one may be a tool of the other (and so again “consumed” by it); or the product of one may provide not means of production, but staple means of subsistence for the labor of the other (and so “consumed” by it); and so forth. What is decisive is neither transport of goods nor exchange of “values”, but whether the trade in question is or not an integral segment of a larger complex of interrelated production processes. This does not mean that transportation processes have been ignored at all if we limit ourselves to the founders of world-systems analysis. Beverly Silver in her Forces of Labor incorporates by passing the transport industry within the spatio-­ temporal dynamics of labor unrest in the capitalist world-economy. The relation between that material process and long-waves in her account is given by the bargaining power of workers within this industry which, in turn, may unleash some transformations to that industry itself in order to counter labor unrest. One of the important theoretical points suggested by Silver about transport is that “it is not easy to devise (much less practically carry out) spatial fixes as counterweights to labor’s strong workplace bargaining power” so “the disincentives to geographical relocation facing the transportation industries are on average significantly higher than the deterrents facing even the most capital-intensive industries” (Silver, 2003, 100). The transportation employers, therefore, are more likely to use technological fixes against worker’s militancy. Silver herself acknowledged that by mentioning the “containerization and dock automation in the shipping industry” (Silver, 2003, 100). Also, state regulation/intervention seems to be far more important for this productive branch than for other ones: “The importance of smoothly functioning transportation systems to capital accumulation—combined with the strong workplace bargaining power of transportation workers and the limited scope of spatial fixes—help explain why states have felt it necessary to intervene extensively and precociously in transport industry labor unrest” (Silver, 2003, 101). Stephen G. Bunker’s and Paul S. Ciccantell’s Globalization and the Race for Resources could be labeled as the world-systems view on transportation. They acknowledge the importance of space, technological change, and organizational innovations in the longue durée of historical capitalism since each process of hegemonic ascent is understood as the expansion of the material limits of the capitalist world-system. In that regard, they subsume this material process to the contradiction of scale and space: the more industrialized a national economy becomes the

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more it finds itself in a growing need to extract raw materials from more distant locations (because they already have become exhausted in nearby ones) which, at the same time, drives technological innovation to specifically diminish the costs of physical circulation due to the longer geographical distances required for both the extraction and transportation of raw materials to the hegemonic national unit. The hegemonic iterations with their corresponding expanded geographical scope and raw material base to sustain them have taken place in the following fashion: The increased size and capacity depend both on new social discovery and uses of naturally produced matter and on adaptations of the technologies that incorporate the matter to larger, broader spaces. Thus, commerce in the most voluminously traded raw materials—from wood and grain to iron ore, coal, and petroleum—has proceeded from river-based to lakebased and railroad-based to ocean-based transport through the Dutch, British, and American systemic cycles of accumulation and ­Japan’s successful restructuring of these trades into truly global sourcing. Each step of this expansion allows and employs huge increases of scale in transport technologies; larger, stronger, faster ships and trains, and the rails and ports that support them, must be built of lighter, stronger raw materials. Once built, these enlarged, more efficient transport systems allow access to a broader range of raw material sources over broader space. (Bunker and Ciccantell, 2005, 89–90) The connection of transportation and long-waves, therefore, is based on the ­geographical/geological conditions of space: the development of means of transport with the expanding geographical reach of the world-system is determined by the extractive moment in order to sustain commodity production – which takes place in the hegemonic and other core economic units – whose spatial counterpoint would be the successive export cycles (boom and bust) of specific raw materials from different peripheral regions/countries (according to their resource endowment). Instead of following the trodden paths by previous world-systemists, here I will try to provide a more holistic approach on transportation within the framework of historical capitalism. For this purpose, I will proceed in three steps. First, on the basis of Marx’s volume II of Capital, I will unravel the transportation process “in general” not only to highlight it as a productive moment among others (albeit within the sphere of circulation) but, at the same time, to draw attention to its commodification process in the capitalist world-system. Second, I will also elaborate on how this process in particular goes from being a labor/production process to a valorization process and thus producing surplus-value entailing, in other words, the transformation of routes to distances and then to freight rates. And third, since the transportation process has as a use-value the displacement of goods and people in space, I will try to link it with the geographical substratum of the capitalist

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world-economy. This last aspect will allow us to revalue the world-market as a legitimately Marxian dimension for capitalist accumulation on a world-scale since it is usually conceived as a mere structure for commodity exchange abstracted in a two-fold manner, namely, from both spatial mediations (so that exports and imports seem not have to be transported among different locations) and geo­ graphy (so that it is not usually taken into account that the predominant mode of transportation in this sphere is precisely by sea). From this perspective, therefore, it is possible to conceptualize theoretically the control of foreign trade flows as an interstitial dimension of capitalist accumulation on a world-systemic scale.

“What the Transport Industry Sells is the Actual Change of Place Itself”: Exchange, Transport, and Freight Rates in Historical Capitalism The relevance of the transportation process, in principle, is given by the geographical extent of the capitalist world-system as such. Let us not forget the following observation by Wallerstein (in defense of Andre Gunder Frank against the critical remarks by Ernesto Laclau) which, in addition to highlighting in their own way the capitalist social relations of production in the world-economy, also emphasizes—at least implicitly—the expanding spatial scope that producing for a world-market entails. Leaving aside the geohistorical specificity of the sixteenth century, Wallerstein specified this socio-spatial relation in the following manner: Laclau precisely beclouds the issue. First, the difference between the gleb serf of the Middle Ages and the slave worker on an encomienda in sixteenth century Hispanic America, or a “serf ” in Poland, was threefold: the difference between assigning “part” of the surplus to a market and assigning “most of the surplus”; the difference between production for a local market and a world market; the difference between the exploiting classes spending the profits, and being motivated to maximize them and partially reinvest them. (Wallerstein, 2011a, 126) The difference between producing for a local market and the world-market entails several implications. In a very general way, this aspect is relevant because distances – or the routes among different points of the world-market – progressively become an inherent part of the production process itself.This is even more necessary when considering the capitalist mode of production upon which the world-­system is based. But before delving into the importance of transportation for capitalism as such, let us see first what the transport process consists of. According to Marx, in Volume II of Capital, this process consists of a certain productive expenditure of labor-power that results in the change of spatial location of the already produced use-values and exchange-values. At first the processes of exchange (circulation I)

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and transportation (circulation II) could simply be ignored in Volume I of Capital but that could no longer be the case when the circuit of industrial capital entered into the analysis of the capitalist mode of production.3 Therefore, circulation time (in terms of physical displacement) becomes progressively internalized within the “law of value” (minimum socially necessary labortime) for commodity production. In the first place, the law of value in transport is dependent on two variables: productivity of labor and physical distance. Each of those, of course, has different effects since “[t]he absolute magnitude of value added by the transport of commodities stands in inverse proportion to the p­ roductive power of the transport industry and in direct proportion to the distance to be covered, other circumstances remaining the same” (Marx, 1992, 228). Second, the internalization of the circulation time within the circuit of capital is a sine qua non condition for its progressive reduction as a productive expenditure since “[d]uring its circulation time, capital does not function as productive capital, and therefore produces neither commodities nor surplus-value” (Marx, 1992, 203). And third, the tendency toward the development of productive forces in capitalism is not reduced solely to the sphere of production (expressed in more commodities produced) along with the expansion of circulation I.The growth of the productive forces itself becomes extended also to circulation II with the development of means of transport as well as the formation of an industry in that sector: “The transport industry forms on the one hand an independent branch of production, and hence a particular sphere for the investment of productive capital. On the other hand it is distinguished by its appearance as the continuation of a production process within the circulation process and for the circulation process” (Marx, 1992, 229, emphasis added). So far I have differentiated between the processes of exchange and transport, and I have mentioned the reduction of circulation time through the development of the means (and industry) of transport. Now, an explanation is necessary for the requirement of transportation in capitalism. First, it is necessary for the realization of use-value, which “is realized only in their consumption, and their consumption may make a change of location necessary, and thus also the additional production process of the transport industry” (Marx, 1992, 226). Second, on the side of exchange-value it is necessary for the realization of surplus-value: “The more that the circulation metamorphoses of capital are only ideal, i.e. the closer the circulation time comes to zero, the more the capital functions, and the greater is its productivity and self-valorization” (Marx, 1992, 203).Third, both sides of the coin become increasingly subsumed in the circuit of capital so that the aforementioned circulatory process becomes an inherent link for both the reproduction and turnover of capital by accelerating it. However, the valorization process is rather unstable since its repetition requires that the realization of exchange-­value(s) must occur before the realization of use-value(s); otherwise, commodities get spoiled, and lose, together with their use-value, the property of being bearers of exchange-value. Both the capital value contained in them and

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the surplus-value added to it are lost. Use-values remain the bearers or perennial and self-valorizing capital only in so far as they are constantly renewed, and replaced by new use-values of the same or different kind.4 (Marx, 1992, 206) The interesting issue here is not to acknowledge solely that an increasing amount of necessary social labor must be spent in the circulatory process, in order both to reproduce capital and to reduce the time of circulations I + II, represented “either by the capitalist himself, or by salaried workers, his agents” (Marx, 1992, 205). The point is not only to distinguish both sides of circulation in the passage from volumes I to II of Capital in abstract terms. The question is that this differentiation, in the concrete reality of historical capitalism, not only grasps the spatial entanglement of the three figures of the circuit of industrial capital (money-capital, productive c­ apital, and commodity-capital) in the repeated process of the valorization of value – on an ever-expanding scale – among individual capitals through the transport process (circulation II), but also grasps that the latter might be mediated by, or subsumed into, the “metamorphosis of commodities” (circulation I).Therefore, capitalist development implies not only that each act of commodity production must be mediated by the transport process – valid for physically movable commodities – as has been noted, but rather that the transportation process itself could also be transformed into a commodity whose use-value would be to provide spatial mobility, in order to carry out the use and exchange values as quickly as possible embodied in other commodities (and for the sake of profitability of other capitals) in exchange for a certain amount of money. In this case,“[t]he relative part of value that transport costs add to the price of the commodity, under otherwise equal circumstances, stands in direct proportion to their size and weight” (Marx, 1992, 228). By participating in the M-C and C-M’ circuits (just like any other commodity) it not only allows the formation of inter-capitalist competition within that productive branch with the purpose of providing geographical mobility for other commodities. Therefore, the following resulted from both the theoretical ­differentiation between circulation I and II and their entanglement within the capitalist mode of production: (1) commodity exchange without transport: M-C (purchase) and C-M (sale); (2) commodity exchange with transportation process: M-C … P(t) (purchase) and C-M¢… P(t) (sale); (3) commodity exchange with transport as a commodity: M-C(x) … C-M¢(t) … P(t) and C(x)-M¢ … C-M¢(t) … P(t) (purchase/ sale of x with sale of transport), and M-C(x) … M(t)-C … P(t) and C(x)-M¢ … M(t)-C … P(t) (purchase/sale of x with purchase of transport).5 This at least has two implications. First, it must be taken into consideration that the capitals of the transport industry, while fulfilling their use-value in exchange for money, also compete with their own customers themselves – those who have hired transportation – so the transport costs become one more source of capitalist accumulation. Suddenly, the costs of circulation might have positive effects for some fractions of capital at the expense of others as Marx already noted:

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The railway magnates have shown greater genius in inventing fantastic species than have botanists or zoologists. The classification of goods of the British railways, for example, fills volumes, and rests for its general principle on the tendency to transform the variegated natural properties of goods into an equal number of transportation ailments and pretexts for obligatory impositions. (Marx, 1992, 228) Second, the scope for research would be constituted by the freight rates within the framework of the capitalist world-system as a geographical totality. However, here we are not talking about the progressive interrelation between both circulations (I and II) expressed in the circuits of commodity exchange. Instead, freight rates would be the quantitative expression (in the abstract form of prices) of both aspects of circulation under the world-systemic pressures of the law of value.Therefore, the price of the commodity freight rate would be given by: (1) the productivity of labor modified by the means of transport; (2) the spatial distances that must be traveled among several points of the world-market; (3) the physical and chemical properties of the transported use-values; and (4) the price of the commodities being transported. It was already shown that (1) and (2) exerted an inverse effect on each other as “absolute magnitudes” in the value of transport. What happens, then, with (3) and (4)? Here matters become more complex since by belonging to the “relative magnitudes” of the value of transport it becomes linked with two aspects of the materials being transported. First, on the physical-chemical properties of each use-value: “Transport requires, for example, greater or lesser measures of precaution, hence more or less expenditure of labour and means of labour, according to the relative fragility, perishability and explosiveness of the article” (Marx, 1992, 228). Second, on the exchange-values of the transported commodities themselves: [T]he fact that the relative share that transport costs add to the value of an article stands in inverse proportion to its value is made by the railway magnates into a special reason for taxing an article in direct proportion to its value. (Marx, 1992, 228)

On the Labor and Valorization Processes within Transportation: the “Object of Labor–Raw Material–Commodity” Transition If the transportation process is a productive process within the circuit of industrial capital, as was already noted, then it for sure is a labor process in the very Marxian sense: The labour process, as we have just presented it in its simple and abstract elements, is purposeful activity aimed at the production of use-values. It

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is an appropriation of what exists in nature for the requirements of man. It is the universal condition for the metabolic interaction [Stoffwechsel] between man and nature, the everlasting nature-imposed condition of human existence, and it is therefore independent of every form of that existence, or rather it is common to all forms of society in which h ­ uman beings live. We did not, therefore, have to present the worker in his relationship with other workers; it was enough to present man and his labour on one side, nature and its materials on the other. (Marx, 1990, 290) Instead of producing a concrete tangible product (as in mining, fishing, agriculture, or other productive branches) this labor process aims to the appropriation of space as a given natural condition in order to achieve geographical mobility among places. Thus, I am highlighting that space “is simultaneously a means of production, a condition of production, a barrier to production, a cost of production, and an obstacle to circulation of commodities” (Bunker and ­Ciccantell, 2005, 92). This labor process as a “trans-historical” condition for human existence – that is: valid for each possible “historical system” or “mode of production” – has as its use-value the overcoming of spatial barriers for the physical movement of goods and people. Now, in non-capitalist historical ­systems both the routes and means of transportation would appear simultaneously as instruments of labor which is a thing, or a complex of things, which the worker interposes between himself and the object of his labour and which serves as a conductor, directing his activity onto that object. He makes use of the mechanical, physical and chemical properties of some substances in order to set them to work on other substances as instruments of his power, and in accordance with his purposes. (Marx, 1990: 285) In the absence of capitalism, therefore, “the earth itself is a universal instrument of this kind, for it provides the worker with the ground beneath his feet and a ‘field of employment’ for his own particular process” (Marx, 1990, 286–287). A different determination might be established when a particular route is transformed from being a mere instrument of labor to be an object of labor (or, more precisely, a raw material), that is, when “the object of labour has, so to speak, been filtered through previous labour, we call it raw material” (Marx, 1990, 284). What should be clear is that this determination does not entail the existence of capitalist relations of production (yet). In the first place, this transformation entails mostly the physical aspect of routes which pertains the alteration of certain landscapes in concrete locations in order to achieve geographical displacement between places:

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“Instruments of this kind which have already been mediated through past labour include workshops, canals, roads, etc” (Marx, 1990, 287). Since the past labor takes place at the level of the built environment it is mostly linked to the concrete aspect of the labor process in transportation, which could be labeled as a concrete route. In the second place, a route as “[r]aw material may either form the principal substance of a product, or it may enter into its formation only as an accessory” (Marx, 1990, 288). What this means is that a differentiation might be established between the spatial movement of goods and people as the finished product and – something quite different – its subordination (or subsumption) as an intermediate input in the production of (other) tangible use-values or even exchange-values. Without going into further detail, perhaps this has been the theoretical level in which space and transportation have been conceptualized within the commodity chains of the capitalist world-economy. Since my main concern is transportation within historical capitalism it is obvious that it must not only be conceptualized as a labor process (for the production of use-value) but simultaneously as a valorization process (for the production of exchange-value). This distinction is crucial because, under the law of value, the necessary act “is to produce not only a use-value, but a commodity; not only use-value, but value; and not just value, but also surplus-value” (Marx, 1990, 293). Therefore, the law of value compels us to produce commodities beyond what is strictly necessary to reproduce the labor-power used in the production process, which implies the existence of a temporal margin (or excess) of unpaid labor within the limits of a given working-day (which can vary on extension, productivity, or intensity). Only when there is surplus-labor, or unpaid labor, to produce more commodities can it be said that the valorization process is taking place: If we proceed further, and compare the process of creating value with the labour process, we find that the latter consists in the useful labour which produces use-values. Here the movement of production is viewed qualitatively, with regard to the particular kind of article produced, and in accordance with the purpose and content of the movement. But if it is viewed as a value-creating process the same labour process appears only quantitatively. Here it is a question merely of the time needed to do the work, of the period, that is, during which the labour-power is usefully expended. Here the commodities which enter into the labour process no longer count as functionally determined and material elements on which labour-power acts with a given purpose. They count merely as definite quantities of objectified labour. Whether it was already contained in the means of production, or has just been added by the action of labour-power, that labour counts only according to its duration. It amounts to so many hours, or days, etc. (Marx, 1990, 302–303)

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The working-day in this industry, however, cannot be divided between necessary and surplus labor. The labor process as a whole is limited by the physical distance between points A and B since here the product “does not exist as a thing of use distinct from this process, a thing which functions as an article of commerce and circulate as a commodity only after its production” (Marx, 1992, 135). Increases of labor productivity (with better means of transport) will only reduce the necessary labortime to travel given distances without increasing surplus labor within an isolated act of transport.The way to achieve both ends would be by commanding more transport processes without remunerating the corresponding expenditure of labor-power. How is it that a route can be transformed from raw material to commodity? This issue is necessary to clarify that I am not dealing – at least not as my main focus – with the productive branches dedicated to the production of means of transport (airplanes, ships, trains, trucks, etc.); otherwise, I would be talking about the commodification of the means of transportation instead of the transportation process over a route. Now, it may be striking or questionable to argue that a route can become a raw material within a productive process (of another use-value or exchange-value) and, on that basis, into a commodity. Let’s not forget the following remarks by Marx on how the labor process transforms material given objects or conditions into raw materials: In the labour process, therefore, man’s activity, via the instruments of labour, effects an alteration in the object of labour which was intended from the outset. The process is extinguished in the product. The product of the process is a use-value, a piece of natural material adapted to ­human needs by means of a change in its form. Labour has become bound up in its object: labour has been objectified, the object has been worked on. What on the side of the worker appeared in the form of unrest [Umruhe] now appears, on the side of the product, in the form of being [Sein], as a fixed, immobile characteristic. (Marx, 1990, 287) I could be attacked on the grounds that a route cannot be a raw material and hence a commodity because it is not an “external object, a thing which through its qualities satisfies human needs of whatever kind” (Marx, 1990, 125). Nevertheless, the transition “instrument of labor–raw material–commodity” is not limited to the physical moment of the objects within the set of interlinked concrete ­production/labor processes, but also encompasses their abstract functionality – to put it in some way – within the homogenizing and quantifying requirements of the law of value. Therefore, the past labor of measurement allows one to reduce the different concrete routes (in terms of topography, relief, etc.) in abstract routes or, more concretely, as mere distances; and when distances are quantified on the basis of the law of value by means of freight rates it can be said for sure that it has been already commodified.

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From the Geographical Substratum of the Capitalist World-System to the “Frankian Triangles” of Foreign Trade Marx was not completely unaware of the problem that space entails for the required production and realization of surplus-value under capitalism. The following remarks in Volume II clearly conceive it as an obstacle that adds uncertainty, as well as discontinuity, to the processes of both commodity exchange and physical circulation of commodities: We already know from the analysis of simple commodity circulation (Volume 1, Chapter 3) that C-M, the sale, is the most difficult part of its metamorphosis, and thus forms the greater part of the circulation time in normal circumstances. As money, value exists in its ever convertible form. As commodity, it must first receive this form of direct exchangeability and hence constant readiness for action by being transformed into money. What is involved in the circulation process of capital in its phase M-C is its transformation into those commodities which form the specific elements of productive capital in a given sphere of investment. The means of production may not be present on the market, needing first to be produced, or they may have to be drawn from distant markets, or there may be dislocations in their normal supply, changes of price, etc., in short, a mass of circumstances that are not recognizable in the simple change of form M-C, but require for this part of the circulation phase either less time or more. Just as C-M and M-C are separated in time, so they may also be separated in space, the selling and the buying markets being in different places. (Marx, 1992, 204–205) That observation linking space and market, in my view, would have been the basis for the projected Volumes V and VI of Capital dedicated, specifically, to foreign trade and the world-market respectively. Marx was fully aware that “[c]apitalist production never exists without foreign trade” but he quickly dismisses it because by “[b]ringing foreign trade into an analysis of the value of the product annually reproduced can therefore only confuse things, without supplying any new factor either to the problem or to its solution” (Marx, 1992, 546). By following that analytical abstraction, Marx ended by conceiving world-­ market crises rather from the point of view of circulation I without any explicit connections with circulation II: “But foreign trade, in so far as it does not just replace elements (and their value), only shifts the contradictions to a broader sphere, and gives them a wider orbit” (Marx, 1992, 544). This would allow us to understand why, in Henri Lefebvre’s interpretation, “[s]pace appears to Marx only as the sum of the sites of production, as the territory of various markets”

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leading, therefore, to a conception of the world-market as an abstract space (a vision even shared by Marxists alike) since it “is a reflection of the world of business on both a national and international level, as well as the power of money and the politique of the state” (2009: 211, 187). The previous section should make it very clear that world-market exchanges (through foreign trade among several national jurisdictions) are not limited to mere statistics of exports and imports with the complete abstraction of geographical mobility – provided by the transportation process – that the commodities exchanged require within that trans-local sphere. Simultaneously, in addition to detaching the more spatial dimensions, the sphere of the world-market also became abstracted from the concrete geography – or geographical substratum – upon which the world-systemic transportation processes must take place. What has not been sufficiently taken into account, so far, by world-systemists in general is that commodity exchanges at the global scale are carried out mainly, if not mostly, on the basis of the world oceanic surface. As the capitalist world-economy has spatially grown to cover the globe, it has been possible to conceive the sphere of world trade as an endogenously defined social space without any references to physical space. According to Neil Smith in Uneven Development: [t]he separation of relative from absolute space thus provided the means by which a social space could be separated from physical space, with this social space defined in relation not to an independent and external first nature but rather to a humanly produced second nature. (Smith, 1984, 98) However, the purpose here is not to “add” physical space as a determinant of the world-market but, rather, to highlight it as a produced space, for world circulation processes in historical capitalism, so that “[s]pace is no longer an ‘accident of matter’ but a direct result of material production” (Smith, 1984, 107).6 Wallerstein, already in Volume I of The Modern World-System, emphasizes the geographical substratum of the capitalist world-economy in contradistinction to previous world-empires when differentiating the “first” from the “second” sixteenth century (Wallerstein, 2011a, 265–266): We presented the politics of the “first” sixteenth century as revolving around the attempts by Spain and France to transform the European world-economy into a world-empire. Despite Atlantic explorations, these attempts were primarily oriented to land routes. Indeed, this may be a supplementary reason for their failure. The politics of the “second” sixteenth century was oriented to the creation of coherent nation-states obtaining politico-commercial advantages within the framework of a nonimperial world-economy.These attempts were primarily oriented to the maximum utilization of sea routes (external and internal).

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Indeed, Wallerstein kept specifying the aforementioned geographical substratum – although in a more implicit manner (and by following Stein Rokkan’s suggestion on why the capitalist world-system did not become a world-empire) – in an interesting footnote in Chapter 2 (“Dutch Hegemony in the World-Economy”) of Volume II of The Modern World-System: “it was built around the seas rather than the land, and the seas are inherently more difficult to conquer than a land mass” (Wallerstein, 2011b, 64).This aspect has been subsequently developed within the perspective, although mostly based at the level of the interstate system. George Modelski’s and William Thompson’s Seapower and Global Politics, 1494–1993 deals with the hegemonic iterations in the world-system “as simply a straightforward circulation of naval power elites” with the concomitant “fluctuation in navalpower concentration” (Modelski and Thompson, 1988, 107). Perhaps Peter J. Hugill in “Trading States, Territorial States, and Technology” proposed explicitly a geographical framework that tackled the spaces of flows although anchored on the territorial “containers” of power as the geopolitical basis of the world-market (including changes in weaponry technology) since according to him the trading states “exert weak control over a considerable distance to protect the routes and flows central to commercial interests” (Hugill, 2005, 119). This is not due exclusively to a geographical condition, completely outside of human control, that 70 percent of the surface of the planet is oceanic while the remaining 30 percent is composed of land surfaces, nor by the mere economic fact that approximately 90 percent of world trade has been historically (and it is even now being) displaced on the maritime surface (Bergesen, 2015). These conditions only express the quantitative and aggregate dimensions of the problem. In this regard, Albert Bergesen (inspired by Gunder Frank) is perhaps the world-systemist that most explicitly proposes a theoretical framework – or, at least, a perspective – that could appreciate the already mentioned circulatory processes I and II in the context of the geographical substratum of the capitalist world-­ economy. Indeed, Bergesen names as “Frankian triangles” that set of world-­systemic processes. The interesting aspect of that concept is that it turns upside-down the received knowledge by merging Smith and Marx since “contra Smith, trade relations need not to be conceived only as exchange relations, and, contra Marx, class relations are not the only form of an economic power relation” (Bergesen, 2011, 27).7 What Bergesen does is to “combine power and trade, yielding a post-Smith/ Marx concept of ‘trade/power’, which is precisely what the notion of overlapping Frankian triangles accomplishes” (Bergesen, 2011, 28). Therefore, the importance of trade relations: Trade is the movement of goods from place to place and the structures of said movement represent a level of order above any one of their angular locales, and further, and most important, an overlapping apex of triangles acts as an economic multiplier, whose result is the wealth of some at the expense of the non-overlapped, whose fate slides toward poverty

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and underdevelopment. Overlapping triangular apexes have a structural effect upon the social class formation that occupies that apex niche. It aids, enhances, and, perhaps even in ways not as yet as fully understood and certainly to the object of future research, fully determines said local sets of class relations. (Bergesen, 2011, 28–29) Instead of proposing primacy to the sphere of production over circulation Bergesen would assert that both are equally important, or even that circulation could be determinant vis-à-vis production as far as the capitalist world-economy is concerned. While Bergesen seems to include circulations I and II – commercial relations, means/balance of payments, and the transport process – in those triangles, the bulk of his argument is based, using Marx’s categories, on the absolute magnitudes of spatial mobility because “[i]n such a geopolitical base-superstructure model, PEWS and world society are moved upstairs to constitute the global superstructure while land/sea/air constitutes the new base” (Bergesen, 2011, 31). In his view, then, “[t]he fact that world trade triangles invariably cross oceans to connect land areas goes on to raise other questions than just determinants of national development and internalist versus externalist explanations of hegemony” (Bergesen, 2011, 30). By shifting to a geographical argument, in which the superstructural socio-economic stratification of the capitalist world-system – core, semi-­periphery, and periphery – is based on the uneven capacity to achieve global control of the trans-oceanic spatial mediations, Bergesen is actually criticizing the “internalist” models in world-systems analysis that explain the stratification of the world-economy as rooted on the sphere of production at the national scale, which is then irradiated to the rest of the world-economy through circulation. Instead, both processes occur simultaneously so that [t]he sea/triangular-advantaged maritime power has more colonies and greater naval strength, and encircles the land. No matter how much they industrialize, even transform their internal class relations (Marx), or self-mobilize and self-discipline (Weber), land powers come to realize that they cannot catch the sea power/triangle apexed power. (Bergesen, 2011, 38) Actually, this corresponds pretty well with Wallerstein’s volumes of The ­Modern World-System regarding, so far, the Dutch and British hegemonies. Of course, it is clear that Wallerstein (in comparison with Gunder Frank) assigns primacy to the “vertical” relations belonging to the sphere of production over the ­“lateral” relations belonging to the sphere of circulation. That was especially the case with Dutch hegemony in the seventeenth century since “the reason the Dutch could achieve commercial supremacy had to do with their prior agro-industrial

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e­ fficiency. This was transposed into commercial efficiency mainly through freight rates, insurance costs, and general overhead” (Wallerstein, 2011b, 54–55). In Volume IV of The Modern World-System, Wallerstein asserts that one of the conditions that made possible Great Britain to become the “workshop of the world” during the nineteenth century was “the invisible credits (the merchant marine, commercial commissions, savings of personnel remitted, and income from investment abroad)” (Wallerstein, 2011c, 31). Andre Gunder Frank, in his posthumous ReOrienting the 19th Century seems to coincide with Wallerstein adding, that, instead of the “internal” productive superiority as the necessary sine qua non condition for Great Britain to become the hegemonic power he asserts that it “was ships and shipping, not steam, that were Britain’s most successful industrial export” (Frank, 2016, 24). Therefore, the uneven processes of capitalist accumulation cannot take place if space is not being controlled both as a site where resources can be extracted as well as distances linking extraction, production, realization, and consumption within the world-systemic totality. On this, I am totally on the side of Bergesen. However, I think he gives too much emphasis to the multilateral commercial nodes themselves and not so much to the fact that capitalism itself also takes place on a world-scale across the seas. This is clearly evident when he acknowledges that “it makes sense to think about something like the ownership of the means of trade through concentrated ownership of shipping” (Bergesen, 2015, 157).8 There, Bergesen’s reasoning remains Marxian after all, despite asserting that “[p]erhaps our world-system is based not on a mode of capitalist production but on a mode of multilateral trade” (Bergesen, 2015, 158). With that clarification, could it be asserted that maritime transport of foreign trade also constitutes one of the pillars of the third monopoly “floor” that defines capitalism in Fernand Braudel’s view, that is, as an “anti-market” in addition to – or along with – haute finance? As a provisional answer to this, one could sustain that obviously this has been a concentrated economic activity as opposed to local trade, which “was divided up among a multitude of participants” (Braudel, 1977, 54). Now, beyond the number of participants as a sine qua non condition for that definition, perhaps the spatial character also defines this other anti-market, which also entails that “[n]ot just anyone could join the group”: [T]he longer these chains become, the more successful they are at freeing themselves from the usual regulations and controls and the more clearly the capitalistic process emerges. It becomes strikingly evident in long-distance trade, in the Fernhandel, which German historians have not been alone in considering the superlative commercial activity. The Fernhandel was a zone of free operation, par excellence, working over distances that protected it from the usual supervision or that permitted it to manipulate such supervision. (Braudel, 1977, 53–54)

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Therefore, the exchange and transportation activities that constitute Fernhandel cannot be ignored under the theoretical excuse that those belong to the sphere of circulation and, thus, are secondary whatsoever for the world-historical development of capitalism. It is a pity that this aspect has not been theoretically explored by world-­ systemists so far. This is probably due to the incisive remarks by Patrick O’Brien (against The Modern World-System) which basically challenged the hypothesis that the development of the core countries was based on the underdevelopment of peripheral areas. Instead, for him, the overseas expansion of Europe since the ­fifteenth century that resulted in the: [t]rade between the continents simply allowed Europeans to escape from a fixed endowment of natural resources and to consume a mix of exotic commodities which could not be grown or mined in Western Europe. These crops did not compete directly with domestic agriculture, except in so far as tea and coffee reduced demand for beer and other beverages made from grain. Gains from trade consisted basically of a preferred pattern of consumption – not for masses of Europeans who lived during the mercantile era, but for those groups who could afford to buy tropical produce. Demand for sugar, tea, and coffee proved to be both income- and price-elastic, and consumption of such “luxuries” spread slowly down the social scale. But long-run gains from specialization, the division of labour, and the forces of competition – all of which flow from international trade – originated overwhelmingly in exchanges between and within European countries and far less from trade with other continents. (O’Brien, 1982, 10)9 Instead of insisting on the changes in the consumption and production patterns provided by the expanding world trade, I would like to historicize the Frankian triangles of foreign trade based on the TimeSpaces of historical capitalism. With this I do not mean that the features of Frankian triangles in one geohistorical phase of the world-system simply disappears in the next but, rather, that it becomes subordinated to the features of the forthcoming one according to the changing world-systemic conditions. During the phases of geographical expansion of the capitalist world-economy in which routes were incorporated, the Frankian triangles were based fundamentally on obtaining protection rents,10 so that the activities concerning Fernhandel in that era were mainly subjected “not on technically determined costs of competing routes of transportation, but on the way in which force was applied to control the use of the competing routes” (Lane, 1979, 41). In other words, it is to be expected that freight rates during this geohistorical stage of the capitalist world-economy were largely (if not solely) determined by the military – that is, naval – capacity to provide effective protection for the physical displacement of goods on the world-market.

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As the capitalist world-system geographically expanded until it covered the whole globe – diminishing protection rents to a minimum and thus fostering the economic activities of world trade – then the Frankian triangles were based on the technological rents provided by the growing mechanization of the means of production for the sphere of circulation or, to be more precise, on the basis of the absolute magnitudes of the law of value for the transportation process by following Volume II of Capital. Thus, freight rates might be established on a world-­systemic scale on the basis of the speed of the transportation process on the already established sea lanes, primarily in terms of the time needed to travel a certain distance, especially since the late nineteenth century as “the world before 1884 comprised heterogeneous temporalities, measures, and scales” (Schaeffer, 1983, 82). In this regard, maritime transportation progressively ceased to depend on wind as the driving force since “it was too inconstant and uncontrollable” (Marx, 1990, 498, 506): In the same way the means of communication and transport handed down from the period of manufacture soon became unbearable fetters on large-scale industry, given the feverish velocity with which it produces, its enormous extent, its constant flinging of capital and labour from one sphere of production into another and its newly created connections with the world market. Hence, quite apart from the immense transformation which took place in shipbuilding, the means of communication and transport gradually adapted themselves to the mode of production of large-scale industry by means of a system of river steamers, railways, ocean steamers and telegraphs.11 Under these new technological conditions it was, on the one hand, not only feasible to subsume the time of physical circulation of commodities to the turnover of capital but, on the other, also to establish delivery contracts as an inherent aspect to the exchange processes at world-scale: The contract of delivery, as a transaction between buyer and seller, is an operation pertaining to the market, to the sphere of circulation. The differences in turnover time arising from it thus arise from the circulation sphere, but they react directly back on the production sphere, quite apart from all terms of payment and credit conditions, i.e. even with cash payment. (Marx, 1992, 330–331) Last, but not least, once the mechanization of the means of transport has been irradiated to a sufficient level throughout the capitalist world-system – through shipbuilding and the sale/purchase of ships – then the Frankian triangles begin to be based on the commodity stock rents – in the absence of a better name – provided by

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the transportation of specific commodities or, to be more precise, on the basis of the relative magnitudes of the law of value for the transportation process. Thus, freight rates at a world-systemic scale involve directly the following productive expenditure, in addition to the means of transport: “buildings, containers, etc. which form receptacles for the product; similarly means of production and labour, more or less according to the nature of the product, which must be spent to ward off damaging influences” (Marx, 1992, 221–222).12 Clearly, under these circumstances there is of course a close connection between supply and demand, but the relevant point here is to assert that as the capitalist world-system becomes increasingly industrialized the commodity transport sector becomes the mechanized successor of commercial capital. The reason to sustain this comes from “[t]he fact that this stock does not remain in the hands of the original producers, but runs through various reservoirs, from the large-scale merchant to the retail trader, changes only in the appearance, and not the thing itself ” (Marx, 1992, 224). This is the reason why Giovanni Arrighi argues in The Long Twentieth Century, although without theoretically elaborating on this, that “the distinction between ‘trade’ and ‘production’ is not at clear-cut as it is often assumed to be” (Arrighi, 2010 [1994], 182).

Concluding Remarks: From the “Annihilation of Space by Time” to the “Geographical Transfer of Value” In his Companion to Marx’s “Capital” (dedicated to Volume II), David Harvey attributes some kind of analytical preference to the Grundrisse instead of Volume II of Capital in order to conceptualize explicitly on the spatial aspects of the capitalist mode of production. According to him (Harvey, 2013, 107): Systematic improvements in transport and communications since Marx’s time have reduced both the cost and the time of movement of commodities over space, and radically transformed locational possibilities and ­requirements. This has been so because time and space relations are jointly implicated in determining the turnover time of capital in general, as well as in particular industries. Marx does not make the point here, but in the Grundrisse he makes a great deal out of the need to diminish the friction of distance in order to shorten aggregate turnover time. It is, I think, testimony to the incompleteness of Volume II that he does not take up here concepts such as the perpetual tendency toward the “annihilation of space through time” that can be found in the Grundrisse. Of course those technological improvements have reduced the “friction of distance” for the spatial movement of goods, people, and information since Marx’s death as well as throughout the entire life-cycle of historical capitalism. ­Harvey has not been alone in that assessment of, on the one hand, the “space-time

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c­ ompression” as Marx’s great theoretical contribution to understanding the geographical patterns of the capitalist mode of production and, on the other, in considering the Grundrisse as the more appropriate source to “spatialize” capitalism on a world-scale than the volumes of Capital. Regarding the first aspect, in Uneven Development, Neil Smith already advanced a similar argument in which the circulation of value requires also a physical circulation of the ­material objects in which value is embodied or represented. All forms of ­capital—productive capital, commodity capital, and money capital— must be transported, and so as the productive forces develop, part of this development is devoted to developing the means of transportation and communication. (Smith, 1984, 126) The geographical tendency of the capitalist mode of production, therefore, is presented as “an inherent drive toward spacelessness, in other words toward an equalization of conditions and levels of production” (Smith, 1984, 127). Regarding the second aspect (like Harvey) Edward Soja also shares a preference for the Grundrisse, which is very explicit in his Postmodern Geographies. In his words: Although Marx never fails to illustrate his arguments with specific and geographical examples, volumes I and III of Capital in particular remain encased in the simplifying assumption of a closed national economy, an essential spaceless capitalism systematically structured almost as if it existed on the head of a pin.Volume III and the proposed additional volumes were to represent concretization of Marx’s theory, projections outward into the historical and geographical analysis of world markets, colonialism, international trade, the role of the state, etc.—in essence toward an analysis of the uneven development of productive sectors, regions, and nations. (Soja, 1989, 85) Harvey’s, Smith’s, and Soja’s evaluations on the long-term equalization of the productive conditions on a world-scale are undoubtedly correct but mainly from the standpoint of the space of places at the expense of the space of flows. More specifically, this process is understood primarily from the fixed and concrete sites of extraction, production, and consumption so that the interstitial and continuous processes of circulation only come into the picture just to disappear as quickly as possible, since both commodity and productive capital become devalorized during the phase of geographical displacement from one place to another (Smith, 1984, 140–141): With the development of the productive forces under capitalism, the logic behind geographic location retreats more and more from such n ­ atural

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considerations. The reason for this is twofold. What tied economic ­development to natural conditions was first the difficulty of overcoming distance, and second the necessity of close proximity to raw materials. With the development of the means of transportation, the first natural obstacle (distance) diminishes in importance. With the general increase in the productive forces, the second also becomes less important, since raw materials today are the product of an ever increasing number of previous labor processes. The spatial dimensions accentuated in the Grundrisse have to do mostly – as was already suggested – with the absolute magnitudes of the value for transport in particular if we consider Volume II of Capital. Unlike those Marxist geographers, the reading of Marx offered here takes as a point of departure the neglected phrase “what the transport industry sells is the actual change of place itself ” (Marx, 1992, 135) in Volume II of Capital not to insist (again) on “space-time compression” as a sine qua non condition for capitalism,13 but to assert that certain fractions of capital are also formed in that productive branch so that “space-time compression” becomes a commodity by subsuming its use-value to the “metamorphoses of commodities” and, thus, transform the transportation service into a source (among others) of capitalist accumulation. The subtext of this paper – based on key sections of Volumes I and II of­ Capital, in order to differentiate in the abstract the respective processes of exchange and transportation (belonging both to the sphere of circulation), the distinction between absolute and relative magnitudes of the law of value for transportation, as well to grasp the mutual entanglement of transport and exchange in the concrete geohistorical unfolding of the capitalist world-system – rather complicates the usually taken for granted and homogenizing (secular) trend towards the “annihilation of space by time” as Marx formulated it in the Grundrisse. This interpretation makes me agree with Neil Smith (1984, 111) for whom, “It is a common misconception that Marx’s analysis of capitalism is non-spatial. This is not quite correct; it would be more accurate to say that the lively spatial implications of Marx’s analyses were rarely developed”. With this remark in mind, I implicitly followed Soja’s (1989, 112–113) principle that “[a]ll that is necessary to define a geographical transfer of value is to give capitalism a concrete geography, to move production and exchange off the spaceless head of a pin and into a differentiated and unevenly developed spatiality”. Thus, the inclusion of the geographical substratum of the capitalist world-economy based on the combined reading of Volumes I and II of Capital made it possible to develop the “spatial implications” of foreign trade and the world-market hidden in Marx’s analysis, so that “[m]arket exchange thus becomes a vehicle not only for the transfer of value between firms and sectors but also for a geographical transfer of value” (Soja, 1989, 113). (1) While transportation has been progressively included in studies of historical capitalism, the truth is that this dimension has been rather subordinated to

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the cyclical re-locations of productive capital and the extractive moment. World-­ systemists seem to conceive solely the “lateral” aspect of the economic activities that promote capitalist accumulation on a world-scale as the reproduction of structural space (in Wallerstein’s conception of TimeSpace) so that regional mobility within the fixed global hierarchy (core–periphery division) is primarily recognized as given by the successive rounds of geographical expansion of the capitalist world-system: “Yesterday, Japan was a locus of cheap labor. Today it is a so-called core state. Tomorrow, it may be the hegemonic world power” ­(Wallerstein, 2001, 143).14 Paying attention to transport as expenditure of laborpower highlights precisely the “lateral” angle of the reproduction on an expanded scale of capitalism. A starting-point for this project might be the f­ollowing remark (from Volume I of The Modern World-System) that “[i]t is only with the expansion of production within the framework of a modern world-economy that long-­distance trade could convert itself in part into bulk trade which would, in turn, feed the process of expanded production” (Wallerstein, 2011a [1974], 20–21).15 In specifying that long-distance trade in turn becomes part of the bulk trade, which is the one that defines economic activity within the capitalist world-economy (instead of a luxury), then, what Wallerstein tacitly suggests is that space, by being increasingly subsumed in the world division of labor, becomes part of a global productive process by linking geographically multiple commodity chains. (2) Brenner is partly right in criticizing Wallerstein (along with Sweezy and Frank) by pointing out that there is perhaps nothing wrong with ‘beginning’ in this manner with such historically-specific commercial developments, for there is no denying their importance. But the fact is that such flowerings of commercial relations with such divisions of labour have been a more or less regular feature of human history for thousands of years. Because the occurrence of such ‘commercial revolutions’ has been relatively so common, the key question which must be answered by Sweezy and Wallerstein is why the rise of trade/division of labour should have set off the transition to capitalism in the case of feudal Europe? (Brenner, 1977, 40) However, Brenner misses the point that the incipient naval explorations as well as the successive rounds of geographical expansion of, and incorporation of external arenas to, the capitalist world-economy from the sixteenth century on, had everything to do with the “lateral” appropriation of ever longer distances. Could it be argued that the naval explorations constituted the required parallel “lateral” dimension (i.e. internalizing the sphere of circulation within the sphere of p­ roduction) during the processes of original accumulation on a world-scale, understood as “incorporations” to the capitalist world-system? The fact that,

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e­ specially during the initial stages of the capitalist world-system, the core enjoyed geographical mobility through the oceans but not the periphery confirms it. Now, the issue here is that space cannot be conceived only as a “free gift” in terms of an immediate source of use-values (whether for direct consumption, to produce other use-values or commodities) without the necessary productive mediation of the transportation process. The fact that Wallerstein acknowledged the territorial expansion of Western Europe in Volume I of The Modern World-System as a sine qua non condition for the formation of the capitalist world-system seems to confirm that point: “The territorial expansion of Europe hence was theoretically a key prerequisite to a solution for the ‘crisis of feudalism’. Without it, the European situation could well have collapsed into relative constant anarchy and further contraction” (Wallerstein, 2011a [1974], 38). (3) Considering Volume II of Capital, world-systemists in general (in agreement with their Marxist counterparts) have mostly emphasized the absolute magnitudes of the transportation process. In their seminal paper, “Cyclical Rhythms and Secular Trends of the Capitalist World-Economy”, Wallerstein, Hopkins, and the participants of the Fernand Braudel Center provided a list of secular trends: mechanization, contractualization, commodification, interdependence, and polarization (Hopkins and Wallerstein, 1979, 483–485). It is strange that the geographical expansion was not explicitly included into that list considering, furthermore, that this would have provided a more unifying thread to those listed. From the perspective of the transport costs, the geographical expansion of the world-­system should be noted statistically as a longue durée trend towards the progressive reduction of freight rates, at least as a global average. The “annihilation of space by time” or “time-space compression” was also suggested in world-systems analysis by asking “why the cycles seem to get shorter over historical time may be the increasing mobility of world capital” (Hopkins and Wallerstein, 1979, 497). Basically, it might be explained considering (a) the absolute dimensions of the world-system, in turn, modified by (b) the increasing mobility of capital. Both variables would indicate the “percentage of total world area included in division of labor of capitalist world-economy” (Hopkins and Wallerstein, 1979, 499). The challenge that remains, therefore, is to historicize the secular trend toward the “annihilation of space by time” without losing sight of the uneven spatial mobility on a world-scale, that is, both the absolute and relative magnitudes of the transport value through the relational (core–periphery) magnitudes. (4) According to a “productionist” reading of Marx, Wallerstein’s perspective would be “circulationist” since, according to Ernesto Laclau (1979, 44), “by mode of production we no longer understand the relation between productive forces and relations of production but international economic relations, since the mode of production is identified with the world economy as such”. From this point of view, the “international economic relations” would be marginal to Marxian concerns, but when the geographical substratum of the capitalist world-system

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is taken into account as a physical condition that entails the growth of the productive forces for the sphere of circulation (that is: means of transport) then the world-market would acquire other determinations.Thus, it is not only intended to add the circulatory mediations of transportation to the core–periphery relations, but to sustain simultaneously that these same mediations are in turn crossed by the core-periphery division.This is clearly evident when geographer R. J. Johnston in Geography and the State pays attention to “the constraint of moving commodities to the markets” which means that “[p]eripheral economies rarely control either the shipping lines or their prices, and they almost invariably, because of weak bargaining positions, have to pay transport costs for both imports and exports” ( Johnston, 1982, 76). Within the framework of the capitalist world-system, Stinchcombe is perfectly right in pointing out that “Marx’s materialist argument, that modes of production are the way people produce their livelihood, is substantially modified in Wallerstein. The politically crucial part of the gross product is exactly that not consumed in the society that produces it” (Stinchcombe, 1983, 15, emphasis in original). (5) Finally, the activity of transport encompasses more than the spatial integration of markets and the division of labor as if for world-systemists, in Harvey’s opinion, [t]he historical geography of capitalism then becomes simply a history of the formation of the world market and its consequences, such as the formation and shifting boundaries of core, semiperipheral, and peripheral regions, and the processes of state formation and growth within the framework of the world market. (Harvey, 1987, 44) If structural TimeSpace involves at the same time both the “lateral” and the “hierarchical” spatial reproduction of the capitalist world-economy (until covering the “entire” globe) as has been already said, perhaps it might also be suggested that conjunctural TimeSpace covers the phases of both geographical expansion (that is: “incorporation”) and densification of the world-market (that is: expansion of the interstate system through “decolonization”). What it is being suggested is that the reorganization of the political “superstructure” of the world-system provided the conditions of possibility for the dialectic between the expansion/diffusion of the productive forces of maritime transportation, on the one hand, and its commodification/concentration, on the other, giving rise to the reproduction of the core–periphery division within the interstices of the world-market since “technology just lowered the level of freight rates, but did not create the long waves” (Goulielmos, 2017, 326, emphasis added). In short, it is simply untrue that in world-systems analysis “[t]here is little or nothing here that deals with the production of space and of ­geographical landscapes through the circulation of capital” (Harvey, 1987, 45).

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Notes   1. This is an extended version of a paper presented at the 42nd PEWS Conference held at Fairfield University, Connecticut, April 26–28, 2018. I appreciate especially the comments by Manuel Varo López.  2. The development of the means of transportation in the capitalist world-system is rather subsumed, analytically speaking, to the processes of expansion (of the world-­ system) and incorporation (of external arenas): The incorporation of new zones into the social division of labour of ­historical capitalism did not occur all at once. It in fact occurred in periodic spurts, although each successive expansion seemed to be limited in scope. Undoubtedly part of the explanation lies in the very technological development of historical capitalism itself. Improvements in transport, communications, and armaments made it steadily less expensive to incorporate regions further and further from the core zones. (Wallerstein, 1983a, 38)   3. In Chapter 2 of Volume I of Capital, entitled “The Process of Exchange”, Marx starts by stating that “[c]ommodities cannot themselves go to market and perform exchanges in their own right” (Marx, 1990, 178). Therefore, he already was aware implicitly of spatial elements, but at this stage of the analysis which was focused primarily on simple commodity exchange, the issues of transportation could be completely ignored since what mattered then was to understand the basis of commodity exchange, and transportation could add nothing to this analysis. What mattered, instead, about the process of exchange was that it had to be based on a certain relationship among commodity producers: In order that these objects may enter into relation with each other as commodities, their guardians must place themselves in relation to one another as persons whose will resides in those objects, and must behave in such a way that each other does not appropriate the commodity of the other, and alienate his own, except through an act to which both parties consent. The guardians must therefore recognize each other as owners of private property. This juridical relation, whose form is the contract, whether as part of a developed legal system or not, is a relation between two wills which mirrors the economic relation. The content of this juridical relation (or relation of two wills) is itself determined by the economic relation. (Marx, 1990, 178)

That economic relation, on the other hand, is grounded on the following circumstance: For the owner, his commodity possesses no direct use-value. Otherwise, he would not bring it to market. It has use-value for others; but for himself its only ­direct use-value is as bearer of exchange-value, and consequently, a means of ­exchange. He therefore makes up his mind to sell it in return for commodities whose use-value is of service to him. All commodities are non-use-values for their owners, and use-values for their non-owners. Consequently, they must all change hands. But this changing of hands constitutes their exchange, and their exchange puts them in relation with each other as values and realizes them as values. Hence commodities must be realized as values before they can be realized as use-values. (Marx, 1990, 179)



Matters are different in Volume II of Capital concentrated on the circulation of capital. In the small section called “Transport Costs” within Chapter 6 (“The Costs of

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­ irculation”) Marx made the following distinction which has to do with differentiating C the processes of exchange and transportation in the form of a law: The general law is that all circulation costs that arise simply from a change in form of the commodity cannot add any value to it.They are simply costs involved in realizing the value or transferring it from one form into another. The capital expended in these costs (including the labour it commands) belongs to the faux frais of capitalist production. (Marx, 1992, 225–226, emphasis added)

In other words, the movement from commodity-capital to money-capital and/or vice versa (expressed as C-M and M-C movements) which Marx labeled as the “metamorphosis of commodities” does not add any value to it, but it merely transfers it as commodities and money. When taking account of the circuit of industrial capital, composed by the three figures of the circuit (money-capital, M; productive capital, P; and commodity-capital, C) matters become different because [w]ithin the circuit of capital and the commodity metamorphoses that form a section of it, the metabolism of social labour takes place. This metabolism may require a motion of the products in space, their real movement from one location to another (Marx, 1992, 226)



Since the transportation process indeed adds value it is implied that it entails a c­ ertain amount of productive expenditure (labor-power) and, of course, a source of surplus-value (and capital accumulation): “This latter addition of values can be divided, as with all capitalist production, into replacement of wages and surplus-value” (Marx, 1992, 227).   4. This applies specifically to each physically movable commodity that must be spatially transferred as a consequence of the metamorphoses of commodities in order to be consumed. However, the following observation by Marx must be taken into account about this matter in the context of the capitalist mode of production: There is a distinction between C-M and M-C that has nothing to do with the difference in form between commodities and money, but derives from the capitalist character of production. In and for themselves, both C-M and M-C are mere translations of the given value from one form into the other. But C’-M’ is at the same time the realization of the surplus-value contained in C’. Not so M-C. Hence the sale is more important than the purchase. M-C is in normal conditions a necessary act for the valorization of value expressed in M, but it is not a realization of surplus-value; it is a prelude to its production, not an appendix to it. (Marx, 1992, 205)

In other words: in capitalism before use-values can be consumed (whether for productive purposes or for individual consumption) they must be socially validated as part of “social labor” – i.e., as commodities – through the exchange process.   5. There is another issue that should be addressed with respect to the transport industry, especially considering the interrelationship between circulations I and II as well as the source of profit in the M-C-M’ circuits: is the transport industry just an agent of other productive capitals or could it also be said to be the mechanized successor of commercial capital and, therefore, a particular productive branch as such? Apparently this would go against what Marx asserted in Volume III of Capital in the sense that nothing could be more absurd than to treat merchant’s capital, whether in the form of commercial capital or of money-dealing capital, as a special kind of

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industrial capital, in the way that mining, agriculture, stock-raising, manufacture, transport, etc. are branches resulting from the social division of labour and as such from particular spheres of investment for industrial capital.

(Marx, 1991, 440)

In another part, he establishes a strict and abstract separation between the pure (circulation I) and spatial functions (circulation II) for merchant’s capital to the extent to which the transport industry, storage and the dispersal of goods in a distributable form should be viewed as production processes that continue within the process of circulation. These incidents in the circulation of the commodity capital are sometimes confused with the functions peculiar to commercial capital; they are sometimes linked in practice with the specific function peculiar to this capital, although as the social division of labour develops, so the function of commercial capital also evolves in a pure form, i.e. separately from these real functions and independent of them.

(Marx, 1991, 379–380)

That vision – especially the one presented in Chapter 20 of Volume III of Capital (“Historical Material on Merchant’s Capital”) – is understandable considering that merchant’s capital is a form of capital that precedes from capital so “its sole function is to mediate the exchanges of commodities, no further conditions are needed for its existence—leaving aside undeveloped forms that arise from barter—than are necessary for the simple circulation of commodities and money” (Marx, 1991, 442). Later, Marx asserts that as long as the capitalist mode of production unfolds commercial capital is demoted from its earlier separated existence, to become a particular moment of capital investment in general, and the equalization of profits reduces its profit rate to the general average. It now functions simply as the agent of productive capital.

(Marx, 1991, 444)

I agree with Marx´s abstract differentiation between the pure and spatial functions of merchant’s capital (which, in the end, are anchored in the distinction on the spheres of circulation and production respectively). Nevertheless, by following the commodifying dynamics of the capitalist world-system as an historical system (not of the capitalist mode of production as an abstraction) which entails a growing interrelation between circulations I and II, as was already explained, it is quite questionable to assert: (1) that merchant’s capital (or rather commercial capital) “evolves in a pure form” or “separately from these real functions and independent of them”, and (2) that commercial capital “now functions simply as the agent of productive capital”. Although Marx may be correct when he justifies his assertions on the basis of abstractly differentiating production and circulation, I think he ends up by denying autonomy to merchant’s capital in relation to other fractions of capital. In other words, and regarding the transport industry, of course it becomes an agent of other productive capitals (as Marx asserts for merchant’s capital), in the sense that it is subjected to the prior existence of other commodities or use-values that need to be transported. However, the previous situation by no means denies that the transport industry (and in fact every branch of industry) may also become its own merchant by selling its own commodity: transportation of other commodities; but, on the other hand, the transport industry itself may be conceived as the mechanized version of commercial capital as far as the capitalist world-economy as a whole becomes more industrialized, so the sale of transportation services would be simultaneously subjected to the world-systemic pressures of the law of value: As the capitalist mode of production presupposes production on a large scale, so it also necessarily presupposes large-scale sale; sale to the merchant, not to

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the individual consumer. In so far as this consumer is himself a productive consumer, i.e. an industrial capitalist, i.e. in so far as industrial capital in one branch of production supplies means of production to another branch, there is also direct sale by one industrial capitalist to several others (in the form of orders, etc.). Each industrial capitalist is a direct seller in so far as he is himself his own merchant, which he is moreover also when he sells to a merchant. (Marx, 1992, 190–191)   6. Here I am following Neil Smith’s notion of geographical space to conceive the sphere of the world-market within historical capitalism, that is as a social product; in this conception a geographical space which is abstracted from society is a philosophical amputee. Further, the relativity of space becomes not a philosophical issue but a product of social and historical practice; the unity of geographical space is a social rather than philosophical result. (Smith, 1984, 107)   7. Bergesen continued on that question: What has happened in received theory is that the natural practice of trade has been fused with the Smithian notion of exchange, which seems on the surface obvious enough. But the concept of exchange carries with it the assumption of more participant acquiescence (the free choice to exchange goods) than the Marxian idea of class relations in production, for which the economic relation is not one of acquiescence but one of power and domination, as one class owns/controls the means of production and the other class must sell their labor power. In some sense Marx was turning Smith on his head: it isn’t buying and selling (exchange) that produces capitalism, but capitalism (class relations in production) that leads to buying and selling. That aphorism is repeated daily in sociology theory classes on the ideas of Marx and Smith. It is a taken-for-granted that Frank’s analysis implicitly challenges. This idea of exchange, once generalized across n economic actors, yields the famed Smithian division of labor, which was then rewritten as the world-system’s central global economic relation, the famed core–periphery division of labor. (Bergesen, 2011, 27)

According to Bergesen, this is the biggest theoretical limitation of world-systems analysis because if the capitalist world-system as a totality is conceptualized primarily as a division of labor “even with unequal exchange, it is always open to Brennerite nationalists who pull world-system analysis down to domestic relations within territorial units” (Bergesen, 2011, 27). Therefore, [t]he Smithian notion of a core–periphery division of labor certainly grasped the global, but, again, it loses the coercive element, and to call such a world economic system ‘capitalist’, as did Wallerstein, while an exchange relation lay at its theoretical heart, admitted such a contradiction, and nationalist class analysis soon jumped all over that formulation, most famously in Robert Brenner’s characterization of this as nothing but a ‘neo-Smithian Marxism’. It is, and remains to this day, the great world-system theoretical problem. (Bergesen, 2011, 28)

For more information, the review-symposium on Andre Gunder Frank’s ReOrienting the 19th Century (2016), addressed precisely the relationship between Marx’s spheres of production and circulation from a world-systems perspective.   8. Without this clarification regarding the ownership of the means of production for the circulation sphere (i.e. the means of transport) at the world-systemic level, then the Frankian triangles would entail merely a resurrection of the old “metropole-satellite”

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nodes entailing only “unequal exchange” without any interrelation between circulations I and II.   9. In this regard, it is a pity that Wallerstein, in his reply to O’Brien, did not address specifically the importance of the control of the world oceanic space and of maritime transportation for world trade and core economic development. Wallerstein, instead, responded precisely in O’Brien’s terms by giving more importance to the quantitative aspect of the economic contribution of the periphery (in order to counter the “imagery of smallness” given by O’Brien) although on the basis of the appropriate unit of analysis. Wallerstein deployed his arguments on three aspects. First, he warned against O’Brien on conflating the zones of the world-economy (core and periphery) with the geographical continents: “Appropriate statistics would therefore have to use different geographic units from those used by O’Brien” (Wallerstein, 1983b, 580). Along with the first aspect there is the difficulty of the state boundaries which are taken for granted. Second, for Wallerstein, “[t]he issue is not whether, in some long production chain that leads to the merchandizing of some final product, the processes at the ‘peripheral’ or the ‘core’ end offer a higher profit rate, if calculated separately” but “rather whether the processes of the commodity chain do or do not form a single integrated process, the whole of which accounts for the economic outcome” (Wallerstein, 1983b, 581). And third, Wallerstein argues that measuring the economic contribution of the periphery as just 7 percent of the total is misleading: The fact is that England developed as it did because of the totality of what historically occurred. We do not need to show that the periphery’s hypothetical 7 percent was ‘decisive’—what meaning could that have? We only need to presume that the 7 percent was there because, without it, profits overall would have been less and therefore the accumulation of capital would have slowed down. Every bit mattered. ‘Money is blind’ is an old maxim of the accumulator. (Wallerstein, 1983b, 582)

The closest to explain why the control of the spaces of circulation through foreign trade (although without mentioning the global ocean space), implicitly by Wallerstein, has been the following remarks: In O’Brien’s counterfactual history, is there no place for the consideration that, had Britain been excluded from trade with the periphery, there were others who stood ready to fill the void, and draw the advantage therefrom? For what purpose, pray tell, did England and France engage in the so-called second Hundred Years’ War except to gain this mere ‘7 percent’? All much ado about nothing? O’Brien would be hard pressed to convince the Duc the Choiseul. (Wallerstein, 1983b, 582)



No wonder O’Brien’s reply to Wallerstein’s comments asserted the following, which expresses an implicit conception of space as a site for resource extraction with a total indifference to space as a distance that, first, must be controlled for, second, to travel in order to control the flow of resources from their sites of extraction/ production: Yes, England developed as it did because of the ‘totality of what historically ­occurred’. Within that totality foreign trade formed one and by no means the most important element of the story. Commerce with the periphery mattered far less for capital formation than the New School of Development History is prone to assume. Finally, as this society rediscovered during the Falklands

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c­ onflict, the British government remains willing to wage war for no material gain whatsoever. Things were little different during the Second Hundred Years War with France. (O’Brien, 1983, 585, emphasis added)

Finally, one of the flaws in Wallerstein’s reply to O’Brien is that he tends to be too “core-centric”, despite Wallerstein’s concern which is “to understand the historical development of a singular historical system which has been organized as a capitalist world-economy” (Wallerstein, 1983b, 583). What I mean here is that even if O’Brien could be completely correct with respect to his statistical estimates pertaining the core areas of the capitalist world-economy, Wallerstein, in turn, could have replied on a ­relational basis that the impact of that same foreign trade at the level of the world-economy as a whole has a much more gravitating effect precisely on peripheral areas. 10. The importance of protection rents for economic activities is given by the following condition: An essential charge on any economic enterprise is the cost of its protection, its protection from disruption by violence. Different enterprises competing in the same market often pay different cost of protection, perhaps as tariffs, or bribes, perhaps in some other form. The difference between the protection costs forms one element in the income of the enterprise enjoying the lower protection costs. This element in income I will call protection rent. Just as differences in the fertility of land produce rents for the owners of the more productive fields, so differences in the difficulties of protection rents for the enterprises which are more easily or efficiently protected. To the categories traditional with the economists, that is, wages, interests, and land rent, can be added for the present purposes the category protection rent. (Lane, 1979, 12–13) 11. In this regard, Alexandros Goulielmos asserts that within the framework of the capitalist world-economy there were three technological waves – or “transport revolutions” – regarding ships: “sail, 1741–1871; steam, 1872–1947 and oil, 1947–2016+” accompanied with some “ ‘secular waves’ in ‘dry cargo shipping economy’ since 1741 of 136 years on average with 68 years up and 68 years down” (Goulielmos, 2017, 328). 12. In this regard, one could take into account as a first example the trans-oceanic transportation of frozen meat as well as of fruits and vegetables which began to be usual since the late nineteenth century, as well as the “container revolution” as a second example that began to take place since the second half of the twentieth century. 13. I include also Jason Moore’s world-ecological approach, presented in his Capitalism in the Web of Life, in the same conception of transportation within the world-historical development of capitalism, since the spatial dimension of the capitalist world-ecology owes a lot to David Harvey’s conceptualization in this regard: Central to the law of value is the drive to reduce socially necessary turnover time to zero—an ambition that comes closest to reality in the high-frequency currency trading of the twenty-first century. This drive to reduce the turnover time of capital to zero is, in fact, a pivotal moment in the environmental history of capitalism, reaching beyond the domains of production, exchange, transportation, and communication. The annihilation of space by time transforms all life and space within the law of value’s gravitational pull. (Moore, 2015, 232)

In other words, it would not make much sense to speak of “cheap” freight rates since one thing is the necessary reduction in the turnover of capital for all individual capitals

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on average within the framework of the capitalist world-system as a whole (as Moore highlights following Harvey) but another, quite different, thing is the inter-capitalist competition as well as the profit rate within the transport industry rooted both in the absolute and the relative magnitudes of the law of value for the transportation process. 14. While regional mobility in the world-system hierarchy highlights mostly movement over time, I am concerned also with mobility over space. There could be, therefore, in terms of Wallerstein’s conception of TimeSpace a distinction between, on the one hand, structural space I, which entails geographical expansion (and therefore longer distances) and, on the other, structural space II, which has to do with the formation of a hierarchical space within the capitalist world-system (the core–periphery division). 15. Although Giovanni Arrighi in The Long Twentieth Century does not formulate either in historical or theoretical terms the process of transporting commodities in his version of the geohistory of the capitalist world-economy, he seems to agree with Wallerstein regarding the productive nature of long-distance trade in historical capitalism: The capitalist organizations that specialized in long-distance trade were always involved in some kind of production activity. Besides storage and transport, they often engaged in some processing of the goods they bought and sold, and in the construction of at least some of the means and facilities required by the storage, transport, and processing of commodities. (Arrighi, 2010 [1994], 182)

8 POLANYI’S MINSKYIAN MONETARY SYSTEM Daniel H. Neilson

The Faith of the Age Karl Polanyi’s (1944) The Great Transformation asks why a century of international peace gave way to violent conflict and the erosion of the global economic system after World War I. It finds its answer in the failures of the liberal understanding of the political-economic order that had emerged and taken root during what he called the Hundred Years’ Peace (1815–1914). Market society’s inability to meet the needs of its population led to its breakdown and collapse, exposing the flimsiness of the intellectual structure on which liberalism had rested. Polanyi’s critique is aimed squarely at nineteenth-century liberalism, and most of all at the idea of self-regulating markets. The main claim of the book is that a society built around this Utopian vision – a vision of markets as a bastion of freedom – is inconsistent with the existence of human society. The ideological alternatives that contested for dominance in the twentieth century, despite their differences, find their origins in a single contradiction: “Fascism, like socialism, was rooted in a market society that refused to function” (Polanyi, 1944, ch. 20). The failure of the self-regulating market was the underlying cause; the collapse of the gold standard was the precipitating event. Polanyi understands the gold standard as the mechanism that allowed market logic to operate internationally. The final unraveling of that gold standard, culminating in 1933 when the US went off gold, was brought on by the financial crisis, the series of bank failures, and the massive economic contraction of the preceding years. That the financial crisis of 1929 is a focal point of these events points toward the work of American economist Hyman Minsky, and the purpose of what follows is to show that, although these two critics of capitalism might seem an unlikely pair, they share a distinctive emphasis on the mechanism of payment. (I return to Minsky in the next section.)

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The gold standard, and the set of institutions that supported it – the Bank of England, other central banks, commercial banks – should be understood as a payment system facilitating the globalized exchange required and imposed by the mercantilist and colonial imperatives of the nineteenth-century powers. People and goods moved around the earth as never before; these movements were driven by the liberal logic of the market. Market logic demands payment, and payment was made in London, with the City as its center and the Bank of England – the central bank – its heart.1 Gold was the apparent anchor of value for this global system; national central banks bought and sold gold so as to hold its value fixed in terms of their national monies. The actions of domestic central banks were thus bound by rules, the effect of which was precisely to minimize the movement of actual gold. Thus, the diversity of national monies, and of private securities, did not necessarily present any obstacle to market exchange on a global scale. Even more, preservation of the gold standard became itself a goal of policymaking, a goal for which the costs of the occasional financial crisis – bankruptcies and depression – were not too great (Polanyi, 1944, ch. 12, 17). Domestic payment systems under the gold standard, during normal times, had the appearance of being mechanical or automatic:“Since … the supreme directive of the [central] bank was always and under all conditions to stay on gold, no question of principle seemed to be involved” (Polanyi, 1944, ch. 16). The apparently automatic operation of the gold standard allowed it to slip into the background. It became not only an explicit intellectual commitment, but an unquestioned article of the liberal faith. The fact that the gold standard was maintained by the operation of human, and indeed quite political, institutions, became an implicit commitment and even a blind spot. This remarkable observation from Polanyi is worth quoting at length: Belief in the gold standard was the faith of the age. With some it was a naive, with some a critical, with others a satanistic creed implying acceptance in the flesh and rejection in the spirit. Yet the belief itself was the same, namely, that bank notes have value because they represent gold. Whether the gold itself has value for the reason that it embodies labor, as the socialists held, or for the reason that it is useful and scarce, as the orthodox doctrine ran, made for once no difference. The war between heaven and hell ignored the money issue, leaving capitalists and socialists miraculously united. Where Ricardo and Marx were at one, the nineteenth century knew not doubt. (Polanyi, 1944, ch. 2) The faith of the age, however, finally succumbed in the wake of World War I, the 1929 crisis and the subsequent years of Depression. The US abandoned its commitment to fixing the value of the dollar in gold. Polanyi might have been

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surprised, however, that the self-regulating market was not much eroded by the removal of gold from the payment mechanism. Not only did the source of gold’s value make no difference, it did not even much matter that it was gold.The papermoney systems that had served to make the actual movement of gold unnecessary, it turned out, did not even require gold. Where Polanyi finds the end of the liberal assumptions of the nineteenth century, Hyman Minsky finds continuity in the new system’s series of crises. After World War II, and so after the publication of The Great Transformation, a dollar-based global system emerged to replace the nineteenth-century gold system. Minsky observed this new liberal order over the second half of the twentieth century. Beginning with his early work motivated by the crisis of 1929, Minsky sought a reason for the financial instability that showed up starting in the mid-1960s. Like Polanyi, Minsky placed the payment system at the center of his argument.

Payment as Pathology Hyman Minsky’s work revolved around the tendency of the financial system to crisis and the incompatibility of such instability with the economic doctrines of his time. Minsky’s frustrating early engagements with post-World War II US Keynesianism eventually led to the publication of his own reading of Keynes. In Keynes, Minsky finds an entry point for money – and thus finance – in the necessity to act in the face of an unknowable future, which aligns him more with the likes of Shackle (of whose work Minsky was aware, but to which he makes no more than a gesture). Minsky’s financial understanding of the cyclical elements of crisis has had some longevity, codified in the enduring slogan “stability is destabilizing” (Minsky, 1954, 1975, 1977, 1986; Shackle 1988). For Minsky, crisis originates from the survival constraint – the requirement that one must pay one’s debts when they come due. Those who borrow with the hope of making a profit are committing to repay that debt under unknown, and unknowable, future circumstances.The optimism of a boom supports the expansion of such financial activity, but each new loan adds to the burden of eventual repayment. Minsky saw such activity as the defining feature of the US post-war capitalism: “Capitalism is essentially a financial system” (Minsky 1967; also Minsky 1954; Delli Gatti and Gallegati 1997; Mehrling 1999; Nesvetailova 2007; Konings 2018). As a boom proceeds, fortunes are made and both borrowers and lenders extend themselves, economizing on their reserves of cash so as to put more funds toward speculative activity. Layering, the increasing complexity of financial arrangements, means that contracts come to be more interdependent. The stability of expansion prepares the ground for the instability of crisis through fragility: financial arrangements are such that even a small surprise can trigger a wave of bankruptcies, defaults, and failures. As Minsky emphasized, this tendency was a normal part of US capitalism. It follows from the use of financing to enable speculative activity; this is so whether

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that is business borrowing to finance speculative investment, as in Minsky’s time; broker loans to finance stock-market speculation as in 1929; or households borrowing to finance real-estate investment, as in our own. When a debt comes due, the borrower must obtain the means of payment to discharge the debt, or face its consequences in the legal system – this is the survival constraint. In isolation, an economic unit in such a deficit position may be able to draw on its own reserves, to sell an asset for cash, or to borrow from another unit. After a sustained boom, however, all units are stretched thin: it may be that, suddenly, neither buyers nor lenders can be found. This is the moment of crisis. The force of the survival constraint is thus to trigger a search for the means of payment. In good times, the means of payment can be easily obtained – liquidity is cheap. In a pinch, borrowers can turn to what backup arrangements they might have made – rainy-day funds, lines of credit. In the crisis, when these alternatives are exhausted, money cannot be had at any price. Firms’ survival is then at issue, and the wave of bankruptcies follows. The crisis can be broken by the timely intervention of an agent that retains the freedom to act – a lender or dealer of last resort, to which I return, in Polanyi’s context, in the next section. Although Minsky wrote in terms of the institutional configurations of his day (commercial banks, securities dealers, REITs, and later even securitizations), in its simplest terms his financial instability hypothesis can take shape with very little. All that is required is a looming commitment to settle a debt using the means of payment. But all payment systems entail the use of credit – anything but the simplest spot settlement introduces a lag between the moment a sale is agreed and the moment payment is made. The survival constraint is just the requirement that debts be paid, and payment is part and parcel of the market mechanism (Hicks, 1989, ch. 5; Graeber, 2011). Market transactions impose a payment constraint. Anticipation of this constraint gives reason to stretch reserves of money, until the resulting financial structure is fragile and a small disturbance is enough to disturb payments throughout the system. As we shall see, this mechanism, which Minsky formulated to explain the market pathologies of the era, translates to the earlier gold-standard system whose end, for Polanyi, had marked the end of the nineteenth-century liberal order.

Polanyi’s Picture in a Minskyian Frame Polanyi offers the description in Figure 8.1 of the ailing “condition of the market system” (Polanyi, 1944, ch. 20). The monetary system Polanyi describes is hierarchical. The US had taken Britain’s place at the center of the international monetary system in the 1920s (Eichengreen, 2011). When the defeated European countries stabilized their currencies after World War I, restoring some of the automaticity of the gold standard, they relied on the victorious countries to provide flexibility. When

Polanyi’s Minskyian Monetary System 131

I. Defeated Countries Stabilized Russia 1923 Austria 1923 Hungary 1924 Germany 1924 Bulgaria 1925 Finland 1925 Estonia 1926 Ggreece 1926 Poland 1926 FIGURE 8.1 

II. Victorious European Countries Went off Stabilized gold 1931 Great Britain 1925 1936 1926 France 1936 1926 Belgium 1933 1926 Italy

III. Universal Lender Went off gold U.S.A. 1933

The condition of the market system.

these countries sought in turn to stabilize, they relied on the US, and rightly so: at the center of this system, the US was the only country that retained the freedom to act.2 What Polanyi saw was successive recourse towards the center of the payments system; it is thus entirely Minskyian. Those agents facing payment deficits as a consequence of war turned to those who were not so constrained. When the capacity of these was exhausted, they turned to the very center of the system. But this “universal lender” (in Polanyi’s phrase), “bank of the world” (Kindleberger et al., 1981; Minsky, 1978), or international lender of last resort, was in the end faced with a constraint of its own. Although it could issue more dollars at will, it could do so only by abandoning its commitment to maintaining their fixed price in terms of gold.3 The US, at the center of the international monetary system, found itself trapped by the gold standard. But note well that it was the gold standard that was lost, not the US’s position at the center. It turned out, over the remainder of the twentieth century and up to today, that the world was happy to hold dollars, and of dollars there could be no shortage of supply. Polanyi, in other words, was attached to the wrong feature of the payment system. He saw the collapse of the gold standard, but he did not see that a more fundamental premise of the liberal order would endure: payment itself. It is payment rather than gold that is essential to the logic of the market. The Minskyian hierarchy of international money sketched by Mehrling (2013) for the political-economic configuration of our own time works on the same principle as that of Polanyi, gold or no gold. [T]he ultimate issuer of money is qualified for the task by the fact that the liquidity constraint does not bind for [them], as it does for everyone else farther down the hierarchy and to an increasing degree the farther down you go. (Mehrling, 2013)

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This is not an independent political order – it is an expression of the configuration of political-economic power. Nor is it permanent or unchanging – the US displaced the UK after World War I, just as China aims to one day displace the US ( Jenkins et al., 2014). (Mehrling also emphasizes the hybrid public–private character of the monetary system, which I leave aside here.) It is for this reason that a central bank can serve as a domestic lender of last resort, and it is for this reason that the issuer of international money can serve as an international lender of last resort. The sense in which a central bank is central is in the payment system: its liabilities serve to clear everyone else’s obligations. As long as this is so, the central bank can always ease the survival constraint by issuing new liabilities. This is the substance of last-resort interventions: when the demand for the means of payment becomes urgent, when all other options have been exhausted, the central bank is still in a position to meet that demand and reduce the urgency (Thornton, 1802; Bagehot, 1873; Brimmer, 1989; Hicks, 1989; Mehrling, 2010; Grad et al. 2011). The hierarchical payment system, with the hegemonic power at the center, is the site of crisis for both Polanyi and Minsky. Polanyi saw gold as essential to the liberal vision, and so the end of the gold standard seemed to spell the end of that vision. But the hierarchy does not really depend on gold: it reflects and reinforces the international order, allocating power to the center so long as whoever occupies that center can hang on.

Conclusion The foregoing argument focuses on payment as the essential constraint and mechanism of the market economy. The gold standard is first and foremost a payment system; its very purpose is to extend the logic of the market – of exchange by payment – beyond national boundaries. If the market is to be international, so too must be the payment system. Polanyi is pointing precisely to the breakdown of the international payment system as the proximate point of dissolution of the liberal order. Minsky’s theory, meanwhile, looks to the layering of financial commitments – which arises as a normal part of the functioning of the market – as the source of instability. As debts grow during euphoric economic times, precautionary reserves of cash become scarce. Financial layering burdens each unit of the means of payment with ever more commitments. When the time comes to make good on these payments, the scarce cash is insufficient to meet the sudden demand, and crisis results. By turning the focus to payment as the defining characteristic of the market, we keep the spotlight on what often remains implicit: the logic of the market depends on the belief that one must pay one’s debts. It is this idea, that everything is legitimately for sale that endures beyond the many changes in the institutional forms by which it is carried out.

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Notes 1. “This money [national currency] was not a means of exchange, it was a means of payment; it was not a commodity, it was purchasing power; far from having utility itself, it was merely a counter embodying a quantified claim to things that would be purchased. Clearly, a society in which distribution depended upon the possession of such tokens of purchasing power was a construction entirely different from [the conceptual pattern of] market economy” (Polanyi, 1944, ch. 16). 2. “[T]he part played by fascism was determined by one factor: the condition of the market system. During the period 1917–23 governments occasionally sought fascist help to restore law and order: no more was needed to set the market system going. Fascism remained undeveloped. In the period 1924–29, when the restoration of the market system seemed ensured, fascism faded out as a political force altogether. After 1930, market economy was in a general crisis. Within a few years fascism was a world power” (Polanyi, 1944, ch. 20). 3. “As soon as the movement of the internal price level necessary to keep the exchanges stable was much larger, when it jumped to 10 percent or 30 percent, the situation was entirely changed. Such downward movements of the price level would spread misery and destruction. The fact that currencies were managed became of prime importance, since it meant that central banking methods were a matter of policy, i.e., something the body politic might have to decide about. Indeed, the great institutional significance of central banking lay in the fact that monetary policy was thereby drawn into the sphere of politics. The consequences could not be other than far reaching” (Polanyi, 1944, ch. 16).

9 AN EMBEDDED-SYSTEMS APPROACH TO THE SOCIOECONOMIC CYCLES OF THE WORLD SYSTEM Daniel Gugan

Introduction – An Embedded-Systems Approach to Socio-Economic Systems This chapter aims to analyze societal systems in their wider embeddedness in technological, biological and physical systems while using the same framework to show additional embedded systems. Within the world-systems literature, there are several existing attempts to describe societies as parts of bigger bio-physical systems, for example with the help of a specially adapted chaos theory framework and its terminology (Prigogine and Stengers 1984, 1997; Grimes 2012). This chapter, however, will not focus on further elaborating the societal analysis via the chaos theory framework (although it relies on some of its findings) and will not analyze societies as “dissipative structures” (Prew 2003), rather it will place the focal point of analysis on the concept of embeddedness and its effects. By “embeddedness” here we understand the entire complexity of bio-physical and technological systems that “surround” or “contain” the analyzed societies, while also using the same concept to describe how societies “surround” or “contain” the individuals within themselves. A similar conceptual approach is used later on for describing how societal and individual cognition/perception is embedded in the respective societies and their socio-economic orders, but this “second line” of the research is only explained in details in the following chapters. In order to build a comprehensive framework of analysis for embedded societal systems, first we need to draw up and define the different levels of analysis and their interactions in order to show their embeddedness. Figure 9.1 gives a graphical overview of the conceptual framework and the different conceptualized levels within the outlined system.

An Embedded-Systems Approach 135

––– natural reality level – the physical/chemical/biological environment of humans (nature itself) ––– – technological reality level – sum of the available human technological capabilities – – socio-economic reality level – economic systems and world systems – – social cognition/perception level – metanarratives –

individual cognition/perception level FIGURE 9.1 

Conceptual framework.

The definition of the different levels in the framework can be outlined as follows. 1 On the “natural reality” level we understand everything that presents itself as “exterior” to human societies, including the physical systems (and their governing laws) in which they exist and the biological systems (ecosystems, with their laws) in which they evolve and need to survive. 2  On the “technological reality” level we understand everything that was ­accumulatively developed by human societies in order to face the challenges of the surrounding bio-physical systems in which they need to survive. This can be understood as the totality of available technologies at a given point of human history, meaning especially but not exclusively economic production technologies. 3 On the “socio-economic reality” level we understand a given societal setup and economic production system in which a given society organizes itself at a certain point of human history. Economic organization (production structure) and societal organization (social structure) are of course two different phenomena, but for the sake of simplicity of the framework these two are analyzed on the same level here as they are closely interrelated. 4 On the “social cognition” level we understand the governing metaphysical framework behind a given socio-economic system.There’s a “non-positivist break” here within the analytical framework and the embeddedness of metaphysical structures within (the minds of) bio-physical societies is very different from the positivist embeddedness described on the three previous levels but the core concept of embeddedness still gives enough continuity to handle these phenomena within a unified framework. The described metaphysical structures will also be designated here as “metanarratives”, partially channeling the current research into the fields of postmodernist philosophy on metanarratives (Derrida 1970 [1966]). 5 Finally, on the individual level, we understand a kind of dual embeddedness where the examined (human) individual is not only embedded physically into the natural and societal structures of its surroundings but on a cognitive (“identity”) level it’s also embedded into the metanarrative that governs the society it’s part of (as described in the point above). However, the current chapter will not spend too much attention on the individual level as it

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i­ntends to stay within the “social sciences” field and ventures to the examination of individuals (a field belonging to psychology and other behavioral sciences) only as deep as to have the general research framework outlined as complete as possible. After the different analytical levels are outlined, the next step of the framework-­ development is the explanation of the interactions amongst these levels.There are several possibilities of interactions (each level could affect any of the others) and here we cannot give an overall “catalogue” of all possible interactions, but it’s definitely necessary to at least show some examples in order to show the framework “in motion” and present its dynamic explanatory power. Figure 9.2 outlines some of these possible interactions (here only level-by level, but interaction between distant levels is also possible). The pattern of processes outlined in the chart follow closely the positivist-­ nonpositivist break in the framework by showing deterministic and non-­ deterministic processes at each level.This positions the current study methodologically and ideologically somewhere in-between the Marxist dialectic-materialist school and the liberal “free-will” schools of the contemporary social science discourses. The study gives no priority to any of these two, rather it aims to understand the interactions and dynamisms between them and to build on these interactions rather than on the static “end points” of the processes. More explanatory power could be drawn from analyzing the levels once more in detail.

––– natural reality level – the physical/chemical/biological environment of humans (nature itself) ––– – technological reality level – sum of the available human technological capabilities – – socio-economic reality level – economic systems and world systems – – social cognition/perception level – metanarratives –

individual cognition/perception level the metanarrative defines the individuals place and understanding of the world the socio-economic system produces a “self-affirmative” metanarrative technology defines the modes of production and the related socio-economic system nature defines the challenges to be solved by technology and provides its “building blocks”

––– natural reality level – the physical/chemical/biological environment of humans (nature itself) ––– – technological reality level – sum of the available human technological capabilities – – socio-economic reality level – economic systems and world systems – – social cognition/perception level – metanarratives –

individual cognition/perception level individuals keep the metanarrative in the state of constant change with re-interpretation, and subversion by writing, art and other techniques, testing its barriers and taboos the metanarrative re-focuses socio-economic activity by setting new societal objectives (ideology) new socio-economic objectives generate new technological inventions and create new industries new-technology industries impact the natural environment differently from their predecessors

FIGURE 9.2 

Interactions and processes.

An Embedded-Systems Approach 137

1 Human technologies (especially production) are determined by the bio-­ physical environment where they operate and aim to utilize the different resources in the most effective way to fulfill human needs. On the other hand, technology also shapes the surrounding environment when it’s utilized on mass scales (as seen with industrial farming or surface extraction mining, and so on). 2 In turn, technology itself determines the “mode of production”, therefore the socio-economic setup of given societies (as seen with the co-evolution of industrialization and capitalism for example). However, new societal ­arrangements create new societal needs and objectives, channeling research and technology development into new areas (as post-industrial societies ­created a need for renewable energy technologies for example.) 3 Socio-economic systems – on the other hand – create metanarratives (or belief systems) in order to justify and maintain their organizational structure (as seen with protestant ethics and capitalism), while some new developments in the metanarrative are capable of bringing changes to the socio-economic ­structures they maintain (as seen with Marxist ideology and the socialist movements/revolutions). 4 Finally, individuals and their understanding of the world around them are determined by the metanarrative that they learn from the society they are born into (as seen with family “socialization” and early-school education), but individuals are also capable of challenging this metanarrative by ­questioning/ subverting its values and testing its taboos and barriers (as seen in different forms of “radicalism”, “youth culture” and “rebellious art”). All the described processes point to a kind of co-evolution of the embedding and embedded structures, showing a circular pattern of causes and effects rather than a one-directional determination, somewhat similar to the feedback-loop processes described in different chaos theory approaches to social sciences. This dynamic framework is therefore capable of bi-directional analyses, which is rarely the case in the social sciences. Using this framework of “dynamic mutual embeddedness”, the study will progress towards the analysis of a concrete case, which is the economic cycles of late-capitalism and how they are embedded in other structures, especially the 500 years “longue durée” capitalist meta-cycle. This case study will reveal not only the real-world explanatory power of the framework, but will also bring us closer to the understanding of the current state of the capitalist system and perhaps make some indications of what could follow it once its current transformative phase is over. Finally, the study will focus on the “metanarrative level” of the outlined ­framework and ask some questions on how the current transformative phase of capitalism is intertwined with its embedded metanarrative and how phase and metanarrative could co-evolve in shaping the human future. For this purpose, the concept of “metanarrative” will be further elaborated, decomposed into its core

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attributes and presented as a dynamically adaptive system ruled by, but in parallel also ruling, the embedding socio-economic system.

A Case Study: Late Capitalism and the Interaction of its Economic and Ideological Cycles In the “first round” of narrowing down the framework, we will focus on its three middle levels: technology, socio-economic systems and metanarratives, while putting the natural environment and the individual cognition levels in the background. Then, in the following part, the focus will be further narrowed to study the metanarratives in more details. This narrowing will be shown via a real-life example which comes directly from the study of world systems: the longue durée capitalist development curve and its most recent economic cycles. Human historical development can be split into four longue durée phases, which are already well-described in the related literature (Harari, 2014). The ­“hunter-gatherer”, “agricultural”, “industrial” and “post-industrial” phases of human societies can all be studied via the (narrowed) framework by identifying their technological and cognitive embeddedness: By narrowing further the framework, and focusing the time-scale down to roughly the last 100 years, we arrive at analyzing the period often referred to as “late capitalism”. As the liberal capitalist order of the long nineteenth century ended in multiple crises (World War I and the Great Depression), new mid-level paradigms appeared as socio-economic solutions to these crises. First, the Keynesian paradigm offered solutions to the market collapse by promoting strong state ­activism in the economic sector, then this activism gradually retreated during the multiple systemic crises of the 1970s. From the “ashes of Keynesianism” in the early 1980s a new paradigm has risen: the neoliberal era. The new era was not only the reflection of the changing socio-economic environment, but it brought ­ideological (metanarrative) changes as well: the egalitarian utopia of social democracy was replaced by an opposing ideal: maximizing corporate ­profits. Finally, the TABLE 9.1 The four phases

Longue durée human development era

Dominant technology of economic production

Dominant economic and social formation

Dominant metanarrative

Hunter-gatherer era Agricultural era

Nomadism/hunting Agriculture/farming

Tribalism Feudalism

Industrial era

Industries/factories

Capitalism

Post-industrial era

Robotics/AI/ automation

Post-capitalism

Animism Polytheism/ monotheism Protestant work-ethics ???*

* The missing item will be further elaborated on in the following chapters.

An Embedded-Systems Approach 139 TABLE 9.2  Interactions of ideology, economy and technology

Socio-economic cycles

Dominant technology of economic production

Dominant economic and social formation

Keynesian era

Heavy industries

Neoliberal era Post-neoliberalism

ICT and services Automated production

Welfare/active state Laissez faire General basic income

Dominant metanarrative Social democracy Libertarianism ???*

* The missing item will be further elaborated on in the following chapters.

neoliberal era was wrecked by the 2008 Great Recession, which caused several neoliberal ideological and socio-economic organizational principles to be questioned. However, even if we agree that the neoliberal era is now close to reaching its end, the replacement socio-economic order and its supportive metanarrative has not yet clearly appeared. The new technological paradigm is unfolding, and there’s also a new wave of thought on the possible new directions of the socio-economic order, but ideological support to these is still absent. (The final chapter of this book will explore this absence deeper.) Recent economic growth waves (as shown in Figure 9.3 and described in Table 9.2) are embedded in the longue-durée capitalist curve and “shadowed” by ideological waves, whereas, in parallel, socio-technological knowledge is accumulated and “stored” in the longue-durée metanarrative. Using late capitalism as a case study offers the opportunity to present the interactive dynamics of its technological, socio-economical and ideological cycles and to show how the mutual embeddedness of these layers works out in real-life environments. First, starting from the “exterior” and working our way “inwards”, we can draw up the chain of effects that start from the technological changes and, through altering the socio-economic setup, they end up re-shaping the metanarrative. Second, by reversing this and staring from the “interior”, by working “outwards”, we can also see how the changes in the metanarrative affect social and economic orders, which in the end generate requirements for new technologies. The technological “push” in the case of the Keynesian era was the mass-adoption of industrial production (Fordism), which by popularizing factory production as the dominant economic activity (over the previously dominant agro-production) also changed the societal structure by generating a massive class of workers (out of peasantry). This in turn pushed social democracy and egalitarianism to the center of ideological debates since these fit the best interests of the newly expanded working classes. At the end of the whole process, we find the egalitarian “welfare states” running on a widely accepted social-democratic consensus. However, as

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Late capitalism/modernity

Total economic output

time Malthusian era

Post-capitalist era (“modernity”)

Post-capitalist era

Economic growth Keynesian era

Neoliberalism

Post-neoliberalism?

New Equilibrium? Great Depression

70s stagflation

time

Great Recession

Accumulated technologies

Accumulative rings of socio-technological progress time

FIGURE 9.3 

Economic growth waves.

soon as mass production of the heavy industries declined (at least in the w ­ estern hemisphere) and the working class started to shrink, the “ideological backlash” of neoliberalism appeared as well. After the “direction searching” depression of the 1970s, the neoliberal (ideological) consensus appeared on the back of the new service-dominated, profit-oriented, and financialized socio-economic order, ­ replacing blue-collar workers by white-collar workers as the dominant class, a process that was in turn supported by the technological revolution of the IT industries. However, the neoliberal order also reached its limits by the late 2000s, and new technologies (as automated production) started to appear, again changing

An Embedded-Systems Approach 141

the class structure and therefore the socio-economic order, by automating more and more white-collar jobs while simultaneously expanding the “gig economy”. This development has not reached its zenith yet and the supporting societal and ideological structures are still missing (although discourse on the general basic income shows some precursors). Approaching the same processes from the “interior” and therefore starting the analysis with the metanarratives, we can see that some changes in these ideological structures had already appeared before the dawn of the Keynesian era. Marxism appeared during the nineteenth century when working classes were not yet a dominant societal force, and effectively changed some societal structures, most significantly through the birth of the Soviet Union in 1917. The new ideological setup then affected the method of production and therefore the socio-economic order (by collectivism and forced industrialization) and these developments in the end affected the dominant technologies (as the “space age”, and the “atomic age” started, for example). However, social and technological progress in the west (as described above) forced the soviet ideology to change during the 1980s (as seen with glasnost and perestroika) and caused the implosion of the soviet socio-­ economic order in 1989. After its ideological and socio-economic rearrangement, Russia (and the rest of the eastern bloc) adapted the neoliberal model, and re-focused its economic and technology development activities accordingly. These two examples show very well through the lenses of the most recent historical developments that the links between ideology, societal/economic order, and technology are bi-directional, and by analyzing these structures from only one direction we miss half of their stories. The “embedded structures” paradigm outlined here aligns with the Weberian notion of mutual determination, in which these structures mutually maintain and shape each other in a spiraled movement and intends to avoid one-directional deterministic explanations.

The Study of Metanarratives and its Relevance to the Present Day Societal Transformations Further narrowing down the framework, this part will solely focus on the level of metanarratives, and draw up some of their general characteristics. When defining the concept of a “metanarrative”, we will be using a broad and general description of the subject and outline its main general attributes and functions. The concept of a metanarrative in the current context covers a general metaphysical structure, which provides the “governing code” for some specific societies. In this sense, good examples for a metanarrative can be religions, science and all other human belief systems that provide a general understanding (plus a behavioral code) for societies. In its current usage, the concept of a metanarrative is purely metaphysical: it covers only the “code” but not the real-world derivatives of this code. It covers the religious or secular world-explanations and rulebooks but not the concrete religious or secular institutions or laws (such as

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the church or a constitution, for example). Consequently, the current usage of the concept departs from the Marxist/Weberian concept of the “superstructure” and it is much closer to the postmodern conceptualization of human belief systems (Derrida, 1970 [1966]). For the specific conceptualization and usage within the current analytical framework (mutual embeddedness), it is needed to outline some general attributes and functions of the metanarratives. Some of its general attributes are: • • •

• •

• •

“ operating level”: the historical (longitudinal) and societal extent on which the narrative operates; “age”: the longitudinal phase of the narrative’s operation (new, mature, ­declining); “explanatory power”: the capacity of the narrative to explain different socio-economic, technological and natural phenomena (real-world relevance); “depth”: the level of societal embeddedness, meaning the actual level of societal acceptance; “adaptability”: the capacity of the narrative to absorb local elements (to “localize itself ”) and to adapt to new operating conditions in order to keep its relevance and explanatory power; “continuation method”: the way the metanarrative is passed on amongst generations (via institutions as the church and school education); “inertia”: the lag between the techno-economic progress and its explanation within the narrative (the lag can be also negative in the cases of predictive narratives, as already seen in the case of Marxism).

The two main functions are connected to the embedding and embedded layers within the framework: •

•

“ societal organizational and affirmative function”: how the narrative forms societal laws and institutions that are based on its core values and idealized goals (e.g. individual freedom or egalitarian society) and how the narrative supports/maintains different socio-economic setups; “individual self-definition and cognitive function”: how the narrative defines the place of the individual within the world and society, while directing individual cognition by giving coherent explanations to different phenomena.

All of these attributes and functions can be better understood through a reallife example, for which we can once again use the case of late-capitalism. As the framework was further narrowed down to study solely the metanarrative level, the time period of the case study will also be further narrowed down to the analysis of solely the present (post-2008) period. While analyzing the current state of the

An Embedded-Systems Approach 143

late-capitalist world order and its embedded metanarrative by using the set of attributes outlined above, we can reach the following conclusions: 1 The operating level of the currently “running” metanarrative is three-layered: at the broadest level it’s still governed by a monotheist religion; whereas at the mid-level modernity, enlightenment values and protestant work ethics rule it; and, at the micro level, neoliberal ideology still dominates. 2 The “age” of the system shows a tripartite exhaustion: on all three operational levels outlined above it’s in the declining phase. 3 Accordingly, the system’s explanatory power is also in decline: its capacity to explain new social, economic and technological phenomena is in regression. 4 Consequently, the system’s social embeddedness (“depth”) is rapidly disappearing: we find fewer and fewer “believers” at all three levels. 5 The system’s adaptability is challenged by fast-moving technological progress and the related rapid socio-economic changes, some new elements are well absorbed, but most of them are not. 6 The crisis of education systems and the decline of religious institutions also puts the continuation of the system in question. 7 The system’s survival is supported now only by its looming inertia: despite the widening gap between real-world developments and the way the narrative operates, the lack of new explanations, the custom of tradition and the related societal power structures still keep it in its place. All of this draws a picture of a metanarrative being in the state of multiple crises, which affect its capability to function properly. 1 Breaks started to appear in the “societal organizational function and affirmative function” as the narrative cannot provide any more viable core values and idealized goals for societies.This affects the institutional setup of societies and leads to the degradation of their institutional framework, as seen with the populist political upheavals of the post-2008 period, while it also shows the degradation of the affirmative function: as the explanatory power of the narrative declines, it becomes weaker and weaker in supporting the existing socio-economic orders. 2 The “individual self-definition and cognitive function” is also showing signs of “wear-off ” as more and more individuals become non-believers of the offered paradigms and societal orders and get detached from the society they exist in. A growing number of unemployed youth in western societies, “the gamer generation” show no interest any more in protestant ethics or selfmade man ideals and are left rootless, without any kind of life-guidance. This is in direct correlation with the loss of cognitive capacity from the narrative: there are no more valid and coherent explanations offered to the rapidly evolving socio-economic and technological phenomena that surrounds us.

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Conclusions: Ideological Vacuum and the Need for a Transformative Metanarrative The decline of the current metanarrative is, of course, in a close bi-directional relationship with the embedding and embedded layers that it operates in (as already shown when presenting the framework). On one hand, the decline itself is caused by the rapid technological and socio-economic changes, which the narrative is unable to follow, on the other hand the declining metanarrative affects the development trajectory of the societies it’s supposed to “guide”. More concretely, focusing on the present, automation and jobless growth (as new techno-economic phenomena) pose a seemingly unsolvable challenge to the late capitalistic metanarrative since a narrative based on work-ethics, competing and accumulation cannot handle a situation where the economy is being automatized and therefore the value of work is not regarded as an important factor any more. In the labor– capital dualism we are witnessing an upcoming “singularity point”, where capital (automatized production) completely replaces labor and occupies the entire composition of productive forces. This points to the absolute necessary renewal of the current metanarrative since this unprecedented change in the socio-economic setup will also require an unprecedented change in the supportive metaphysical structure. Of course, it would be naïve to imagine that we can just “design” a new metanarrative that will perfectly fit the new socio-economic realities of the twenty-first century, but a deep analysis of how the attributes and functions of the narrative work and how they could be adopted, point by point, could bring us closer to the solution. Instead of artificially designing a new ideology, it might be possible to organically grow a new metaphysical structure, getting closer to an ideal by iteration and gradual progress.This task can be overwhelming if we recognize that the narrative’s crisis is threefold: the monotheist religion, the values of modernity and its work-ethics, and the neoliberal ideas are all in their final phases of decline. In a recent interview Professor Wallerstein stated (Truthout, 2018 March): We live in an era of structural crisis of the world system. The existing capitalist system cannot survive, but nobody can know for sure what will replace it. I am convinced that there are two possibilities: one is what I call the “Spirit of Davos.” The goal of the World Economic Forum of Davos is to establish a system that maintains the worst features of capitalism: social hierarchy, exploitation and, above all, polarization of the wealth. The alternative is a system that must be more democratic and more egalitarian. Class struggle is the fundamental attempt to affect the future of what will replace capitalism. While this chapter absolutely agrees with the diagnosis and the two possible outcomes of the process, it partially disagrees with the final sentence: instead of

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pure class struggle (as the disappearing working class is less and less capable of struggling), it sees the long-term solution in a new metaphysical structure that would guide people through an era where their work is needed no more, but they still achieve a secure and fully flourishing life. This metaphysical transition naturally involves power-struggles, but this takes shape as a struggle of ideological renewal rather than a classic struggle of societal classes. Democracy and egalitarianism need to stay as central values, but there should be also new values that give some guidance for a work-free life. Some progressive initiatives are already advancing, but are not yet fully developed: general basic income is being initiated in some places, and some economists suggest that, on a greater scale, this could be funded from a kind of “robo-tax”, generating income from the automated production companies and distributing it to the masses buying their products. The automated luxury communism movement goes further and offers not only economic, but also societal (democratic-egalitarian) solutions. All of these are great progressive ideas, but they do not provide a supportive metaphysical (belief) system, which could legitimate the new socio-economic order both for the elites and the masses. As long as this does not exist, the mutually embedded structure will have a “hole” in it, and therefore will not be sustainable on a large scale and in the long term. The task ahead of the global left is therefore to provide a radically new narrative (breaking apart from the neo-Marxist/ neo-Keynesian initiatives) and somewhat jumping ahead of the curve (as Marx did in the nineteenth century) in order to keep being a relevant ideological and societal force.

10 A SOURCE FOR GREATER PERIPHERAL SOVEREIGNTY OR A NEW AXIS OF DEPENDENCY RELATIONS? China and Latin America in the Context of the Readjustment of Forces in the World System: The Case of China–Ecuador Relations1 Juan Pablo Vásquez Bustamante2 and Luis Clavería3 Introduction China’s economic expansion and international emergence have constituted one of the most relevant and polemic phenomena in the last decades. In that way, several questions in relation to China’s role in the World System appeared. Where is China currently going to? Is China searching to become a new hegemonic power? Is China moving into the core of the world-system in the twenty-first century? In that case, is it the world economy as we know it or is it a new post-capitalist world system? For this problematic phenomenon, a strong and growing presence of China in Latin America’s economy can be seen. This is because of the signature of agreements, FDI, strategic partnerships, credits, imports, and exports, to the point of making China the main trade partner of several Latin American countries. In this context, there are several views and interpretations about China’s presence in Latin America. For Rhys Jenkins (2012), it is an asymmetrical relation in favor of China, which shows core–periphery common flow features. The main Chinese interest is focused on Latin American raw materials, especially foods and energy resources in order to satisfy the demand generated by the economic and industrial growth. On the other hand, Mónica Bruckmann (2012), on André Gunder Frank’s (1998) proposal, suggested that a relationship with China could be an historical

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opportunity for Latin America in order to develop a long-time strategic cooperation focused on breaking the dependency where Latin America is joint to the world system (Bruckmann, 2012, p. 66). Conversely, critical opinions appeared about China’s presence in Latin America’s economy, showing a productive reprimarization in Latin American countries and a neo-dependency cycle from a neo-extractivist strategy, leveraging environmental conflicts founded on the commodities cycle and China’s demand (Svampa, 2013; Svampa and Slipak, 2015). China’s emergence into the world economy leads to the question of whether China represents the opportunity of greater sovereignty for the peripheral countries or whether it is a new source of dependency relations that can replace the core hegemonic powers. According to this question, reviewing the literature regarding this proposal, and analyzing primary sources, statistics and economic data, this research explores, analyzes and assesses China’s presence in the economy, and the plans and development policies of Ecuador as a Latin American and peripheral country during the “Citizens’ Revolution”. During this revolution, Ecuador planned ahead and developed policies looking to shift its primary productive export matrix and acquire greater sovereignty in the world system, while China’s presence is increasing in its local economy. First, the discussion about China’s emergence in the world economy and its presence in Latin America is analyzed. Second, the main elements and features of the Ecuadorian Citizens’ Revolution are identified and described. Third, the China–Ecuador relationship during that cycle is explained and analyzed in order to evaluate the role of China in the Ecuadorian economy. Lastly, conclusions and final thoughts are presented.

China’s Emergency in the World Economy and its Presence in Latin America The question of China’s role and direction in the world economy in the context of its significant emergence in the last few decades has been presented by different views and interpretations. On one hand, there are skeptical opinions about a possible constitution of China as a new hegemonic center of the global economy. On the other hand, and according to an historical and geopolitical viewpoint, the current emergence of China must be understood in relation to its historic role as an economic, politic and cultural core in the world system before England’s rise and after the US hegemony. In this sense, it seems that China would be repositioning the place it had taken until a little over 150 years ago (Komlosy, 2013). From this historical viewpoint, a new discussion is generated around whether this would be in the historical capitalism framework as a world system, proposing the question of how the political order in this new stage of

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capitalism as a world system would be constituted, or whether it would be part of its recession and transition to other historical social systems (Komlosy, 2013, 376). The social scientists Wallerstein and Arrighi suggested the development of the capitalist world system terminal recession, which means the end of a long systematic cycle that started with the global capitalism boom in The Long Sixteenth Century. China would lead the transition to a new post-capitalist global order (Komlosy, 2013, 377). Both ways have two elements in common: the decrease of US hegemony and the increase of China in the global order. Either inside historical capitalism or under a world post-capitalist economy, what does China’s emergence mean in the world system for the periphery, especially Latin America? In the same context, what does China’s presence and increasing importance mean in the economies of Latin American countries? Mónica Bruckmann (2012), sociologist and PhD in political sciences, takes André Gunder Frank’s (1998) hypothesis, which suggests that China’s present increased power, visible from the 1990s, would be part of Asia’s economic re-­emergence.The latter, centered on the dynamic position of China, is responding to a long-term cycle where Asia recovers the core position it used to have in the world economy until the nineteenth century when it was displaced by a part of Europe. For Bruckmann (2012), Latin America would have a historical opportunity to develop a long-term strategic cooperation that allows it to stop copying the export primary model, adding value and improving the industrialization strategy of natural resources, which allows it to break the dependency relation of its entry into the world system. In the current framework, and because of its economic growth and development model, China became a large strategic natural resources producer and consumer, especially minerals, reaching a point where its production does not cover either the traditional exportation amount or its own internal demand. Then, Latin America has a strategic possibility because of its natural resources stock that the core region and China need. It gives the region a larger capability to trade with world system powers, which depend on these resources for their economic and productive processes (Bruckmann, 2012). By contrast, Jenkins (2012) suggested that there is an asymmetric relation in favor of China, shown by the core–periphery common flows features, among other situations, which in turn is shown in the composition of trade. There, Latin America exports are mainly raw materials to China, and the latter exports hightech manufactured goods. For Jenkins (2012), China’s interest in Latin America is based on three aspects: Latin-America’s role as a source of the raw materials that China needs, basically energy resources and foods for its industrial growth; Latin-America’s potential as a growing market for its products, and the framework of China’s political and diplomatic argument with Taiwan.

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Maristella Svampa (2013, 2015; Svampa & Slipak, 2015) agrees with Jenkins in assessing this as an asymmetric relation in favor of China, using the concept of “Commodity Agreement”, later “Beijing Consensus”. For Svampa (2013, 2015), Latin America would have moved from the neoliberal Washington Consensus to a tacit agreement, known as the “Commodity Agreement”, where regional governments – liberals and progressives – would have accepted exporting roles of raw materials on a large-scale to an industrial core, causing reprimarization of its economies and avoiding environmental damage of extraction activities. According to the previous idea, Svampa and Slipak (2015) suggest the increasing demand of raw materials and the progressive Chinese FDI in Latin America would confirm its movement to a new dependency status called the “Beijing Consensus”, with China as the hegemonic head. With the “commodities boom”, it moves to an extractivist consensus on the region and increases reprimarization of Latin American countries’ economies, causing food sovereignty loss, territorial dispossession, environmental conflicts, and Latin America’s neo-dependency on China’s economy.

Citizens’ Revolution4 The Ecuadorian Citizens’ Revolution is part of a Latin American phenomenon dating from the early twenty-first century, when several political p­ rojects were developed by the governments which would be included in “the left-wing politics”. This phenomenon was called the “left-wing cycle”, “Latin America’s Left Turn” or “Socialism of the twenty-first century”, and it was described as a political movement that is looking for alternatives to ­neoliberalism (Pollin, 2013). There are three elements for defining the Citizens’ Revolution. First, planning and execution of politics looking for the transformation of its productive primary exportation matrix, based on oil incomes, are leading to a productive and economic system by knowledge developments, technologies and added values. In that way, “Knowledge Society” theory was born, based on an economy of knowledge and human talent, the only infinite resource (SENPLADES, 2013;Vicepresidencia de la República del Ecuador, 2015). In other words, Ecuador foments and invests in searching, science and technology in order to bypass a classic industrialization and move to the Knowledge Society. Essential aspects were the biological resources achievement for pharmacological purposes from Amazonian biodiversity, the source of different active principles, genetic data, and endless own resources. Complex goals would involve several linked processes as total management of country’s resources, strong science and technology development for innovation and productive processes (Ramos and Vásquez, 2018a; Ramos and Vásquez, 2018b). Another fundamental objective is the energy matrix, which is turning from highly polluting fossil energy use, principally imported, even when Ecuador is an

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oil-producing country, into using clean, renewable and local-produced energy. In that way, Ecuador has opened several hydroelectric plants designated as “emblematic projects”, which have covered 92 percent of energy demand. As a result, Ecuador has become one of the countries with a high percentage of hydroelectricity in this area, making it a potential exporter of hydroelectricity (El Telégrafo, 2016b, 2016c; Ministerio de Hidrocarburos, 2016). A second defining element of the Citizens’ Revolution, which is related to the previous one, is the objective of overcoming neoliberalism and building a new economic production model. This plan can be seen in several precedents, positions and policies, such as the increase of public investment and budgetary expenditure, the loss of autonomy of the Central Bank, the Government’s recovery regarding monetary policy, the recovery and increase of the roles of the State, and – in that aspect in particular – the regularization of economic, productive, and business processes, the involvement of the public sector as a driver of the economy in general and the involvement of the State as a driver of various sectors, and the important role of planning the economic and productive processes. Regarding the last point, the Secretaría Nacional de Planificación y Desarrollo (SENPLADES) acquires a special relevance and creates an institutionality according to planning, execution and supervision of several sectorial public policies. In this context, the Ministerio Coordinador de Sectores Estratégicos (MICSE) organized and coordinated the work of five ministries related to economic sectors considered as strategic, for whom there were special plans of economic drivers.5 From this, the “Estrategia Nacional para el Cambio de la Matriz Productiva” rises up, which later is organized by the Vice-Presidency (see Vicepresidencia de la República del Ecuador, 2015). In that strategy, plans and investment for better country infrastructure, road management, mega-constructions, and the above-mentioned emblematic projects, such as hydroelectric plants, or development of new technologies, can be seen. Moreover, there was a strong investment in post-secondary education – which together with the PEI-IB (from Spanish, Plan Estratégico Integral de Industrias Básicas), was hoping to allow the development of basic industries, such as agrobased industries or the hydrocarbon sector, from which a chance to develop the petrochemical industry was projected (Ramos and Vásquez, 2018a). Third, another significant element of the Citizens’ Revolution process was the seeking of greater independence and sovereignty regarding power and hegemonic core-countries in the world system. In this frame, two processes developed in the early years of the Citizens’ Revolution are included: to audit the Ecuadorian external debt, achieving a decrease and greater control over liabilities, and to renegotiate oil contracts, oil being its main export resource. Both of these managed to repatriate more than US$2,000 million for production, which were redirected to the biggest public investment in history, being channeled to works such as more schools, hospitals and roads (SENPLADES, 2013, p. 15).

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In this viewpoint, another significant point, which is related to the previous one, is the seeking and finding of new financing sources – a milestone where China plays a key role. In the context of the Citizens’ Revolution, this is due to both countries having strengthened their relations and to China’s involvement in the Ecuadorian economy. This is a phenomenon that, on the one hand, could allow the financing of the above-mentioned plans, such as the overcoming of neoliberalism, the change of a productive matrix, or a greater autonomy from core-powers in the world system; and, on the other hand, considering China’s economic shift, it could allow to restart the main question of this paper, focusing on the Ecuadorian case; namely, has China been a source of greater sovereignty for Ecuador during the Citizens’ Revolution process or has a new dependency relation axis been formed?

China–Ecuador Relations in the Context of the Citizens’ Revolution Data at a macro level show that the main partners of Ecuador are still the same even though China has increased its presence in the Ecuadorian economy. In that sense, the United States is still the top export destination and the top import source for Ecuador, and Chinese FDI is not that significant, except in the mining and quarrying sector. However, there is a greater Chinese capital presence in the external debt composition. In fact, there is even more of that presence, where it is possible to appreciate China’s importance, in strategic-sectors related projects.

Trade Considering Ecuadorian international trade over the period 2007–2016, one can observe the significant presence of the United States, both in exports and imports, while the Chinese presence can be seen terms of in imports only. Specifically, Ecuadorian exports over 2007–2016 represented US$19,598 million on average, with the Americas (74 percent), Europe (17.4 percent) and Asia (7.5 percent) being the top destination regions. It is necessary to highlight that the weight of China increased from 3.1 percent in 2007 to 16.9 percent in 2016, while the weight of the Americas went from 80 percent in 2007, to 76 percent in 2009, and 60 percent in 2016. Composition by country shows a similar outlook: the five top partners in the 2007–2016 period were the United States (40.5 percent), Peru (7.5 percent), Chile (6.9 percent), Panama (5.7 percent), and Colombia (4.4 percent). Despite the fact that the United States decreased from 43.3 percent in 2007 to 32.4 percent in 2016, China took 11th place on the period average (2.0 percent) (International Trade Centre, 2017). Regarding imports, the Ecuadorian average from 2007 to 2016 was US$20,974 million, with the top source regions being the Americas (61 percent), Asia (25.9 percent), and Europe (11.8 percent). The composition by country shows an

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increase of China’s presence, with its top partners on average being United States (24.3 percent), China (12.8), Colombia (8.9 percent), Panama (4.1 percent), and Brazil (4 percent). During that period, China more than doubled its weight on imports, going from 8.3 percent in 2007 to 19.1 percent in 2016 (International Trade Centre, 2017).

Foreign Direct Investment (FDI) According to the Balance of Payments reported by the Banco Central del Ecuador (2017), the Asian FDI in the period of 2007–2016 increased even though it is still taking third place, preceded by Europe and the Americas. In this way, the FDI on average received by Ecuador was US$651.3 million, 43.2 percent coming from the Americas, and 37.4 percent and 17.4 percent from Europe and Asia respectively. Having said that, during 2007, Asia represented 47.4 percent of FDI, while the Americas represented –67.1 percent. Asia decreased from 27.3 percent in 2010 to 10.4 percent in 2016. Where a greater China’s presence of FDI can be seen is in the Mining and Quarrying Sector. For instance, according to the FDI in the Balance of Payments, during 2007 Chinese FDI was US$85.4 million, while the FDI of United States was US$12 million. This trend is emphasized in 2013 when China invested US$93.8 million in the Mining and Quarrying sector, whereas United States invested only US$0.1 thousand.

Debt Since 1999, Ecuador has been decreasing its external debt, which went from 70.1 percent in 1999 to 20.8 percent in 2007 with respect to GDP. However, the debt composition during the period of 2007–2016 shows an increase of bilateral debt, where China’s presence was evident. Specifically, in 2007, the composition of the Ecuadorian external debt was as follows: 44.7 percent came from International Organizations, 15.8 percent from Governments, 38.9 percent from Banks and Bonds, and 0.6 from suppliers. In 2016, there was a more homogeneous composition: 32.1 percent coming from International Organizations, 31.1 percent from Governments, 34.4 percent from Banks and Bonds and 2.3 percent from suppliers. It is important to highlight that the top creditor in bilateral debt since 2010 to 2016 is China, going from 9.3 percent to 75 percent, respectively. In other words, during 2016, China represented 31.7 percent of Ecuadorian external debt and 21.3 percent considering the total debt (Subsecretaría de Financiamiento Público, 2007, 2009, 2013, 2016).

Emblematic Projects and Strategic Sectors Ecuador set up several projects named “emblematic” because of their importance, investment and strategic nature. In fact, some of them take part in the known

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“strategic sectors”6 and are essential for plans based on the objectives of both shifting the productive matrix and transforming the energy matrix. From this viewpoint, nine “emblematic projects” can be considered, where eight of them consisted of electricity generation and one of wind power. Since then, Ecuador has not only managed to cover its energy demand but also was projected to be a potential exporter of diverse, renewable, and clean technologies. Five out of six emblematic projects were co-financed by Chinese capital, which represented 89 percent of the generating electric effective capacity and implied 85 percent of total investment in “emblematic” hydroelectric plants. In the mining sector, five “strategic mining projects” were implemented.Three of them are financed by Chinese capital while the other two are financed by Canadian capital (Ministerio de Minería, 2018). Although mining is part of the primary sector – which means that at first these projects will not represent a leap to “a knowledge economy”, it is still relevant to the Ecuadorian case since, traditionally, Ecuador is not a mining country. Therefore, they are projects based on new discoveries in a sector which has a small impact in the country’s economy, and, according to Ecuadorian reality, they represent a productive diversification of its economy. Finally, in 2016, Ecuador has opened its first fiber optics plant in the country, which was a product of the Ecuador’s Holding Telconect in association with Fiberhome Technologies, a Chinese state enterprise. This new plant implies an investment of US$20 million, and a production of 72 km of annual fiber is estimated, of which 52 km are going to be exported (Andes, 2016; Computer World, sf; El Telégrafo, 2016a). By materializing this project, financed by Chinese state capital, Ecuador not only will stop buying fiber optics, whose main seller was China between 2010 and 2015, but will also be able to export a large part of this production to Latin ­America. That is to say, at least for this project, the Chinese investment allows Ecuador to replace imports and project itself as an exporter in an area where China was originally the top import source.

Conclusion During the Citizens’ Revolution, from 2007 to 2016, China’s presence in the Ecuadorian economy has increased; however, according to relevant indexes, it has not replaced the weight of core countries, such as the US’s position as main trade partner. Even so, China’s importance is progressive and significant in relation to bilateral debt and its presence in projects and sectors that the Citizens’ Revolution defined as strategic to its transformation of the country’s productive matrix, which in turn would allow a larger sovereignty in the world economy. For instance, the Latam Fiberhome plant installation, financed by China, not only represents an increase of a kind of technological production but also allows ­Ecuador to export a large section of this production to Latin America.

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In summary, tension between the neo-dependency and the source of greater sovereignty is complex and paradoxical for Ecuador, especially as its aim for greater independence is related to Chinese capital and investment. That is, the plan and the current process to greater autonomy and independence depends on Chinese financing.

Notes 1. This is a product of the FONDECYT project No. 1150569, entitled: “Perspectivas ­Latinoamericanas en el Debate Ambiental Mundial entre 1992 y 2012. Los casos de Chile, Ecuador y Brasil. Un estudio de historia de las ideas políticas del tiempo presente en el espacio de la política mundial e internacional”. 2. Professor at Universidad Miguel de Cervantes. PhD candidate in Estudios Americanos, Universidad de Santiago de Chile. Santiago, Chile Co-researcher in Fondecyt project No. 1150569. E-mail: [email protected]. 3. Masters’ degree in Estudios Internacionales, Universidad de Santiago de Chile. Santiago, Chile. Research assistant of Fondecyt project No. 1150569. Professor at Universidad Alberto Hurtado. 4. This paper considers the Citizens’ Revolution as the process that occurred in the 2007–2016 period. Even though Alianza PAIS kept its place in the Ecuadorian ­Government, since 2017 important turnarounds in its line of fundamental policies contained in this work occurred. Even though Alianza PAIS kept its place in the Ecuadorian Government, since 2017 important turnarounds in its line of fundamental policies contained in this work occurred. Reflections on the Ecuadorian process and its relationship with China must be considered in the above-mentioned time framework, which should also be set out as the result of an analysis of what was the Citizens’ Revolution was (up to 2016). 5. The Constitution of Ecuador (Asamblea Constituyente, 2008), in its article 313, defines strategical sectors as: sectors whose significance and extent have a decisive economic, social, political or environmental influence and must be oriented to full development of social interests and social rights.   Energy, telecommunications, non-renewable natural resources, transport and hydrocarbon refining, biodiversity and genetic heritage, the radio spectrum, water, and others determined by law are considered strategical sectors.   The Constitution establishes that: ‘The State reserves the right to govern, regulate, control and manage strategic sectors, in accordance with the principles of environmental sustainability, precaution, prevention and efficiency. Therefore, strategic sectors, are exclusive a State’s decision and control’ (Asamblea Constituyente, 2008, p. 149). 6. See Note 5.

11 RETHINKING CORE AND PERIPHERY IN HISTORICAL CAPITALISM ‘World-Magnates’ and the Shifting Centers of Wealth Accumulation Roberto Patricio Korzeniewicz and Corey R. Payne Rather than empirically investigating the processes underlying the differentiation of core, semiperipheral, and peripheral zones of the world-economy (and their transformations over time), there has been a pervasive tendency within the world-­ systems perspective to portray these zones – and the activities that define them – as historically static and territorially fixed. As a result, “core” and “periphery” are often assumed to always have entailed the same kinds of processes, activities, and/ or spaces throughout the longue durée of historical capitalism (such that the production of industrial goods equates with “core” and that of raw materials with “periphery,” or that core-like activities always involve “freer” labor than the more coercive systems of the periphery). In this chapter, we use preliminary results from a dataset on shifting epicenters1 of wealth accumulation to highlight and challenge some persistent assumptions and ambiguities in the use of core, semiperiphery, and periphery as world-system categories. In the longue durée of historical capitalism, we argue, core and peripheral activities only gradually came to be as spatially bounded or entrenched in nations as they would become in the nineteenth and twentieth centuries. Instead, throughout this longue durée, there has been a constant process of spatial differentiation, a manifestation of the uneven ability of relevant actors (e.g., workers, capitalists, rulers) to protect and enhance their relative command over resources and well-being. Such spatial reconfigurations are not generally acknowledged in the relevant literature, hence the main argument of this contribution: the processes, activities, and spaces of differentiation in the world-system have always been in flux, and thereby should be established through empirical research rather than reifying categorical assumptions.

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What Has World-Systems Analysis Meant by “Core” and “Periphery”? In the 1970s, world-systems scholars critically engaged both modernization and dependency theories by respectively arguing that the world-economy featured a growing gap between those at the top (core) and at the bottom (periphery) of a world division of labor and a stable third cluster (the semiperiphery) ­permanently situated between core and periphery (Wallerstein 1974b, 1979; Hopkins and Wallerstein 1977; Chase-Dunn and Rubinson 1977). But there has been an analytical bifurcation in the exploration of the attendant concepts. At times, authors have emphasized that each cluster of countries in this tripartite structure results from the mix of changing economic activities contained within territorial boundaries. Along these lines, for example, Immanuel Wallerstein argued that through various mechanisms, some economic activities (core-like) produced comparatively high profits and thereby derived the greater share of the wealth generated by the world division of labor. Other economic activities (peripheral) featured low-profits and derived the least benefits from the world division of labor. Semiperipheral areas are characterized by a more or less even mix of core and peripheral activities. Such a depiction, emphasizing world-historical specificities, tends to emphasize change over time in the economic activities providing access to greater or lesser shares of wealth (e.g., textile manufacturing had been a “core” activity at one point in time but eventually became “peripheralized”), in the geographical location of these activities (e.g., countries and areas may “move” between zones), and in the specific mechanisms producing unequal distributional outcomes (e.g., colonialism may have played a role at one point in time, but eventually became less relevant).2 But alongside this understanding of core, semiperiphery, and periphery as involving ever-changing and connected processes of production and accumulation, there has been a parallel tendency to use these categories as entailing three persistent attributes. First, the zones contain national states that over time became permanently specialized in the production of either raw materials (periphery) or more sophisticated manufactures (core). Second, labor forces are relatively free/ better-paid in the core and coerced/poorly-paid in the periphery.Third, states are strong in the core and weak in the periphery. This approach tends to assume teleological continuities in the spatial location of the “core” and “periphery” – with the imperial centers of the early capitalist world-economy evolving into wealthy, strong national states, and colonial outposts becoming weak, poor national states. Moreover, certain production processes (e.g., sixteenth century Dutch textile production) are classified as core because they are located within what evidently appear to be wealthy/powerful areas (e.g., the Netherlands as an imperial power); while other production processes (e.g., twentieth-century Polish textile production) are classified as peripheral because they take place in countries that seem to be poor and not very powerful (e.g., Poland).

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While this “categorical” approach nominally endorses the idea that core and peripheral refer to processes and activities rather than fixed spaces or states, it tends to portray the attributes of core, semiperipheral, and peripheral zones as constant through time: there is always an exploitative relationship between core and periphery that is manifested simultaneously by spatial location and economic specialization, forms of labor control, and state power differentials. Besides its normative appeal, this “categorical” approach has been compelling because it helps simplify research tasks. It lends itself to the classification of “cases” into the relevant categories by drawing on easily available indicators (for example, share of agriculture in GNP or exports becomes an easily available proxy for peripheral status).3 Yet, building from Terence K. Hopkins, one must view such classifications as constituting a very preliminary step in the research process. Categorical methods should “serve, not to govern the structure of design as it [conventionally] does, but instead, in preliminary work, to help isolate subjects for detailed inquiry or, in summarizing work, to help collate the result of several detailed inquires” ­(Hopkins, 1982a, 32). Moreover, [p]ut sharply, the cases necessary for the statistical [categorical] portion of inquiry must be presumed essentially homogenous (members of a sample of a universe); the instances necessary for the historical portion must be presumed essentially heterogenous (members respectively of universes of one). (Hopkins, 1982a, 43) In fact, this is similar to Abbott’s (1991, 2001) various contributions suggesting that narrative accounts are better suited than quantitative causal models to map the singularities of social change, and to Baronov’s (2018) more recent distinction between “analytical” (what we term categorical) and “holistic” (what we term world-historical) approaches. Using a “world-historical” approach, with its greater emphasis on global, relational processes, is more difficult: for example, no activity can be presumed to be core-like or peripheral universally across time. It is highly problematic to a priori or retrospectively assume which economic activities and spaces have been “core” or “peripheral” – from a more world-historical perspective, whether activities are core or peripheral (i.e., the profits they yield), is contingent upon constantly changing forces of production and competition (Arrighi 1990; Arrighi and ­Drangel 1986; Karatasli 2017).4 This is why Giovanni Arrighi (1999, 125) i­ ndicates that world-system analysts must be prepared to unthink what many … have come to regard as the quintessence of world-systems theory. This is the idea that, in spite of their extraordinary geographical expansion, the structures of the world capitalist system have remained more or less the same ever since they first

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came into existence in the ‘long’ sixteenth century … [This] hypothesis does not stand up to historico-empirical scrutiny, and even worse, it prevents us from getting at the heart of the capitalist dynamics, both past and present. Arrighi and Drangel (1986) attempted to overcome this limitation by operationalizing not economic activities themselves, but the relative yield of those activities. Because core-like activities yield greater profits than peripheral activities, residents of the [core] must command a large share of the total surplus produced in the world-economy while residents of the [periphery] must command little or no such surplus. […] [T]his difference must be ­reflected in a […] differential between the per capita GNP of residents in the two types of states. (Arrighi, 1985, 244) Arrighi and Drangel (1986) found that this was, in fact, the case: for the mid-twentieth century, nation-states clustered into three income zones, corresponding to the core, periphery, and semiperiphery. In fact, Karatasli (2017) has found that this structure is far more subject to change than originally assumed. He has identified transformations in the world-wealth hierarchy that correspond with crises of the capitalist system – crises that yield a transformation in the forces of production and a subsequent rearrangement of not only core and peripheral locales, but also core and peripheral activities (see also Karatasli and Kumral, 2018). These transformations guide our argument: core and peripheral activities are constantly transforming and rearranging in a process of Schumpeterian “Creative Destruction.” Of course, the research task of identifying core and peripheral activities in the global longue durée is challenging, because it requires taking into consideration the interrelationship between myriad commodity chains over time. Following the logic of Arrighi and Drangel (1986), however, we seek to uncover core-like activities and spaces – and their transformations – by identifying the shifting epicenters of wealth accumulation in the world-economy over time. Our data, as we argue in more detail below, allow for productive insights into these research questions by moving the unit of observation away from the nation-state and to what we call world-magnates – a shift that yields a more productive assessment of the processes of the world-system as unit of analysis.

How Can World-Magnates Help Us Better Identify “Core” and “Peripheral” Activities? This intervention is part of a larger project that uses what we call world-magnates – the historical equivalents of today’s billionaires – as an indicator of epicenters of wealth accumulation (Albrecht and Korzeniewicz 2017; Korzeniewicz and Payne 2018).

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This project has identified and collected information on the wealthiest individuals in the world – those operating in Fernand Braudel’s (1984) “top layer” of the world-economy. Owing to the extraordinary wealth of these individuals, they left behind an imprint in the historical record that is accessible through appropriate bibliographical and data searches.5 From these searches, we have currently compiled data on approximately 700 world-magnates operating between 1500 and 1930.This is not an encompassing and definitive list of world-magnates – nor is it intended to be. Just as maps of the physical universe are always incomplete, so too are maps of historical capitalism.6 How does such a dataset assist us in identifying core and peripheral activities? In the most obvious way, uncovering these magnates offers insight because these individuals are the primary beneficiaries of the creation of new centers of wealth accumulation. In the Schumpeterian sense, these magnates represent the cutting edge of “creation,” providing “early warning of new fortunes into the evolution of industries and markets” (Potts, 2006, 348). In the world-systems sense, the economic activities that are generating the wealth of world-magnates can serve as an operationalization of core-like activities. By tracing the rise and fall of the wealth-generating economic activities of these individuals, we are also able to identify how the most profitable enterprises are clustered temporally, spatially and in specific production, trade, and investment networks. Such an operationalization builds from Arrighi (1985), Arrighi and Drangel (1986), and Karatasli (2017) in that it utilizes the economic impacts of core-like activities to map world-systemic processes. Proceeding in this way, our data allow us to overcome a priori assumptions about time, space, and activities (e.g. that manufacturing is more profitable than raw materials production or that production for domestic consumption is more core-like than production for export). Rather than assuming either the spatial-­ temporal location or the type of activities involved in the most profitable economic centers, our data allow us to proceed in the opposite direction, using world-magnates to identify major shifts in the centers of wealth accumulation – in both the specific activities involved, and in their spatial and temporal clustering. Thus, for each world-magnate in our dataset, we identify the primary source(s) of their wealth. By aggregating these sources, we create a timeline of the activities which generated the wealth of magnates. For any given historical period, we can thus take a snapshot of the most profitable (core-like) activities in the world-economy. Moreover, in a longue durée perspective, we can identify the “creation” and “destruction” of the profitability and innovativeness of each of these activities. In essence, we can trace the rise and fall of the economic activities at the ‘core of the core’ over time: Figure 11.1 shows this timeline from the turn of the sixteenth century through 1800.7 Among the earliest activities in the dataset are well-known examples: banking, aristocratic landholding, shipping, and precious metals. But also present among the earliest activities are the production of sugar and the slave trade – activities

Stylized timeline of wealth-generating activities of world-magnates, 1500–1800.

Source: World-Magnates Database (2019).

FIGURE 11.1 

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not ­classically understood to be “core-like.” Our data show that, as early as the ­sixteenth, but particularly in the seventeenth and eighteenth centuries, sugar increasingly grounds both financial and material wealth accumulation. The earliest merchants and financiers in the mid-to-late 1500s invested liquid capital in sugar (and other colonial) trade at a time when many riches were invested in illiquid landholdings. Then, in the mid-1600s, we start to see magnates who are invested not in the trade of sugar, but sugar production itself – owners and operators of sugar plantations in the New World. These world-magnates become prominent in the dataset through the mid-1700s. This dataset allows us to identify not only the broad trends, but the specific world-magnates engaged in these activities. Let us provide some examples. World-magnates in our database include Bartolomeo Marchionni (1449–1523), a Florentine banker and merchant who operated primarily from Portugal; he eventually became known as the “richest banker in Lisbon,” but got his start as the chief merchant in sugar from the Madeira Islands. Juan de Herrera y Santo Domingo (1510–1585) had lowly beginnings as a floor sweeper for a minor Andalucian merchant, but by the 1540s began to engage in the trade of cloth, sugar, musk, and steel, largely from the Indies. Later in the century, the Rodriguez d’Evora family, of Jewish-Portuguese origins, established themselves as powerful merchant-bankers in Antwerp. Our database shows, by the mid-1600s, the emergence of world-magnates engaged in plantation ownership and direct exploitation of enslaved labor. James Drax (1615–1662) is one example. Drax was an English colonizer in Barbados who owned a substantial portion of the land on the island. William Beckford (1709–1770) was similarly engaged in plantation ownership, though was based primarily in England. He was mayor of London twice, but his wealth came nearly exclusively from the ownership of numerous sugar plantations (worked by enslaved Africans) in Jamaica. Simon Taylor (1739–1813) also earned his wealth from ownership of sugar plantations in Jamaica, where he was based. Taylor was born in Kingston and purchased his first sugar plantations on the island following the death of his father in 1739. Upon his death in 1813, he owned over 2000 enslaved Africans and was considered one of the wealthiest men in the British Empire. Henry Hope (1735–1811) established a strong mercantile family and became a major financier of the Dutch East India Company, profiting especially from trade with Brazil in diamonds and sugar. John Parish (1742–1829) was a Scottish merchant operating out of England who was mostly involved in the grain trade but later expanded into tobacco, coffee, and sugar trans-Atlantic trade between the West Indies, the United States, and England (though he suffered greatly during the stock collapse of 1793). William Jardine (1784–1843) similarly was a Scottish merchant who eventually was considered one of the richest men in Britain, specializing in opium, spices, and sugar trade from the Philippines. Since the magnates engaged in these activities were reaping extraordinary profits, our data leads us to determine that sugar production and the slave trade

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in the 1600s and 1700s can be considered core-like activities. But our research procedures allow us to go beyond simply labelling these activities or assuming the reasons why they yielded extraordinary riches – they provide a path for more precisely identifying which were the characteristics and transformations of these activities that produced core-like profitability in a particular space-times. For example, observing that there was near-constant technological, political, and market-based innovation throughout sugar production’s centuries-long run as a core-like activity.8 These included shifts between protectionist strategies and free market strategies, transformations in the labor process from field production to the eventual refinery of sugar, the opening up of new markets, and the modification of strategies of colonial expansion over time – innovations which allowed slave-based sugar production to be characterized by “virtually uninterrupted economic success for more than 200 years” (Fogel, 1989, 10). Classic accounts often overlook sugar and slavery as centers of core-like wealth accumulation because of contemporary assumptions about these activities and their locations. Using these data as our guide, we can begin to understand the spatial unevenness and fluidity of wealth-generating activities. While the greatest rewards were overwhelmingly going to Europeans involved in sugar production and trade, the majority of the production itself was undertaken in the colonial world and by a hyper-exploited coerced labor force. In short, for much of the period between the sixteenth and nineteenth centuries, a coercive form of labor exploitation (slavery) was in fact the defining characteristic of some of the most innovative and profitable (core-like) areas of production at the time. This finding would seem to corroborate Immanuel Wallerstein’s (1974b) long-standing assertion that the historical development of capitalism entailed not only the prevalence of wage-labor in some places, but the expansion of coercive labor exploitation (such as slavery or serfdom) in much of the world. Our method thus allows us to identify activities and locales in the world commodity map that may otherwise have been overlooked. For example, in the mid-nineteenth century, the identification of factory manufacturing of textiles and capital goods in Western Europe is complemented by the identification of the cotton trade in Baghdad, cattle ranching in Mexico and Argentina, and the production of tea and rubber in China and Brazil. In this way, the data allow a productive perspective for identifying which activities are “creating” wealth for world-magnates and, combined with historical analysis, can also shed some light on the activities and modes of organization that became less profitable over time (such as the disappearance of aristocratic landholding and titles by the early eighteenth century). Where does the identification of these activities leave us in terms of understanding the “who” and “where” of the core? By investigating the linkages formed by each core-like economic activity, we can uncover who is benefitting from these core-like activities (beyond the magnates in our data) and where (in terms of both geographical location and politico-territorial entities) the rewards are being reaped.

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The Limits of the Nation-State as Datum Our data suggest that the nation-state only became the most salient ‘container’ for capitalist accumulation in the late nineteenth century. Prior to the advent of the modern nation-state, international networks of trade and colonial empires were the “containers” in which core-like activities emerged and operated. Such a process began in the sixteenth century with merchant networks and bankers but reached its high point during the early nineteenth century British “free trade imperialism” (Gallagher and Robinson 1953; Arrighi 1994). The discussion of sugar and slavery above offers an example of the early networks in which core-like activities were contained.While the financiers and merchants were often based in European capitalist enclaves, such as Portugal and the Italian city-states, the production of sugar in colonial territories yielded high profits to plantation owners, refiners, and merchants based in the supposedly ‘peripheral’ areas. Thus, the early capitalist organizations that mattered most for the development and operation of profit-making activities were networks of trade organized specifically around such activities. This organization would soon be replaced by a more concrete political entity – empire – and its free-trade variety. The free-trade imperialism of the eighteenth and nineteenth centuries established the principle that the laws operating within and between states were subject to the higher authority of a new, metaphysical entity – a world market ruled by its own ‘laws’ – allegedly endowed with supernatural powers greater than anything pope and emperor had ever mastered in the medieval system of rule. (Arrighi, 1994, 56) The most profitable activities were not contained within the boundaries of European states but involved strong “links of complementarity with the economies of colonial and foreign countries” (Arrighi, 1994, 281). It was only with the disintegration of the British-led world-economic order that nation-states emerged as the primary container of capitalist accumulation (Arrighi, 1994; cf. Tilly, 1992 [1990]). As national self-determination became the watchword of a new world order, the importance of “national development” – and thus, of nation-state position in the world-economy – became paramount (Arrighi, 1990). Core-like activities were now, perhaps for the first time, becoming confined within national territorial boundaries. By the collapse of British hegemony in the early-mid-twentieth century, international empires were no longer the most salient political “container.” Such an historical trajectory is evident in our data on world-magnates. If we were to map the networks on which world-magnates were enmeshed circa 1550, we would find that there were relatively few centers concentrated in Europe, most often as part of the commercial and political linkages being established across

Stylized representation of key networks of world-magnates.

Source: World-Magnates Database (2019).

FIGURE 11.2 

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c­ ontinents by European colonial expansion. In this period, merchant capital and the sale of sugar, enslaved Africans, and spices constituted core-like economic activities – with linkages flowing through urban centers. By the early nineteenth century, our map would show a massive expansion in both the number of centers as well as the amount of trans-national linkages – with centers of wealth accumulation involving manufactures (e.g., textiles, steel and armaments) but also raw materials (e.g., tobacco, opium, cotton, tea). Over the nineteenth century, and most clearly by the mid-twentieth century, on the other hand, our hypothetical map would show a dramatic change: while the centers of wealth accumulation would remain wider-spread across the globe, the global linkages between these centers underwent a most significant decline. Over this latter period, the amorphous and porous “containers” of the sixteenth through nineteenth centuries become replaced by the more bounded “container” of the nation-state. At its peak, during the height of British world-hegemony, global linkages meant core-like activities were not as bounded geographically by what would become twentieth century national territories. As nation-states emerged and became dominant (fairly gradually, then more precipitously during and after the nineteenth century), a starker differentiation occurred between core and peripheral areas than had existed before. This process is presented in Figure 11.2, a stylized representation of the rise of the nation-state as a container of economic activities. By the twentieth century, this process reached an apex under US hegemony. The United States rose with a combination of raw-materials production and manufacturing production driving economic expansion.This became a model for national development, where an integrated economic system could thrive within the boundaries of individual nation-state. In this sense, the rise of the nation-state as a container of economic activities was solidified through (and itself solidified) US hegemony in the mid-twentieth century. This argument alters a narrative that would privilege continuities in the differentiation between the core and periphery over the development of the modern world-system – a continuity held to have evolved from simpler to complex, but nonetheless with few changes since the early emergence of historical capitalism. Instead, we offer an alternative mapping of the changing political constellations that have sought to contain economic activities – international networks, citystates, empires, and nation-states. The evolution of these constellations reflects not a linear trajectory of modernization, but rather a dialectical transformation in political innovation that only occasionally has matched the fluidity of capital accumulation in the longue durée.

Conclusion Thus, our data on world-magnates privileges a methodology to the study of core and periphery that avoids the “categorical” assumptions of many recent studies and is closer to the “world-historical” theoretical orientation undergirding the

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best of a world-systems approach. Such a perspective, we think, offers a productive pathway for addressing long-standing questions about processes and categories in the modern world-system – most directly, the changing character of inequality on a global scale. Our data suggest that, in the first centuries of the capitalist world-system, core and peripheral activities were not as clearly bounded or entrenched geographically as they would become in the nineteenth and twentieth centuries. Instead, there was a gradual process of differentiation, resulting from the uneven ability of relevant actors to protect and enhance their relative command over resources and well-being. Our data also suggest that such activities can be mapped spatially and temporally by identifying the distributional outcome of those activities – for our purposes here, in the form of the world-magnates reaping the rewards. By using these activities as a starting point to uncover the social and political arrangements used to foster wealth accumulation in given spaces and times – instead of using such arrangements to identify the activities – we may overcome the limits of many assumptions currently entrenched in world-systems scholarship and gain a better understanding of the capitalist world-economy, past and present.

Notes 1. In geological terms, the “center” of an earthquake is beneath the surface of the Earth, while the “epicenter” is the point closest to the center on the surface of the Earth. We approach these world-magnates in a similar way. The actual centers of accumulation in historical capitalism – the labor and capital that produce, extract, circulate, and so forth – are often obscured, requiring digging to uncover. On the other hand, the world-magnates who reaped the greatest rewards from these activities sit clearly atop these centers, a useful indicator that something incredibly profitable is happening directly below. Thus, these world-magnates are epicenters of wealth accumulation, in that they indicate the need to uncover the true centers propelling them to extraordinary riches. 2. Thus, Wallerstein (1979, 71) notes: “[i]f in the sixteenth century, peripheral Poland traded its wheat for core Holland’s textiles, in the mid-twentieth-century world, peripheral countries are often textile producers whereas core countries export wheat as well as electronic equipment.” 3. From such points of view, the entrenched tendency to portray core and peripheral areas as national territories is understandable.The exercise of classifying nations as core, semiperiphery, or periphery based on a country’s mix of core-like and peripheral activities might in itself hold value – particularly for those interested in questions of state power in the world-system. Moreover, even when scholars are aware of the importance of moving towards more world-historical research strategies, they have to contend with many methodological difficulties, including a lack of appropriate data. This might justify a reliance on more conventional indicators and classificatory schemes as unavoidable. 4. Of course, Marx (1867) and Schumpeter (1942) themselves emphasize that a defining characteristic of historical capitalism has been the continuous transformation of products and production techniques. 5. Such an effort has become feasible only recently: a project such as this would have required an extraordinary number of research hours even a decade ago, as collecting the relevant data requires detailed surveys of a vast field of secondary and primary

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l­iteratures in multiple languages. New technologies, however, have simplified many of the tasks at hand. Research engines now allow us to individually review extensive bibliographies (in English and other languages) in a shorter timeframe. For more information on our data and collection procedures, see our online appendices available at: www.world-magnatesdatabase.com. 6. While we eventually aim to capture as many world-magnates as possible, these preliminary findings provide a useful (if incomplete) sketch – a sketch that must be subject to verification, expansion, and greater detail by ourselves and other scholars. 7. This method does not presume to capture all core-like activities, only the most profitable of those activities (“the core of the core”). 8. Schumpeter (1942) purposefully did not restrict his notion of innovation to technological change or manufacturing. He emphasized that centers of wealth shifted constantly and are not associated with any single particular array of products, market networks or institutional arrangements. New forms of raw material production, the capacity to engage in innovative forms of deploying territorial or political power, or even rent-seeking behaviors, are just as likely to be a source of creation and destruction as any other innovation labeled by some as more “productive.”

12 ALTERNATIVES TO WESTERN ECONOMIC MODELS? Latin-American “Buen Vivir/Good Living” and the Opening of the Social Sciences María José Haro Sly, Julien Demelenne and Eric Mielants

The institutionalization of the social sciences and the multiple Eurocentric perspectives it created in the modern university system cannot be separated from what occurred concurrently in the modern world system. Real colonization emerged in tandem with epistemological colonization, the latter facilitating efforts to understand, manipulate and control the non-western world as well as the social movements it engendered. This chapter provides information about the emergence and continuing debates in Latin America regarding Buen Vivir/Good Living in the context of a crisis of Western epistemology as well as (neo) colonial practices. As such, these debates, along with subsequent policy proposals and legal reforms, offer a new perspective, decentering traditional Eurocentric values. We argue that these developments, especially in Bolivia and Ecuador, propose a ­different way of life as well as a new way of understanding the world and call into question traditional models focused on economic growth and development. The institutionalization of the social sciences between the nineteenth and twentieth centuries and the scientific naturalization of the model of liberal society has led to a series of great exclusions of social realities that are distant from the hegemonic centers of knowledge production. Knowledge prior to this process, considered as superstition, was replaced in the name of Social Science. In the last few years Latin America has experienced a revival of the debate on the concept of Good Living, ‘Buen Vivir’.

Epistemology within the World System From its beginnings, the social sciences, as heirs of modernity, strove to construct a systematic and disciplinary knowledge of reality, which enabled empirical validation to contribute to the progress of humanity. This is the path proposed from

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the Enlightenment that is carried out through the use of reason and logic. In this sense the social sciences, like modernity itself, are structured around the premise of controlling social change to avoid the state of anomie, as illustrated by Durkheim. The artificial disciplinary intellectual division that dominates our epistemology in the social sciences is a byproduct of this modernity. The disciplinarization ­created in the nineteenth century is presented as an analysis of a fragmented reality which needs to be understood in order to dominate. The reason for this fragmentation is closely related to its instrumentality and the creation of a privileged place for the production of knowledge that contributes to the moral or material progress of society.This presents the double face of modern knowledge, the liberation of all theological content from its contribution to the progress of humanity and, in turn, constituting itself as a disciplining institution of hegemonic knowledge. This construction of social science, as such, was based on the reality of five major countries (Great Britain, France, Germany, Italy and the United States) (Wallerstein, Open the Social Sciences, 1996). Unlike other knowledges that are located in their localities, this modern knowledge had the hubris of universality and extended in a hegemonic way, “subalternizing” other knowledge. It is from this privileged space in five core countries that a universality of scientific knowledge continues to be projected from a local Western particularity. The legitimation of this knowledge was possible due to the artificial construction of multiple methodologies, employed in ritual-like fashion that established the procedures to define what actually constitutes scientific and therefore ‘legitimate’ knowledge. Since then, the methodology defines the discipline and mastery of that discipline. The distinction is made between what is science and what is not, between legitimate and illegitimate knowledge, between doxa and episteme. The disciplinary boundaries cannot be transgressed, because their questioning implies, in turn, a questioning of the domination of determined knowledge. The institution of the discipline becomes what Pierre Bourdieu (1979) defined as a field of power with a certain type of capital. In short, to obtain knowledge control, i.e., social control, it was necessary to fragment reality in disciplinary areas, which facilitated instrumentality. This division was carried out from a modern Eurocentric vision of the world that ended up establishing two central divisions in disciplinary terms. On the one hand, the consideration of time, between the historical discipline and the other disciplines that emulated the positivist search for universal laws; and on the other hand, a geographical/cultural segregation that made a difference, via the emergence of anthropology, between peoples without history, and so-called modern civilizations. In contrast to the civilized world, “the other” civilizations “had no autonomous history: rather they were the story of stories that had frozen, that had not progressed, that had not culminated in modernity” (Wallerstein et al., 1996, 27). At present, modern university knowledge is increasingly questioned from two geographically localizable perspectives. On the one hand, a capitalist questionnaire from the north, which has Silicon Valley as one of the centers, where alternative

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pedagogical experiences and knowledge incubators emerge outside universities as a strategy to favor the development of creativity and productivity of technical research, which undermines the university monopoly through the deployment of private capital. On the other hand, emerging from the global, postcolonial/ decolonial south, initiated in cultural studies and extended in the social sciences, is a current concerned with the study of subalterns and critiques of Eurocentrism, denouncing and exposing the limitations of particular knowledge that claimed to be universalist and pretended to dominate everything. These two currents, from the north and the south, call into question the role of the modern university system in the coming decades as the central place for the production and dissemination of knowledge. Within the theory that emerges from the global south, one has questioned the colonial aspect of traditional university knowledge. From the post-colonial criticism, Boaventura de Sousa Santos explains how in the name of science a systematic process begins where much epistemicide was committed (Sousa Santos, 2014). Where, ­historically, knowledge not legitimized by white, male, European reason is turned into marginality and considered as not knowing until rendered extinct. “Pre-modern” knowledge is therefore seen as anecdotal, folkloric, superficial, i.e., pre-scientific.These epistemicides are constitutive of the racist/sexist/epistemic structure of the knowledge. In this context the social sciences (which embraced a positivist inclination to emulate the model of the exact natural sciences), created a “scientific” naturalization as the only objective and universal reality of the model of “the market” (capitalism) as well as liberal society (Wallerstein, 1998, 111; Lander, 2005, 26). According to Edgardo Lander, colonialism organizes knowledge, memory and imaginary language and ends up organizing the totality of space and time in the same universal narrative. The “coloniality of knowledge” specifically in the social sciences not only carries with it a colonial heritage in its paradigms but, above all, contributes to the perpetuation of the cultural, economic and political hegemony of the West. For the author: This worldview has as its central articulating axis the idea of modernity, a notion that captures in complex four basic dimensions: (1) the universal vision of history associated with the idea of progress (from which the classification and hierarchy of all peoples and their historical experiences are constructed); (2) the “naturalization” of both social relations and the “human nature” of liberal-capitalist society; (3) the naturalization or ontologization of the multiple separations proper to that society; and (4) the necessary superiority of the knowledge produced by that society (‘science’) over all other knowledge. (Lander, 2005, 10; translated by the authors) In this way, the construction of the social sciences is closely related to the projection of modernity as a hegemonic civilizational model within the Modern World

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System (see also Grosfoguel and Mielants, 2018). The asymmetries and inequalities in economic terms within the World System have been constantly studied but in this text we seek to consider the contribution of the social sciences to the legitimacy of hierarchies of power. These hierarchies acquire multiple dimensions that can be summarized in the triangular structure of being/coloniality of power/ coloniality of knowledge (Quijano, 2014) as well as in that defined as “Capitalist/ Patriarchal Western-centric/Christian-centric, Modern/Colonial World-System” (Grosfoguel, 2012). That is why the Western domination of the world is based on a much more complex relationship of domination that goes beyond economics, which is undoubtedly present, but which also articulated within a racial, cultural, religious, sexual and cognitive hierarchy. From the epistemic structures of knowledge we can observe how they represent an occidental worldview within a plurality of visions of a much wider world. Thus, the redefinition of the social sciences in epistemological terms is closely related to the representation of being. Hence, the epistemological definition cannot be dissociated from the ontological definition. As an ontological construction, the earlier organic (pre-modern) world view, as an interrelated whole, is fragmented in the Cartesian relationship between nature and man. The capitalist world-system destroys the organic vision in the name of an ontological separation between human reason that can dominate everything and that can realize a rational control over the world. Modernity is represented by social control, epistemologically translated into the disciplinary control of minds as well as beings. True knowledge (episteme) must come from reason, not from the senses (as expressed in the ‘two culture split’) (Lepenies, 1988; Snow, 1962). The hierarchical projection referred to above, as well as the construction of Western reason as legitimate reason, is associated with the hegemonic construction of history in a collective singularity (historia en singular colectivo) (Conteras Natera, 2014), a “universal” history constructed from the exclusion and negation of other particular histories. Sociology is also based on the idea of progress, where the West leads the ideal model to follow. That is to say, a naturalization and globalization of a Euro-Western model (Conteras Natera, 2014) constitutes a historical narrative based on marginalization, exclusion, and oppression of the different alterities and others. The world is reduced to the Western conception of the modern world and modernity presents itself as a pure and complete state, as an inexorable reality where the possibility of alternatives is denied or dismissed. Modern Western reason constitutes an apparatus of knowledge as well as a locus from which a judgment of other knowledge is emitted, projecting itself in an ideal of progress as the superior culture, way of life and as an economic model to be followed within a scale of progress. In ontological terms, the colonial model initiated in Latin America in 1492, is now translated into the discourse of development. Progress is established as the dominant ideology that establishes Western civilization as superior and as an end point within a linear scale (“the end of history” as Fukuyama put it). This ideology of progress continues, after World War II,

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with the emergence of the US as a hegemonic world power when the implementation of the concept of development becomes a crucial factor in the design of public and foreign policy. As Arturo Escobar suggested, we were “invented as underdeveloped”: A discourse of development produced historically continues perpetuating misery, exploitation, oppression and dependence. It is invented for the “third world” by the West, thus generating a distance between the subject and the object, because the recipes of developments are constructed externally by the technocrats. With this strongly normative discourse, the projection of alternatives from the local context is prevented, based on the abstraction of people transformed into statistical figures within the metanarrative called “progress”. (Escobar, 1995) More than 70 years after its formulation, the perpetuation of dependence between the global north and south, the prevalence of poverty and misery, shows how hegemonic discourse continues to perpetuate asymmetries beyond its objectives. The crisis of the validation of this discourse of development as a tool of ontological construction, as well as the crisis of the legitimacy of modern Western academic knowledge, shows us what some authors call the crisis of the civilization model. In the words of Boaventura de Sousa Santos (2011), we are faced with a “paradigmatic transition”, from a paradigm that is in crisis towards a new paradigm which has not yet been defined. Knowledge no longer seeks the progress of universal humanity in terms of modern enlightenment, but contributes to the globalization of private capital while deconstructing the myth of modern universality. The certainties of the domain of the disciplines further open the way to even more uncertainty: We come from a social past of conflicting certainties, related to science, ethics or social systems, to a present of considerable questioning, including the questioning about the intrinsic possibility of certainty. (Wallerstein et al., 1996, 85)

‘Good Living’ to Open the Social Sciences In this context of paradigmatic transition, it becomes necessary to unthink social sciences (Wallerstein, 1998), and to open them. This moment of ecological, economic and epistemological crisis in turn provides an opportunity to do so. A first step is the interdisciplinary approach, but it is insufficient. It is necessary, above all, to create an intercultural approach that recognizes the existence of the other not only in epistemological but also in ontological terms. The claims of inclusion of the different subaltern sectors, in political, epistemological and ontological terms,

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have to do with a demand for transformation of power relations instituted by the social sciences in their origins. The differences (race, gender, sexuality, class) become a fundamental element in the process of unthinking. As an ontological process, interdisciplinarity should not be limited to a dialogue between Western disciplines that overcome the disciplinary barriers, but should be projected in a dialogue of knowledge (Santos) to overcome global cognitive injustice. The disciplinary fragmentation of reality is not only in terms of Western science but also in cultural epistemological terms. There must be an intercultural translation between different knowledge and cultural forms within the social sciences for a democratization not only in terms of access to knowledge but above all, in terms of valid and legitimate knowledge. Interculturality entails the decolonization of Western knowledge and the projection of “other” knowledge as legitimate knowledge. Therein lies the importance of Good Living as an element that projects the interculturality defined as: Rather, it is imploding from the difference in colonial structures of p­ ower, knowledge and being as challenge, proposal, process and project; it is to ­reconceptualize and re-found social, epistemic and existential structures that bring into play and in equitable relation to diverse cultural logics, practices and ways of thinking and living. That is why interculturalism is not a given fact, but something in permanent path and construction […] More than a concept of interrelation or communication (as is typically understood in the European context), interculturality in this region of the world means power and indicates processes of building and imparting thoughts, voices, knowledge, practices, and social p­ owers “others”; an “other” way of thinking and acting in relation to and against modernity/ coloniality.We do not refer here to a thought, voice, k­ nowledge, practice and power but rather, thoughts, voices, knowledge, practices and powers of and from difference that deviate from the dominant norms radically defying them, opening the possibility for decolonization and the ­building of more equitable and just societies.That is why interculturality and decoloniality must be understood as linked processes in a continuous struggle. (Walsh, 2006, 35; translated by the authors) From the intercultural approach, Good Living, which emerged from popular wisdom transmitted through oral memory, presents itself as an interpellation to “unthink” the social sciences and as an element to deconstruct the discourse of development that imposes itself as a hegemonic model of progress. A tradition of popular wisdom and oral memory becomes an invitation to continue as an alternative within a wider dialogue of knowledge. In this moment of structural crisis, when even the ‘West’ is questioning itself existentially in terms of what it is or should be (European Union, the ‘developed’ West, etc.), Buen Vivir presents

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itself as an alternative, raising different questions, and offering different proposals, as well as interrogating the Cartesian separation between nature and the human being that has led to the current global ecological crisis. The well-documented socio-economic and socio-environmental crises, including the energetic and climatic one (Lovelock, 1983; Lovelock et al., 1992; Moore, 2011, 2014, 2017), urge us to think about new modes of social reproduction and coexistence oriented to create more harmonic relations between nature and society, or how to bring about more egalitarianism and justice within as well as between societies. These new proposals should combine a holistic vision of the world, interlinking society, economy, and nature, as well as the plurality of cultures (Vasapollo and Farah, 2011, 12). In this way, the indigenous Latin American discussion of “good living” offers a non-occidental paradigm that can introduce concepts and a weltanschauung constructing new epistemologies of thinking that can alter the social and natural reproduction of life. According to Ascarranuz (2011), in the 1990s, it was a linguistic concern to translate the concept of “development” and “progress” into the indigenous languages. This attempt was built in a need to understand and criticize the ­development model implemented by states and international organizations, that constantly created a gap between these organizations’ policies and outcomes as well as the expectation of communities and their ideal of buen vivir or “living well”. Ideas of development and progress based on endless growth, possession of material goods, linear progress and anthropocentrism did not find any equivalency in indigenous languages (Ascarrunz, 2011, 423). Sumak Kawsay, for Quechuas, Suma Qamaña for Aymaras (buen vivir/good life/good living/live together well) an expression such as ñan dereko (harmonious life), Teko Pora (good life) for Guaranis, took place in the academy and political context as both a critique of and an alternative to the traditional western developmental path, in the ideological and practical sphere. For indigenous and creole peoples, buen vivir is not related to “having more” or development related to continuing economic growth and the ceaseless accumulation of capital (Gudynas, 2011; Fatheuer, 2011). They see buen vivir as the reproduction of a state of equilibrium. To understand what this equilibrium means, it is important to point out some characteristics of indigenous world views. They contradict the principle of endless accumulation and growth and they talk about “other values at play: knowledge, social and cultural recognition, codes of ethical and spiritual behavior in the relationship with society and nature, human values, the vision of the future, among others” (Martin, 2011, 20). They disrupt the occidental idea of anthropocentrism, in which everything has worth and is appreciated according to its utility for humans (and a monetary value being attached to it). Indigenous conceptions propose a cosmocentric way of life, in which they recognize the rights of the Pachamama, Mother Earth, and humans as an intrinsic part of it. One of the most prominent founders of modern science, Bacon (1561–1626) stated that “nature had to be hounded and made a slave to the new mechanized

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devices; science had to torture nature’s secrets out of her”. In the same way, Kant stated that “the mind does not draw its laws from nature, it dictates them”, fateful quotes from the European tradition. For Kant, man is “the lawmaker of nature”. This conception is also shared by Max Weber to Talcott Parsons, who believed that “all things – in principle – can be mastered through calculation” (Max Weber). In the Marxist tradition, Friedrich Engels pointed out that people are the masters of nature, because of being and through becoming, they are masters of their own socialization (Fatheuer, 2011). This is a fundamental principle of western science and technology: nature (defined as a quantity of natural resources) is an exploitable mine. Contrary to this position, which separates humans from nature, and elevates them in an artificial way, indigenous groups see themselves as a part of it, and because of that they seek an equilibrium between nature and human activities. In a Polanyisque sense, the market remains embedded within a multitude of social, spiritual and cultural values. According to Acosta (2009), Buen Vivir is a concept under continuous construction, which offers opportunities and permits debates from different cultural backgrounds, contradicting points of view and different political agendas. We do not want to suggest that we should idealize pre-modernity, nor consider that the indigenous project is about a movement to go back to the world as it was before colonization (Acosta 2009). Buen Vivir is not a program where all works are undertaken by the State (Gudynas, 2011), nor is its aim to let nature become untouchable, advocating a life of hunting and gathering food in the forest.The idea of Buen Vivir is to recognize the Rights of Mother Earth trying to use natural resources in the way that they can be reproduced, trying to protect biodiversity and its fragile ecosystems. It is demanding a responsible relation with nature. Despite all differences, theorists of Buen Vivir agree that the concept is the outcome of the unconformity of the occidental way of life and the conventional economic developmental paths, and that it is necessary as a critique and an alternative to them. Although there are different visions of development among the international institution and programs, from the Washington Consensus to the neostructuralism, from ECLAC to the progressive programs from different experiences in Latin America (some of them more inclusive and interested in redistributive policies), they all agree with endless economic growth, the idea of linear progress, and a utilitarian view of the nature. Nonetheless, economic growth as such, usually due to an increase of FDI or exports, has obtained very little in terms of the actual improvement of social and environmental conditions for many (Gudynas, 2011). All these developmentalist visions discuss how to use natural resources and believe that modern science and technology is the most efficient way to do it, but they never question the exploitation of nature itself. According to Gudynas, alternatives and different experiences of development are certainly important, but more profound changes are necessary. Instead of insisting on “alternative development” we should think of “alternatives to development” (Escobar, 2012).

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In this sense, Buen Vivir first can be appropriated and have a potential c­ ontribution to many of the western critics of this development path, such as, the discussion of the Deep Ecology (Naess, 1986); the biocentric proposal sustained by H.D. Thoreau in the nineteenth century as well, or Aldo Leopold’s ideas regarding the Ethics of the Earth; and the idea of the “Natural Contract” proposed by Serres (1995). Proposing an equilibrium between human action and nature, as well as an equilibrium with other humans, which intrinsically means a more egalitarian society, dialogues were initiated with other actors and movements, for example with the urban favelas movements in Latin America. This process can be expanded to other contexts and cultures that criticized this obsession with profitability or consumption. According to Gudynas (2011), “more and more voices rise which may somehow be in harmony with this indigenous vision”. In what follows, we will talk about the disruption of Buen Vivir against the dualism of the western weltanschauung, the pragmatic proposal of Latin American governments regarding Buen Vivir, and the Bolivian and Ecuadorian cases that inclusively changed their Constitutions, to include these concepts.

Western Dualism and its Critics Javier Medina discussed the semantic and philosophic approach of the Sumaq Quamaña by the Aymaras, comparing it with Western philosophical principles. First of all, the author pointed out the difficulty in translating the expression into Spanish; and Buen Vivir is actually just a simple and imperfect metaphor of the whole concept. Regarding that, Humberto Eco (1995) in his Lectures “The Dream of a Perfect Language” stated that […] Aymara is not based on Aristotelian two-valued logic (either True or False), but on a three-valued logic it is, therefore, capable of expressing modal subtleties which other languages can only capture through complex circumlocutions. Thus there have been proposals to use Aymara to resolve all problems of computer translations. Unfortunately, it has been demonstrated that Aymara would greatly facilitate the translation of any other idiom into its own terms, but not the other way around. Thus, because of its perfection, Aymara can render every thought expressed in other mutually untranslatable languages, but the price to pay for it is that (once the perfect language has resolved these thoughts into its own terms), they cannot be translated back into our natural native idioms. Aymara is a black hole. According to Medina (2011), the Christian West is based on the logic principle of non-contradiction. It means a preposition cannot be true and false at the same time. This non-contradiction principle is sustained by the identity principle, in which any entity is identical to itself (A is equal to A) and because of that, it can

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be differentiated from another entity.This principle is the basis of the individualist principle idealized by Leibniz, which is a fundamental premise of the modern individualism stated in States of Rights/Rule of Law (Estado de Derecho) and representative democracy. Another principle that Medina (2011) mentioned is the Third excluded (principium tertii non datur): which is that where a preposition is true or false, and there cannot exist any other possibility.This principle admits the mutual exclusion of logical values.1 Domique Temple shows that the Amerindian civilization is based on the principle of contradiction. They are sustained in the reciprocity principle, which contradicts some notions of Western Logic. This is related to the characteristic principle of the relation between humans and nature: a western conception of the world is based in the division of human/nature, individual/society, true/false, etc. For Estermann (2000) western cultures are based on a monadic way that permits the autonomy of the individual; from there came the primacy of the liberal idea in politics, and in which there is no mediation between the poles (dualistic conception). The Amerindian civilization, however, is characterized by relational principles: for them the universe is, before anything, a system of interconnected entities which depend on each other, and the inclusion logic talks about a continued transition between both extremes, in which they can coexist in a complementarian equilibrium (in the same way as the Asian yin and yang, there is an Andean chacha warmi). For Medina (2011), the development of quantum physics and the Amerindian conceptions are related, as well as all the attempts of western critics for a holistic conception and real concern of environmental problems. Gudynas (2011) recognizes the importance of this new process that proposed a revalorization of indigenous knowledge and traditions which have been hidden and subjugated over five centuries. Buen Vivir theorists are criticizing western hegemonic epistemologies and theories, inclusive of the fundamental logics that are based on them. At the same time, they are initiating a dialogue about these ­conceptions of the world in discussion with the new physics and philosophers criticizing Aristotelian logics, which could be an important step not only for deconstructing western hegemony of knowledge but also a potential bridge between completely different disciplines, as summarized by the Gulbenkian ­Commission two decades ago.

Bolivian and Ecuadorian Buen Vivir Experiences After decades of neoliberalism, Latin American countries exacerbated poverty and inequality and constitute the most income disparate region in the world. In 2000, Bolivia had a Gini coefficient of 63 and Ecuador 56, leading the list of the most unequal countries in the entire world. After 2000, because of the neoliberal crises in the region, leftist governments won elections in the majority of South American countries.

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In Bolivia, Evo Morales was elected (the first non-white president since the Bolivian independence in the nineteenth century, although 62 percent of the population recognizes itself as indigenous); and Rafael Correa in Ecuador. Both countries started a process that can be defined as “progressist” or post-neoliberal. The interesting experience of these two countries is that despite other leftist movements in the region, they included indigenous people and traditions as central aspects of the refoundation of the Nation. In fact, Bolivia recognizes itself now as a plurinational State, criticizing the modern west nation-states as a mono-­ national one. Indigenous movements in both countries succeeded in articulating Buen Vivir politically, not just incorporating it into the Constitutions but also in the Development Plans, with concrete programs for a new path that questions modern development. Although these two experiences share the idea of recognizing indigenous contributions, they are also different. Pointing out these differences is important in understanding how Buen Vivir can be applied and how it can build an alternative to development and not just an alternative development. In the Constitution of Bolivia, those amending the Constitution included Living Well in the section dedicated to the fundamental bases of the state; among its principles, values and purposes, Article 8 states: (i) The State adopts and promotes the following as ethical, moral principles of the plural society: ama qhilla, ama llulla, ama suwa (do not be lazy, do not be a liar or a thief), suma qamaña (Live well), ñandereko (live harmoniously), teko kavi (good life), ivi maraei (land without evil) and qhapaj ñan (the noble path or life). (ii) The State is based on the values of unity, equality, inclusion, dignity, liberty, solidarity, reciprocity, respect, interdependence, harmony, transparency, equilibrium, equality of opportunity, social and gender equality in participation, common welfare, responsibility, social justice, distribution, and redistribution of the social wealth and assets for well-being. This formalization at a Constitutional level is important, as indigenous values are included with the same respect as modern classical liberal concepts: liberty, dignity, unity, equality, etc. (Gudynas, 2011). They also linked these ethical-moral ­principles to the form of economic organizations, as the new Constitution indicates in Article 306: “the Bolivian economic model is plural and is oriented to improving the quality of life and living well”. On the other hand, Article 313 states: “To eliminate poverty and social and economic exclusion, and in order to achieve well-being in its multiple dimensions […]” the ideas of solidarity and reciprocity and the multiple dimensions of Buen Vivir are in relation to the equitable distribution of surpluses and social policies. At the same time, including these concepts in their own languages is an important step for Bolivia and its defense of

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plurinationality. But, as we will see, there is a difference with the Ecuadorian case, because the Bolivian one incorporates Buen Vivir concepts as an ethic-moral base, whereas in Ecuador these constitute actual rights. The major difference between the two constitutions according to Gudynas (2011) is that in Bolivia the classical figure of third generation civil rights is maintained, which includes environmental quality and protection. But there is no explicit recognition of the rights of Nature, and it’s only possible to move within the framework of classical rights, as one more issue within economic, social and cultural rights (Gudynas, 2011) which is actually one of the most important claims of Buen Vivir. This difference is important because, as Bolivia does not include Nature Rights, tensions remain as traditional visions of development crept into the Bolivian Constitution in those articles where the proposition is that one of the goals of the State is to industrialize natural resources. In Article 355 “industrialization and marketing of natural resources is to be a priority of the State”. This opens the door to all sorts of contradictions with those who demand the protection and integrity of Nature. In Ecuador, it is presented as “the rights of good life”, and within this approach are included various rights, such as those on food, a healthy environment, water, communications, education, housing, health, etc. From this perspective, the Good Life is differentially expressed by a set of rights, which in turn are at the same level of hierarchy as other sets of rights recognized by the Constitution (Gudynas, 2011). Ecuador’s Constitution also presents a section dedicated to “the regime of Good Living”, in two different aspects: those related to inclusion and equity (such as education, health, social security, housing, social communication, transport, science, etc.); and those focused on the conservation of biodiversity and natural resource management (e.g., protection of biodiversity, soil and water, alternative energies, urban environment, etc.). (Gudynas, 2011). Article 275. The development structure is the organized, sustainable and dynamic group of economic, political, socio-cultural and environmental systems which underpin the achievement of the good way of living (sumak kawsay).   The State shall plan the development of the country to assure the exercise of rights, the achievement of the objectives of the development structure and the principles enshrined in the Constitution. Planning shall aspire to social and territorial equity, promote cooperation, and be participatory, decentralized, deconcentrated and transparent.   The good way of living shall require persons, communities, ­peoples and nationalities to effectively exercise their rights and fulfill their ­responsibilities within the framework of interculturalism, respect for their diversity, and harmonious coexistence with nature. (Constitution of Ecuador)

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The major difference between the two Constitutions, is that Ecuador recognizes the Rights of Nature, since in the Ecuadorian Constitution it is stated: Article 71. Nature, or Pacha Mama, where life is reproduced and occurs, has the right to integral respect for its existence and for the maintenance and regeneration of its life cycles, structure, functions and evolutionary processes.   All persons, communities, peoples and nations can call upon public authorities to enforce the rights of nature.To enforce and interpret these rights, the principles set forth in the Constitution shall be observed, as appropriate.   The State shall give incentives to natural persons and legal entities and to communities to protect nature and to promote respect for all the elements comprising an ecosystem.   Article 72. Nature has the right to be restored.This restoration shall be apart from the obligation of the State and natural persons or legal entities to compensate individuals and communities that depend on affected natural systems. (Constitution of Ecuador) In those cases of severe or permanent environmental impact, including those caused by the exploitation of nonrenewable natural resources, the State shall establish the most effective mechanisms to achieve the restoration and shall adopt adequate measures to eliminate or mitigate harmful environmental consequences. In that way, Ecuador aspires to include the vision of indigenous people that considers this union between Humans and Nature, and defend its rights despite human economic interests. In this way, the Ecuadorian government proposed in 2007 to leave the oil in the ground at the Yasuni National Park. The idea was that Ecuador could ask for compensation for doing so, and although it would be significantly less than the oil revenues at the world market price, Ecuador could contribute to p­ reserving the National Park and avoid exploiting oil. For Fartheuer (2012), ­Ecuador’s proposal goes against the grain of current trends in commodity policy that focus on the development of new, unconventional oil resources.They also proposed a compensation plan for avoiding deforestation. As Fartheuer (2011) states, “While Ecuador’s proposal goes beyond day-to-day realpolitik, it is quite feasible. It is within the context of Buen Vivir by rethinking the conservation of nature while simultaneously positing a concrete agenda”. In the same way, Evo Morales voted against the Climate Change agenda in Cancun, while considering that it was completely unaffordable and has even managed to have 22 April declared International Mother Earth Day (Pachamama’s Day) by the United Nations. There are some contradictions and opportunities for Buen Vivir. These ­governments tried to incorporate these rights, they broke with the occidental hegemony of ideas and concepts in their Constitutions, and they tried to propose

Latin-American “Buen Vivir/Good Living” 181 TABLE 12.1 The different world views

Capitalist civilization model

Good Living/Buen Vivir

Secularization: loss of sense of the sacred; Nature is inert History is not a referent

Nature has a sacred meaning and is full of life Tradition and history, which are always reinterpreted, are a way of understanding the present and of projecting the future Cosmocentrism: the man/woman are one more of the components of nature Commercialization does not intervene in the whole reproduction of life. Solidarity/reciprocity are ways of solving productive and social management and political management Nature is alive and sacred

Androcentrism: Overconfidence in human intervention on nature Commercialization of all aspects of daily life

Nature conceived as a source of exploitable resources Valuation of the possession of consumer goods and material success Instrumental rationality Valueless economy

Profit and maximization of profit are supreme goals Confidence in unlimited growth

Destruction of biodiversity High energy use in production that is not counted (water, fuel, agrochemicals, transgenic seeds, work, etc.) Preference for agro industry Social and cultural homogeneity is favored while individual competition is stimulated leading to growing social inequality Depoliticization of the individual

Assessment of the prestige of people who have it for their service in the community Affective and contextual rationality The values regulate the exchange/reciprocity and between the members of the community and nature Harmonious coexistence with the community and with nature are the supreme objectives Growth in itself makes no sense but the satisfaction of needs to reproduce life in a frugal way Preference for diversity in every respect Low energy use because production is designed for consumption and reproduction of life

Preference for family farming It privileges equality, in a plural coexistence.

The community assumes political management because the management of the territory is indissociable from productive and social management Depredation of nature and destruction Coexistence and dialogue between all living of social relations that call into beings in a context of plural community question the survival of all humanity relations Source: Translated from Ascarrunz (2011: 432).

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programs and concrete actions. At the same time, both governments are criticized because of the increasing distance between them and social movements, the still developmentalist agenda against natural rights, and the social policies implemented based in neo-extractivist activities such as mining, oil explorations, etc.

Conclusion Good Living, from its different expressions (Sumak Kawsay for the Quechuas, Suma Qamaña for the Aymara and Teko Porã for the Guaranies) has represented a displacement of knowledge and enriched the Latin American epistemological debate. The recognition of the other in terms of cognitive justice has generated a rupture with the universal tendencies of the structural-functionalist patterns. The prevailing need for local knowledge, from Latin American thought itself, has opened the debate not only within the region but also at the world level, where the dilemma about the opening of the social sciences is not the only one within the field of interdisciplinarity, but also from the level of interculturality (learning from those who are others, including those we study). In order to avoid the reproduction of hierarchical schemas of knowledge at a global level, more horizontal intercommunication between cultures and knowledges will have to take place. It is necessary to construct an anthropological reading of the modern Western creation of the social sciences, often naturalized as universal. Confirming the existence of a much broader and more diverse universe, with a more holistic and less fragmented reading, as Good Living proposes, can help us to overcome the fragmentation driven by the desire of modernity’s domination.We must commit to the construction of the epistemologies of the South (Sousa Santos, 2014) that seriously considers the South as a potential for the production of critical knowledge, without forgetting that it is not only knowledge in epistemological terms, but above all, in ontological terms, since knowledge represents world-views of the world that coexist and at the same time are opposed to the model of capitalist development. A decolonization in epistemological and ontological terms where complexity theory could help us understand differences could be a way forward. In this way, criticism and deconstruction are not enough, but only the first steps, as the construction and projection of alternative horizons in this period of civilizational crisis is a necessary endeavor. Good Living is projected not as a universalizing hegemonic project as is Eurocentric knowledge, but as a model that allows us to see that there are other ways of being that are invisible, denied and subalternized. The recognition of good living can be the beginning of a further step towards the opening of the social sciences, rethinking Eurocentrism and the divide between nature and society. The proposal of a holistic vision, which breaks with the old divisions proposed by different social science disciplines will allow us to better understand the diversity of cultures and their respective ontological understanding of worldviews.

Latin-American “Buen Vivir/Good Living” 183

The inconsistencies between the perspectives that seek a disciplinarization and neutralization of the concept of Good Living for developmental purposes, and on the other hand the readings that emphasize their critical and emancipatory potential as interculturality, are part of the process of not following neoliberal recipes in the quest to build another instrumental knowledge. Latin American debates have contributed to emphasizing the limits of Eurocentric disciplinary knowledge while opening up the possibility for the construction of multiple possible alternatives. If this occurs, the “West” can not only learn from the “Rest” in terms of its own contemporary problems (nationalism, exhaustion of natural resources, increasing inequality, etc.), but engage in a fruitful dialogue with the non-West about the problematic ways it has studied and ruled the non-West. This implies how ultimately the “West” studies things, human beings and nature, but also sees itself. Perhaps one day, as a consequence of this ongoing dialogue, it might even cease to think of itself as “the West” and just be humanity, but in order for that to happen much more time is necessary.We suggest it is imperative to reconsider the way we think, act and self-identify in the world. Far from approaching the end of history, we argue that epistemological as well as ontological decolonization is only at its very infancy.The increased chaos we currently observe in the modern world system, to a certain extent reverberating in the institutions of higher learning (especially in the modern university system) that have always attempted to explain away its anomalies, can only facilitate and accelerate this process.

Note 1 Amerindian principles are different from Western principles, and they agree with the development of a new physics: Complementarity of opposites principle: A and B are opposites, but they complement each other in a contradictory relation that completes them. It relates to the Niels Bohr principle in which there is a complementarity relation between wave-particles, and that was developed by Broglie. The new quantic physics ­admits the possibility of the continuity (waves) and discontinuity (particles), from both there is a new third included, the C possibility that includes A and B, but it is different from them. The third included: it means there is a third possibility, there is a possibility beyond the contradictory principle, and it is the complementary relation. The T state as described by Lupasco and his non-­Aristotelic logic, states that two antagonistic polarities can create a third contradictory potentiality: the third included.

CONTRIBUTORS

Luis Clavería has a Master’s degree in International Studies from the Advanced

Studies Institute of University of Santiago of Chile (IDEA-USACH) and is a Political Scientist whose Major is in International Relations, at Alberto ­Hurtado University (UAH). Luis Claveria is working as a research assistant in the ­FONDECYT-funded project number 1190481. He has been an adjunct professor in the Political Scientist undergraduate degree at Alberto Hurtado University. His research interests are focused on the environmental struggles in the International System from a Latin American perspective. Julien Demelenne Graduated from the Federal University of Latin American

Integration (Unila, Brazil) and holds a Master’s degree in “Political Studies” from the École des Hautes Études en Sciences Sociales (EHESS, France), where he is a PhD student. He received several research grants including the UNILA scholarship, the “Carlos Antonio López” scholarship to finance his Master’s degree, and a grant from the “Fondation de France”. Currently he is working on the relationship between linguistics, society and politics in Paraguay. Luis Garrido Soto is a historian who graduated from Alberto Hurtado Univer-

sity, Chile, and obtained a Master of Arts in Sociology at SUNY-Binghamton. In 2015 he published the book La “vía chilena” al socialismo (1970–1973): un itinerario geohistórico de la Unidad Popular en el sistema-mundo [The “Chilean Road” towards Socialism (1970–1973): A Geohistorical Itinerary of the Popular Unity in the World-­ System] in Ediciones Universidad Alberto Hurtado. He is currently a PhD student in the department of sociology at SUNY-Binghamton. His research topic is about the “thalassocratic road towards socialism” which intends both to incorporate the

Contributors 185

maligned sphere of circulation and its spatial/geographical scope through the role of maritime transportation of foreign trade as a key strategic dimension. Daniel Gugan obtained his PhD at Corvinus University in Budapest in 2013. He

is currently affiliated with the Institute of International Relations there as well as the Interdisciplinary Centre for Security, Reliability and Trust at the University of Luxembourg. His research interests focus on Euro-Mediterranean Interdependence, Economic Co-development and contemporary social theory. María José Haro Sly is an Argentine scholar who graduated in political science

and sociology from the Federal University of the Latin American Integration, UNILA, Brazil; Master in International Affairs from the Federal University of Santa Catarina, UFSC, and is a Master’s candidate at the Silk Road School at Renmin University of China on Contemporary Chinese Studies. She has published papers at Nature and UNESCO and is currently a Researcher at the Political Economy of the World System Center at UFSC, with a focus on Latin American Studies and China–Latin American relations. Roberto Patricio Korzeniewicz, PhD, is Professor and Chair of Sociology at the

University of Maryland, College Park, USA. His book Unveiling Inequality (2009), co-written with Timothy P. Moran, won the 2010 Best Book Award of the Political Economy of the World-System section of the American Sociological Association. His current research focuses on global patterns of income inequality, social stratification and mobility, and on historical and current patterns of political change in Latin America. Taylor Mann is the Chief Investment Officer of Pine Capital – a Texas-based

investment advisory firm. His main area of interest lies in the relationship ­between institutional structures and social forces; he is currently working on a project that uses artificial intelligence to analyze this relationship within a new proprietary database. He holds a BS in Economics from Texas A&M University and will enter graduate school in the fall of 2020. Eric Mielants is Professor of Sociology in the College of Arts and Sciences at

Fairfield University and Research Associate of the Maison des Sciences de l’Homme in Paris. He has written articles and essays on racism, capitalism, social theory, political economy and contemporary migration issues which have also been published in Dutch, French, German, Spanish, Korean, Turkish and Japanese. His comparative and historical social science research deals with the origins and nature of globalization/capitalism and the mass migration of

186 Contributors

people in it. How the modern world economy came into existence and how it continues to function in terms of political economy as well as racial formations is part of his ongoing research agenda. He also writes about the epistemological challenges of studying the world economy in all its complexity. Daniel H. Neilson is assistant professor of economics in Bard College at Simon’s

Rock. He is a monetary economist, specializing in the interaction between monetary policy and the financial system. His research has focused on China’s financial markets, on the structure of the global monetary system, and on the evolution of the Federal Reserve. Previously, Dr. Neilson was an economist at George Soros’s economic think tank, where he helped create a global research program to promote novel and critical theories for understanding issues of financial stability. He has been teaching at Simon’s Rock since 2008. Corey R. Payne, is a PhD student in the Department of Sociology at Johns

­ opkins University and a graduate researcher at the Arrighi Center for Global H Studies. His research areas are historical capitalism, global governance, and the political-economy of war and coercion. Lucimara Flavio dos Reis is an Adjunct Professor of Public Policy at the ­Federal

University for Latin American Integration – UNILA, Brazil. He has a degree in Social Sciences (2003) and a master’s degree in Human Geography from the University of São Paulo (2010). He also holds a PhD in Architecture and ­Urbanism, with a concentration in Urban and Regional Planning from the Faculty of Architecture and Urbanism of the University of Sao Paulo (2015). His areas of expertise are Political Economy of the Territory, Urban and ­Regional Planning and Public Policies for Cities. Currently he is studying the policies for the central areas of the urban agglomerations of Buenos Aires, Sao Paulo, Seoul, Hong Kong, Guangzhou and Shanghai. Katsiaryna Salavei Bardos received a PhD in Finance from the University of

­ onnecticut. She is an Associate Professor of Finance at Fairfield University C where she teaches Introduction to Finance, Financial Management and a Seminar in Real Estate at the undergraduate level, and Corporate Finance at the graduate level. She serves as a faculty advisor to students competing in the Charted Financial Analyst Investment Research Challenge and Real Estate Club. Her research interests are real estate and corporate finance. She has published articles in top journals such as the Journal of Financial and Quantitative Analysis, Journal of Urban Economics, Journal of Real Estate Finance and Economics, Journal of Financial Research and Journal of Behavioral Finance. Her research r­ eceived an outstanding paper award at a national conference and at the Dolan School of Business; has been discussed

Contributors 187

in CFO magazine and Harvard legal forum, presented at the US Securities and Exchange Commission and referenced in a US Treasury White Paper. Rodrigo Luiz Medeiros da Silva holds Bachelor’s and Master’s Degrees in Eco-

nomics. Received his PhD in Sociology from the University of Sao Paulo in 2012 and then joined the Latin American Institute of Economics, Society and Politics at Unila (Federal University for Latin American Integration, Brazil). He is Adjunct Professor of International Economics. His research concerns the evolution of the Capitalist World-System and the impact of its rebalances on peripheral development. He is vising researcher at the Universities of Seoul and Hong Kong. Since 2019, he has been Provost for Academic and Institutional Affairs at UNILA. Ganesh K. Trichur teaches political economy and historical sociology. His area of

specialization is China and the East Asian region. His works have appeared in the Journal of World Systems Research and in Globalizations. He is the author of an edited volume on Asia and the Transformation of the World-System. Juan Pablo Vásquez Bustamante is a PhD candidate in Estudios Americanos and

Master in International Studies by Instituto de Estudios Avanzados of the Universidad de Santiago de Chile.Vásquez has a BA in History, BA in E ­ ducation, and is Professor of History and Geography by Universidad de Playa Ancha de Ciencias de la Educación. Currently, he is a professor at Escuela de Ciencia Política y Administración Pública of Universidad Miguel de Cervantes. He is also Co-researcher in the Fondecyt-funded project No. 1190481.Vásquez specializes in the World-Systems Analysis theoretical perspective, whose main lines of research are International Studies, Environmental Crisis, Environmental Debate, Political History of Latin America and Latin American Post-­Neoliberal Processes in the early twenty-first century. Matías Vernengo is Full Professor at Bucknell University. He was formerly

S­ enior Research Manager at the Central Bank of Argentina (BCRA), Associate Professor of Economics at the University of Utah, and Assistant Professor at Kalamazoo College and the Federal University of Rio de Janeiro (UFRJ). He has been an external consultant to several United Nations organizations, such as the Economic Commission for Latin America and the Caribbean (ECLAC), the International Labor Organization (ILO), the United Nations Conference on Trade and Development (UNCTAD) and the United Nations Development Program (UNDP), and has published six edited books, one authored book, and more than 50 articles in peer-reviewed journals. He specializes in macroeconomic issues for developing countries, in particular Latin America,

188 Contributors

international political economy and the history of economic ideas. He is also the co-editor of the Review of Keynesian Economics (ROKE) and co-editor in chief of the New Palgrave Dictionary of Economics. Immanuel Wallerstein was a senior research scholar at Yale University and ­former

president of the International Sociological Association. He is the author of The Modern World System (four volumes) and founder of the Political Economy of the World System Section of the American Sociological Association.

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INDEX

Page numbers in bold denote tables, those in italics denote figures. Abbott, A. 157 Acosta, A. 175 American Silver 36 Andrade, Oswald de 79, 80 anthropocentrism 174 Arrighi, Giovanni 22, 37, 46, 55, 96, 114, 126n15, 148, 157–8, 159, 163, 186 Asian Tigers 26 asymptote 15, 18 Aymara 174, 176, 182 Bacon, Francis 174–5 Bardos, Katsiaryna Salavei 1–12 Baronov, D 157 Beckford, William 161 Bergesen, Albert 109, 109–10, 111, 123n7 Bernanke, B. 4, 31 Blyth, Mark 61, 62–3 Boatcă, Manuela 90–1 Bolivia: Buen Vivir/Good Living experiences 177–82; Constitution 178–9 Bolsonaro, Jair 6, 72, 73, 74, 79, 80, 88–9, 90, 91, 93n2, 93n3, 93n4, 95n38 Bourdieu, Pierre 78, 94n14, 169 Braudel, Fernand 1, 14, 22, 111, 159 Brazil 6, 72–95, 184, 185, 186, 187; Anthropophagic Manifesto 79; Bolsonaro’s foreign policy 72–3; and China 73, 74; corruption allegations 82–4, 86–8; cultural and institutional

flows in the relation between core and periphery 75–80; dependent cultural horizon of elites 77–8; economic liberalism 6, 78, 79, 91, 95n42; gender issues 91; labor divisions 74, 77–8; legal system 84–5, 88; media 83–4, (86) 87, 88; middle classes 91, 92, 93; Operation Car Wash 82–3, 84, 86; peripheral conservatism in a changing international order 90–3; political crisis timeline 80–90, 81, 82, 86, 87, 89, 91; political equilibrium 73; political reform proposals 81–2; political rhetoric 78; presidential impeachment 85–6, 91; in recession 83; riots and protests 80–1, 86; social and income inequality 73–4; study objectives and methodology 72–5; Tupi language 79; urban transportation 80–2 Brenner, R. 97, 117, 123n7 Bretton Woods 3, 24, 25, 30, 31 Brewer, John 29 Bruckmann, Mónica 146–7, 148 Buen Vivir/Good Living 11–12, 168–83; Amerindian civilization 177, 183n1; Bolivian and Ecuadorian experiences 177–82; concept of 175; different world views 181; epistemology within the world system 168–72, 182; indigenous world views 173–4, 175, 176, 177,

Index 203

178, 180; individualist principle 177; non-contradiction principle 176–7; and opening up the social sciences 172–6; Third excluded principle 177; Western dualism, criticism of 176–7 Bunker, Stephen G. 98–9 business cycles 1, 4, 5, 14, 15, 23, 35, 36, 38, 44, 55, 62, 70; asymptote 15, 18; capitalist business cycles 4, 36; chaotic unpredictability 15–16; Davos and Porto Alegre 2, 9, 19–20, 144; dialectical relationship with political trends 5, 61–2; downturns 2, 13–14; economic theories of 2–3, 23; fluctuations 2, 14, 23, 24, 27, 39, 44, 45, 46; input costs 18; production costs 16–19; remuneration of personnel 2, 17–18; taxation 17, 18–19, 37, 50, 81; theories of cycle and crisis 23–5; upturns 15; see also militarism and business cycles capitalism 2, 25; capitalist accumulation 7, 11, 37, 56–7, 102, 111, 117; capitalist business cycles 4; capitalist civilization model 181; capitalist world system terminal recession 148; circuit of capital 97, 101, 102, 103, 121; definition 35; exchange, transport and freight rates in historical capitalism 100–3, 113, 114, 118; expansion of material limits 98–9; historical capitalism 7, 10, 35, 42, 96–7, 98, 99; late capitalism and interaction of its economic and ideological cycles 138–41, 138, 139, 140, 142–3; military history and the rise of capitalism 39–42; modern capitalism 75, 76, 90; neoliberal capitalism 2–3, 22–3; requirement of transportation 101–2; structural crisis of 3; US capitalism 129–30 chaos theory 134, 137 China 3, 6, 22, 25, 26, 32, 34n9, 34n12, 36, 46, 55, 56, 76, 93n7, 132, 162; “Beijing Consensus” 149; and Brazil 73, 74; and capitalist accumulation 37; “Commodity Agreement” concept 149; and Ecuador 146–54; exports 26–7, 27; final consumption expenditure 29; relations with Ecuador in the Citizens’ Revolution context 151–3; role in Latin America 9–10, 146–9; role in the world system 146; as a threat to US

hegemony 30, 31–2; and the world economy 147–9 Ciccantell, Paul S. 98–9, 104 class: politics and voting 64–5, 65, 67; struggle 9, 16, 30, 32, 50, 73, 91, 92, 97, 139, 140, 141, 144–5 Clavería, Luis 9–10, 146–54 commodities/commodity chains 6, 31, 38, 53, 56n6, 57n11, 97–8, 101, 102, 103, 104, 105, 107, 108, 112, 113, 114, 116, 118, 119, 120n3, 122, 126n15, 147, 149, 158; “Commodity Agreement” concept 149 conservatism 90–3 consumption 4, 28, 29, 29, 31, 33n4, 34n17, 38, 51, 53, 54, 91, 94n19, 101, 111, 112, 115, 118, 121, 159, 176, 181 core and periphery in world systems analysis 10–11, 74, 112, 117, 118, 119, 120, 123, 124n9, 125, 126n14, 146, 147, 148, 149, 150, 153, 155–67; Brazil 75–80; distributional outcomes 156; free trade imperialism 163; global linkages 11, 165; limits of the nationstate as datum 163–5, 164; meaning of core, semiperiphery and periphery 156–8; peripheral conservatism in a changing international order 90–3; spatial locations 100, 156, 157; worldmagnates and identifying core and peripheral activities 158–62, 160 coupling 62 credit 19, 38, 39, 41, 42, 46, 53, 57n9, 57n11, 63, 85, 113, 130, 146, 152 Crimean War 1854–1856 48 crisis 1, 2, 3, 4, 6, 7, 8, 14, 15, 16, 19, 22; concept of 1, 13; of neoliberal order 22–33, 36, 37, 45, 46, 47, 48, 51, 52, 53, 55, 56n3, 58n18, 62, 64, 70, 73, 74, 79, 80, 83, 85, 86, 91, 92, 118, 127, 128, 129, 130, 132, 133n2, 143, 144; structural cycles 1–2 Davos 2, 9, 19–20, 144 debt 8, 10, 24, 32n2, 51, 52, 63, 129, 130, 132, 150, 151, 152, 153 Demelenne, Julien 11–12, 168–83 dependence theory 77–8, 90 deruralization 17–18 dissociative identity disorder 80 Drake, Francis 41 Drangel, J. 157, 158, 159 Drax, James 161

204 Index

Durkheim, E. 169 “Dutch Wars” (1568–1609) 36, 37 Eco, Humberto 176 economic growth 3, 6, 11, 12, 23, 25, 26, 26, 28, 28–9, 40–1, 73, 139, 139, 140, 148, 168, 174, 175 Ecuador 10, 12, 146–54, 168, 176, 178, 179, 180; Buen Vivir/Good Living experiences 177–82; and China 146–54; Citizens’ Revolution 147, 149–51, 154n4; Constitution 154n5, 179–80; debt 152; emblematic projects and strategic sectors 152–3; energy matrix 149–50; foreign direct investment (FDI) 152; independence and sovereignty 150–1; new financing sources 151; overcoming neoliberalism 150; relations with China in the Citizens’ Revolution context 151–3; trade 151–2; Yasuni National Park 180 elasticity of demand 17 embeddedness 8, 9, 134, 135, 137, 138, 142, 143; see also socio-economic systems Engels, Friedrich 175 epistemology 168–72 Escobar, Arturo 172, 175 Estermann, J. 177 external shocks 2–3, 6, 23, 96–7 Fartheuer, T 180 fascism 92, 127, 133n2 Federal Reserve 2, 23, 53, 93n7 Fernandes, Florestan 92 Fincher, Corey 65 First World War 1914–1918 50–1, 53–4, 55, 56n2, 58n19, 59n22 Flavio dos Reis, Lucimara 6, 72–95 foreign direct investment (FDI) 146, 149, 151, 152, 175 foreign trade see transportation fragility 24, 103, 129 Franco-Prussian War 1870–1871 47–8 free trade imperialism 163 Freyre, Giberto 78, 94n13 Friedman, M. 2, 23, 33n2 Furtado, Celso 76, 77, 78, 79–80, 90, 94n21 Garrido Soto, Luis 96–126 Gelis-Filho, Antonio 92–3, 95n43, 95n44 Gil, Gilberto 80

Gini Coefficient 6, 73, 177 Global Value Chains (GVC) 3, 26, 30, 31–2 Gold Standard 3, 7–8, 24, 33n2, 50, 58n17, 127–9, 130, 131, 132 Gordon, Robert 22, 30 Great Depression 3, 23, 24, 33n2, 53, 54, 138, 140 Great Recession 2, 22, 139, 140 gross domestic product (GDP) 3, 10, 25–6, 26, 63, 67, 79, 152; China, USA, and the world compared 28, 28; United States 27, 27 Gudynas, E. 174, 175, 176, 177, 178, 179 Gugan, Daniel 8–9, 134–45 Gunder Frank, Andre 77, 78, 100, 109, 110, 111, 123n7, 146–7, 148 Hansen, Alvin 30 Harvey, David 114–15, 119, 125n13 hegemony 3, 4, 9–10, 11, 22, 24, 24–5, 31, 36, 55, 98–9, 170, 177, 180; Dutch hegemony 109, 110–11; hegemonic crisis 55; United States 30, 32, 33n2, 74, 147, 148, 165, 172; British 163, 165 Herrera y Santo Domingo, Juan de 161 historical continuity principle 39, 56n4 Hope, Henry 161 Hopkins, Terence K. 26, 97–8, 118, 156, 157 Hugill, Peter J. 109 identity politics 5, 16, 64, 67 India 3, 25, 26, 30, 41, 42, 51, 54, 57n10, 76 inequality 3, 4, 5, 6, 30, 31, 32, 34n14, 63, 64, 66, 73, 83, 166, 177, 181, 183; Brazil 73–4 Inglehart, Ronald 5, 63, 64–5, 66 interculturalism 173, 179, 182, 183 interest rates 3–4, 30–1, 38, 56n5 International Monetary Fund (IMF) 33, 63, 66 Jardine, William 161 Jenkins, Rhys 132, 146, 148–9 Johnston, R.J. 119 Kalecki, Michael 24, 34n8 Kant, Immanuel 175 Karatasli, S.S. 158, 157, 159 Kaukiainen, Yrjö 96–7

Index 205

Keynesian influences 2–3, 9, 24, 30, 33n3, 34n17, 40, 44, 45, 49, 129, 138, 139, 139, 140, 141, 145 Kindleberger, C.P. 24, 33n2, 131 knowledge 12, 57n10, 74, 91, 109, 139, 149, 153, 168, 169–70, 171, 172, 173, 174, 177, 182, 183 knowledge society theory 149 Kondratieff, N.D. 4, 17, 23, 35, 37–8, 39, 43, 45, 49, 50, 53–4, 56n1, 56n5, 57, 58n16 Korzeniewicz, Roberto Patricio 10–11, 155–67 labor divisions 74, 77–8, 97, 97–8, 98, 117, 118, 119, 123n7, 156 labor process 99, 103–6, 144, 156, 157, 162 Laclau, Ernesto 100, 118 Lander, Edgardo 170 Lane, F.C. 39, 112, 125 law of value 101–2, 105, 116, 125–6n13 layering 129, 132 Lefebvre, Henri 107–8 liberalism 7, 78, 79, 127 List, Friedrich 75–6 long economic waves (LEWs) 5, 35–6, 38–9, 98; first long wave 1786–1842 39, 42–4; second long wave 1843–1897 45–50; third long wave 1898–1932 50–3; and transportation 99 Lula da Silva, Luiz 80, 83, 84, 86–8, 89, 95n35, 95n37 McCloskey, Deirdre 28 McNeill, W.H. 4, 36, 37, 40–2, 44, 46–50, 53–5, 53–5, 56n3, 57n6, 57n7, 57n8, 58n12, 58n13, 58n14 Machado de Assis, Joaquim 78 Mann, Taylor 4–5, 60–71 Marchionni, Bartolomeo 161 Marx, Karl 2–3, 7, 20, 24, 33n4, 34n8, 36, 97, 99, 141; Capital 100–3, 103–10, 113–16, 118, 120–1n3, 121–3n5, 121n4, 121n5, 123n7; Grundrisse 114, 115, 116 Material Insecurity hypothesis 5, 64–5 Medeiros da Silva, Rodrigo Luiz 6, 72–95 Medina, Javier 176–7 Mehrling, P. 131 metanarratives 8, 9, 135, 137–8, 139, 141–3, 144–5 Mielants, Eric 1–12, 33n1, 168–83 militarism and business cycles 4, 35–59; canals 43; enclosures 39, 42; external

factors 35, 36, 43, 53–5; first long wave 1786–1842 39, 42–4; industrial mergers 52–3; Italian city states 39–40; long economic waves (LEWs) 35–6, 38–9; mass production of weapons 48–9; military entrepreneurship 37; military history and the rise of capitalism 39–42; military innovation 40–2, 44, 48, 49, 54, 55, 58n14, 58n19; naval war machinery 45–6; organizational innovations 46; population growth 44, 58n13; protectionism 50; railroads 45, 46–7, 52; second long wave 1843–1897 45–50; third long wave 1898–1932 50–3; transnational economic and military organization 54–5 Miller, G. 5, 66–7 Minsky, Hyman 7, 8; monetary system 127–33, 131; payment as pathology 129–30; payments system 131–2; survival constraint 130 Modelski, George 109 modernity 140, 143, 144, 168–9, 170–1 Mokyr, Joel 28 Moore, Jason 125–6n13, 126, 174 multiplier-accelerator mechanisms 24 nation-states 163–5 nationalism 2, 5, 16, 50, 183 Neilson, Daniel H. 7, 127–33 neoliberalism 2–3, 22–34, 138–9, 139, 140, 140, 177; cycle and crisis, theories of 23–5; economic growth 25, 26, 28–9; evidence for the current crisis 25–30, 26, 27, 28; final consumption expenditure 29; neoliberal attacks 25; overcoming neoliberalism 150; and secular stagnation 30–2 North, Douglass 28 O’Brien, Patrick 34n7, 112, 124–5n9 Ouriques, H.R. 90 parasite stress theory 65, 66 Parish, John 161 Parsons, Talcott 175 Payne, Corey R. 10–22, 155–67 Pettis, M. 31 Polanyi, Karl 7, 8, 44; Gold Standard 127–9, 131, 132; hierarchical money system 130–2, 131; Minskyian monetary system 127–33; payment as pathology 129–30; payments system 131–2; survival constraint 129, 130, 132

206 Index

political economy 60–71; cohesion, membership, political equality and majority coalitions 69, 69; coupling 62; and cultural environments 4–5; dialectical dynamics 60–1, 61, 61; dialectical relationship between integrative and disintegrative phases 67–9, 68; dialectics of political economy world systems (PEWS) 61–2; economic crisis, suicide rates and populist vote shares 70; international macroeconomic regimes 62–6, 63; national regime formation 66–9, 67; parasite stress theory 65, 66; political economy world systems (PEWS) 5; relationship between macroeconomic regimes and political cleavages 64–5, 65 populism 3, 23, 30, 33, 34n15, 64, 65 Porto Alegre 2, 19–20 predator-prey mechanism 2, 23–4 primitive accumulation 4, 36, 56n4 production costs 2, 16–19; input costs 18; remuneration of personnel 17–19; taxation 18–19 profits 2–3, 8, 10, 11, 16–17, 23, 24, 33n5, 36, 38, 53, 55, 77, 100, 122, 124, 138, 156–8, 161, 163 reality 8, 14, 19, 92, 102, 135, 168–71, 173 religiosity 76, 141–2, 143 Rousseff, Dilma 73, 81–2, 82, 83, 84; impeachment of 85–6, 86, 91 Say’s Law 34n8 Schofield, N. 5, 66–7 Schumpeter, J.A. 2, 4, 10, 23, 35–6, 37, 42–4, 45, 46, 47, 50, 52, 53, 158, 159, 167n8 Schwartz, A. 2, 23 Schwarz, Roberto 78, 79 The Second Mother (film) 73 secular stagnation 30–2 secular trend 1, 14, 15 self-regulating market 7, 8, 127, 128–9 Seven Years War (1756–1763) 41 Silva Lisboa, José da 79 Silver, Beverly 98 slavery 11, 79, 161–2, 163, 165 Slipak, A.M. 149 Sly, Jose Maria Haro 11–12, 168–83 Smith, Adam 33n4, 34n8, 34n9, 34n10, 34n11, 37, 79, 109, 123n7

Smith, Neil 108, 115–16, 123n6 social sciences 11–12, 168–83; Amerindian civilization 177, 183n1; Bolivian and Ecuadorian Buen Vivir experiences 177–82; Buen Vivir/Good Living to open up the social sciences 172–6; different world views 181; epistemology within the world system 168–72, 182; hierarchies of power 171; indigenous world views 173–4, 177, 178, 180; individualist principle 177; knowledge 169–70, 171, 172, 173, 182; modernity 168–9, 170–1; noncontradiction principle 176–7; reality 168–9, 173; Third excluded principle 177; universities 169–70; Western dualism, criticism of 176–7 socio-economic systems 134–45; class structure 139–41; dynamic mutual embeddedness 137; economic growth waves 138, 139, 140; embedded systems approach to 134–8, 135; embeddedness concept 8–9; human development phases 138, 138; human technologies 137; ideological vacuum and need for a transformative metanarrative 144–5; individual level 136, 137; individual self-definition and cognitive function 142, 143; interactions among levels 136–8, 136; Keynesian influences 138, 139, 139, 140; late capitalism and interaction of its economic and ideological cycles 138–41; metanarratives 135, 137–8, 139, 141–3; natural reality level 135; neoliberalism 138–9, 139, 140, 140; production mode 137; social cognition level 135; societal organizational and affirmative function 142, 143; socio-economic reality level 135; technological reality level 135; work-free life 145 Soja, Edward 115, 116 Sombart, Werner 75, 76, 77, 90 Soto, Luis Garrido 6–7 Sousa Santos, Boaventura de 170, 172 sovereignty 147, 150–1, 153, 154 Statecraft 35, 36 Steinbeck, John 60 Stiglitz, J. 4, 31 Stinchcombe, A.L. 119 Strong, Benjamin 23 structural cycles and crises 13–21; asymptote 15, 18; behaviour patterns

Index 207

19–20; chaotic unpredictability 15–16; class struggle 16; crisis, concept of 1, 13; cyclical rhythms and secular trends 14, 15; Davos and Porto Alegre 19–20; downturns 13–14; eternal structures 1; events and cycles within structures conceptual framework 14; fluctuations 14; input costs 18; non-eternal structures 1; production costs 16–19; remuneration of personnel 17–18; structural crisis 1–2; structuralism 76, 77; taxation 18–19 sugar production 161–2, 163, 165 Summers, L. 4, 30–1 survival constraint 8, 129, 130, 132 Svampa, Maristella 149 Tabak, Faruk 14 Taylor, Simon 161 Tavares, M.C. 25 taxation 2, 17, 18–19, 50, 63, 145 Temple, Domique 177 Thirty Years War (1618–1648) 36, 40 Thompson, William 109 Thornhill, Randy 65 transportation 6–7, 96–126; circulation time 101; commodification of 106; connection with long waves 99; contradiction of scale and space 98–9; delivery 113; difference between producing for local markets and world markets 100–1; exchange, transport and freight rates in historical capitalism 100–3, 113, 114, 118; Fernhandel 111–12; foreign trade 107–8, 110, 111, 112, 116, 117; geographical substratum of the world system to the “Frankian Triangles” of foreign trade 107–14, 118–19; labor and valorization processes 103–6; law of value 101–2, 105, 116, 125–6n13; mechanization 113–14; protection rents 112, 113, 125n10; requirement of, in capitalism 101–2; spatial aspects 7, 96, 97, 98, 99, 100–1, 102, 103, 104, 105, 108, 110, 111, 114–15, 116–17, 118, 119, 121–3n5; state regulations/intervention 98; and the world-market as missing links in world-systems analysis 96–100

Trichur, Ganesh 4, 35–59 Trump, Donald 31, 73, 87, 93n4 Turner, Frederick Jackson 30 United States: final consumption expenditure 29; gross domestic product (GDP) 27, 28, 28; hegemony 30, 165, 172; income inequality 31; military advantage 34n12; political system, development of 66–9, 67; Civil War 1861–1865 47 Vásquez Bustamente, Juan Pablo 9–10, 146–54 Vercelli, A. 24 Vernengo, Matías 2–4, 22–34 Vietnam War (1965–1975) 37 Wallerstein, Immanuel 1–2, 9, 12, 13–21, 22, 24, 33n1, 26, 74, 90, 96, 97, 100, 108–9, 110–11, 117, 118, 120n2, 124–5n9, 144, 148, 156, 162, 172 wealth accumulation 10–11, 155, 156, 158, 159, 161, 162, 165, 166n1 Weber, Max 76, 110, 175 world-magnates 11, 155–67; and identifying core and peripheral activities 158–62, 160; networks 163–5, 164 world systems analysis 8, 74; capitalist world system terminal recession 148; circulation time 101; core versus periphery 10–11, 74, 75–80, 90–3, 148, 155–67; delivery 113; difference between producing for local markets and world markets 100–1; epistemology within the world system 168–72, 182; exchange, transport and freight rates in historical capitalism 100–3, 113, 114, 118; Fernhandel 111–12; foreign trade 107–8, 110, 111, 112, 116; geographical substratum of the world system to the “Frankian Triangles” of foreign trade 107–14, 118–19; internalist models 110; law of value 101–2, 105, 116, 117, 125–6n13; transportation labor and valorization processes 103–6; transportation process and the world market as missing links 96–100; see also socio-economic systems