Figure 4.1 World Trade Index (Export/GDP), 1830–2014
Source: Federico, Giovanni; Tena Junguito, Antonio, 2018, “Federico-Tena World Trade Historical Database: Openness,” https://doi.org/10.21950/BBZVBN, e-cienciaDatos, V1.
Technology and the “Double Movement”
A contemporary of Polanyi’s, Joseph Schumpeter also sought to understand the dramatic economic and political transformations of his times. Like Polanyi, Schumpeter directly experienced the traumatic events that engulfed Europe in the early twentieth century. In fact, the two men were practically the same age. Schumpeter was born only three years before Polanyi, in 1883. Though less wealthy, he came from a well-respected, German-speaking, manufacturing family in the small town of Triesch in Habsburg Moravia (now Třešť in the Czech Republic). Their life trajectories were, moreover, very similar. Schumpeter became a professor and held a chair at the University of Bonn until the rise of the Nazis, when he chose to leave the country. He then emigrated to the United States and attained an appointment as a lecturer at Harvard University. More fortunate than Polanyi, Schumpeter was granted US citizenship in 1939 and he remained in America until his death in 1950.
Thus, both men were European émigrés, both were students of philosophy and political economy, both were consumers and critics of Marxism, and both developed novel interpretations of the relationship between capitalism and sociopolitical change. Their theories, accordingly, have important parallels but are also quite distinct from one another. Like Polanyi, Schumpeter identifies the years 1842 to 1897 as a period of momentous capitalist expansion. However, Schumpeter characterizes the mid-nineteenth century not as one marked by the emergence of haute finance, but “as the age of steam and steel.”1 In short, where Polanyi focuses on the gold standard and how its adoption changed the global economy in the mid-nineteenth century, Schumpeter traces how railroads transformed the world.
In this lesser-known, early work, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, Schumpeter sets out to explain the rise and fall of capitalism, focusing on the same turn-of-the-century processes as Polanyi. However, unlike Polanyi, Schumpeter’s project is to use theories of business cycles popular in his day to explain the extraordinary changes that took place at the end of the nineteenth century. Indeed, in the 1930s and 1940s, many economists were analyzing capitalism in terms of boom-and-bust economic cycles. As he explains in his preface, “[business] cycles are not, like tonsils, separable things that might be treated by themselves, but are, like the beat of the heart”; therefore, “Analyzing business cycles means neither more nor less than analyzing the economic process of the capitalist era.”2
To do so, Schumpeter draws heavily from one of his contemporaries, the Russian economic theorist, N. D. Kondratieff. Kondratieff sought to show that other economists were missing the mark because they were only examining short boom-and-bust cycles, which were too limited in scope. He therefore painstakingly plotted changes in interest rates, prices, trade, and production to show that cycles of prosperity and recession followed a pattern of long waves, spaced approximately fifty years apart. Importantly, Kondratieff concluded that these “long waves arise out of causes which are inherent in the essence of the capitalistic economy.”3 However, Kondratieff stopped short of saying exactly what it was within the “capitalistic economy” that might set off such cycles.
Schumpeter picks up where Kondratieff left off. Schumpeter’s project is to show that cycles of prosperity begin when a significant technological innovation first appears. The logic behind his theory is that major innovations, whether railroads, electricity, or automobiles, set off “new investment opportunities [as well as] new possibilities that are created for further innovation.”4 These cumulative commercial and industrial opportunities combine to create a cycle of accelerated growth. Economic growth, in turn, drives further investment, which soars upward until the investment bubble outstrips the need for the new technologies being advanced. Each innovation-investment cycle will therefore end with a downturn. A new cycle emerges as capital finds a new, exciting innovation to begin financing, setting the whole process in motion again. Thus, each major innovation is an engine for economic growth that leaves in its wake recession or depression, until the next major innovation begins to take off. As he puts it “every cycle [of innovation] is a historical individual.”5
To study the rise and fall of liberal capitalism, Schumpeter focuses on three Kondratieff long waves of boom and bust, which he associates with specific innovations: (1) the “first Kondratieff,” the Industrial Revolution, 1780s–1842; (2) the “second Kondratieff,” the Second Industrial Revolution, 1842–1897; and (3) the “third Kondratieff,” the age of electricity, 1898–1940s. It is in his analysis of the second and third Kondratieff waves that Schumpeter’s theory overlaps with Polanyi’s.
However, the similarities end there. Schumpeter dismisses out of hand the idea that international finance could have been the catalyst that brought the liberal order into being. To attribute such powers to haute finance is for Schumpeter backward reasoning for, as he writes, financial speculation “is nothing but adaptation to an underlying economic process.” Schumpeter claims that what steers all economic processes is not global finance but “entrepreneurial activity,”6 or what we refer to in everyday parlance as innovation. As he puts it, innovation “indirectly produces, through the process it sets going, most of those situations from which windfall gains and losses arise and in which speculative operations acquire significant scope.”7 In his schema, changes in “money and credit,” and in fact, “the behavior of all aggregate quantities . . . constitutes the response by the system to the results of entrepreneurial activity.”8 When innovation is allowed to flourish, it attracts finance and sets economic activity in motion. Even further, innovation for Schumpeter is the essence of capitalism. Capitalism is not about supply and demand as Adam Smith maintained. Nor is it about squeezing profit out of laborers as Karl Marx believed. Capitalism is driven by ingenious innovation. Innovation, hence, steers modern history.
Hence, for Schumpeter, to understand how the gold standard changed the world, one has to first examine the innovations of the period that gave rise to financial speculation. And for Schumpeter, the pivotal innovation that revolutionized society in the mid-nineteenth century was railroads. In short, the prime mover of change in the mid to late nineteenth century for Schumpeter was railroadization. But it was not the only innovation of import. “Railroad construction was the main but not the only factor that carried that wave of evolution.”9 Other inventions emerged, which emanated from the subterranean changes that railroad construction set off. Schumpeter notes the importance of changes that came from shipping and the development of different fuel sources. In fact, he identifies the use of petroleum for other purposes than lighting as “a ‘carrying’ innovation of the next Kondratieff, [which] was in the incubating stage during the second.” “Gas was also a major element in the entrepreneurial activity that carried the second Kondratieff,” as was “Coal mining, though perhaps to a greater degree the object of active enterprise than it was in England, was more pushed along than pushing.”10
Though Schumpeter does not believe that global finance was the primary factor steering world developments during the belle époque, he does draw a connection between the growth of banking, speculation, and the railroads. He just reverses the causal arrow: railroadization gave rise to haute finance. For Schumpeter, Polanyi put the cart before the horse. The gold standard could not have been the critical mover of global capitalism. Instead, new forms of global finance developed as a reaction to the possibilities opened up by this all-important technology. Schumpeter explains that railroads “set off a great building boom,” which created so dramatic a change that new forms of finance were required to fund these unprecedently large infrastructural projects. Credit had to be “created ad hoc by both the preexisting banks and the many new ones that emerged.”11 From this emerged the creation of national banking systems, “the outstanding institutional change” of the era.12 Whether the 1847 Peel’s Act in London, the German legislation of 1875 that allowed for the creation of the German Reichsbank, or the United States National Banking Act of 1863, each represented “nothing but adaptations to the situations created by our process,” that is, a response to entrepreneurial innovation.13
The end of the Second Industrial Revolution (or the second Kondratieff wave) came after speculative bubbles caused by the railroad boom produced banking failures that ended with the Great Depression of the 1870s.14 This also marked the beginning of the next long wave of development. As railroad construction reached a surfeit, entrepreneurial energies and finance began to be focused elsewhere. Electricity was the next great wave of innovation. Like railroads, the new technology “created new industries and commodities, new attitudes, new forms of social action and reaction.” This new “carrying innovation” had such a great impact that it “changed the relative economic positions of nations, and the conditions of foreign trade.”15
This third period in many ways corresponds to Polanyi’s period of the “double movement.” In fact, Schumpeter refers to it as the “Neomercantile Kondratieff,” to signify that it was a period that saw the resurgence of state protectionism. During this period, Schumpeter recognizes two critical changes: “the one represented by such symptoms as the recrudescence of protection and the increase in expenditure on armaments, the other by such symptoms as the new spirit in fiscal and social legislation, the rising tide of political radicalism and socialism, the growth and changing attitudes of trade unionism, and so on.”16 Therefore, like Polanyi, Schumpeter sees this late nineteenth century move toward radicalism, socialism, and trade unionism as a response to breakdowns caused by economic and political transformations, which had begun in the mid-nineteenth century. However, Schumpeter attributes the rise of the “Neomercantile Kondratieff” not to the overreach of the market, but to sociological changes brought about by the natural development of capitalism.
According to Schumpeter, “the heroic age of industry” came to an end because prosperity and economic growth brought about the moral degeneration of the capitalist system: capitalists ceased “to believe in the standards and moral schemata of their own class.” He explains that as capitalism took hold, one of the consequences was that traditional family ties were loosened. Yet, family had been “the center of the motivation of the businessman of old.” For “Saving with a view to providing revenue for an indefinite family future” constituted “the moral scheme of life of the typical bourgeois.” Not only did the middle-class bourgeoisie but also the monied classes lost their bearings. In fact, the moral basis of capitalism was most egregiously abandoned by the “top group” of wealthy capitalists, who absorbed “subconsciously and by an infinite number of channels, views, habits, valuations—cultural worlds—that [were] not its own.” In other words, they delighted in conspicuous consumption.
Thus, by the 1910s, both the wealthy and the middle stratums had lost touch with the ethos that sustained the “bourgeois spirt”—the valuation of economic accumulation and savings. An anti-capitalist ethos of “anti-saving” took hold of society, whence it became easier to argue that “thrift is harmful to the interest of the masses always.” All of this brought about “a profound change in the environment within which the capitalist engine [worked].”17 This loss of the core values ultimately brought about the demise of capitalism.
Although Schumpeter and Polanyi cross paths in a number of ways, their analyses could not be more different. For Polanyi, the destruction of the liberal order was due to the widespread suffering liberalism wreaked on society as markets increasingly swallowed up life itself. For Schumpeter, the rise of communism and fascism after the turn of the century occurred because of a psychological and moral transformation of the capitalist class. And yet, as different as their positions are, their analyses can be combined. Moreover, by doing so, it is possible to overcome weaknesses in each of the theories. If it can be said that Polanyi has trouble concretely accounting for what propels change, Schumpeter’s schema is problematic because it is contradictory; he argues that innovation drives social transformation when it works for him, and switches to a quasi-Marxist class explanation when it does not. Thus, while Polanyi is lyrically hazy about what sets off globalized liberalism, Schumpeter offers a foggy explanation for how it came to an end. Combining the two theories, therefore, can potentially provide a more thorough analysis of how the belle époque began and ended; one which can help us understand the transformations of our present age.
Bringing the strengths of these theories together, I argue that both turn-of-the-century movements were periods of the “double movement” because remarkable technological innovations in transportation and communications created “economies of speed” in addition to “economies of scale.” In the Second Industrial Revolution, it was the development of railroads and steamships, modern printing technologies, and the telegraph; in the Digital Age, airplanes, computers, cell phones, and changes to shipping. In short, the reason these two periods are so similar is that both are characterized by rapid interconnectivity.
The study will empirically explore the utility of using Schumpeter’s theory in conjunction with Polanyi’s by examining the impact of the spectacular changes to transportation and communications that occurred during the Second Industrial Revolution (1860–1920) and the Digital Revolution (1960–2020). That these time frames are parallel is not meant to suggest that industrial, technological, or socioeconomic change necessarily occurs in hundred-year cycles. Though several scholars have made such a claim,18 this study does not attempt to weigh in on that larger question. These periods are symmetrical not by some predetermined theoretical design, but because of careful consideration of what could be defensible criteria that can be used to isolate such moments of change. In fact, several factors formed the basis of the choice of periodicity used here.
To begin with, the focus is on periods of modern globalization. Different forms of globalization have arguably been around for centuries, be it the trade routes forged by the Mongols and the Romans, or the international fairs of the twelfth and thirteenth centuries, or the expansion of transoceanic commerce in the fourteenth century. In each of these periods, peoples and economies were interlinked and social structures were reshaped by the spread of ideas and introduction of innovations originating in faraway places. However, unlike other forms of globalization, modern globalization has three characteristics peculiar to it. In the first instance, a critical marker of modern globalization is that capital becomes highly mobile, or as Jameson puts it, “Capital itself becomes free-floating.”19 What makes the mobility of capital so significant is that it has the “potential to connect markets and production in a more direct, more complex and much deeper manner than other cross border flows” and therefore, “emerges as a more significant influence on global economic integration.”20 Once capital becomes mobile, “Globalization [becomes] an imperative . . . requiring all nations to pursue a common strategy,” which leads to the “international integration of markets for goods and capital (but not labor) became an end in itself, overshadowing domestic agendas.” When this happens, “Domestic economic management [is made] subservient to international trade and finance rather than the other way around.”21 In this way, the opening up markets across the globe becomes the “raison d’être of the global order itself.”22
Second, modern globalization is distinct from previous forms of globalization in the magnitude of social, political, and economic interconnectivity. It is associated with what Rodrik (2011) refers to as “hyperglobalization.”23 A singular feature of modern globalization is the experience of extraordinarily abrupt shrinking of time and space. David Harvey (1989) explains how in our modern period, the speeding-up of the pace of life and the overcoming of spatial barriers are such “that the world sometimes seems to collapse inwards upon us.” This experience of time-space compression “is challenging, exciting, stressful, and sometimes deeply troubling, capable of sparking, therefore a diversity of social and cultural political responses.” Therefore, “it is exactly at such moments [of maximal change] that major shifts in systems of representation, cultural forms, and philosophical sentiment occur.”24
Finally, modern globalization is inextricably linked to the development of nationalism and political liberalism, that is, “principles and institutions, recognizable by certain characteristics,” such as “individual freedom, political participation, private property, and equality of opportunity.”25 As Sluga observes, “[it is] difficult to think of the national and international as consecutive stages in the evolution of political communities.”26 Indeed, temporally, the Second Industrial Revolution and the first era of modern globalization coincided with the rise of political liberalism and the nation-state system.
Even accepting the uniqueness of these two eras as periods of modern globalization, isolating a singular moment of historical transformation, what is referred to by scholars as a “critical juncture,” obviously presents thorny problems. Clearly each historical moment is structurally dependent upon that which came before it. It is, therefore, difficult to avoid an element of arbitrariness in positing both the beginning and end points. As Capoccia and Kelemen observe, “Critical junctures and their synonyms are too often treated as bookends, or a deus ex machina, on otherwise carefully constructed stories of institutional development.”27 To address this problem, this study follows Schumpeter and uses statistics as an impartial guide. In fact, it is possible to isolate moments of transformation by pinpointing when dramatic changes in transportation and communication reached critical mass.
As it happens for both epochs under study, these critical transitions came at parallel moments. During both periods, the revolution in transportation began to impact the general public in the decade of the sixties (1860/1960) and reached critical mass in the seventies (1870/1970) (see Figures 5.1, 5.2, 6.1). Similarly, the communications revolution at both times had seeds in earlier innovations but began to take off in the eighties (1880s/1980s). Using criteria that is statistically defensible helps eliminate some of the ambiguity that comes with identifying a beginning point. As to the endpoint, the 1910s present an obvious breaking point from that which preceded it. Of course, 1914 was the watershed year in which World War I began. It has generally been accepted as the moment that marked the end of the period of international economic liberalism, which had dominated the preceding decades.28 Even though there was a brief liberal resurgence in the 1920s, the general trend was away from liberalism.29 Indeed, “From 1913 to 1950 world trade and investment stagnated, and governments reinforced this trend by building barriers to foreign goods and companies.”30 After 1918, “Tariffs, quotas, barter agreements, subsidies, and self-sufficiency programs [resulted] in a drastic decline in the volume of world trade.”31 An illustration of this is that of the fifty-one international organizations that existed in 1910, only four were still in existence by 1915.32 The 2010s may be a less clear endpoint, but this is the era in which far-left and ultra-right national movements gained momentum across Europe and the United States, on a scale that had not been seen since the 1930s.
One objection to the proposed analysis is that focusing so exclusively on these two technological revolutions suggests a high degree of determinism. Kellner warns that technological determinism is a “one-sided optic” of globalization. It overlooks or underappreciates the fact that globalization is “a highly complex, contradictory, and thus ambiguous set of institutions and social relations, as well as one involving flows of goods, services, ideas, technologies, cultural forms, and people.” In particular, “technological determinism fails to note how the new technologies [ . . . ] are not autonomous forces that themselves are engendering a new society and economy that breaks with the previous mode of social organization.”33
The justification for focusing so heavily on technological change is that this study takes as its point of departure the remarkable simultaneity in the political responses we have witnessed across countries. The nativism and populism that emerged across the Global North—and even in areas in the Global South—share striking commonalities. As much as Brexit, or Donald Trump’s presidency, or Gabor’s “illiberal democracy” are specific to the countries in which they evolved, one can acknowledge that there is an overarching leitmotif that connects them. The only way to explain this puzzling simultaneity is to posit that some sort of macrostructural change is at the heart of it. The power of global technological forces to shape history does not negate that the actions of politicians, activists, and private citizens channel events. The degree of the response to these changes will vary in each nation. Much depends on the degree of change experienced and even more upon the political and societal leaders who emerge. Therefore, separate defensive national movements, which stem from very particular national histories and struggles, and which are led by very particular national politicians and activists, can occur in tandem to produce a “national-populist age.”34
This line of thinking parallel’s Polanyi’s, who underscored the commonality and simultaneity of sociopolitical movements of the late nineteenth century in so many countries “of a widely dissimilar political and ideological configuration”:
Victorian England and the Prussia of Bismarck were poles apart, and both were very much unlike the France of the Third Republic or the Empire of the Hapsburgs. Yet each of them passed through a period of free trade and laissez faire, followed by a period of anti-liberal legislation in regard to public health, factory conditions, municipal trading, social insurance, shipping subsidies, public utilities, trade associations, and so on.35
Precisely because technological innovations in transportation and communications hit people across the globe simultaneously with parallel forces, multiple states experience comparable dislocations. In fact, Polanyi himself suggests that such material conditions sparked the change, “Whether the source of the change be war or trade, startling inventions or shifts in natural conditions,” “the ultimate cause is set by external forces [ . . . ], such as a change in climate, or the yield of crops, a new foe, a new weapon used by an old foe, the emergence of new communal ends, or, for that matter, the discovery of new methods of achieving the traditional ends.”36 In another passage, Polanyi’s analysis even comes very close to Schumpeter’s, when he puts forth that “the establishment of market economy . . .cannot be fully grasped unless the impact of the machine on a commercial society is realized. We do not . . . assert that the machine caused that which happened, but we insist that once elaborate machines . . . were used for production in a commercial society, the idea of a self-regulating market system was bound to take shape.”37
Another objection one might raise to this study is that there have been other periods in which revolutionary changes to communications and transportation altered social life. On what, basis then, can one claim that these periods are in fact distinctly similar? The difference in the effects of these specific periods of technological innovation can be illustrated by way of comparison to the early and mid-twentieth-century technological innovations in transportation and communications. Certainly, the telephone, television, radio, and automobiles also sped up modern life. Nonetheless, these technologies did not have the same kind of globalizing potential as did the turn-of-the-century revolutions. These technologies arguably had a greater impact on solidifying national markets and national cultures, than on facilitating international ones. For example, with the growth of the automotive industry, road systems were created that utterly transformed national landscapes. The introduction of road freight also helped increase trade. But trucking did not have an exponential impact on international trade until it was linked up with new forms of shipping and air cargo. It was not until the 1970s that the world saw exponential growth in international trade on the order that had been experienced during the belle époque. As a result, the highpoint in “the share of trade in output” that had been reached in 1913 “was not surpassed until the 1970s”38 (see Figure 4.1).
Similarly, the telephone dramatically transformed national infrastructure. In Europe and the United States, telephone poles dotted the countryside and wires were strung across states connecting even the most rural areas. Telephones also allowed for greater communications across borders. However, the telephone system was limited in scalability, “For each new subscriber, every telephone would have to be modified to accommodate the new number and a new cable would have to be laid to each existing subscriber.”39 Dramatic changes in global communication came only after circuit switching was adopted with the Internet. “Instead of every subscriber having a line to every other, each one just has a single line to a central switch.”40 It was therefore not until the 1970s, after packet-switching had been introduced, that the world saw an exponential change in the speed and mass of information capable of being transmitted. Once that happened, “humankind started to fulfill a long-time aspiration: a global communication network sharing, storing, and sorting the largest amount of information ever amassed.”41
Even television and radio, though potentially international, were in relative terms limited in their impact on internationalization of the social world. Broadcasting in the immediate postwar period was geographically limited. The transmission of broadcasting signals was blocked by large objects and blocked by the curvature of the earth. Perhaps, as a result of these geographic limitations, television programming and even radio broadcasting to a large extent were devised for and geared toward national audiences from their inception through the 1970s. Television only began to be internationalized once satellite communications developed in the 1980s, allowing signals to be transmitted across the globe.42
Most importantly, neither telephone, nor radio, nor television led to an exponential increase in international finance and capital mobility as the telegraph and Internet did at the turn of the centuries. Ticker tape, that quintessential late nineteenth-century innovation, remained the central medium of stock trading throughout the first half of the twentieth century. “Until as recently as the 1960s, financial information spread slowly, typically through ticker tapes. Trading was carried out almost entirely manually.”43 Dramatic change in the financial sector only began in 1980s, when the use of computer algorithms for stock trading became the norm. A strong indicator of this is that “the 1900–14 ratio of foreign investment to output in the world economy was not equaled again until 1980, but has [since] been approximately doubled”44 (see Figure 4.1). Thus, the mid-century technologies were substantially different in their potential to augment globalization.
Figure 4.1 World Trade Index (Export/GDP), 1830–2014
Source: Federico, Giovanni; Tena Junguito, Antonio, 2018, “Federico-Tena World Trade Historical Database: Openness,” https://doi.org/10.21950/BBZVBN, e-cienciaDatos, V1.
Perhaps the strongest objection to focusing on technological change is that it would be disingenuous to suggest that politics had nothing to do with these changes. And it absolutely would be. Politics was central. If nothing else, the hostilities among countries during the two World Wars hindered international trade and finance in the early decades of the twentieth century. It would, therefore, be ludicrous to pretend that the languishing of the world economy in the early to mid-twentieth century was simply due to the technologies (or absence thereof) of the day.
In fact, in Part V it will be advanced that, though technology was the proximate cause of the “double movement” in these two epochs, politics was the deeper cause. The argument that will be put forth is that these periods were similar because, in both, a new postbellum international order had been created that made possible new forms of globalizing technology. In the early nineteenth century, the Concert of Europe delimited a new international order following the Napoleonic Wars; in the mid-twentieth century the Bretton Woods agreements shaped international relations after the two World Wars. These unique periods of peace among the world’s industrial powers allowed for the rebuilding of war-torn economies, the revival of industry and innovation, and the loosening of protective trade policies. Eventually all these processes made possible the emergence of remarkable innovations in transportation and communications that ushered in technological revolutions. Thus, in both eras, extended periods of peace made it possible for technological revolutions to develop, which produced high-liberalism and hyper-interconnectivity (see Figure 4.2). Therefore, what makes these turn-of-the-century periods analogous is twofold: the extended periods of peace that preceded each (the deeper political cause), as well as the globalizing effects of the new technologies that developed during the periods of technological revolution (the more proximate technological cause).
Figure 4.2 Logic of the Argument
However, the primary objective of this book is to illustrate how the “double movement” can be applied to today’s movements and why it is relevant to do so. Accordingly, the bulk of the book is focused on making the case that these two epochs actually are comparable. Parts II, III, and IV trace how innovations in communications and transportation achieved during the Second Industrial Revolution and the Digital Revolution brought into being global liberalism and anti-liberal nationalism. In contrast, the last part, Part V, examines the factors that precipitated the changes described in the center of the book. Thus, the logical and temporal order of the analysis is inverted. Admittedly, this is an unconventional approach. The last history chapter of the book is, if you will, a prequel to the rest of the book.