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Date: 1/15/00
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4. States? Sovereignty? The Dilemmas of Capitalists in an Age of Transition
Keynote address, "State and Sovereignty in the World Economy," University of California, Irvine, February 21-23, 1997. First published in D. Solinger et al., eds., State and Sovereignty in the Global Economy (London: Routledge, 1999).
What are the services that capitalists need of the state? The first and greatest service they require is protection against the free market. The free market is the mortal enemy of capital accumulation. The hypothetical free market, so dear to the elucubrations of economists, one with multiple buyers and sellers, all of whom share perfect information, would of course be a capitalist disaster. Who could make any money in it? The capitalist would be reduced to the income of the hypothetical proletarian of the nineteenth century, living off what might be called "the iron law of profits in a free market," just enough barely to survive. We know that this is not how it works, but that is because the real existing market is by no means free.
Obviously, any given producer will be able to increase his returns to the extent that he monopolizes the market. But the free market does tend to undermine monopolies, which is of course what the spokesmen of capitalists have always said. If an operation is profitable, and monopolized operations are by definition so, then other entrepreneurs will enter the market if they can, thereby reducing the price at which a given item is sold on the market. "If they can!" The market itself puts only very limited constraints on entry. These constraints are called efficiency. If an entrant can match the efficiency of existing producers, the market says welcome. The really significant constraints on entry are the doing of the state, or rather of the states.
The states have three major mechanisms that transform the economic transactions on the market. The most obvious one is legal constraint. The states can decree or forbid monopolies, or create quotas. The most utilized methods are import/export prohibitions and, even more important, patents. By relabeling such monopolies "intellectual property," the hope is that no one will notice how incompatible this notion is with the concept of a free market, or perhaps it lets us see how incompatible the concept of property is with that of a free market. After all, the classic mugger's opening gambit, "Your money or your life," offers a free market alternative. So does the classic terrorist menace, "Do x or else."
Prohibitions are important for entrepreneurs, but they do seem to violate grossly much of the rhetoric. So there exists a certain amount of political hesitation to use them too frequently. The state has other tools in the creation of monopolies that are somewhat less visible and hence probably more important. The state can distort the market very easily. Since the market presumably favors the most efficient, and efficiency is a question of reducing cost for comparable output, the state can quite simply assume part of the cost of the entrepreneur. It assumes part of the costs whenever it in any way subsidizes the entrepreneur. The state can do this directly for a given product. But more importantly the state can do this on behalf of multiple entrepreneurs simultaneously in two ways. It can build so-called infrastructure, which of course means that given entrepreneurs do not have to assume those costs. This is usually justified on the grounds that the costs are too high for any single entrepreneur and that such state expenditures represent a collective sharing of the cost that benefits everyone. But this explanation assumes that all entrepreneurs benefit equally, which is seldom the case, certainly not transnationally and most often not even within the boundaries of the state. In any case, the costs of the infrastructure are not usually imposed on the collectivity of beneficiaries but on all taxpayers, and even disproportionately on nonusers.
Nor is such direct assumption of costs via infrastructure the largest single assistance given by the states. The states offer the entrepreneurs the possibility of not paying the costs of repairing the damage they do to what is not their property. If an entrepreneur pollutes a stream and doesn't pay the costs either of avoiding the pollution or of restoring the stream to a pristine state, de facto the state is permitting the transmission of the cost to society at large, a bill that is often not paid for generations thereafter, but which eventually must be paid by someone. In the meantime, the absence of constraint on the entrepreneur, his ability to "externalize" his costs, is a subsidy of considerable importance.
Nor does this end the process. There is a special advantage of being an entrepreneur in a strong state that entrepreneurs in other states do not enjoy to the same degree. And here we see the advantage of the location of states in an interstate system from the point of view of the entrepreneurs. Strong states can prevent other states from conferring monopolistic advantages against certain entrepreneurs, usually citizens of their own state.
The proposition is very simple. Real profit, the kind that permits a serious endless accumulation of capital, is possible only with relative monopolies, for however long they last. And such monopolies are not possible without the states. Furthermore, the system of multiple states within an interstate system offers the entrepreneurs great assistance in making sure that the states restrict themselves to helping them and do not overstep their bounds and hurt them. The curious interstate system permits entrepreneurs, particularly large ones, to circumvent states that get too big for their britches, by seeking the patronage of other states, or using one state mechanism to curb another state mechanism.
This brings us to the third way in which states can prevent the free market from functioning freely. The states are major purchasers in their national markets, and large states command an impressive proportion of purchases in the world market. They are frequently monoponists, or near-monoponists, for certain very expensive goods; for example, today, for armaments or superconductors. They could of course use this power to lower prices for themselves as purchasers, but instead they seem for the most part to use this power to permit the producers to monopolize a roughly equal share of the market, and to raise their prices scandalously.
But, you will think, about what then was Adam Smith so agitated? Did he not inveigh against the state's role in creating monopolies? Did he not call for laissez-faire, laissez-passer? Yes, he did, up to a point. The reason, however, is the crucial thing to see. Obviously, one man's monopoly is another man's poison. And entrepreneurs are always competing first of all with each other. So, naturally, those who are out are always screaming against state-induced monopolies. Adam Smith was the spokesman for these poor, benighted underdogs. To be sure, once the underdogs have undone the monopolies in which they did not participate, they happily proceeded to try to create new ones of their own, at which point they tend to cease citing Adam Smith and instead bankroll neoconservative foundations.
Of course, monopoly is not the only advantage capitalists obtain from the state. The other main advantage, regularly noted, is the maintenance of order. Order within the state means first of all order against insurgency by the working classes. This is more than the police function against theft; it is the state's role in reducing the efficacy of class struggle by workers. This is done through a combination of force, deception and concessions. What we mean by a liberal state is one in which the amount of force is reduced and the amount of deception and concessions increased. This works better, to be sure, but it is not always possible, especially in peripheral zones of the world-economy, where there is too little surplus available to permit the state to allocate much of it to concessions. Even in the most liberal state, however, there are serious legal constrictions on the modes of action by the working classes, and on the whole these constrictions are greater, usually far greater, than those reciprocally imposed on employers. No legal system is class-blind, although as a result of workers' political activity over the past two centuries, the situation did tend to get somewhat better after 1945 than it previously had been. It is this improvement in the position of the working classes that the resurgent conservative ideology around the world since the 1970s has been contesting. (63-6)
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