THE KNIGHT AND THE
SNAIL
Or the suprantional EC competition policy in historical capitalism
Maarten van de Steeg
s11414301
En nu blijft geloof, hoop en liefde, deze drie; doch de meeste van deze is de liefde.
1 Korintiërs 13:13
2 THE KNIGHT AND THE SNAIL
or
THE EMERGENCE OF A SUPRANTIONAL EUROPEAN COMPETITION POLICY IN THE CAPITALIST WORLD-ECONOMY
Master thesis Public Administration
By Maarten van de Steeg (s1141430)
Under the supervision of dr. N. van der Zwan Second reader: dr. R. de Ruiter
LEIDEN 11 juni 2018
3 Contents
Contents … … … … 3
I. Introduction … … … … 6
Research focus 11
Research questions and case selection 13
Relevance 14
Methodology and validity 14
Capitalism theory in public administration 16
Outline of the thesis 17
II. Historical Capitalism … … … … 18
I introduction 18
II. Capitalism as historical social system 19
a. three layers of economic organization 19
b. historical development 20
c. from production to social system 22
III. The economics of historical capitalism 25
a. commodity chains 26
b. competition in the anti-market 27
c. internal contradictions 29
d. cyclical patterns and secular trends 29
IV. The politics of historical capitalism 31
a. international level - core/periphery 31
b. international level – the interstate system 33
c. national level – institutions 34
d. national level – politics 35
e. national level – policy 38
V. The ideology of historical capitalism 39
a. progress 39
b. universalism 40
c. liberalism 41
VI. Structural crisis 42
a. limits of readjustment 42
b. systemic purification 43
4
III. The EC competition policy … … … 45
I. Introduction 45
II. The ideas behind the EC competition policy 45
III. The four pillars of the EC competition policy 47
a. collusive agreements 47
b. mergers 49
c. abuse of a dominant position 52
d. state aid 53
IV. Institutional change 55
a. regulatory environment 56
b. institutional change 57
V. The ideology of the EC competition policy 63
a. policy goals 63 b. Freiburg Ordoliberalism 64 c. Chicago neoliberalization 65 VI. Summary 67 IV. Analysis … … … … … 68 I. Commensurability 68
II. Working of the EC competition policy in historical capitalism 71
a. redistribution 71
b. single state 73
c. systemic purification 73
III. Summary 76
V. The knight and the snail … … … 77
I. The EC competition policy as dialectic 77
a. conclusions 77
b. empirical remarks 77
c. future research 78
II. Suggestions for historical capitalism theory 79
III. The merits of unconventional thinking 80
IV. Finis 81
6
Lordynges (quoth he), in churche when I preach, I paine me to have an hautein speech, And ring it out, as round as doth a bell,
For I know all by rote that I tell. My theme is always one, and ever was;
Radix malorum est cupiditas. (Canterbury Tales, VI:329-334)
I. Introduction
The phrases above are the beginning of the Pardoner’s Tale from the Canterbury Tales; a fictional collection of stories told by pilgrims on their journey from London to Canterbury, written by Geoffrey Chaucher around 1389. The Pardoner was notorious for not living up to his own theme; preaching poverty, while enriching himself at the expense of the faithful, which made him the exemplum of the very vice he was preaching against. Nevertheless, the Pardoner eloquently phrases the central theme of economic thinking in medieval Europe: radix malorum
est cupiditas1.
Medieval economic thinking was – like all thought – considered a subject of theology. It was about questions of ethics and morality, of motives rather than mechanics2. Biblical morality and the Aristotelian idea of the mean dominated the discourse3 (Wood, 2002: 1, 12-13). From the sixteenth century onwards both commerce and the rise of the nation-state gained importance and gave rise to a school of economic thought, called Mercantilism, focussing on wealth and power of a nation (Lahaye, 2008). The underlying assumption was the same as the centuries before: the resources of the world are constant. This meant that growth was only possible at the expense of the other (Wood, 2002: 111). Both the highly ethical understanding of economics in late medieval Europe and the focus on power, monopoly and protectionism central to Mercantilism seem logic in this essence and arguably both are part of the same system of underlying thinking: economic growth is not possible as the resources of the world are constant.
1 The text stems from the First Epistle of Paul to Timothy (1 Timothy 6:10). As Wallace (1996: 265) argues, the
original Greek tekst ῥίζα γὰρ πάντων τῶν κακῶν ἐστιν ἡ φιλαργυρία is best understood in the essence that all evil can be motivated by the love of money. This differs subtly from the common religious use, stating: radix enim
omnium malorum est cupiditas (Vulgate) or its English equivalent: the love of money is the root of all evil (King
James Bible). In late medieval satire it refers to the greed of the Church of Rome (Brewer, 1998: 50-51, 139-140). Chaucher’s portrayal of the Pardoner must likely be understood in this way (Flake, 2003: 119-121). The Pardoner’s Tale is a full exemplum, as it starts with the general truth it intends to demonstrate, leaving little room for the reader to make its own generalizations from the story (Burrow, 2008: 92). The evident hypocrisy of the Pardoner makes him not only the exemplificans, but also the very exemplum of the vice he preaches against (Burrow, 2008, 116-117).
2 Medieval society was permeated by the dichotomy between the divine and the secular. From the twelfth century
onwards a new idea of the ‘self’ developed alongside a more and more international economy in which money was circulating, indicating goods were privately owned. Not surprisingly, the problem arose how private possession – that benefits few – could be reconciled with common possession that was obliged by divine-natural law (Wood, 2002: 18, 23). Although, the viewpoint of poverty as virtue and richness as evil had changed diametrically by the end of the 15th century, associated with upcoming humanism, the leading scholastic view was still that ‘cupidity’,
by which was meant ‘avarice’, had to be controlled, as avarice was the vice of immoderation. Notwithstanding, there are two contrasting biblical views on the root of evil – Ecclesiasticus 10:15 that blames pride; and 1 Timothy 6:10 that blames avarice – the emphasis was on avarice in late medieval literature and preaching (Wood, 2002: 44, 52-54).
3 Since the rediscovery of Aristotle’s Nichomachean Ethics, from the twelfth and thirteenth century onwards,
commentators saw money as a means to reach an equilibrium between two parties in a transaction. It is strongly associated with balance and moderation and therefore the notion of just prices and wages as theorized by Thomas Aquinas (Wood, 2002: 12-13; Screpanti et al., 2005: 20-21).
7 This changed dramatically in the course of the eighteenth century; the supreme climax of which is considered to be the publication of “An Inquiry into the Nature and Causes of the
Wealth of Nations” by Adam Smith in 1776, in which the principles of the Free Market ideology
were systematically explained and defended for the first time in history4 (Screpanti et al., 2005: 1). The general thought is familiar to everyone: the pursuit of self-interest by free and rational individuals leads to general wellbeing in a competitive market. That is, in the absence of any condition that might constrain the individual in seeking his own advantage, the forces of demand will distribute capital among industries and determine relative quantities produced, whereas the forces of supply determine the relative prices of commodities. Both work toward the inevitable market equilibrium of supply and demand that reflects the optimum distribution of resources and the maximum level of welfare that is attainable. Through this ‘invisible hand’ the market regulates itself as the individual, driven by the pursue of his own interests, inexorably contributes to the fulfilment of an economic goal that was never part of his initial intentions (Screpanti et al., 2005: 72-73).
As the Age of Enlightenment and the two great revolutions it fostered are generally considered the breakpoint between the pre-modern and modern era in the study of history, the reader shall not be surprised that the publication of the “The Wealth of Nations” is considered the breaking point in the study of economics as it marks the transition from medieval and mercantilist economic thought5 to modern economic thinking6 (Screpanti et al., 2005: 1;
Wallerstein, 1991: 359). Compared to earlier economic thinking, three fundamental differences exist7. Firstly, the pursue of private interest is no longer a bad thing8, but serves the public good. Secondly, the role of the state changes from protectionism to a guarantor of the conditions for proper free market functioning. Thirdly, economic growth is now considered possible.
This breakpoint marks the beginning of what people in everyday speech generally refer to when talking about capitalism: “a system within which markets operate effectively to create
price signals that can be observed and responded to effectively by everyone concerned” (Neal,
2014: 3).
4 The period roughly from 1750 until 1780 fostered many philosophers and theoretical breaks with the period
before. Therefore one should not consider the “Wealth of Nations” as the unique effort of one man, but rather as the synthesis of the works of many great thinkers of that age (Screpanti et al., 2005: 1, 55).
5 As I argued above, based on the shared notion of the (im)possibility economic growth, I stress one could
righteously group them together as part of the same broader school of economic thought. This contrary to for example Screpanti et al. (2005: 22) who consider medieval economic thought to “belong to the prehistory of economic science”.
6 As is the case with pre-modern economic thinking, one should not understand this as a coherent school of thought,
but one should rather conceive this as a broad spectrum of theories, that share some broad common features that make them distinct from earlier thought.
7 Perhaps contrary to popular belief, that emphasizes the movement to a more secular modernism, one could not
argue the Age of Enlightenment constituted a break with the moral and religious tradition in economics. Following Friedman (2011) I argue economics is not only an empirical science, but a moral as well. This is certainly true for the work of Smith who himself was a professor of moral philosophy at Glasgow. Friedman’s argument is that Smith’s thinking was strongly influenced by the theological debates at the time in the same way economics today is influenced by insights from other disciplines like physics or biology (e.g. “gravity” models of trade or “migration” models of technology transfer). As he (2011: 5-7) shows, the work of Smith and his contemporaries coincided with important (Protestant) theological debates which fostered a major turn in thinking about the pursue of self-interest as a vice. Without going too much into the details, central was the adoption of the ideas that men was born with inherent goodness and that human agency on earth enables salvation. This allowed for a new view of the role of the individual in the world. Nonetheless, without the exception of Francis Hutcheson, there is little direct evidence that Smiths or his colleagues personally held these believes. Friedman’s central point is merely that they were continuously exposed to arguments along this line of thinking.
8 The idea, first phrased by Bernard Mandeville in his book “The Fable of The Bees: or, Private Vices, Public
Benefits”, published in 1714, was not fully worked out, nor were the conditions for it to work, until Smith’s work.
By then, terms as ‘vice’ or ‘vicious’ were nearly gone as Smith argued pursuing self-interest was a fundamental aspect of human nature (Friedman, 2011: 4-5; Screpanti et al., 2005: 48-49).
8 In line with this commonly practised and deep-rooted idea of a qualitative break in history, that can be traced back to the attempt of 19th century historiography and social science to explain
the rise of and industry and a capitalist bourgeoisie, most scholarly work on the history of capitalism starts with the industrial development of Great Britain9 – which coincided with the publication of the work of Smith – and expanded gradually to other parts of Western Europe, followed by the rest of the world (Neal, 2014: 5-6; Tilly & Tilly, 1971: 186; Wallerstein, 2011b III: 3, 34-35). Curiously, Smith’s work did not have immediate policy consequences, but was undoubtedly influential in Britain’s move to free trade after 1848. That very same year, Marx and Engels published their “Manifest der Kommunistischen Partei” in which they predicted the inevitable collapse of Capitalism10 and Mill published his “Principles of Political
Economy” in which he predicts the soon to come end of economic growth and the foundation
of a ‘stationary state’11 (Mill, 1848 [1909]; Neal, 2014: 16).
Albeit both visions were discredited by the gradual spread of capitalism until the present day, they echoed well throughout the twentieth century (Neal, 2014: 16) and shaped our general understanding of capitalism as an ideological construct that is identified with liberalism as the successor of feudalism and is opposed to socialism and communism (Boyer, 2011: 63). However, if the empirical course it took over the last century and a half differs quite from those leading inferences on the progress of capitalism, this would at the very least make us wonder if our understanding of capitalism is right in the first place
For academics, defining the concept of capitalism is more challenging than its everyday use might suggest (Boyer, 2011: 62). Many different theories, definitions and understandings of capitalism exist, which according to Neal (2014: 2) share at least the same four features irrespective of one’s viewpoint: (1) private property rights; (2) contracts enforceable by third parties; (3) markets with responsive prices; and (4) supportive governments. Those features are quite broad, by result of which one would be right to argue that long before Adam Smith and the Industrial Revolution there existed societies that fostered all the features of capitalism, going all the way back to the very roots of civilization in the Middle East12,13; societies, some of which fostered the hallmarks of capitalism longer than ‘today’s’ capitalism as for example also the case of the Phoenician Empire shows14 (Neal, 2014: 7).
This then poses a new problem: the origins of capitalism. As with the discourse on capitalism itself, the discourse on its origins is protean. In general, four main viewpoints exist on early capitalism (Prak, 2015: 506):
(1) Capitalism as trade (Braudel, Wallerstein); (2) Capitalism as agriculture (Brenner);
(3) Capitalism as proto-industry (Mendels, Kriedte, Medick, Schlumbohm); and (4) Capitalism as economic growth (Neal, Williamson).
9 E.g. Screpanti et al. (2005: 27), who talk about the “birth of modern industrial capitalism.”
10 Many other authors would follow, including Schumpeter who asserted capitalism would not be decomposed due
to its internal contradictions, but would demise due to its own achievements, as people would demand more and more government intervening to secure general wellbeing (Jacquemin, 1995: 1; McCaffrey, 2009: 4-5; Schumpeter, 1943[2010]: 53-54).
11 Contemporaries of Mill such as Macaulay and Spencer went even further when they advocated the viewpoint
capitalism was the “supreme fulfilment of the evolutionary process” (Jacquemin, 1995: 1).
12 The earliest evidence stems from Babylon, where a vibrant economy existed from roughly 1200 before Christ
to the conquest of Mesopotamia by Alexander the Great, in which the basic elements of capitalism made their first documented appearance. Followed by the development of Greek city states from around 1000 before Christ and later on the Roman Empire (Jursa, 2014: 27-30, 38; Neal, 2014: 7-8).
13 This would discredit the viewpoint of capitalism as some fulfilment of the evolutionary process, considering
that capitalism by this broad definition emerges and disappears over the course of human history.
14 The Phoenician Empire clearly developed cities and a market structure with specialized production and
government protection of the market. Much of what we know about their economic organization stems from archaeology, as – contrary to contemporary societies – little textual evidence remains (Neal, 2014: 7).
9 All follow a different logic and hence disagree on the nature and origins of capitalism. The first, however, is rather peculiar as it rejects the idea of difference between early capitalism and modern capitalism15, thereby not by definition rejecting the idea of a state of critical mass, that is the theoretical basis of the breakpoint in history16, but rather embracing the necessity of understanding it on the longue durée; that is the slow accumulation of the diverse elements necessary for developing a state of critical mass17 (Dannequin, 2004: 22). The idea of a qualitative breakpoint in production and politics – being respectively the Industrial and the French and American Revolutions – is then omitted and replaced by the idea that the “ideological superstructure” at this point of time adapted itself to a long existing (economic) reality. Thus both revolutions constituted neither a breakpoint, nor the moment of change; rather they represented the “further consolidation and entrenchment” of capitalism (Dannequin, 2006: 99; Wallerstein, 2011b III: 52, 256).
The French twentieth century historian Fernand Braudel is the great protagonist for explaining capitalism as trade. He proposed the concept of capitalism as a way of organizing and analysing history from at least the fifteenth century onwards. Braudel was one of the leading scholars of the École des Annales, an influential school in 20th century historiography that mobilized historical arguments to understand social reality18. Braudel, who lead the second generation of the École des Annales, put forward in his important 1958 article “Histoire et
Sciences sociales: La longue durée”, the idea of time as social construct, that would allow for
a rapprochement in the social sciences19. He (1958: 751) suggested that the longue durée was the most appropriate ‘time’ for developing a joint understanding in the social sciences, as it allowed for different disciplines such as history, economics and sociology to overcome the limitations of their own profession and thereby achieving an encompassing social science20,21.
15 In Braudel’s (1985: 11) own words: « (…) une économie de marché et un capitalisme en expansion, qui font
tache d’huile, fabriquent peu à peu, préfigurent déjà le monde même où nous vivons. » Or (1985 : 115) : « Je doute que la nature du capitalisme ait changé de fond en comble. »
16 The concept, which is originally derived from physics, states that a (social) system can develop a state of critical
mass, by which the normal tendency towards equilibrium and stability is replaced by one of instability and change from which a new equilibrium will arise. Its most clear expression is found in the work on the Industrialization of Belgium by Lebrun: « Par cette expression, nous voulons signifier qu’un système détermine, une société,
caractérisée par une structure, peut se modifier sou l’action d’évènements internes ou externes, aux effets normalement cumulatifs, vers un état dont la masse devient critique. En pareille occurrence, la tendance normale vers une position d’équilibre cède la place à une situation d’instabilité générique, comme si l’équilibre, perdant de plus en plus sa stabilité, perdait corrélativement de sa prégnance. A ce moment, un choc déterminé – il y en a toujours, mais non toujours prolongés des suites notoires – déclenchera un processus en chaîne, entraînant par une suite de réactions dont, en histoire l’imitation sera souvent la trame, l’apparition d’une nouvelle structure, grosse d’un nouvel équilibre stable. » The concept was used by Asselain (1984 : 103) to explain why Great Britain
developed a masse critique for the Industrial Revolution, whereas France did not (Dannequin, 2004: 22, note 35).
17 Literally : « Quand David Landes décrit la Révolution industrielle comme la constitution d’une masse critique
aboutissant à une explosion révolutionnaire, l’image est bonne, mais il est bien entendu que cette masse a dû se construire d’éléments divers et nécessaires et par une lente accumulation. Au détour de nos raisonnement, le temps long, chaque fois, réclame son dû. » (Braudel, 1979 III: 465).
18 Bloch and Febvre – the founders of the École des Annales – were particularly fond of this notion of presentism
in history as they stressed a historian inquires the past with questions today’s society poses to them. Or, according to Pirenne, the historian seeks to understand what is “contemporary to us” (Burguière, 2009: 9, 26, 253-254).
19 Braudel differentiated in four different social times: (1) “L’Histoire événementielle”, that dealt with short term
evens, la courte durée; (2) “la structure”, that deals with long cyclical movements, such as economic cycles; (3)
“La longue durée” encompassing the regularities of social life that are almost imperceptible; and (4) the “tres longue durée”, where no change occurs. Braudel both denounced the first for it made historians neglect underlying
structures and criticized the last for its quest for eternal truth, considering the purely nomothetic work of many social scientists (Braudel 1958: 727-735; Wallerstein, 2004: 15).
20 According to Braudel (1958: 751): « Si l’histoire est appelée, par nature, à porter une attention privilégiée à la
durée, à tous les mouvements entre quoi elle peut se décomposer, la longue durée nous parait, dans cet éventail, la ligne la plus utile pour une observation et une réflexion communes aux sciences sociales. »
10 Based on vast empirical data ranging from the fifteenth to the eighteenth century, Braudel argued that economic activities do not constitute a single category of human activity, but three separate levels can be distinguished (Dannequin, 2004: 6-7; Wallerstein, 1991: 354-356):
1. Material Life: an extremely elementary form of economic activity, almost solely concerned with production for own consumption.
2. Economic Life: concerned with production for a market in which allocation is driven by demand and supply.
3. Capitalist Life: the world of monopolies, in which allocation is driven primarily by power.
This theoretical framework of capitalism went against the leading worldviews of the 19th and indeed the twentieth century – Liberalism and Marxism – in two ways. First Braudel defined capitalism in terms of power, instead of a free competitive market. Second, he argued capitalism was not about economic specialization, but the ‘refusal’ to specialize instead. Capitalism was not only something different than the free market, it was the sphere of the anti-market, the ‘contre-marché’ (Braudel, 1979 III: 539; 1985: 63; Wallerstein, 1991: 354).
The main implications of Braudel’s theory of Capitalism were recognized and elaborated upon by Braudel’s foremost follower Immanuel Wallerstein, who (1991: 359) wrote in his classic review article on Braudel’s work:
“What implications does it have to see capitalism "upside down" in this manner? For one thing, it changes the historiographical agenda. For a second, it contains an implicit critique of Enlightenment theories of progress. For a third, it gives a very different policy message for the contemporary world.”
Wallerstein embraced Braudel’s distinction between market and capitalism, as well as the epistemology of the longue durée and developed the theory of world system analysis22, in which he theorized the rise and development of capitalism in Europe from the 16th century onwards23 and its expansion to eventually cover the entire world by the end of the 19th century after which the system faced systemic crisis, as well as its internal dependencies that are shaped by unequal exchange, that is by power; thereby consolidating Braudel’s extrapolation of historical capitalism to the present24 (Lee, 2012: 3-7; Wallerstein, 2004: 18-24; Wallerstein, 2011a: 18).
Whereas the notion of capitalism seemed to belong to the past of hot ideological debates, the work of Braudel and Wallerstein prompted a renewed interest in capitalism as a complex and dynamic social system and thus an alternative means to study economics; which was further enhanced since the commonly used market approach to economics showed its inability to predict and explain the major stylized facts of the last decades25, such as the transformation of
22 World system analysis originated in the 1970s and put forward the ‘historical system’, that represents an
“integrated zone of activity and institutions which obey certain systemic rules” thus crossing the boundaries of political and cultural units”, as object of study (Wallerstein, 2004: 16-17).
23 The first signs of capitalism were already visible from the thirteenth century onwards, but could not thrive,
because of the 100 Years War and the Black Death. The first signs of a continuous change to a capitalist world system need to be sought in the fifteenth century, especially from 1450 onwards, due to (1) the rise of state bureaucracies and (2) the crisis in feudalism. Feudalism – according to Wallerstein – cannot be considered part of a capitalist system as production was mainly for own consumption (Braudel, 1985: 29; Dannequin, 2006; 106; Wallerstein, 2011b I: 17, 21-22, 28-29, 33; 36-37).
24 According to Dannequin (2004: 22-23), examples of capitalism in modern times include the close entanglement
of economic actors (mainly the great corporations) and the state, lobbying to change regulations, and the existence of fiscal paradises
25 The notion of market economy implies that markets are the dominant – if not only – mechanism of coordination.
Economists have traditionally postulated the equivalent of a stationary state in their analysis: i.e. macro-economic equilibrium or stable growth. By definition all aspects of economic study merge smoothly into an equilibrium that makes them mutually compatible. Hence, disequilibria come unexpected and causes are by definition thought to be exogenous, i.e. social and political institutions that distort the rational pursuit of self-interest in a free competitive market. The system approach to capitalism assumes on the other hand disequilibrium and
11 former Soviet states, the introduction of the Euro and the 2008 financial crises (Boyer, 2005: 43-44; 2011: 59-78). One must thus differentiate between capitalism as ideological construct that identifies itself with the free market approach to economics and capitalism as analytical tool that describes a complex social system centred around the accumulation of capital (Heilbroner & Milberg, 1995: 106). The two contrasting capitalisms – ideological and analytical – differ broadly speaking along four axes (Boyer, 2011: 63-64):
1. The market is only a component of the capitalist economy that does not exclude other mechanisms of coordination.
2. Capitalism features more diverse social, economic and political configurations than a pure economic system.
3. Capitalism is about disequilibria, contradictions and crises instead of equilibrium. 4. Capitalism is no unique, static system, but evolves over time.
Although the analytical system approach of capitalism receives more attention in the last decades, the field remains heavily underexplored. Several reasons come into mind for this and include for example the focus on mathematics and the search for hard economic laws that dominated the economic discipline since the Second World War (WWII) and the general notion of capitalism being rather an ideological concept than an analytical tool (Boyer, 2011: 59-60, 78). Not surprisingly, the capitalism approach to economics lacks a fully coherent paradigm, is eclectic and under researched. Exactly these shortcomings have inspired the present research, that seeks to contribute to solving them.
Research focus
In order to contribute to the general aim of this research, it is necessary to establish a clear focus of inquiry. That is to establish a suitable line of research that in its findings can also contribute to scholarly thinking about capitalism and capitalist economies.
As the viability of capitalism requires basic conditions that it cannot produce within its own logic – including for example legal institutions concerning property, contracts and labour as well as a credible monetary and credit system – it needs an institution to provide them and that is strong enough to enforce them (Boyer, 2011: 73). Typically this is the role of the state, which throughout the history of capitalism has functioned as a ‘guarantor’ of the system26. Therefore, it seems only natural to look at the state in order to study capitalism.
However, an inquiry into the relation between state and capitalism seems principally fruitless, as the nature of capitalism is by definition opaque27 (Özçelik & Özveren, 2006: 417; Wallerstein, 1991: 355). Still, when studying a relationship is not possible because of this opaque nature of capitalism, one can study its product, which in the case of the state is its policy. In terms of policy, the state can either favour capitalism or restrain it (Özçelik & Özveren, 2006: 417; Wallerstein 1991: 360). Policy in its turn is transformed into law and regulation, which is then the mirror image of the relation between the state and capitalism. Law and regulation can easily be studied, which is a common practice in political and public administrative science.
acknowledges the complexity of social reality – which is arguably never stuck in a stationary condition – which makes it better equipped to understand social reality in the totality of its complex nature (Boyer, 2011: 63, 67; Özçelik & Özveren, 2006: 414).
26 Consider for example Wallerstein (1991: 357), who speaks of “guaranteed by, incarnated by”, or Braudel (1979
I: 64, quotation derived from Wallerstein, 1991) who states: “Capitalism only triumphs when it becomes identified
with the state, when it is the state.”, or (Braudel, 1985: 60) : « Que ces capitalistes (…) soient les amis du prince, des allies our des exploiteurs de l’État, est-il besoin de le dire? »
27 Both Material Life and Capitalist Life are according to Braudel “opaque”. The first simply by lack of registration,
the latter because the actors engaged in it, wanted it to be that way. Or in Braudel’s (1979 I: 23-24, quotation derived from Wallerstein, 1991: 355) own words: "certain groups of privileged actors were engaged in circuits
12 As ‘policy’ is little specific and covers a vast array of subfields, it still offers little support in finding a suitable research focus; a further narrowing down is thus desired. In this respect, an interesting development occurred by the end of the nineteenth century, around the time capitalism covered the globe. In the United States (US) for the first time in history policy makers became concerned with competition28 and Europe followed in the twentieth century, especially
after the WWII29. This was the first time in history, not only the state decided to openly interfere in the relation between market and capitalism, but also seemingly did so to favour the first30. Furthermore, in Europe originated an interesting supra-national dimension that has its origins in the foundation of the European Coal and Steel Community in the 1951 Treaty of Paris and was further shaped by the 1957 Treaty of Rome (Motta, 2004: 1-2, 9, 12-14).
Competition policy is shaped by historical and social motivations and can serve a variety of goals, ranging from (consumer) welfare to protection of smaller firms to promotion of market integration to combatting inflation to equity and justice. Furthermore, it interacts with other policy areas due to political, social and strategic considerations (Motta, 2004: 16-25). Defining competition policy is therefore not an easy task, nonetheless Motta (2004: 28) provides a workable definition: competition policy is “the set of policies and laws which ensure that
competition in the marketplace is not restricted in such a way as to reduce economic welfare.”31
Motta’s definition needs some remarks. Competition policy regulates the freedom of market players and is therefore an important area of public intervention. It is a policy area where many different interest clash (Wigger & Nölke, 2007: 490). It seeks to regulate commercial activities of businesses and ensures the freedom to compete in a market economy. Notwithstanding, it can be used to curb state power as well. Besides such legal and economic considerations, it is the expression of political goals and indeed is deeply ideological. The commitment of the state to a liberal free market economy provides also the foundation of competition policy32. As markets are considered supportive of liberal democracies, the importance of competition policy increases with the expansion of the private sector and concentration of market power. Hardly surprising, it has been suggested to view competition policy as an “economic constitution”, insofar it defines the relations of individuals and the state vis-à-vis the market (Wilks, 2010: 732, 734-735, 752).
From the perspective of the theory of capitalism and its predicted end, this is a fairly peculiar development, both in terms of content and emergence. For (1) competition policy emerged in the core of the world system33 – Northern America and Western Europe – at the
time the system entered structural crisis; and (2) its policy aim, that is constraining the capitalist and guaranteeing a free competitive market, is at the very least contra-intuitive in a theoretical framework that stated capitalism as a system can only flourish when it is backed by the state.
28 The low and volatile prices and market instability in the last part of the 19th century tempted firms to engage in
price-agreements, which gave rise to the federal anti-trust law in 1890: the Sherman Act (Motta, 2004: 2-4).
29 In Germany the leading view in the 19th century was that cartels were an important means to control price
volatility. Freedom of contracting was seen as central to competition and cartels were enforceable in court. Many central European countries, such as Austria, Hungary, Switzerland and The Netherlands followed this German logic. In the United Kingdom (UK) the first competition law – the Profiteering Act – actually served to prevent high prices after World War I and was introduced in 1919 (Motta, 2004: 9, 11).
30 The very interesting part of competition policy is that does so almost literally using the same terminology of
Braudel. In its effort to ensure competition, which is the hallmark of Market Life and to prevent monopoly, which is the hallmark of Capitalist Life. It seems, competition policy forces monopolists (= capitalists) to obey to the exact rules they have extorted themselves from.
31 Note that since “reducing economic welfare” is a specification of “detrimental to society” (Motta, 2004: 28),
competition policy has an interesting moral dimension as well.
32 Hence, states with economies that are otherwise coordinated – e.g. public ownership – have no need for
competition policy (Wilks, 2010: 732).
33 This refers to the hierarchy of states in the capitalist world system, on top are the strong states (core) and below
13 Both are arguments to delve further into the case of competition policy as a way refining our understanding of capitalism. Although others touched already upon questions of economic freedom and regulation within capitalism (e.g. Braudel, Özçelik & Özveren, Wallerstein), competition policy as such remained unnoticed in the literature. After all, economic regulation is much broader than competition policy and has a lot of potential to foster capitalism, whereas competition policy seemingly does the opposite. Furthermore, regulation existed since there were market economies34, whereas competition policy emerged only a century ago.
As the emergence of competition policy seems contra intuitive in this theoretical framework, its meaning in the capitalist world system is far from clear and both its content and emergence seem to suggest it being relevant for the theorized structural crisis of the system and its predicted end – itself far from being coherently theorized – the dynamic role of competition policy in the capitalist world system shall be the central focus of inquiry. Albeit competition policy did not span the entire world system (by far), both geographically and in time, it does have the potential of yielding information on the functioning of capitalism as a historical social system, the role of the state in that system and the dynamics of structural crisis. What remains at this point is to select a proper case to study.
Research questions and case selection
Then, just like in the historical analysis of capitalism, the focus of research is on Europe. Whereas back then, capitalism could thrive and expand thanks to political, economic and social conditions (Dannequin, 2004: 20); Europe might nowadays foster the conditions of the demise of capitalism in its creation of a joint competition policy, that is not only intriguing by its geography35 and its regulatory capacity36, but as well for its quite unique international dimension37. Furthermore, the European Commission’s (EC) competition policy, provides us with a clear and unambiguous case, since it is neatly codified in articles 101 to 109 of the Treaty on the Functioning of the European Union (TFEU)38.
The research question is then: what is the dynamic role of the EC competition policy in the
capitalist world system? It can be divided in three sub questions:
- To what extent does the EC competition policy reflect the aspects of historical capitalism theory?
- What is the effect of the EC competition policy on capitalist production? - What is its role in structural crisis?
These questions follow each other logically. After all, I just argued that competition policy and especially supranational competition policy is an unexpected development in historical capitalism. Therefore, one should first establish whether empirical reality and this particular theory are commensurable. Only if they are, we can argue for any dynamic effects on capitalist production, which must be understood before arguing any possible role in systemic crisis.
34 Albeit Neal’s definition of capitalism as economic growth is much broader and different from the system
perspective from Braudel/Wallerstein, his study of the history of capitalism is very useful in identifying earlier market economies. He (2014: 3, 8-9) shows how economic regulation and enforcement are needed for proper market functioning and thus are an ancient practice. For example the Greek city-states and later the Roman Empire displayed such a strong institutional framework where a vibrant market economy developed (ibid. 2014: 8-9).
35 In this respect one could as well argue to delve into the American competition policy, that also emerged in the
core, but has a longer history than its European counterpart, however lacks the supranational dimension.
36 The EC is a strong enforcer of its competition law, assessing hundreds of cases yearly (Vestager, 2015: 4-5). 37 In spite of globalization, laws and politics tended to remain primarily the subject of states. Modern competition
laws have been designed to promote and maintain competition in markets principally within each state and usually are not concerned with activity beyond borders, unless when anticipating significant domestic effects. This fosters a “regulatory disjunction” since trade is increasingly international (Taylor, 2006: 1).
38 The TFEU which was signed in 2007 in Lisbon replaced the before mentioned Treaty of Rome (Treaty
14
Relevance
At this point, it is necessary to make explicit why anyone should care about capitalism, world system analysis and the scholarly debates surrounding them. From a scientific perspective two reasons justify further capitalism research in order to contribute to ongoing debates and seek theoretical advancement. Firstly, disagreement between scholars makes clear that, while there is a dominant one, there is absence of a real central dogma to the field of economics (e.g. already noted by Landes & Tilly, 1971: 51), which makes it worthwhile to investigate other theories and paradigms. Secondly, scholarly interest for a ‘systemic’ approach to economics has fallen, whereas the world has become more a single ‘system’ than ever before due to globalization, rising costs of externalities and increased global governance (Albert & Cederman, 2010, 3-4).
As competition policy itself is predominantly studied from a free market perspective, knowledge about alternative perspectives perishes irrespective of its potential. After all, scientific resources and education focus on this dominant paradigm that offers the best possibilities for careers and resources and hence a monoculture in education is created. This entails a danger of slowing down scientific progress as the output of new ideas becomes restricted. Therefore theoretical pluralism besides a dominant theory should be welcomed (Budzinski, 2008: 316-317). Moreover, competition policy is usually studied on its own, disregarding the larger whole from which it emanates and which it influences and existing literature does not question “the existing order of things” nor the dominant discourse to which competition policy is formulated. Similarly, there is little attention for the “profoundly political nature of competition policy”39 (Buch-Hansen & Wigger, 2010: 22).
Besides fundamental scientific progress, one should not disregard the societal aspect of the questions at hand. After all, theory shapes the way in which we observe reality and give meaning to empirical observations. It tells researchers what to look for and policy makers on what to focus and thus potentially makes them negligent of other aspects of social reality (Blatter & Haverland, 2012: 148-149; Page, 1991: 3). Competition policy is fundamentally shaped by economic theories (Bartalevich, 2016: 267). As there can be no absolute economic theory, the insights of alternative theories can influence how policy is practiced (Budzinski, 2008: 318). Furthermore, behind a seemingly apolitical competition policy, lies a vast domain of moral questions about power, distribution and conflicting interests that transcends national boundaries in an ever globalizing world (Buch-Hansen & Wigger, 2010: 26; Wilks, 2010: 743, 753). This opens up also the question in whose interests competition policy works (Wilks, 2010: 753). In sum, unorthodox theoretical perspectives open up real world questions of policy and morality, that would otherwise have remained unnoticed, or in the words of Dimaggio (1995: 393), they allow us to “see the world with new eyes.”
Methodology and validity
By now both a theoretical problem and its larger discourse have been introduced, a case has been selected and the research questions have been phrased. What remains is to establish the proper research method for these research questions. The first sub question is inherently deductive, whereas the second and third sub questions require by their nature an inductive methodology. Theoretically, adopting an inductive approach is possible as world system analysis postulates that everything in the present – including those things that seem unexpected such as the emergence of a supranational competition policy – is inherently part of the capitalist world system and must thus be evaluated within that framework40.
39 E.g. EC commissioner Monti literally said: “a matter of law and economics, not politics” (EU, 2001: 1). 40 The same reasoning was applied by Wallerstein (2011a: 93), when he studied the roles of nationalist and socialist
15 In order to answer the first research question, it is necessary to begin with the theoretical functioning of the capitalist world system and to identify all integral parts of that theory and their relations. Combined with a case description of the EC competition policy it allows us to argue to which extent the case reflects the different aspects of the theory. Then, it is necessary to consider the theory fully, for without it, it is impossible to discern those elements that have no counterpart in the EC competition policy, nor to argue possible explanations for this.
Logically, it must be established that the empirical reality of an unexpected case fits within this theoretical framework before arguing its meaning within that framework. For what would be the point of any further argumentation when the empirical reality contradicts the theory? The inductive part of the research in turn requires [sociological] hermeneutics41 as methodology; i.e. the interpretation and understanding of social events through an analysis of their meaning by the context from which they originate (Willis, Jost & Nilakanta, 2007: 104-106). In this method, the context – the big picture – is the capitalist world system and the social event – the individual ‘piece’ through which we seek to better understand the whole – is the EC competition policy. The hermeneutic method requires us to consider the theory of capitalism as a whole. Only then, one can properly argue how the supranational EC competition policy must be understood in that framework and why certain explanations are more valid than others within that framework. Then, via the interpretation of social reality within the theory, we enlarge our understanding of the functioning of the capitalist world system (Morehouse, 2012: 1).
Evidence on the EC competition policy is derived from three sources, namely the Treaties, the various regulatory frameworks that set out its application, and the scientific literature. The first are foremost important in describing the policy, the latter is particularly important in those areas that extent the mere application of the rules, such as identifying ideological change.
The research of the world system rejects the effort to reduce complex situations to simpler quantifiable variables in order to construct scientific laws – nomothetic positivism – but instead seeks to understand real social situations in all their complexity. The issue is controversial and touches upon the important methodological debate between Erklären and Verstehen in the social sciences42, which is perhaps best classified as a dialogue of the deaf (Wallerstein, 2004: 19). I by no means intend to contribute to this debate and do agree with Wallerstein (2004: 19-20), who said that in the end the most important is to offer “more plausible explanations of
historical reality and therefore throw more light on long-term, large-scale social change”. In
the end, it is up to the reader to decide for himself who has done the best job in it. For now, it seems only natural to apply the methodology of the theoretical framework under investigation. An unconventional theory and unconventional method – at least in public administration – spark off course questions of validity. Internal validity has essentially already been treated above where I argued one can circumvent the inherent ‘opaqueness’ of capitalism through the study of policy that can be studied in its legal provisions and regulatory frameworks, to which the existing scientific literature adds further understanding. The selection of the most intriguing case given the theory – the only supranational competition policy – entails essentially a least-likely-case design. So, when the theory holds in this case, it is likely it holds in other competition policy regimes as well. The largely inductive nature of the research means that external validity is of less importance as the research seeks to gain deeper understanding –
Verstehen – rather than generalization and to shed light on aspects of reality that remain in the
shadows when using more conventional approaches to competition policy – defamiliarization.
41 Originally, hermeneutics was the study of sacred texts such as the Bible, but gradually it expanded to include
the understanding of human action in its context (Willis, Jost & Nilakanta, 2007: 104).
42 The concepts were first introduced in the 19th century by Johann Gustav Droysen to explain the difference
between natural sciences and history, which was elaborated by Wilhelm Dilthey. It is often linked with the hermeneutics by Martin Heidegger and is closely associated with the works of Max Weber, whose anti-positivism established an alternative way of analyzing social reality (Willis, Jost & Nilakanta, 2007: 100).
16
Capitalism theory in public administration
For having embraced the epistemology of world system analysis, this inquiry is by definition not restricted to the field of economics and law, which have traditionally been the primary ways of studying competition policy (McGowen & Wilks, 1995: 1). It needs to be studied in a uni-disciplinary way; instead of focusing ourselves on just a single or a few sub-disciplines43. Whereas Braudel (1958: 751) envisaged a hegemony of history in this encompassing understanding of social reality, one could argue just as well that the nature of the proposed problem is essentially public administrative as it is about states and policy. Moreover, public administration has since long embraced its interdisciplinary nature without a paradigm of its own to be the central feature of the discourse, integrating the insights of all disciplines in the social sciences and even beyond (Mainzer, 1994: 361, 365, 384; Rutgers, 1998: 557-558)44,45.
The advantage of the interdisciplinary nature of public administration was already noted by Waldo (1980: 59), when he wrote:
“There would be almost no dissent from the proposition that any one academic discipline is inadequate to the task of supplying the needed knowledge and skills.”
For Waldo academic disciplines were merely artificial constructs, representations of different academic departments that came into being; the task for public administration was to pursue an interdisciplinary academic endeavour instead of trying to create a discipline of its own. That idea became popular after the Minnowbrook I Conference Waldo organized in 1968 and is still relevant today46. (Mainzer, 1994: 365; O'Leary, Van Slyke & Kim, 2010: 10). Frederickson (1980: 105-106)47 agreed with Waldo, stating:
“if it [public administration] is not an interdisciplinary field, then there probably is no such thing.”
43 In line with Braudel’s vision on the social sciences, world system analysis abandoned the boundaries of
disciplines in the social sciences, thereby integrating knowledge that once belonged to certain disciplines, into a single analytical frame. The result was not multi-disciplinary, but uni-disciplinary (Wallerstein, 2004: 19).
44 Before WWII there was more or less a dominant public administrative theory, that centered around the
politics/administration dichotomy, formal hierarchical organizations and efficiency as its benchmark criterion. After the war, it was rejected as being rather naïve, but no theory replaced it; by result of which theoretical diversity remained, incorporating insights from political science, economics, management, law, etc. Initially this was typed as an identity crisis, eloquently phrased by Ostrom (1973[2008]: 17): “[a crisis] evoked by the insufficiency of the
paradigm inherent in the tradition theory of public administration.” This trend was reversed by Waldo, who
argued public administration was neither a discipline of its own, nor a sub discipline of political science. Public administration, he argued, should not seek a paradigm of its own, but rather embrace the multidisciplinary approach. This became the new orthodoxy: public administration ought not have a central theory, but is interdisciplinary and draws from all other social sciences and even beyond. And indeed Fredrickson (1989: 98) observed the discourse has become increasingly more interdisciplinary since the 60s (Mainzer, 1994: 361-365, 384; Rutgers, 1998: 557-558).
45 Rutgers’ (1998: 558-559 ) analysis on the identity crisis in public administration goes even further, when he sets
out the argument that there are – at least epistemologically speaking – no disciplines at all in the social sciences. Then the terminology of disciplines is best omitted he (1998: 559) continues, for it hampers the understanding of interdisciplinarity; one should rather understand the character of public administration as the integration of knowledge of diverging approaches.
46 Conference held every 20 year (1969, 1988, 2008) in order to evaluate where the field of Public Administration
is at the moment, where it is heading and where it needs to go. The first Minnowbrook Conference was organized by Waldo and was dominated by the debate between Waldo, who emphasized a more political, theoretical and philosophical approach to the discourse, and Simon who fancied a more empirical and technocratic investigation (O'Leary, Van Slyke & Kim, 2010: 1-3). The most recent conference in 2008 came to the same conclusion as Minnowbrook I, that is to embrace the interdisciplinary nature of the discourse, which included methodological diversity and acceptance of many ways of doing research (O'Leary, Van Slyke & Kim, 2010: 10).
47 In the same piece, Frederickson too expressed the viewpoint that public administration is not a discipline of its
17 Although the multitude of approaches in public administration makes a homogenous view of the study almost impossible (Rutgers, 1998: 553), it is – just like in the École des Annales or in world system analysis – the integration of knowledge of different approaches and sub-fields that yields deeper understanding. Nevertheless, the debate on the exact nature of the public administrative discourse and the proper methods to apply remains unresolved (O'Leary, Van Slyke & Kim, 2010: 281) and it is not my intention to engage in it. For now it is sufficient to ascertain that historical capitalism can be studied within the interdisciplinary field of public administration, which on its turn has no reason to not explore the uni-disciplinary methodology of world system analysis and its strive towards an encompassing social science.
Outline of the thesis
Lastly, a few remarks on the outline of the thesis must be made. From this point onwards, we must start with the theory of historical capitalism, which shall be the subject of the next chapter. It will clarify how production defines a social system and explain its dynamics in terms of economics, politics and ideology as well as the mechanisms of systemic crisis. The second chapter ends with a brief outlook for the rest of the thesis and elaborates why the creation of a supranational EC competition policy seems an ill fit with this theoretical framework. By the nature of the questions the research asks, we must deal with the theory of historical capitalism in its totality, for otherwise it is impossible to argue the extent to which case and theory align and the hermeneutic method requires us after all to place the case in its full context. The third chapter introduces the supranational EC competition policy, its four pillars, its institutional framework and its ideological change. This collection of evidence allows us to move to the fourth chapter in which the research question and sub questions will be argued. The last chapter provides the conclusions of this research and zooms out again in order to reflect on the thesis itself, the discourse that inspired it and its relevance.
18
Ein Gespenst geht um in Europa (Marx & Engels, 1848[2016]: 35)
II. Capitalism I. Introduction
It might seem rather odd to start this chapter with an open reference to communism. For have I not differentiated between capitalism as ideology and as analytical tool in the previous chapter? And are Marx’ works not deeply ideological indeed, as “his sciences aims to chance the world, rather than to simply describe it”48 (Andrew, 1975: 455, 457-458). But perhaps that is the best
reason to start with Marx after all, for in practice many cannot and do not think of capitalism without thinking of Marx and the hot ideological debates of the 19th and 20th centuries.
In that case, one would be right to ask why to delve into capitalism theory at all. Has not the Marxist attempt to discover the laws of capitalism failed? Have not most communist regimes failed? Has not, with the fall of the Berlin Wall, Marxism as such fallen and taken with it the interest in Marxist politics and economics (
Boyer
, 2011: 60; Wolff, 2002: 1)? And most important, has in the practice of scientific research the norm not been to be neutral and therefore to maintain a strict dichotomy between fact and value49 (Backhouse, 2010: 146-147)?But then, Marxist theory is something different than historical capitalism theory. The first is prescriptive, the latter descriptive. Capitalism as ideology is sustained by the doctrine of liberalism and opposed to socialism and Marxism. Capitalism as analytical tool is an uni-disciplinary social system approach to economics and social science in general. It describes the social configurations emanating from the capitalist production process and how those unfold in history, rather than being a Marxist “science to change the world”. Nevertheless, the field is eclectic and heterogeneous and has not yet arrived at a fully coherent paradigm. The causes for this have to be sought in the lack of research in this field and the complexity of the concept itself, by result of which not even a common definition both within scientific disciplines as among them has emerged (Boyer, 2011: 59, 62-63). Consequently, we must explicitly specify the meaning of concepts and the relations among them, which shall be the central purpose of this chapter. In this effort, I shall rely as much as possible on the original works of Braudel and Wallerstein, when explaining their theories.
Capitalism as social system unfolds in history. Hence, according to Wallerstein (1984: 49) if one seeks to understand the dynamics of our contemporary society, one has to view them in the light of the functioning of capitalism from the onset. Therefore, this chapter starts with Braudel’s differentiation in modes of economic organization and their historical development, in order to clarify how an historical social system emanates from the productive process. Next, the dynamics of capitalism are discussed in terms of its economics, politics and ideology. The chapter ends with a discussion of the two conjectures on structural crisis in capitalism and a brief summary followed by an outlook for the coming chapters.
48 Marx set out his economic theories in Das Kapital and numerous smaller writings. In his work the dichotomy
between science and ideology becomes untenable, since there is an internal connection between Marx’ science and the will to engage in revolutionary action, that is: “his descriptions imply prescriptions.” In fact, his early works are more ideological, whereas his later works are more theoretical, with the exception of some early theoretical contributions, such as Zur Kritik der Politischen Ökonomie (1859) (Andrew, 1975: 455, 457-458).
49 In this vision the dominance of the Free Market approach to economics is no common ideology. Rather it
signifies a common language and common methods. It is technical instead of ideological (Backhouse, 2010: 146). A viewpoint that is disputed by others, such as Boyer (2011: 61-62) or Marglin (2010: 56-57) asserting that a dichotomy between descriptive and normative economics does not exist in reality, thus undermining that argument against the capitalist approach.
19 II. Capitalism as historical social system
a. Three layers of economic organization
Braudel differentiated between three forms of economic organization in his description of Europe’s economic history from the 15th until the 18th century. He started with the analogy of
a house. The first floor is material life and is concerned with production for own consumption. The second floor is economic life and is concerned with production for a market. The last floor is capitalist life and encompasses allocation driven by power. Following Wallerstein (1991: 354-356) they can be differentiated along five axes: allocation, specialization, regularity, transparency and profit50.
Material life is solely concerned with production for one’s own immediate consumption; it is about self-sufficiency and thus directed by one’s own immediate needs. Allocation is therefore a product of the almost unconscious process of daily routine. A division of labour does not occur and the dynamics of material life are regular like annual harvest. The results of the productive process have only use-value and no exchange-value, by result of which there is no need for administration. Consequently, material life remains an opaque world, almost impossible to study for the historian (Braudel, 1985: 15-16, 21-23; Wallerstein, 1991: 355).
In economic life, goods gain exchange-value, as people produce for a market. Here, the invisible hand of demand and supply regulates allocation of production factors, as a result of which a conscious division of labour – specialization – occurs. Exchange is based on competition and therefore almost transparent. By result profits are modest. The process is open to both small and large merchants and is regular, predictable and routine, as well as regulated and law-abiding. Since the process is well documented51, it provides a relatively clear object of study. Not surprisingly then, conventional economic history is founded on this mode of economic organization (Braudel, 1985: 23, 54-55, 62-63, 66; Wallerstein, 1991: 355-356).
Capitalist life liberated itself from the rules of the traditional market and avoided transparency and control, resulting in high profits and great accumulation of capital. The large capital needed to engage in this form of economic organization and the sometimes long periods before profits could be realized, made it – contrary to market life – open to only a small number of persons. The sheer size of capital at their disposal made it possible to eliminate competition and preserve a privileged position. Specialization did not occur; on the contrary, any lucrative business can be the business of the capitalist. Since profit opportunities constantly shift from sector to sector, so does the capitalist. In sum, capitalist life is the world of large, but irregular and uncertain profits, facilitated by unequal exchange and avoiding transparency and control – that is being opaque. Without a certain opaqueness the zone above the market would be unthinkable (Braudel, 1979 III: 539-540; 1985: 34, 55, 57-59, 61-63, 65). Capitalism is thus contrary to Marxism and Liberalism not about free competitive markets, but rather the realm of the anti-market and it is not about specialization, but instead the refusal to specialize (Wallerstein, 1991: 354, 356). Not surprisingly, Braudel (1985: 118-119) personally regretted the refusal of both the ideologically ‘capitalist’ and ‘socialist’ parts of the world to embrace his distinction between market and capitalism, between market and anti-market.
Table II.1 on the next page sums all this up along the five axis introduced above.
50 Wallerstein himself (1991) applied a distinction in six different fields. I took the liberty to rearrange his analysis
in this way. The main reason is that his sixth point was about the role of the state in the system and therefore strictly speaking not part of the distinction of the three layers of economic organization.
51 Not for the last reason, because of the state demands this from all economic actors on a market. This follows
from the need of a proper administration for taxation. The same process is occurs when new zones are incorporates in the world-economy of which Banaji (1977 = 2010, chapter 10) made a detailed study regarding the Indian Daccan region under British colonial rule, on which Post (2014) commented as well.
20 Allocation Specialization Regularity Transparency Profit
Material life daily routine none regular opaque - Market life demand/
supply
division of labour
regular transparent small
Capitalist life power none irregular opaque high
Table II.1. Braudel’s theory of economic organization schematically
b. Brief outline of capitalism’s historical development
In order to make the leap from these different modes of economic organization to capitalism as social system, it is necessary to briefly sketch capitalism’s historical development. After all, both material life and economic life are by no means new and have existed even in the most rudimentary societies52. While capitalist life made its first appearance in thirteenth century Italy
with the rapid development of a monetized economy and the rising power of merchants’ guilds; although its development was initially hampered by the black death and the Hundred Years’ War53. From the fifteenth century onwards, economic life and capitalism steadily grew in proportion. Since economic life left us vast archives and innumerable records, the danger exists seeing only this type of economic organization, describing it abundantly and suggesting thereby its invasive and persistent presence, while it is only part of a larger whole. The market exchange between consumer and producer has – until the nineteenth century – been nothing more than a layer between the vast domain of material life and a very thin top layer of capitalism (Banaji, 2010: 357; Braudel, 1985: 43-46; Post, 2014: 86).
One can differentiate between two phases in the spread of capitalism: urban dominions and national dominions. Historically, the economic centre of capitalist production had always been cities or city-states54 and capitalists were back then foremost concerned with long distance trade, for the vast array of possible trade partners gave the merchant the possibility to choose whatever trade was most profitable, resulting in high profits and great accumulation of capital55. Amsterdam was in that respect the last city. Its position was taken over by London in the second half of the eighteenth century. London acted not as a single city, but rather as the capital of a nation, which gave it the irresistible power of a national market56; i.e. a “political space,
transformed by the state as a result of the necessities and innovations of economic life, into a coherent, unified economic space whose combined activities may tend in the same direction” (Braudel, 1985: 99; 103-104, 107).
52 Consider for example (Neal, 2014: 7-8). His broad definition of capitalism (2014: 2-3) is comparable to
Braudel’s market life. By result he identifies many earlier instances of capitalism, that in Braudel’s terminology would undoubtedly be classified as market life.
53 Braudel (1985:66) does not deny that a form of ‘micro-capitalism’, based on unequal exchange as well, might
have developed in the village markets in earlier times; he merely says real capitalist life unfolded at the tops of society at this period of time.
54 Examples are the centring around Venice in the 1380s, the shift from the city of Saint Mark to Antwerp in the
1550s, the shift to Amsterdam in 1590-1610, the shift to London between 1780 and 1815, and the shift to NY after 1929. There is no mathematic regularity in these shifts, however they seem to occur during economic crises, struggles and clashes. (Braudel, 1985: 90-91, Chase-Dunn & Grimes, 1995: 412).
55 Braudel (1985:55-56) provides the example of shipping of Baltic grain from Danzig to Amsterdam in the 16th
and 17th centuries. Normally, this would be considered a form of economic life. But the merchant can instantly
order his ships to sail for Genoa instead of Amsterdam, when there is a higher profit attainable, for example as it was around 1590. This is only possible in an unequal trade relation, in this case based on scarcity.
56 Its main competitor, France, did not achieve this. Braudel (1985:105-106) refers to the work of Fox, who said
two Frances existed then: a maritime France, caught up in the economic growth of the eighteenth century and a continental, land-oriented, conservative France, accustomed to its local horizons that controlled political power. In England, it was already clear in the fifteenth century that London was the political and economic centre, whereas Paris only assumed the role of economic centre – before it was Lyon – in the eighteenth century. Thanks to its insular location, England was better in protecting its national market and industries than other European countries.
