Democracy Against Capitalism: Conclusion Part 2

Index to all posts in this series.

The Marxist views of Ellen Meiksins Wood in Democracy Against Capitalism give a bleak picture of capitalism which I contrasted with the view offered by Bruce Scott, the Paul Whiton Cherington Professor of Business Administration, Emeritus, at the Harvard Business School. Scott’s paper, The Political Economy of Capitalism is apparently a draft of a chapter of a book he wrote titled Capitalism: Its Origins and Evolution as a System of Governance. The book is available here.

The paper gives a picture of capitalism as an organic system that evolves as it encounters new things, rather than as a physical system, one subject to the laws of physics and chemistry. Scott calls capitalism a form of indirect governance of the economy. Here’s an extended quote from the paper that gives a fair picture.

Capitalism, as I define the term, is an indirect system of governance based on a complex and continually evolving political bargain in which private actors are empowered by a political authority to own and control the use of property for private gain subject to a set of laws and regulations. Workers are free to work for wages, capital is free to earn a return, and both labor and capital are free to enter and exit from various lines of business. Capitalism relies upon the pricing mechanism to balance supply and demand in markets; it relies on the profit motive to allocate opportunities and resources among competing suppliers; and it relies upon a political authority (government) to establish the rules and regulations so that they include all appropriate societal costs and benefits. Government and its agents are held accountable to provide physical security for persons and property as well as the laws and regulations. Capitalist development is built from investment in new technologies that permit increased productivity, where a variety of initiatives are selected through a Darwinian process that favors productive uses of those resources, and from the periodic modernization of the legal and regulatory framework as indicated by changing market conditions and societal priorities. Capitalist development requires that government play two roles, one administrative, in providing and maintaining the institutions that underpin capitalism, and the other entrepreneurial, in mobilizing power to modernize these institutions as needed.

I leave it as an exercise for the reader to work out the wide variances between his conceptualization of capitalism and real live capitalism. I will only point out the most obvious problem: the externalities of pollution are not corrected by any regulation or law, efforts to do so have been struck down by the courts, and the coming disaster cannot and will not be fixed by capitalism.

In the book, Scott says that he was dissatisfied with existing histories of capitalism because they were observational rather than explanatory. What he found lacking was human agency. This book is his attempt to incorporate human agency into the history of the evolution of capitalism.

When human agency is taken into account, the story of US industrial development in the 19th century becomes one of competition between those who wanted to empower firms to grow and become more productive and inevitably more powerful politically as well as economically, and those who wished to establish a regulatory framework to protect the public from the abuse of private power by those same firms, for instance, through regulation of railroad rates and/or by restricting the rights of firms to grow through mergers and acquisitions. P. xxi.

Scott claims that our current system features two systems of government, one for the economy and one for all other matters. The economy is managed by private interests, under rules and laws created by the central authority and by intermediary institutions. He calls this indirect governance of the economy. The other part of society is governed directly by the central authority. He identifies a three tier system of governance for the economy, using a sports analogy. In Olympic sports, there are the athletes and the games at one level, the governing bodies of the sports at another, and the top tier is occupied by the Olympics organization. By analogy, there are business firms at the first level of the economy, then institutional foundations, such as regulatory authorities, and then the elected officials at the third level.

In sports, as indeed in capitalism, political authorities play two distinct roles: one administrative, in maintaining the existing system of playing fields and enforcing the existing rules, and the second entrepreneurial, in mobilizing power to win the needed votes in the legislature in order to admit new teams, change the locations or timing of competition, change the rules and regulations, and/or change the distribution of revenues. Book, p. 50.

It’s possible to see the US system of capitalism as Scott describes it, at least in abstract theoretical terms. I don’t think he has solved the human agency question correctly. At least in the parts I’ve read so far, Scptt doesn’t discuss power relations in capitalism. For Wood, power relations are central to capitalism. She identifies those relations as the social relations between producers and capitalists: domination, exploitation and appropriation. Compare that with the description in the quote from Scott’s paper above: workers are free to work for wages (or not), capitalists are free to invest seeking a return (or not). What happens to workers who don’t work for wages? What happens to capitalists who don’t invest? The different outcomes are obvious: the workers starve, and the capitalists lives off their money.

Scott also understates the problems created by the power of the capitalists inside the organizational structure he describes. He is clear that capitalists have the ability to lobby, buy politicians and regulators and courts, and to rig the system in their favor. He recognizes that some of the gains of capitalists are the result of the “deliberate distortion of [market] frameworks for private advantage” but calls them by the bloodless term “externalities”. From the paper:

While small imperfections can be overlooked as acceptable aspects of an imperfect process, large, deliberate distortions for private gain are likely to add to the income inequalities in the society, creating and/or sustaining a vicious circle in which the markets serve as a way for the rich to exploit the poor. On the other hand, if a poor majority were to take political power in a country or region it could use that political power to shape institutions to disadvantage the rich, including to take their property.

Fear of letting the poor have a significant role in government has motivated the dominant classes throughout history, with few concrete examples of the horrible possiblity of losses by the rich.

And I’ll say again, capitalism isn’t going to fix the coming planetary disaster. In fact it’s going to make it worse by insisting on pumping more carbon dioxide and other chemicals into our environment. The continued profitability of huge swathes of the economy depends on it. As long as the economy is governed solely by the profit motive, there can be no solution.


Commenter Anon raises an interesting question: can the bloodless quality of Bruce Scott’s account of capitalism be attributed to Scott’s life work in the Harvard Business School. There is a partial answer in the Preface, which may be the single most useful preface I have ever read. He describes the evolution of his ideas, complete with the names of individuals, including his research associates, who helped him formulate them, and books and experiences that were important.

For those interested, this is worth reading, and I have a better understanding of the question Anon raises. In short, I think Scott has a framework grounded in standard economics and standard political science. He works at moving away from it, as is evident in his flat rejection of neoliberalism (he doesn’t use that term), as well as by his clear affinity for a form of capitalism. Thus, he finds himself in the gap between the structured views of capitalism we see in Wood, and the materials he found useless or dead wrong. He wants to construct a different view, but he tries to salvage as much as possible of the views he’s always held.

I’ll add a discussion of the similarities between Scott and Wood in the next part of this extended conclusion.

20 replies
  1. Anon says:

    Heavy analysis. I wonder in your view how much of his bloodless view can be explained by his position at Harvard Business. Leaving aside the fact that they don’t employ any real communists it also seems that his confidence about capitalism as a management tool for society and his willingness to dismiss “externalities” can be mostly attributed to his isolation from the rest of society. It is unlikely that many of his students or colleagues are actually “workers” in a real sense of the term. And environmental devastation is far far away.

      • Anon says:

        Thank you I just saw it. First it is interesting to hear that a preface is actually useful! Usually I skip them lest they stifle my interest in the actual material.

        I am curious how your analysis of their similarities will play out. I find that when I read economics it always feels less like a science than as an exercise in over-parameterized model-fitting. Empirical data seems hard to come by and is never clean and realistic experiments simply don’t happen. As a consequence the models feel less like profound views than something like Lyell’s Uniformitarianism, a formalization of ones’ own beliefs as Steven Jay Gould put it.

        That’s part of why I find your focus on the definitions so informative since that seems to be the one place where they do, or are forced, to put their cards on the table.

  2. earlofhuntingdon says:

    Scott is a little free with that freedom.  Labor is not so much “free” to earn a wage as required to earn one.  Capital is not so much “free” to earn a return as it is subsidized by government in doing so.

    As you say, Scott’s attempt to move beyond description to theory is flawed by ignoring too much history.  Arguably, for much of history, capital has not so much been constrained by an appropriate “set of laws and regulations” as empowered and immunized from liability by them.

    Scott’s definition and his theory would have benefited from including more description of how capital constrains political actors and keeps them from restraining its pursuits and ensuring that its costs include “all [appropriate] societal costs and benefits”.  That government functions in that way is one of economics most unreal assumptions.

  3. JJFF says:

    creating and/or sustaining a vicious circle in which the markets serve as a way for the rich to exploit the poor. On the other hand, if a poor majority were to take political power in a country or region it could use that political power to shape institutions to disadvantage the rich, including to take their property.

    Bloodless indeed. From this paragraph, at least, it sounds like he puts these two opposite outcomes on equal footing – i.e. both seem equally bad. But they’re not. Just going from a purely utilitarian view of which outcome harms more people, one could argue that the former outcome is far, far worse than the second, as there are far, far many more poor than rich.

    And losing some property seems much less bad than being exploited in perpetuity. Indeed, one could argue that the poor loose unrealized property to the rich on a continual basis given the way wages have been kept low for decades now. With the lost wages accruing to the rich, well, that’s just theft of something workers should have had but didn’t.

    Never even mind that there’s just no damn need for someone to have that much money. I get it, we all like money, and we all wish we had more, but like with anything, there should be limits. Not too mention, the idea that the rich earned all of that money on their own is absurd in various ways – and in various degrees, depending on who we’re talking about.

    Anyway, the older I get, the less I like capitalism. It’s got its place, but right now, this country is quite far away from what that should be. Or… maybe it doesn’t have its place because perhaps it’s impossible to constrain capitalism to its proper place? I’m not aware of any country in which that’s been done for any length of time.

    Thanks for doing these write-ups. I found them very educational and interesting!

    • Ed Walker says:

      Once you start looking closely at capitalism, especially the US version, you are struck by the problems it creates. Then you have to try to figure out some alternative. I don’t have one of those at hand, but I do have some ideas about the road to change and add more definition to my thinking as I read books like Bruce Scott’s.

  4. Alan says:

    Typo notice:

    “*Evan* (sic) a favorable view of capitalism offers little hope for the future.”

    Keep up the fantastic work!

  5. skua says:

    It seems to me that Scott’s recognition of human agency, while a useful addition to a capitalism-enthused understanding of capitalism, was preceeded in this recognition by Karl Marx.

    Now to work on the exercise set by Ed.

  6. Trip says:

    Here’s more confirmation of the impending disaster:

    Eric Holthaus‏Verified account @EricHolthaus

    This is worth repeating over and over: The most horrific thing Brazil’s new president, Jair Bolsonaro, has planned is privatization of the Amazon rainforest. With just 12yr remaining to remake the global economy and prevent catastrophic climate change, this is planetary suicide.

    Why Is The Amazon So Important?

    Rainforest Ecology

    Jair Bolsonaro is a right wing dictator, but proponent of “free market” capitalism, which will come with a VERY high price for the entire planet and its inhabitants. But stocks are up, so “YAY”.

    • earlofhuntingdon says:

      Money, money, money.  Screw the land, the people, the environment, the future.  That’s a level of violence Donald Trump can relate to, like his opening up all of America’s public lands to virtually cost-free resource extraction by private business.  Another example of state subsidies for private wealth, with local and national communities paying the real price.

      The MSM commentary is typically bland.  Bolsonaro “leans” right, prefers “tough” measures, professes an “admiration” for Brazil’s two decade-long deadly military junta.  He is unable “at times” to rise to the occasion when solidarity is needed.  It describes him with the same diluted language it uses with Trump: Bolsonaro says things that might be interpreted as racist or sexist.  In fact, he is violent, racist and misogynist and addicted to outrageous tests of testosterone level.

      Bolsonaro won because the state imprisoned Lula and prevented him from running, and because its propaganda machine played havoc with the alleged corruption on the left.  The latter, which exists, is a minnow compared to the right’s pervasive, massive corruption.  Bolsonaro is Brazil’s Duterte, he is Trump with a truncheon, a willingness to use it himself, and enough backing from the right to wield it without restraint – so long as he allows the haves to keep enriching themselves.  That he will do so in order to remain in and to increase his hold on power is a dead cert.

      One wonders what role the American CIA had in helping Bolsonaro to win.  It has a long history of involvement in Brazil – it was a big fan of Brazil’s junta – and Trump loves violent, rightwing bigots, who disdain having power without using it.

      • Trip says:

        I have to wonder if any of these people have children in their families. Their legacy to the youth will be torment, suffering, starvation, pandemics, natural disasters, wars erupting over resources, etc. for any of these generations in the future. And what of the elderly who will be immobile and stranded in cataclysmic climate and environmental disasters? We are talking about a few short years here. Not hundreds.

        The media has their heads up their asses. They are rewarding themselves today, for a hellish tomorrow that they too, and their families, will suffer and suffer greatly.

  7. earlofhuntingdon says:

    The Guardian has two related stories on Czechoslovakia’s – meaning, Russia’s – extensive spying operation against Donald J. Trump, starting with his first marriage, to Czech national Ivana – mother of Don Jr, Ivanka, and Eric – in 1977.  It apparently ramped up in the 1980s.  See here and here.  The KGB and its successors has been building its file on the Don for decades.  Wonder what’s in it.

    • Trip says:

      Kryuchkov circulated a confidential personality questionnaire to KGB heads of station abroad, setting out the qualities wanted from a potential asset.

      According to instructions leaked to British intelligence by the KGB defector Oleg Gordievsky, they included corruption, vanity, narcissism, marital infidelity and poor analytical skills. The KGB should focus on personalities who were upwardly mobile in business and politics, especially Americans, the document said.

      Talk about hitting a home run.

      • earlofhuntingdon says:

        Those poor analytical skills will get you every time.

        They haven’t improved any.  What’s missing from that description is Trump’s feral predatory sense.  It would have excited both his KGB handlers and Trump himself, because it meant he would be willing to do anything that promoted his vanity and need to feel powerful.  I’d call that a grand slam home run for the Russians.

  8. Greg F says:

    Thank you, Ed Walker, for this series of articles on Capitalism, plus your previous writings. How do we rein in the rich, and use some of that $2 billion a day military budget to fix up our infrastructure and maybe toss in a few more tents for the homeless? I write that rhetorically, as I don’t know a way to get there from here. Capitalism inherently has no safety net. How do we convince the greedy 1% that “a rising tide lifts all boats?” It reminds me of the “Merchant Banker sketch” from Monty Python, where Terry Jones asks John Cleese for a donation to an orphanage (it’s on YouTube).

      • Anon says:

        I’m not sure that you ever could. Being rich by definition means being comfortable and happy with the status quo, or at least the parts of it that make you rich. Outside of committed zealots like the Koch brothers the rich have little incentive to be convinced of anything that makes them uncomfortable or, worse yet, requires actual change. Doing so would mean surrendering the exact benefits of being rich.

  9. Willis Warren says:

    Scott’s claim about the economy has merit.  When Keynes, who is probably the most misquoted person in history, advocated that gov’t “stabilize investment,” he was attacked for years.  Now, the stock market is Keynes on steroids, only privately stabilized by mutual funds and 401k plans.

    That’s arguably better and I doubt Keynes would attack it in its nascent form, however, the market is susceptible to heavy outside influence from machines gaming the system.  While panics are not possible, it is possible to manipulate the market to the advantage of those with the machines.

    That’s the role that gov’t could and should play, to keep non investors from gaming the market.

  10. orionATL says:

    here’s the big question that has not been answered by this “series”:

    why waste political energy and human capital attacking an abstraction like “capitalism” when, staring you right in the face, is the direct, real-life source of many of our social and economic problems such as race and immigrannt baiting, low wage growth, income disparity, legal and political attacks on the affordable care act, environmental scientists and medical researchers, and relentless political attacks on education spending and on public schools, to name a few – the american business corporation. that is the “direct, real-life source of many of our social and economiic problem” that is staring this series on capitalism in the face?

    american business corporations – with their huge, deep pockets for political funding, with their armies of lawyers and lobbyists, and with their tightly organized effort to control american government at the state level thru alec and the state advisory network, and their very successful effort to take over the federal judiciary with idealogues, for starters. corporations exploiting the well-known weaknesses in out formal gov’t structure, like the electoral college and each state entitled to two senators.

    if you don’t see the “corporation problem” staring us in the face and don’t focus the fight on changing the way corporations are permitted to do business in this society, then you will not change any of the serious social and economic problems of this society.

    running thru the streets yelling “capitalism, capitalism” will get you nowhere.

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