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Growth and Development in the

Global Political Economy
Social Structures of Accumulation

and Modes of Regulation

Phillip Anthony O’Hara


Routledge


Taylor & Francis Group


Oxford and New York

Growth and Development in the Global

Political Economy

Recent institutional changes have seen the increasing dominance of globalization and neoliberalism in the world economy. As markets have been deregulated, privatization and unproductive government spending have been promoted. Yet the greater volatility of capitals, the emergence of many financial crises, a decline in trust, and environmental problems have cast doubt on the effectiveness of neoliberal globalization.


This book studies the impact of neoliberal globalization on growth and development in the world economy. It scrutinizes whether new social structures of accumulation or modes of regulation have emerged to promote long-term socioeconomic performance in the global economy during the early years of the 21st century. Special reference is given to the specific performance of neoliberal governance; transnational corporations; global institutions of money, trade and production; international relations of war and terrorism; financial institutions; and the family-community environment.
It is a comprehensive analysis of the degree to which institutional development has managed to promote socioeconomic performance in the global economy. It also presents a thorough policy program of action for long wave upswing in the world economy. It will be especially useful for those scholars and students concerned with issues of governance, global political economy, institutions and macroeconomics


Phillip Anthony O’Hara is Professor of Global Political Economy and Governance and Director of the Global Political Economy Research Unit, at Curtin University, Perth, Australia. He won the European Association for Evolutionary Political Economy ‘2002 Gunnar Myrdal Prize’ for Marx, Veblen and Contemporary Institutional Political Economy (Elgar 2000); is the editor of Global Political Economy and the Wealth of Nations (Routledge, 2004) as well as the Encyclopedia of Political Economy (2001, Routledge, paper edition). He is the author of over 60 articles in scholarly journals and edited books, such as the Review of International Political Economy, Review of Radical Political Economics, Journal of Economic Issues, Review of Social Economy, and European Journal of the History of Economic Thought.

Dedication
This work is dedicated, firstly, to my very best teachers —

Bill Winter

Peter Fitsgerald

Kong Sum


Albert Schweinberger

Herb Thompson

Allen Oakley

— secondly, to the memory (intellectual and/or personal) of some of the great long wave scholars of the past —

Sam de Wolff

Nikolai Kondratieff

Ernest Mandel

David M. Gordon

— and thirdly, to my favorite, grand political economists —

Karl Marx

Thorstein Veblen

Joseph Schumpeter

John Maynard Keynes

Contents
Figures

Tables


Forward by xxxxxxx [To come soon]

Preface


Acknowledgements
1. Long Waves of Growth & Development in the Global Political Economy 1
2. Cultural Contradictions of Global Capitalism 37
3. A Global Neoliberal Social Structure of Accumulation? 50
4. A Transnational Corporate Social Structure of Accumulation? 68
5. A Global Money-Trade-Production Mode of Regulation? 87
6. A Global Unipolar, ‘Anti-Terrorist’ Social Structure of Accumulation? 118
7. A Regime of Accumulation for Sustainable Productivity and Demand? 136
8. A Financial Social Structure of Accumulation? 156
9. A Family-Community Social Structure of Accumulation? 179
10. Post-Neoliberal Governance for Sustainable Global Growth & Development 203
Index

Figures

Figure 1.1 Global System of Power and Accumulation

Figure 1.2 US System of Power and Accumulation

Figure 2.1 The Dominant Cultural Contradictions of Global Capitalism

Figure 2.2 ISEW or GPI 1950-2000: 4 Nations

Figure 2.3 GDP Excess Over ISEW/GPI, 1950-2000: 4 Nations

Figure 3.1 World Inequality, 1960-1999

Figure 5.1 The Global Money-Trade-Production Mode of Regulation

Figure 5.2 The Global Money-Trade-Production SSA

Figure 5.3 The global circuit of social capital

Figure 6.1 Terrorism Consequences-Probability Trade-Off

Figure 6.2 Circular and Cumulative Network Effects of Terrorism

Figure 6.3 Contradictions of Technology

Figure 7.1 Real GDP Growth Rate: Decade Annual Averages: United States 1950-2003 (Seasonally Adjusted)

Figure 7.2 S&P 500 Price/Earnings Ratio, US 1984-2004

Figure 7.3 Nasdaq-100 Index: US, 1993-2004 (1993=100)

Figure 8.1 Circuit of Money Capital

Figure 8.2 The Chartel, Finance-Led Accumulation Regime and Circuit

Figure 9.1 Systemic Circuit of Social Capital (SCSC)

Figure 9.2 Simplified Systemic Circuit of Social Capital

Figure 9.3 Role of Familial, Social & Cultural Factors in FSSA Formation


Figure 9.4 Relationship between Trust, Associations and Democracy

Figure 9.5 Contradictory Stability-Trust-Inequality Motion

Figure 9.6 Three Mechanisms where Inequality Lowers Growth

Tables

Table 1.1 Long Waves for the Major Industrial Nations


Table 2.1 Three Engines of Global Cultural Growth, 1982-2001

Table 2.2 Global Investment, Productivity, Profit and GDP,1950s-2000s, (Decade Annual Averages)

Table 2.3 Levels of Trust: The World and Various Nations, Percentage Who Think People Can be Trusted, 1981, 1990, 1995-97, 1999-2000

Table 3.1 Growth of Real GDP Per Capita in the Global Economy


Table 3.2 Productivity Growth in the Manufacturing Sector: 1960-1999 (annual rate of change)


Table 3.3 Banking and Currency Crises in the World: 1945-1997: 21 Nation Sample

Table 3.4 Domestic Banking Crises in the World: 1970s, 1980s, 1990s: Percent of all Crises during 1970-1999

Table 3.5 Inequality Under Neoliberal Rule: Gini Coefficient: 1968-2002

Table 3.6 Real Government Gross Fixed Capital Formation as Percent of GDP Various OECD Nations 1960-2000

Table 4.1 Unevenness in the Global Political Economy, 1998-2000 Average

Table 4.2 Unstable FDI Inflow, Mergers and Acquisitions, and FDI/Investment

Table 4.3 After Tax Rate of Profit of the Largest 500 US (TN)Corporations, Annual Averages, Decade by Decade, 1954-2002i

Table 4.4 Rate of Profit for 500 Largest Global Corporations, 1988-2002

Table 4.5 Rate of Profit for Better Performing Sectors: Global 500 Largest Firms, 1990-2002 (Ann. Av. Rate)

Table 4.6 Global Investment, Productivity, Profit and GDP, 1950s-2000s, Decade Annual Averages

Table 4.7 Crowding In and Out Effects of FDI on Investment, 1970-1996

Table 4.8 Comparative Levels of War, Disease, Instability and Institutional Development

Table 4.9 Russia and Eastern Europe: Economic Performance, 1990, 1996, 2002

Table 5.1 Global MOR/SSA functions, proxies, capitals and contradictions

Table 5.1 Global MOR/SSA functions, proxies, capitals and contradictions

Table 5.2 Labor Productivity: Global Comparisons, 1960-2000 (GDP Per Hour Worked; Annual Average Growth Rates)

Table 5.3 Demand Proxies in the Global Economy, Annual Average Rate of Growth

Table 6.1 Worldwide Fatalities of Various Sources of Death per 100,000 Population, 1983-1997


Table 7.1 Average Profit Rate: USA, 1950-2003

Table 7.2 Annual Average Decade Growth Rates of GDP, Productivity and Related Variables, USA, 1954-2003


Table 7.3 Demand Components as a Percentage of GDP: US, 1950-2003


Table 7.4 Households: Liabilities, Consumption & Wealth, US 1990-2000

Table 8.1 Granger and R2 Relation Between Stock Returns and Production Growth

Table 8.2 Malmquist Productivity Index for All US Banks 1980-1989

Table 8.3 Productivity Growth of the US BHCs: 1991-1997, Business Loans, Consumer Loans, Securities and Off-Balance Sheet Items

Table 8.4 Rate of Return on Assets “Persistence” for US Banks: 1970-1997

Table 8.5 Percentage Change in US Bank Fees: 1994-99


Table 9.1 Proxies for (Un)Familial (In)Stability: US, 1950-2000

Table 9.2 Changes in the US Family: 1950s-2000s


Table 9.3 Trust in Individuals & Institutions, Association & Total Social Capital, 1975-1994

Table 9.4 Indicators of Significance of Structural Factors in US Economy


Table 9.5 Impact of Declining Familial Stability on Economic Performance

Table 9.6 Influence of Trust on Investment & Gross Domestic Product (GDP), 1970-1992


Preface

Developments over the past twenty or thirty years have seen the progression of neoliberal globalization. Financial markets have been deregulated, both domestic institutions and global arrangements. Foreign direct investment controls have mostly been dismantled to encourage international mergers, acquisitions and productive capital. Imports and exports have been opened up to competition through a decline in tariffs and subsides in many areas. Neoliberal policies of privatization, open markets and flexibility became dominant globally through the 1980s and 1990s. The whole world, it seems, is seeking to become involved in shareholder value, conspicuous and privatized consumption, global financing and business profit. The story that free market economists are telling us is that this is the road to growth, development, happiness and well-being.

But somehow the story gets tainted by real world processes that stain the utopian expression of global harmony. We see around us environmental degradation, a decline in trust and fairness, problematic performance, financial and economic crises, terrorism and unilateral war-mongering, plus rapid change and dislocation. Many wonder if neoliberal globalization is somehow linked to this decline in sustainability, sociality, stability and performance, or if the association is mere coincidence. Could the utopian vision portrayed in the textbooks and journals of orthodoxy be a caricature of the real thing, obstructed by a narrowness of vision and rose-colored glasses? Here I seek to find out the answers to these questions.

This book is guided by a holistic vision where global processes and problems are in large measure interconnected. The world and its constituents are linked causally in multiple ways. Luckily there are various traditions in political economy that help in understanding how these things are fused, through a series of networks and institutions. But they are not in the mainstream. The last thirty or forty years has seen a renaissance of interest in social and political economy. Veblenian institutionalists, evolutionary economists, post Keynesians, neo-Marxists, feminists, social economists, and global political economists have laid the groundwork for a thorough analysis of capitalism and its institutions. This current work utilizes themes in political economy to help comprehend recent trends in neoliberal globalisation.

The notion of ‘contradiction’ is an especially critical concept for understanding these connections and trends. This is because it posits the notion that one has to analyze both the positive and negative elements of a phenomenon before one can adequately scrutinize its operational dynamics. Capitalism is, for instance, the most revolutionary system ever seen on Earth, with a penchant for major technological innovations, rapid penetration of the global system, unearthing profitable opportunities irrespective of limits of a regulatory or cultural nature. Recently skills have been radically upgraded, foreign direct investment expanded (before collapsing in the early 2000s), fetters to expansion caste asunder, and nations and regions included in the global system of trade and money. This is the mostly positive side that free-market economists have been singing the praises of for three hundred years or more.

But there is another side that is largely outside their ontology or methodology, although it often creeps in under the subtle guise of negative externalities and public goods. The very process of being revolutionary creates rapid change, so while some are moving up the ladder of skill development, many are left behind with the old ways and the inefficient methods. The latter will suffer due to a lack of employment, bankruptcy, or simply low income. Upgrading takes time and some have more capability to do it than others. Similarly, such rapid changes leave many nations relatively backward as they struggle to keep up with the rest of the world. Often a first mover advantage and cultural modernity are better than the disadvantage of not making the first effort at change. Uneven development is thus a necessary part of this motion, whether caused by colonial and imperial dislocation and oppression, the excessive pace of change, the hegemonic rules of the game, geographical and spatial factors, or a lack of social or human capital. The pace of change also puts people at risk of high levels of uncertainty and a lack of support mechanisms, as they feel that others are untrustworthy and that institutions are unhelpful. As resources are exploited the environment also takes a lashing through pollution, destruction of habitat, and potential climate change. Instability increases in a periodic fashion as hot capitals, foreign direct investment, and equity markets become highly volatile, while state supports decline.

Being able to see how these apparently quite different things — both positive and negative — are related requires having ‘a vision’, a recognition of systemic processes, and a critical faculty that encourages an endogenous, open-systems view of the world. An exposure to political economy makes such a view second nature. While some orthodox economists see the creation of negative externalities as simply an unfortunate by-product of the inevitable, others of a heterodox persuasion see them as structural conditions of the system. Externalities such as financial instability, regional conflict, lack of trust, and environmental decline are endogenously institutionalized into the fabric of the system, especially in its neoliberal form. The two main theories utilized in this work — social structures of accumulation and modes of regulation — take a non-equilibrium, institutional and endogenous view of long-term socioeconomic processes. Examining the historico-institutional evolution of capitalism in long-term motion is a way of understanding how we got where we are and how we might change for the better.

Taking a holistic, endogenous, and open-systems approach requires that one differentiate between growth and institutional development, and also that one recognize growth and institutional development to be interrelated. Economic growth is usually looked upon as the rate of change of real GDP (per capita), which is linked to growth in productivity, consumption and investment, government spending, plus net exports. Institutional development, on the other hand, relates to the building of progressive institutions for the promotion of human integrity and freedom, education, health, community networks, trust and governance, plus productive relationships associated with industry and business. Institutional development implies an evolutionary transformation of human existence where institutions guide and manage change towards progressive values, habits and organizational arrangements. It often implies the development of a social ethic and respect for other cultures, flora and fauna.

The main hypothesis of this book is that growth and institutional development are indeed interrelated in that the creation of instrumentally progressive institutions is a pre- and co-requisite for long term sustainable growth. The development of institutions for stability, conflict resolution and performance is necessary for long-term sustainable growth where recessions are relatively mild and financial stability fairly strong. Without such institutions political economies tend to undergo long wave downswing, since social structures of accumulation or modes of regulation have not been suitably formed.

I have been helped by many people in trying to understand this process of institutional change. Very specific thanks are in the first endnote to most chapters. The most important stimulus to my work has been the numerous political and social economy associations and their wonderful members. Being able to attend gatherings of like-minded scholars organized by the Association for Social Economics, the Association for Evolutionary Economics, the Union for Radical Political Economics, the European Association for Evolutionary Political Economy, the International Association for Feminist Economics, the Society for Heterodox Economics, the Eastern Economics Association, the History of Economic Thought Society of Australia, and the International Society for Ecological Economics, is a saving grace in a world otherwise dominated by orthodoxy. The editors of the main journals of political economy have been a great source of encouragement by their very presence and sense of camaraderie. Thanks especially go in this respect to Glen Atkinson, John Davis, Hazel Dayton Gunn, John King, Anne Mayhew and Patrick Welch, among others.

I wish also to thank Doug Brown, Paul Dale Bush, Bill Dugger, Geoffrey Hodgson, Howard Sherman, Ron Stanfield, and Marc Tool who inspired me when it came to understanding institutions and evolutionary change. Jonathon Goldstein, Victor Lippit, Terry McDonough, Bruce Pietrykowski, Michael Reich, Robert Went, and Behzad Yashmaian helped to sharpen my analysis of long waves. Jim Devine, Mike McLure and Reynold Nesiba stimulated me intellectually on numerous critical issues. Rhoda O’Hara always showed an interest and provided encouragement. Rob Langham, along with Terry Clague, at Routledge among other things organized three reviews of this book, which included useful suggestions.

The challenge of global development is to create an institutionally-rich analysis of the dominant tendencies of capitalism, and a post-neoliberal form of governance to embed economy within society. Such a framework tries to balance the various conflicts between capital and labor, industry and finance, production and reproduction, terrorists and war-mongers, plus economy and environment. This requires an interdisciplinary view of the contradictory relationships underlying institutions, and an evolutionary analysis of the system. Nothing less than thorough-going socioeconomic progress depends upon such a view and practice gaining momentum in the world. This book is a step in that direction.


Phil O’Hara, 1 January 2005

Global Political Economy Research Unit

Economics Department, Curtin University

GPO Box U1987, Perth. WA 6845



Australia

philohara@runbox.com

http://pohara.homestead.com/gperu.html

Acknowledgements
Parts of some of the chapters in this book have been published in the following journals and books:
Chapter 2, Journal of Economic Issues, Volume 38, Number 2, June 2004, pp. 413-420, by special permission of the copyright holder, the Association for Evolutionary Economics.
Chapter 4, Review of Radical Political Economics, Volume 36, Number 3, Summer 2004, pp. 328-335, by special permission of the copyright holder, Sage Publishers.
Chapter 5, Review of International Political Economy, Volume 10, Number 3, August 2003, pp. 481-519, by special permission of the copyright holder, Routledge and Taylor and Francis.
Chapter 6, Global Political Economy and the Wealth of Nations: Performance, Institutions, Problems and Policies (ed by P.A. O’Hara), 2004, by special permission of the copyright holder, Routledge and Taylor and Francis.
Chapter 7, Review of Radical Political Economics, Volume 35, Number 1, Winter 2003, pp. 18-43, by special permission of the copyright holder, Sage Publishers.
Chapter 8, Review of Radical Political Economics, Volume 34, Number 3, Summer 2002, pp. 295-301, by special permission of the copyright holder, Elsevier (North-Holland) Publishers.
Chapter 9, Forum for Social Economics, Volume 33, Number 2, 2004, pp. 51-80, by special permission of the copyright holder, the Association for Social Economics.


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