NS4540 Winter Term 2018 Marxian Theories of Growth and Development

1. NS4540Winter Term 2018Marxian Theories of Growth and Development

2. Marx: Stage Theory I Marx wanted to replace the unhistorical approach of the Classicals with a historical dialectic approach • Marxists consider classical and later orthodox economic analysis as a still photograph which describes reality at a certain time • In contrast the dialectical approach, analogous to a moving picture, looks at a social phenomenon by examining where it was and is going and its process of change. • History moves from one stage to another – feudalism, capitalism to socialism on the bases of changes in the ruling and oppressed classes and their relationship to each other • Conflict between the forces of production and the existing relations of production (institutions) provide the dynamic movement in the materialist interpretation of history. • The interaction between forces and relations of production shapes politics, law, morality, religion, culture and ideas.

3. Marx: Stage Theory II Basic idea is that institutions are relatively inflexible while technology and the mode of production dynamic. • Contradictions develop with institutions becoming out-of tune with the needs of the economy – crisis occurs Accordingly feudalism is undercut by: • Migration of serfs to the town • Factory competition with handicraft and manorial production • Expanded transport, trade, discovery and new international markets on behalf of the business class and • The accompanying rise of nation states • The new class, the proletariat or working class, created by this next stage, capitalism, is the seed for the destruction of capitalism, the next stage. and the transformation into the next stage, socialism.

4. Marx: Stage Theory III • Capitalism faces repeated crisis because the market, dependent largely on worker consumption, expands more slowly than productive capacity • Moreover, this unutilized capacity creates in Marx’s phrase a reserve army of the unemployed – a cheap labor source that expands and contracts with the business cycle • With the growth of monopoly, many small businesspeople, artisans and farmers become propertyless workers who are no longer in control over their workplaces. • Eventually the proletariat revolts, takes control of capital and establishes socialism. • In time, socialism is succeeded by communism, and the state withers away. • From the late 19th century through the first three quarters of 20th century, Socialist, and Labor parties in Western Europe have tried to introduce socialism through parliamentary democracy rather than violent revolution. • Since 1970s and 1980s, however these parties with Marxist origins have limited goals to welfare state under capitalism.

5. Marx: Stage Theory IV Critique: • Number of flaws – theorized worker revolt in industrialized west, but revolution occurred first in Russia, one of the least developed capitalist countries in Europe • Marxists suggest several reasons why Western workers have yet to overthrow capitalism • Having realized dangers of rebellious working class the capitalists have developed tactic of divide and rule that depends on exploitation of workers outside the West. • Capitalist state has powerful legal, police, military and administrative machinery to quell potential resistance. • Marx overlooked possibility that the interests of workers and capitalists might not conflict • Workers in West may have supported capitalism because they gained more in the long run by receiving a constant share of rapidly growing output than trying to acquire a larger share of what might have been a more slowly growing output under an alternative system.

6. Marx: Stage Theory V Assumptions off the mark: • Marx assumed that all technological change was capital intensive and labor saving – we now know technology responds to factor scarcity • Marx assumed a falling rate of return, but return calculated on turnover, not the way most businessmen look at profits. Even on turnover, falling profits would not necessarily occur with changing technology • Much more stability in wage share, capital intensity and other great ratios due to price signals • Marx did not realize that new industries create new jobs and that even if workers are replace by technology jobs in general do not contract • Marx assumed relatively rigid institutions, but institutions may be more adaptable to changing conditions and needs • However, did have sophisticated stage theory where mechanism from one stage to another was specified.

7. Summary: Marxian Model

8. Extensions of Marx: Paul Baran I • Marx not interested in Africa, Asia and Latin America – not yet capitalist – he viewed introduction of European capitalism in these regions as beneficial • In 20th century Marxian analysis came to encompass an international class struggle, including the conflict between rich and poor countries. • Lennin argued that it was essential to recognize the difference between the monopoly capitalism of his period and the competitive capitalism of Marx’s day • According to Lenin, a logical outgrowth of the monopoly stage of industrial and financial capitalism is the imperialist domination of poor countries by rich countries. • Ideas incorporated (1940s, 1950s) by a U.S. Marxist Paul Baran into his theory of economic growth and stagnation. • For Baran, capitalism in developing countries not likely to repeat pattern in Europe

9. Extensions of Marx: Paul Baran II • Baran’s point: Capitalism in developing countries arose not through the growth of small competitive firms at home, but through the transfer from abroad of advanced monopolistic businesses. • Baran felt as capitalism took hold the business and middle classes in developing countries, lacking the strength to spearhead through institutional change for major capital accumulation would have to seek allies among other classes. • In certain circumstances business class would ally itself with more moderate leaders of the workers and peasants to form a progressive coalition – Congress Party in India under Nehru. • At outset such a popular movement would be essentially democratic, anti-feudal and anti-imperialist in support of domestic capitalism.

10. Extensions of Marx: Paul Baran III • In time however, indigenous capitalist middle classes would ultimately be either unwilling or unable to provide the leadership for sustained economic development that also would greatly reduce poverty and liberate the masses. • The local capitalist class frightened by the threat of labor radicalism and populist upheaval and the possible expropriation of their property would be forced into an alliance with the landed interests and the foreign capitalists in their midst • Foreign capitalists’ governments could provide economic and military assistance to stave off impending disaster • This coalition would have the common interest of preventing socialism. • However the coalition would be unable to raise the rate of capital accumulation significantly

11. Extensions of Marx: Paul Baran IV • A number of necessary actions would be beyond the coalitions power: • A progressive income tax system to eliminate nonessential consumption • Channeling savings from the landed aristocracy into productive investment; and • Undertaking substantial public investment in sectors in which private capital does not venture, in which monopolistic controls block expansion or in which infrastructure is required • Thus conservative alliance thrusts the popular forces even further along the road of radicalism and revolt leading to further polarization • Baran theorizes only way out of the impasse may be a worker and peasant revolution, expropriating land and capital and establishing a socialist regime

12. Extensions of Marx: Paul Baran V Critique • Baran’s model largely derived from his experience in one country, Guatemala – not necessarily typical setting • Theory fails to examine number of economic and political conflicts of interest • True, many local industrialists, businessmen, politicians benefit considerably from foreign controlled capital and technology. • However there are also some local capitalists whose interests compete with foreign business • These capitalists and their allies frequently lead movements for independence • After independence nationalist elements may become even stronger as colonial economic ties gradually weakened. • The allies and competitors of foreign business are often locked in economic and political conflict.

13. Assessment Marx/Latin America • Many of the Marxian phenomena seen in Latin America: • Capital intensive means of production • Low job creation in manufacturing • Falling rate of profit • Slowing rates of investment • Inability to develop large domestic markets • Logically reflects price distortions rather than a Marxian process • Artificially high wages – minimum wages • Cheapening of capital – overvalued exchange rates, low interest rates • Contributing factors • Deficient educational systems • Poor infrastructure

14. Extensions of Marx: Naomi Klein • Naomi Klein – contemporary, anti-capitalist, anti-globalist • Basic argument – somewhat conspiracy theorist -- capitalists and corporations exploit situation after conflict or disaster to impose shock therapy • In these situations a ruthless form of capitalism is imposed where it otherwise would never take hold • Crisis enable powerful and wealthy to exploit every advantage to their benefit at the expense of the less fortunate. • Argues that Milton Friedman’s neoliberal market fundamentalism is leading world into a new dark age of wars, mass suffering and exploitation. • Klein – creates a straw-man and looks at a simplistic form of free market fundamentalism – a very first step but one followed by governance and rule of law to control capitalism’s excesses.