Posts Tagged ‘development economics’

The body shop

July 11, 2014

From a feature article in last Sunday’s New York Times:

In an era of globalization, the market for children crosses national borders; witness the longtime flow of Americans who have gone overseas to adopt babies from South Korea, China, Russia and Guatemala.

Other than the United States, only a few countries — among them India, Thailand, Ukraine and Mexico — allow paid surrogacy. As a result, there is an increasing flow in the opposite direction, with the United States drawing affluent couples from Europe, Asia and Australia. Indeed, many large surrogacy agencies in the United States say international clients — gay, straight, married or single — provide the bulk of their business…

Together, domestic and international couples will have more than 2,000 babies through gestational surrogacy in the United States this year, almost three times as many as a decade ago.

What, if anything, is to be made of such developments?

A little more than a decade back, a succession of startling innovations in biotech, the turn of a new millennium and Clinton’s ‘New Economy’ boom together spawned a potboiling genre of fanciful prognoses, fretful futurology and journalistic speculation on the fate of the ‘body’, marriage and parenthood, and human reproduction.

This was a publishing bubble of airport literature and Kulturkritik, which various eminences did not eschew.

Habermas Future of Human Nature

Around the same time, Foucault’s ‘biopolitics’ was rediscovered by the Anglophone academy, a narrow seam contributing another rich source of mischief and vapidity for cultural studies.

In the midst of this scene, in 2001 Duncan Foley delivered a clear-eyed scholarly lecture on economic growth and demography. In it, he anticipated the new century bringing ‘opportunities and pressures’ for what he termed ‘reproductive arbitrage’.

The latter, he suggested, would ensue in a world where sub-replacement fertility prevailed in the ageing metropolitan economies, alongside a demographic floodtide of human misery elsewhere, as much of the globe experienced industrial growth insufficient to absorb its massive, stagnant ranks of young and prime-age people into employment.


Planet of Slums - Mike Davis

This reproductive arbitrage — a ‘global market for children’, buying where cheap and selling where coveted, at a premium — would, he pointed out, be something novel.

It was to be distinguished from the traditional migration of underutilized reserves of labour from remote hinterlands to the industrial centre.

The twentieth-first century, at its dawn, heralded a ‘sharp polarization between countries with rich ageing populations which cannot reproduce themselves and countries with poor, younger populations which are growing’:

Productive arbitrage opportunities will arise because the rich countries will have chronic shortages of labour and surpluses of capital, while poor countries will have chronic shortages of capital and surpluses of labour. Arbitrage suggests either the movement of capital to the poor countries through foreign investment, or the movement of labour to the rich countries through migration…

Reproductive arbitrage opportunities will arise because of the tendency for poor countries to specialize in producing children, as the rich countries specialize in producing wealth. Thus, we can expect an explosive growth in the trade in reproduction and its associated services like surrogate parenthood, adoption, and the provision of child-care services between older, richer countries and younger, poorer countries. We have also begun to see the early stages of this phenomenon already.

As its clients have multiplied, treatment of the gestational-surrogacy market by the popular media has been equivocal.

Amid warm applause for the realization of parental dreams long held, misgivings are voiced, shortcomings admitted. Queasiness rarely rises, however, to the level of outright reproach, rejection or, least of all, investigation of underlying causes.

Prurience of the ‘Octomom’ variety carries its share of denunciation and spite, of course. But few right-thinking people would see fit to deny that the technology and ‘bioethics’ of assisted reproductive procedures are the chief matters at stake: philosophy, of a sort, rather than politics.

‘Regulation’, by vigilant international NGOs if not local authorities, is the prescribed salve.

(Not yet accustomed to the ways of the world, earlier journalistic treatment of ‘traditional’ surrogacy [insemination with sperm rather than embryo] was, in the 1980s and 1990s, rather more stringent in its scrutiny of market participants and their claims.)

Typically less given to delicate euphemism, the gurus and think tanks of the libertarian right have maintained a cautious silence on surrogacy’s cosmopolitan turn. Perhaps wary of upsetting a precarious apple cart, they are more likely to have found intervention unnecessary.

Inferences can, however, be drawn from past forthright statements.

In 1977, Judge Richard Posner notoriously proposed ‘legalizing a market for babies’. Affecting bemusement at the outraged response that greeted this calculated provocation, Posner observed in his own defence, and with some justification, ‘we have legal baby selling today… I simply think it should be regulated less stringently than today.’

The University of Chicago’s Richard Epstein, in a 1995 paper on surrogacy and contract law, complained that ‘condemnation of any transaction as “baby-selling” is all too often treated as a conversation stopper’.

A more phlegmatic outlook was called for.

Surrogacy’s ‘commercial aspects’ were ‘a regrettable but necessary part of transactions that yield enormous nonquantifiable benefits to the biological father and his wife, and to their friends and family who have comforted them during their years of anxiety and distress’:

The ability of individuals to handle these transactions with sensitivity and discretion is not precluded because money changes hands. Indeed the success of the venture may be aided if the money allows skilled professionals to ease the transition of both sides.

Meanwhile the industry of international adoption receives promotional services from the likes of Harvard Law School’s Elizabeth Bartholet.

Foley’s remarks were little more than an aside, to which, as the phenomenon he identified has since grown, detail can be added.

What circumstances underpin the global specialization of reproductive tasks, linked increasingly by commercial transactions undertaken for profit?

Relative prices and jurisdictional peculiarities play their part (an Indian surrogate at the most internationally renowned clinic in Gujarat is fortunate to receive a fee of $6500, some others as little as $800, while their North American counterparts fetch around $30 000. Merely donating ova, if their source is an Ivy League graduate, itself attracts $20 000).

Fertility rates are inversely related to female labour-force participation (and per capita output), lifetime births per woman being highest where female paid employment is least, and the costs of child rearing (education, medical care, foregone wages) smallest.

Malnutrition causes half of all Indian women to be anaemic. Nearly half of all Indian children under three are underweight and undersized, and maternal mortality (around 200 per 100 000 live births) is estimated to kill 80 000 Indian women each year, contributing with Nigeria around a third of the world’s annual maternal deaths (most from anaemia, haemorrhage or uterine rupture, eclampsia and septic abortion).

A bare half of all Indian childbirths are attended by skilled health personnel (the figure is around 80% for Indonesia, and 99% for China).

Why is it that ‘poor countries’, seemingly so ill-suited for the task, should today have come to ‘specialize in producing children’ for the industrially developed zones of the planet?

‘Reproduction’ arises as a topic in classical political economy (Smith, Ricardo, Marx) because of the peculiar character of that productive input known as human labour.

The latter is not (as are capital goods) produced as a direct commodity via the capitalist system of production; nor (like land, minerals and similar resources) garnered freely from nature; but must instead be born, reared, trained and socialized, in the domestic household or elsewhere, before it can be hired on the market as employable labour-power.

Thus, in the view of classical political economy, labour supply is induced by demand, growing or shrinking according to demand for employees at a given real wage, caused by variation in productive investment.

Over a few decades, labour supply is flexible or elastic, because employers seeking workers may tap in to external sources (idle pools abroad drawn in as immigrants) or underutilized domestic sources (the unemployed, housebound women, etc.).

Conditions in the slums and shanty towns of today’s Delhi, Jakarta, Lagos, São Paulo, Karachi, Kinshasa, Dhaka, Istanbul and Cairo may thus be compared to those of Henry Mayhew’s London.

In early Victorian times, Britain’s industrial revolution had breached Malthusian limits, detonating population growth and urbanization that, for the moment, outstripped the pace of fixed-capital accumulation and demand for employees.

The London streets of 1840 therefore teemed with petty vendors and sole proprietors (fruit sellers, flower stalls, artisans, prostitutes) whose meagre inventories and simple tools of the trade were of a scale measly enough to be owned by a single precariously placed individual or family, hawked and peddled by day and carried home at night.

With the available workforce more plentiful than the needs of capital owners required, human life came cheaply and the necessities of subsistence were procured in haphazard, opportunistic fashion, as described vividly by Mayhew in London Labour and the London Poor, and captured in the crowded tenements of Dickens’s fiction.

Despite rapid growth in productivity, British real wages remained stagnant throughout the first half of the nineteenth century, its urban hordes preserving slack in the labour market.

The Rookery St. Giles's 1851

Nearly two centuries later, in today’s Britain and other advanced economies, shrinking working-age cohorts (15-64 years) support relatively large economically inactive cohorts of the elderly and infirm.

In this metropolitan core, most strikingly in Europe and Japan, mechanization of production has caused output-capital ratios eventually to fall, as the stock of factories and equipment accumulates more rapidly than the number of available employees.

Labour productivity and output-capital ratios in the OECD

Labour productivity over time (US) and space (world)

Beyond the frontiers of the OECD, however, in the less industrially developed countries whose populations comprise the overwhelming majority of the world, Mayhew’s vista of scrounged livings now predominates.

In today’s official lexicon, it is designated as the ‘informal economy’.

Ninety-three percent of the Indian workforce, and 85 percent of the non-farm workforce, is deployed outside the organized corporate or state-owned sector in tiny household enterprises.

These marginal hundreds of millions of South Asian ‘self-employed’ and sub-contractors, whose low business revenue and few tangible assets makes them uncreditworthy to formal lending sources, provide the social infrastructure for those microfinance initiatives that so capture the hopes of well-meaning left-liberals abroad.

More importantly, such vast pools of urban misery — propelled out of the countryside by the Green Revolution, into cities where insufficient investment exists to draw them into paid employment — form a latent reserve of potential employees, thus keeping a ceiling on wage growth.

In Africa, South Asia, Latin America, West and Southeast Asia, low labour productivity corresponds to lesser capital intensity (fewer tangible assets used per worker), high output-capital ratios and a younger population.

Indian agricultural, construction, pottery and textile workers thus perform manual labour whilst their more productive counterparts abroad are assisted by machinery and equipment.

The capital-labour ratio in India is less than one-tenth its level in the United States. The resulting difference in labour productivity yields a stark income divergence: India’s average real wage is one-twentieth that of the USA.

In these circumstances, with the postcolonial prospect of secular ‘development’ and improved living standards having long since receded, those offering otherworldly salvation and similar religious consolations have naturally thrived.

In India, appeals to the devout, and invocations of Hindutva, have multiplied under the impeccably business-minded administrations of Rao, Manmohan Singh and Modi. BJP and Congress alike truckle to local piety while catering to foreign creditors.

Typically backed as an anti-left bulwark by the local security apparatus, favoured as a counterweight to unruly secular nationalism by imperialist intelligence services, and firmly planted in the soil of matrimonial and sexual conservatism, such confessional movements, of whatever stripe, have not looked favourably upon the entry of women to paid employment, female enrolment in public schooling and other novel social roles.

Along with these superstitious revivals, the persistence of archaic social relations  debt bondage, small farms and petty proprietorships, landlordism and sharecropping, patriarchal tyranny, hereditary caste occupation, and various other forms of labour tying  tends to encourage precocious marriage sealed by dowry, relatively early age of first pregnancy, reduced spacing of births and high birth rates.

Nearly half the female Indian population is illiterate; fewer than half receive secondary education.

The wealthier Indian states  Maharashtra, Haryana, Gujarat, Punjab — have the most imbalanced sex ratios, with sex-selective foetal reduction facilitated by imaging technology. The practice of female-specific abortion therefore increased from the 1990s.

Yet the origin of commercial surrogacy in India, Thailand and the former Soviet republics is not simply the penury and devastation internal to these countries, enormous though these are.

The ‘market for children’ depends upon economic and jurisprudential developments pioneered in the advanced regions of North America, Europe, Northeast Asia and the Antipodes.

Trails of commodification are blazed in California.

There, the presence of an advanced biomedical-university complex, a favourable judicial environment, and cultural deregulation to make the rest of the United States blush, have placed the state at the forefront of proprietary and contractual developments governing human somatic material, as well as probate and family law (disputes over inheritance and parental rights).

Efforts by universities and research hospitals to secure intellectual-property claims to their research findings, and to patent the research tools (including biological material) used in obtaining them, have spurred the process.

Moore v Regents of the University of California (1990)  establishing that a patient or donor had no claim to profits derived from use by recipients of his or her own harvested or extracted tissues, cells or gametes  encouraged resort to sperm and ovum donations, and sped development of the ‘oocyte economy.’

The ruling in this case explicitly referred, as a foremost consideration, to its implications for biomedical research, the judges dutifully genuflecting before the needs of industry.

Similarly, to facilitate the practice of IVF, sperm donors are legally held to have relinquished parental rights over biological offspring born as a result of artificial insemination. Californian judges have found that gestational hosts do likewise, in order that surrogacy arrangements should proceed without a hitch.

It is in Sacramento, rather than Ahmedabad, that authorities have been asked to rule on the ownership and disposition of frozen embryos.

And it is in the beating heart of world capitalism that a 1996 article in a legal journal could announce that gestational surrogacy had brought about the ‘demise of the unitary biological mother’. (Its author is now a ‘philanthropy consultant’ who ‘helps charities and brands secure celebrity support for cause-marketing campaigns and fundraising events.’)

Ivy League egg donors


This image of divided maternity (‘demise of the unitary mother’) furnishes an almost parodic example of the fragmentation that follows from commodification or rationalization, as described in the Marxist and Weberian traditions.

Once an activity (such as human sexual reproduction) is drawn into the sphere of production for the market, or a need is supplied as a commodity, the division of labour splits it apart into its specialized aspects or components.

‘Reproductive arbitrage’ and the ‘market for children’, therefore, are symptoms of what Arlie Hochschild calls the ever-advancing commodity frontier, the encroachment of commodity production and the capitalist sector upon ever more elements of human life.

Activities once performed by individuals or households for their own use, for satisfaction of their own needs with both the labour and its output free of monetary cost — become services available for purchase on the market, in return for payment.

The ‘relinquishing of family functions to the market realm’ is hardly novel. The role of the domestic household as a production unit that self-provisions has ebbed for several centuries, its scope annexed and chiselled away since at least Britain’s Agricultural Revolution.

Few households now cultivate their own crops, educate their own children, spin and weave their own textiles, or construct their own houses. Responsibility for all these activities has been transferred to the capitalist sector or the state.

A few residual tasks remain for unpaid housework: the final stages of food preparation, childcare for infants and preschoolers, some custodial care of school-age children, cleaning of residential premises, etc.

The waning role of the domestic sector  and the transfer of production to a capitalist sector that can introduce efficient new techniques, raise productivity and realize economies of scale  has meant a degree of liberation from isolation and household drudgery, freeing up women for paid employment and other social roles.

Yet Hochschild, since The Managed Heart (1993), has drawn attention to recent new incursions by the market into the domestic household, in the fields of emotional intimacy, affective display and attachment.

With supply of these to customers now yielding a profitable return, employees, especially in ‘hospitality’ or service occupations, are obliged to convincingly demonstrate emotion: the solicitousness of the waiter, the empathy of the care worker, the conviviality of the flight attendant, the cheerful verve of the tour guide.

Emotional labour ‘requires one to induce or suppress feeling in order to sustain the outward countenance that produces the proper state of mind in others.’

Such transactions may be extended, Hochschild has noted, to ‘outsourcing’ (from independent contractors or employees) family functions traditionally performed by women, as mothers and wives, within the domestic household: cook, teacher, nurse, nanny, but also provider of emotional support, companionship and sexual partnership.

Intimacy may be purchased either in spot markets or by entering into long-term bilateral arrangements, with previous methods of attracting mates and forming pair-bonds having now dissolved or become too time-consuming,

A ‘familial role’ is ‘shown to be divisible into slivers, a whole separated into parts.’

Here, too, efficiency gains are made from turning tasks over to dedicated specialists:

Especially in its more recent incarnation, the commercial substitutes for family activities often turn out to be better than the “real” thing. Just as the French bakery may make bread better than mother ever did, and the cleaning service may clean the house more thoroughly, so therapists may recognize feelings more accurately. Even child care workers, while no ultimate substitute, may prove more warm and even–tempered than parents sometimes are.

Thus, in a sense, capitalism isn’t competing with itself, one company against another. Capitalism is competing with the family, and particularly with the role of the wife and mother.

Recoil, if it occurs here, is surely inspired not just by dread of the ersatz, but from threatened fulfilment of the bleakest Frankfurt School visions of the ‘exchange principle’ making human beings fungible and interchangeable.

In the banalization sought by use of the term ‘sex worker’, there is a caricature that mimics and nullifies the earlier hopes of women’s liberation, in the guise of realizing those aspirations.

To be sure, demands to revise the family, and disrupt standard reproductive arrangements, have long featured as a staple in visions of social transformation.

But surrogacy in a dingy Gujarati basement dormitory, or a gleaming Californian clinic, is far indeed from the sexual and matrimonial innovations proposed for Fourier’s phalanstère, Bacon’s New Atlantis or Campanella’s City of the Sun, let alone Firestone’s utopia of ‘artificial reproduction’ and parthenogenesis.

The relationship of gestational host to client is less novel than supposed, as made clear in an anecdote from Hochschild’s The Outsourced Self:

I didn’t want her to think of me as this big rich American coming in with my money to buy her womb for a while. So I did touch her at some point, I think, her hair or her shoulder. I tried to smile a lot.

Through the interpreter I told her, “I am very glad and grateful you are doing this.” I explained that we’d tried to have a baby but couldn’t. I told her not to worry for herself; she would be taken care of. I asked her about her own child.

She didn’t look at ease. It was not the unease of, “I can’t believe I’m doing this,” but more the unease of the subordinate meeting her boss.

Of course, the precise relationship is rather presumptuously misspecified: the surrogate is a commercial subcontractor, not an employee. The contracting parties, holding all cards, are the surrogacy clinic and its commissioning clients.

World capitalism is capable of accommodating, and indeed of promoting, those survivals of domestic servitude and patriarchal terror that assist the growth of its latest production lines. The hereditary dynasty of Nehru, not to speak of the lineages of Bush and Clinton, attest to an official capacity for preserving the atavistic: inherited charisma, or family branding, at the head of the bureaucratic state.

Maintenance of a servile pool of Indian women (contractually denied any right to abortion, etc.) thus serves roughly the same social function as does existence of the idle, squandered two billion or so human beings wasting away, on standby, in the slum workshops of Asia’s informal sector, and in the continent-sized skid row of Africa: exiled from capitalist employment yet useful to employers.

Liberal capitalist societies, in ideal form, prohibit certain market transactions (e.g. the sale and purchase of human beings, contracts of indentured servitude).

They offer thereby a more limited scope for commodity exchange than do slave-owning societies. When the Roman civil code was rediscovered in the High Middle Ages, and used as the foundation for European commercial law, a good deal of antiquated material relating to trade in slaves had perforce to be discarded by the glossators.

However, it is a commonplace of Marxist thought that capitalist property relations tend, by their nature, to expand into every available territory, occupy each vacant line of production, and invade any vulnerable social nook. Commercial transactions, and property rights, thus tend to encompass more domains of existence than ever before.

This may be most apparent in the industries of health, physical embellishment and body transformation: repair, modification, procreation and enhancement.

What types of entities and powers may legitimately be alienated, surrendered under the profit motive, or acquired by payment? What parts of the body, or human capabilities, have recently lapsed into chattel status, and may validly be transacted in the market; which of them are murky?

While the United States’ National Organ Transplant Act (1984) forbids the sale or purchase of vital organs for ‘valuable consideration’, some philosophers have recently advocated legalization of payment for kidney sales; another salutes ‘commodification of human body parts’ and, indeed, ‘universal commodification.’

The attitudes of some, it has elsewhere been remarked, betray ‘an underlying fear of treating the human body, or the cellular material that will develop into a human being, as the personal property equivalent of cars or television sets.’ This, ‘although perhaps justifiable on moral grounds’, is unhelpful. All rights, ultimately, flow from proprietary interests.

Thus speaks the wisdom of the age.

It brings to mind the young Marx’s description of the ‘power of money’, which Adam Smith had said conferred the ‘power to command’ labour and the products of labour.

As the productivity of human labour increases, the fruits of the entire world are brought within the grasp of the wealthy, who can through spending remedy all deficiencies:

That which is for me through the medium of money  that for which I can pay (i.e., which money can buy)  that am I myself, the possessor of the money. The extent of the power of money is the extent of my power. Money’s properties are my  the possessor’s  properties and essential powers.

Thus, what I am and am capable of is by no means determined by my individuality.

am ugly, but I can buy for myself the most beautiful of women. Therefore I am not ugly, for the effect of ugliness its deterrent power  is nullified by money.

I, according to my individual characteristics, am lame, but money furnishes me with twenty-four feet. Therefore I am not lame.

I am bad, dishonest, unscrupulous, stupid; but money is honoured, and hence its possessor. Money is the supreme good, therefore its possessor is good. Money, besides, saves me the trouble of being dishonest: I am therefore presumed honest.

I am brainless, but money is the real brain of all things and how then should its possessor be brainless? Besides, he can buy clever people for himself, and is he who has power over the clever not more clever than the clever?

Do not I, who thanks to money am capable of all that the human heart longs for, possess all human capacities? Does not my money, therefore, transform all my incapacities into their contrary?

If money is the bond binding me to human life, binding society to me, connecting me with nature and man, is not money the bond of all bonds? Can it not dissolve and bind all ties? Is it not, therefore, also the universal agent of separation? It is the coin that really separates as well as the real binding agent.

War production and investment spending: how many divisions has Putin?

March 19, 2014

For a brief period in the 1920s, compelled by circumstance amid the daunting wreckage of Civil War, the new Soviet state became the world centre of development economics.

In swift order arrived Preobrazhensky’s model of surplus mobilization from agriculture (1926), Feldman’s theory of capital accumulation (1928) and Chayanov’s model of the peasant household (1925).

While the Soviet Union has since received its traumatic quietus, the topic at stake in these discussions — industrialization of a largely rural, middle-income economy, in a territory subject to repeated military incursions — never quite vanished.

Today’s reduced circumstances — notwithstanding recent short-lived bubbles of energy, real estate and stock market — grant it renewed relevance.

When the Tsarist state was shattered by blows from the Hohenzollern Empire, harsh lessons were absorbed by its Bolshevik successors. One result was the theoretical flourishing described above.

With the Stalinist bureaucracy having since succumbed in no less catastrophic fashion — vast tracts of its territory excised and conceded, its population whittled down and industrial capacity reduced — no similar outbreak of reflection has been in evidence.

Yet, with capitalism restored in a diminished Russia, old issues have resurfaced for the Kremlin’s policy elite.

One the one hand, lack of internal macroeconomic development bridles Moscow’s military capacity and curbs its conduct of international statecraft. On the other, lopsided devotion to war industry pilfers resources that might otherwise augment Russia’s stock of capital equipment and infrastructure.

Such is the state of disarray, domestic and external, as NATO presses its forces and weaponry against ex-Soviet borders.

In 1930 Tukhachevsky’s proposal to create a ‘military-planning complex’ was dismissed by Stalin, who greeted it with the accusation of ‘red militarism.’

It was, Stalin said, ‘the result of an entertainment with leftist phrases, the result of a play with paper, bureaucratic maximalism… To carry out such a “plan” would certainly ruin the economy of the country, and the army’.

Tukhachevsky had mused about increasing the number of motorized and mechanized units, combining artillery and tanks with airpower:

The success of our socialist construction, as well as the changes in the countryside, put the whole question of a reorganization of the armed forces on the agenda, due consideration of all the new factors of technology and the possibility of mass-scale production of armaments.

By 1933, he suggested, the Soviet Union could maintain 40 000 operational aircraft and 50 000 tanks, allowing 240 infantry, 50 artillery and 20 cavalry divisions:

These figures characterize (by modest indications) our prospective production capacity in aeroplanes and tanks and call for the appropriate organizational forms of the Red Army, which the Army inevitably must adopt.

Stalin, in his clotted style, responded thus to Tukhachevsky’s ‘super rearmament’:

In his ‘plan’ the essential is lacking, that is, there is no calculation of the realistic possibilities in the economic, financial and cultural dimension. This ‘plan’ definitely distorts any conceivable and permissible proportions between the Army, as one part of the country, and the country, as an entity with limits in the economic and cultural dimension. ‘The plan’ fulfils the views of ‘purely military’ men, who often forget that the army constitutes a derivative of the economic and cultural condition of the country.

In other words, the armed forces did not generate their own surplus for reinvestment, nor cover their own operating expenses.

Instead, they depended in material terms upon subventions from the ‘basic’ industries, which set an upper limit to their size.

Ignoring this binding constraint, and engaging in drastic military expenditure, would eat away at potentially investible resources and prevent formation of the very fixed assets that might otherwise support the Red Army.

In 1930, due to the Soviet Union’s economic underdevelopment, the available surplus above current consumption seemed too meagre to squander on lofty goals of military construction, equipment and munitions procurement, which were starting from a very low base.

Supply bottlenecks obliged the Kremlin to choose between investment in new productive capacity (iron, steel, fuel, mechanized equipment, transport infrastructure) and military spending.

Yet by the end of the second Five-Year Plan in 1938, an armaments industry had been erected that, numerically speaking, met Tukhachevsky’s grandiose hopes: doubling its staff, and tripling its output, in the space of four years.

Once complementary investments had come on-stream, capacity existed to build a war machine.

RW Davis - Planning for mobilization

Mark Harrison - Second five-year plan

During interwar years, of course, this story was hardly unique to the new Soviet Union.

The developmental state in Japan provides the obvious comparison: accumulating a stock of fixed capital (shipyards, blast furnaces, automotive plants) that provided Tokyo with a heavy-industrial base for armaments production.

But after 1945 Japan became a US protectorate. Since then, under Washington’s security umbrella, Japanese militarism has no longer frittered away the investible surplus (nor, after MacArthur’s land reform, have an idle class of unproductive landowners). With the hegemon picking up Cold War military overheads, a high proportion of scientists and engineers became available for R&D in the civilian economy.

Partly as a result, down to the 1980s capital goods used per worker and labour productivity increased more rapidly in Japan than anywhere else in the world.

On the other hand, Russia has constituted a national anomaly. For in this perennial Kampfplatz the issue has reappeared insistently, history having contrived no resolution in the form of a benevolent suzerain.

Consider Engels’s remark in 1890 on the results of the Crimean War:

The war had proved that Russia needed railways, steam engines, modern industry, even on purely military grounds. And thus the government set about breeding a Russian capitalist class…

[The] new development of the bourgeoisie was artificially forced as in a hot-house, by means of railway concessions, protective duties, and other privileges; and thus a complete social revolution was initiated in town and country, which would not allow the spirits once set in motion to return to rest again.

Again and again, Moscow’s status as a Great Power, and the country’s security from external threat, has posed for the Kremlin the ‘conceivable and permissible proportions between the Army, as one part of the country, and the country’.

How should the surplus be divided between military spending (wastefully diverting resources from the civilian economy and thus impeding productivity growth) and accumulating new industrial capacity (investing in fixed assets that provide the economic basis for warfare and peacetime geostrategy)?

At different times, depending on parameter values, military expenditure and fixed-capital formation (and labour productivity) might be complementary, moving in sympathy as under Stalin during the 1930s (when both rose) and the 1990s under Yeltsin (when both collapsed). Or they could conflict, moving inversely as in the late Brezhnev years (again, to unhappy effect).

As Stalin noted, this was a problem of apportioning society’s total workforce and other resources to specific activities and different lines of production.

For any economy, some tradeoff necessarily exists: every society needs to allocate its aggregate labour resources  person-years per year, or simply working-age persons  between particular tasks or occupations.

A capitalist society generally does this by means of price signals: private investment flows into the most profitable lines of production, increasing labour demand and employment in these activities.

During wartime mobilization, however, labour is deployed to the desired tasks by ‘political’ methods: conscription of prime-age males, placement of orders and procurement by state planning boards, and other bureaucratic procedures.

Even during peacetime, resource planning proceeds at its highest level using ‘in-kind’ physical units. The US Defense Department specifies to Boeing or Northrup Grumman how many combat aircraft or jet engines it needs to procure.

RW Davies - Soviet weapon production

nimitz class supercarrier

What about ex ante mobilization by a state preparing to go to war?

A state fighting a prolonged war cannot just myopically allocate all its labour resources to the war-front in the hope of immediate victory. It must prepare and maintain the civilian productive capacity of heavy industry and capital goods  steel production, shipbuilding, aviation, construction, munitions and armaments, chemicals and engineering, vehicles and parts, fuel and power supply  as well as food, clothing, medicine, transport, communication, etc.

Long-term creation of such a military-industrial base, in order to boost war-making potential, is known as ‘armament in depth.’

Under Stalin, much of this industrial base (e.g. Magnitogorsk) was deliberately dispersed eastward beyond the Urals and Siberia, far from European predation from the west and with its own nearby deposits of fuel and minerals (e.g. the Kuznetsk Basin).

Industrial facilities of this sort provide necessary inputs for the armed forces. Alternatively, during peacetime this military-productive base may produce civilian goods for households or firms, while being available to switch to armaments production in the event of mobilization.

During the 1930s, Stalin’s government maintained enormous peacetime spare capacity in its armaments sector. This exchange was recorded at a meeting of officials in the Heavy Industry Commission.

M.M. KAGANOVICH: You have 500 or 600 machine tools tied up with wire.

I.I. PAVLUNOVSKII: It’s not my fault that there is no war. (Laughter). It is better that these machine tools remain tied up. They are mobilization resources, special equipment, and we must base our current estimates on equipment which is actually working.

Factories and equipment did not merely lay idle, but were also used to produce civilian goods. The historian R.W. Davies records:

[A] document about the planned new artillery and ammunition factories proposed that the artillery factories should manufacture refrigerators, compressors, and road construction equipment, shell factories should make machine tools and ball bearings, explosives factories should make bicycles, gramophones, and metal goods, and gunpowder factories should make plastics and artificial leather.

Including this heavy-industrial base, during the Second World War the war economy of the belligerent states directly and indirectly mobilized up to a half of each society’s total workforce.

Harrison - workforce mobilization in WW2

This demanded enormous fiscal outlays: military expenditure absorbed between 50% and 75% of gross output in Germany, Britain and the Soviet Union.

Government borrowing on this unprecedented scale had been made possible by institutional changes during the previous few decades, which had stabilized government finances while improving credit.

In particular the establishment of central banks and collapse of the gold standard allowed liquid markets for state liabilities to develop.

Liberty bonds

Indeed, most Great Powers had already undertaken such changes, which allowed them to appropriate a huge share of economic output, in time for the Great War.

WW1 government spending in national income - Broadberry and Harrison

The United States, something of an imperial laggard, had more than rectified this lack by the 1940s.

In Stalin’s Soviet Union, where the amount of state procurement was decided in physical terms by the planning bureaucracy and then balanced via a turnover tax, military spending rose from 2% of national output in 1928 to 6% in 1937 and 15% in 1940, roughly the same proportion as in Hitler’s Germany.

Harrison - resource mobilization in world wars

Recall that the level and direction of military spending tells us how labour and other resources are distributed, by whatever means, between different sectors and branches of industry. Resources deployed for military purposes thereby become unavailable for alternative uses.

Diverting resources away from these alternatives uses may, as Adam Smith pointed out, be self-defeating for security purposes. A growing military depends on productivity improvements in other sectors (so that resources are freed up for unproductive use on warfare), yet in return technical improvements in the military sector exercise no such beneficial effect on other industries (I’m referring here to final output rather than intermediate products such as engines).

If, due to some technical innovation, farming grows more efficient then food and livestock become cheaper and more peasants, freed from the land, are available to send to the armed front, and once there will be provisioned at lower cost. But if some invention makes cruise missiles cheaper to produce there is no flow-on to make any production process in future periods cheaper. The state can simply afford more of them. A cruise missile, being purely destructive, is like a luxury good in that it doesn’t enter into the production of other goods, either directly or indirectly.


By 1950 Soviet military spending had declined to 9% of national output. But it spiked again with the Korean War and would subsequently yo-yo obediently over the next 40 years in response to each geopolitical exigency, arms race or change of mood in Washington.

Thus from the early 1970s Brezhnev’s Kremlin dramatically increased the level of R&D devoted to military ends. This, which diverted technical employees (engineers and scientists) away from the civilian economy, helped lead to slower productivity growth in the productive core of the economy.

Coal, oil and steel  the foundation of the Soviet productive base  performed calamitously from 1975 as existing low-cost reserves were depleted and, with technical progress stalled, no adequate replacements found (e.g. the resort to low-quality lignite). The oil price collapse of 1986 would strand hunks of high-cost infrastructure: ageing fields, pipelines and railways littered across West Siberia from Kazakhstan to the Arctic Ocean.

The CIA concluded that by the early 1980s military spending as a proportion of Soviet GDP was around 16%, one-third above its level in the 1960s, and made up one-third of total budget outlays.

A series of RAND Corporation reports claimed that Soviet military clients enjoyed preferential input supply and other priorities that were impeding productivity growth in the civilian economy:

The military R&D sector benefits from a high-powered priority system that overrides the planning network. It receives ample resources and facilities; it has first claim on supplies, specially produced items, and scarce resources. Finally, there are no spillover effects to the civilian economy. This disadvantage stems from secrecy, the need to limit new materials and components, and lack of funds to diffuse the achievements of military R&D.

High-voltage power transmission and oil pipelines from Siberia and Kazakhstan to the country’s west, improved exploration and drilling technology and other projects necessary to maintain and upgrade the Soviet industrial base (and with it the armaments sector) were neglected.

With a falling share of net investment in the plans of the 1970s and 1980s, the immediate needs of the armed forces and those of expanding the country’s productive capacity had entered into sharp conflict.

Robert Allen - Soviet productivity growth by industry 1965-1985

Robert Allen - Soviet TFP 1928-1989

Worse was soon to come after the Kremlin bureaucracy, sensing its moment, opted to restore the old regime.

From 1991, rundown and destruction of the former Soviet Union’s capital stock had the useful result (for Washington) of shrivelling Moscow’s industrial base for military activities.

Absolute deindustrialization would be prolonged and severe. Under Yeltsin, and with technical assistance provided by the US Treasury and Harvard Boys, Russian fixed investment fell by 40% in a single year, reaching an abysmal 12% of GDP in 1999.

With its factories, capital equipment and infrastructure depreciated or sold for scrap, with local savings plundered and assets filched abroad, the Russian state would not rejoin the world market as a peer competitor, but only as supplicant.

Anointed on a glad-handing visit to Washington, and eager to please, a supine Yeltsin agreed to reduce military spending by 15% in a single year.


Since the ‘recovery’ engendered by the oil-price takeoff after 2001, productive investment has remained feeble, barely reaching levels necessary to cover physical depreciation.

A speculative inflow of liquidity from 2004 channelled funds into Russia’s financial system, prompting appreciation of the ruble and an asset-price bubble in local stocks and real estate.

These financed a consumption splurge as foreign goods became cheaper and borrowing more affordable (credit grew by 36% in 2006-2007). But the high exchange rate made non-oil exports uncompetitive and further hollowed out the industrial base. The crash in 2008 saw GDP fall by 8 percent, amid a chain of bankruptcies and defaults.

Today Russia’s surplus product is dissipated on baubles and kitsch displays, embodied in luxury consumption goods imported from abroad for its rentier class. Under Putin, the latter have grown plump but the territory’s productive capacity wanes.

The surviving stock of capital equipment and buildings is disproportionately old, low quality and economically unviable.

Yeltsin’s procurement cutbacks during the 1990s have meant that Russian military equipment is older still: successive Chechen campaigns revealed heritage trucks, helicopters, weapons and armour to be scarcely operable. The Georgian performance in 2008 provided little reassurance.

Though oil revenues have recently allowed Moscow to commence a modernization drive in military hardware, two decades of atrophy have taken their strategic toll. Force disposition reflects straitened circumstances.

Russian military capability 2013

Local conditions were thereby prepared for NATO’s strategic encroachment on the ex-Soviet space (‘From containment to enlargement’, in the words of Clinton’s National Security Advisor).

Since 1991, the latter has involved territorial dismemberment of the collapsed state across its southern and western perimeters, followed swiftly by NATO’s absorption of ex-Soviet Baltic states.

Poland, Lithuania, Latvia, Estonia and Ukraine now provide a cordon sanitaire between Russia and Germany, while extension of NATO’s security alliance to include Romania, Bulgaria and perhaps (long touted) Ukraine allows US domination of the Black Sea and Caspian basin, and thus of the Caucasus and Central Asia.

Moscow’s capacity for naval power projection into the Baltic and Mediterranean, and overland links to the Persian Gulf via the Caucasus and Caspian Basin, have been abruptly diminished.

The extent of the ‘peace dividend’ won by Washington was bluntly spelt out by Brzezinski in The Grand Chessboard (1997):

The collapse of the Soviet Union produced a dramatic historical reversal. In the course of merely a few weeks in December 1991, Russia’s Asian space suddenly shrank by about 20 percent, and the population Russia controlled in Asia was cut from 75 million to about 30 million. In addition, another 18 million residents in the Caucasus were also detached from Russia. Making these reversals even more painful to the Russian political elite was the awareness that the economic potential of these areas was now being targeted by foreign interests with the financial means to invest in, develop, and exploit resources that until very recently were accessible to Russia alone.


The collapse of the Soviet Union produced monumental geopolitical confusion. In the course of a mere fortnight, the Russian people  who, generally speaking, were even less forewarned than the outside world of the Soviet Union’s approaching disintegration  suddenly discovered that they [sic] were no longer the masters of a transcontinental empire but that the frontiers of Russia had been rolled back to where they had been in the Caucasus in the early 1800s, in Central Asia in the mid-1800s, and much more dramatically and painfully  in the West in approximately 1600, soon after the reign of Ivan the Terrible.


In brief, Russia, until recently the forger of a great territorial empire and the leader of an ideological bloc of satellite states extending into the very heart of Europe and at one point to the South China Sea, had become a troubled national state, without easy geographic access to the outside world and potentially vulnerable to debilitating conflicts with its neighbours on its western, southern, and eastern flanks. Only the uninhabitable and inaccessible northern spaces, almost permanently frozen, seemed geopolitically secure.

Brzezinski former Soviet Union

At this turn of events, Brzezinski, like Clinton, felt the Kremlin’s pain:

Most painful of all, Russia’s international status was significantly degraded, with one of the world’s two superpowers now viewed by many as little more than a Third World regional power, though still possessing a significant but increasingly antiquated nuclear arsenal.

But the foreign-policy strategist must keep his head and focus on the prize:

The disintegration late in 1991 of the world’s territorially largest state created a “black hole” in the very center of Eurasia. It was as if the geopoliticians’ “heartland” had been suddenly yanked from the global map.

The collapse of the Russian Empire created a power void in the very heart of Eurasia….

For America, this new and perplexing geopolitical situation poses a crucial challenge… [The] long-range task remains: how to encourage Russia’s democratic transformation and economic recovery while avoiding the reemergence of a Eurasian empire that could obstruct the American geostrategic goal of shaping a larger Euro-Atlantic system to which Russia can then be stably and safely related.

In this project of permanently subjugating an enfeebled Moscow, and reducing its territorial influence to a narrow rump, one (Ruthenian) treasure held particular value:

Ukraine, a new and important space on the Eurasian chessboard, is a geopolitical pivot because its very existence as an independent country helps to transform Russia. Without Ukraine, Russia ceases to be a Eurasian empire. Russia without Ukraine can strive for imperial status, but it would then become a predominantly Asian imperial state, more likely to be drawn into debilitating conflicts with aroused Central Asians… However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as its access to the Black Sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia. Ukraine’s loss of independence would have immediate consequences for Central Europe, transforming Poland into the geopolitical pivot on the eastern frontier of a united Europe.

The truth of the matter was crisply put: ‘Now a non-Eurasian power is preeminent in Eurasia — and America’s global primacy is directly dependent on how long and how effectively its preponderance on the Eurasian continent is sustained.’

This sober reckoning of respective forces supplies a bracing antidote to today’s Euro-American media consensus, the weight of the political class behind it, for which a ravening Muscovite bear again stalks Eurasia.

Brzezinski - NATO axis 2010

Whatever works

June 22, 2012

The latest piece of World Bank policy advice concerning land, issued in 2003, emphasizes the need for ‘tenure security, not necessarily formal title’. According to the World Bank, ‘sometimes communities are perfectly capable of handling the situation, by continuing to enforce and adapt the traditional rules governing property rights’.

In other words, the task of enforcing private-property rights need not be left to the centralized coercive power of the state (e.g. the registration of title deeds with government agencies, or their recognition in statute or common law). It can be performed, in decentralized fashion, by ‘traditional’ sources of authority and with local instruments of sanction:

It is now widely realized that the almost exclusive focus on formal title in the 1975 paper [by the World Bank on land reform] was inappropriate… In customary systems, legal recognition of existing rights and institutions, subject to minimum conditions, is generally more effective than premature attempts at establishing formalized structures.

Moreover, the appropriate ‘subject of right’ isn’t necessarily the individual. In some circumstances, says the World Bank, it may be wise to assign ownership of tracts of land to a clan, lineage, local community or ethnoregional group, incorporated as a legal person. There are ‘many contexts where group rights will be more feasible and cost-effective than individual assignment of property rights’:

Group rights will be more appropriate in situations characterized by economies of scale in resource management or if externalities exist that can be managed at the level of the group but not the individual. Group ownership is also often adopted in situations where risk is high and markets for insurance are imperfect or where the resource in question is abundant and the payoff from any land-related investment that individuals could undertake on their own is low.

Private-property rights are now justified by their role in protecting the rights of indigenous groups and women:

[For] indigenous groups, herders, and marginal agriculturalists, definition of property rights at the level of the group, together with a process for adjusting the property rights system to changed circumstances where needed, can help to significantly reduce the danger of encroachment by outsiders while ensuring sufficient security to individuals…

[Ensuring] secure land tenure will be of particular relevance for groups that were traditionally discriminated against. In addition to being warranted based on basic considerations of equity, attention to women’s land rights will have far-reaching economic consequences where women are the main cultivators, where out-migration is high, where control of productive activities is differentiated by gender, or where high levels of adult mortality and unclear inheritance regulations could undermine women’s livelihood in case of their husbands’ death…

Greater control of assets by women often translates into higher levels of spending on children’s education, health, and food. Similarly, even though the significance of land for indigenous peoples and herders goes beyond economics, even its economic impact has often been underestimated. Transferring property rights to indigenous communities, especially if combined with technical assistance, can allow them to manage these better or to derive greater benefits from the resources associated with their land.

This is fairly representative of the current outlook of national governments undertaking land reform in ‘less-developed’ countries, and that of ‘development’ circles (NGOs like Landesa, government agencies like USAID and DFID, and international bodies like the World Bank and the UN’s Food and Agriculture Organization), which bestow policy advice and donor funds on the former.

Since the 1980s, these parties have come increasingly to favour arrangements in which private-property rights to tracts of land are assigned (nominally) to groups or collective entities, and enforced by ‘customary’ sources of juridical-political authority.

This is evident in the substance and lexicon of recent laws and in planning documents on tenure reform. (It’s also apparent in the scholarly ascendancy of ‘common property’ advocates of natural resource management. a prominence only increasing since Elinor Ostrom was awarded the Swedish Riksbank’s ‘Nobel’ prize).

Development agencies like USAID and AUSAID run permanent and ad-hoc property-rights and tenure-reform programs. These programs encourage, promote and fund the extension of what they term ‘secure and well-defined’ private property rights to agrarian land and waters. But these organizations adjust, based on country-specific circumstances, what USAID terms ‘new programmatic approaches to foster property rights around the world… [adopting] new strategies and sequencing in reforms to promote property rights in diverse economic, political, and cultural settings.’ In other words, while the goal is the same in each case, the means of pursuing it will vary depending on local factors.

Respect for ‘customary rights’, ‘legal pluralism’, and the ’empowerment’ of ‘local communities’ has thus found favour, as a means by which to establish exclusive and indefeasible rights to land and other resources.

Policies are given names like ‘community-driven development’ and gestion de terroirs. Following examples of endowing ‘tribal’ property in the Philippines, Cambodia and Botswana, recent land reforms in countries like Mozambique, Benin, Niger and Rwanda have included provisions recognizing the ownership claims of ethnoregional groups. Administrative powers are wielded either by ‘traditional leaders’ – village chiefs, lineage heads – or by directors of incorporated entities or trusts. Timor-Leste, which in February passed several new laws on land tenure, was advised by USAID and Australian academics to follow those recent examples.

‘Customary’ group property has generally been invoked in arid and infertile parts of the world, in humid tropical conditions, and in remote or economically marginal regions like the Sahel, sub-Saharan Africa and the South West Pacific. These areas are occupied by small farmers, ‘garden’ cultivators, livestock herders and foragers. As the World Bank observes, population densities are usually low enough, in such settings, that land is a relatively plentiful resource, and ‘the payoff from any land-related investment that individuals could undertake on their own is low.’ In such circumstances agrarian land and other resources is usually not subject, initially, to exclusive private ownership. Hunting, pastoral or cultivated land may be organized as an open-access resource, common property or small individual plots (in many cases, post-colonial governments brought most of the land into public hands). Whatever the precise arrangement, in such societies usufruct or access rights are generally not exclusive (i.e. outsiders or non-owners are not prevented from using the resource or subtracting units, e.g. water).

In these societies, the enclosure of agrarian land has proceeded via the assignment, to an ethnoregional group or other collective entity, of property rights to these assets and resources. For this purpose the pragmatic acknowledgement of ethnically-based group property isn’t new: a recent post described how British colonial administrators recognized the communal property rights in land of ethnic Fijian clans as long ago as the 1880s.

The economic historian Robert C. Allen has described how it worked, around the same time, in colonial British West Africa:

Communal ownership usually became a custom, so people could acquire farm land only by being members of a tribe – and at the discretion of the chief, to whom they were subservient… The new-style chiefs became the foremen of empire, levying taxes, compelling labour, and using their powers to amass personal fortunes. Colonialism created a system of rent-seeking petty despots to rule the countryside.

Thus the evolution of World Bank thinking in the three decades from 1975: ‘customary land tenure’, having formerly been marked for eradication, is now considered a suitable tool by which (or under which aegis) to impose private ownership rights in places where they currently are absent: among ‘indigenous groups, herders, and marginal agriculturalists’.

This shift in official ideology is a manoeuvre repeated by the envoys of imperialism, again and again over the past 500 years, whenever they have encountered and sought, on behalf of capitalism, to engulf and destroy a foraging, herding or horticultural society.

In the first place it is loudly announced that these societies have none of the features necessary for ‘development’, and must be remade immediately; before it is declared that hold on! we may have something useful here, after all. In no case has the second step signalled the dawning of enlightenment, a progressive recognition of some hitherto ignored truth about colonized societies. The change in official ideology, like that today of the World Bank or USAID, was in every case a calculated and instrumental espousal of whatever theory, given the circumstances, was likely to advance strategic objectives: a turn to ‘new strategies and sequencing in reforms to promote property rights in diverse economic, political, and cultural settings.’

Colonists and their successors evaluated these societies using categories familiar to their own. In the first stage, this was to find ‘savage’ and ‘barbarian’ peoples lacking: they didn’t know how to farm, dress properly, or treat their women, etc., in ways that ‘civilized’ peoples did. When such a society was conquered or settled by forces (states, organizations, etc.) bringing with them the novel institutions of capitalism, its defeated members were constrained (by the coercive power of the victors) to adopt new cultures, property rights and other forms of economic governance, child-rearing practices, schooling and constitutions. Australia and Hawaii can stand as examples of these practices, and of the devastation they unleashed.

Eventually, in the second stage, local societies (or rather the wasted wreckages of them that remained) were discovered to possess, after all, some familiar and characteristic attributes: ‘customs’ and ‘traditions’ that resembled, however imperfectly, the laws and institutions of an advanced society. In Australia, anthropologists, historians, novelists, politicians, missionaries, lawyers and civil servants gradually detected in Aboriginal societies all the common paraphernalia that Talcott Parsons suggested were evolutionary universals: monarchs, territorial possession, social stratification, incipient markets. Ethnographers claimed to recognize the existence of tribal ‘kings’ and ‘chiefs’. Others, as recently detailed by Ian Keen at ANU, detected the presence of ’estates’ of land to which ‘tribes’ held property rights.

Which of the two attitudes predominated at a given time depended on which was most propitious for the needs of imperialism.

(This functional relationship worked either through the deliberate tailoring of ideas to suit ruling needs, or through a kind of selection process: ideas that contributed to the successful flourishing of imperialism were fostered, rewarded and differentially transmitted throughout society by funding, the granting of advisory and consultative roles, recognition as an ‘authority’, inculcation through media and schools, etc., whilst those deemed unhelpful were thwarted, penalized and ignored.)

Thus, when the Australian state leadership made a bipartisan decision to grant limited property rights and administrative authority to Indigenous trustees, it also called forth and promoted theories favourable to the policy’s implementation. In its ruthless pragmatism it preceded the World Bank by several decades.

W.E.H. Stanner was the anthropologist appointed by Prime Minister Harold Holt to the Council of Aboriginal Affairs. His name is inevitably invoked (inviting cheers or boos) in public discussions about the origin of Indigenous land-rights policy. Stanner defended the horde model of Radcliffe-Brown, in which a clan or totemic descent group was considered to possess its own territorial ‘estate’ and foraging ‘range’, and ‘acts of trespass’ on the proprietary lands of another group could be punished by death. (Of this theory Marc Gumbert noted: ‘there was an homology between the economic and political background of colonialism, and its ideology which crystallized in the Radcliffe-Brown horde’.)

In a 1978 book, Kulinma: Listening to Aboriginal Australians, the high-level civil servant H.C. Coombs could assert that the opposition of Aboriginal people to environmental despoliation by mining companies was based on a prohibition, within ‘traditional cultures’, of ’infringement of property rights’.

The historian Henry Reynolds, quoting the diaries of G.A. Robinson, could reveal the existence of ‘exclusive possession of territory’, as well as ‘patriotism’ and martial spirit, in Aboriginal and Torres Strait Islander societies.

To untrained but hopeful and well-meaning ears, the recognition of Indigenous ‘customary rights and interests’ by the Australian state leadership over the past four decades, as with the recent policy advice from the World Bank on land reform, may seem vaguely ‘progressive.’ Each promises to assist ‘groups that were traditionally discriminated against.’

Group-based ownership rights hold obvious appeal to such terribly oppressed groups as the San, some of whose members now seek recognition as the First People of the Kalahari. (A royalty-sharing agreement was famously struck following an intellectual-property dispute with a pharmaceuticals firm over an anti-obesity product derived from a desert cactus.)

The pursuit of ethnically-based property rights finds ready adherents amongst the desperate mass of asset-free people, as well as amongst elite figures, who hope thereby to gain social status, decision-making authority and income streams.

But the appearance of progress is illusory. The recognition of ‘customary rights’ and the candidly racist contempt of the past are obverse sides of the same Janus-faced beast. Imperialism is driven by necessity to extend private ownership and capitalist property relations into every available domain, and compelled to overrun and devour whatever gets in its way. The adoption of ‘new programmatic approaches to foster property rights’ is the behaviour of an insatiable predator, remorselessly circling its quarry in search of the latter’s most vulnerable point.

From whichever direction the attack proceeds, the consequences are the same. For a forager or herding society, whose members are dependent for survival on access to unowned things, the enforcement of private claims on resources, however it occurs, has a genocidal logic. On these societies imperialism imposes a new principle, to which it brooks no objection and admits no query: personal entitlements with regard to worldly things (e.g. natural resources) – including the power to use such material resources or facilities to satisfy basic needs, undertake sustenance-drawing activities or secure personal livelihood – are conferred only by virtue of holding property rights in the resource, or from the consent or authority granted by owners. Unless an individual holds personal property rights, is a joint owner through membership of a group or entity that holds communal property rights, or receives permission from such an owner, he has no claim at all over the owned resources: they are unavailable to him.

Since, everywhere, the distribution of productive assets is drastically unequal, only a tiny number of owners benefit from the enforcement of property rights. ‘Customary rights’ and related concepts usefully invoke national distinctions and ethnoregional parochialism to persuade the remaining people – to whom private ownership will mean at best a sharp decrement in welfare – that their salvation too rests in the latter’s embrace.

Help yourself

March 3, 2011

The original theorist of commercial society, Adam Smith was moved to dismiss, avant la lettre, the idea of ‘social business,’ i.e. a competitive firm striving consciously to meet some social objective:

I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

Well, don’t look now, for ‘social business’, whatever its practical fortunes, is today a booming concept.

It’s increasingly popular among a particular social layer that combines a preference for liberal-progressive political stances with an attachment to professional success.

Its would-be practitioners are styled as ‘social entrepreneurs‘.

Their marketing language and imagery is calculated to appeal to the sensibilities of left-liberal ideology, which (1) understands political, economic and social questions as primarily matters of morality; (2) replaces class divisions, in Third-worldist fashion, with divisions between nations or races.

Since 2009, a bunch of local newspapers, magazines and blogs, each of them aimed at a youthful audience with liberal-progressive politics and “lifestyle” concerns, has taken turns promising the imminent launch of a Melbourne bar.

Why all the attention? Shebeen is a social business, the project of a social entrepreneur named Simon Griffiths:

The bar, Shebeen, will sell beers and wines from developing countries around the globe, with $2 from the purchase of each beverage sent back to a specific development project in that country. Beer bottles and wine glasses at the investment fund launch carried swing tags with typed messages, such as: “What if drinking this beer could enable an Ethiopian to start a business by buying a food cart to sell produce on the street?” or “What if drinking this wine you could train and empower a Child Safety Officer who cares for kids that have been tortured and raped in KwaZulu Natal, South Africa?”

“Our personal mandate is that we support projects that allow individuals to participate in the economy where they wouldn’t otherwise be able to,” says Griffiths.

“It’s about creating market participation, whether that’s microfinance or vocational training. That is the best way to create sustainable outcomes giving individuals the ability and economic incentives to help themselves.”

But Griffiths doesn’t necessarily want patrons to be pondering these global concerns when they’re drinking at Shebeen.

“The bar itself is first and foremost a first-class hospitality experience, and then it does all this great stuff as a secondary element,” he says.

“We’re not about guilt-motivated purchases. It’s about, ‘Wow, this is a kick ass space, I want to go there’.

“We are moving away from the Oxfam tin-rattling approach to retail to a space where we create high-quality products and services and make them non-profit.”


“The return on investment isn’t just social return, the investors will be at the forefront of the global philanthropic revolution which Shebeen is helping to create,” Griffiths says.

“They’ll be turning everyday consumers into philanthropists and giving charities access to the trillions of dollars that change hands every year in the economy.”

Despite the media profile  secured with the assistance of various ‘bar impresarios’, designers and publicists  Shebeen is yet to commence operations. Its Social Investment Fund is still seeking start-up money.

Griffiths, meanwhile, is studying at Melbourne’s School for Social Entrepreneurs.

Kinfolk café, in the west of Melbourne’s CBD, presents itself as ‘an avenue for city-goers to seamlessly integrate ethical consumption into their daily purchasing.’ Its co-founder  the son of World Vision Australia CEO Tim Costello  describes the present as ‘an exciting time because Generation Y members and youth out of unis are seeing social business as an opportunity to integrate their business skills with their social vision.’

So what is a social business?

Conceptually, it combines features of both traditional capitalist firms and charity organizations, while being distinct from both.

A charity does not cover its operating costs with commercial revenue. Losses are covered by external funding supplied on concessional or subsidized terms. To meet outlays it relies largely on donations from governments, firms and private citizens. This dependence on transfers from business and state accounts for the loyal, un-subversive political stance of most charities, and for the bloated administrative bureaucracies that the largest organizations support.

Social businesses, on the other hand, are supposed to be commercially viable, self-sustaining units that meet costs out of revenue from sale of goods or services on the market. The firm’s surplus is directed to meeting some social objective of whatever sort, rather than paying capital income (i.e. a stream of dividends) to its owners. The socially-beneficial aspect thus depends on production of marketable goods or services.

The theory, such as it is, of social business comes from the Bangladeshi economist Muhammad Yunus. Yunus received the 2006 Nobel Peace Prize for his development of microfinance and microcredit: the provision of low-interest, unsecured loans or seed capital for “entrepreneurs” in underdeveloped countries.

Microfinance is advocated by popular figures such as Bono as a tool for development and a path out of poverty, especially for women.

In reality, the promotion of entrepreneurship and private initiative merely swells the ranks of  ‘self-employed’ petty producers that already fill the favelas and slums of South Asia, Latin America and other less-developed parts of the world economy. Non-market forms of subsistence, and residual ties of collective solidarity, are weakened in the process.

The credit providers, as ever, grow fat on usury. (This week Yunus, the self-described ‘Banker to the Poor’, was removed from his position as the head of Grameen Bank, with which he shared the Nobel Prize. He is being investigated for siphoning funds.)

In 2007 Yunus co-wrote Creating a World Without Poverty: Social Business and the Future of Capitalism.

In this book, Yunus and his co-author described the supposedly untapped potential of business to advance social welfare:

Capitalism is a half-developed structure. Capitalism takes a narrow view of human nature, assuming that people are one-dimensional beings concerned only with the pursuit of maximum profit…

To make the structure of capitalism complete, we need to introduce another kind of business  one that recognizes the multi-dimensional nature of human beings. If we describe our existing companies as profit-maximizing businesses (PMBs), the new kind of business might be called social business. Entrepreneurs will set up social businesses not to achieve limited personal gain, but to pursue specific social goals…

Profitability is important to a social business. Whenever possible, without compromising the social objective, a social business should make a profit for two reasons: first, to pay back its investors, and second to support the pursuit of long-term social goals. Like a traditional PMB, a social business needs to have a long-term road map. Generating a surplus enables the social business to expand its horizons in many ways…

Once a social-objective-driven project overcomes the gravitational force of financial dependence, it is ready for space flight. Such a project is self-sustaining and enjoys the potential for almost unlimited growth and expansion. And as the social business grows, so do the benefits it provides to society.

This is very different from Adam Smith’s account, in The Wealth of Nation, of how the market’s invisible hand allows self-interested behaviour by profit-maximizing capitalist firms to meet broader social objectives:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest… Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage, naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society…

[By] directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Smith’s description of cold-hearted calculation does not flatter the self-image of the younger and more liberal representatives of the propertied classes. Many seek the feel-good glow of social benevolence.

Nor, to their credit, do some of them recognize the real world in Smith’s account of the aggregate social welfare benefits of purely self-regarding, profit-maximizing behaviour, and the correspondence of private and public interests. What was good for General Motors may once have been good for America, but what’s good for De Beers clearly isn’t good for South Africa.

There evidently is a lot of deprivation going around, and some among the wealthy have generous impulses.

But the disagreement here doesn’t arise from contrasting views of human nature.

It’s not that Smith didn’t believe in the moral sentiments. Rather Smith’s insight, as expressed in the metaphor of the invisible hand, was that the market shunts the efforts of individual proprietors in directions different, for good or ill, to that which they originally intended.

The observed failure of capitalist firms to advance social welfare thus does not arise from the one-dimensional focus of individual managers and owners on profit, i.e. their greed or selfishness. The latter is a structural constraint imposed on them by the market and the firm itself. This limit remains in place whatever the moral character, degree of avarice or religious preferences of their owner.

As explained by Milton Friedman, firms must either maximize profits or die.

Thus a social business, just like any ordinary business, will find its contribution to social welfare limited by the revenue earned from its activities. It consequently will be obliged to pay due consideration to cutting costs, setting mark-up prices, improving productivity and other typical behaviour of capitalist enterprises.

Therefore the effectiveness or advantage of a social business compared to a regular firm in advancing social welfare is unclear.

If a profit can be made by meeting some social need, why should a regular capitalist firm not already fill that market niche? If, however, an ordinary firm cannot meet its costs in a given area, a social business will not be able to survive either.

Perhaps, instead, activity by the social business is used to cross-subsidize some other unprofitable activity, as in the declared plan for Shebeen. But this merely internalizes, within a single firm, the funding model of charitable organizations, with all the weakness described below by Yunus. In his example, a surplus product extracted elsewhere  the profits of private companies, the tax revenue of governments, or the savings of private individuals  is transferred to the charity. In the putative social business, this transfer occurs between the branches of the firm. But this means the activity of a social business could be performed just as well, or as poorly, by any ordinary charity.

Yunus explains that charitable organizations are inherently constrained by their funding model:

The persistence and even worsening of global poverty, endemic disease, homelessness, famine and pollution are sufficient evidence that charity by itself cannot do the job. Charity too has a significant built-in weakness: it relies on a steady stream of donations by generous individuals, organizations or government agencies. When these funds fall short, the good work stops…

[In] hard times, when the needs of the unfortunate are greatest, giving slows down. Charity is a form of trickle-down economics; if the trickle stops, so does help for the needy…

As a result [i.e. because that donation stream is unreliable], there is a built-in ceiling to the reach and effectiveness of nonprofit organizations…

No wonder they don’t make much progress in their battles against social problems.

But the social business, too, faces the same constraint.

This presumably is why Shebeen, during these tough times, can’t find startup investment. Should it ever do so, its non-cost-covering activities will still require some horizontal ‘trickle’ of surplus revenue from its sales.

So it is clear that, for all their proclaimed novelty, social businesses offer little new. They repackage and re-brand already-existing forms of business and charity operations.

So why all the excited talk of their novelty?

Well, they do perform some useful practical functions. Firstly, they bring yet another domain of social life  that which Smith called the moral sentiments  under the direct sway of market exchange.

That which previously involved bureaucratically-administered transfers of material goods, services or funds between donors, taxpayers, charities, governments and impoverished people will henceforth become a circuit of production and commercial exchange, lending and indebtedness.  The donor is to be replaced by the ‘ethical consumer.’

This, in turns, allows people to express disapproval of the existing state of things (poverty, inequality, underdevelopment, etc.) without disrupting the current economic-political order as a whole. In fact, like much of the liberal-progressive worldview, it channels popular discontent into behaviour that supports the survival of those features that are so abhorred.

Take, for example, the problems of ‘third-world’ underdevelopment and poverty.

The increase in agricultural yields since the Green Revolution, the consolidation of smallholdings, the importing of staple foodstuffs, and the focus on cash crops for exports, continues to drive peasants into the megacities of Lagos, Delhi, Lima, Dhaka, Jakarta, Karachi, Mexico City, Kinshasa, Tehran, Mumbai, etc.

In decades and centuries past, mechanization of agriculture similarly propelled rural populations into Manchester, Detroit and Chicago. In these earlier circumstances, as in the Shanghai and Pearl River Delta of today, there was abundant paid employment to absorb those displaced from the countryside. Urbanization went together with industrial growth.

But in most of the rapidly growing cities of today’s world, there is little formal employment to meet the growing pools of available labour. Tens of millions of urban dwellers are forced to eke out livings, in slums and shantytowns without sanitation and utility provision, as informal street vendors, care workers, etc.

The presence of these latent labour reserves then serves to drive down wages of those workers who do achieve formal employment. With wages so cheap, there is no incentive for labour-saving investment that might raise productivity and thus improve the living standards of local populations.

Many of the most pressing social needs require huge fixed-capital outlays that, as such, produce low rates of return over long time horizons, during which period the investor cannot switch his funds elsewhere. Accordingly there is little chance of such projects ever taking place.

But these seemingly intractable problems do not inspire a serious critical examination of the economic order that produces them. In the theories of microfinance and social business, they are met instead with a fuzzy mix of consumerism, White Man’s Burden, Horatio Alger, and loanable funds theory.

For all their talk of ‘changemaking’, social entrepreneurs and their ethical customers do not pose any challenge to the existing social order. This ensures that the former can indulge their progressive inclinations without risking social standing or future income.

This need, in turn, explains the otherwise unaccountable reverence  among social entrepreneurs for the historical memory of William Wilberforce (expressed by Elliot Costello in the video above, and incessantly by former Young Australian of the Year, and founder of the Oaktree Foundation, Hugh Evans).

Wilberforce provides a model of supposed moral commitment coexisting with political influence and career success.

The MP for Yorkshire and ‘conscience’ of Parliament preserved the moral legitimacy of the British oligarchy during George III’s madness and the Regency, amid numerous threats to the established order.  He was a persecutor of Jacobins, advocate of the bloody suppression of the 1798 Irish rebellion, defender of the treason trials and repressive legislation introduced by his friend the Prime Minister William Pitt, and supported Britain’s occupation of Saint-Domingue (modern Haiti) following the slave revolt. During and after the Napoleonic Wars he supported the Gag Acts, quaked at the Spa Fields riots and repudiated the slave uprising in Barbados, advising ‘amelioration’ but not emancipation of slaves.

Today’s social entrepreneurs and activists would never think of nominating as their personal heroes Toussaint Louverture or Thomas Spence, contemporaries of Wilberforce, both of whom died in prison. Nor will they engage in any form of “activism” that sees them denied a job or leaves them unwelcome in fashionable society.

Social business, in fact, will add a nice touch to the CV.