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political science university of amsterdam states vs markets states markets uva second year schwartz political economy political economy pe eelke heemskerk university of amsterdam
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Chapter 3 Markets and the rise of spatial income inequality
Violence was central to expansion by European states carrying new forms of state and market
to the rest of the world.
Do markets forces alone explain this new kind of inequality? If markets alone create spatial
inequality, what options do states have to alter the global distribution of income and
production in their favor. European economic growth alone, or the world market alone,
caused poverty and backwardness elsewhere.
Theories based in neoclassical economics (NCE), which are closest to the liberal institutionalist
arguments, claim that economic growth produced relative but not absolute inequality, and
that European economic growth did not cause poverty elsewhere or rest on exploitation.
Participation in the world market should lead to growth. In short: the international market
and international trade are benign forces --- > they affect all economies the same way, and
any success or deficiency in growth is due to unit-level (local) institutional successes and
failures, as the success of various Asian economies demonstrates.
A set of quasi-Marxist theories are going by the name of world system theory (WST)
or dependency theory argues the reverse of what NCE say: European growth created poverty
and could not have occurred without global economic exploitation. Poverty is relational
rather than simply being relative, because participation in the world market underdevelops
many countries.
Finally, there is an intermediate position. It argues that global markets create a
hierarchy of potential production sites globally. These sites potentially have different income
levels – thus hierarchy. This view blends two models from economic geography to explain the
kinds of outcomes that Realists, Liberal institutionalists, and Marxists argue over. Thünen
explains how transportation and land costs interact to create an uneven distribution of
agricultural production and production intensity. Krugman explains how transportation costs
and economies of scale interact to disperse or concentrate manufacturing.
State and social actors determine whether these structural forces push a given region into
relative poverty or not. We can label the two generic strategies available to those actors as
Ricardian and Kaldorian.
Ricardian strategies accept a country’s position in the global division of labor and try
to maximize growth based on its existing portfolio of exports. Kaldorian represent an effort
to mitigate or reverse those tendencies, because, they try to change a country’s position in
the global division of labor and shift higher-value-added production and exports.
Neoclassical economic explanations
Neoclassical economies (NCE) argues that differences in local governance institutions
typically cause global economic inequality but reject any argument for automatic inequality
or exploitation. Thus, international trade helps all economies, by maximizing allocative
efficiency, that is, by allowing trade to produce whatever they make most efficiently and to
exchange it for goods they are less efficient at producing.
,NCE argues that strong institutions protecting discrete, absolute property rights led to rapid
innovation and the agricultural and industrial revolutions in north-western Europe. Weak
states incapable of enforcing property rights hindered investment in their own economies.
NCE argues that the diffusion of innovation produces only relative inequality: while laggards
may never catch up, they usually do not regress either.
NCEC arguments derive from Adam Smith and David Ricardo. Smith assumed that people’s
natural inclination would create markets, and that markets in turn would force producers to
innovate and increase the division of labor. Smith argues that and increase in the division of
labor caused economic growth. Increasing economic specialization increased productivity and
incomes.
David Ricardo amplified this argument with his insights into static comparative advantage.
Countries need to achieve an absolute advantage (zie verder in dit document onder Ricardian
strategies de uitleg van zijn theorie). Ricardo even showed that if absolute advantage did not
exist, comparative advantage made trade worthwhile. --- > dat is het geval wanneer land A
zowel een telefoon als graan produceert, terwijl land B zich vooral gezet heeft op graan. Het
zou voor land A dan het verstandigst zijn om zich toch meer te focussen op de telefoons en
te handelen met land B voor de graan, zelfs als produceert land A ook graan.
Specialized production and exports increased income and consumption in both
countries.
World systems theory and Marxist explanations
World systems theory (WST) makes a system-level or structural argument diametrically
opposed to NCE’s unit-level argument. The development of capitalism in north-west Europe
both required and caused not just relative but also absolute backwardness elsewhere.
WST makes a categorical distinction between world empires and world economies. A world
empire contains the division within one political system. A world economy contains the
division of labor but multiple polities. Capitalism is unlikely to emerge within a world empire.
WST argues that participation in the world economy determines domestic class structure, the
structure of export production, and ultimately state power. Wages and national income there
stagnate, while the core benefits from low-cost inputs that raise its rate of capital
accumulation. This unequal exchange occurs because low wages in peripheral areas mean
that peripheral areas in general have to exchange many more hours of labor with core
economies to buy goods embodying a given hour of high-wage work. Unequal exchange is a
significant part of the WST argument.
WST is loyal to its Marxist origins: the analysis of core and periphery mirrors Marx’s analysis
of the dialectical relationship between capital and labor. WST claims that absolute regression
not only can occur but often is also the norm in the periphery, because unequal exchange can
cause declining investment.
,Intermediate explanations
The argument about how a capitalist system emerged comes from Robert Brenner. Systemic
models elucidating clear mechanisms for how that system produces global inequalities come
from Thünen and Krugman.
Brenner looked at struggles between landlords and peasants/serfs in 17th century, Poland,
England and France, to understand why they emerged as WST’s paradigmatic peripheral,
core, and semi-peripheral areas.
(heel veel geschiedenis hier).
Agriculture and the division of labor
(weer geschiedenis)
Brenner correctly notes that the slow diffusion of the new techniques equaled capitalist
development, and occurred only where the state and landlords displaced peasants and
consolidated property right in land.
Second international trade path, the Wallersteinian (Baudel) path, required towns to extend
their agricultural supply zones into new areas via water transport, in effect creating new land
through a global division of labor, the mercantile cities of north-west Europe pioneered this
path.
The emergence of the modern global economy thus required the combination of capitalism
with an expanding global market. Diffuse global mercantile networks had always existed
without being dynamic.
The international division of labor and spatial inequality
Thünen (Johann von) and Krugman (Paul) provide us with systemic mechanisms that predict
global inequality as a natural outcome of the market. Thünen’s work was a thought
experiment that asked how agricultural activities distributed itself around a single town
constituting the largest source of monetized demand. --- > Krugman makes problematic the
number and size of urban manufacturing centers.
Thünen argues that agricultural activity would distribute itself in regular, concentric rings
around the town, with each ring devoted to a particular type of product, and, more
importantly, using different production systems.
Why did specialization and income disparities emerge? Assume wheat is the only grop grown.
We assume uniform fertility and knowledge; wheat costs the same to produce everywhere.
So, you only have P, production costs, and T, transportation costs. This implies that wheat
producers located next to the town will be able to capture extra profits equivalent to the cost
of transporting grain from the outermost farm, while farms at intermediate locations will
capture a similar but smaller profit net of their own transportation costs to town.
Even in a one-commodity world, Thünen’s model predicts that production technology will
shift from capital-intense choices to labor-intense choices at a specific distance from town.
Where rents are high, farmers need to produce more intensively, so as to be able to afford
, those rents. At some point further out, rents drops to the point where a less intensive
production technique becomes more profitable. This general rule underlies the processes in
a more complicated multi-crop world.
Suppose we live in a multi-crop world, differences in rent cause different production zones
usng different techniques to emerge. In a two-commodity world, the crop capable of
generating the highest revenue per acre will bid up rents nearer to town to the point where
the lower yielding crop becomes unprofitable.
In a two-crop world, agricultural production will arrange itself in two concentric rings
around the town, with the crop yielding higher revenue per acre closer to town.
Rational market behavior thus produces production zones differentiated by commodity and
production techniques. The Thünen model thus a micro-foundation for the behaviors that
produce a more variegated set of production zones than the WST core, semi-periphery and
periphery.
Thünen predicted and observed 6 general production zones around his town.
- First, this ring around the town produced high-value crops, using large amounts of
labor, big capital investments, and no fallow land.
- Second and Third, these rings use complicated five- to seven-crop rotations. These
crop rotations systems also wasted no land in fallow and had large labor inputs to feed
animals in stalls and work the soil.
- Four, this ring used simpler involving fallow and less labor. More fallow land meant
that revenue per acre is lower, and the demand for labor is lower, because the land is
not used intensively.
- Fifth, this ring produced only grain, leaving even more land fallow to restore it fertility.
It thus had even lower revenue, while monocultural grain production reduces labor
demand,
- Sixth, this ring featured extensively grazed animals. Grazing used such enormous
amounts of land that it can be profitable only where land is cheap.
Going from ring one to ring six takes ones from high-value-added per acre to low-value added
per acre.
When one is going from ring one to ring six, the volume of labor inputs per acre decreases
but the proportion of labor costs in total cost rises. Thus, from the economist viewpoint, labor
intensity of production rises going further out, whereas capital intensity rises coming in
towards town.
Higher productivity per acre and per worker closer to town combines with higher absolute
demand for labor and produce higher incomes there; low-value-added per acre and lower
capital intensity further out from town combines with lower absolute demand for labor to
mean low incomes per acre there.
The first important implication of this pattern is that the standard NCE marginalist
techniques behind Thünen’s model confirm WST’s assertions about unequal global zones.
The second implication concerns peripheralization. The Thünen analysis also shows
why Brenner is right that underdevelopment is a possible but not a necessary outcome of
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