Capitalist Alternatives

Models, Taxonomies, Scenarios

Paul Dragos Aligica, Vlad Tarko

• Publisher: Taylor & Francis
• Year: 2014
• Print ISBN: 9781138789845
• eBook ISBN: 9781317654728
• Edition: 1
• Topic: Politik & Internationale Beziehungen
• Subtopic: Politik

The book's objective is to explore the challenge of thinking methodically - in a theoretically and empirically informed way - about alternative forms of capitalism. What are the most effective ways to conceptualize the existing models of capitalism that have captured the public imagination and are currently floating around in the public debate? How can one mobilize empirical analysis and theory in thinking about the realm of possibilities and about the future of economic order, but avoid the twin perils of scientism and historicism? This book is an attempt to respond to these and related challenges.

First, it delves into the substantive aspect of the debate, taking a closer look at a set of particular forms and models of capitalism that are currently discussed both in mass media and in academic circles as plausible, or at least possible, alternatives to the status quo: Crony, State, Regulatory, and Entrepreneurial Capitalisms. By elaborating and clarifying those models, it engages in a heuristic exercise that leads to a better understanding of the task of conceptualizing and assessing, in a theoretically informed way, the diversity of forms of capitalism.

Second, the book takes a step further, looking at the epistemic, theoretical and methodological dimensions of the discussion: What is involved, more precisely, in our classifying and theorizing of capitalist systems and their historical evolution? What is the epistemic basis for building plausible conjectures about the future evolution of an economic system? What are the logical and methodological parameters of our endeavors that deal with economic systems, or with the problem of continuity and change in comparative economic systems? Offering an original approach to the problem of alternative forms of capitalism, this book will be of great interest to scholars working in the field of comparative political economy.

Part I

Microeconomics, institutions, and ideas

Introduction to Part I

When thinking about alternative economic systems, the most common and convenient approach is to delve directly into the substance of the problem at hand, to address directly one vision or another of the systems considered. Usually this means going with the flow of the public discussion or public opinion: We take a certain vision, notion, or description salient or popular in public debate and use the available conceptual instruments and empirical data to criticize, clarify, or bolster. To engage in such an exercise does not require or involve a massive metalevel methodological and epistemological self-awareness. This is a “first degree” or “first level” approach that mobilizes more or less intuitively around theoretical frameworks and empirical data and uses them with more or less technical dexterity. On the other hand, a “second degree” or “second level” approach takes a step back and tries to see the large epistemic picture, deliberately trying to be aware of its place in it. It attempts to articulate and understand the assumptions and the methodological and epistemological parameters of the type of intellectual exercise in which one is engaged while thinking about alternative economic systems. Needless to say, both approaches are legitimate.

When it comes to the “first degree” approach there is a wide range of modes of engagement from the most intuitive and speculative to the carefully theoretically informed and cautiously empirically grounded. The first part of the book is an attempt to engage in the latter. As such, it will explore a number of alternative models of capitalism increasingly used or evoked in public debates and the research literature (state, crony, regulatory, and entrepreneurial capitalism). They are “models” in the sense that each takes one feature – phenomenon or process – that is deemed central and essential for the performance and structure of the system (the role of the state, the crony informal relation, entrepreneurship, or the regulatory function) and builds around it a set of stylized facts meant to capture the distinguishing features of the emerging system. They are also “models” because many consider them as ideal types, analytical benchmarks, or even desirable policy objectives. The four types of capitalism of interest for our discussion have been evoked in the public debate in various forms and under various labels. Moreover, they are more than simple intuitive attempts to make sense of the current political economy landscape: in all four cases significant efforts have already been made to conceptualize and elaborate them. This invites both an assessment of the success of those efforts as well as further elaboration and theorization. Interestingly enough, this set of views of capitalism also manages to cover pretty well the range of global evolutions. Each model can be used to illuminate or capture some significant aspect or group of evolutions, revealing something interesting about some economies. Entrepreneurial and regulatory capitalism, about advanced industrial democracies, crony capitalism about the developing world, state capitalism about emerging economies of geo-economic ambition, like China and Russia.

Each of the four types of capitalism is associated with a series of ideas and themes that are currently salient in the public debate. For instance, the notion of entrepreneurial, free market capitalism is associated with the idea that capitalism is about entrepreneurship and creativity, that growth occurs fastest when the market is deregulated and that new technologies and the internet revolution are creating the conditions for a new type of hyper-capitalism anchored in a networked society of an unprecedented nature, dynamic, and creativity. The notion of state capitalism is often associated with the claim that the Chinese model of stateled capitalism is a good example to be followed by other developing countries and, perhaps, even by developed countries such as the United States. The notion of crony capitalism sometimes is associated with the view that developing countries are by necessity in a second-best situation in which crony relations work as a substitute for the lack of reliable rule of law and property rights, while sometimes is associated with the idea that crony capitalism in developed countries is to be seen as a pathology of regulatory capitalism. Finally, regulatory capitalism comes with the thesis that the more developed the market is, the larger the scope of regulations needs to be, and, hence, the crucial dilemma is how to make the regulatory state as efficient as possible, constraining it to work for the public interest.

This being said, besides their current relevance in and for public debates, all these models of capitalism also have a relatively well-articulated conceptualization ready to be further specified and developed. They allow us to illustrate one of our main methodological points. In dealing with the political economy of comparative capitalism we argue that one needs to pay attention to three dimensions: the fundamental incentive-driven economic processes, the institutional arrangements and structures of authority that shape these incentives, and last but not least to the ideologies, doctrines, and propaganda trying to legitimize the institutional structure. The structural and ideological components are essential not only for describing and analyzing a specific system or arrangement, but also for their comparative analysis and their normative assessment.

Hence, we consider that the analytic framework used to explore comparative and alternative systems always combines these three elements: First, the microeconomic analysis of the consequences of the incentive structure facing the agents involved. This is an analysis of the directions in which entrepreneurial activities tend to go (productive, unproductive, or destructive), and it includes an analysis of phenomena such as rent-seeking and regulatory capture. Second, the institutional analysis of how the framework of rules combined with the authority and power structure shapes the incentives of the social actors. This is the analysis of the variety of action arenas and institutional configurations that give the distinctiveness and concreteness of a system. Third, the ideological analysis of the justification and legitimization of the framework of rules and of the power structure focuses on beliefs, ideas, rhetoric, culture. This includes what Charles Lindblom calls the “persuading the masses” aspect of economic systems, the “assault over minds,” and the “competition of ideas” over which kind of institutional arrangement is best from a variety of normative desiderata (such as growth, equality, national identity, international prominence, etc.).

The following chapters will take one by one four types of capitalism analyzing and elaborating them with a close attention given to the microeconomic, institutional, and ideological aspects. Before moving ahead, a brief note about definitions and taxonomies is necessary. Although, in its second part, the book tackles some intricate problems related to the problems of definitions of capitalism, in its “first level” approach featured in this part it will take as a working starting point the simple but robust definition articulated by the great scholar of comparative economic systems, F. Pryor. Capitalism, writes Pryor, is an “economic system in which goods, labor, land and financial services are transferred through relatively competitive markets and in which the means of production are primarily owned privately or by groups of individuals.” (Pryor, 2010, p. 3). Pryor notes that this definition could easily be made operational through a series of indicators related to the level of economic development, the conditions facing the producers of goods and services, the conditions facing consumers, etc. Moreover, there are degrees to which an economic system can be capitalist. There are cut-off points at which one can exclude an economy that doesn’t meet certain minimum criteria. In other words, the approach is operational in empirical meaningful ways and is not just the expression of a theoretical and ontological statement.

Based on this preliminary definition, one may approach both the problem of the degrees of capitalism and the problem of distinguishing between the different types or forms of capitalism. The task of the appropriate study of economic systems and, more precisely the problem of the diversity of “capitalisms,” is to convert the discussion of magnitudes and quantities into an analysis of configurations and structures. Pryor’s definition has the advantage that while giving an acceptable solution to the problem of the conceptual boundaries and the operationalization of “capitalism,” it leaves vast degrees of freedom for multiple ways of classifying and categorizing the diversity of real-life configurations that satisfy the operational criteria outlined by him. In this respect, it is important to note that our discussion, although centered on four particular models, is fully aware that the literature offers a bewildering diversity of views. Using cluster analysis on 40 indicators, Pryor himself classifies OECD capitalist systems in terms of their similarities of their institutional configurations: Nordic, Anglo-Saxon, West European, and South European. William Baumol, Robert Litan, and Carl Schramm identify four types (Baumol et al., 2007): Oligarchic capitalism, where power and money are highly concentrated, state-guided capitalism via favoring specific firms or industries; big firm or managerial capitalism where large firms – often so-called “national champions” – dominate production and employment, and entrepreneurial capitalism that is based on the dynamism given by new firms and radical innovations “that keep pushing out the production-possibility frontier.” Hall and Soskice’s work has inspired an entire literature on “varieties of capitalism.” In its initial form, they identified two broad types of institutional arrangements in advanced industrialized capitalism: liberal market economies and coordinated market economies (Hall and Soskice, 2001). In liberal market economies markets and the price mechanism regulate most economic activity, whereas in coordinated market economies, markets coexist with various kinds of state-led coordination and cooperation between economic actors.

To make a long story short, our “first level” approach is predicated on a full awareness of the relatively arbitrary selection of our models of capitalism deemed of interest. In our approach we are aware that there are multiple ways in which the class of capitalist economies could be organized and perceived. We approach our topic free of rigid taxonomical illusions. The various configurations of facets and variables may be captured and presented in equally valid multiple ways. The diversity of classifications is a matter of approach, interest, conceptual apparatus and methodology, and a discussion about the correct taxonomy or typology always implies an epistemological and philosophical underlying dimension. That, as mentioned, will be addressed extensively in the second part of the book, what we called the “second degree perspective.” For now, the next chapters will engage in a “first degree” exploration of four models of capitalism. Although the four are not derived from taxonomical exercise or from a comprehensive conceptual-typological framework, we hope that in the end the reader will get the sense that an underlying logic pulls them together, making them rather interesting vehicles for our discussions and revealing something important about the forces at work nowadays in the political economy arena.

Chapter 1 explores the notion that “state capitalism” (an economic system “in which the state functions as the leading economic actor and uses markets primarily for political gain,” Bremmer 2009, pp. 40–41) is a new form of capitalism emerging in the global arena. This chapter explores the problem of the nature of this system in light of these claims to novelty. What are its main features? Is state capitalism distinctive from other forms of capitalism or other types of economic systems? Are we really witnessing the emergence of a new type of economic system? To address such questions we start by trying to place the model of state capitalism within the traditional comparative economic systems framework. The inconclusive result leads to a different approach in which the concept of rent-seeking society is used to underlie the structural similarities between mercantilism, real-life socialism, and state capitalism. The conjecture that what has been labeled “state capitalism” is yet another form of rent-seeking system is both robust and worth further investigation.

Chapter 2 elaborates the notion of “crony capitalism” and advances an innovative approach to the analysis of this phenomenon, seen as a type of rent-seeking society. We argue that (1) Crony capitalism is a rent-seeking society legitimized by populism. (2) Crony relations (informal long-term relations for securing privileges) work to restrict the competition for rent-seeking, thus increasing the size of rents. (3) Corruption looks different in developed countries with rule of law and in developing countries without reliable rule of law: in the first, corruption complements the official economy (when large firms use bribes, they do so to get official contracts), in the latter it complements the shadow economy (large firms use bribes and crony relations in order to escape from official taxation and regulations). (4) Most troubling, in countries with low rule of law and dysfunctional judicial systems, crony relations also work as a second-best solution for protecting property rights (of some, not of all) – the alternative to crony relations is not a free market economy with secure property rights, but a failed state without property rights.

Chapter 3 explores the startling puzzle of “regulatory capitalism” regarding the evolution of developed economies. Over the past several decades, across the OECD countries, we observe a simultaneous increase in (a) the number, the budgets, and the staffing of regulatory agencies, as well as the number of regulations, and (b) in economic liberalization as measured by economic freedom and doing business indices. This is the “freer markets, more rules” or “more capitalism, more regulations” puzzle. We use this puzzle as a window into the underlining mechanisms behind the complex regulatory developments in advanced democracies, including the role of rent-seeking and regulatory capture, the role of ideas, and the role played by institutional factors such as independent regulatory agencies. The chapter concludes by briefly discussing the normative angle in light of the importance placed by Hayek and Buchanan on the generality principle.

Chapter 4 explores the radical no...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Preface
• Acknowledgments
• Part I Microeconomics, institutions, and ideas
• Part II Epistemic frameworks and perspectives
• Conclusions
• References
• Index