Political Economy or Economic Politics? The Prospects of Civil Society in an Era of Globalization

Prof. Dr. Hartmut Elsenhans

March 1998

International Studies Association

0. Summary

In the following contribution I will develop the argument that the theoretical and historical foundations of International Political Economy (IPE) as defined in most of the Anglo-Saxon literature are too narrow in order to cope with the challenges of globalization, and are situated in those fields of mainstream economics, where the political component of IPE risks to be seriously put aside.

I will show that IPE as it is practiced actually has a pre-Keynesian economic approach which does not allow to distinguish between profit and rent, which is a major distinction for the patterns of behavior and social integration in societies, and constitutes an essential link between the purely economic and the political-economic areas of investigation.

Due to its pre-Keynesian approach, IPE privileges actors-centered approaches without duly investigating the malleability of structures, hence also the effects of the strategies of actors on global, national and local economic structures, which may be important for the dynamics of the global system.

In order to illustrate my cases, I will proceed to an analysis of the political-economic foundations of the autonomy of civil society (CS) and the emergence of profit as opposed to rent.

This will allow to characterize the international system as being only partially capitalist, with essential areas dominated by rent appropriation and power, which are on the rise due to globalization.

The uncivilized aspect of the international system is not compensated by the growth of transnational interactions, as often characterized by the notion of international CS. There is a point normally made in the literature about the rapid growth of transnationally operating or even transnationally organized Non-Governmental-Organizations (NGOs) but I argue that they do not dispose of the material basis of an autonomous CS.

I will conclude with the perspective of an extension of capitalist (by necessity welfarist) perspectives also in the South which allow for a strengthening of profit against rent and make globalization socially acceptable.

My definition of globalization is a restrictive and an economic one. Globalization is the reduction of transaction costs for transborder movements of capital and goods, hence of factors of production and goods (Gill 1995: 399). I do not discuss whether this reduction of transborder transaction costs has reached levels at which quantitative developments lead to new qualitative structures, although I share the view that with respect to the pre-1914, hence the pre-thirty years war period of Hobsbawm's (1996: 3) short 20th century, the reached levels of globalization are not completely new, especially because the transborder mobility of labor (Irwin 1996: 44) seems to have decreased and because long-term capital movements are still rather limited (Bovenberg/Gordon 1996: 1057).

1. On the restricted economics of IPE

IPE and its extension to the internationally relevant domestic policy decision making processes are based on a narrow view of economic structures and this for historical and theoretical reasons. If we let pass review the major contributions, two main areas emerge: the analysis of the growing importance of transnationally operating enterprises including banks and other financial institutions (the globalization of production and financial markets) which are said to undermine the regulatory powers of the states, and the analysis of the pressures of interest groups on economic decision making, which have implications for the international system because they influence trade arrangements, regulatory arrangements for economic actors, as well as levels of economic activity, economic growth rates, and patterns of specialization.

The work in these categories of research fields is often remarkable and the following criticisms are not meant to belittle these contributions. I illustrate therefore my argument by referring mostly to two outstanding works which in their own logic are quite exceptional, Susan Strange's last book on the "Retreat of the State" (1996) and Mark Kesselman's (1992) "How Should One Study Economic Policy Making?" (1992). Susan Strange shows governments and enterprises cooperating in order to maintain profitability and macroeconomic balances in the face of the challenges of globalization, which creates a single international market. Only those governments and business enterprises which participate in structural power can hope perhaps not to cope really with the challenges of this unified international market but at least to reduce its negative impacts. Without denying the importance of the aspects addressed, my problem with this approach can be shown in the treatment of the new competitiveness of the Southeast and East Asian tigers. Susan Strange establishes the chain of dependency and hence the importance of the power of the "central" economies by arguing that the tiger nations have not been able to free themselves from the dependency on the center in the now more important activity of services (51f.). If the recent crisis in Asia may add new arguments to this dependency theory, I would oppose to this pattern of analysis of continued dependency that despite their export drives the Southeast and East Asian economies are obviously dependent on outlets for export-led industrialization in the more advanced countries, which react to these additional exports by strategies described in Strange's book. The more advanced countries are, however, inefficient, as described in the argument about the decline of the states' regulatory power. This inefficiency is, however, the result of the attempt of actors in the "center" to cope with this export drive of the periphery by using instruments which are logically consistent with the challenges in Susan Strange's theoretical approach but inappropriate despite their being the only ones politically available if politics becomes not receptive to an alternative political-economic approach.

The argument developed in this contributions insists on the implied instruments of "retreat" of the state and wage restraint being the only ones available because the form the process of globalization takes, disempowers "non-business" citizens and hence destroys the very foundations of capitalism, by the way through the active cooperation of those, who can only lose through such a retreat of capitalism, also labor. Despite the growing importance of capitalists in the business-government coalitions, capitalists themselves are not capable of maintaining the macro-economic conditions for profit despite their increasing structural power. ₁

Kesselman (1992) discusses the necessity of analyzing strategies of economic groups, classes and sectors in the domain of economic decision making as embedded in political and social structures which transcend the economic spheres, and which these actors modify more or less intentionally, more often non-intentionally, by their own activities. Kesselman expressly mentions actors whose constituent base is not directly related to economic interests such as religious groups. Coalition building in economic matters depends decisively on the availability of such groups as supporting environment. Their economic policy visions are rarely elaborated but depend on some broad arguments, which are widely shared in the respective society.

This approach comes close to the argument I will defend. The actual and historically tried mechanisms of labor and surplus management largely influence such general views. I can quote as illustration: The differences between a rent-based moral economy and market-based economies as well as the great importance attached to state intervention in the wake of the Great World Depression of the 1930s against the decline of the positive evaluation of the state in the 1980s. Such general orientations, the "climate of opinion" severely limit the options of directly concerned groups in creating influential coalitions, e.g. economic interest groups in economic policy decision making.

Political systems are characterized by organizational, institutional and associational set ups which have emerged to deal with challenges and which, because of transaction costs and survival interests, remain somewhat as crystallized history of the past with their own weights for decision-making; they are "ready" to change only under rather severe new stresses. Hence the argument about different types of capitalism (Albert 1991: 117-119. Boyer 1996: 53-61) is greatly dependent on the path-dependency of the resolution of some major problems of capitalism, for example the empowering of labor through emigration in the regions of recent settlement or this empowering through political action in continental Europe, which was the object of Sombart's (1969: 36) question, why there was no socialism in the United States.

In the analysis of capitalist market economies this embeddedness is structurally determined by capitalism being a system which can be operated without any group having an adequate representation of its macroeconomic foundations: whereas the different groups which struggle over resources may assume that gains of rivals are at the same time losses for themselves, the system itself requires rising mass incomes in order to allow profits to be realized because the solution of Lenin (1956: 54, 183; 1951: 32) with department I growing more rapidly than department II, and the solution of the bankers of expanding investment more rapidly than production conforms to Marx's prediction of the tendential fall of the rate of profit (Elsenhans 1994: 401-405; 1986 a: 268-276).

The actors are not only constrained by imperfect information, bounded rationality and high costs of sudden changes in coalition building, but also by the fact that - according to my argument - the already mentioned foundation of capitalism (rising mass incomes) cannot be transformed into a behavior-determining interest of the privileged class which has privileged access to the decision-making process. If such privileged "groups" had complete information, they would have to be considered as being able to propose corresponding policies, but they would then not be able to maintain those elements of capitalist culture and market related legal systems, which guarantee economic freedom and individualism, finally the property rights, but would have to insist on the latter's limitation and their own right to intervene in such arrangements on the basis of their privileged access to the decision making process. By their very insights in the foundations of capitalism and the transformation of these insights (which some of them certainly have) in behavior-guiding interests, they would lose their pattern of behavior of capitalists competing for cost-reductions on more or less protected markets. This can be illustrated by the attempts of very large enterprises to sponsor research on social problems and to present themselves as responsible citizens of the community the general interest of which the claim to serve.

Such a situation of responsible capitalists would equal the abolition of capitalism as an institution where those who have access to the financial surplus are bound to compete by means of product and process innovation in order to have access to the surplus ₂ .

A comparison to pre-capitalist class societies is instructive: In the tributary modes of production political power, economic resources and ideological definitory capabilities were not separated. There may have been intensive rivalries between segments of the privileged class but no "competition" on markets i.e. no sanction of the decisions of the powerful ones through an anonymous market. Only if different spheres of power were amalgamated, the ruling class could develop a view of the society, the polity and the economy where its own immediate (obviously partial) interests could be made compatible with the conditions of the functioning of the system.

In mainstream economics such a tension between the immediate interests of the privileged and the conditions of the functioning of the macroeconomic system does not exist, basically according to the operation of Jean-Baptiste Say's law of the market (Say 1972: 139). Accumulation here depends only on the availability of surplus and appropriately low costs of factors of production. In this case the actual process of globalization has to lead to rapid full employment world-wide, first in those countries of the South which dispose of sufficient human capital in order to be competitive and hence able to attract foreign capital (Lucas 1990), but also in the West because of improving terms of trade between remaining branches and delocalized branches and hence higher incomes. In this perspective only temporal problems of adjustment can emerge and income distribution cannot worsen definitely as unqualified labor has also to become scarce. ₃

This view of mainstream economics would also be the one Marx would have had supported as also he expected economic crisis only from either too high wages or a rising capital-output-ratio (the rising organic composition of capital). The latter problem can be excluded since Bortkiewicz (1907: 454-460) refutation of the law of the tendential fall of the rate of profit. Marx and mainstream, but not Bortkiewicz, positions are in contradiction with the theory of endogenous growth in which the rise in technical efficiency is one of the basic elements of the growth process (Romer 1994. Pack 1994. Paqué 1995).

If capitalism is only resource constrained, there is no possibility of structural unemployment provided that the market mechanism is not prevented from getting prices right. Capitalism then becomes a zero-sum game at the distributional level, where labor can but disturb the smooth functioning of the system. If capitalism is such a zero-sum game, then the behavior of those in control of the surplus can be criticized only on the following two bases:

they themselves disturb competition by creating monopolies, and

the outcomes of the system are socially undesirable because they disadvantage those who have no access to the surplus.

The structure of a critical theory of capitalism defined as a zero-sum game, where levels of mass consumption reduce the available surplus must concentrate on power games and moral arguments. Susan Strange therefore is logical with her approach in resuming her argument by insisting on monopoly power (1996: 150-160), whereas Kesselman's analysis has to lead to the contradiction between the interests of capital and labor, which the state has to manage (1992: 668).

2. IPE and political science international relations theory

The zero-sum vision of capitalism is attractive for IPE because it allows to apply with limited changes theoretical structures of the two main areas of the discipline of international relations. These two main areas are the realist analysis of the relations between states and state like actors in systems largely determined by power games, and the interest group based approach of explaining foreign policy decisions as the result of domestic or even transnational power configurations, which is the main practical area of research of what is called a pluralist approach as it allows to open the black box of "power" as the goal pursued by relevant actors. Both approaches are actor-oriented and based on the assumption that the struggle over power is a zero-sum game, even if some issues may not be so.

Power is a relational category. It is not the absolute amount of resources which allows to exercise power, but the relative greater or smaller control of such resources which allows to impose on a partner one's own will. Production is not a relational category. As P.T. Bauer (1965: 16) had argued, the richness of a society depends primarily on its own productivity and not on its relative productivity in comparison to others, on which only its terms of trade will depend. Even in the golden days of the theory of imperialism, no author could establish the fact, that the level of consumption in the rich countries of the West depended substantially on the improvement of their terms of trade. The argument since the 19th century had been, that the patterns of unequal specialization may encourage or discourage productivity growth but not that high levels of consumption in some societies were the result of the exploitation of other economies and the resulting transfer of value, perhaps with the exception of Lenin (1917/1977: 289).

In case of a relational asset, the ultimate sum of all relations must be zero. Partial games may be of a non-zero character type, but the outcomes of the sum of all games cannot change the final sum. Coalitions of non-zero sum type games are formed in order to increase the share of the participants in a total "cake" which does not change in volume. At least as long as power is the only resource looked after (the situation changes if security is considered to be the result either of power configuration or of trust), the zero-sum situation with respect to power games is similar to the situation of profit and mass-consumption being mutually exclusive forms of spending of total income. If capitalism is considered as zero-sum game, coalition building for power and coalition building for appropriating a maximum of surplus are structurally similar and allow to apply the same patterns of analysis. These patterns of analysis are actor-oriented as actors have to be intelligent in order to position them well in the struggle over scarce resources. Structure is analyzed as the pattern of the distribution of these positions among actors across the system. Typically, international systems are analyzed as configurations of power between a limited number of participants. Typically IPE analyses concentrate on the market power of economic actors, even if this market power may be of a structural type (the unequal division of labor).

As well, even if the struggle about political decision making is analyzed on the basis of its embeddedness into a wider field of societal factors, this struggle is of a power game type, where actors are analytically central.

IPE has one origin in the analysis of economic actors in decision making processes, initially through the work which established the importance of economic sectors for the behavior of conflicting groups (Hallgarten 1935) and another one in the analysis of structural power within the international system based on a relatively higher or lower share in internationally available surplus (once more initially the theory of imperialism, which led to the terms of trade debate of the late 1940s), and was then modified by being enlarged to the rivalry about access to growth promoting patterns of specialization (the debate about deindustrialisation of the "colonies") and the relative effects of transnationally operating capital on growth and surplus (the debate on the transnational corporations).

In such analyses, the necessity of restricting the capacity of the surplus appropriating class in order to allow profit and investment based growth can be formulated only by referring to the autonomous, Weberian-type culturally motivated capitalist's propensity to invest, and not by referring to economic structures which impose on capitalists the necessity to invest (competition and demand) and especially prevent them from investing (lack of demand).

The roots of IPE in the realist school of International Relations and in the analysis of domestic political decision making processes has greatly favored the option of IPE to base its economics (often only in an implicit manner) on either Marx or mainstream economics according to both of which the struggle over the surplus and consumption is a zero-sum game.

The fact, that in the United States the rise in real mass incomes was at least partially the result of high labor productivity in the frontier agriculture and less the result of the constitution of powerful labor organizations may have contributed to this orientation. The continental European reaction to the growth of big industry had been the constitution of the often countervailing power of labor (which used to accept "monopoly" = big business) whereas the American reaction of the 1890 consisted in the fight of the "small commodity producers" against big business, as exemplified by the populist traditions with their bases non-monopolist farming communities (Brinkley 1993: 557).

To the orientation of IPE to actors and their struggle over a limited resource base, I oppose the argument that a capitalist economy is based on profit and that profit is not the result of the availability of surplus, but of something "more" in the social fabric. Obviously, there is no profit if there is no surplus. There may however be actual or potential surplus, which cannot be appropriated as profit and even may not be produced, as, by the way, exemplified in the work of Sweezy and Baran (1997: 113).

As an initial illustration of this argument, I refer to the often quoted tendency of small industrial entrepreneurs in typical Third World economies to use financial resources they earn from their market oriented activities for the acquisition of real estate or office-holding (Le Brun/Gerry 1975: 20f. Bechhofer 1983: 187ff. Hugon 1982: 37. Rahman 1995: 76, as, by the way, did the monopolistic commercial long-distance trade capital: Nicholas 1976: 6. Le Mené 1977: 189. Rubinstein 1981: 213. Jones 1967: 69-71. Rapp 1974: 393. Braudel 1996: 68-72). The normal scarcity of real estate or office always will lead to some income, Marx's absolute ground rent, to the difference of investment in plant and equipment, which may be totally lost in case of a deep economic crisis. Earnings from reproducible assets depend on demand conditions to a much greater degree than earnings from non-reproducible assets.

The described behavior of these small entrepreneurs is based on a mechanism formulated in practically all schools of economics as the dependence of profit on net investment spending (Kregel 1971: 145-147. Robinson 1951: 174). This clearly does not mean that profits depend on net investment spending because of the productivity increases which will result from these investments and which will provide financial surpluses in the future. It strictly means that there is equality ex-post between investment and saving if the usually assumption are made, that workers spend their total incomes on consumption, capitalists do not consume out of profits, the balance of trade is in equilibrium as well as the balance of the government sector, with the government not creating fictive money with no real counterpart. ₄

In order that capitalist enterprises in the consumption goods sector can sell their products with total earnings superior to their total spending on labor employed by them, on costs for intermediate products and on amortization of used-up capital (where other labor incomes are paid), there have to be consumption incomes which are paid in the production of other than intermediate goods and replacement of plant and equipment. These other goods are net investment, which constitute net addition to capital. According to the Bortkiewicz criterion net investment can expand only if net consumption demand increases. I have discussed elsewhere that this implies rising mass incomes if the share of government deficit or the share of luxury spending of the richer strata do not increase (Elsenhans 1996 a: 1-25). Both alternatives imply the severance of the capitalist mechanism of competition as shown with respect to rising consumption spending of the higher income strata already by Rosa Luxemburg (1923: 90-92).

If mass incomes rise, for example because of a prosperous agriculture, the informal sector producers, already quoted, plough back profits (Adelman 1984: 938-944. Dutt 1991: 348. Gray/Singer 1988: 403. Hwa 1988: 1337. Grabowski 1991: 11).)

Capitalism depends on rising mass incomes and realizes at the economic level an economically reduced version of the one of the slogans of the French Revolution: paix aux chaumières, guerre aux châteaux, rising mass incomes and competition for the privileged ones.

There is no controversy about the fact that mass consumption had risen already before the industrial revolution which it triggered off (Crafts 1985: 144. Brown 1990: 591. Horrell 1996. Mokyr 1988: 77. Fisher 1992: 77. Borsay 1989: 17. Shammas 1990: 228). Controversies emerge because of the fact that, due to population growth, productivity in the initially essential sector of food production either declined or rose only slowly, so that real mass income increases in parallel with productivity increases were initially low.

There is controversy about the mechanisms which caused this rise in mass incomes parallel to rising productivity. Mainstream economics insist on the marginal productivity theory of wage formation: wages increase in function of the rising marginal product of labor as entrepreneurs will hire additional labor as long as additional product is higher than the cost of this marginal labor, whereas critical economists will tend to insist on the importance of class struggle. For the purpose of my argument, this controversy can be neglected because the marginal productivity theory of wage formation has one important implication: increasing mass incomes according to this theory imply a marginal product of labor which is at least as high as the cost of subsistence of a worker and his family (the so-called costs of reproduction of labor) because otherwise labor with average skills cannot become scarce.

In order that the capitalist mechanism can operate, a minimum level in productivity has to be already achieved. This has special implications for agriculture and the distribution of agricultural incomes, because agriculture supplies at low levels of development more than 50% of the wage goods and because the cost of labor for agriculture is a function of agricultural productivity, whereas low productivity in the production of other goods is normally compensated by adjustments of relative prices (Elsenhans 1994: 394-401).

The doubly free worker of Marx, the proletarian, can come into existence only if all average skilled labor is at least productive enough to earn its cost of reproduction. Otherwise, there is labor which will be not only prepared but eager to maintain precapitalist labor relations and support the political power of patrons who are ready to engage in such clientelistic protection in order to promote their political power (Elsenhans 1995 b: 142).

The capacity of labor to reduce its dependence from the privileged class to the capitalist work contract, hence a threshold in the development of marginal productivity, is at the basis of the mechanism through which the two main classes of a capitalist society are capable of freeing themselves from the political clout of non-capitalist ruling classes and to reduce the non-market economy to the role of supplying public goods. Increasing productivity in any part of the economy rises the demand for labor and increases average wages provided there is at least cyclically a tendency to full employment, hence if there is no marginal labor.

A pre-capitalist ruling class can survive if there is surplus: some labor has to be productive enough to provide resources for the ruling class. A capitalist profit appropriating class can only thrive if also the marginal worker produces a surplus, i.e. more than he consumes.

If there is no marginal labor, the two main classes of a capitalist society empower each other by ruthlessly pursuing their most selfish interests: labor cannot raise real consumption without having to respect the limits of real capacity of plant and equipment; capitalists can invest in case of full capacity utilization and demand pressure without any competitor being able to undersell them, and net demand for investment goods which results from it, will in turn empower labor. I quote as an illustration the literature about the cyclical movement in labor's political orientation (Geary 1981: 38. Rayback 1966: 76. Brown 1982: 171) and the demand (and not interest rate) dependence on industrial investment (Erlicher 1957: 152) (which is short term because of the always existing danger of products obsolescence and technical innovation).

The independence of both main classes of capitalism is at the basis of their often common, more often parallel fights against the extension of the state and has manifested itself forcefully in the social movements of the Third Estate (which comprised of both of them) called bourgeois revolutions.

These struggles were directed against "monopoly" and, in economic terms, against rent. Obviously, a pre-capitalist society may dispose of a surplus. The argument that profit can emerge only with rising mass incomes does mean not that rising mass incomes create the surplus, from which profit is drawn. The argument means, that as long as there are no rising mass incomes, available surplus cannot be appropriated as profit, but has to be appropriated if produced as rent or tax. The conjunction "or" does not describe an alternative, but the impossibility of even distinguishing between rent and tax in pre-capitalist setting (Neale 1957: 231).

Rent requires political structures of appropriating surplus, as well as vertical relations of patronage. It precludes the constitution of independent horizontal social organizations and the constitution of what Marx had called classes "for themselves", i.e. horizontal social organizations which can develop an independent organizational set up based on an ideology which reflects respective class solidarities.

3. On the autonomy of Civil Society (CS)

From this analysis, the conditions for the emergence of an autonomous CS can be deduced. IPE has a lot to contribute to this discussion if it bases itself on a paradigm of political economy, where the options of social actors are embedded in a state of the economy which is not produced in an automatic manner by economic forces themselves, but the result of power configurations which make capitalism dependent on political developments which carry the germ of democratization and participation, although they do not by necessity lead to such political changes.

From my analysis of the conditions of profit and the simultaneous conditions for a severing of the ties between the surplus appropriating class and the state as well between non-market based surplus appropriating classes (the pre-capitalist patrons who rely on state power) and labor, I draw three conclusions which I will only briefly develop.

The existence of an autonomous civil society depends on the functioning of a capitalist market economy and hence the empowerment of labor. The mainstream descriptions of civil society insist on the vitality of a sector of free associations. If I do not deny that a functioning capitalist economy may be characterized by the absence of a vital CS because of non-democratic political structures, I maintain, however, that it is the economic independence of citizens from "state" ₅ support, which allows the associational life to thrive (Elsenhans 1997 c: 2-8).

The research for an autonomous CS in pre-capitalist structures will certainly lead to the discovery of more or less independent associations, but these associations cannot really pretend to reduce the "state-dominance" because there is no state-free possibility to appropriate surplus as long as there is no growing capitalist market. The more such associational life is thriving, the greater the "feudalization" of the society with quite unclear responsibilities and even a lack of the "state's" monopoly of legitimate violence (Gellner 1995: 95. Rowe 1993).

The demise of an overwhelming state may go with an increase of associational life, as has been shown by the so-called Third Wave of democratization. After the smoke created by overenthusiastic political science literature has passed, transition theory seems to have run into a critical situation (Zinecker 1995), as many prominent groups in these vital civil societies have proven to be weak and often, if they have survived, inclined to contract links of clientelism with a more or less changed state (Farzin 1995: 989-992. Hamilton 1989: 1523-1530. Lewis 1996: 89. Dittmer 1995: 467-494. Hourcade/Khosrokovar 1990: 895. Youssef 1994: 374).

This is not only true for the private owners of means of production, but also for those excluded from such property rights (Happe/König 1997. Pereira 1993: 375. Vaughan 1995: 501-518).

The autonomy of the CS depends first on the autonomy of the surplus appropriating class from state support. This autonomy of the surplus appropriating class and hence the independence of the bourgeoisie depends on the strength of labor. The process of the weakening of the state in non-capitalist structures, for example because of its economic inefficiency and often subsequent repressiveness will lead to lasting foundations for an autonomous CS only in case that the foundations for a capitalist economy have already been laid or are laid in this process by appropriate strategies of development which empower labor also on the market place.

This does not mean that the movements which are the empirical objects of the studies about actual democratization processes are negligible as long as there are no appropriate economic bases. Values can become relevant. Cultural values such as submissiveness, readiness to revolt, proneness to compromise, fear of supranational sanctions, etc. are initially acquired on the basis of their enabling individuals to deal with challenges, but they are transmitted independently of the permanence of such challenges. Parents and other adults transmit thumb rules to their children and the younger generation which are memorized as efficient in a collective past experience independently from the continuing existence of the conditions under which these experiences were made. They draw their reality from the fact that they are believed and their material basis in society is not very different from the expectations of speculators in a stock exchange bubble.

The drive to democratization and increasing self-organization in societies of today's Third World is therefore important. It signifies that an increasing part of the population considers it worthwhile to check whether inherited thumb rules of behavior are still rooted in the actual power structure. Even if the economic conditions for an autonomous civil society may not yet be there, these changes can exercise an influence on the orientation of the process of allocation of available surplus and hence ultimately on the level of marginality.

The model argues only that an autonomous civil society cannot be a durably guaranteed as long as the described economic structure has not emerged. It does not exclude that even a short term mobilization may have a decisive impact on the further orientation of technical progress and social arrangements just as expectations on the stock exchange influence an economy.

4. The demise of the convoy model of globalization

There is a widespread conviction in mainstream IPE, that the global system is increasingly of a capitalist character. This argument is based on the already criticized economic paradigm of profit and rising mass incomes excluding each other and profit being appropriated on the basis of the availability of surplus and the capability of the profit-seekers to have access to it. If this paradigm is replaced by the paradigm suggested in this contribution, the international system is far from being a capitalist one. Large areas, the so-called underdeveloped world, are characterized by persisting marginality. The new competitiveness of some of these areas in industrial goods promotes the transfer of rent as a structuring element into the previously developed economies which are normally analyzed as being basically regulated through profit and rising mass incomes.

The structures created by rent expand through globalization because the internal structures of the new participants in price-elastic tradables preclude the maintenance of the pattern of globalization which prevailed before 1914, and which I call the convoy pattern (Elsenhans 1998 b).

In order to develop this argument, I will first present a critique of the scenario of globalization requiring an alignment of the cost of unskilled labor to the "Calcutta"-wage. ₆

The popular argument in Germany, as well as in the United States, about Germany's labor costs being excessively high, has to be read as follows: Germany had a record balance of trade surplus in the last two years despite apparently high international labor costs, which are however too low to prevent permanent high surpluses of the German balance of trade. Lower international labor costs of Germany could only contribute to even higher surpluses which in turn would have to lead to further increases in the German exchange rate and hence exchange-rate determined higher German international labor costs. The inverse holds for economies with balance of trade deficits. The excess country can avoid or mitigate appreciations of its exchange rate only through massive capital exports. Massive capital exports, the often provided prove for the "unattractiveness" of a country, are in this case only a consequence of its trade position.

The phenomenon to be explained is persisting unemployment despite high balance of trade surpluses. There are two equally pertinent explanations: By ignoring sectoral competitiveness being dependent on comparative costs ₇ , Germany for the last year has attempted to improve its competitiveness by wage restraint which inevitably had to lead to underconsumptionist tendencies first in Germany and then via the German export surplus in the economies of Germany's trading partners. ₈ This policy was self-defeating because of successive appreciations of the DM, and has now become one of the major issues of the impending German general elections. ₉

The second explanation is that despite German wages not being too high in international comparison, they are too high too allow employment in some of Germany's branches of production which are however necessary for full employment. Germany has too low wages for some sectors of its economy which drive up the exchange rate to levels where the rest of the economy becomes uncompetitive. This implies differences in Germany's advances in productivity over competitors and specialization on products where world demand is not dynamic enough to create full employment through exports. Such a configuration is well known in literature and is called Dutch disease. A highly productive export sector leads to levels of export earning through which the exchange rates appreciates to levels where unemployment becomes inevitable for the rest of the economy. The difference to an oil exporting country consists in the German Dutch disease creating export sector belonging to industry and not to primary production.

This configuration of high productivity in an export sector with too low price or income elasticity of demand appears to an industrial economy under the following aspect: it is highly competitive with respect to the overall balance of trade, but not competitive in branches of production which already are or are expected to be in the future characterized by high growth rates. This set up can be easily explained by adapting Ricardo's example (Ricardo 1951: 135-151). Let England and Portugal be replaced by Germany and the Southeast and East Asian tiger economics, and textiles and wine by Mercedes cars and microelectronical products: Germany would have to specialize on Mercedes cars and give up microelectronical products despite the latter's higher growth potential in the future. Such overtaking due to backwardness is the normal case of world wide capitalist growth especially if "human capital" formation, i.e. growth of labor productivity, depends on an overall transformation of the economy including its internal market oriented sectors: If this condition is necessary for catching up, the convoy model will prevail (Hansson 1994: 778. Freeman 1994: 482. Abramovitz 1986: 405)..

In the convoy model, an increase in the productivity of a leading economy A will raise its export surplus and its exchange rate. If physical productivity in the non-innovative branches of A and B is at a comparative level, B can increase its exports of non-innovative products, maintain full employment and possibly imitate the new technology on the basis of its market potential at least after some time. This is the basis of two widely held theories, the theory of convergence of productivity (Costello 1993. Wolff 1991: 578. Williamson 1996: 291. Alam 1992) and the theories of the purchasing power of parity of exchange rates (Abuaf/Jorion 1990: 172. Junge 1985: 435. Hakkio 1984: 265-277). The model implies tendential full employment in all economies concerned and nothing more. Even if productivity in the non-innovative branch stagnates, the specialization of A on innovative products will push its prices down on the world market whereas B can maintain its prices for non-innovative products at international prices of its labor slightly lower than in A. If productivity differences between both economies are low in the majority of the branches and if the leading economy A has a sectorally limited advance in productivity, new comparative advantage of B is transformed into international competitiveness at a low degree of devaluation. The dynamization of the so-called Third Italy (textile exports with high backward linkages) may be quoted as an example (Antonelli et al. 1989: 801).

The convoy model reproduces to a certain extent the mechanisms which operate within a national economy (where labor is supposed to be completely mobile): Productivity increases in a dynamic branch lead to increased output and additional demand for factors of production so that productivity as measured in earnings as well as profit rates tend to decline, whereas outmigration of factors of production from the noninnovative branches leads to decreasing output, rising relative prices of the non-innovative products (the famous hair-cut) and the capacity to compete with the more dynamic branches on the labor market through higher wage rates. In the international variant of this equalization process on the basis of the convoy model, the rise in wages in B is however limited by its lower rise in average productivity in comparison to A, whereas in case of a national economy, wages would rise according to the rise in productivity in both subsets. So the tendency to convergence implies in addition low costs of catching up of the falling behind economy.

If, however, B's loss of specialization in innovative branches and subsequent specialization on a noninnovative branch implies being exposed to the competition of an economy with comparative advantage in this noninnovative branch and lower international costs of labor, B may face at the same time a pressure for lower international labor costs and unemployment.

This situation will occur if catching up economies characterized by low productivity in all other than the export branches acquire the capacity of transforming comparative advantage into price competitiveness through devaluation. This is the real challenge of what is called globalization today and which creates fears in the West despite the still low share of such economies in world exports of industrial products.

5. The new competitiveness of low cost economies

The newly industrializing countries and other underdeveloped economies have certainly acquired new comparative advantages even in the immediate wake of the industrial revolution, since the rise of productivity in the West through industrialization was unevenly distributed between branches of production. These falling behind economies could, however, not transform newly acquired comparative advantage into price competitiveness through devaluation, as long as they were not earning on the world market enough additional wage goods for additional exports workers, even if they had very low real wages and mass incomes already during the 19th century.

The often quoted fact, that nowadays technology has become much more mobile explains some of the new drive for exports from such economies but does not constitute the basic problem, as it does not explain, why this growth of productivity does not also lead to productivity increases in their non-export sectors.

The explanation of the demise of the convoy model of globalization has therefore to start with the consequences of sectorally limited productivity growth in underdeveloped economies.

A stylized low labor cost country of the Third World can be considered as characterized by marginal product of labor in agriculture being lower than the costs of reproduction of labor (costs of subsistence of a worker and his family, Elsenhans 1995 c). This is the basic assumption of the labor surplus models as developed in the 1960s in India (Georgescu-Roegen 1960. Sen 1966: 427-450. Dandekar 1962: 69-80). Marginal product being lower than the costs of reproduction of labor implies the simultaneous existence of surplus labor and financial surpluses, which were appropriated by the post-colonial state as rent and constituted the financial basis of development policies (Elsenhans 1996 d: 255-274). As long as there is marginal labor, the wage rate for average skilled labor cannot rise in case of perfect competition despite sectoral improvements in productivity.

Suppose that such an economy experiences an increase in its total food output as achieved by the Green Revolution with high transport costs for basic food (a bulky product) precluding at least the long-distance export of the surplus of agriculture. Obviously, restrictions of food imports in the industrial leading countries have the same result. Assume in addition food directly constituting about 50% of the consumption of average skilled labor and indirectly another share of this consumption because the non-food products for such labor are produced by workers fed from such food surplus (housing, textiles, kitchenware) as they are mostly supplied by the so-called informal sector. If the agricultural surplus in such an economy grows, it can devalue its currency because additional export workers have not to buy their subsistence goods from the world market but are supplied by food and by non-food items produced by means of the local food surplus. The purchasing power parity theory of the exchange rate no longer holds (Yotopoulos/Lin 1993: 111).

A country with a sufficiently high agricultural surplus will be able to devalue down to rates where full employment can be achieved, provided that external markets can absorb their additional production and may exchange growth for exploitation (Suh 1997: 111).

If the use of such surplus through the "development" state of late modernization theory was inefficient because of corruption, wrong choice of technology etc., devaluation allows to reach full employment without any state intervention - although this may imply very low terms of trade and be unwise. ₁₀ If such a country envisages a strategy of prioritizing full employment, it can sell its exports at prices where local costs are valued at zero in the international earnings. The Washington consensus about export led growth constitutes therefore a form of mobilization of rent, just as an agrarian reform, the English poor laws and the redistributive activities of NGOs as well as the import-substituting strategies of the so-called development state of modernization theory (Elsenhans 1997 d: 294-296). In export-led growth, the workers buy the surplus of agriculture, a rent, with their wages paid in local currency, because the owners of land cannot sell this surplus on the world market. ₁₁

From this analysis, it can be concluded that a low international price of labor is only marginally connected to low real wages because the model only requires that additional export workers do not consume exportables nor additional imports. The reason for the capacity to offer labor at very low international prices is the result of the availability of a local surplus of non-exportable wage goods especially basic food. Hence real wages in export led economies may be relatively high despite even low international labor costs: Real wages were higher in the tiger countries at the beginning of their export drives as well as today in the second generation of low labor cost export oriented industrializers of Asia, if compared to Sub-Saharan Africa, whereas international labor costs in most of Sub-Saharan Africa or the Maghreb are comparatively high because of the weakness of their food sectors. Countries which are import dependent on basic food are therefore no candidates for "export-led" growth. ₁₂

If productivity improvement is demand driven and does not take place automatically in branches which face no expanding outlets, especially if initial costs of acquiring modern technology may be high, productivity growth in the export sectors does not necessarily spill over into internal market oriented branches (Pilat 1995: 40) as they are unable to earn the foreign exchange for these technologies or finance the costs of imitating catching up. Export proceedings of the competitive branches are used for additional imports. It is very improbable that these imports contribute to broadening productivity growth without "state" intervention. There is therefore no tendency for the exchange rate to appreciate despite export drives as long as export drives do not lead to full employment.

For the industrially advanced countries the possibility of reducing the international price of labor through devaluation from only sectorally productive countries means that in tradable producing branches with a low average growth of productivity the described mechanisms of wages rising also in the non-dynamic branches is blocked. Average wage increases no longer are determined by national average productivity increases because labor in below average productivity branches has to compete with foreign labor, the international price of which depends on marginal costs in low wage countries which are determined by the exchange rate: it may well be real wages in export led economies may be relatively high despite even that the real wage of labor on a developed industrial country who faces import competition from low-cost labour may be lower than the real wage of the worker in the low labor-cost economy.

The mechanism which had been described in this contribution as being the basis of increasing mass consumption and of promoting the homogeneity of labor in the capitalist countries is blocked in case of the capacity of marginality ridden economies to transform comparative advantage into price competitiveness by devaluation.

6. Rent travels West

The leading industrial countries react to this new challenge by trying to improve their pattern of specialization. They undertake efforts to gain competitiveness in those products where marginality ridden countries cannot gain competitivity at any rate of devaluation, for example because their physical productivity in the handling of necessary imported input is so low, that their prices are already higher than those of the leading industrial countries (because they may use imported inputs inefficiently).

As general wage restraint and devaluation races (Asensio 1995) do not lead to a change in comparative advantage, any successful strategy depends on either being first with such a sheltered technology (as seems to have been the case of the United States) and having here a productivity advance higher than in older branches (which was not the case of the United States and constituted the cause of the threats to its leading position) or being backward in old established branches, as was the case of Japan (Watanabe 1991: 59. Audretsch/Yamawaki 1988: 554. Golub 1994: 307).

Especially for old leading industrial countries the attempt of compensating their high productivity in branches with bleak future perspectives implies "rent-allocation". Industrial policy is one example. Increasing the wage spread another one. Basically, all these types of rent allocation imply state interventionism. They are perfectly illustrated by Susan Strange's analyses of the fragmentation of the state and the increasing tendency to government-business coalitions (Strange 1996: 5).

Rent travels North. IPE therefore has to take account of the decisive influence of rent on the structuring of social and political relations, with the results of clientelism, power-based relations, rivalry for prestige and influence, face-saving strategies etc. The reductionism of the definition of society being determined by exchange (Tönnies 1935: 40-57) is replaced by a non-capitalist set-up which will be characterized by patterns of behavior which are connected with the state classes of the rent based development state (Elsenhans 1981: 180-192; 1984: 25-29; 1986 b; 1987: 73-82; 1996 d: 173-254).

From what was said about the autonomy of CS, the rise of rent and its traveling West cannot be expected to automatically increase the civility of a CS which due to the decline of the relative importance of profit will be less and less autonomous.

It may be argued that this insistence on the importance of rent in relation to profit is just a divergence in terms with respect to the prevailing approach in IPE. I would object, that the distinction between profit and rent opens up analytical avenues for dealing with the problem of how to tame rent by reinforcing profit.

At a very practical level, for example, this analysis would justify policies of rising real wages in the West to the detriment of financial capital (rent), of promoting general education against business-linked in-house skill formation (because the rent generating elements of in-house bound productivity increases become relatively less important than skills which can contribute to productivity increases in other employments) and other policies favorable to labor, which cannot be discussed here.

The main advantage of the distinction between profit and rent consists, however, in the formulation of pragmatical avenues of dealing with the challenges of globalization: If labor can be empowered at a world scale, globalization can be managed with advantages for the whole society in all countries in ways which will recall social reformist pragmatism of Fabian or social democratic type, and this without caring for the question of international competitiveness, so that international coordination seems less important than generally assumed. On the contrary, not distinguishing between profit and rent inevitably leads to the conclusion of a world-wide crisis against which a global transformation in the direction of utopia is opposed. Both answers practically have in common to discourage piecemeal reform and to weaken the forces which otherwise could be activated for dealing with the challenges of globalization.

7. On the weakness of the countervailing power of the emerging world wide CS

Globalization as being characterized by the irruption of only sectorally competitive but marginality ridden economies into world markets for price and income elastic goods will not be characterized by a world-wide extension of an autonomous civil society. This argument is radically different from the argument that the degree of globalization of CS has remained behind the degree of globalization of capitalist business (Gill 1995: 419).

The growth of transnational non-governmental organizations (NGOs) which is the empirical illustration to the argument of the emergence and growth of a world-wide CS is certainly an important feature of the actual world system.

There are, however, three arguments to oppose to the thesis, that this is leading to a world civil society. Empirical investigation shows that the networks through which these organizations increase their status, their influence and their resources include increasingly government actors, national governments and international organizations which are constituted by governments (Eberwein 1997: 28. Hurrell 1995: 465). The types of goods to be provided, their relevance to governments, their asset specifity and their transborder impacts create the incentives for governments to enter into these networks (Stratmann 1998: 157-158). These organization reproduce the typical behaviors of rent seekers, even if they are sympathetic and civilized. They may seek influence, prestige/status and resources transferred and not earned on competitive markets by presenting themselves as internationalistic etc., especially if the resource bases likes these values. In these networks, they have not only to defend the objectives, on which they were originally based, but their credibility, their prestige, and finally the survival of their organization (Nölke 1997: 26-27. Obser 1996: 236-248).

The networks between NGOs which are the most visible part of this emerging international CS are geared to the protection of public goods (Meyer 1996: 470; 1995: 1279-1288). Public goods by definition cannot be sold on markets and do not provide an exclusive benefit to their consumers Their capacity to get citizens involved in the society is therefore limited. NGOs are quite aware of these limitations when they organize campaigns which involve citizens of the type of boycotts, as in the case of the struggle against the sinking of Shell's Brent Spar drilling platform. Such commitments of citizens are, however, much more ephemeral than commitments in organizations such as trade unions, which are related to the exchange on the market.

Transnationally operating NGOs may address problems of the labor market. This is the case, if they support local NGOs in the underdeveloped world which provide support to the marginal ones. They tend to reproduce in such situations patterns of dependency and clientship which characterize already the relation between local NGOs and their target groups (Gangrade/Sooryamoorty 1995: 43. Meyer 1993: 206). The most important role of local NGOs in the South, besides their efforts to create consciousness, is the channeling of resources to those who are not able to find employment at wages which cover their costs of reproduction. Rarely, the activities they support yield enough incomes for the beneficiaries. The innovativeness of informal sector producers would certainly have led to the discovery of such activities before they were chosen by the NGOs (Elsenhans 1995 a: 156-159).

This implies that NGO activities with respect to labor markets depend on the continuous flow of resources from donors who are not the direct beneficiaries, but who contribute because they interpret the results as socially desirable. Results therefore are not evaluated by the beneficiaries according to the pattern a customer evaluates the service of a seller, but in a process of interpretation which by necessity has the character of negotiation between groups interested in organization maintenance, so that this process resembles the processes of communication and definition of reality which are typical for rent dependent structures such as state classes (Elsenhans 1987: 81-86).

The empowerment of marginal labor through local NGOs is therefore ephemeral, because of its dependence on permanent transfers, and precarious because of its dependence on the definition power of fund providing donors as opposed to the anonymous market. The recent literature has elaborated the aspects of clientelism in NGOs and somewhat corrected the initially euphoric appreciation (Lewis 1994. Neubert 1994: 285. Hashemi 1990: 36-40).

The positive appreciation of transnationally operating NGOs reflects on the one hand the disappointment in the West about the modernizing military and administrative elites of the theory of modernization, on the other hand the great influence of Western humanitarian NGOs over the perceived sector, with their commitment to peaceful conflict resolution and to universalistic values. The relevance of this point can be made immediately visible, if we look at the importance of comparable social support activities in the mobilization strategies of fundamentalist organizations in the Islamic or Hinduist contexts, which are all but universalistic and anti-violent (Hamzeh 1993: 335. Al-Sayyid 1993: 239. Zubeida 1992: 6. Ben Nefissa 1992: 23. Khouri 1995: 155-156. Ibrahim 1980. Roussillon 1990: 29-30. Kramer 1994: 203. Jaffrelot 1996: 353. Gosh 1995: 14).

The dominance of public goods, the integration in networks where state institutions are relevant, the importance of middle-class staff which does something for somebody else, and the absence of labor are characteristics of the transnational NGO world. This world would not have been interpreted as an autonomous CS, had not especially Anglo-Saxon political science engaged in a theoretical option quite compatible with the economic paradigms which are mostly used in IPE.

The theoretical option consisted in an inaccurate adoption of Max Weber's sociological approach ₁₃ . The main characteristic of Weber's approach is to consider society as being integrated on the basis of values and these values reflecting not the political-economic basis of society but shaping it. Weber (1956: 29-30) makes the point quite clear in defining its own position against Tönnies (1935: 40-45). For Tönnies society, to the difference of community, is an arrangement produced by and for the exchange economy and certainly also comprises of values and social institutions, which embed the exchange economy, including the organizations for the collective representation of interests. Values are certainly not only acquired by actually performing economic roles in this material sphere of the society, but can also be "learned" through institutions of education, hence also be transmitted as a cultural heritage, but they nevertheless are created and maintained in existence by the requirements of the exchange economy. The emergence of capitalist values in the tiger economies of Asia through the process of capitalist growth itself despite their cultural heritage having been for long periods interpreted by the Weberians as an obstacle to capitalism, seems to be proof enough. In order to combat Marx, Weber had to reject this link so brilliantly demonstrated by Tönnies, because he was not able to refute the economic assumptions of Marx, with whom he shared the view that profit/savings and consumption were mutually exclusive.

20th century political science seems to be based on a fundamental error, which comes from Webers work. It has become autonomous of economics, because it did not dare to criticize mainstream economics, and, in order to overcome inconsistencies, invents chains of causation, where the real metabolism of the society, its economic sphere, is at least circumvented. ₁₄

Since this adoption of Weber, political science has lost its political economic foundations, and made social and political developments resemble a school type learning process where values are transmitted by organizations. This perspective is certainly attractive to an overschooled middle-class in dependent, but economically protected state and large business employment with little real contact to the political-economic basis of society.

IPE can reconstitute the link between economy and society only if it places itself on the most modern versions of economics, where the institutional embeddedness becomes itself a factor of the economic progress, especially of growth. For the institutions, in which this process is embedded, obviously, the patterns of behavior of the economically most relevant actors are more important than factors like the legal system, which these actors are always (even if with difficulties) able to adapt if the feel the need to do so.

IPE is locked by its own economic paradigms in a modelization of the globalization process in which it is unable to provide a radical critique of the limits of the phenomena which are called a world-wide CS. It is therefore nearly blind to the fact, that this "transnational" CS lacks the essential characteristics of a national CS, the empowerment of labor and hence also the ultimate dependence of CS on masses instead of elite support, with elites having to interact with masses and not, as in the networks of the transnational NGO world, among themselves. Without a radical critique of the limits in extent and behavioral patterns, the options of creating a real international CS will not become the focus of sustained analysis.

8. On implications how to extend capitalism and an autonomous CS

The point of departure for sketching the possibilities of extending capitalism to the not yet capitalist underdeveloped world and providing the South with the political-economic basis for autonomous CSs is obviously the empowerment of labor through ultimately overcoming marginality and immediately preventing marginality from disempowering labor.

This requires development policies which are basically characterized by mobilizing rents for increasing marginal productivity of labor by activating available social subsystems outside the market. ₁₅ Any reasonable development strategy is characterized by these elements which may lead to quite eclectic combinations of particular measures. There is no end of big theories in development economics and development policies, but the failure of concepts which were not able to integrate the three essential elements on a truely "interdisciplinary" basis (Elsenhans 1996 Kein): overcoming marginality by mobilizing rents including foreign development assistance through appropriate non-market institutions.

Some theoretical contributions of the West and of the South have greatly contributed to this failure. The original economic modernization theory rightly insisted on the factor of demand but was deprived of this aspect by mainstream modernization theory in favor of a concentration on the necessity of state-sponsored investment. Political modernization theory overemphasized the role of elites instead of the masses and went so far as to deny the existence of entrepreneurs in the underdeveloped world because the existing entrepreneurs were not clothed in a Western way. Finally they were "discovered" by informal sector theory. Dependencia theory served as a justification for the inefficiency of the elites.

All reasonable development theories are centered on how to channel rents into raising marginal productivity without paying excessive costs of rent seeking and therefore combine pragmatic measures in an eclectic way. As any channeling of rent implies a decreasing efficiency in case of over-expansion of particular programs or patterns of intervention, limitating degrees in intensity of any particular measure is important.

Two objections against such a model of socially acceptable globalization have to be dealt with, the opposition of the elites in the marginality ridden countries against appropriate reforms which imply also a reequilibration of power, and the costs of such strategies.

To the first objection, it can be replied, that the financial crisis of the Third World states makes these elites highly dependent on transfers from Western donors, as shown in the relations between the Washington institutions and most Third World governments with respect to liberalization programs. Even if the West should be unable to impose structural social reforms, there are methods of rent-channeling in favor of the marginal ones, which the ruling elites in the South would not oppose and which can be applied with little administrative costs. I have made a proposal discussed in the development economics committee of the German Association of Economists (Elsenhans 1991: 281-283). The proposal consisted in the creation of an artificial activity, the collecting of easily identifiable stones, which Western donor agencies would buy against a payment which would equal the costs of reproduction of gathering labor including the transaction costs of bringing these stones to the exchange agency's place. The Western donors would hire some helicopter pilots who would throw these stones in remote areas of the respective countries. At the proposed rate, marginal labor, but only this labor, would go into these areas and collect the stones, sell it after that on local markets to transporters, who would bring these stones to the exchange agency. As the labor of the marginal ones is required in order to collect the stones, the transporters cannot lower the prices for the stones below the cost of reproduction of labor, as otherwise this labor cannot perform the task. Cheating is much more difficult than in the case of food for work programs, where the donors have usually great difficulties to evaluate the real results of the effort of the contractors. The only administrative personnel required would be the helicopter pilots and some people in the exchange agency, which are easy to protect against corruption. Marginal labor would no longer exist. Previously marginal labor becomes a market for food; farmers will try to increase their production in order to benefit from the enlarged outlets. They will buy the appropriate technology so much praised by alternative development theory in order to increase their production. Western development agencies could become consulting firms for cheapening the cost of discovery of appropriate technology and sell their services on the market place.

The model also shows how to finance such a basically non-productive use of Western development assistance. The overall amount necessary will not exceed actual development assistance of Western donor countries. Many countries of the South where marginality is a serious problem, depend on foreign assistance for more than 10% of their national incomes. If 10% of their national incomes would go through the lowest income quintile with roughly 100 dollars yearly per capita income, this quintile would be lifted up to the level of the second lowest quintile and be clearly moved out of the situation of marginality. Multiplier effects would be high due to the reaction of agriculture and the growth of the informal sector, which - according to all empirical studies - is dependent on rising mass demand. Uplifting the one billion of poor of today's Third World from an annual per capita income of 100 dollars to a per capita income of 150 dollars implies a total cost of 50 billions of dollars, roughly the amount of actual development assistance, and much less than the transfers from West Germany to East Germany, which, contrary to mainstream economic expectations, did not trigger off inflationary processes.

It is clear, that overcoming marginality in the South and creating the convoy model once more in the world economy, does not mean to increase the mass incomes of the South to the levels reached in the West. There will be still import competition from these countries. The difference to the actual situation, will however be, that removing marginality will imply that productivity growth in export sectors increases demand for labor, and this, because of the absence of marginal labor on the labor market, will result in improvements in real income (Fields 1994), whereas the new employment of the marginal ones in the artificial activity will also contribute to an extension of the internal market This extension of the internal market has been shown to be essential for a spread of productivity growth from the export sectors to the internal market oriented ones.

The fact that some of these countries have become now competitive in export sectors demonstrates, that the conditions for absorbing and even assimilating modern technologies are there. These technical capacities are transformed into economy-wide productivity growth if there is sufficient demand. There is no reason to believe that if there is demand for the internal market oriented sectors, these sectors will not react dynamically. The literature about informal sectors thriving on the basis of rich agricultures as well as the parallel growth of the internal marke out of the situation of marginality. Multiplier effectst sector oriented industries in the successful newly industrializing countries such as South Korea and especially Taiwan show, that the capability of absorbing technologies in the export sectors implies also the capability (but, in the absence of demand, not the realization) of innovating and increasing productivity in the internal market oriented sectors.

In this case, one of the conditions for limited devaluation is removed, i.e. that local labor does not consume exportables or imported goods. Rising mass incomes on the basis of the stylized model I have presented, will lead to overall productivity growth with the result that the exchange rates will appreciate even if uncooperative elites try to maintain low local currency real wages. This is what basically happened in Taiwan and South Korea on the basis of their export drive, agrarian reform and finally full employment, despite the recent crisis.

The theoretical implication of my contribution consists in a claim for changing the implicit paradigms of IPE and to consider the perspectives which open up on the basis of a principally Keynesian approach. This approach is Keynesian not in the sense this theory is actually discussed: more state spending and expansionary monetary policies. It is Keynesian because it considers capitalists being possibly unable to use available surplus for investment because of lack of consumption demand with resulting unemployment. It is no accident, that there is no theory of state inefficiency in the work of Keynes. Keynes does not propose state spending for investment in order to raise the productivity in the economy. He suggests additional state spending in order to create employment and achieving through full employment the normal operation of the capitalist economy, where capitalists decide about investment according expected rates of return and carry the risk for wrong decisions, whereas labor can impose productivity oriented rising real wages because of tendential full employment, creating by this way the additional outlets, capitalists need for the profitability of additional investment.

I admit that this change in paradigm is actually difficult due to the crisis of the state in most Western and Southern country and the close association conservative Keynesian have established between demand management and state spending. It is also difficult to achieve such a paradigm as it is based on a theory of transition to capitalism which insists on the accidental character of this transition (Elsenhans 1997 e: 653-664), which was dependent on a variety of factors which made marginal labor in the leading industrial countries disappear, in the case of England on the rise of productivity in agriculture with additional employment and on redistribution of income through the Poor Laws, which were nothing else than a subsidy for marginal labor paid by the capitalists independently whether they employed this labor or not, in order to bring the price of the employment of this labor below the costs of its reproduction (Elsenhans 1980: 283-296; 1992: 130-147).

The North-American transition to capitalism did not need such supportive measures from the non-market sectors of the polity and society. Obviously, marginality can occur only in land-constrained societies. Where there is an open frontier, there cannot be marginal labor, as any worker who produces less than the cost of reproduction of his family can establish himself as a farmer on the open frontier. No underdeveloped marginality-ridden economy of the South disposes today of comparable resources of "free" land, although such colonization is also tried in some areas on a limited scale and, under the conditions of the late 20th century, associated with at least "cultural" genocide (as the colonization undertaken by the Han-Chinese in Tibet).

A shift in paradigm would allow IPE to break out from its self-imposed limits, which consist in concentration on the negative aspects of the behavior of the powerful ones, which can be demonstrated and subsequently morally condemned. IPE, however, seems not to be characterized actually by a large body of contributions which show that the motives underlying these negative behavior would lead to positive results, if instead of the motivations the structure of the incentive systems would undergo changes. Keynes proposal of additional state spending in a deep economic crisis is nothing else than an administratively cheap way of changing the then prevailing incentive structures.

Obviously, the a-pragmatic character of a theoretical approach is no argument against its scientific value. I have, however, shown that there is no superiority of a neoclassical or Marxist interpretation of capitalism in comparison to a principally Keynesian one, if this latter is not confined to a narrow interpretation of the basic Keynesian argument, which neglects the importance of raising mass consumption in relation to labour time supplied.

An a-pragmatic character of a theory, however, is an argument for at least exploring potentialities of alternative paradigms, if these are formulated in a theoretically consistent way.

I think that I have demonstrated that an alternative principally Keynesian paradigm leads to a radically different interpretation of the globalization process and its possible consequences and shows that the criticized outcomes can be checked by measures which are not out of the reach of those social groups which suffer from the misuse of globalization for strategies of business, which intentionally disempower labor and destroy the political-economic foundations of capitalism, as capitalism was from its very beginning based on the bargaining power of labor (Elsenhans 1983 a: 191-213. Elsenhans 1983 b: 19.).

The practical conclusions which can be derived from the proposed alternative paradigm can be summarized under two headings: expansion of mass demand in relation to productive potential in the industrialized West through rising mass incomes, reduction of hours worked, and possibly increased non-individual consumption (environment) removal of marginality in the underdeveloped economies through continued access to the markets of the industrial developed countries and eclectic social and economic reforms which create incentives to increase marginal productivity and mass productivity particularly via demand and limited, because administratively costly, transfers, to which agricultural reform, NGO activities, and - if nothing else works - even an artificial industry can contribute.

I have not addressed in this contribution the fact, that the rise of science based industries with low marginal costs of expansion of output may render impossible catching up processes through imitation in high technologies as implied in the convoy model of globalization. This would be another paper, the conclusion of which would be, that in order to avoid increased state interventionism in industrially leading countries, also intellectual property rights have to be formulated in ways to avoid the danger of definite exclusion of lagging behind economies from access to technical progress.

This argument would once more reproduce the basical approach of this paper: capitalism can function if capitalists are not allowed to define themselves the macro-conditions and rules of the game. This opposition over the question of property rights just reproduces the conflict about the right to associate at the beginning of industrial capitalism. Capitalists argued that labor should not be allowed to form coalitions for imposing unreasonable wages to the detriment of profit. Labor saved capitalism by imposing such associations which limited profit to the requirements of financing investment. Labor restricted the property rights of the capitalists, who no longer were allowed to fix themselves the conditions under which they had access to labor power. Capitalism survived because of that.

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Notes:

Note 1: This is nothing else than the observation already made by Marx in discussing the struggle over working hours (Marx 1972: 315-316), that there is a difference between the interests of indivual capitalists and their "ideal", in the cyber-age Marx would use the concept of "virtual" global capitalist. Back.

Note 2: The model therefore implies that a moralistic improvement in the pattern of behavior of private enterprise which does not limit itself to imposing the respect of competition and legal norms, but requires positive actions most certainly has to free these enterprises from competition. For an example of the argument which is criticized here: Rondinelli/Berry 1997: 36. Back.

Note 3: I cannot elaborate here on the fact that in case of full employment wage rates do not differ according to differences in the growth of physical productivity between branches of production nor according to the individual worker's contribution to an increase in productivity but according to the costs of acquiring skills and the scarcity of labour, which with respect to quality, is a function of the costs of the skill formation process. Back.

Note 4: This argument cannot be developed here, but implies the possibility of a financial rentier class very often on the basis of public deficits. Back.

Note 5: I use the term of state here for any territorially constrained power-based organization independently from the economic setting, within which it operates. Back.

Note 6: This has been dealt with more extensively in Elsenhans 1997 b: 1-5, with references, which I will omit here. Back.

Note 7: which in Ricaro's formulation has nothing to do with factor endowments as formulated by Heckscher (1949: 274), Ohlin (1933: 19) and Samuelson (1948: 183), Ricardo being consistent with the endogenous growth theory (Barros 1993: 535-537. Klundert 1993), whereas the other authors are saved by the introduction of "human capital", a quite weak notion. Back.

Note 8: This is one of the basic reasons for the breadth of the coalition for the introduction of the Euro, as - whatever the institutional safegards - the new European central bank cannot dispose of the same supports for anti-inflationary policies at the European level as did the German Bundesbank in the German political system (Elsenhans 1998 a: 27). Back.

Note 9: In the meantime, the federation of German chemical industries has started a campaign in favour of the introduction of the Euro using among other arguments the following one: if the Euro is not introduced as scheduled, the deutschmark will appreciate with subsequent losses of jobs, cf. Bild am Sonntag (a very popular mass newspaper), march 8th: 10. Back.

Note 10: This limiting of devaluation by complementing it through state intervention in favour of branches of production were productivity lags still behind, the so-called state intervention in favour of industrial diversification seems to be the basis for state intervention in the tiger economies as well as its market friendly character, as it has only to support the export drive. On the controversy Jomo 1996: 1-4, and Page 1993: 139-155. Back.

Note 11: I have shown elsewhere that this capacity to devalue and to transform comparative advantage into price competitiveness is also enhanced if the terms of trade between some industrial products, with productivity increases lower than average and lower than in western food production, move against food. The possibilities of transforming comparative advantage for lagging behind economies into price competitiveness are improved, because they can buy more food for exported industrial products. Their comparative advantage should normally be in these industrial branches with low productivity increases. Improving terms of trade of these products in relation to food increase the purchasing power of exports of the lagging behind export led industrializing country. The same is obviosly true for Western countries' dumping of agricultural surpluses on the world market, Elsenhans 1997 b: 11-12. Back.

Note 12: This argument is not identical with the argument that the multiplier effects of export-led growth are especially high in the case of export-led industrialization occuring in an economy with a rather productive agriculture and egalitarian distribution of agricultural incomes, which I support but do not address here. Back.

Note 13: The bad quality of the translation of Max Webers work has been for a long time discussed in Germany (Kantowsky 1985: 469-471) and is now also admitted in the anglo-saxon literature (Ghosh 1994: 105). For a political-economic writer, the translation of bourgeoisie as middle class is really very misleading, as a bourgeoisie is a very special "middle class", operating under very special constraints, which already the communist manifesto but also Max Weber had acknowledged, by the way, as a progressive characteristics. The difference between the two authors with respect to this behaviour consists only in Marx not having any moral problem with people who are pursuing the goal of enrichment, whereas the middle class (here the concept is applicable) writer Max Weber, whose social strata at that time in Germany defined itself by a claim to moral superiority, needed a moral justification for this behaviour. Back.

Note 14: I should add, that the leading departments in political science in Germany, are therefore imposing a fair share of economics taught in the economics departments to their students, such as Constance and Leipzig. Back.

Note 15: I have extensively analysed different elements of development policies in applying this theoretical perspective, cf.: Elsenhans 1997 a: 19-35; 1997 d: 295-301; 1996 b. Back.

---

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