Capitalism, socialism and uneven development

By Giovanni Arrighi, [22 October 2004]

My observations at the Workshop on “Africa: the Next Liberation Struggle” will focus on two related statements contained in papers pre-circulated by John Saul. The first is what Saul calls Adam Przeworski's “chilling utterance” to the effect that “Capitalism is irrational, socialism is unfeasible, in the real world— people starve … the conclusions we have reached are not encouraging ones” (Przeworski 1991:122; Saul 2003a: 2). And the second statement is the paradox that Saul has invited us to explore in the panel on “Socialism and Development.”

Capitalism as a global system is ever more ascendant, in the wake both of the collapse of the decadent “state socialism” of the Eastern bloc and the aggressive assertion of both its own inherent globalizing tendencies and the political actions of its main protagonist, the United States military machine. And yet the system continues to produce the grossest of inequalities and, for an increasing number, the direst of poverties. The situation might seem, therefore, to cry out more strongly than ever before for the intensified articulation of both a socialist political/economic practice and a socialist-inspired scholarship. The fact that this has not generally been the case, and the implications of that fact, defines one of the key subjects to be explored by this panel. (Saul 2003b)

In the first part of the paper I assess the validity of Przeworski's chilling utterance and Saul's claim that the system continues to produce the grossest of inequalities. In the second part of the paper, I turn to alternative interpretations of actual trends in world poverty and inequality and what they may imply for the future of Africa.

Absolute Poverty , Inequality and Uneven Development

The irrationality of capitalism usually refers to a fundamental reversal of the relationship between the accumulation of (economic) capital and the satisfaction of human needs. Under capitalism, the accumulation of capital in money form ceases to be a means to the end of satisfying human needs-as it had been in all previous social systems-to become an end in itself. Most economists find this accumulation of money capital for its own sake so incomprehensible that they refuse to contemplate it and prefer not to talk about capitalism at all. More sophisticated apologists of capitalism, such as Joseph Schumpeter, acknowledge the apparent irrationality of the reversal but justify it on the ground that, historically, it has resulted in a far greater satisfaction of human needs than any prior social system. Since Schumpeter's claim was also advanced by Karl Marx, socialist critics of capitalism (especially Marxist critics) have to contend with the difficulty of demonstrating that a more direct satisfaction of human needs (such as that advocated by socialists) would actually be more effective than their satisfaction as the unintended by-product of the accumulation of capital for its own sake. Indeed, the appeal and hence the feasibility of socialism as a substitute for capitalism depend on whether such a demonstration is at all credible. Thus, the sharp decline of the appeal/feasibility of socialism over the last 15-20 years has been the obverse side of a widespread perception that, for all its irrationality, capitalism can still satisfy human needs to a greater extent than socialist alternatives.

The question then arises of whether this perception has any factual foundation. In part, the question relates to Przeworski's claim that “in the real world people starve.” For this to have been the case, the incidence of absolute deprivation must have increased with the capitalist displacement of socialist alternatives. Whether absolute deprivation, as measured by “world poverty,” has increased or decreased over the last quarter century remains a highly controversial issue. The most powerful centers of “thinking for the world” on economic issues-first and foremost, the World Bank, the IMF, the US and UK Treasuries, backed by opinion-shaping media such as The Financial Times and The Economist-have championed the argument that not just the proportion but even the number of people worldwide living in absolute poverty have decreased substantially since 1980. In the words of the president of the World Bank, James Wolfensohn, “Over the past 20 years the number of peple living on less that $1 a day has fallen by 200 million, after rising steadily for 200 years” and “the proportion of people worldwide living in absolute poverty has dropped steadily in recent decades, from 29% in 1990 to a record low of 23% in 1998” (as quoted in Wade 2004: 571). After a thorough examination of these claims, Robert Wade concludes that the World Bank numbers “substantially underestimate the true numbers of the world's population living in absolute poverty, and make the trend look brighter.” But while it is hard to come up with reliable estimates of the absolute number of the world's population living in extreme poverty at different points in time, the increase of the world population over the past 20 years “is so large that the Bank's poverty numbers would have to be huge underestimates for the world poverty rate not to have fallen” (Wade 2004: 574; emphasis in the original).

It follows that in the aggregate (that is, for the world as a whole) the displacement of socialist-inspired by capitalist-inspired practices has not resulted in a dramatic increase in the incidence of extreme poverty. The absolute number may have increased but the relative number has probably decreased. A focus on absolute deprivation for the world as a whole thus provides no conclusive evidence either for or against the perceived superiority of capitalist-inspired practices in satisfying human needs.

The perception may nonetheless be based not on absolute but on relative deprivation. Relative deprivation refers to unequal distributions of life chances. World-historically, the theory and practice of national development, whether capitalist- or socialist-inspired, originated in a promise (of the new hegemonic power) and in an aspiration (of newly independent countries) to overcome the huge inequality among nations inherited from nineteenth- and early-twentieth-century capitalism and colonial imperialism. Whether socialist- or capitalist-inspired, in the Cold War era most developmental efforts failed in this respect, thereby creating a favorable political and cultural environment for the neo-liberal counterrevolution of the early 1980s (Arrighi 1991).

Relative deprivation, as measured by income and other kinds of world inequality, may increase even if absolute deprivation does not. In the passage quoted above, Saul claims that of late both kinds of deprivation have increased. As we have just seen, all we can say on the basis of the scanty and shaky data available is that over the last 20-25 years the incidence of absolute deprivation has certainly not increased in a dramatic way and may even have decreased. As for relative deprivation, the data are more abundant and reliable but the picture that emerges is far from univocal, with inequality rising in some directions and declining in others, and above all being characterized by extreme spatial unevenness.

Focusing first on different measures of inequality, the overall trends since 1980 can be summed up as follows.

1) Between-country income inequality measured at market exchange rates has increased more or less significantly depending on the particular indicator we use. Measurement at market exchange rates is particularly suitable to capture differences in wealth. In terms of wealth, therefore, relative deprivation has at best remained the same and at worst increased significantly (Wade 2004; Korzeniewicz and Moran 1997; 2000).

2) Between-country income inequality measured at purchasing power parity (PPP) has increased if we use equal country weights (China = Haiti) but it has been constant or falling if we weigh countries by population. Measurement at PPP captures differences in material well-being or welfare better than measurement at market exchange rates. In terms of welfare, therefore, relative deprivation has increased for the citizens of a large number of comparatively less populous poor countries but has probably decreased for the world population as a whole (Wade 2004; Firebaugh 1999; 2001).

3) Income inequality within countries has increased markedly, probably more than between-country inequality however measured (Firebaugh 2001; Goesling 2001; Galbraith 2002). We should nonetheless bear in mind that, in all likelihood, increasing income inequality within countries has been partly counterbalanced by increases in the upward/downward mobility of households and individuals. In the case of between-country inequality, in contrast, any such counterbalancing is likely to have been much less significant, because of the very limited upward/downward mobility of countries in the global hierarchy of wealth (Arrighi and Drangel 1986; Babones 2002; Arrighi, Silver and Brewer 2003). Indeed, such a mobility has been so low as to make the interstate hierarchy of wealth resemble a caste rather than a class system.

All the above observations refer to aggregate trends. Instructive as they are in cautioning us against attributing to the world as a whole tendencies inferred from local, national and world-regional experiences, they all miss what is probably the most important tendency of the global political economy over the past 25 years: the extreme spatial unevenness of the overall trends. For these trends are the expression not of uniform but of radically different world-regional experiences. More specifically, the overall trends are the result of two sharply divergent trends, namely, the economic collapse of Sub-Saharan Africa and Latin America in the 1980s and of the former Soviet Union in the 1990s on the one side, and of the rapid economic ascent of East Asia through the 1980s and 1990s (and to a lesser extent India in recent years) on the other. Take China, and to a lesser extent India, with their huge demographic weight out of the picture, and the overall trend turns into an unequivocal and sharp increase not just in relative but also in absolute deprivation worldwide. But if you take out of the picture Sub-Saharan Africa, Latin America, and the former USSR (the combined demographic weight of which, be it noted, is less than that of India and China combined), the overall trend turns into an equally unequivocal and sharp decrease not just in absolute but also in relative deprivation.

Put differently, what you see depends on where you stand. At a workshop on Sub-Saharan Africa it is essential to keep our feet well-grounded in, and our sights well focused on, the subcontinent's realities. But in order to understand those realities, and especially, in making inferences about capitalism, socialism, and development, it is just as essential to bear in mind the broader global context of which those realities are an integral component. I have provided elsewhere a provisional and tentative explanation of the dramatic bifurcation of the economic fortunes of Sub-Saharan Africa and East Asia since circa 1980. I argued that the bifurcation can be traced to the drastic change in US economic policies that occurred between 1979 and 1982 on the one side, and to the radically different pre-colonial, colonial, and post-colonial legacies of the two world regions on the other. I argued further that there was probably little that the African governments could have done to avoid the collapse of the 1980s, but that there was definitely something they could have done both to reduce the extent of the collapse and to improve the welfare of their populations despite the collapse (Arrighi 2002).

I will not repeat the argument here but I may bring it up at the workshop if the occasion arises. What I will do here by way of conclusion is to make some observations concerning the interpretation of the trends sketched in the previous section. I shall focus on the issue of whether and to what extent those trends justify the widespread perception that capitalism, in spite of its irrationality, continues to reduce both absolute and relative deprivation more effectively than socialist alternatives would.

Whose Golden Age?

As previously noted, the leading institutions of the capitalistic interpretation of the world have championed the view of a significant worldwide reduction of both absolute and relative deprivation. In addition, they have also championed the view that this reduction has been due to the adoption of the capitalist-friendly policies they have been advocating for the former Third and Second Worlds. This view flies in the face of the basic fact that, comparatively speaking, the three world regions that have experienced the greatest increase in both absolute and relative deprivation are also the regions that willy-nilly have been subjected more extensively or intensively to the structural adjustment or shock therapy advocated by the institutions in question. In light of this, asks James Galbraith,

Is this the golden age of capitalism, really? Or is it something closer to a golden age of reformed socialism in two places (China and India)-alongside an age of disasters for those who followed the prescriptions favored by The Economist? In truth, countries that followed the IMF-World Bank prescriptions to the letter-Argentina, say, or Russia in the early 1990s-have seen catastrophe worse in every way than the Great Depression of the 1930s was for us. (Galbraith 2004)

Ironically, socialists (especially radical socialists in the global North) have unwittingly facilitated the capitalistic appropriation of the Chinese success in reducing absolute and relative deprivation, by writing off economic reforms in the PRC as a straightforward transition to capitalism essentially indistinguishable from that occurring in the former USSR. The spread of capitalistic practices in the PRC has undoubtedly been rampant, and one of its main effects has been a rapid growth of income inequality within China-an inequality that is estimated to have become among the largest in the world (Riskin, Zhao and Li 2001). Closely related to this tendency, only a limited number of (predominantly coastal) provinces have contributed (and benefitted from) the reduction in global absolute and relative deprivation. By restraining the growth of the domestic market, increasing inequality within China reproduces the dependence of the Chinese economic expansion on the willingness and capacity of the United States and other wealthy countries to absorb ever increasing labor-intensive imports. More important, it is likely to engender social and political tensions that may jeopardize further growth and even wipe out whatever is left of China's socialist past (cf Perry and Selden 2000).

Granted this, the conflation of the PRC's economic reforms into a generalized tendency towards the restoration of capitalism conceals more than it reveals about ongoing transformations of the global political economy. It conceals, first of all, fundamental differences between the displacement of socialistic by capitalistic practices in the former USSR and in the PRC. In the former USSR, the displacement has been sudden and complete, both formally and substantively, resulting in a major increase in absolute and relative deprivation nationally and internationally. In the PRC, in contrast, the displacement has been gradual and partial, not just formally (the Communist Party still being in power) but substantively as well, resulting in an increase of relative deprivation nationally but in a major decrease of absolute and relative deprivation internationally. In key respects, and with one important difference, the PRC's economic reforms of the last twenty years resemble less the late twentieth century restoration of capitalism in the former USSR than the NEP experience, which Lenin initiated and Stalin eventually liquidated. The difference, of course, is in the national and international political-economic contexts in which the two market-oriented experiments were carried out. While both contexts were extremely unfavorable to the success of the NEP, they have thus far been quite favorable to the success of the PRC's reforms. In so far as China is concerned, Galbraith's claim that we are experiencing a golden age of reformed socialism rather than a golden age of capitalism is probably accurate.

Second, the conflation of the PRC's economic reforms into a generalized capitalist restoration misses the broader implications of the reforms' success for the global political economy. As Martin Wolf has claimed i n the first of a series of articles in The Financial Times, “ Asia's rise is the economic event of our age.”

Should it proceed as it has over the last few decades, it will bring the two centuries of global domination by Europe and, subsequently, its giant North American offshoot to an end. Japan was but the harbinger of an Asian future. The country has proved too small and inward-looking to transform the world. What follows it-China, above all-will prove neither.. Europe was the past, the US is the present and a China-dominated Asia the future of the global economy. That future seems bound to come. The big questions are how soon and how smoothly it does so. (Wolf 2003)

The Asian future envisaged by Wolf may not be as inevitable as he seems to imply. As I have just mentioned, the unevenness of the Chinese economic expansion does not augur well for its sustainability in the longer run. Nor does the lack of ecological responsibility that has characterized the expansion. True, the so-called “fourth generation” of PRC leaders, headed by Hu Jintao and Wen Jiaobao, has shown greater awareness than previous generations of the social and ecological problems of energy-intensive uneven development. While retaining ambitious economic growth targets, it has put a new emphasis on ecological responsibility and especially on balanced development between rural and urban areas, between regions, and between economy and society (Bradsher 2003; Kynge 2003; The Economist 2004). It nonetheless remains an open question what this new emphasis will amount to in terms of actual social reforms, and whether it will succeed in making continuing economic growth socially and ecologically sustainable.

Equally important, China cannot expect the world's most powerful states, first and foremost the United States, not to attempt to disrupt its continuing economic expansion. This at least is the conclusion (half prognosis and half prescription) of John Mearsheimer's The Tragedy of Great Power Politics-the most ambitious product of recent US international relations theorizing.

China is still far away from the point where it has enough [economic] power to make a run at regional hegemony. So it is not too late for the United States to… do what it can to slow the rise of China. In fact, the structural imperatives of the international system, which are powerful, will probably force the United States to abandon its policy of constructive engagement in the near future. Indeed, there are signs that the new Bush administration has taken the first steps in this direction. (2001: 402)

As it turns out, in response to 9/11 the Bush administration has moved in a quite different direction. By getting itself bogged down in the Iraqi quagmire, it was forced to deepen rather than abandon the constructive engagement of China. Better still for China, the self-inflicted troubles of the United States in West Asia have created conditions favorable to the re-emergence of Chinese economic and political centrality in East Asia (Arrighi forthcoming). It is possible that by the time the United States has disentangled itself from the Iraqi quagmire, Chinese centrality in the East Asian region (as well as US dependence on Chinese cheap credit and commodities) will be so consolidated as to bring to bear on the United States different kinds of “structural imperatives” than the ones envisaged by Mearsheimer. But it is also possible that the United States will in any case attempt to preserve its global dominance by disrupting Chinese economic growth.

It is hard to tell what the outcome of such an attempt would be. For our present purposes, however, two conclusions follow. First, we are in the midst of a world hegemonic transition to a yet unknown destination. If the past is any guide to the future, whatever the destination, the transition can be expected to last decades rather than years. Moreover, US resistance to adjustment and accommodation makes us suspect that the US war on Iraq might be just the beginning of decades of struggle and worldwide chaos (Arrighi and Silver 1999; Arrighi forthcoming). This is the most likely global context of whatever economic, political, and social development will unfold in Africa in the foreseeable future. Any discussion of Africa's future, therefore, must attempt to figure out what challenges and opportunities that context might create.

Second, Africa's “next liberation struggle,” if there is going to be one, cannot remain neutral as to the eventual outcome of the ongoing hegemonic transition. It is hard to imagine what a China- or Asian-centered global political economy might mean for the future of Africa. The only thing we can be confident about is that such a re-centering of the global political economy would mark the demise of an international hierarchy of wealth that, as previously noted, resembles more a caste than a class system. As one of the main victims of this “caste” system, Sub-Saharan Africa has little to lose from its demise. What remains an open question is whether African governments and movements will actually do what is in their power to ensure that the emerging system be more equitable and peaceful than its predecessors.

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