Capitalism: Its Origins and Evolution as a System of Governance

689 Pages·2011·6.66 MB·English

by  Bruce R. Scott (auth.)

Capitalism
Bruce R. Scott
Capitalism
Its Origins and Evolution as a System
of Governance
123
BruceR.Scott
PaulW.CheringtonProfessorEmeritus
HarvardBusinessSchool
Boston,MA02163
USA
[email protected]
ISBN978-1-4614-1878-8 e-ISBN978-1-4614-1879-5
DOI10.1007/978-1-4614-1879-5
SpringerNewYorkDordrechtHeidelbergLondon
LibraryofCongressControlNumber:2011938302
©BruceR.Scott2011
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Contents
ListofFigures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
ListofTables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxix
PartI TheTheoryofCapitalism . . . . . . . . . . . . . . . . . . . . 1
Prologue Chestertown,Maryland,asan“English”Village
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2 TheConceptofCapitalism. . . . . . . . . . . . . . . . . . . . . . . 27
3 CapitalismandDemocracy . . . . . . . . . . . . . . . . . . . . . . 67
Co-authoredbySarahPotvin
4 AlternativeModelsofCapitalism . . . . . . . . . . . . . . . . . . . 111
PartII TheOriginsandEvolutionofCapitalism,1400–1830 . . . . . 139
Prologue TheMysteryofGovernance
5 CreatingCapitalisminEurope,1400–1820 . . . . . . . . . . . . . . 141
6 FromFeudalismtoOligarchyinLatinAmerica,1500–1830 . . . . 185
7 CreatingCapitalismandDemocracyintheUnitedStates,
1630–1830 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Co-authoredbySarahPotvin
PartIII PoliticalObstaclestoCapitalistDevelopment . . . . . . . . . 277
Prologue TheArizonaMarket:ACaseStudyin“Nation”-Building
8 Italyas“OneCountry,TwoSystems”. . . . . . . . . . . . . . . . . 287
Co-authoredbyJamieMatthews
v
vi Contents
9 TheUnitedStatesas“OneCountry,TwoSystems” . . . . . . . . . 309
Co-authoredbyJamieMatthews
PartIV TheEconomicStrategiesofCapitalistSystems . . . . . . . . 333
Prologue EconomicStrategies
10 ImportSubstitutionasanEconomicStrategy . . . . . . . . . . . . 337
11 TheWashingtonConsensus . . . . . . . . . . . . . . . . . . . . . . 357
12 Neo-MercantilistorEnhancedMobilizationStrategies . . . . . . . 377
PartV The Evolution of US Capitalism and Democracy,
1830–2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Prologue TransformationsintheGovernanceofUSCapitalism
andDemocracy
13 TheTransformationofUSCapitalismandDemocracy,
1830–1937 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
Co-authoredbyLinneaN.Meyer
14 TheTransformationofUSCapitalismandDemocracy,
1965–2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
Epilogue TheFinancialCrisisof2007–2009 . . . . . . . . . . . . . . . 615
Appendix TheCapitalistFirminaRegulatedEnvironment . . . . . . 635
AbouttheAuthor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657
List of Figures
P.1 ZoningregionsinEnglandandFrance . . . . . . . . . . . . . . . . 7
2.1 Thedirectgovernanceofthefirmandtheindirectgovernance
ofthefield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.2 Both organized sports and organized capitalism are
three-levelsystems . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.3 Marketframeworks,forinstanceintheproductmarkets,
differfromonecountrytoanother . . . . . . . . . . . . . . . . . . 57
2.4 Capitalismanddemocracyareinterdependentsystemsofgovernance 60
3.1 Democracyasathree-levelsystem . . . . . . . . . . . . . . . . . . 71
3.2 Economicdevelopment,inequality,anddemocratization. . . . . . . 102
4.1 Threemodelsofthedistributionofeconomicpower . . . . . . . . . 114
4.2 Fromfeudalismtooligarchy . . . . . . . . . . . . . . . . . . . . . 125
4.3 Fromegalitarianismtooligarchy . . . . . . . . . . . . . . . . . . . 128
4.4 Fromanegalitariansystemtooligarchyinanindustrialage . . . . . 130
5.1 Thefeudaleconomy,circa1200 . . . . . . . . . . . . . . . . . . . 149
5.2 Proto-capitalism,circa1200–1600 . . . . . . . . . . . . . . . . . . 158
5.3 GDPpercapita,selectedEuropeanregionsandcountries,
1500–1820 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
5.4 Moderncapitalism:Employmentandoutput . . . . . . . . . . . . . 168
5.5 RelativeGDPpercapitaofselectedcountries,1500–1820 . . . . . . 174
6.1 DeSoto’smodelofcapitalismislimitedtothefirstlevel
ofcapitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
6.2 Revenuecollectedfromincometaxes,asashareofGDP . . . . . . 217
6.3 Perceivedcorruptionofpoliticalfinancing . . . . . . . . . . . . . . 218
7.1 Settlementpatterninahypotheticalseigneurie,NewFrance . . . . . 236
7.2 SectionsofatownshipundertheNorthwestOrdinance . . . . . . . 246
7.3 LiteracyratesintheAmericas,1860–1925 . . . . . . . . . . . . . . 251
8.1 Consolidatedgrossgovernmentdebt,1970–2000 . . . . . . . . . . 289
8.2 GrossfixedinvestmentasapercentageofownGDP . . . . . . . . . 292
9.1 PersonalincomeofUSregions,1880–1988 . . . . . . . . . . . . . 323
10.1 Relativeprofitabilityofagricultureandmanufacturesprior
toimpositionofstrategy. . . . . . . . . . . . . . . . . . . . . . . . 338
vii
viii ListofFigures
10.2 Relativeprofitabilityofagricultureandmanufacturesafter
impositionofstrategy . . . . . . . . . . . . . . . . . . . . . . . . . 338
10.3 Comparativeadvantage . . . . . . . . . . . . . . . . . . . . . . . . 346
10.4 InvestorreturnsoncapitalinNorway(circa1981) . . . . . . . . . . 347
10.5 SocialreturnsoncapitalinNorway(circa1981) . . . . . . . . . . . 347
11.1 Inflation(averageannualrate). . . . . . . . . . . . . . . . . . . . . 361
11.2 RealGNPpercapita(averageannualpercentagegrowth) . . . . . . 362
11.3 Incomelevelsandincomedistributionforselectcountries . . . . . . 368
11.4 Incomesintheleading“FreeMarket”economiesarediverging . . . 370
11.5 Incomesintheleadingwelfarestatesarenotdiverging . . . . . . . 371
12.1 With the enhanced resource mobilization strategy,
consumptionfallsasashareofGDPbutrisesinabsoluteterms . . . 383
12.2 Sweden:useofcentralizedwagepolicytoaccelerateadjustment . . 397
12.3 Sweden:wagedifferentialsforsectorswithaboveandbelow
averagewages,1959–1985 . . . . . . . . . . . . . . . . . . . . . . 398
12.4 Domesticfactorincome,1950–1979 . . . . . . . . . . . . . . . . . 400
12.5 Compensationofemployeesasa%ofGDP,1960–1996 . . . . . . . 401
12.6 Employmentgrowthandchangesinearningsinequalityin
theNetherlandsandselectedOECDcountries,1982–1995 . . . . . 404
12.7 SchematicdiagramofJapanesefinancialsystem . . . . . . . . . . . 414
14.1 Thetopdeciles’shareinUSincomes,1917–2007 . . . . . . . . . . 524
14.2 Incomedistribution:ThetopdecileincomeshareinFrance
andtheUnitedStates,1913–1998. . . . . . . . . . . . . . . . . . . 525
14.3 GDPpercapitaversusworkerpayperworker . . . . . . . . . . . . 526
14.4 USCEOcompensationleadsallothers . . . . . . . . . . . . . . . . 527
14.5 CampaigncontributionsintheUnitedStates,inconstant
dollarsandasashareofGDP . . . . . . . . . . . . . . . . . . . . . 545
14.6 USCEOcompensationversusaveragepayforworkers . . . . . . . 571
E.1 BankfailuresintheUnitedStates,1864–2000 . . . . . . . . . . . . 617
E.2 Ratioofhouseholdsectordebtrelativetopersonalincome,
1980–2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620
E.3 Personalsavingrate . . . . . . . . . . . . . . . . . . . . . . . . . . 621
E.4 Housingpricesrelativetorentandcost,inrealterms,1985–2007 . . 622
E.5 UScurrentaccountdeficit,1970–2008 . . . . . . . . . . . . . . . . 624
E.6 UScurrentaccountdeficit,relativetootherleadingcountries,2007 . 624
E.7 MEWversustradedeficit(aspercentofGDP) . . . . . . . . . . . . 625
E.8 US total credit market debt as percentage of GDP,
1929–2008andsectorsharebreakdown . . . . . . . . . . . . . . . 629
E.9 FinancialindustryprofitsasashareofUSbusinessprofits;
payperworkerinthefinancialsectorasapercentageof
averageUScompensation . . . . . . . . . . . . . . . . . . . . . . . 631
A.1 ThefirmintheUScapitalistsystem . . . . . . . . . . . . . . . . . 637
List of Tables
2.1 Threesystemsfororganizingandcoordinatingeconomic
activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.1 Threesocietalmodels . . . . . . . . . . . . . . . . . . . . . . . . . 116
4.2 Politicalmodernization:changesinurban–ruralpowerand
stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
5.1 Citieswithpopulationsof100,000ormore . . . . . . . . . . . . . 151
5.2 World’slargest25citiesinselectedyears . . . . . . . . . . . . . . 153
5.3 Populationandrankofthe12largestcitiesinEurope,and
otherlargecitiesforreference,1300–1700 . . . . . . . . . . . . . . 156
6.1 Estimated“deadcapital”relativetoforeigninvestment . . . . . . . 187
6.2 RelativeGDPpercapitainEuropeancolonialpowers
andformercolonies . . . . . . . . . . . . . . . . . . . . . . . . . . 196
6.3 StructureofBritishcommoditytradebyorigin,imports,
1710–1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
6.4 RelativeGDPintheWesternHemisphere,1500–1998 . . . . . . . 198
6.5 GDPpercapitainLatinAmericarelativetotheUnitedStates . . . 198
6.6 Factorendowments,inequality,andpathsofdevelopment
amongnewworldeconomics,1500–1750 . . . . . . . . . . . . . . 200
6.7 Distributionoftaxrevenuesacrosslevelsofgovernment,
c.19thcentury . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
6.8 ComparativestructuresoftaxrevenuesasashareofGDP . . . . . 216
6.9 InterestratespreadsinEastAsia,LatinAmerica,andtheG-7 . . . 220
6.10 PatentsgrantedintheUnitedStates:LatinAmericaversus
EastAsia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
7.1 Therecordofgrossdomesticproductpercapitainselected
NewWorldeconomiesrelativetotheUnitedStates . . . . . . . . . 233
7.2 Populationc.1660–1870 . . . . . . . . . . . . . . . . . . . . . . . 235
7.3 PatternsofnetmigrationtocategoriesofBritishcolonies . . . . . . 238
7.4 Privatewealthpercapitain1774 . . . . . . . . . . . . . . . . . . . 240
7.5 PhysicalwealthoffreewealthholdersincolonialNorth
Americain1774 . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
7.6 Thenumberofhouseholdsowninglandwasmuchhigherin
USandCanadathaninMexicoandArgentina . . . . . . . . . . . . 245
ix
x ListofTables
7.7 TaxationandfinanceinLexington,Massachusetts,1874 . . . . . . 249
7.8 Estimated primary school enrollment rate (per 10,000
population) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
7.9 MeasureofinequalityandassetdistributionintheUnited
States,1774and1860 . . . . . . . . . . . . . . . . . . . . . . . . 255
7.10 Americanpercapitawealth . . . . . . . . . . . . . . . . . . . . . . 269
8.1 GDP per capita in relative terms, North versus South,
1860–1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
8.2 GrossfixedinvestmentasapercentageofownGDP . . . . . . . . . 292
8.3 Agricultural vs. industrial employment (percent of
workforce) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
8.4 Typesofclientelism . . . . . . . . . . . . . . . . . . . . . . . . . 298
9.1 Relativepercapitaincomesasapercentageoftheaverage . . . . . 311
9.2 PercapitaincomesintheUSnortheastandsouth(current
dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
9.3 North–southdifferences,c.1840–1860 . . . . . . . . . . . . . . . 313
9.4 PerpupilexpendituresasapercentofUSaverage,1890–1940 . . . 321
9.5 Thesouthernshareofpopulation,income,manufacturing
value-added,anddefensespending:1960–1998 . . . . . . . . . . . 325
10.1 Thephasesofinwardorientation . . . . . . . . . . . . . . . . . . . 343
10.2 Growth in per capita incomes in 11 semi-industrialized
economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
10.3 Theroleofmanufacturesandtradein11semi-industrialized
economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
11.1 Taxstructureinthe1990s,LatinAmericaanddevelopedcountries . 369
12.1 Relativehourlyearningsformanualworkers,varioussectors,1970 . 394
12.2 Economicmodelscompared . . . . . . . . . . . . . . . . . . . . . 399
13.1 HorsepowerofprimemoversintheUnitedStates,1849–1923 . . . 439
13.2 Numberof(Federal)lawsoverturnedbytheSupremeCourt,
bydecade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496
C.1 FourphasesofUScapitalistdevelopment,1630–present . . . . . . 607
Preface
Thisprefaceisastoryofhowthisresearchwasconceivedandexecuted,falseleads
andall.Forthosewhowishtomovedirectlytoanorganizedandlogicalintroduction
to my explanation of the origins and evolution of capitalism without this history,
IsuggestyouskipthisPrefaceandturndirectlytotheIntroductioninChap.1.
Thisbookbegan,some20yearsago,asastudyofcomparativeeconomicstrate-
gies. Initially, I was hoping to identify and evaluate the economic strategies of
countriesintermsofhowtheyweredefined(ifatall),howtheywereimplemented,
and how well they had performed through time. In 1990, as at the present time,
therewasnorecognizednotionofcountrystrategies;indeedtherewerehigh-status
economists who said that such an idea was a complete misunderstanding of eco-
nomics. Hopefully, the new Varieties of Capitalism literature will help broaden
theperspectiveofthosewhohaveheldtheviewthateconomicspresentsauniver-
sal, context-free, “consensus” model for development, which has little if any need
for the visible hand of government in formulating or implementing an economic
strategy.
Then,asnow,therewasnogenerallyaccepteddefinitionofcapitalism,andmost
authorsseemedcontentwiththenotionthatcapitalismwaswhatfirmsdidinmar-
kets; a concept based on the study of firms and product markets, with little or no
recognition of the special role occupied by factor markets (for land, labor, finance
capital,orthecharteringoffirms)andstilllessrecognitionofthepoliticaleconomy
ofgovernance.Lackingsuchadefinitionafterabout150yearsofusage,itisnotsur-
prisingthattherewaslittleconsensusonwhereorwhencapitalismhadoriginated
or how it might have evolved. Some approaches to the study of capitalism found
itsoriginstobecoextensivewiththedevelopmentoftrade,andthuswithmultiple
geographiclocationsinpre-Columbiantimes.Asecondview,andarguablyavery
influential one among US economists, was that capitalism is a self-regulating sys-
tembaseduponvoluntarytransactionsamongconsentingadults.Thisview,which
has drawn little benefit of any historical perspective, is perhaps best exemplified
byMiltonFriedmanandtheChicagoSchool.Athirdviewmadecapitalismalmost
coextensive with the Industrial Revolution, a view which equated capitalism with
technological progress but which, like the other two, gave little or no attention to
governance.
xi