Cadmus

Changing the Dominant Paradigm in Economics: How to understand & confront critical aspects of Economic Globalization

4. Marxists, the Role of the State and the Critique of the Market
For Marx and Marxist political economists the State has an essential economic role in capitalism. But, differently from Keynes’s and the Post-Keynesian view, the State does not always resolve the problems of accumulation, because they are the consequence of the logic of capitalism.

In capitalism, since it is a commodity production type of society, everybody has to buy in order to live, and thus it is necessary to sell. The commodities are produced in private processes, but they must satisfy a social need, by being sold. Money in the purchases and sales transforms the private labor contained in the commodities in labor recognized as socially necessary. In this sense it operates a social division of the labor in the society, because the distribution of all private labor is done through this process of purchases and sales of commodities. This role of money is seen as socially validating the private labors of society, and it is an essential way of organizing the social life. The sale of the commodities produced allows their owners to live in this type of society, because now they can buy whichever goods and services they need in order to live there.

This role gives money a fundamental social power. The capitalists sell their output in order to realize their profits, and the workers sell their labor-power to receive wages and buy what they need in order to live. In this sense, money itself is a social relation. Money’s social power to validate private labors justifies the possibility of its hoarding, mainly when there are difficulties to sell and to purchase, because it is a warranty of absolute purchase power. The mere possibility of hoarding is sufficient to see that money can affect the economy in a lasting way, not being neutral. But Marx also shows this non-neutrality when he speaks about the role of credit, increasing the rhythm, potential and the scale of production. Credit can anticipate the purchase of means of production, and allow capitalists to hire the workers before they have accumulated sufficient profit to finance it. This can lead to an increase in employment, production, profits and capital accumulation.

The monetary role of the State is a result of the private as well as social character of labor in capitalism, and the social role of money in the division of labor. The monetary role of the State ensures that the social validation of the labors is not left at the mercy of private interests. This public role is, however, limited in relation to the social character of money. The State can intervene in the monetary dynamic because of its public character, which is superior to the private character of the producers in the social hierarchy of our societies. But the State can neither control society as a whole, nor the monetary dynamic, because money is a relation that involves the entire society, while the State is only part of it, despite its high hierarchic position (Brunhoff, 1982).

Furthermore, the Marxist idea of the State is the object of controversy. On the one hand, there are authors who believe that the State represents the interests of capital as a whole (Miliband, 1973) and in so doing cannot benefit workers. On the other hand, there is another group that thinks about the State as having relative autonomy in relation to the two fundamental classes, capitalists and workers, even though it is a class State in the sense of fighting for the success of capitalism (Poulantzas, 1971). This relative autonomy from classes is seen as a way of justifying economic policies that can benefit the workers, even if the ultimate goal is to protect the capitalist system. Among these types of economic policies are those aiming to increase employment and wages. This gives rise to the support of some Marxists to public policies that improve growth and distribution, guaranteeing more employment and higher wages—so a better situation for the workers in the capital-labor relation.

The critique of capitalism by Marx and the Marxists is well known, because of the origin of profit. Profit is based on the exploitation of the workers. The workers sell their labor power as a commodity, receive what this commodity is worthy of, but this is less than the entire value created by their labor (Marx, 1971). A part of the product of labor goes to the capitalists as profit, despite being produced by the workers. The profit motive, based on this type of exploitation, shapes the logic and the evolution of capitalism.

4.1. Marxist criticism of the Role of Money in Capitalism
Marx’s criticism of the role of money in capitalism is less well known, which allows us to continue the examination of the role of markets in capitalism. As explained above, in a world of commodities as is the case in capitalism, everyone is necessarily both a buyer and a seller. Selling and buying are always needed. In these processes private labor is socially validated only at the moment of being converted into money and money has, in so doing, an enormous social power in our societies. Marx was a critic of this, since he did not accept that something as important as people’s lives, or the way people distribute their production or satisfy their needs, or even the definition of what to produce and in what proportion, could be at the mercy of a thing called money. It is this criticism of money or the role of the market that justifies the critique of the Marxists against globalization, which increases the role of money as it expands the role of the market.

This critique is reinforced by the consequences expected from globalization: more instability and greater inequality. The higher instability is justified, for instance, from a financial point of view, showing that when the credit markets of the world as a whole are linked this stimulates the development of what Marx called fictitious capital. Its consequences are financial crises whose results we now see very clearly.**

For Marx, some forms of capital are called fictitious because they lose the relation­ship with the labor that creates value. This occurs because the value of that capital is the outcome of a mere calculus of capitalization of regular revenues, instead of being evaluated by the labor cost of production. Fictitious capital develops with the development of the credit system. Two examples can help to understand this process: the public debt and the value of stocks. In the first case, the money transferred to the State through the purchase of certificates of public debt no longer exists, because the money has already been spent, and cannot consequently create new value, but the interest payments on the accumulated debt must still be made. In the second case, the increase or decrease in stock prices loses any connection with the value of the companies that originated them. The fictitious capital has its value determined by purchases and sales of these assets in the financial markets, in a speculative way, and the money does not return to production in order to buy labor power and means of production, which is the only way to create profit. So its value is merely speculative.

The increase in value of the assets constituting fictitious capital depends on the demand and supply for them. Hence, it depends on the resources coming from production, as they are purchased through the expenditure of profits and wages. The process of globalization has linked the credit market of the entire world, giving rise to a lot of money circulating in a small number of highly concentrated financial markets in the developed countries, increasing the prices of financial assets. But real production and thus wages and the profits have either fallen or increased in a much smaller proportion. When the prices of the financial assets started falling, given the decline of demand for them, this stimulated the generalized sale of titles and the deflationary spiral that triggered the current crisis.

In what concerns inequality, it is necessary to think that when the goal is profit, as is the case in capitalism, it is essential to increase surplus value, meaning to reduce costs, particularly labor costs. To do so, it is necessary to improve the technology of production, making the workers even more productive. This is a behavior of the capitalists as a whole, but it does not lead to the success of all of them. The capitalists who innovate first can capture greater profits and improve the research and development of technology, guaranteeing lower costs and even higher profits, while the others that operate below average tend to have problems to improve their technology due to the lack of resources to pay for such investment. Their costs cannot be reduced rapidly and, again, they obtain less profit to invest in technology, which makes it increasingly difficult to win the battle of competition and remain as capitalists. The consequence is the concentration of capital in even fewer hands.

Another type of inequality associated with the process is unemployment. Since the goal of productivity growth is to reduce wage costs, and not the effort of the workers, the consequence is the greater productivity of the workers. Consequently, employment does not grow at the same rate as the use of machinery and equipment. So, technical progress tends to be capital intensive, which creates technological unemployment.

This type of argument shows a conception of inequality coming from the concentration of capital and from the loss of income with the unemployment that is inherent to capitalism, but that can be increased even more with the reinforcement of competition in a free market economy, as is the case in globalization. Profit is the goal and it is impossible to limit the desired profit, because in competition nobody knows how much the competitors will be able to invest in order to reduce costs and win the competition. Under these circumstances, it is necessary to seek to maximize profit to remain as a capitalist. Consequently, competition in globalization is amplified, which magnifies those processes.

The search for profit maximization leads to a continuous process of technological progress increasing labor productivity and producing a profusion of commodities. This means a permanent stimulus to waste. On one hand, because the technological race cannot wait for equipment to physically deteriorate. This is an imposition of competition. The competitors do not know what the technological progress obtained by their competitors will be, and this progress will imply lower costs. To ensure that they are doing their best, it is necessary to anticipate the change of equipment in a sort of early obsolescence, which means waste. On the other hand, the technological progress leads to a profusion of commodities that must be sold, to accomplish or materialize the profit they contain. This is what leads to consumerism.

More particularly, the profit can only be obtained by the sales of commodities. The quest to maximize profit, capitalism’s objective, leads to a general stimulus to buy. This explains the importance of possessing in capitalism, which stimulates consumerism.

5. Moving Towards a Different Dominant Economic Paradigm
What was seen so far—differently from the ideas of the economic mainstream—is that, for heterodox economists, globalization gives rise to greater inequality and macroeconomic instability. This makes the defense of competition and the free market system questionable. At the same time, the reality of more than thirty years of economic globalization, the current global crisis and the problems of unemployment, poverty, inequality and the environment provide good arguments for the critics. In this vein, among the reasons for, and the interest in changing the current economic paradigm, as was proposed by WAAS (World Academy of Art & Science), we notice the perception of “low employment rates, and huge inequalities” leading to the deterioration of several socio-economic indicators (Šlaus, 2014, p. 2), and the need for a “human-centered development perspective” (Šlaus, Giarini and Jacobs, 2013). This section contributes to this discussion.

  • We have seen that the economic connections of the contemporary world are established primarily through free market relations, with all the problems that we have pointed out. The way to alleviate those problems is, as defended by the Post-Keynesians, to re-regulate the economy, as a way to guarantee investment growth and, in so doing, increase the supply of jobs. This initiative is shared by a large number of Marxists. They know that even though employment implies exploitation, the workers still need to sell their labor power in order to survive in capitalism, and that a better position in the capital-labor relation implies more employment and higher wages.
  • Marxists also know that it is possible to re-regulate the financial system to guarantee higher levels of investment and even to avoid financial crises that punish the workers severely, especially the less skilled among them, which is another reason to demand the re-regulation of the economy. However, regulation can be insufficient to address the issue of inequality if investments fail to absorb unemployed people. Since the private investment decision is guided only by the goal of profit, this can lead, and it usually does, to the use of less labor-intensive technology. This offers another reason for State intervention: the guarantee of higher levels of employment. Even if the State in democratic societies is ruled by the popular vote, and although this is a form of collective representation, it only guarantees what is called the will of all but not the collective or common will or the universal interest. It is what will be discussed in this section.

Several authors in the history of ideas discussed the notion of common will or common interest using different denominations. Rousseau, for example, offers a well-known analysis of the collective or general will which, for him, is different from the will of all. In his own words: “the will of all is very different from the general will; the latter looks only to the common interest, while the former looks to private interest and is no more than a sum of particular wills” (Rousseau, 2010-2015, p. 14).

This means that the general or common will is not the will of people measured by vote, which is a sum of different and private wills, but the interest that is common to all citizens.

This general will was also analyzed by Hegel, and this is what Marx (1848) called the universal interest. But as analyzed by Coutinho (2010), for Rousseau, the subject is a matter of moral question or the fruit of the repression of private action by public action; for Hegel (2001, § 199, p. 164), it is something spontaneous, the outcome of the reciprocal dependence of everybody or, as he puts it, “through the dependence and co-operation involved in labor, subjective self-seeking is converted into a contribution towards the satisfaction of the wants of all others”. For Marx it is the result of the transformation of the society; it is necessary to build the collective will in order to reach a society where “the free development of each is the condition for the free development of all” (Marx, 1848, p. 27).

The collective general will or the general or universal interest of everyone is easier to build when people’s life conditions are similar, which is a good reason to reduce inequalities. In this sense it is necessary to improve equality in a general way and in a general sense. This cannot be built in adverse conditions and, at the same time, it implies substantial transformations, some of which will be discussed here: a) the creation of alternative channels for listening to people, largely replacing the market channel; b) the development of common or universal interests; and c) the development of cooperation instead of competition.

5.1. Creating Alternative Channels for Listening
One of the problems we have analyzed above is that the market has a questionable way of defining people’s lives. In capitalism, the market is almost the only channel of expression of demands. If society wants more of a commodity this is seen as the growth of demand, and so supply promptly responds, regardless of environmental consequences. The opposite happens if demand falls. The problem is that whoever participates in those demands must have money and the more money one has the more he or she will influence demand and stimulate supply. Unemployed and poor people, however, do not have enough money, and thus the problems of unemployment and poverty cannot be resolved by a market system.†† This is the reason why I agree with Jacobs (2014, p. 11) who says that “in countries around the world ruled by money power, plutocracy masquerades as representative democracy”. Hence, if the idea is to change the economic domain in terms of stability (of employment, to guarantee a human-centered development), reduced inequality (to improve development sustainability) and to increase awareness while using natural resources (to improve environment sustainability) the first suggestion is to create alternative channels for listening to people.

  • The current progress of the Internet makes this technically easier. What is difficult and needed is to create greater opportunities for people to say what they really want. It is also necessary to think together how best to achieve it, supervising and discussing measures to guarantee what is decided. Not only is this a way to temper the market channel, reducing its power, but also to qualify State intervention, making it more adequate to achieve the collective will. This is the first suggestion to build the collective will and the common or universal interest, because it is fundamental to listen to people’s aspiration in order to build a consensus, including those who are outside the market because they do not have money.

5.2. Developing the Universal Interest
We know that people have different conditions of life and, consequently, different necessities, priorities and interests. To develop the collective or universal interest it is essential to guarantee a large level of common interest which requires not only a wider participation in decision-making, as proposed above through the suggestion for alternative channels for listening to people, but also a greater scope for the consumption of collective goods.

This is a suggestion made by Gouverneur (2006) for a more democratic society. He points out that there are three types of goods in our societies: i) individualized goods, which are acquired with personal income; ii) goods acquired through policies of solidarity, because they are financed by social security or social policies; and iii) collective goods, which are financed by taxes but are free at the point of consumption. In his opinion, a democratic society must increase the share of collective goods. This means that not only do we have to have public education and public health, but also public transportation, public leisure and a lot of public goods and services accessible to everyone regardless of their income or wealth. Consumption by both rich and poor people is absolutely necessary because it guarantees the high quality of the goods and services, since rich people form opinion in market societies, and they have the political power to guarantee their supply. This is the most appropriate way to improve the general interest, because it gets everyone involved in the struggle to ensure a good quality of goods and services produced. It is the best way to guarantee a good quality of public goods, and also a way.

Even the environment can benefit from a larger share of collective goods. This saves natural resources, reducing the production of private goods and services and expanding the collective ones that tend to save resources because of their higher scale of production. It also engages everyone in the task of setting priorities, in the choice of what to produce and how to do it in a more conscious way.

5.3. Developing Cooperation instead of Competition
We saw that one of the problems with globalization is the fierce competition imposing or requiring the maximization of profits and giving rise to an increasing concentration of capital in the hands of those who are better placed in the competition process. Competition also tends to increase technological unemployment and the problems related with the environment, because it compels capitalists to maximize profits, regardless of the environment costs involved, provided that the pollution fines and taxes can be passed on prices.‡‡ Finally, the spur of competition in the current phase of globalization gives rise to the need for obtaining profits rapidly, stimulating the quest for speculative profits instead of investments in real production, which has been responsible for the financialization of the economies and the current crisis.

To avoid those adverse consequences but, especially, to achieve more equality among people as we are proposing in this article, it is essential to change the competitive logic into a cooperative one. Cooperation is needed in the decision-making process, and on the management and enjoyment of what society and its development can provide. Decision-making, planning and management must be shared to help build the universal interest and they are also a condition for a sustainable development in human, social and environmental terms. Although we do not have space here to give more details, there are some interesting experiences in this respect, as is the case of community’s councils, participatory budget, and some cooperative experiences (Devine, 2012 a and b; Campbell, 2011).

6. Conclusion
We have discussed globalization from an economic point of view, and pointed out that it has some features that, instead of producing positive outcomes, as is expected by mainstream economics, generate significant economic problems. The two main features of globalization stressed here are the extension of market relations, and the spur of competition. The consequences in terms of greater inequality and instability around the world make the prescriptions of the economic mainstream questionable.

In order to support a change in the currently dominant paradigm in economics, we have also discussed some ideas associated with heterodox economic thought, showing that those adverse consequences were foreseeable in the heterodox analysis of the market regulation and of competition.

In order to confront the challenges of the global society we have proposed some measures to reduce inequality, especially through the re-regulation of the economy in order to protect jobs, listening to everyone, by way of creation of channels for listening to people other than through the market; increasing the participation of people in planning, management and the enjoyment of society; and, in this manner, building the collective or universal will. These are measures that can help to build the material conditions for a better society.

These suggestions can help to secure a more sustainable form of development in human and social terms, and they also can guarantee a more sustainable environment. The alternative channels of listening can improve the preservation of environment in the sense of offering a more efficient way of prioritizing what needs to be produced, and the best way to produce for society as a whole. A major part of collective goods in collective consumption can save natural resources used in production by reducing substitute private goods and because of the better efficiency of a higher scale of production. Finally, the tendency that we have also mentioned of wasting as a consequence of technological competition can also be avoided in a society motivated by cooperation.


¶ For good analyses of the controversies about the role of the State among Marxists, see Clarke (1991).
** For a description of the current crisis using Post-Keynesian and Marxist arguments see Mollo (2011 and 2013).
†† For the evolution of inequality and poverty in the world and their relation with market behavior, see, for example, the conclusions of Piketty (2013).
‡‡ The mainstream solution to environmental damages, imposing taxes and fines is open to criticism because it preserves inadequate behaviors, giving moneyed people the right to cause damages provided that they pay for them in a pecuniary way.

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