The Multidimensional Crisis and Inclusive Democracy (Book) - Takis Fotopoulos

8/14/2019 The Multidimensional Crisis and Inclusive Democracy (Book) - Takis Fotopoulos

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This IJID publication is an English translation o the book withthe same title published in Athens in 2005 (Gordios) ISBN 960-

7083-69-5Copyright (C) reserved or the International Journal o InclusiveDemocracy, 2009.We welcome requests or translations and/or printedpublications into any language (except Greek), which will not becharged or copyright law rights provided that we are inormedabout them in advance and the source is ully mentioned.


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Contents

PROLOGUE ....................................................................1

INTRODUCTION .............................................................3

CHAPTER 1

THE EMERGENCE OF THE PRESENT SYSTEM .......................... 11

CHAPTER 2

FORMS OF MODERNIT Y .................................................. 27

CHAPTER 3

THE INTERNATIONALISATION OF THE MARKET ECONOMY ........ 41

CHAPTER 4

GLOBALISATION AND THE LEFT ..................................... 65

CHAPTER 5

GROWTH ECONOMY AND GROWTH IDEOLOGY ....................... 83

CHAPTER 6

THE CAUSES OF THE COLLAPSE OF THE SOCIALIST PROJECT .... 99

CHAPTER 7

THE ECOLOGICAL FAILURE OF THE GROWTH ECONOMY ......... 121


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CHAPTER 8

THE FAILURE OF THE GROWTH ECONOMY IN THE SOUTH ....... 133

CHAPTER 9

THE DIMENSIONS OF THE CRISIS .................................... 149

CHAPTER 10

IS THERE A WAY OUT OF THE CRISIS? ............................... 167

CHAPTER 11

THE MEANING OF DEMOCRACY ........................................175

CHAPTER 12

THE FOUNDATIONS OF THE NEW LIBERATORY PROJECT .........191

CHAPTER 13

DIRECT POLITICAL DEMOCRACY ..................................... 199

CHAPTER 14

ECONOMIC DEMOCRACY ............................................... 215

CHAPTER 15

THE OTHER ELEMENTS OF INCLUSIVE DEMOCRACY .............. 241

CHAPTER 16

THE TRANSITION TO AN INCLUSIVE DEMOCRACY ................ 253

INDEX ..................................................................... 279


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PROLOGUE

Today, ater the collapse o socialist statism, either inthe orm o actually existing socialism in the Eastor in the orm o social democracy in the West, there

is a historic opportunity or the regeneration o this tradi-tion. Particularly so, when it is now obvious that the so-

cial Europe, which is supposedly created by the take overo power by centre-Let governments with the help o theGreen parties which abandoned any liberatory pretence issingularly inappropriate to reverse the present huge con-centration o power, which is the cause o the present cri-sis. This concentration, in turn, is the inevitable outcomeo the separation o society rom polity and the economy

that was institutioned all over the world in the last ewcenturies, through the installation o representative de-mocracy and the market economy respectively. In act,within the present internationalised market economy, nocontrols to protect society and nature eectively rom theworkings o the market, not even the type o controls in-troduced by socialdemocratic governments in the past, areeasible anymore. At the same time, neoliberal globalisa-tion itsel is irreversible, since it represents the inevitableoutcome o the market economys grow-or-die dynamics.

However, a regeneration o the democratic traditiontoday is incompatible with the postmodern abandonmento any universalist political project or the sake o a pseu-

do-pluralistic celebration o dierence and identity,which however takes or granted representative democ-racy and the market economy, i.e. the presentuniversal in-stitutions or the concentration o political and economicpower. At the beginning o a new millennium, the need toormulate a new liberatory project or todays reality and


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consequently the need or a new antisystemic movementaiming at establishing the institutional preconditionsor an inclusive democracy, is imperative. Thereore, theproject or an Inclusive Democracy is proposed not just asanother libertarian utopia but, in eect, as perhaps theonly realistic way out o the multidimensional crisis, in aneort to integrate society with polity, the economy, andNature.

This book has one aim and one ambition. The aim is to

show that the way out o the present multi-dimensionalcrisis can only be ound rom without rather than romwithin the present institutional ramework. The ambition isto initiate a discussion concerning the need or a new libera-

tory project and the strategies or implementing it.

Takis Fotopoulos


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INTRODUCTION

The present universalisation o what we may call het-eronomous modernity induced Fukuyama1 to trium-phantly declare the end o History. But, todays mul-

tidimensional crisis is in act a crisis o the main politicaland economic institutions o this orm o modernity. The

aim o this book is to show that the ultimate cause o thepresent multidimensional crisis is the present huge andgrowing concentration o power at all levels, which is seenas the inevitable outcome o the dynamic o the institu-tions o heteronomous modernity (i.e. o the market econ-omy and representative democracy) and to propose a newliberatory project, not just as a new utopia but as perhaps

the only way out o the crisis.In this books problematique both the analysis o the

causes o the present crisis as well as the ways out o ithave to be seen in terms o the historical conict betweenthe autonomy/democratic tradition and the heteronomytradition. The undamental aim o those inspired by theormer was the equal distribution o all orms o power,particularly the political and economic power, whereas theaim o supporters o the latter had always been to produceand reproduce orms o social organisation based on theconcentration o power.

The autonomy project, which emerged in classical Athens,was eclipsed or almost 15 centuries, a period during which

the heteronomy tradition was dominant, but reappearedagain in the twelth century AD, in the medieval ree citieso Europe, soon coming into conict with the new statist

[1] Francis Fukuyama, The End o History and the Last Man (London:Penguin 1993).


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orms o heteronomy which, at the end, destroyed the at-tempts or local sel-government and ederalism.2 The shitto modernity was marked by a ferce political, social andideological conict between the two traditions, with theheteronomy tradition expressed, mainly, by the spread-ing o the market economy and representative democracy.During the same period, the autonomy project, under theinuence o the Enlightenments ideas, was radicalised atthe intellectual, social and political levels (e.g., Parisian

sections o the early 1790s, Spanish collectives in the civilwar etc.)

It is thereore obvious that the present predominanceand universalisation o the heteronomous orm o moder-nity does not imply the existence o some sort o evolution-ary process towards this orm o modernity, as Fukuyamaand other ideologues o heteronomous modernity assume.

Similarly, no evolutionary process towards an autonomoussociety could also be established.3 Thereore, an autono-mous society, like the inclusive democracy proposed here,represents simply the conscious choice among two socialpossibilities, which schematically may be described as thepossibility or autonomy versus the possibility or heter-onomy, rather than the actualisation o any unolding po-tentialities. In other words, a democratic society will sim-ply be a social creation, which can only be grounded on ourown conscious selection o those orms o social organisa-tion that are conducive to individual and social autonomy.

However, the act that a democratic society representsa conscious choice does not mean that this is just an ar-

bitrary choice. This is clearly implied by the very act thatthe autonomy project turns up in history again and again,

[2] Petr Kropotkin, Mutual Aid(London, 1902), chs 5-6.[3] TID, ch. 8.


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IntroductIon

particularly in periods o crisis o the heteronomous soci-ety. Furthermore, the act that the heteronomous societyhas been the dominant orm o social organisation in thepast is not indicative o its intrinsic superiority over theautonomous society. Heteronomous societies have alwaysbeen created and maintained by privileged elites, whichaimed at the institutionalisation o inequality in the dis-tribution o power, through violence (military, economic)and/or indirect orms o control (religion, ideology, mass

media).In this books problematique thereore, the collapse o

actually existing socialism does not reect the triumph ocapitalism, as celebrated by its ideologues. Nor, o course,does it legitimise a social system which, in its present uni-versality, condemns to misery and insecurity the vast major-ity o the world population and threatens the planet with an

ecological catastrophe. Furthermore, it does not herald thehistorical victory o Western socialist statism over Easternsocialist statism, as social democrats have hastened todeclare. Social democracy, in the orm that dominated thequarter o a century ater the World War II (ull employmentthrough active state intervention, state commitment towelare state and the redistribution o income and wealth inavour o the weaker social groups) is dead and buried. As Iwill attempt to show in this book, It has been replaced eve-rywhere by the present neoliberal consensus (exible labourmarkets, saety nets and the redistribution o income andwealth in avour o the privileged social groups). It is there-ore obvious that at the beginning o a new millennium, the

development o a new liberatory project is imperative. Sucha project should represent both the synthesis, as well asthe transcendence, o the two major historical traditions,namely, the democratic and the socialist ones, as well as theanti-systemic currents within contemporary movementsor emancipation (the anti-globalisation movement, the


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Green and eminist movements, the indigenous and theradical Third World movements).

The new liberatory project cannot be but a project or aninclusive democracy that would extend the public realm, be-yond the traditional political domain, to the economic andbroader social domains. An inclusive democracy impliesthe abolition o the unequal distribution o political andeconomic power and the institutional structures which re-produce them, as well as the hierarchical structures in the

household, the workplace, the education place and thebroader social realm. In other words, it implies the elimina-tion o domination relations at the societal level, as well asthe implied notion o dominating the natural world.

However, although It is a positive development that now-adays the liberation discourse has moved rom socialism todemocracy, still, the usual discussion on democracy today

involves various versions o what has been called radicaldemocracy a term used by both postmodernists and sup-porters o the civil society approach. The common char-acteristic o all these approaches to democracy is that theyall take or granted the present institutional ramework, asdefned by the market economy and representative democ-racy, and suggest various combinations o the market withorms o social/private ownership o the means o produc-tion, as well as the democratisation o the state in thesense o the enhancement o autonomous-rom-the-statesocial institutions and civil movements.

In this books problematique, the radical democracyconception is both a-historical and utopian in the nega-

tive sense o the word. It is a-historical because it ignoresthe structural changes, which have led to the internation-alised market economy and the consequent impotence othe civil societarian institutions (unions, local economies,civil associations etc). It is utopian because, within thepresent institutional ramework o the market economy


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and representative democracy, which postmodernists andcivil societarians take or granted, the enhancement o au-tonomous institutions is only possible to the extent that itdoes not contravene the logic and dynamic o the interna-tionalised market economy and state power.

But, i a radical democracy, under todays conditionso concentrated political and economic power, is utopianin the negative sense o the word, the type o inclusive de-mocracy defned in this book is defnitely more than just a

utopia, in the sense o an ideal society. A liberatory projectis not a utopia i it is based on todays reality and at thesame time expresses the discontent o signifcant socialsectors and their explicit or implicit contesting o existingsociety. In act, as the book attempts to show, the rootso the present multi-dimensional crisis (ecological, eco-nomic, political, social, cultural) lie in the non-democratic

organisation o society at all levels, in the sense that it isthe concentration o power in the hands o various elitesthat marks the oundation o every aspect o the crisis.This concentration, in turn, can be traced back to the es-tablishment o the SYSTEM o the market economy and theconsequent growth economy and the parallel introductiono representative democracy.

In this sense, the concept o inclusive democracy de-veloped in this book does represent a synthesis o thedemocratic and socialist traditions which inspire its po-litical and economic content, i.e. direct democracy andeconomic democracy with the contemporary movementsor emancipation which inspire its ecological and social

content, namely, ecological democracy and democracy inthe broader social realm (workplace, household, etc.). It isthereore clear that an inclusive democracy has nothing todo with what passes as democracy today. An inclusive de-mocracy would involve a decentralised society based on aconederation o demoi, that is, communities run on the


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basis o direct political democracy, as well as economic de-mocracy (beyond the confnes o the market economy andstatist planning), democracy in the social realm and eco-logical democracy. Politics in this sense is not anymore atechnique or holding and exercising power but becomesagain the sel-management (in a broad sense that includesthe political, as well as the economic and broader socialdomains) o society by its members.

In the frst part o the book, the emergence o the sys-

tem o the market economy and representative democracyis discussed and the process that led rom liberal modernityto the present globalised neoliberal modernity is examined.It is shown that the present neoliberal globalisation is not aconjunctural phenomenon but the completion o a processwhich started almost two centuries ago and has transormedthe socially controlled economies o the past into the inter-

nationalised market economy o the present. In this context,statism, i.e.the period o active state control o the econ-omy and extensive intererence with the sel-regulatingmechanism o the market aimed at directly determining thelevel o economic activity, was a historically brie interludein the process o marketisation which ended in the 1970swhen statism became incompatible with the growing inter-nationalisation o the market economy (chapter 1).

Next, the collapse o socialist statism in both its actu-ally existing socialism orm in the East (namely the regimeso Eastern Europe, China and so on)and social democracyin the West is discussed. It is shown that the root cause othis collapse was the incompatibility o the socialist require-

ments or social justice, which imply a radical dispersion oeconomic power and equality, with the requirements o thegrowth economy (the by-product o the dynamics o the mar-ket economy in the West and o identifcation o Progresswith the development o productive orces in the East)which inevitably lead to concentration o economic power.


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Chapter 1

THE EMERGENCE OF THE PRESENT SYSTEM

Capitalism or market economy?

Today, ater the collapse o actually existing social-ism, a very high degree o homogeneity characteris-es the economic and political institutions o society.

Thus, the market economy and representative democracy,the institutions o heteronomous modernity, are univer-sal. But, as we shall see next, both these institutions arehistorically recent phenomena. Thus, although marketshave existed or a very long time, thesystem o the marketeconomy was established only two centuries ago. Similarly,it was the Founding Fathers o the US constitution whointroduced representative democracy in the last quartero the 18th century. So, the crucial question which arises to-day is: what is the relationship between these institutions

and the present unprecedented crisis o modern society?But, frst, why do we talk about a market economy ratherthan a capitalist one and what do we mean by this term?We shall defne the market economy in this book as thesel-regulating system in which the undamental economicproblems (what,how, andor whom to produce) are solved

automatically, through the price mechanism, rather than

through conscious social decisions. The choice o this termdoes not emanate, o course, rom a need to comply withtodays political correctness which has exorcised thewords capitalism and more conveniently socialism.It is a choice which is implied by my belie that althoughMarxs concept o the capitalist mode o production and


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Wallersteins concept o the capitalist world economyhave provided important insights in the analysis o socialclasses and the world division o labour respectively, theyare too narrow and outdated.

They are too narrow because they imply that power rela-tions in general can be analysed in terms o (or be reducedto) economic power relations whereas it is a central premiseo this book that economic power is only one orm o power

. This implies that i it is used as the central category in the

analysis o social phenomena related to hierarchical rela-tions (in the household, work etc.), or in the discussion oissues o racial and cultural identity, it is bound to leadto inadequate or oversimplifed interpretations.

They are outdated because, as we shall see below, theiruse in the interpretation o todays globalisation leads tothe nonsensical conclusion that the biggest phenomenon

o our times is not a new phenomenon i it is not seen asa myth, or an ideology to justiy some sort o capitalistplot!

It is thereore obvious that the present multi-dimen-sional crisis cannot be ruitully discussed within the theo-retical ramework implied by the above concepts. O course,this does not mean that the central category used in thisbook, the market economy, is, per se, broad enough toadequately interpret all kinds o social phenomena. Still,the very act that this category is used to explain only onepart o reality, the economic realm, without claiming thatthis realm determines (not even in the last instance) theother realms does allow enough exibility or the develop-

ment o adequate interdisciplinary interpretations o so-cial reality.

It is thereore obvious that the term market economyis used here to defne the concrete system that emergedin a specifc place (Europe) and at a particular time (twocenturies ago) and not as a general historical category o


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the emergence of the present system

an approach aiming to show the evolution o the economicsystem throughout History, as the Marxist concept o themode o production supposedly does. The methodologicalapproach adopted in this book is based on the premise thatit is impossible to derive general theories about socialor economic evolution which are based on scientifc or

objective views o social reality (see ch. 5).Capitalism is not thereore identical with a market

economy. The market economy, as defned above, is a

broader term than capitalism. The ormer reers to the wayresources are allocated whereas the latter reers to prop-erty relations. Thus, although, historically, the marketeconomy has been associated with capitalism, namely, pri-vate ownership and control o the means o production, amarket allocation o resources is not inconceivable withina system o social ownership and control o economic re-

sources. The distinction drawn between capitalism and themarket economy is particularly useul today when manyin the sel-styled Let, ater the ailure o the centrallyplanned economy, rediscovering the merits o a socialistmarket economy.1 At the same time, several communistparties in the South (China, Vietnam etc.) have embarkedon a strategy to build a socialist market economy and arein the process o achieving a synthesis o the worst ele-ments o the market economy (unemployment, inequality,poverty) and socialist statism (authoritarianism, lacko any political reedom etc.). As this book will, hopeully,make clear the objective o a new liberatory project shouldnot merely be the abolition o capitalist property relations

but o the market economy itsel.A fnal qualifcation is needed beore we embark on an

[1] See e.g. Robert Pollin, Financial Structures and EgalitarianEconomic Policy, New Let Review, No. 214 (Nov.-Dec. 1995).


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elites which control the major market economies (what wecall the North i.e. the club o advanced market econo-mies) were particularly ond o introducing such controlsat the time o their industrialisation. However, once theyachieved this objective they gradually began phasing suchcontrols out, requiring at the same time the peripheralcountries, which did not manage to develop on time, todo the same and thereore condemning them, in eect, tobe permanently outside their club.

Finally, there are what we may callsocial controls in thenarrow sense which aim at the protection o humans andnature against the eects o marketisation. Such controlsare usually introduced as a result o social struggles under-taken by those who are adversely aected by the marketeconomys eects on them or on their environment. Typicalexamples o such controls are social security legislation,

welare benefts, macro-economic controls to secure ullemployment etc. Such controls prolierated during the

statist period o modernity but in todays international-ised market economy they either drastically restricted orundermined in every way possible.

The shit to modernity

As mentioned above, the two main institutions which dis-tinguish modern society rom the premodern one are, frst,the system o the market economy and, second, repre-sentative democracy. As it is well known, modern society

emerged, very unevenly, out o a system o rural societiesthat had endured 5,000 years. In act, one may argue thatthe technology and social organization o the Neolithicrevolution remained the basis o all civilization until the


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coming o industrialism. Industrial production then spread,always very unevenly, rom Europe to the rest o the world.

However, the identifcation o modernity with indus-trialism (in the past propagated only by orthodox social

scientists but today adopted widely even by radicals inthe new social movements) is unounded. The unevenprocess o industrialization, or instance, cannot be seri-ously interpreted in terms o the lack o industrialist en-trepreneurs, industrial values etc, whereas it is perectly

explainable in terms o a market-based economic devel-opment, as we shall see in chapter 3. Thereore, to blameindustrialism or the evils o modern society, as many

radical ecoeminists, Greens, indigenous movements ac-tivists, postmodernists, irrationalists (New Agers and thelike), even some eco-anarchists, do, is at best misguidedand at worse misleading. This is because such a view en-

courages many activists to fght against the wrong targets(industrial society) rather than against the system o themarket economy and representative democracy whichare, in act, the ultimate causes or the present concentra-tion o economic and political power and, consequently, orthe present multidimensional crisis (chapter 4).

In this books problematique,2 industrial productionconstituted only the necessary condition or the shit tomodern society. The sufcient condition was the parallelintroduction through decisive state help o the systemo the market economy that replaced the (socially con-trolled) local markets that existed or thousands o yearsbeore. Thus, as Karl Polanyi notes in his classic book The

Great Transormation:3

[2] See or urther expansion, TID, ch. 1.[3] Polanyi, The Great Transormation, the Political and Economic Originso Our Time (Boston: Beacon Press, 1944/1957), pp. 43-44 & 55-56.


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Previously to our time no economy has ever existed thateven in principle was controlled by markets. (...) [A]lthough the institution o the market was airly common

since the later Stone Age, its role was no more than inci-dental to economic lie. (...) [W]hile history and ethnog-raphy know o various kinds o economies, most o themcomprising the institution o markets, they know o noeconomy prior to our own, even approximately control-led and regulated by markets. (...) All economic systemsknown to us up to the end o eudalism in Western Europe

were organised either on the principles o reciprocity orredistribution or householding (i.e., production or onesown use) or some combination o the three.

As a rule, both ancient and eudal economic systemswere rooted in social relations, and non-economic motivesregulated the distribution o material goods. The goods o

everyday lie, even in the early Middle Ages, were not regu-larly bought and sold in the market. This, combined withthe act that prior to the Industrial Revolution neitherlabour nor land was commodied, makes it clear that themarketisation process had not begun beore the rise o in-dustrialism. Thus, it was only at the beginning o the 19thcentury that a sel-regulating market system was created

which, or the frst time in human history, established theinstitutional separation o society into an economic and apolitical sphere. Under neither tribal, eudal nor mercan-tile conditions was there a separate economic system insociety.4

Still, economic liberalism projected backwards the prin-ciples underlying a sel-regulating market onto the entirehistory o human civilisation, distorting, in the process,the true nature and origins o trade, markets and money,as well as o town lie. However, almost all anthropological

[4] Ibid., p. 71.


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or sociological assumptions contained in the philosophyo economic liberalism have been reuted by social anthro-pology, primitive economics, the history o early civilisa-tion and general economic history.

Thereore, the crucial element that dierentiates themarket economy rom all past economies (where marketswere also sel-regulating, since all markets tend to pro-duce prices that equalise supply and demand) was the actthat, or the frst time in human history, a sel-regulating

marketsystem emerged a system in which markets de-veloped even or the means o production, that is, labour,land and money. The control o the economic system bythe market, according to Polanyi, means no less than therunning o society as an adjunct to the market: insteado economy being embedded in social relations (as inthe past), social relations are embedded in the economic

system.5 Competition, which was the motor orce o thenew system, ensured that thegrow-or-die principle charac-terised its dynamics. These same dynamics imply that themarket economy, once installed, will inevitably end up asan internationalised market economy.

It was the institutionalisation o this new system oeconomic organisation that set in motion the marketisa-tion process. This is a concept that plays a crucial role inthe analysis that will ollow. It is defned as the historicalprocess that has transormed the socially controlled mar-kets o the past into the market economy o the present.It is thereore a process predominantly characterised bythe attempt o the elites controlling the market economy

to minimise eective social controls over markets or theprotection o labour and the environment.

But, let us see briey how the two main institutions o

[5] Ibid., p. 57.


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modernity, the market economy and representative de-mocracy, were established. In both cases, it was the emer-gence o the nation-state, at the end o the Middle Ages,which played a crucial role in creating the conditions orthe nationalisation o markets (i.e. their de-localisation),as well as in reeing them rom eective social control thetwo essential preconditions o marketisation. Furthermore,it was the nation-state again which led to the creation othe necessary political complement o the market economy:

representative democracy. Thereore, neither the systemo the market economy nor its political complement werethe outcome o some sort o an evolutionary process, asMarxists usually assume. The institutionalisation o boththe market system and representative democracy wasthe result o deliberate action by the state, which was con-trolled by the merchant class the new economic and polit-

ical elite that emerged during the Industrial Revolution inEurope and the USA and there was nothing evolutionaryabout the emergence o the merchant class either.6

The rise o the market economy

The emergence o the nation-state had the eect not onlyo destroying the political independence o the town orvillage community but, also, undermining their economicsel-reliance. It was only by virtue o deliberate state actionin the fteenth and sixteenth centuries that the nation-alisation o the market and the creation o internal trade

[6] As Polanyi, quoting Pirenne, points out: It would be natural tosuppose, at frst glance, that a merchant class grew up little by littlein the midst o the agricultural population. Nothing, however, givescredence to this theory. Karl Polanyi, The Great Transormation, p. 275.


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was achieved.7 In act, the 16th century can be summed upby the struggle o the nascent state against the ree townsand their ederations, which was ollowed in the seven-teenth and eighteenth centuries by urther state actioninvolving the confscation, or enclosure o communallands a process that was completed in Western Europe bythe 1850s.8

But, the reeing o trade perormed by the state mere-ly liberated trade rom localism; markets were still an ac-

cessory eature o an institutional set-up regulated morethan ever by society. Up until the Industrial Revolution,there was no attempt to establish a market economy in theorm o a big, sel-regulating market. In act, it was at theend o the eighteenth century that the transition rom reg-ulated markets to a system o sel-regulated ones was com-pleted a development that marked the great transorma-

tion o society, that is, the move to a market economy. Upuntil that time, industrial production in Western Europe,and particularly in England where the market economy wasborn, was a mere accessory to commerce.

In act, one could argue that had a social revolution ac-companied the Industrial Revolution so that the use omachines, in conditions o large-scale production, couldhave been made compatible with the social control o pro-duction the present marketisation o society would havebeen avoided, as well as the huge concentration o in-come, wealth and economic power that was related to thismarket-based industrialisation. But, given the class struc-ture o the commercial society that characterised several

European societies during the Industrial Revolution, it was

[7] Ibid., pp. 63-65.[8] Ptr Kropotkin, Selected Writings on Anarchism and Revolution(Cambridge and London: Massachusetts Institute o Technology, 1970),pp. 245-53.


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not surprising that the organisation o the supply o theservices o labour and land was based on the transor-mation o human activity and natural resources into com-modities, whose supply did not depend on the needs o hu-man beings and the ecosystem respectively, but on marketprices.

So, as such a revolution did not materialise at the time,what ollowed was inevitable. Factories could not securecontinued production unless the supply o means o pro-

duction (especially, labour and land) was organised. But ina commercial society, the only way to organise their sup-ply was to transorm human activity and natural resourcesinto commodities, whose supply was market-controlled,through prices. Thereore, the introduction o new systemso production to a commercial society, where the means oproduction were under private ownership and control, in-

evitably led (with the crucial support o the nation-state)to the transormation o the socially controlled economieso the past, in which the market played a marginal role inthe economic process, into the present market economies.

In other words, private control o production requiredthat those controlling the means o production would haveto be economically efcient in order to survive competi-tion, i.e. they had to ensure:

the ree ow o labour and land at a minimal cost.However, under conditions o private control o produc-tion, there is an inverse relationship between this owand social controls (in the narrow sense) on the market.

Thus, the more eective the social controls on the mar-ket, and in particular on the markets or the means oproduction (labour, capital, land), the more difcult it isto ensure their ree ow at a minimal cost. For instance,legislation to protect labour made the labour marketless exible and, consequently, the ow o labour less


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smooth or more expensive. The outcome o this processis marketisation, i.e. historically, those having privatecontrol o the means o production have always directedtheir eorts towards minimising the social controls onthe market.

the continual ow o investments into new tech-niques, methods o production and products, in an e-ort to improve competitiveness and the sales fgures (alogic aptly expressed by the motto grow or die). The

outcome o this process is economic growth. Thereore,it is not a coincidence that the modern idea o growthwas ormulated about our centuries ago in Europewhen the economy and the society began to separate,9although the growth economyitsel (which is defnedas the system o economic organisation that is geared,either objectively or deliberately, toward maximising

economic growth, see ch. 2) emerged much later, aterthe market economy was initiated at the beginning othe nineteenth century, and only ourished in the postWorld-War II period.

The emergence o representative democracy

As regards the rise o representative democracy, weshould go back to the last quarter o the 18th century whenthe Founding Fathers o the US constitution, literally in-vented representative democracy, an idea without anyhistorical precedent in the ancient world. Up until that

time, democracy had the classical Athenian meaning o thesovereignty odemos, in the sense o the direct exerciseo power by all citizens although, o course, the Athenian

[9] Henry Teune, Growth (London: Sage Publications, 1988), p. 13.


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democracy was partial (see ch. 5). The Founding Fathersconsidered as completely unacceptable this direct exerciseo power, ostensibly, because it was supposed to institu-tionalise the power o the mob and the tyranny o themajority. In act, however, their real aim was the dilutiono popular power, so that the claims o representative de-mocracy about equal distribution o political power couldbe made compatible with the dynamic o the market econ-omy, which was already leading to a concentration o eco-

nomic power in the hands o an economic elite.10

This was ocourse a constant demand o liberal philosophers since thetime o Adam Smith, who took pains to stress that the maintask o government was the deence o the rich against thepoor a task that, as John Dunn points out, is necessarilyless dependably perormed where it is the poor who choosewho is to govern, let alone where the poor themselves, as

in Athens, in large measure simply are the government.11

It should also be noted here that the introduction orepresentative democracy had nothing to do with thesize o the population. The Founding Fathers argument, asWood12 points out, was not that representation is neces-sary in a large republic, but, on the contrary, that a largerepublic is desirable so that representation is unavoidable.Thereore, the Federalist conception o representation,and particularly that o Hamilton, was intended to act asa flter, i.e. as the very antithesis oisegoria, which meansequality o speech a necessary requirement o classicaldemocracy as against the representative democracys reedom o speech. This way, democracy ceased to be the

[10] E.M. Wood, Democracy Against Capitalism (Cambridge: CambridgeUniversity Press, 1995), pp. 214-15.[11] John Dunn, (ed) Democracy, the Unnished Journey, 508 BC to AD1993 (Oxord: Oxord University Press, 1992), p. 251.[12] Wood, Democracy Against Capitalism, p. 216.


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exercise o political power and was identifed instead withthe resignation rom it and the associated transer o thispower, through the elections, to a political elite. In otherwords, the Founding Fathers not only saw representationas a means o distancing the people rom politics but, inact, proposed it or the very same reason or which theAthenians were against the institution o election (apartrom exceptional circumstances when specialist knowl-edge was required): because it avored the economically

powerul. Thus, whereas or the Athenians the regimewhich was dominated by the rich (by defnition a minority)was considered to be oligarchic, or the Founding Fatherslike Hamilton not only was there no incompatibility be-tween democracy and the domination o the economicallypowerul but in act this was considered to be the rule.

Thereore, the more or less simultaneous institutionali-

sation o the system o the market economy and represent-ative democracy, during the Industrial Revolution in theWest, introduced the undamental element o modernity:the ormal separation o society rom the economy and thestate that has been ever since the basis o modernity. Notonly people, as direct producers, were not able to controlthe product o their work but also, as citizens, were inca-pable o directly exercising political power. In other words,the market economy and representative democracy had inact institutionalised the unequal distribution o politicaland economic power among citizens. Furthermore, it couldbe shown that the gradual extension o the right to cit-izeship to the vast majority o the population a process

that was completed only in the twentieth century did notoset the eective loss o the meaning o citizenship, interms o the exercise o power. Thus, the type o citizen-ship introduced by representative democracy was a pas-sive citizenship which had nothing to do with the activecitizenship o classical democracy. It was thereore not


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surprising that the extension o civil rights did not haveany marked eect in reducing the concentration o politi-cal and economic power which has always characterisedmodern society, apart rom a temporary eect on econom-ic inequality during the statist phase o modernity, as weshall see below.

In this problematique, it was the institutionalisation othe market economy and representative democracy, itspolitical complement, which were the ultimate causes or

the characteristics usually assigned to modern society:the replacement o the group or the community (as the tra-ditional basic unit o society) by the individual; the assign-ment o specifc, specialised tasks to modern institutions(within a highly developed division o labour) in contrastto the traditional social or political institutions (amily,community, king etc); the government o the institutions

o modern society by rules rather than, as in traditionalsociety, by custom and tradition, and so on.


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Chapter 2

FORMS OF MODERNITY

T

he marketisation process that was initiated by theemergence o the market economy made apparent

the contradiction between the requirements o themarket economy and those o society. This contradictionwas due to the act that, in a market economy, labour andland had to be treated as genuine commodities, with theirree and ully developed markets, whereas in act they wereonly fctitious commodities. It was the same contradictionthat led to a long social struggle, which raged or over ahundred and fty years, rom the Industrial Revolutionup to the last quarter o the twentieth century, betweenthose controlling the market economy, (i.e. the capitalistelite controlling production and distribution) and the resto society. Those controlling the market economy (with thesupport o other social groups which were benefting by the

institutional ramework) aimed at marketising labour andland as much as possible, that is, at minimising all socialcontrols aiming at protecting labour and land, so that theirree ow, at a minimum cost, could be secured. On the otherhand, those at the other end, and particularly the workingclass that was growing all this time, aimed at maximisingsocial controls on labour (not so much on land beore the

emergence o the Green movement), that is, at maximisingsocietys sel-protection against the perils o the marketeconomy, especially unemployment and poverty.

It was the outcome o this social struggle that deter-mined in each historical period the nature and main char-acteristics o modernity. The controversial issue however


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is what was the conditioning inuence o objective ver-sus subjective actors, as regards the fnal outcome othis struggle. For Marxists, objective actors like changesin technology play a crucial role in this outcome, i theydo not determine History itsel (in the last instance).On the other hand, or supporters o the autonomy/demo-cratic tradition like Castoriadis subjective actors, like the

social imaginary, play an equally crucial role leading to anindeterminate outcome. There is no doubt o course that

objective actors were at work during the entire historyo the market economy system, although not in the rigidsense assumed by the Marxist science o the economy(laws/tendencies o the alling proft rate, phases o ac-cumulation and the like), but rather in the general senseo the grow-or die dynamic o the market economy. But,although such objective actors could explain the motives

and actions, particularly o the economic elites, the even-tual economic and social outcome o the ensuing socialstruggle has always been both indeterminate and unpre-dictable, as Castoriadis rightly points out. Still, as it wouldbe wrong to overemphasise the role o objective actorsin the history o the market economy at the expense o the

subjective actors, it would be equally wrong to do the op-posite and overemphasise the role o the subjective ac-tors at the expense o the objective ones. Instead, this bookis based on the hypothesis that it is the interaction betweenequally important objective and subjective actorswhich condition historical development an interactionwhich (unlike the Marxist dialectical relationship) always

leads to indeterminate outcomes.In this problematique, we may distinguish three orms

that modernity took since the establishment o the systemo the market economy: liberal modernity, statist moder-nity and neoliberal modernity.


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Liberal modernity

Once the transition rom socially controlled markets to asystem o sel-regulated ones was eected at the end othe eighteenth century (the institutioning o the physicalmobility o labour in England in 1795 was a crucial step inthis transition) the conict between those controlling themarket economy and the rest o society started in earnest.Thus, almost immediately, a political and industrial work-

ing class movement emerged and, as a result o its pres-sure, actory laws and social legislation were introduced.However, all these institutional arrangements were incom-patible with the sel-regulation o the markets and themarket economy itsel. This incompatibility led to a coun-ter-movement by those controlling the market economy inEngland, which ended up with the taking o legal steps to

establish a competitive labour market (1834), the exten-sion o reedom o contract to the land (between 1830 and1860) and the abolition o export duties and the reductiono import duties in the 1840s. In act, the 1830s and the1840s (not unlike the 1980s and the 1990s) were charac-terised by an explosion o legislation repealing restrictiveregulations.

During the period o liberal modernity, which barelylasted hal a century between the 1830s and the 1880s,the grow-or-die dynamic o the market economy led to anincreasing internationalisation o the market economy,which was accompanied by the frst systematic attempto the economic elites to establish a purely liberal inter-

nationalised market economy in the sense o ree trade, aexible labour market and a fxed exchange rates system(Gold Standard). The movement towards ree trade reachedits peak in the 1870s, marking the end o the system oprivileged trading blocks and restricted commerce thatcharacterised the growth o the colonial empires in the


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pre-1800 period. Although universal ree trade was not at-tained during this time since, at the end, only Britain andHolland adopted ree trade policies, or a brie period inthe 1860s and the 1870s the world came close to a sel-reg-ulating system, as envisaged by classical economic theory.1

However, this frst attempt ailed and liberal modernitycollapsed, as it did not meet the necessary condition ora sel-regulating market economy, namely, the universali-sation o open and exible markets or commodities and

capital. Clearly, such markets were not easible in a periodin which big colonial powers like England and France werestill exercising almost monopolistic control over signif-cant parts o the globe at the expense o rising non-colo-nial powers (like the USA) or smaller colonial powers (likeGermany).2 Thereore, the ailure o this frst attempt orinternationalisation was inevitable, as it was indicated by

the act that the economic elites at that time were purelynational, unlike the present situation in which a transna-tional economic elite has emerged a necessary conditionor the development o a truly internationalised marketeconomy.

At the theoretical and political level, this conict wasexpressed by the struggle between economic liberalismandsocialism, which constituted the central element oWestern history, rom the Industrial Revolution up to themid 1970s. Economic liberalism was the ideology whichhad as its main aim the justifcation o the project or asel-regulating market, as eected by laissez-aire poli-cies, ree trade and regulatory controls. Socialism, on the

other hand, was the ideology which had as its main aim thejustifcation o the project or social control over economic

[1] A. G. Kenwood and A. L. Lougheed, The Growth o the InternationalEconomy, 1820-1980 (London: George Allen & Unwin, 1983), p. 74.[2] TID, pp. 17-21.


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resources in order to cover the needs o all humans (ratherthan simply the needs o those who can survive competi-tion, as in economic liberalism) and to conserve productiveorganisation and labour. As such, economic liberalism ex-pressed the interests o those controlling the market econ-omy whereas socialism reected the aspirations o those atthe other end and particularly the working class.

It was the conict between economic liberalism and so-cialism, which reected the two main sides o the social

struggle in this period that led ater a transitional periodo protectionism to a new orm o modernity: statism.3The considerable strengthening o the socialist movement,as a result o the signifcant expansion o the working classin the early 20th century, and the parallel weakening o thecapitalist elites, as a result o the Great War and the GreatDepression, played a decisive role in this development. The

statist orm o modernity was characterised by a system-atic attempt to eliminate the market-based allocation oresources in the East, and a parallel attempt to introducesignifcant controls over markets to protect labour in theWest.

Statist modernity

Statist modernity took dierent orms in the East andthe West. Thus, in the East,4 or the frst time in moderntimes, a systemic attempt was made to reverse the mar-ketisation process and create a completely dierent orm

[3] Statism may be defned as the period o active state control o theeconomy and extensive intererence with the sel-regulating mecha-nism o the market aiming at directly determining the level o eco-nomic activity.[4] TID, pp. 75-79.


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o modernity than the liberal or the socialdemocratic one(which, in a sense, was a version o liberal modernity). Thisorm o statism, backed by Marxist ideology, attempted tominimise the role o the market mechanism in the alloca-tion o resources and replace it with a central planningmechanism. On the other hand in the West,5 statism took asocial-democratic orm and was backed by Keynesian poli-cies which involved active state control o the economy andextensive intererence with the sel-regulating mechanism

o the market to secure ull employment, a better distribu-tion o income and economic growth. A precursor o thisorm o statism emerged in the inter-war period but itreached its peak in the period ollowing the Second WorldWar, when Keynesian policies were adopted by governingparties o all persuasions in the era o the socialdemocraticconsensus, up to the mid 1970s.

However, statist modernity, in both its socialdemocrat-ic and Soviet versions, shared the undamental element oliberal modernity, namely, the ormal separation o societyrom the economy and the state. The basic dierence be-tween the liberal and statist orms o modernity concernedthe means through which this separation was achieved.Thus, in liberal modernity this was achieved through repre-sentative democracy and the market economy, whereasin statist modernity this separation was achieved eitherthrough representative democracy and a modifed ver-sion o the market economy (Western social democracy),or, alternatively, through soviet democracy and centralplanning (Soviet statism). Furthermore, both the liberal

and the statist orms o modernity shared a common growthideology based on the Enlightenment idea o progress anidea that played a crucial role in the development o the

[5] TID,pp. 21-33.


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two types o growth economy: the capitalist and thesocialist growth economy (see ch. 2). It is thereore ob-vious that although the growth economy is the ospringo the dynamic o the market economy, the two conceptsshould not be conused since it is possible to have a growtheconomy which is not also a market economy notably thecase o actually existing socialism.

Still, as we shall see in more detail below, both ormso statist modernity collapsed: the Western orm o statist

modernity in the 1970s, when the growing internationali-sation o the market economy, the inevitable result o itsgrow-or-die dynamic, became incompatible with statism,and the Eastern orm o statist modernity a decade or solater, when the institutional arrangements (particularlycentralised planning and party democracy), which hadbeen introduced in the countries o actually existing so-

cialism in accordance with Marxist-Leninist ideology, be-came a etter to urther growth.

Neoliberal modernity

The emergence o the neoliberal orm o modernity can beexplained in terms o important structural changes andtheir eects on the parameters o the social struggle thatbrought about the collapse o the statist orm o moder-nity in the West. These structural changes were mainly eco-nomic, as a result o the growing openness o the commod-ity and capital markets which ollowed the expansion o

the newly emerged Transnational Corporations (TNCs). Atthe same time, the internationalisation o the neoliberalmarket economy coincided with signifcant technologicalchanges (inormation revolution) which marked the shito the market economy into a post-industrial phase and


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resulted in a drastic change in the employment (and conse-quently the class) structure o advanced market economies,(because o the decimation o the working class), with sig-nifcant political and social implications.6 The combinedeect o the drastic change in business requirements andthe weakening o the labour/socialist movement was theourishing o neoliberalism.

As regards the growing market openness, although it istrue that, throughout the post-war period, the internation-

alisation o the market economy was actively encouragedby the advanced capitalist countries, in view in particu-lar o the expansion o actually existing socialism ando the national liberation movements in the Third World,still, this internationalisation was the outcome mainly o

objective actors related to the dynamics o the marketeconomy. It was the market economys grow-or-die dy-

namic and, in particular, the emergence and continuousexpansion o the TNCs7 and the parallel development othe Euro-dollar market,8 which led to its internationalisedorm today.

Thus, the restrictions imposed by the state on the

[6] See Takis Fotopoulos, Class Divisions Today: The Inclusive DemocracyApproach, Democracy & Nature, vol. 6 no. 2 (July 2000), pp. 211-252.[7] An indication o the ast expansion o TNCs is the act that whereassales by oreign afliates o transnationals accounted or 30 per cento total sales in the early 1970s, this fgure has gone up to more than40 per cent in the 1980s, Basic Facts About the United Nations (UNDept. o Public Inormation, 1989), p. 10.[8] The Euro-dollar market provided a regulation-ree environment

where US dollars (and later other strong currencies like the yen, marketc.) could be borrowed and lent ree o any US regulatory and taxrequirements. The growth o this new market, which simply reectedthe growing needs o transactional corporations, was instrumental inthe later liting o exchange and capital controls, which were put un-der severe strain, throughout the 1970s, particularly in Britain wherethe Euro-dollar market originated. [For a description o the gradual
http://www.inclusivedemocracy.org/dn/vol6/takis_class.htmhttp://www.inclusivedemocracy.org/dn/vol6/takis_class.htmhttp://www.inclusivedemocracy.org/dn/vol6/takis_class.htmhttp://www.inclusivedemocracy.org/dn/vol6/takis_class.htm


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markets during the statist period meant that the labourmarket was not ree to determine the levels o wages andemployment according to demand and supply conditions,as a market economy requires. The result was the crisis othe early 1970s which, contrary to the usually advancedview, was not mainly due to the oil crisis but to the actthat the degree o internationalisation o the market econ-omy achieved by then was not compatible anymore withstatism. This was because:

The nation-states eective control o the economyhad become almost impossible in the ramework o anincreasingly ree movement o capital (and commodi-ties) across borders. Although international trade open-ness increased signifcantly in the post-war period, thelack o fnancial openness allowed governments to ol-

low independent economic policies. However, as soon asthe development o euro-currency markets signifcantlyreduced the eectiveness o controls on fnancial mar-kets, multinational corporations saw their power to un-dermine those national economic policies, which wereincompatible with their own objectives, eectivelyenhanced; The expansion o statism itsel had certain built-in elements leading to ination and/or a proftabilitysqueeze, which, both, were particularly troublesomewithin the competitive ramework that the internation-alised market economy has created. Such an elementwas the rapid rise o state spending to fnance the ex-

pansion o the states social and economic role whichoten was aster than the rise o state revenue leadingto an inationary fnancing o the resulting budget

liting o capital controls in UK under market pressure see Will Hutton,The State Were In (London: Jonathan Cape, 1995), ch. 3].


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defcits. An even more signifcant element was the actthat employers, in order to minimise the impact on pro-its due to excessive wage rises (i.e., wage rises ex-ceeding the rises in productivity), successully passeda signifcant part o the increased labour cost on to theconsumers under the pretext o the oil crisis. However,the growing internationalisation o the economy andthe intensifed competition which ollowed it made thepassing o excessive wage rises on prices increasingly

difcult.

Thereore, the stagation crisis o the 1970s becameinevitable once governments, to reduce the inationarypressures created by the above trends and the oil crisis,embarked on traditional deationary policies. These poli-cies not only did not reduce ination but also urther en-

hanced short-term unemployment, on top o the long-termunemployment which has already accelerated as a result othe expanding inormation revolution.

In this context, the neoliberal movement which our-ished in the 1970s was not simply expressing the Rightsinevitable backlash to the collapse o the New Let, aterthe aborted uprising o May 1968 as Let analysts oten

argue. In act, the rise o the neoliberal movement mainlyexpressed the need o the economic and political elites tofght statism, in view o the economic problems (inationand then stagation) that the incompatibility betweenstatism and growing internationalisation was creating something that oered them also the opportunity to re-

verse the balance o power against them that statism hadestablished.Thus, the political program o the neoliberal move-

ment, which rose frst in the academia (Chicago school,resurrection o Hayek and so on) and then among theAnglo-American political elites, mainly expressed the


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new requirements o the economic elites, in view o theaorementioned changes in the objective conditions. Incontrast to the Liberal Old Right that was ounded on tra-dition, hierarchy and political philosophy, the neoliberalNew Rights credo was based on the belie o economic de-mocracy through the market, as well as individualism,9 inthe sense o the citizens liberation rom dependence onthe welare state. Ironically, the main demand o the NewLet or sel-determination and autonomy was embraced

by the neoliberals and was reormulated by them, in a dis-torted orm, as a demand or sel-determination throughthe market!

So, when the neoliberal movement came to power, frstin Britain and the USA and later on all over the advancedmarket economies and beyond, (in the orm mainly o thepresent social-liberal i.e. centre-let governments) it

introduced a series o structural changes that simply re-ected the change in the objective conditions, i.e. theparameters o the market economy and the correspondingchanges in the requirements o the elites controlling it. Inother words, the arrangements adopted by the economicelites to open and liberalise the markets, mostly, institu-tionalised (rather than created) the present orm o theinternationalised market economy. In act, the openingand liberalising o markets was simply part o the historicaltrend o marketisation which I mentioned above to mini-mise social controls over markets, particularly those aimingto protect labour and the environment, that interered witheconomic efciency and proftability.

Thus, frst, as regards the institutionalisation o theopening o markets, commodity markets were in a processo continuous opening throughout the period ollowing

[9] Bosanquet,Ater the New Right(London: Heinemann, 1983), p. 126.


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the second world war both at the planetary level (GATTrounds o tari reductions so that TNCs could easily movecommodities among their subsidiaries) and the regionallevel (European Economic Community [EEC], European FreeTrade Area [EFTA], North American Free Trade Agreement[NAFTA], Southern Cone Common Market [MERCOSUR], theAssociation o Southeast Asian Nations [ASEAN] Asia-Pacifc Economic Co-operation [APEC]. Also, capital mar-kets, which were in a process o inormal opening through-

out the 1970s, were ormally opened in Britain and the USAat the end o the decade when capital and exchange con-trols were abolished, ollowed by the rest o the world inthe 1980s and the 1990s .

Second, once the opening o markets was institutional-ised, the uninhibited ow o capital and commodities acrossrontiers required the parallel liberalisation o all markets,

i.e. the minimisation o social controls that have been im-posed in the past (particularly in the statist period), as aresult o the struggle to protect human labour and societyitsel rom the market. Thereore, although the labour mar-kets were not opened (so that the exploitation o cheaplocal labour, particularly in the South, could continue)their liberalisation was also necessary or the advantageso opening the commodity and capital markets to be ullyutilised. The main changes introduced to liberalise themarkets and minimise social controls on them were the ol-lowing ones:

The liberalisation o the labour market with the ex-

plicit aim to make it exible, so that the cost o pro-duction would be minimised. Thus, many importantcontrols have been eliminated (or instance, the statecommitment to ull employment has been abandonedand job security in the ex nationalised sector wasabolished), while other controls have been drastically


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amended in avour o employers (e.g., controls on un-air dismissal, controls on trade unions etc) with theexplicit aim to make labour more amenable to marketconditions (hire-and-fre culture). In act, however,the real aim has been to turn labour into a commodity

not only in the way wages and conditions are set, butalso the way labour is managed in the workplace.10 Theindirect eect o these changes was that the structuralunemployment created by technological changes was

not oset by eective state action and it was let tothe market orces instead to sort out the unemploymentproblem. At the same time, neoliberal policies havealso contributed directly to the rise o unemployment,through their eect in restricting the state sector. Asa result, unemployment has become massive, whereaspoverty and inequality have also grown in proportion

with the deregulation o the labour market. Thus, un-employment in the Group o 7 more advanced mar-ket economies (USA, Japan, Canada, Germany, France,Britain, Italy) more than doubled between 1973 and1999.11 The liberalisation o capital markets through the lit-ing o exchange and other controls. This has increasedthe opportunities or tax evasion, eroded the tax baserequired or the fnancing o the welare state, madecapital ight much easier and more important madeimpossible any kind o indicative planning and eec-tive control o domestic aggregate demand, as it al-lowed huge amounts o money to move around in search

o speculative gains, eectively undermining the

[10] Hutton, The State Were In, p. 103.[11] From an average 3.4 per cent o the labour orce in 1973 to 7.6 in1999. Philip Armstrong et al., Capitalism Since World War II, Table 14.1and UN, Human Development report 2001, Table 17.


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ability o governments to ollow macro-economic poli-cies that would signifcantly diverge rom those o theircompetitors. The setting up o international rules by the WTO(which succeeded the GATT) that would make trade asree as possible, through the minimisation o the abilityo national governments to impose eective controls toprotect labour and the environment. The privatisation o state enterprises, which not only

liberated more sectors o economic activity rom anyeective orm o social control but also gave the oppor-tunity to TNCs to expand their activities in new areas.A side eect o massive privatisations was to enhancethe individualistic character o this orm o moderni-ty compared with the mildly collectivist character ostatist modernity. The drastic shrinking o the welare state so that theexpansion o the private sector in social services can beacilitated at the time o writing, a Treaty to extendthe reedom o trade to public sector services (Gats) isbeing discussed by the WTO and, The redistribution o taxes in avour o high incomegroups, which was made possible because o the drasticreduction o the tax burden on the economic elites asa result o the shrinking o the welare state and othereconomic policies supposedly aiming to create incen-tives, but in act enhancing urther the concentrationo income and wealth.


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Chapter 3

THE INTERNATIONALISATION OF THE

MARKET ECONOMY

Neoliberal globalisation

The combined eect o the above objective (eco-objective (eco-objective (eco-nomic and technological) changes was that the in-ternationalisation o the market economy has ac-

celerated sharply since the 1970s. Thus, the growth rate oworld exports increased by almost 73 percent in the period

o neoliberal modernity up to now.

1

As a result, the ratioo world exports to GDP increased rom 14 percent in 1970to 22 percent in 1999 while the corresponding ratio o gov-ernment spending has declined rom 16 percent to 15 per-cent in the same period.2 The obvious implication is thatgovernment spending, which played a crucial role with re-spect to growth in the statist period has, been replaced in

the present neoliberal period by export demand.Growing internationalisation thereore implied that the

growth o the market economy has been increasingly rely-ing on the expansion o the world market rather than onthat o the domestic market, as beore. This had very sig-nifcant consequences with regard to the states economicrole. During the period o social-democratic consensus,

[1] World exports which were rising by an average o 4 percent in the1970s, 5.2 percent in the 1980s and 6.9 percent in the 1990s, WorldDevelopment Report1994 (Table 13) and 2000/2001 (Table 11).[2] World Bank, World Development Report 1994 (Table 9) and2000/2001 (Table 13).


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economic growth rested mainly on the growth o domesticdemand which accounted or almost 90 percent o total de-mand in advanced capitalist countries. In this ramework,the state sector played an important part in controllingthe size o the market through the manipulation o aggre-gate demand. The means used or this purpose were gov-ernment spending and public investment, as well as theeconomic activity o nationalised enterprises. The neces-sary condition, however, or the economic systems ef-

cient unctioning was the relatively low degree o interna-tionalisation, that is, a degree which was compatible withan institutional ramework relatively protective o the do-mestic market or commodities, capital and labour. It wasprecisely the negation o this condition, as internationali-sation o the market economy grew, that made the continu-ation o the social-democratic consensus impossible.

Thus, under conditions o growing internationalisation,the size o the growth economy increasingly depends onsupply conditions, which in turn determine trade perorm-ance, rather than on direct expansion o domestic demand.Supply conditions play an important role with respect toaccumulation and economic growth, since it is internation-al trade that determines the size o each national growtheconomy, either positively (through an export-led growth)or negatively (through an import-led de-industrialisation).Thereore, competitiveness, under conditions o ree trade,becomes even more crucial, not only with respect to anincreasingly export-led growth, but also with respect toimport penetration that ultimately leads to domestic busi-

ness closures and unemployment.To put it schematically, the market economy, as interna-

tionalisation intensifes, moves rom a domestic market-led growth economy to an external market-led one, i.e.a trade-led growth, in the ramework o which the pre-vailing conditions on the production side o the economy


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the InternatIonalIsatIon of the market economy

(particularly those relating to the cost o production) be-come crucial. Squeezing the cost o production, both interms o labour cost and in terms o employers taxes andinsurance contributions, becomes very important. Butsqueezing the cost o production necessitated a drasticreduction in statism, since statism was responsible or asignifcant rise in the cost o production during the periodo the social-democratic consensus, both directly and indi-rectly: directly, because the expansion o the welare state

meant a growing burden on employers contributions andtaxes; indirectly, because, under the conditions o near-ull employment which prevailed during the statist phaseo the marketisation process, organised labour could presssuccessully or wage rises that exceeded signifcantly theincrease in productivity.

The system that has been established in the last quar-

ter o a century or so already unctions as a sel-regulatingmarket. The latest GATT round in the 1990s and the estab-lishment o the World Trade Organisation have in eectcreated a huge ree trade zone which, together with theopening o capital markets, have led to a sel-regulatingsystem in which the interests o the elites that control itare satisfed to the ull, almost automatically, throughthe mere unctioning o the market orces. Thus, ree tradeamong unequal partners is bound to lead to the domina-tion o the more powerul partner (in terms o productivity,competitiveness etc) which in the present case is the tran-snational corporationsa act well known to the presentadvanced market economies which went to great lengths

to protect their own industries beore they began preach-ing ree trade. Free trade is the best means to destroy thesel-reliance o local economies and eect their integra-tion into the internationalised market economy. In act,the frst attempt or an internationalisation o the marketeconomy early in the 19th century ailed exactly because


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the advanced market economies had not at the time as yetreached a similar level o maturity in their economic de-velopment an event that ultimately was the cause or twoworld wars and the great depression o the interwar period.

At the same time, the peripheral countries in the Southwere orced by the newly ormed transnational elite o theNorth, through a stick and carrot policy, to abandon anyidea o planning development and, instead, open theirmarkets to oreign capital and commodities. The carrot

was a series o structural adjustment economic programsthat those countries had to accept in order to be eligibleor much needed loans and aid rom the North. The stickwas the US threat o sanctions against the exports o anycountry that continued to protect its local production (e.g.the 1988 US Trade Act). This way, not only the markets havebeen opened but also any eective subsidisation o local

production has been abolished creating a huge compara-tive advantage or the products o TNCs and squeezing theprices o primary products on which the livelihood o mil-lions o people in the South depended. The inevitable re-sult has been the huge concentration o income and wealththat characterises the present internationalisation.

Thus, the evidence o the past twenty-fve years or soshows that the more open and exible the markets becomethe greater the degree o concentration o income andwealth in a ew hands. According to ofcial UN data, theincome gap between the fth o the worlds people livingin the richest countries and the fth in the poorest, whichwas 30 to 1 in 1960, beore the present globalisation be-

gan, doubled to 60 to 1 by 1990, and by 1997 it was 74 to 1.3

As a result o these trends, by the late 1990s, the richest 20

[3] UN, Human Development Report 1999 (NY: Oxord University Press,1999).


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percent o the worlds population had 86 percent o worldGDP versus 1 percent o the poorest 20 percent! O course,such concentration means a corresponding concentrationo economic power, something that is confrmed by the actthat the same fth o rich people control today 82 percento world export markets and 68 percent o oreign directinvestment.4 No wonder that the worlds richest peoplemore than doubled their net worth within just fve years,rom 1994 to 1999 and, as a result, the combined wealth o

200 billionaires amounted in 1999 to $1 trillion 135 billionwhile the total income o the 582m people in all the devel-oping countries together was only $146bn, i.e. about 10percent o this.5

It is thereore clear, and it can also be shown theoreti-cally using radical economic theory or even parts o ortho-dox theory, that the concentration o income, wealth and

economic power was the inevitable outcome o the open-ing and liberalisation o markets, which constitute the es-sence o neoliberal globalisation. Furthermore, it does notrequire a signifcant amount o imagination to assume theexistence o a strong correlation between the accelerationo globalisation in the last decade and the increase in theconcentration o economic and, consequently, o politicalpower.

As a result o these changes, by the early 1990s, an al-most ully liberal order has been created across the OECDregion, giving market actors a degree o reedom that theyhad not held since the 1920s.6 Furthermore, although the

[4] Ibid.[5] UN, Human Development Report 2000.[6] Eric Helleiner, From Bretton Woods to Global fnance: a worldturned upside down in Richard Stubbs and Georey R.D. Underhill,Political Economy and the Changing Global Order(London: Macmillan,1994).


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eect o the technological changes was that the nature othe production process has changed and is characterisedtoday by de-massifcation and diversifcation, in place othe mass production that was particularly dominant in theera o statist modernity, neither de-massifcation, northe growing diversifcation o production has aected thedegree o concentration o economic power at the companylevel,7 which has continued growing over the entire periodsince the emergence o neoliberal modernity.

This new orm o modernity is in a much better positionto succeed in creating a lasting sel-regulating economythan the previous orms o modernity since the basic actorthat led to the collapse o the latter has been eliminated,that is, the controls on the markets or commodities, la-bour and capital that have introduced various degrees o

inexibility into them. Such controls represented soci-

etys sel-protection mechanisms against its marketisationbut, as such, were incompatible with the efcient unc-tioning o the market economy. Since the present neolib-eral consensus (adopted by both conservative and social-liberal parties in government) has undermined most othese controls, a historic opportunity has been created orthe marketisation process to be completed. Thereore, thecrucial issue today is not whether the present neoliberalinternationalised economy is more open and integratedthan the old liberal one but whether it has better chanceso success in creating a sel-regulating internationalisedmarket economy than the frst unsuccessul attempt at theend o the 19th century-beginning o 20th. In my opinion,

the chances are much better today or the new attempt tocreate a sel-regulating internationalised market econo-my to be successul. This is or several reasons having to

[7] TID, pp. 67-73.


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do with the basic act that the our major institutions onwhich, according to Polanyi,8 a sel-regulating market re-lies, have, or the frst time in History, been established.These institutions are:

a sel-regulating market (market economy), aninstitution which subject to the above qualifcationsabout the role o the state today is more advancedthan ever beore in History, as a result o the presentdegree o reedom that capital and commodity marketsenjoy, the retreat o statism everywhere and the univer-sal enhancement o exible markets or commodities,labour and capital; the liberal (representative) democracy, an institu-tion that is intrinsically connected to a sel-regulatedmarket and in a sense constitutes its complement,

which today is universal; the balance-o-power system that today, ater thecollapse o existing socialism and the internationali-sation o the market economy, has taken the orm o aNew World Order9 controlled by the transnational elite,and, the new international monetary system, which has

been established with the launching o Euro at the be-ginning o the new millennium, and parallel movementsin North and South America to create a pan-Americandollar. One could reasonably expect that such move-ments are bound to get momentum and lead to fxedparities between the three major currencies (US dol-

lar, Euro, yen) and eventually to a new world currency

[8] Polanyi, The Great Transormation, Ch. 1.[9] See T. Fotopoulos, The New World Order, the Transnational Eliteand the dismantling o Yugoslavia in New Political Science (underpublication).


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and a new planetary international monetary systemthat would secure a stable fnancial environment or theinterlinked economic space, which is being created byglobalisation

In this sense and with hindsight, it is now obvious thatPolanyi was wrong in thinking that the statist orm o mo-dernity was evidence o the utopian character o the sel-regulating market and o the existence o an underlyingsocial process10 which leads societies to take control otheir market economies. In act, the statist orm o moder-nity proved to be a relatively brie interlude in the mar-ketisation process and merely a transitional phenomenon,mainly due to the ailure o the liberal orm o modernityto create a system based on an internationalised sel-regu-lating market economy, and, o course, to the parallel rise

o the socialist movement.It is thereore clear that although the creation o a sel-

regulating market system in the 19th century was impos-sible without crucial state support in creating nationalmarkets, still, once this system was set up, it created itsown irreversible dynamic, which led to todays internation-alised market economy. However, the present neoliberal

orm o modernity should not simply be seen as completingthe cycle that started with the emergence o liberal moder-nity. In act, it represents a new synthesis, which avoidsthe extremes o pure liberalism, by combining the essen-tially sel-regulating markets o liberal modernity withvarious elements o a mild statism: saety nets and vari-

ous controls in place o the welare state, new protection-ist non-tari barriers (NTBs), such as export restraintsand orderly marketing arrangements, direct or indirectsubsidies to export industries, and so on. So, the present

[10] Polanyi, The Great Transormation, p. 29.


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internationalisation o the market economy does not im-ply the elimination o the role o the state in supportingbusiness through direct or indirect state subsidisation, orinstance, through research & development unding, bail-out aid, debt fnancing, loan guarantees, export subsidies,tax credits, inrastructure works etc i.e. all those poli-cies usually mistaken by the Let or a kind o statism bythe back door in avour o big business. Nor does it implythe phasing out o the state in its political/military role.

What it does imply is the loss o the states economic sover-eignty not just in terms o the disappearance o major statecontrols over markets let alone over production, i.e. thecontrol it used to exercise through nationalised enterpris-es but also in terms o important social controls, whichare ruled out by todays institutional ramework o reecommodity and capital markets. Furthermore, the interna-

tionalisation o the market economy does not mean thatits intra-state regulation is redundant. Companies whichare active in the internationalised market economy need adegree o stability in fnancial markets, a secure rameworko ree trade and the protection o commercial rights.

The State in neoliberal modernity

The role o the state with respect to the market todayis thereore very dierent rom both that o the liberalphase, when it restricted itsel mainly to the role o thenight-watchman, as well as that o the statist phase, when

it played the role o the guardian angel o society over themarkets. In the new synthesis, the state has to secure thestability o the market environment, the enhancement othe supply side o the economy (so that competitivenessand efciency i.e. profts improve) and the survival


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and control o the marginalized part o the population. Allthis involves an obvious loss o economic sovereignty thatis also reected in the creation o huge economic blocks,within the context o which the economic role o the indi-vidual nation-state is being progressively downgraded inavour o supra-national institutions.

This applies, in particular, with respect to the EU, wherethe relevant process has already begun. Thus, the liber-alisation o the commodities, labour and money markets

within the EU block creates a vast economic area where afxed exchange rates system, similar to the Gold Standardsystem o the earlier internationalisation, has just beganunctioning. I we substitute the Euro or gold, Europeoperates today under a contemporary Gold Standard sys-tem which will have a much better chance than the earliersystem, given that the basic actor that led to the collapse

o the Gold Standard system has been eliminated, that is,the

Documents

The Multidimensional Crisis and Inclusive Democracy (Book) - Takis Fotopoulos