The Capitalist Era
Just as unlikely as it was that the Age of Enlightenment’s optimism about progress could be sustained, equally slim were the chances that interpreting capitalism as the core of a civilizing mission might outlast that era. This buoyant interpretation sprang from the soil of preindustrial capitalism but did not survive the rise of industrial capitalism in the nineteenth century. At the beginning of the twentieth century, intellectuals like Werner Sombart and Max Weber were indeed convinced of capitalism’s superior economic rationality, but they did not see it as a driving force behind moral advancement and progress in civilization. On the contrary, liberals like Weber feared the capitalist system’s growing tendency to become compulsive and meaningless, and that the system might be imperiling freedom, spontaneity, and humanity in the fullest sense. Conservatives and leftists alike feared capitalism as an unstoppable erosive force replacing traditional morals with contracts, community with society, and social ties with market calculation. The socialist critique castigated exploitation, alienation, and injustice in capitalism while predicting its collapse from internal contradictions. Today attitudes toward capitalism fluctuate between acceptance and severe criticism. Many regard it as unfit to meet the challenges of the future. The idea of capitalism as a utopia appears obsolete, at least in Europe. One aim of this chapter is to understand this reversal and provide perspectives for its assessment.
The Contours of Industrialization and Globalization since 1800
To be sure, developments that had started in the preceding centuries continued, to some extent, between 1800 und 2000. Agrarian capitalism conquered new regions as the feudal order was eliminated step by step, which happened almost everywhere on the European continent during the nineteenth century. In the twentieth century, agrarian capitalism grew into “agribusiness” on a global scale. With growing urbanization and innovations that revolutionized commerce, transportation, and communications, merchant capitalism gained enormously in importance during the nineteenth and twentieth century; the dynamic growth of mass consumption, especially in the twentieth century, opened up new and highly profitable opportunities that changed the lives of many, from department and discount stores to the great retail concerns and chains of the present. Little could be accomplished without finance capitalism, already established by the eighteenth century but now expanding and increasingly differentiated, initially with banks, stock exchanges, and insurance companies as the most important institutions, later with investment companies and mutual funds; in the late twentieth and early twenty-first centuries, finance capitalism underwent an exorbitant expansion, without which the international financial and economic crisis of 2008 would presumably have been avoided. But what was truly revolutionary and novel after 1800 was industrialization, a process that, among other things, profoundly altered capitalism. As industrial capitalism, it took on a new quality.
Industrialization refers to a complex and far-reaching socioeconomic transformation process at the core of which stood three interlocking developments: first of all, innovations in technology and organization, from the development of the steam engine and mechanization of spinning and weaving in the eighteenth century to the digitalization of production and communications in the late twentieth and early twenty-first centuries; second, the massive exploitation of new energy sources (initially coal, later electricity from different sources, then oil, atomic energy, and renewable energies) that has fundamentally changed and endangered the relationship of humankind to nature; third, the spread of the factory as a manufacturing plant that, in contrast to the old putting-out system, was centralized, and in contrast to a craft workshop, used motors and machine tools and made a clear distinction between management and execution. The site of this ever-accelerating innovation process was, first of all, the sphere of industrial production, yet it soon also influenced agriculture (new cultivation methods, fertilization, mechanization) and transportation (application of new forms of energy and machines in new types of locomotion, from the railroad and steamship to air traffic and today’s interdependent transportation systems), communications (from the mid-nineteenth century telegraphs to the Internet and new media), and with some delay also different administrative services, which soon grew disproportionately within an overall division of labor that was becoming more differentiated. All this led to an unprecedented increase in the productivity of most factors of production, including human labor, which became increasingly skilled but also more intense and disciplined. It also led to economic growth, which proceeded unevenly and fluctuated cyclically yet remained sustainable, even on a per capita basis and in spite of a burgeoning population. But most of all it led—and for the most part this happened after a precarious initial phase in which scarcity and poverty were aggravated—to a fundamental improvement of living conditions that could be seen by looking at real income gains. These improvements also showed up in significantly better material provisions that allowed the population, including the broad masses, to share in the progress of health care and longer lifespans, growing consumption, and a broader variety of everyday choices. Everywhere, industrialization and urbanization went hand in hand, and everywhere there was a decline in the share of the population devoted to agriculture. The agricultural sector now lost first place in favor of the industrial. In the second half of the twentieth century, the “tertiary” sector (especially trade and services) supplanted what had by now become a shrinking industrial sector. That lends a certain plausibility to talk of a “postindustrial” present, in some regions of the world.
Industrialization initially started to take place in the second half of the eighteenth century in England, and then, beginning in the first half or second third of the nineteenth century, in large parts of the European continent and North America, with offshoots in eastern and southern Europe. Japan was the first Asian country to industrialize, starting in the late nineteenth century. In the late twentieth century it was followed by large parts of Asia, especially Southeast Asia, and accelerating in the 1980s at rapid speed, China. Seldom do entire countries industrialize; it was always just individual regions. Depending on the time of industrialization and on economic, social, political, and cultural conditions, the processes of industrialization in these different countries and regions varied greatly from each other. Nowhere was the English model, and then that of the other early industrializers like the United States and Germany, simply adopted, no matter how much all these industrializations influenced each other by way of reciprocal observation and knowledge transfers, with strategies of imitation, avoidance, and adaptation. Although one cannot regard industrialization as the only path to prosperity, the prosperity gap between industrialized and nonindustrialized regions has grown enormously over the last two hundred years, both inside Europe and worldwide. As a rule, the only way to have made up in prosperity is some form of industrialization.1 At core a socioeconomic transformation, industrialization has nonetheless worked its way into almost all areas of life and dramatically changed the world in a short amount of time, so that some authors have referred to industrialization as “the most fundamental transformation of human life in the history of the world recorded in written documents” (Hobsbawm) or as the “most important break in the history of mankind since the Neolithic period” (Cipolla.)2 Industrialization has been extremely well researched. What is its connection to capitalism?
On the one hand, when industrialization began, capitalism already had a long history to look back on. Not even in its proto-industrially expanded form did merchant capitalism, which was widespread throughout the world, lead inescapably to full-fledged industrialization. There are many cases illustrating this point. Conversely, the case of the Soviet Union substantiates how it is also possible for industrialization to exist in a noncapitalist form. The concepts of capitalism and industrialization are defined by different features, and it is advisable to make a sharp distinction between the two of them.
On the other hand, preindustrial-commercial traditions of capitalism, wherever they persisted, significantly promoted the breakthrough to industrialization, wherever that happened in the nineteenth and twentieth century. In the nineteenth century, industrialization took place within capitalist structures everywhere. Alternative models of a centrally administrated economy were tried out under Communist auspices between 1917 and 1991. They proved to be inferior.3 China’s rapid industrialization also began to take off only when the country’s party leadership decided to loosen political controls step by step and make room for capitalist principles. There obviously was (and is) a pronounced affinity between capitalism and industrialization: for both, investments are of decisive importance. An inherent part of industrialization is the permanent search for new projects, as is constant engagement in new configurations; to this end, pointers and feedback from markets were and are irreplaceable. A decentralized structure that disperses decision-making among many different enterprises has proven indispensable. So far, any effort at industrialization expecting to be successful over the long run has presupposed capitalism.
Finally, industrialization changed capitalism:
1. Wage labor on a contractual basis turned into a mass phenomenon. This meant that, for the first time, the capitalist commodity form—embodied in the exchange of labor power for wages—was applied to human labor fully and en masse. Labor relations became capitalistic—that is, dependent on fluctuating labor markets, subjugated to strict calculation for capitalist purposes, and the object of direct supervision by the employer and manager. The class distinction inherent to capitalism thus became manifest, taking a tangible form as a conflict over power and the distribution of income, and becoming operative as the basis for social mobilization.
2. With factories, mines, and new transportation systems, with mechanization and the expansion of manufacturing plant, the accumulation of fixed capital reached a scale like nothing before. Alongside the numerically dominant small and medium-size businesses, large concerns and mergers came into being. This brought with it a rising need for precise control of profitability and led in principle—with significant qualifications in reality—to making entrepreneurial structure more systematic. Planned and hierarchical organization based on the division of labor gained ground as an element of capitalism along with, and connected to, the principle of the market.
3. Technological and organizational innovations became incomparably more important than they had been in preindustrial varieties of capitalism. There was now a faster pace of innovation. In Schumpeter’s analysis, “creative destruction” has been the core component of the capitalist production method. In fact, it only got to be this way when industrial capitalism emerged. Factories replaced proto-industrial cottage industry for spinning yarn and weaving cloth. Steamship routes displaced towpaths and other traditional modes of transport on rivers and canals. Suppliers of electric lights quickly triumphed over gaslight companies. A hundred years later, the manufacturers of typewriters lost their market to the producers of word-processing computers. To be sure, such changes opened up new chances of success and earnings opportunities for enterprising men and women of business and their employees. As a rule, consumers profited. At the same time there were many losers. However, “constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones.”4 This contributed to the unpopularity of capitalism, and certainly to its continually renewed delegitimization, most apparent during capitalism’s big, recurring crises, such as the ones that broke out in 1873, 1929, and 2008.
4. These crises usually arose out of excessive speculation and erroneous trends in the financial sector, yet they also affected the “real economy.” They imperiled not only a few speculators but also the life chances of broad sections of the population, and they could lead to profound social and political disruptions. Crises thus brought home another thing that distinguished capitalism in the age of industrialization from previous variants: namely, that it had become the economy’s dominant regulatory mechanism, intensively influencing society, culture, and politics all at the same time. This was in contrast to centuries past, when capitalism had mostly led an insular existence and was embedded in non-capitalist structures and mentalities.
If capitalism in its developed form had been confined to a few regions in northwestern Europe prior to the epochal cusp of 1800, the kind of capitalism dynamized by industrialization took on global dimensions in the nineteenth century, and particularly in the twentieth. This can be seen not only, as already mentioned, by the capitalist penetration of new countries and regions, one after another, especially in East Asia. It is also demonstrated by the growing interdependence among capitalist processes across national and continental borders, that is, by the globalization of capitalism. This is not a new phenomenon as such, but rather something that could be observed in rudimentary outline for centuries, as was shown in the previous chapter. Yet from the 1860s through 1914, and again since the 1970s, but especially since 1990, there have been phases where globalization accelerated significantly. This faster pace of globalization could be discerned in the expansion of world trade, a certain convergence in commodity prices in different regions of the globe, the rapidly growing volume of worldwide financial transactions, the widespread rise of multinational enterprises, an increase in border-crossing labor migration, and the global range of crises. Globalization is not, to be sure, only an economic phenomenon; rather, it also occurs as a cross-border linkage connecting the fields of communications, politics, and culture. Yet capitalism is more than one of the important forces driving globalization; it is also a field on which globalization takes place, even if this does not always happen across the board or in a way that renders nation-states any less important than they used to be.5
From Ownership to Managerial Capitalism
Analytically, the capital-labor relationship is central to all variants of industrial capitalism. Historically, it varies a great deal. One of the factors determining this was the profound gestalt switch that unfolded in the structure and strategies of enterprises in the last two hundred years.
A conceptual distinction needs to be made between capitalists and entrepreneurs. The capitalist provides capital and decides in principle about where and for what it is used, assumes the risk involved (in theory, at least), and pockets the profits that arise. The central responsibility of the entrepreneur is to manage the enterprise, to that end making decisions about the enterprise’s goals in detail, its position on the market, its internal structure, and also about how its workforce is employed.6
At the top of an enterprise in the first phase of industrialization, sometimes also called the Industrial Revolution, the roles of capitalist and entrepreneur were combined in one and the same person. He—it was usually a male person, but there were women as entrepreneurs, too—owned his enterprise and managed it. He raised capital, as a rule, from his own savings, through personal loans, more rarely by way of a bank credit, perhaps also through cooperation with a partner, and he was liable with his entire fortune. Even when the factory had become fully grown—for example, a mechanical spinning and weaving mill with one or two hundred workers—it usually remained a manageable enterprise constituted as a partnership, under the control of an owner-entrepreneur who frequently preferred seeing himself as “king of the castle” exercising sweeping authority. That the boss was simultaneously capitalist and entrepreneur had legitimating advantages for him. The entrepreneur’s claim to leadership could be justified by reference to the risk ultimately born by the capitalist, the claim to profits with reference to the work of the successful entrepreneur.
During the early phases of industrialization, entrepreneurs had close ties with their social milieu almost everywhere, above all through their families. Start-up capital was frequently raised within the circle of family and relatives. The history of the Rothschild international banking house; of the Siemens brothers’ close cooperation in establishing their enterprises in Berlin, London, and Petersburg; or of the role of the Brown family in the network of commercial enterprises in Great Britain and the United States (Liverpool, New York, Philadelphia, and Baltimore) illustrate, for the second third of the nineteenth century, how the cohesion of entrepreneurial families contributed to solving management problems, to creating cross-border business ties, and to networking with relevant social milieus. The family was thus both a precondition for and means to market success. Economic and cultural capital was passed on within the family: family firms often resulted from inheritance, which was also their goal. This expectation evidently motivated many owner-entrepreneurs to undertake investments that were future oriented. For the most part, these owner-entrepreneurs were energetic, coolly calculating persons ruthlessly pursuing advantage—typically men, rarely women—who knew how to outdo their competitors and exploit their workers. Yet their close family ties gave additional meaning, beyond the pure profit motive, to their efforts, to their struggle with competitors, and to their exploitation of workers. How little profit was regarded as an absolute value is demonstrated by situations in which family entrepreneurs dispensed with taking steps that might expand the firm. This was a relinquishment deliberately intended to avoid endangering family control over the business, a fate that might have threatened them if capital expansion had been resolutely undertaken by relying on a bank or by floating shares on the stock market. Still, the constraints of the market set limits to such noneconomic priorities. Whoever purposely relinquished dynamism was casually putting his business livelihood at risk. It was essential to push forward so as not to fall behind; merely securing the status quo was either not permitted by this competitive system, with its continuous innovation, or tolerated only within narrow limits.7
One can see, looking at the link between family and business, how capitalism was by no means substituting brandnew social institutions for old ones it had destroyed. Rather, at least during lengthy transitional periods, it amalgamated the social arrangements capitalism itself had brought forth with previously existing ones, implanting itself in older structures and only changing them over the long run. To this extent, it acted and continues to act in a manner that is not exactly revolutionary. It accommodates different social realities. This explains the variety of guises in which industrial capitalism has appeared to this day.
Close ties between family and enterprise are still frequent, especially in small and medium-size enterprises, which make up the majority of enterprises everywhere even today and are constantly being replenished with start-ups. Even in the management bodies of major companies that had been transformed long ago from their original form as partnerships, or that had been founded from the very start as joint-stock companies, the influence of owner-families, both founding and current, remained considerable, even in the second half of the twentieth century and especially in Great Britain and Japan.8 Yet, on the whole, it was managerial capitalism that prevailed in the ever-growing field of large and giant enterprises, which as a rule were constituted as joint-stock companies based on stocks or shares (or as limited liability corporations of a similar kind). That means that the managerial function gradually shifted into the hands of salaried entrepreneurs (“managers”) with limited liability. It also means that a certain separation of the capitalist and entrepreneurial function occurred, although there were, as mentioned, durable forms of cooperation between members of the owning family and managers. In any event, the owners of capital continue to exercise influence over basic decisions of the enterprise as stakeholders even in fully formed managerial capitalism. Germany and the United States were in the lead on the path to managerial capitalism, along with Japan in its own way. The driving forces were growth, capital requirements, and organization.
The German electrical engineering firm Siemens employed 90 people at home in Germany in 1854, 650 in 1874, nearly 4,000 in 1894, but by 1914 a good 57,000. Employment at the largest German enterprise—Krupp—reached 20,000 in 1887 and 64,000 by 1907, while the Thyssen-based corporation Vereinigte Stahlwerke (United Steelworks) had 200,000 employees by 1927, and the largest American enterprise U.S. Steel a respectable 100,000 in 1901 and 440,000 employees by 1929. In the late 1960s, the number of people working at Siemens worldwide was 270,000, compared to 30,000 workers and salaried employees at Deutsche Bank. By 2010 these numbers had jumped to 370,000 and 98,000 respectively. In the same year, the German post office Deutsche Post with 425,000 and Siemens with 405,000 employees occupied the top spots in the German rankings, yet they were only in eleventh and thirteenth place on the list of the largest enterprises worldwide, a list that was led by the retail conglomerate Walmart (with 2.1 million employees) and China National Petroleum (with 1.65 million employees). What stood behind these exorbitant increases in employment was a mixture of highly diverse events—mergers of firms, above all, in addition to firms’ internal growth—and diverse goals: taking advantage of “economies of scale,” that is, of opportunities for sales and profits under changing technological and marketing conditions (mass production and mass markets), the pursuit of bigness and thus also of wealth, prestige, and power, even if these aspirations did not always pay off in business terms. Frequently, too, this was expansion driven by defensive motives, since self-containment in the face of aggressive competition can easily lead to a firm’s downfall.
In the first phase of industrialization, even the most expensive enterprises got by with relatively modest capital, as in German mining during the 1850s, where the order of magnitude ranged from 1 to 2, or at most 3, million marks; the capital for factories in other sectors, especially in the extended textile branch, was without exception much lower than this. But between 1887 and 1927 average capital for the hundred largest German enterprises increased from 9.4 to 59 million marks. In 1901, U.S. Steel was capitalized at $1.4 billion. In 1970 Deutsche Bank’s own capital resources still amounted to 1.4 billion DM, but by 2010 it was already €49 billion. In the same year, Siemens’s own capital resources amounted to €28 billion. As a rule, these kinds of sums exceeded and still exceed the means available to individual owner-families. Financing via the capital market and, along with this, the organizational form of the joint-stock company became obligatory.
Sometimes it is said that there was a “Second Industrial Revolution” that happened during the last quarter of the nineteenth century and first few decades of the twentieth, specifically in those countries of Europe and North America that had enjoyed a relatively early head start with the first round of industrialization. This alludes to the spectacular rise of “new industries” in electrical manufacturing, chemicals, and vehicle production; to the initial exploitation of petroleum as an energy source; and to the enormous increase in importance of technology and science in industrial production. But the designation also tries to capture the centralization of capital that took place via comprehensive combinations in the form of mergers, conglomerates, holdings, cartels, and interest associations. These mergers and alliances, which surfaced partly in reaction to the preceding cyclical downturns in the 1870s, were trying to limit or even eliminate competition. Among the driving forces were major entrepreneurs like John D. Rockefeller, architect of Standard Oil of New Jersey (starting in the 1870s), or Emil Kirdorf, the general director of the Gelsenkirchen Mining Company Inc. and architect of the 1893 Rhenish-Westphalian Coal Syndicate. Acting in supportive roles were often major banks that, in contrast to earlier practice, invested massively in industry and worked closely with individual industrial enterprises. Integration via stock ownership and mutual representation on executive committees proved to be tried and tested methods leading to a comprehensive networking of industrial and bank capital, without it being possible to say—in contrast to what is frequently assumed—that one side (either industry or banks) dominated the other. Subsequently there was an unprecedented concentration of power and wealth in the hands of a few major industrialists, especially in the United States, where Rockefeller—the richest man in the world, with a fortune worth about $330 billion (in 2008 values)—Carnegie, Vanderbilt, Duke, Stanford, and others were already labeled by contemporaries with the critical and polemical designation “robber barons.” Some of these major companies concentrated, like the British-American Tobacco Corporation founded in 1902, on cross-border business and developed multinational structures. Most of the big firms were highly integrated in functional terms and diversified by product: this means that inside a single company they combined, in whole or in part, the functions of raw material supply, production, processing, and distribution; at the same time, they produced entire ranges of different goods and services. They thus combined by organizational means what in other, earlier cases had been handled by independent enterprises that were more highly specialized and linked to each other through market ties.
As a result, there emerged highly complex, systematically structured, elaborately coordinated megastructures with managerial personnel who were, increasingly, academically certified. In the late nineteenth and early twentieth centuries, these corporate structures were vertically integrated, centralized, and rather hierarchic, after 1945 in the West more likely to be rather decentralized and structured as federations of semiautonomous units. Overall, this was a profound change of form for capitalism. What was once the clearly dominating form of coordination via market mechanisms was now, much more strongly than before, complemented by coordination using organizational and quasi-political methods. This was referred to as organized capitalism, although, in spite of all the alliances and monopolistic tendencies, severe competition continued to take place even between these gigantic enterprises, competitive challenges that could even threaten these firms’ autonomy and existence. Relative to the many more numerous small and medium-size enterprises, the big enterprises did remain in the minority everywhere. Yet they were extremely important. In 1962 the fifty largest American industrial enterprises had over a third, and the five hundred largest together over two-thirds, of the country’s commercial-industrial capital. They were, incidentally and without exception, managed by white, predominantly Protestant men from a background that was (at least) middle class and with (at least) a college degree.9
The rise of managerial capitalism was accompanied by great hopes and great fears. Both have, as a rule, proven to be exaggerated.
It was hoped that managerial capitalism—owing to the dispersion of ownership it made possible and to ownership’s declining importance for recruiting management—would produce a bit of democratization. On the one hand, the dispersion of stock ownership, its growing attractiveness for investors both small and large, and its increasing importance for insuring against life risks and for care of the elderly did indeed significantly strengthen and broaden capitalism’s anchoring in society. It has tied life for the multitude even more clearly than before to the ups and downs of capitalist business. One need only think of the widespread policies for old-age provision via pension funds that are among the biggest actors on financial markets. In addition, the criterion “ownership of the means of production” has become less important for recruiting and promoting management, and there is a difference between the typical career paths of owner-entrepreneurs and managers. Yet access to the bastions of economic power overall have hardly opened up much further. Rising from dishwasher to millionaire has remained the exception. A high degree of intergenerational status inheritance is also brought about by the selection process typical of managerial capitalism. This process, in addition to training acquired both scholastically and practically, puts a premium on the cultural capital imparted by social background and the networking relationships associated therewith.
Conversely, it was feared that the rise of managers would increase irresponsible action in the upper echelons of firms, since salaried entrepreneurs would certainly no longer be forced to answer for their failures by putting their entire economic and social livelihood on the line, just as (conversely) they would only profit personally in a limited way from any entrepreneurial success. In the light of recent experiences with “structured irresponsibility” in today’s finance capitalism, it is important to understand why this fear did not, on the whole, come true during the classical era of managerial capitalism—which, in the West, lasted through the 1970s and 1980s. On the one hand, those components of managerial earnings linked to a company’s success, including managers’ shares in capital, contributed to managerial responsibility. On the other, this occupational group developed professional attitudes, with corresponding techniques for mutual social control. But, above all, in spite of growing mobility, success and failure, even for salaried entrepreneurs, remained quite visibly tied to the success and failure of certain enterprises—“their” enterprises—both for the managers themselves and for others. This proved decisive (whereas it seems to be different in today’s financial market capitalism). The identification of an Emil Rathenau with “his” managerially run enterprise AEG around 1910 was certainly not much weaker than the way that the son of rival company founder Wilhelm von Siemens identified with “his” traditional enterprise, still controlled by family even after having become a joint-stock company.
As a whole, however, managers were less influenced and constrained by extra-economic (e.g., family-related) considerations than were owner-entrepreneurs. For the salaried entrepreneurs of managerial capitalism, therefore, economic motives were actually more clear-cut than they were for the owner-entrepreneurs of the Industrial Revolution. On the whole, therefore, the salaried entrepreneurs should have been able to reach decisions more dynamically and behave more expansively than owner-capitalists.10
The tendency to detach economic action from social contexts, the concentration on goals of profit and growth coupled with a simultaneous indifference to other goals, the autotelic character of capitalism, a feature already inherent in managerial capitalism though not yet made absolute—over the last several decades, all these trends reached new heights with the arrival of “financialization,” the rise of what can be called financial market capitalism, finance capitalism, or investor capitalism. The level attained by financialization is of a degree that has imparted a new quality to the system and has presented it with new, yet unsolved, challenges. Finance capitalism—as the epitome of business transactions that have little to do with production and exchange of goods but that are made above all with money and (in the milieu of) money changers, brokers, banks, stock exchanges, investors, and capital markets—is an old phenomenon, as was shown above. Yet since the 1970s something new has happened, in three respects:
1. What happened was connected with the end of the Bretton Woods system of international currency regulation and the drastic oil price increases of the 1970s, with the onset of deregulation, and with a certain degree of deindustrialization in some Western countries that led to a rapid expansion and upgrading of the financial sector, especially in England and the United States, where this sector’s share of overall production grew from 2 percent in the 1950s to approximately 8 or 9 percent in 2008. The assets of banks grew explosively. Cross-border capital movements swelled from 4 percent of overall product worldwide in the 1980s to 13 percent in 2000 and 20 percent in 2007. Much of this was accounted for by the transfer from oil-producing and emerging market countries (China, Southeast Asia, India, Brazil) to Europe and North America. But foreign investments from the first countries to industrialize also boomed, with finance and insurance getting the lion’s share. As the investor George Soros wrote in 1998: “The system is very favorable to financial capital, which is free to pick and choose where to go. … It can be envisaged as a gigantic circulatory system. … It is market fundamentalism that has put financial capital into the driver’s seat.” Jürgen Stark, longtime chief economist at the European Central Bank, decreed in 2011 that the financial sector had long since left its ancillary role in service to the economy behind, that it had become too large and self-referential. The “neoliberal” policy of deregulation that started in England and the United States but soon took effect internationally contributed greatly to this trend, as it did to the exorbitant rise of profits for bankers. In order to participate in the boom of the financial sector,11 major industrial enterprises like General Motors and General Electric added on their own financial service providers, which soon brought in higher profits than each company’s core business itself. Investment banks, investment funds, over-the-counter private equity companies, and other capital investment and holding companies sprang up in large numbers. There was talk of “financialization.” A large share of capital movements served (and serves), not investment for productive purposes, but rather speculation, even if the two are often hard to distinguish clearly from one another. Sizable profits were earned that did not correspond to any added value. Expectations of garnering the highest possible profits increased, along with eagerness to undertake great risks. It must be conceded that the financial sector was and is also intrinsically heterogeneous; municipal savings banks or cooperative banks remained more strongly committed to the traditional banking business. But aggressive hedge funds, acting like “locusts” (as Germany’s former Social Democratic labor minister and party chair Franz Müntefering called them), bought up profitable businesses, “rationalized” them, cannibalized them, and divided them up in order to resell them at a profit and then move on. Ivan Berend writes: “The morals of solid banking, together with trust in institutions, were lost. Gambling replaced a solid business attitude and increased both gains and risks. The boom culminated in the first years of the twenty-first century.” Left to itself, driven by tough competition, and largely detached from embedment in the real economy or society, at least this part of the capitalist economy proved incapable of developing and implementing generally accepted rules for conducting business.12 The mathematicization and digitalization of speculative transactions has led to an economy in which money managers have acted not only as driving forces but increasingly also as driven entities addicted to their own techniques and ever stiffer competition.13
2. Credit and thus debt have characterized capitalism from the start. But in the last quarter of the twentieth and in the first decade of the twenty-first century, the inclination to indebtedness has grown exorbitantly in many countries and sectors. For example, the quotient of government debt rose, and indeed this was happening long before the international financial crisis of 2008 led governments to renew their massive borrowing with the aim of bailing out their countries’ banks. Germany’s national debt quotient (measured as a share of gross domestic product) oscillated between 16 and 24 percent from the beginning of the 1950s through 1975, yet by 1985 it had climbed to 41 percent, by 1995 to 56 percent, and by 2005 to 69 (81 percent by 2011). The corresponding figures for France are 16 percent (1975), 31 percent (1985), 55 percent (1995), 67 percent (2005), and 86 percent (2011). In Sweden the quotient rose between 1975 and 2005 from 28 percent to 50 percent (with an interim peak of 84 per cent in 1996), in the United States from 33 percent to 68 percent, in Brazil from 30 percent to 69 percent, and in Japan from 24 percent to 186 percent.14 A second example: the savings quotient of Americans (private households) was almost 5 percent in 1930, reached more than 10 percent in the early 1980s, but then fell to 0 percent by 2005–2007 (and was at 2 percent in 2013). A third example: the average equity capital of many American and European banks before the recent crisis was less than 10 percent, frequently less than 5 percent, and sometimes not even 1 percent of their proven total assets, compared with around 25 percent at the beginning of the twentieth century; most of the remainder consisted of outside capital, that is, of “debts.”15
Each one of these three phenomena is quite complex and has different causes: first, peculiarities of government policy, which frequently has no reliable mechanisms for self-restraint and readily postpones solutions to problems into the future; then the rapid rise of consumer capitalism since the 1950s, which solidifies acceptance of capitalism among the broad population but simultaneously stimulates an inclination to live beyond one’s means by making available highly attractive sales pitches, permanent demand stimulus, and seductive offers of credit; and, finally, decision-making structures inside banks, which cause high earnings not to be reinvested but instead distributed to stockholders and managers.
Yet, at a general level, all three of the variants of indebtedness mentioned here may be understood as indicators of one and the same fundamental change, which the sociologist Ralf Dahrendorf described in 2009 as the problematic transition from “savings capitalism” to “pump capitalism.” In 1979 another sociologist, Daniel Bell, had already analyzed the tension between the necessity of saving inherent to capitalism, that is, of postponing rewards into the future, and the equally system-inherent necessity of spending on consumption in the capitalist present. In the meantime, this contradiction has intensified. We are dealing with a lasting source of destabilization for capitalism in the age of its financialization, with the core of an unresolved crisis and with, on top of this, a fundamental problem of culture and politics in the relatively affluent countries of the present time.16
3. Power relations and decision-making processes at the higher echelons of major enterprises have also shifted over the last several years and decades, on the road from managerial to finance or investor capitalism. In managerial enterprises, which were clearly dominant among large firms through the 1980s, the executive committee, company board, or even CEO had considerable autonomy and weight vis-à-vis owners’ interests, especially when business was going well. Either the bank—often closely linked with a production, trade, or service enterprise in a long-term relationship—saw to it that there was managerial autonomy, since the bank was less interested in short-term profits than it was in long-term success and therefore backed management (with credit, among other things) even in opposition to stockholder interests (especially in Germany and Japan). Or the board of the enterprise enjoyed relative independence because ownership of the company was dispersed among numerous small and medium-size stockholders who, given their fragmentation, were hardly in a position to issue a collective challenge and were content with decent returns on their investment even if the last opportunity to squeeze out increased profits was not always fully exhausted (as in the United States, above all). In both cases the chances were great that the management of the enterprise would reinvest large portions of the profits made, rather than distribute them to owners—which strengthened management’s relative autonomy vis-à-vis the capital market.
This changed with the rise of asset management companies (especially the large investment and pension funds) and of increasingly aggressive firms specializing in investment banking. They are in tough competition with each other for investors and savers, whom they promise yields on interest or shares in future profits that are favorable. Their track record can be expressed in a few key figures and is highly transparent. Even small differences count in their competition for investors and savers, whose assets they bundle together into weightier securities and whose interests as owners (“shareholder value”) they promise to make their own and represent very toughly, professionally, and constantly against those of management.17
The logic of the capital markets now penetrates much more directly into company strategies than was the case in times when ownership or managerial capitalism was the distinctive model. The market becomes more ubiquitous and more compulsive. Room to maneuver for individual company managements is shrinking. Enterprises are becoming more like one another. The influence of the banks is declining. The representatives of the funds exercise control, but they are simultaneously controlled; they demand permanent accounting, which they must permanently render themselves. They can sell at any time and restructure their portfolios, which gives them great power. Volatility is on the rise. On average, an investor from the 1960s held his stocks (in New York) for eight to nine years, but now it is less than a year. Important decisions are made by fund directors, investment bankers, stockbrokers, analysts, and rating experts, who are managers but often speak in the name of the owners and represent their interests in obtaining high returns. They usually have no ties to the many enterprises over whose fate they help decide, so to speak, from the outside. They are not particularly interested in these enterprises’ contents, traditions, and agents. They decide on the basis of usual performance indicators and sensitive market signals, and they are oriented one-dimensionally to profit or shareholder value. This is what they must do; otherwise they will damage their fund.18
In this relatively aloof and still, at core, deregulated system of investor capitalism, it is neither urgent nor possible to justify the very abstract activity of these “money managers” in the context of more far-reaching, perhaps noneconomic purposes. In one revealing scene from his reality-saturated novel Bonfire of the Vanities, Tom Wolfe depicts how the successful, prosperous investment banker and Wall Street broker Sherman McCoy attempts to explain to his inquiring six-year-old daughter what he does for a living so that she can understand and admire his job. At his beach club on Long Island, the assembled family members await his answer with anticipation. The attempt at explaining his job fails, the daughter breaks into tears, and it remains for the reader to decide if this is owing to the complexity of McCoy’s line of work or to whether his occupation really makes no sense beyond the job itself and the goal of enrichment.19
It cannot be emphasized strongly enough that (mostly smaller, but quite numerous) owner-run businesses, manager-capitalists of the classic kind, and the new type of globally active finance capitalists exist everywhere alongside each other and in the greatest variety of overlapping forms. Certainly, contemporary capitalism cannot be reduced to finance, financial market, or investor capitalism. The rise of finance and investor capitalism during the last several decades does, however, represent a far-reaching change in the overall system. Functional differentiation within capitalism has advanced significantly: mobilizing capital and investing have been separated even more sharply from other dimensions of leading firms. Raising and investing capital were made the responsibility of specialized actors operating strictly according to the logic of capital markets. This has considerably strengthened the weight of the capitalist function relative to the entrepreneurial and the managerial functions. More radically than ever before, fundamental investment decisions have been detached from the contexts in which they were once embedded. The logic of markets has further emancipated itself from any consideration of noneconomic interests and orientations. Furthermore, decision-making structures have clearly overstepped the boundaries within which individual enterprises operate, the outer edges of which have become more fluid. The international financial crisis of 2008 conspicuously demonstrated what self-destructive and all-around dangerous potentials lurk inside the dynamic of the new investor capitalism when this new type of capitalism is left to itself—and that means left to the banks, investors, stockbrokers, and other “money managers.”20 What is at stake is finding new forms of embedding. Whether that can be done remains an open question.
Since Marx, Weber, and many others, “free” wage labor on a contractual basis has been regarded as the central form assumed by work in capitalism. Yet the debate about whether this is accurate and how this should be understood is once again in full swing. The move toward more global perspectives has intensified historians’ awareness of how capitalist businesses could and can also flourish on the basis of un-free labor. We need only think of the colonial and postcolonial plantation economy with slave labor and other forms of forced labor, of the exploitation of prisoners and inmates of camps in the wars and dictatorships of the twentieth century, but also of new forms of unfree labor today, especially in the global South. Historians have, moreover, become more intensely aware of how forms of bound labor and extra-economic compulsion have also played a major role for a long time in European and North American agrarian and industrial capitalism, as is demonstrated by the history of serfdom and farm servants, but also of peonage and “indentured laborers.” Is not the very distinction between unfree labor and free labor on a contractual basis altogether quite permeable and blurry in light of the many elements of unfreedom in the reality of wage work? Should one not draw the logical conclusion and expand the usual definitions of the “working class” so that all types of subaltern persons or families—and not just wage workers and the members of their families—are included?21 In this book, nevertheless, I hold to the notion of wage labor as the central form of work in capitalism for these reasons:
1. For one thing, the trend toward comprehensive commodification represents a key component of the capitalist system, and wage labor is the most consistent application of this principle to human labor (although not the only one).
2. For another, in spite of numerous exceptions and countervailing tendencies, in the long run wage labor has become and is becoming more extensive and widespread, and not just in the course of capitalist industrialization in the West but (in the meantime) worldwide. As capitalism, industrial capitalism in particular, has widened and deepened, wage labor became, and is still becoming, step by step, the prevailing form of work, although it appears in many forms and combinations. This had, and still has, something to do with the fact that free wage labor on a contractual basis corresponds best, in principle, to the particular kind of instrumental rationality inherent in capitalist enterprises. For, unlike workers who perform bonded labor with their entire person over long periods of time (such as slaves), wage workers who are contractually obligated to perform certain services temporarily but are otherwise free as well as terminable—wage workers like this allow businesses and employers to recruit, shift, and if need be also quickly dismiss employees with a view toward entrepreneurial objectives. This is advantageous to the company’s interest. Under conditions of developed, differentiated labor markets, and in the face of rapid economic change as capitalist normality, it was and is in the interest of capitalist actors to prefer wage labor to unfree labor. 3. Finally, it should be taken into consideration that an employment relationship under wage labor can be terminated by the worker as well as by the employer. The employment relationship may subjugate the worker’s labor power, but not his or her entire person, to the employer’s order-giving authority and the constraints of the enterprise. This is an important and coveted element of freedom. The transition to wage work could and can have a liberating effect, even though entry into such an exchange relationship of work for wages is frequently a matter of urgency for the worker on sheer grounds of survival, and although the employment relationship, once accepted, is usually characterized by much control and discipline. This social and legal quality distinguished and still distinguishes wage labor, in principle, from the different forms of unfree labor, and this distinction needs to be taken seriously from the standpoint of life histories and historiography.22
Yet, on the other hand, it bears repeating one more time that, under certain conditions, capitalism has functioned and can continue to do so on the basis of unfree labor, and that, again under certain conditions, capitalist agents have sometimes preferred and continue to prefer exploiting unfree labor. They preferred and prefer whatever, under given conditions, promises higher and sustainable profits. And above all it needs to be emphasized that, in the long history of capitalism, free wage labor has mostly not appeared in any pure form, but rather in amalgamation with other forms of employment.
In an elementary sense, and to a limited extent, wage labor existed prior to capitalism. Certainly, before capitalism the largest share of dependent labor was performed under conditions of bondage—as slave labor or (as in medieval and early modern Europe) by serfs and peasant underlings, by servants and maids in servile status, and by journeymen dependent on masters and guilds. Nonetheless, over the centuries, there were numerous persons with either few or no possessions—men, women, and children—who performed work for remuneration, usually for short periods and constantly changing jobs, often also at different sites, for lords and peasants, for artisans and merchants, in parishes and monasteries, at construction sites or in workshops: they were employed as agricultural workers with different designations, as day laborers, casual laborers, seasonal or migratory workers, as temporary workers of many different kinds. One barely made a living this way, and yet the payments in kind or money wages achieved this way frequently supplemented the small incomes that the individual or his family drew at the same time from other sources, for example, from the ownership of tiny properties. In one and the same family, at one and the same place of work, there were often persons with different occupational status working together, as in early modern plantations where slaves, “indentured laborers” obligated to work for a time, and free wage workers coexisted. With the penetration of capitalism into agriculture and cottage industry, there was an increase in the number of wage workers above all on the land. Through the gradual loosening of traditional ties (e.g., of the journeyman’s dependence on his master and his master’s guild) and the growing inclusion of working people such as artisans and cottage workers in supraregional market relationships, moreover, capitalism reinforced the elements of wage labor inside traditional employment relationships. With respect to dependent laborers, too, it was the case that social relationships shaped by capitalism seldom made their appearance abruptly and by quickly destroying old ways; instead, they ensconced themselves in traditional social relationships, expanding, loosening, and relativizing them (under the impact, to be sure, of tensions and conflicts), changing them step by step. One and the same person might, in the course of his life, occupy many different positions, and these often included distinctive phases of underemployment and unemployment, and certainly also of dire poverty.23
It will be evident that this hodgepodge of wage labor marked by countless transitions and mixed forms cannot be neatly subdivided and is therefore very difficult to quantify. And yet, if one employs a generous conception of “proletarian” that includes day laborers and casual laborers, agricultural workers and homeworkers, workers in manufactories and mines as well as servants and journeymen, then one can concur with Charles Tilly’s estimate that in 1550 about one-quarter and in 1750 almost 60 percent of Europe’s population should be included in the proletarian classes. More than half of these lived on the land. It was therefore not some idyllic world, clearly ordered or even static, that was then transformed by nineteenth-century industrial capitalism. Instead, this was a world in motion, with little in the way of formalized employment relationships and living conditions, a world replete with scarcity, destitution, and distress—at least in the large and rapidly growing sector of society underneath the rural and urban middle classes.24
Yet only in the nineteenth and twentieth centuries did fully developed wage labor start to become an overwhelming mass phenomenon, especially in the West, although there were rudiments of modern wage labor in other parts of the world as well. One thing that helped in the West—something partly accomplished by revolution and war (as in France, the United States, and Haiti), though more often because of reforms (incremental changes that usually dragged on for decades)—was the abolition of those traditional social orders in which unfree labor had become stabilized. The list of changes favoring wage labor would have to include the prohibition of the slave trade (starting in 1808), followed by the ban on slavery itself, but also the judicially enforced outlawing (starting in the 1820s in the United States) of “indentured” servitude, that form of temporary bondage in which workers were contractually bound to work off a debt for transport costs paid in advance (for example, to cover a journey across the Atlantic). Also on the list would be the emancipation of the peasantry and the abolition of serfdom (which finally happened in Russia after 1861), along with the abolition or dilution of guild regulations in the course of implementing “freedom of trade.” Against this background, what happened in most countries was a quite gradual advancement of wage labor going hand in hand with the gradual implementation of capitalistic principles, often through mixed forms of work that persisted for a long time.
The “temporary servitude” of “indentured laborers” (contract workers) represented such a mixed form; it was a category that included the important group of “coolies,” half-free laborers from Asia who were transported across long distances in order to be employed in the plantations (sugar, rubber, tobacco, etc.) that underwent renewed expansion after 1860, mostly in tropical and subtropical regions of Asia, America, and Africa. Another example would be the slaves for hire who were rented out by their owners to entrepreneurs in the southern states of the United States, Latin America, and West Africa and who did temporary work for wages, some of which they had to pass on from their temporary employers to their permanent owners. Russian serfs were also employed from time to time as wage workers, on assignment from their masters. In the South African diamond mines during the nineteenth century, “closed compounds” were set up in which miners were locked up under prisonlike conditions: an example of mixing wage and forced labor. One must certainly recall the millions of homeworkers in the European putting-out system, who basically performed wage work but still did this in the form of traditional outwork, within the family unit and inside their own four walls. This usually happened in the countryside, although after 1870 more and more in the big cities, too, where clothing and other ready-made apparel would be manufactured in home industries, as a rule by women and children under the heavy supervision of intermediate entrepreneurs and under oppressive working conditions: the sweatshops of New York, Paris and Berlin around 1900 come to mind. In Prussia and other German states, a legally codified servile status (Gesinderecht) lasted until 1918, a status that curtailed liberties for large categories of agricultural workers and household servants; nonetheless, farmhands, maids, and domestic servants gradually became wage laborers of a special kind. There were other relationships of mixed employment in which wage labor appeared as one element among many. In the long run, however, the wage labor element prevailed.25
In addition to the gigantic construction sites of the time, it was above all in and by way of industrial factories and mining that wage labor became a mass phenomenon. This was not only because this sector grew disproportionately large during the first phases of industrialization, because workers appeared here in huge crowds, and because this was also a field where small and large enterprises were active, an area in which the transition from ownership to managerial capitalism as described above was notably taking place. More to the point, it also had to do with the structure of industrial enterprises and their relationship to their social environment. In factories and mines, wage labor was taking place at sites spatially separated from the households of those working there. Moreover, these were enterprises with a division of labor, a separation of management and execution, work sequences that were becoming more instrumentally rational, and with corresponding requirements of discipline. This included adjustment to specific structures of time and meant that, more clearly than before, the sphere of labor was divorced from other areas of life, spatially and temporally. Its capitalist logic could unfold relatively independently in that distinct industrial sphere. Here wage labor developed in a fairly pure form. It was experienced as such. Indeed, workers encountered wage labor as something that united them a bit beyond their specialization and distinguished them from management. A worker might come across instances of cooperation between capital and labor but also times when the relationship was fraught with conflicts and tensions. These conflicts revolved in part around questions about how to distribute the product being made (e.g., in the conflict over wages and work time); they also concerned questions of power, of who had precedence or would be subordinated, for example in controversies about the organization of work or about autonomy and, later on, codetermination.
Of course, industrial work had precursors in the less numerous early modern manufactories and mines. But in all these respects, “big industry” in the form of textile factories, coal mines, steelworks, and mechanical engineering companies was something new in the era of industrialization, separated from what people had been accustomed to by a certain hiatus with respect to time, space, and experienced structures. Accordingly, it captured the imagination of contemporaries, who were both fascinated and shocked by it. “Big industry” had shaped the emerging discussion about “capitalism” since the middle of the nineteenth century. This industrial capitalism also shaped the concepts and views of Marx.26 In the first phase of industrialization, workers suffered poverty and deprivation under the harshest kind of exploitation, enduring extremely long working hours and low wages, and being subject to sharp discipline, both inside and outside industrial factories. The children laboring in mine shafts, the long, uniform rows of young women lined up next to their mechanized work stations in huge textile mills, the living quarters in dark cellars of overcrowded tenements in the working-class sections of the rapidly growing city, the desperate uprising of starving outworkers facing pressure from more productive industrial factories, like the Silesian weavers in the 1840s whose plight was later on dramatized by the popular poet Gerhart Hauptmann on the stage—these are pictures of misery and capitalist exploitation that have been engraved in collective memory.
These constellations cannot be explored in detail here, any more than it is possible to describe every aspect of the gradual upward trend (though a trend frequently interrupted by crises and wars) of improved working and living conditions that took place in large parts of the world in spite of lingering and newly emerging pockets of exploitation and poverty that accompanied the ongoing process of industrialization. After countless tribulations and conflicts, innovations and reforms in the world of work as well as in politics and society, the character of wage labor has profoundly changed. In a large core sector dominated by large private firms and public enterprises, the practices implemented extensively by the third quarter of the twentieth century were earnings increases geared toward the family wage, forceful reduction in working hours (even if accompanied by equally forceful intensification of work), hedging against risk by guaranteed entitlements in case of accident, sickness, old age, and dismissal, as well as individual and collective labor rights. This is true, at least, for large portions of the industrialized world. The applicable term is “standard employment”—“normal working conditions” (Normalarbeitsverhältnis in German)—but this makes it easy to forget that, for centuries, this achievement was anything but standard or normal, that even today it represents an exception, and that it is called into question by new developments even in places where it had already been implemented.27 Here is a brief list of the three most important motors driving those developments that somewhat helped achieve such “normal working conditions.” All three are fundamentally connected with wage labor.
1. In businesses, advances in productivity were achieved that first made the above-mentioned improvements possible. In the interest of increasing productivity, numerous business managements at an advanced stage of industrialization discovered that shortening working hours, careful treatment of “labor power” as a resource, and certain concessions to workers’ demands also served business success. These changes were favored not only by philanthropically- and reform-minded entrepreneurs, like Robert Owen in Scotland or Ernst Abbe in Jena, who were always around. There were also soberly calculating managers and owners of capital who became, to some extent, reformers within their own businesses, especially in branches that made high demands on the skills of their personnel.
2. Yet that would not have been enough to initiate change. Equally important, therefore, was a second impetus: government intervention. The readiness of state institutions to use laws, ordinances, and controls in order to combat abuses in the working world and secure rights for workers had many motives. One such motive, however, was connected to the public visibility that wage labor gained when it no longer took place at home, on a peasant’s holding, or in some other traditional relationship, but rather at a separate site, in the factory or coal mine. This was the case, for example, with child labor. It once had been regarded as a normal part of any agricultural operation or of proto-industrial cottage work. But now that it was detached from the family and the household, it became a problem to be monitored and subjected to critical scrutiny, especially by a public concerned about education: this scrutiny made an important contribution by politicizing the problem and getting the state to actively fight child labor. For example, in Prussia after 1839, a ban implemented in several stages contributed decisively to the eventual disappearance of industrial child labor in mines and in factories.28 The next section of this chapter examines the role of state interventions in capitalism.
3. Finally, a word about the labor movement. Wage labor is, in key respects, not free at all. Not freedom, but subordination and discipline are what the wage labor relationship entails for workers after they have entered into it. One may, moreover, regard it as frivolous or cynical to regard nonownership of the means of production as proof of “freedom,” as sometimes happens. But wage workers are indeed free—unlike forced laborers, slaves, serfs, indentured laborers, servants, farmhands in servile positions, and artisan journeymen embedded in corporative rules—to the extent that they enter an employment relationship that is, in principle, free of extra-economic compulsion, that they can decide to terminate of their own free will, and that involves the labor services of the worker but not the subordination of him or her as a whole person. This is the emancipatory element of wage labor, in contrast to the varieties of bonded labor that were once dominant. One should not lose sight of this emancipatory element even when correctly emphasizing the asymmetry built into the employer-employee relationship, when clarifying how “free” and “unfree” labor have differed from each other more gradually than in principle with respect to many of their everyday effects, and when appreciating how freedom from extra-economic compulsion only gradually prevailed in the course of capitalist industrialization and how, as is well known, this freedom was repeatedly rolled back by the massive use of forced labor in the wars and dictatorships of the twentieth century.
An immediate expression of wage laborers’ freedom was and is their ability, individually and collectively, either to defend themselves or—much more frequently—to formulate and enforce claims to improvements in working conditions. Only in capitalism could autonomous labor movements become strong, and only in the industrial capitalism of the nineteenth century did this happen in an era when wage labor became a mass phenomenon inside (but also outside) the factory.
The energy of the labor movement was ignited, to put the point in systematic terms, by three challenges: First, labor movements grew out of efforts to protect against the kinds of insecurity that routinely increased when the capitalist way of doing business took hold. Welfare funds, cooperatives, and friendly societies come to mind. Second, the labor movement grew out of the above-mentioned conflicts over distribution and authority that are inherent in the capital-labor relationship; this was manifested by spontaneous and organized protests, above all by strikes. Finally, though, labor movements gained and continue to gain their energy from defending traditional, noncapitalist forms of work and living against an ever more pervasive capitalism, as when the principles of a traditional culture embodied in a “moral economy” (with its emphasis on the “just price”) were defended against the capitalist logic of individualization, competition, changing prices, and growth.29 In altered form, this thrust has had a long life, basically lasting through the present time, as in the struggle for a minimum wage today: it has taken the form of defending or demanding work that is just and humane, as opposed to the routinization, degradation, instrumentalization, and commodification of work under capitalism, a cause classically formulated in Karl Marx’s critique of alienation.
This resulted in the development of what was certainly Europe’s most important movement of protest and emancipation in the nineteenth and early twentieth centuries, a movement that contributed mightily to the democratization of politics and society, even if during the twentieth century it split into an (internally diverse) social democratic branch and a Communist-totalitarian branch that has since become discredited. It was the pressure of workers’ demands on the shop floor, during strikes, by trade unions, and in politics that contributed to the aforementioned improvements in working conditions and thus, one might say, to civilizing capitalism.
Historical comparison makes it clear that labor movements of this kind were not the inevitable outcome of the tension between capital and labor. Instead, underlying the growth of labor movements was a long series of cultural and political preconditions that existed to a great degree in large parts of the West in the nineteenth and early twentieth centuries. These same prerequisites have not survived at the same level of strength until the present day, nor can they necessarily be found in other regions of the world. For example, Chinese wage workers today certainly experience commodification, capitalist instrumentalization, uprooting, and exploitation in a manner that is roughly comparable with what European workers suffered during the first phase of industrialization, even if the Chinese experience has been compressed into a shorter time, making it especially disruptive. Chinese wage workers also protest and rebel, in large numbers, almost daily. Yet in a People’s Republic that continues to be partially dictatorial, Chinese workers’ actions, without exception local events—protests and petitions at the workplace, strikes boycotts, blockades, sit-ins—have so far not coalesced to become a supra-local, supraregional protest and emancipation movement.30
Two developments in the history of wage labor whose future is hard to predict merit special mention. For one, in a trend parallel to the financialization of capitalism, and as a consequence of changes in technology and market organization, there has been a discernible fragmentation of work, including of wage labor, in space and time. Whereas in the Federal Republic of Germany in 1970, the ratio between workers in fulltime employment and all others in the workforce doing part-time and short-time work or are temporarily and marginally employed—in other words, workers in so-called atypical employment conditions—was 5:1, this shifted by 1990 to 4:1 and 2:1 by 2013. Every third person in 2013, then, was working either part time, temporarily, on subcontract, or in a mini-job. The elasticity of gainful employment and the fluidity of working conditions are on the rise. Demands on the individual’s flexibility are increasing. The workplace is losing the clear contours that it first acquired in the nineteenth century. The new communications media are facilitating new forms of outwork. A new regime of time is emerging in the gray areas between working time and free time, with part-time work and flex-time bringing fresh opportunities as well as new dependencies and risks. The findings need to be assessed in a differentiated way. Not every employment relationship that is “atypical” in this sense is precarious, especially not every part-time employment. Undoubtedly, this fluidity also harbors new opportunities, for example, to link earning a living with other activities, to connect work with leisure, and to reconcile professional with family life. On the other hand, there is the danger that making employment conditions more flexible and work more fragmented will lead to a perilous erosion of individual identities and of social cohesion, to the extent that these fixtures of modern life depend on continuous work of the kind that has been the case in the “work societies” of the West ever since the nineteenth century. In any event, the binding force of work, its power to shape structures of social welfare, create cultural ties, and socialize individuals, seems to have diminished recently.31
Finally, it is worth looking at capitalism and wage labor in the regions of the “global South” that industrialized thoroughly only in the last several decades: wage labor there, which is extremely diverse, is usually researched and discussed in categories like “informal” and “nonstandard.” These terms refer to different forms of little-regulated, barely codified, and therefore highly unprotected and vulnerable work in dependent, changing positions. The range of work includes migrant, seasonal, and casual labor, usually with extremely low remuneration, in positions of extreme dependency, and mostly linked to other activities as well as other types of income that need to be put in a family context, since one cannot survive on just one of these income sources. This type of capitalistically influenced wage labor is justifiably regarded as highly precarious, and it is performed by workers of both genders (most frequently by women), also by many children, in the export-oriented agricultural and foodstuffs industries, in workshops and factories, and for a wide variety of services, often in slums, under conditions of extreme insecurity, and in the face of great and growing inequality. Entrepreneurs, businesses, and factories—including many multinational concerns with headquarters in the “global North”—contribute to the spread of these precarious working conditions through targeted “outsourcing.” They supply goods for cheap mass consumption in affluent countries. In Asia, Africa, and Latin America, they make use of low-paid workers, often without formally hiring them, and often with the help of intermediary contractors, subcontractors, or agents. Legal protections, to the extent they even exist, are frequently half hearted and frequently circumvented or ignored. State authorities are often too weak, too partisan, or too corrupt to proceed effectively against such practices. The category of those working “informally” is difficult to demarcate and nearly impossible to register statistically. Rough estimates indicate a billion worldwide, with the trend on the rise.32
In Europe and North America, the “labor question” has long since lost the agitating character it once possessed as a force that stirred up radical protest and unsettled the class society of the nineteenth and twentieth century. In western Europe, excoriating the immiseration of the working class or the alienation of labor has long since ceased to hold the central place in the critique of capitalism it once occupied. But this interpretation is conditioned by the fragmentation along national or regional lines of the mental maps that continue to dominate our minds. If it were possible to make a truly global perspective the basis for our moral conscience, sense of social commitment, and political demands (something that would contravene not only ingrained habits but also weighty interests in the global North), the “labor question” would now suddenly reappear as the “labor question of the global South”: morally challenging, an urgent problem of social justice, hard to change, but not hopeless. From a historical perspective, three questions obtrude:
1. The categorization of this labor as “informal” or “nonstandard” depends on contrasting such labor with a model of constant, regulated, codified work that is assumed to be “formal” or “standard.” Yet not only does this supposed “standard” represent just a small minority phenomenon in most societies of the global South, usually in state-related employment; in any historical long-term perspective that includes the global North it is also the exception, and even in the twentieth century it was not “normal” in many places, but at best what used to be (and frequently still is) the norm. If one takes this seriously, one can hardly avoid questioning the very categories “nonstandard” and “informal.” Yet they are hard to replace.
2. The situation in the global South undoubtedly poses burdensome problems that were absent from the phase of industrial capitalism’s rise in Europe and North America. One problem in particular is the oppressive dependence of a large part of the work performed on site upon multinational chains and corporations, a dependence associated with postcolonial inequality between producers in the South and consumers (including processing and downstream manufacturers) in the North. Nevertheless, wage labor of the “informal,” poorly paid, unprotected, precarious kind has always existed in Europe, too. It was a mass phenomenon in eighteenth- and nineteenth-century Europe, but it persisted as a phenomenon on the margins of European society in the second half of the twentieth and the beginning of the twenty-first century. Yet it was pushed back by regulated forms of wage labor and, above all, significantly defused. For this to happen, economic growth was an irreplaceable precondition. Another contributing factor was the institutionalization of wage labor inside enterprises as something internal to capitalism. Pressure that emanated from labor movements also carried weight. But, above all, laws, ordinances, and governmental controls played a decisive role.
3. If this ocean of informal labor is viewed globally together with the aforementioned tendencies toward “informalization” that have also been gaining ground in the economically most developed societies, then one can understand how—parallel to the financialization of capitalism since the 1970s, and closely associated with this trend—the “informality” or “informalization” of wage labor represents a global challenge not likely to fade away anytime soon. Ultimately, this trend, like financialization, results from the increasingly pervasive application of the increasingly dominant principles of the market to ever more areas of economy and society under conditions of digitalized worldwide communication. Alleviating the major social problems that result from this trend will not succeed without forceful intervention from strong states and their cooperation.
In the controversies that have surrounded capitalism, state and market are usually regarded as antipodes, and for good reason. Market action and governmental-political action are indeed beholden to different logics, especially in the democratic era. Each one has a different foundation on which its legitimacy rests: unequally distributed ownership rights on one side, equal citizenship rights on the other. They follow different procedures: there one of exchange, here a process of debate with the aim of building consensus and deciding by majority. There money is the most important medium; here, by contrast, it is power. The pursuit of particular advantages is the clear goal of market action, even if it can be claimed, along with Adam Smith, that this indirectly serves general utility. Attainment of the general welfare, by contrast, is the aim of politics, even if it is clear that the content of this public good only emerges out of the political process, and even if it is conceded that it is legitimate to pursue particular interests within the framework of the democratic decision-making process. Since the eighteenth century, liberal constitutional orders have justified restricting the autonomy of both spheres. They have tied the exercise of political power first to constitutional and then to democratic foundations, and deliberately not to economic resources. At the same time, however, they have secured the right to own property, and everything that ensues from ownership, as a basic right, and have therefore removed it from the grasp of political and state power, no matter how large the constitutional leeway remains for arranging the relationship of market to state in different ways. In constitutional states, political power and the economic resources that ensue from property rights limit each other reciprocally: this is a very fundamental aspect of the separation of powers that contributes to the guarantee of liberty.
Over and over again, there have been political configurations in which the opposition between (more) state and (more) market represented the main controversy. This is how the issue was posed in the epochal conflict between the state-run, centrally administered economy and the capitalist market economy during the Cold War. It has been a similar divide at issue in the debates about “neoliberalism,” deregulation, and privatization since the 1980s.
Nonetheless, it would be wrong to conceive of market and state exclusively as antipodes. Although, as the foregoing account has tried to show, a certain institutional differentiation between market and state, between economy and government policy, is among the preconditions for any form of capitalism, a close tie between market and state, between economy and state policy, has historically been the rule in one form or another: the variations on this tie have ranged from the practically symbiotic relationship between high finance and power during the Middle Ages, through the close interlinking of state formation with market formation in early modern Europe, and subsequent government intervention aimed at the social regulation of wage labor in the nineteenth and twentieth centuries, to the increased demand for state intervention as a result of capitalism’s recent financialization. This series of examples could be extended to include the important role of government policy in implementing and expanding capitalism in the East Asian “tiger states” starting in the 1950s and 1960s and to the more or less dictatorial or authoritarian state institutions in China and Russia over the last several decades.
We may, especially with a view to the West, distinguish among three unequally long phases for the nineteenth and twentieth centuries,33 and it looks as if a fourth one has just begun. In response to the tight fusion of market and state in the early modern era, which Adam Smith was up in arms against, the at-core liberal revolutions and reforms of the Atlantic world in the late eighteenth and early nineteenth centuries ushered in a phase of relative separation between market and state. States held back from taking an interventionist stance on economic and social welfare policy until the 1870s and 1880s. They promoted the self-propelling dynamism of market economies at the same time that they left these market economies to their own devices. Talk of weak “night-watchman states” is, to be sure, completely misleading. In fact, it was during those decades that nation-states, which were to some extent just emerging and to some extent developing into powerful entities, first really gained domestic and foreign agenda-setting powers. The contributions made by states to economic and social development were considerable; one need only think of the expansion in infrastructure and education, neither one of which most governments simply abandoned to the free play of market forces. Yet a policy of economic liberalism and deregulation under the banner of free trade was the appropriate fit for the kind of competition between mostly small businesses that was barely controlled and for a workforce that was still hardly organized. Although some protective regulation arrived with the “Factory Acts” and similar regulations (1833 in England, later in other countries), state support for welfare remained minimal, and the liberal belief in the freedom of the individual as something useful for all remained strong.
The 1870s and 1880s brought about a change of trend. The change was, on the one hand, a reaction to the serious international crisis of capitalism in the 1870s. On the other hand, it was also a response to growing social tensions and especially to the rise of the organized labor movement. The shift also fit in with the trend toward concentration, mergers, and comprehensive organization typical of the managerial capitalism that was emerging in the last quarter of the nineteenth century and increasingly augmenting the older kind of ownership capitalism. As was demonstrated by a renewal of interventionism in economic policy (e.g., nationalized industries), by growing public spending, but also by initiatives in foreign economic policy that accompanied the implementation of imperialism (protectionist tariffs, subsidies, zones of influence, and colonies established also for economic purposes), and especially by the rise of the welfare state starting in the 1880s, state authorities were now intervening with greater intensity in economy and society, just as, conversely, economic and social interests that had become increasingly organized were now exercising influence on politics and public policy through their lobbies and interest groups. In place of the relative distance between market and state cultivated by economic liberalism during the preceding phase of capitalism, the decades prior to the First World War now witnessed an increasingly tight interdependence between market and state under the banner of the “organization” principle. There was talk of “organized” and also of “coordinated” or “controlled capitalism,” whose foundations had already been laid in the decades prior to 1914.34
Political and economic forces driving expansion were tightly linked in the epochal phenomenon of imperialism, whose tension-filled rise since the 1880s contributed mightily to the outbreak of the First and Second World Wars. The First World War promoted a comprehensive non-market organization of capitalism in every one of the belligerent states, even if this was only partial and transitory. The protectionism of the interwar period widened once again the distance separating the twentieth century from the era of classical liberal free trade. The world economic crisis of the 1930s strengthened anew the inclination of states to intervene in economic and social processes. This renewed interventionism assumed a severely undemocratic guise in the dictatorships of Europe and Japan, but it took on a democratic form in the American New Deal, which in the 1930s laid the groundwork for a welfare state even in the United States. After the Second World War, to be sure, the war economy’s compulsory measures were abolished and its protectionist encrustations dismantled step by step. But in other respects—the expansion of the welfare state and labor legislation, cooperation between organized interests and state agencies, economic policy increasingly tailored to Keynesian standards, a stronger role for nationalized sectors and government planning overall, rudiments of intergovernmental coordination at the global level—the third quarter of the twentieth century was the high point of organized capitalism. This thorough entanglement of market and state prompted talk about a “mixed economy”—a term that drew a dual line of demarcation, distinguishing this order both from the laissez-faire capitalism of yore and from the centrally administered economic system under Soviet hegemony. During the third quarter of the twentieth century, there were many in the West as well who believed they were on the way into a postcapitalist phase. Yet realism was on the side of those observers who diagnosed a new stage of capitalist development and talked about “organized capitalism,” “coordinated capitalism,” or even “welfare capitalism.” The Cold War gave this debate additional momentum. For the Communist challenge repeatedly stimulated an interest in capitalism’s capacity for reform.35
In the late 1970s there began a phase of “revived market capitalism” (Charles Maier). “Neoliberal” theories prizing the self-regulating forces of the market gained force, a deliberate thrust toward deregulation and privatization took place along with a certain retrenchment in social welfare services to reverse the major trend line of the previous decades. At the same time, the revival ushered in a shift in emphasis from organized labor to the side of capital. One of the causes of this change in direction was undoubtedly the economic crisis of the 1970s, which forcefully demonstrated the limits of the system of organized capitalism that had been dominant up to then by presenting policy makers with the double problem of mass unemployment and monetary erosion (“stagflation”). Among the fundamental causes deserving special mention is the rapid growth of global competition, which placed the old industrial countries with their high wage and labor costs under considerable pressure. It also happened that the functioning of organized capitalism in the antecedent decades presupposed a degree of social consensus that was increasing eroding in some countries, notably England. Since the end of the 1970s, the United Kingdom, soon joined by the United States, became the country pioneering this change of course. But the zeitgeist had also changed, away from organization and solidarity as leading values, and toward individualization and appreciating diversity and spontaneity. The rapid rise of consumer capitalism fit in with this trend. The collapse of the Eastern bloc was interpreted as proof that market forces were superior to planning. That collapse, moreover, removed the great challenge of a noncapitalist alternative. During the Cold War, the presence of such an alternative had increased the willingness of some representatives of capital and many political actors to be more responsive toward workers’ demands and to back a more welfare-conscious social market economy as a way of forestalling more radical changes.
But it did not come to a real rollback of the state; quite the contrary. On the European continent, and all the more so in East Asia, the Anglo-American neoliberal model was followed only reluctantly or not at all. The dismantling of social services in Germany, for example, was kept within very narrow limits even in the last decade of the twentieth and first decade of the twenty-first century; the frequently invoked Wende (“turning point”) in German economic and social policy never took place. There as elsewhere, resistance to the neoliberalization of capitalism remained unbroken, public spending high. Yet deregulation gained ground internationally, especially in the field of finance and as part of the more general financialization of the economy that set in.36
Whether the international financial crisis since 2008 has ended the phase of “revived market capitalism” and started a fourth phase of modern capitalism’s history remains to be seen. The crisis has profoundly shaken the foundations of neoliberalism’s legitimation, both political and intellectual. For, without a doubt, deregulation of the financial sector was an important cause of the financial economy’s collapse in 2008, which started in the leading countries embracing radical market finance capitalism, the United States and England. And the core convictions of neoliberalism—autonomy and the self-regulating capacity of markets—were disclaimed and discredited by the key actors of finance capitalism themselves in the crisis of 2008 as these capitalists practically pleaded with national governments to stave off their final collapse, which governments—using the argument “too big to fail”—then did. As a consequence, public debt grew by leaps and bounds. The financial market crisis of capitalism was transformed into a public debt crisis, with damaging consequences whose end is not yet in sight, especially in Europe. The self-disenchantment of the neoliberal myth about the market’s self-healing powers could not have been more thoroughgoing.
Yet the consequences are by no means clear. Certain tendencies to reregulation of the financial sector have been introduced, in individual countries as well as internationally. Yet the influence of the interested parties affected thereby is great, and that influence is impeding many a conceivable solution. The subject matter is complicated. Above all, the power to make and implement political decisions are not nearly strong enough at the supranational level, although this would be necessary in order to tame a finance capitalism that has long been globally active.
Whoever wants to compare different types of contemporary capitalism will usually select the different relationships of market to state as the central criterion distinguishing different “varieties of capitalism” from each other.37 And indeed, the relationship of market to state varies greatly from country to country. Without making any claim to being exhaustive, this may be illustrated with a few examples.
A kind of organized capitalism with strong state intervention also developed in the United States during the twentieth century. But it showed up in America more under the guise of regulation to secure competition (prohibitions on cartels, antitrust policy), and also in the form of a military-industrial complex linking private enterprise with the state. While the American version also included government-facilitated financing of mass consumption through easy credit, it had less to do with the provision of welfare services by the state or with government intervention into the internal affairs of companies. Sweden, by contrast, proved that a very competitive capitalism is compatible not only with a functioning democracy, but also with state-regulated cooperation between classes, values oriented toward collective solidarity, and a high level of wel fare state services. Even if in Sweden, too, the “neoliberal” about-face starting in the 1980s was tantamount to a certain streamlining of the welfare state, there was not nearly such a far-reaching cutback of social services there as there was in England at the same time. In Germany, which may be regarded as the motherland of organized capitalism in the late nineteenth and twentieth centuries, a variety of “Rhenish capitalism” started to develop in the 1950s that also included a great deal of state-supported coordination and a pronounced welfare state orientation (the “social market economy”). Yet postwar German economic policy had many fewer instances of direct interventionism than did Sweden or France at the same time, and there was much greater respect for the self-regulating capacity of civil society than, for example, in Japan. There industrialization only started in the late nineteenth century, under very strong state guidance from the outset, although the state’s planning and management authorities cooperated closely with the country’s gigantic private enterprises, the zaibatsu, and gave a powerful push to the development of technology, industry, and exports. At the same time, authorities in this country of weak trade unions and enterprises that took care of everything largely dispensed with the development of a comprehensive welfare state.
Through resolute policies promoting exports, critical investments in training, and high macroeconomic savings rates, Hong Kong and Taiwan started to industrialize in the 1950s, Singapore and South Korea in the 1960s. They clearly embarked on a course of capitalism and the market economy, but without exception involving intensive support and guidance by the state. Singapore’s authoritarian governmental structure, like that of South Korea’s at the outset, was much more conducive than cumbersome to industrialization. China’s modernization in the post-Maoist era rested, on the one hand, on the market-oriented energies of broad sections of the population no longer subjected to constrictions. On the other hand, something like a “revolution from above” also occurred. The capitalist dynamism that quickly gathered pace was initiated and guided by party cadres and state functionaries, but they were aiming at a limited release of entrepreneurial activity and, to this extent, at a certain self-restriction by the state. The items on the Chinese modernization agenda included privatizing some state enterprises, melting away the Maoist welfare state and the security it guaranteed, and unleashing a massive rural-to-urban migration that produced exploitation and privation on a scale recalling Europe’s early industrialization. Workers protested against social decline, exploitation, and insecurity by holding up pictures of Mao in admonition, while their Communist government was taking advice from the upper echelons of North American finance capitalism and enlisting the resources, networks, and patriotism of Chinese living abroad. China has developed a state-monitored industrial capitalism resting on low wages, hard exploitation of workers, and mass exports that quickly led to great economic success, immense riches in the hands of a few, and also to a great deal of protest. The influence of the state on this kind of industrialization remained strong, although it is abating a little. Most banks, energy and communication enterprises as well as firms in other strategic branches remain state-owned or at least state-controlled, there is no free market for real estate, and government interventions permeate both the economy and civil society. Wages are low by international standards, yet since 2005 they have also been growing in relative terms. On the whole, most Chinese are doing better today than thirty years ago. The repressiveness of the political system is pronounced, but it is exercised selectively and guardedly with regard to the actors involved in economic growth. Overall, this is an experiment demonstrating once again the variety of political conditions under which capitalism—at least for a time—can flourish. But only time will tell how compatible market and state are under authoritarian-dictatorial conditions in the long run. In Russia, the transition to capitalism in the 1990s led to the state partially withdrawing itself from the economy, but also to economic retrogression, unprecedented inequality, and major social damage until around 2003, when a strong trend toward reinvigorating the influence of the state became evident. By way of comparison, India has on the whole been following a rather liberal course economically for a good two decades.38
State interventions have been indispensable for the emergence, expansion, and survival of capitalism, as this historical overview shows. Government interventions into capitalist market economies are likely to become even more important over the coming years and decades. There are three systemic reasons why the need for state intervention has always been strong and will probably continue to grow.
1. Markets, which make capitalistic conduct possible in the first place, presuppose framework conditions that can only be established by political means. Markets cannot do the job of removing barriers to commerce (e.g., feudal obstacles such as guild regulations, trade monopolies and privileges, fines and tolls on travel) that fragment and constrain, of guaranteeing a minimum of peaceful order, and of providing rules to conclude and implement contracts or contract-like agreements. Without the use of political power, capitalism would never have taken off, nor can it take off in the future. Often the preconditions for the existence of supraregional markets resulted from the use of force—in war, for example, or in the course of colonization.
2. A growing instability of capitalist processes can be discerned, to the extent that these processes have become detached over the last several decades from the restrictive but also stabilizing grounds in which they were once embedded and have, moreover, become internally differentiated. This was illustrated above in the case of two different transitions, first from ownership to managerial capitalism, and then with the shift to capitalism’s current phase of financialization. In the second transition, the investment function has been so powerfully detached from its ties to other functions (such as management of the enterprise or personnel policy) that it has become an independent force, carried away to the point of self-destruction unless the investment function can be recaptured and reembedded. In the search for new ways of embedding finance, state guidelines and controls need not play the only role. Civil society-based arrangements become increasingly relevant, but strong and effective government intervention remains indispensable. (The problem is posed in a somewhat different way, however, outside the North Atlantic area, where widespread clientelism, patronage, and corruption—in other words, special ways of “embedding” economic institutions in community, society, and politics—lead to features of the system that have been characterized and criticized with such catchwords as “patrimonial capitalism” and “crony capitalism.”)39
3. Capitalism, even in its advanced stages, develops in a way that has disruptive and destructive effects on its social, cultural, and political environment and can call into question its social acceptance. Here one need only recall the profound crises, repeated with a certain inevitability, that have a habit of starting out as financial crises, as in 1873, 1929–1930 und 2007–2008, yet leave in their wake serious repercussions for the “real economy,” impair the welfare of broad sectors of the population, and possibly lead to social and political disruptions. In equal measure, though, attention must be drawn to the long-term polarizing effects of capitalism when it has been successful. By this I do not mean only the well-known connection between industrialization, wage labor, and worker protest, which leads to social polarization when not counteracted by welfare state measures. Rather, it is also important to mention what is demonstrated by certain findings from the early modern Netherlands, from the process of industrialization in the nineteenth century, and from experiences over the last several decades. These different findings all show that capitalist growth, if not counteracted with compensatory measures, does not necessarily lead to massive impoverishment—quite the contrary!—but does go hand in hand with increasing income and wealth inequality. Exorbitantly high managerial earnings, whose lead over average incomes in the last several decades has reached dizzying heights, are just a tiny, though quite visible and especially irritating, aspect of an increase in inequality that is quite complex. Especially in democratic political cultures, this surge in inequality is perceived as unjust, and over the long run it can call into question the legitimacy of the system.40
Historical experiences show that the destabilizing social consequences of capitalism can at least be alleviated by governmental measures if a body politic is strong enough and capable of mobilizing such measures, even in the face of resistance, and implementing them with a sense of proportion. In this regard, there is a growing need over the long run for compensatory and preventive intervention by the state, especially since the politically active public in many countries has become more sensitive, more articulate, and with a higher level of aspirations, and this critical public is likely to express its concerns even more in the future. Political systems, however, often have only a limited capacity for producing the services that are actually necessary. It is obvious that such factors as the existence or lack of a protest culture, the political public’s level of development, and the peculiarities of each political system are very decisive in determining whether economic and social grievances lead to social movements and government interventions that, should they prove successful, enhance capitalism’s social acceptability and hence also its capacity for survival. The rise of the welfare state since the late nineteenth century is the best example of how this works. Today an analogous process for civilizing capitalism is impeded by the lack of a match between an increasingly global capitalism operating across borders and the organization of political power still largely structured around national states. We are a long way from any kind of transnational global sovereignty that could really check capitalism’s persistently vigorous dynamism with countervailing force: this mismatch continues to pose an unsolved problem.