[This post
is published with permission from the personal blog of SEC Senior Policy
Advisor Rick Bookstaber.]
The promises of reform at
Foxconn
are the latest of many as China painfully adjusts to the inevitable social
realignment that comes with a capitalist economy.
What is occurring in China now
happened in Europe during the transition from feudal to industrial society. That
transition is more germane than it might appear at first blush because over the
past two generations China has been emerging not from a Marxist, but from a
feudal state.
Indeed, if one were
to take Marx's view, China could only arrive at communism through capitalism,
and only arrive at capitalism through feudalism. For in Marx's view, as
Schumpeter writes, “it is essential for the logic of capitalism, and not only a
matter of fact, that it grew out of a feudal state of society”.
Marx's vision flows from feudalism through capitalism to a post-capitalist
society that can only arise once capitalism has run its course, after it has not
only provided the necessary social and economic foundation but also has become
unsustainable.
European feudal society was governed by what is
termed “extra-economic” means, namely by the power of culture to determine and
maintain rank, by the social contract between the serfs and the lords – a
contract that by its long custom became imbued with the power of law – and, of
course, by military might. Economic production was dictated – though obviously
in a much simpler economy than today – by the lords, who parceled land to
tenants. The serfs put up with their lot because of a small carrot and large
stick, a backstop for subsistence and the threat of force.
The uniformity of the feudal classes can be
overstated, (though Chinese society can be overstated in a similar way). There
was gradation in economic status among the serfs, and enough freedom for some to
engage in commercial capitalism and become relatively well off in their station.
And there were lords who, though landed and of superior rank, declined
economically to the point of life as paupers. There were also times of labor
shortages, such as shortly before the ravages of the Black Death in 1348, and of
course far more thereafter, when the lords bid for the loyalties of the serfs.
And in other times the serfs would threatened mass revolt or burn down
structures and fields if the relationship between serf and lord was not
respected. (Knights also could vacate oath of allegiance in the case of certain
defaults in the social contract).
Early
capitalist society spawned by the industrial revolution of the late
18
th and early 19
th century experienced many of the same
social phenomenon as we are now seeing in China. (Note: Although we use the term
“capitalist”, “industrial” may be a better term because
capitalism has been around in
one form or another since the 12
th century). In the early period of
the industrial revolution as in China today, overworked masses toiled
mindlessly in hazardous conditions for close to subsistence wages while a
politically connected bourgeois seized the reins of the capitalist plant. In
England it was largely due to the conscience of those within the political
system who recoiled at the human toll that pro-labor reforms and regulations
were forced upon the new capitalist class. In the case of China, although there
are protests and the simmering of revolt, the internal pressure is far less of a
factor than the conscience and economic force of the international
community.
If the
momentum from Foxconn carries
through, it will have effects beyond increases in prices and wages. If it
progresses along the lines of the West's transformation, it will also have an
effect on social and economic mobility. That change will alter Chinese society
from what some have argued is currently a different sort of capitalism from that
practiced in the West, but is really much like the loosening of the bounds of
feudal society that appeared in pre-industrial Europe. (Which was not such a
backwater; there was entrepreneurial commerce, power plants, specialization of
labor, large-scale mining and of course a well developed financial sector
supported by laws and accounting well before the industrial revolution took
off).
Mobility through the ages
There are a lot of metaphors thrown around for
economic and social mobility: Schumpeter compared the mobility of economic
classes to people shuffling around different quality accommodations in "a hotel
or an omnibus, always full, but always of different people". More common is moving up and down the
economic ladder, more novelistic, the Horatio Alger stories. Here I will use a
topographic metaphor.
Feudal
Economy.
The feudal society was a subsistence one for most
of the population. Even when the serfs were not at subsistence levels, they were
always a poor harvest away. The serfs had little opportunity to improve their
prospects. The contrast was great between the serfs and the feudal lords, who
lived substantially above subsistence, who could extract extra-economic rents
from the serfs, and who were protected by the legal rights and station of being
landholders.
In terms of mobility, the serfs inhabited the land
in the marshes of bare subsistence while in the distance, above impassible
cliffs sat the lords' manors. The stability (or stagnation) of this feudal
society was rooted in the fragility of life and fear of famine. In such an
environment the strict oversight of the lord could be justified, though no such
justification was necessary nor put forward. Still, serfdom was not slavery, and
the lords control was limited. The potential for famine also formed the basis of
restrictions on free trade and capitalist enterprise for the most basic of
commodities. These restrictions were not only justifiable out of concern about
the masses welfare, but also out of concern for the revolts that could be
precipitated by scarcity, especially if perceived as coming from mismanagement
or corruption. Because of this, the growing and marketing of grain was a
sociopolitical rather than economic endeavor.
Sales were consummated based not on a notion of
the best price, but rather the just price, which was often determined by the
Church. As early as the 12th century English law dealt harshly with free market
acts, especially for foodstuffs. Engrossing, (cornering the market by buying up
large quantities of goods and holding them off the market); forestalling,
(buying up goods before they reached the market, i.e. before they reached the
market stall); and regrating, (buying up goods in a market only to then resell
them in that market at a higher price), were all felonies. The farmer, whether
serf or tenant or yeoman, did not have unfettered ownership of his crop. He
could not store it, nor could he sell it to a distant market or to a
middleman. He sold it to the local market for the just price. And further up the
production chain the same held true. The miller and the baker were similarly
constrained to sell their product at the just price, and could not enrage in any
market activities that might distort that price.
In terms of China, this should ring a bell for
those with memories of the sixties.
Industrial Economy.
The feudal relationships loosened to allow more
economic and social mobility. A financial system developed to support the
merchants and international trade, and land that had been locked up by
primogeniture was freed to become the collateral for loans or to be sold to
finance new enterprises. With the industrial revolution came a degree of
production and efficiency in agriculture that lifted most people above
subsistence. In fact, having a large population above subsistence was an
essential condition for industrialization. No one could man the factories if
they were just scraping by on their plot of land. And, conveniently for the
labor needs of the factory system, the efficient methods of agriculture came
with the policy of enclosures, which brought the land into fewer and fewer
hands. It is ironic that one of the conditions for the oppression of labor at
the start of the industrial revolution was for them first to be freed from the
shackles of feudal subsistence.
But once early industrial society took root
through the early part of the industrial revolution, the landscape for the
serfs-turned-proletariat was not much different than it was for feudal society.
The factory workers still occupied a plain below the cliff, but now above that
cliff was the manor of the bourgeoisie rather than of the lords. Then, over
time, the industrial revolution gave way to increased economic and social
mobility, as well as more variation in income and ability to consume. The class
distinctions of serf and lord, and then of worker and capitalist began to blur
as the factory system gave rise to the company, and as the steam engine gave way
to the less centralized electric motor, allowing smaller units of production. It
also created more equality as uniform, mass produced goods were consumed across
society. As Mumford has pointed out, there is no difference between the light
bulb of the very rich and the very poor; more than any political system, it is
the industrial process that is a communist.
The cliff began to erode into a hill which most of
the population could ascend or descend. This is the world where there is an
expectation of one's children doing better, not just because the economy grows,
but because the slope is easily traversed. And it remains the world of today,
though the topography is beginning to shift again.
Post-industrial Economy.
The time is coming when we will meet ourselves
standing at the door, China's masses entering into the more socially conscious
industrial society that we came to with the "second" industrial revolution in
the late 19th century. And as that time comes we will then be heading out the
back, into a virtual society.
We are
seeing a world that is qualitatively different from the past. Many product that
we consume in our everyday lives were not in the realm of imagination even a
generation ago. We may not know what the virtual, post-industrial society will
become anymore than someone living during the first glimmers of the industrial
revolution could envision the world of today, it may be a world that is still
relegated to science fiction. But thinking back to the difference between the
feudal and the industrial, the long time of that transition and the dislocations
that lay in store for society, what we have seen in the last twenty years has
the same feel.
I have already
discussed
my view of the implications of this world for income distribution and for
economic mobility. In a nutshell, the more we move into caring about the
virtual, the more the hill will turn into a plain, at least for the large subset
of the population that is secure in the essential needs of life.
