CAPITALISM UNLEASHED This page intentionally left blank Capitalism Unleashed finance globalization and welfare Andrew Glyn 1 3 Great Clarendon Street, Oxford OX26dp Oxford University Press is a department of the University of Oxford. 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Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Typeset by Newgen Imaging Systems (P) Ltd., Chennai, India Printed in Great Britain on acid-free paper by Biddles Ltd., King’s Lynn, Norfolk ISBN 0–19–929199–3 978–0–19–929199–1 1 3 5 7 9 10 8 6 4 2 To Miles, Lucy, Tessa and Jonathan This page intentionally left blank Preface Low inflation, quiescent industrial relations, freedom for capital to chase profitable opportunities without restraint and the domination of market-based solutions have become familiar features of the economic landscape of the rich economies. When such a pattern becomes firmly established it soon acquires the status of business as usual. Yet 30 years ago inflation was rising, profits were squeezed, trades unions were bargaining aggressively and parties of the left were actively discussing ideas for deeper state intervention in indus- try. A huge shift in economic policies and behaviour was needed to launch our economies on their new trajectory. This book provides a short history of how this transformation was achieved and examines the impact on growth, stability and equality of letting free enterprise off the leash. Authors of books like this one always hope that it will be widely accessible, in this case to anybody interested in the current debates on economics and economic policy. Some acquaintance with economic terminology and ideas is helpful, though I have tried to explain the less familiar concepts. I trust that it will be useful to students in a wide range of social sciences, not just economics, who would like to get a feel for the ‘big picture’ of how the economic system has been developing. The focus is on the rich countries—Western Europe, North America, Japan and Australasia. The rest of the world features only when and where its economic development has a major effect on the most developed economies. Thus Africa barely figures, whilst China receives considerable attention. Those primarily interested in the ‘South’ should still find the book of interest. After all, economic trends in the rich ‘North’ have such important effects on the rest of the world that they are far from irrelevant to those whose primary viii PREFACE concerns are with the poorer countries. Moreover, as Marx pointed out in 1867, ‘[T]he country that is more developed industrially only shows, to the less developed, the image of its own future’ (Preface to first German edition of Capital, volume 1). In previous work with co-authors1 I have analysed the develop- ment of the rich economies from 1945through the 1980s. The main focus was on profitability, growth and the labour market. The post- war story unfolds around a central theme of the relations between capital and labour, with the balance of economic power betweeen the USA, Europe and Japan an important sub-plot. It is often assumed that the great ‘Golden Age’ boom of the 1950s and 1960s only required the helping hand of Marshall Aid to emerge smoothly out of post-World War II devastation. This was far from the case. The period of reconstruction was one of social and political turmoil, illustrated in the following quotations from The Economist during the late 1940s2 The [French] bourgeoisie are not reconciled to the passing of a large measure of political and even economic power to the organised working class...Cold War in Italian Industry...With hoarse democratic shouts of ‘Down with Communism’ Japanese employers are rushing to...knock out the tottering Japanese trade union movement. The boom only emerged after the restoration of employer authority in the factories and macroeconomic discipline—with government budgets balanced, modest increases in the money supply and low inflation. The boom in turn brought a strengthening of labour, the weakening of the previously dominant position of the USA and the economic turmoil of the 1960s and 1970s—rising inflation, profits squeeze, unstable exchange rates, heightened industrial conflict. This turmoil posed severe challenges to the functioning of capitalism, as Chapter 1 of the present book recounts. The next two chapters deal with the response of governments—in terms of restoring macroeconomic discipline, privatization and the encouragement of market forces and the focus of business on ‘shareholder value’. Taking the story through from the 1970s up to the present day necessarily involves a widening of the perspective. Distributional PREFACE ix conflict between capital and labour in the rich economies is for now not the most problematic element in their functioning. Thus The Economist, as ever the reliable weathervane for assessing the concerns of business, published 61 articles with a focus on trade unions, labour relations and industrial disputes in the period April–June1979and only ten in the corresponding months of 2005. What then are the most significant new developments which have to be interwoven with the continuing themes of the position of the unions, the standing of the dollar, macroeconomic policy and the behaviour of profitability and capital accumulation? One has been the growth of the financial sector, in terms of its rising profitability, its widening sphere of operation and its growing influence on many aspects of economic life. This has important implications for the dynamism and stability of the advanced economies. Secondly, the expansion of manufacturing capacity by low wage producers in the South has undermined the competitive position of traditional industries in the North whilst bolstering the living standards of workers in other sectors. Thirdly, new technology is believed to be undermining the position of the less qualified workers in the rich countries. Thus the chapters which follow cover such issues as the drive for shareholder value, corporate scandals, the growth of China’s exports, the New Economy boom in the USA, the impact of globalization on the welfare state, inequality and declining demand for unskilled labour. Providing a coherent interpretation of such a wide range of issues posed a considerable challenge. Fortunately there is a mass of research now available on most contemporary economic trends and issues. Important surveys appear regularly in the Journal of Economic Perspectives, the Oxford Review of Economic Policyand the working papers of the National Bureau of Economic Research, for example. The references in the back of the book show how much I have drawn on all this work, which the internet makes instantly and freely available to those fortunate enough to have access to a good university library system. I have used endnotes collected after the text mainly to indicate sources used and in some cases to explain a calculation or to amplify a point. In constructing an argument from this material I have used direct quotations more often than is usual;