Social science
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lect16.pptxDisciplinary Approaches to Social Science1 Econologic II
SOSC 1000 6.0
Lecture 16
Jan Krouzil PhD
July 15, 2021
Agenda
Announcements
PART I How the market works - or not
PART II What is ‘creative destruction’ about?
PART III Scenarios for the future of capitalism
Keywords
Part I How the market works - or not (1)
Capitalism as ‘the market’
a market system is only a part of capitalism
capitalism is a much larger and more complex entity than the market system
the social order within which the market exerts its powerful integrative and disintegrative forces
The market system
the principal means of binding and coordinating the whole
markets are not the source of capitalism's energies nor of its distinctive bifurcation of authority (Heilbroner 2006)
How the market works - or not (2)
markets as the conduits through which the energies of the system flow
the mechanism by which the private realm can organize its tasks without the direct intervention of the public realm
a market system of some kind will constitute their principal means of coordination whatever form capitalism may take in the 21st C
Metaphor of the ‘invisible hand’
Adam Smith’s metaphor for the market system
economists tell us that markets introduce micro-order into a society
by micro-order they mean the equivalent of an 'invisible hand' that leads men to achieve social ends that were no part of their conscious intent
their explanation begins, as did Smith's, from the assumption that a 'maximizing' mind-set is a given of human nature
acquisitiveness drives the market system evidenced by the seemingly insatiable appetite with which individuals endeavor to increase their personal capital
How the market works - or not (3)
Demand and supply patterns of market action
1st pattern - individuals follow whatever feasible path best promotes their economic interest
seek out the best-paying jobs for which they are suited, readily leaving one employer, and on occasion even one occupation or region for another if it pays better
market system allocates labor to those tasks that society wants filled
a market system cannot exist if there are barriers that prevent this self
-motivated channelling of labor power
i.e., in a society of slaves, serfs, or centrally allocated labor
the market is linked to a ‘Society of Perfect Liberty’
How the market works - or not (4)
2nd pattern - affects the same channelling of effort with respect to the
use that employers make of their capital
also in pursuit of self-interest they will increase the production of
those goods and services for which demand is greatest and profits
highest and reduce production where demand and profits are low
as with labor, demand acts as a kind of magnet for supply, assuring
a match (‘equilibrium’) between the two
neoclassical economic theory (microeconomics)
‘law of supply and demand’
model of ‘perfect competition’, MC=MR (Pareto optimality),
model of ‘imperfect competition’ (i.e., monopoly)
How the market works - or not (5)
3rd pattern – the conflict that affects the activity on each side
of the market as competition develops among both suppliers and
demanders
in the labor market workers vie with one another to secure the better paying jobs
in the market for products employers vie for shares of the public's purchasing power
the effect in all cases is to force prices of every kind, incl. wages and rates of profit, to the prevailing social level (‘equilibrium’)
the market system becomes its own ‘self-correcting’ agency against the exactions of greed and the inequities of exploitation
How the market works - or not (6)
Market failure
markets do not always behave in this orderly and invisible fashion
markets may work in disorderly and attention-attracting ways
for ex., 1930s Great Depression, or the 2007-2008 financial crisis
why markets sometimes work and sometimes do not?
Externalities
all acts of production have some ‘externalized’ effects
a market-related effect called an 'externality'
the pollution of the steel mills (..higher laundry bills and health costs of people living nearby)
How the market works - or not (7)
costs are 'external' in that, unlike the 'internal' costs of the labor and raw materials that are paid by the mills, pollution costs are foisted on individuals who are external to the production process itself
steel producers have no incentive to cut down on pollution, insofar as they do not pay the laundry or health bills, to which it gives rise
the market mechanism does not accurately serve one of the purposes that it purports to fulfill - namely, presenting society with an accurate assessment of the relative costs of producing things
a source of friction between the private and public realms
private costs and social costs
need for government intervention to rescue the drive for accumulation from suffering its own consequences
How the market works - or not (8)
Private goods and public goods
markets influence on the ‘culture of capitalism’
the ethos of 'every man for himself' reflects the market mentality
the tendency to think of 'production' only in terms of saleable ‘private goods’ distorts our view of the economy by rendering invisible 'public goods’
such as education, public health, or infrastructure
Commercialization
implies an extension of the market into areas from which we feel its values ought to be excluded
i.e., the devolution of the virtue of physical excellence into commercial sport
How the market works - or not (9)
Commodification
refers to extensions of the realm of the market into ‘ everyday life'
the saving in labor time and the enhancement of personal capabilities
entrusting the preparation of food, the care of our homes, the grooming of our bodies to commodities bought in the supermarket rather than to our private and personal skills, ingenuity, and labor
imposes costs that in their aggregate may greatly diminish or even outweigh these benefits
we become ‘captives’ of the economy and consumption is taken to be a measure of life itself
How the market works - or not (10)
So, what could be put in its place?
no problem to discover the deep-seated, perhaps unremovable problems of a capitalist order
not so easy to describe the structure of a society that will avoid these problems
What 21st C capitalism might be like?
(to be continued in PART III)
PART II What is ‘creative destruction’ about? (1)
Theory of ‘creative destruction’
the term coined by Austrian economist Joseph Schumpeter in 1942
Schumpeter declared that ‘this process of Creative Destruction is the essential fact about capitalism’
the ‘process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one’ (1942)
the deliberate dismantling of established processes in order to make way for improved methods of production
How ‘creative destruction’ works
‘creative destruction’ theory treats economics as an organic and dynamic process
What is ‘creative destruction’ about ? (2)
different perspectives on whether this idea yields positive or negative results
the process inevitably results in ‘winners and losers’
entrepreneurs and workers in new technologies create ‘disequilibrium’ and highlight new profit opportunities
producers and workers committed to the older technology will be left stranded
to Schumpeter, economic development is the natural result of forces internal to the market and is created by the opportunity to seek profit
Netflix is one of the modern examples of creative destruction, having overthrown disc rental and traditional media industries—now being known as the ‘Netflix effect’ and being ‘Netflixed’
What is ‘creative destruction’ about ? (3)
Examples of ‘creative destruction’
the Internet as one all-encompassing example of creative destruction
where the losers are not only retail clerks and their employers but bank tellers, secretaries, and travel agents
the mobile Internet adds many more losers, from taxi cab drivers to mapmakers
computers facilitating tasks once performed by people are phasing out opportunities in lower-skilled positions, sales, retail, manufacturing and financial analysis positions, etc
What is ‘creative destruction’ about ? (4)
The bottom line
‘creative destruction’ as a necessary component of doing business
as long as we live in a capitalist society, competition and innovation will force businesses to progress to develop a better product or service
will hurt those who remain stagnant and will reward those who are able to plan and adapt around these transformations
the landscape of business is bound to change - how it evolves will be an intriguing course to behold
PART III Scenarios for the future of capitalism (1)
Alternative scenarios – analysis and vision
Heilbroner argues that one cannot foresee the prospects with the
clarity and scientific certitude that the word ‘prediction’ conveys,
yet can imagine its development
‘scenario’ conveys the feeling of something more complex than a
prediction
‘an attempt to describe processes partly driven by necessity and partly by volition, partly open to analytic understanding, partly grasped by intuition and conviction’ (Heilbroner 2006)
usefulness of ‘scenarios’ - their capacity to illuminate the interplay of analysis and vision in thinking about the future
Scenarios for the future of capitalism (2)
Adam Smith’s scenario
envisaged a ‘Society of Perfect Liberty’ whose most striking characteristic was a general increase in well-being for everyone
his scenario anticipated a time when such a society would accumulate
‘(the) full complement of riches' at which point accumulation would stop
and growth with it
his social vision leads him to expect the moral decay of the laboring class to which it will passively submit
as probably the least sanguine as to (capitalism's) eventual outcome
analysis points to capitalism’s eventual decline; vision to its earlier decay
Scenarios for the future of capitalism (3)
Karl Marx’s scenario
is optimistic not about capitalism but about the social order to which it will
give birth
Marx’s analysis traces the consequences of an acquisitive drive in a
competitive environment
capitalism’s trajectory is continually interrupted by periods of crisis and
restructuring
Marx's vision of the working class as the agency of its own future liberation
- not the passive victim of the existing order
for Marx the scenario presents a directional (dialectical’) process in which
capitalism disappears before the advent of its successor - socialism
Scenarios for the future of capitalism (4)
John Maynard Keynes’s scenario
analytically pessimistic because his understanding of the workings of
the market led him to conclude that a market-driven society could
settle into a position of lasting underemployment
Keynes' vision - one of a balanced polity as well as a balanced
economy, a view he described as 'moderately conservative'
an analytical pessimist; a visionary optimist
Joseph Schumpeter's scenario
at once an analytical optimist and a visionary pessimist
Scenarios for the future of capitalism (5)
'Can capitalism survive?’ - 'No, I do not think it can’ (1942)
Schumpeter introduces a dynamic element into the accumulation process – 'perennial gale of creative destruction' as entrepreneurs create and exploit previously non-existing fields for expansion
technological possibilities are 'uncharted seas’
why does Schumpeter expect the demise of capitalism?
his answer lies in sociology, not economics; in vision, not analysis
perceives the culture of capitalism as corrosive of values
'Capitalism', he writes, 'creates a rational frame of mind which, having destroyed the moral authority of so many other institutions, in the end turns against its own’
the end comes as the entrepreneurs who embody the elan of the system lose their enthusiasm and settle down for a secure existence as socialist managers
will this bourgeois, managerial socialism work? 'Of course it will’ - there is every reason to believe that the morale and self-understanding of socialism may be higher than that of capitalism
Scenarios for the future of capitalism 6)
Lessons Heilbroner draws from the scenarios
all of them perceive capitalism as a social order whose historical direction is foreseeable
their common perception is testimony to the properties of a society energized by a
universal acquisitive drive mainly constrained by the contest of each against all
(Heilbroner 2006)
analysis must begin from a pre-analytic base - preconceptions inform all social
judgments
they are the reason that every scenario contains autobiographical elements with their freight of known and unknown biases
scenarios are conservative or liberal, reactionary or radical - because they are filled with
hopes and fears, as well as with objective and internally coherent workings-out of
interacting elements
Scenarios for the future of capitalism (7)
‘What of the future?’ Heilbroner asks
why all of the scenarios perceive capitalism as self-destructive?
difficulty of successfully maintaining capitalist macro- and micro-order
raising doubts regarding capitalism’s political and moral validity
Difficulty for maintaining economic order –
the indeterminacy of the outlook for investment and for technology
the unequal distribution of incomes
the volatility of credit
the tendency towards monopoly
overregulation
the technological displacement of labor and impetus towards cartelization
Scenarios for the future of capitalism (8)
the inflationary tendencies of a successful economy and the depressive
tendencies of an unsuccessful one
the inherent instability of an economic system whose energies are
unevenly generated and whose self-regulatory mechanism is itself volatile
Capitalism's uniqueness in history
continuously self-generated change – whereby this very dynamism that is
the system's chief enemy
capitalism as a system will sooner or later give rise to unmanageable
problems and will have to make way for a successor (Heilbroner 2006)
Scenarios for the future of capitalism (9)
Possibilities for 21st C capitalism
the problems of capitalist disorder arise from the workings of the
system
the difficulties attending to the drive for capital
the attributes of the market mechanism itself
the interdependencies of its two realms
the problems must be addressed by the assertion of political will
the under-desired dynamics of the economic sphere must be contained, redressed, or redirected by the only agency capable of asserting a counterforce to that of the economic sphere - the government (Heilbroner 206)
Scenarios for the future of capitalism (10)
Government interventions into markets (‘government failure’)
often ineffective, sometimes counterproductive.
government is part of the problem, not of the solution (Heilbroner 2006)
the issue of excessive government power
perception that the reach of the public sphere within capitalism has greatly expanded at the expense of the private
the public expenditure within GNPs
government's regulatory powers
yet the problems that threaten capitalism arise from the private sector, not the public
Scenarios for the future of capitalism (11)
The prospects for 21st C capitalism
a spectrum of capitalisms
will depend on the success with which different ‘national capitalisms’ can
marshal and apply the forces of government to deal with those of their
economies
a description of the capitalisms most likely to succeed can be characterized
by a high degree of political pragmatism
a low index of ideological fervor
a well-developed civil service
a tradition of public cohesion
all successful capitalisms will find ways to assure
labor of security of employment and income
management of the right to restructure tasks for efficiency's sake
government of its legitimate role as a coordinator of national growth
Scenarios for the future of capitalism (12)
What could lie beyond capitalism?
a society whose mode of cooperation is neither custom and tradition, nor centralized
command, nor subservience to market pressures and incentives
its integrating principle would be participation
the engagement of all its citizens in the mutual determination of every phase of their economic lives through discussion and voting (‘deliberative democracy’)
Participatory economics in Heilbroner’s vision
where shared decision-making by discussion and vote (‘deliberative democracy’)
displaces decision-making by self-interest alone or by persons privileged by wealth or
position to make unilateral determinations
assumes that social and economic quality replaces social and economic inequality as the
widely endorsed norm of the society
Scenarios for the future of capitalism (13)
Could such a social order work?
Heilbroner concedes that since we are socialized into a quite different mode
of life, such scenario seems hopelessly naive, utopian, against human nature
‘Do I .. think it will be the direction of things during the 21st? I do not.’
(Heilbroner 2006)
participatory economics will not become the social order in the 21st C no matter what
yet, he argues, at least the goals and the general social conception of such
a post-capitalist order might enter our consciousness
the ideas and ideals of a participatory society will help to have another social destination in our imaginations (Heilbroner 2006)
Keywords
acquisitiveness
‘invisible hand’
patterns of market action
market failure
externality
commercialization
commodification
‘creative destruction’
alternative scenarios
participatory economics
