UAA Book Reviews on Nationalism and Capitalism

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    Ven Suresh
    Keymaster

    UAA book discussions are frequently interesting, so it’s too bad (for me) that they take place exclusively in live, face-to-face meetings in the DC area.

    But as the UAA website says it provides the “Forum” page for discussion of the things it publishes, I’ll take advantage of that for the case of the most recent three UAA book reviews.

    Those are:
    — Some selected articles with “nationalism” in the title, reviewed by UAA’s Peter Amato.
    — Steven Pearlstein’s “Can American Capitalism Survive?” reviewed by UAA’s Gary Merritt.
    — Paul Collier’s “The Future of Capitalism,” reviewed by UAA’s Jim Fox.

    A big “Thank You!” to the reviewers for the selection of nationalism and capitalism as topics. Although I’ll plead being out of the UAA Book Club geographic circle as my reason for not having read the works reviewed, there is so much else written lately on the two topics that I have my eye out for points that people make about them.

    The comment that I want to make is that, judging from the reviews, these works have a lot to say about nationalism and capitalism but don’t appear to be clear about what the two isms are. That characterizes virtually everything I read on the two topics elsewhere as well.

    So, let’s be clear.

    Nationalism

    “Nationalism” is the ideal that sovereign states and “nations” should be coterminous: one state for each nation, and just one nation in each state. A sovereign state is a geographical territory whose control by its state is successfully enforced and generally recognized. A nation is a group of people who share the attributes of common birth: mainly physical ethnicity, language, and religion.

    Nationalism is also a political program, since the recognition of sovereigns (from 1648 on) has been no respecter of nationality. In earlier years, multinational empires were recognized as sovereigns. Later, overseas imperial powers oversaw drawing of territorial bounderies, which became sovereign, with minimal regard for whatever nations might reside in them (or across them). So, the nationalist program conflicts with received sovereignty and has yielded any number of social, political, and military conflicts, sometimes changing sovereign borders.

    An alternative to nationalism, notably since 1776, has been the idea of a contractual state, where citizenship is based on shared civic understandings rather than on the attributes of common birth. The European Union provides an example of how a contractual framework may defuse national conflicts. Breton or Scottish nationality vis-à-vis France or Great Britain somehow matters less in the broader, European framework. You can be “sovereign,” like Czechia, or not, like Corsica, but it feels the same either way.

    Preferences as between nationalism and contractual-type relations appear to be a question of personality, with the degree of tolerance of (or taste for) diversity determining where an individual stands. Presumably some relative prevalence of open and closed personalities is eternal in any society, so every generation deals with cooperation-vs.-separation issues.

    The divide may not be constant, however. Easier transportation and communication leads to mixing that remakes nationalities (via marriage and child-bearing), as well as perhaps remaking attitudes. Ongoing “purplization” in the U.S. is an example.

    It would be regrettable to discuss nationalism without bringing up the anthropologist-philosopher Ernest Gellner. Gellner, particularly in “Nations and Nationalism” (1983), emphasizes the language dimension of nationality, theorizing that post-1800 industrial societies required a trainable workforce and thus widespread language skills, which could only be created by a “national” effort to school the population in a standardized language. This theory reinforces the observation that nationalism as a political program is not a natural result of ethnicity but rather something that occurs only when created by leaders.

    Capitalism

    Capitalism is an industrial economy composed of firms that are the properties of a small minority of the population, “capitalists.” As owners, shareholders, and senior managers, capitalists direct the firms’ transactions to maximize their incomes. Other persons are “employed” by firms: they have no property rights in the firms and no legitimate role in directing them; the payments they receive are costs to be minimized.

    The public mainly follows economics in confusing capitalism with the market mechanism. For economics, the confusion largely results from the assumption of perfect competition, since “in a perfectly competitive market,” as Paul Samuelson famously pointed out, “it really doesn’t matter who hires whom.” Some people may think they are in charge, but firms are actually directed by the invisible hand of mathematical necessity. So, in economics, capitalism, if it exists at all, at least has no capitalists.

    In reality, there are capitalists and they hate free markets (as Adam Smith explained). They work to avoid competition, including by using the power of the state, and they are at least somewhat successful. In their political polemics, capitalists refer to this effort as “laisser-faire,” which they conflate with competitive markets and freedom in general.

    But in reality, to have effective competition, markets have to be regulated by a government controlled by the general public rather than by capitalists.

    In addition, the performance of firms (as well as of markets) depends critically on who is in charge. For large firms with increasing returns to scale, output is a joint product and not the sum of separable marginal outputs. So, the firm’s income can’t be distributed by the invisible hand of mathematical necessity. The actual alternatives are either distribution by capitalists without regulation, where employees are treated as furniture, or distribution that is at least influenced by regulation of a government controlled by the general public.

    Capitalism may be contrasted with “socialism,” which is the idea that “society” as a whole has a right to direct some aspects of the activities of firms with many stakeholders.

    A “socialist form of government” is the economic equivalent of a “republican form of government” in politics. They both correspond to the idea that the public has a right to act through government for the general welfare.  Control of the firm is to economics what voting rights is to civil rights.

    Both socialism and republicanism contrast with their historical alternatives: politically with old-regime monarchies and economically with fundamentalist laissez-faire theories in economics, both of which deny rights to “the public.”

    Capitalism in its initial, industrial, form, even though not a “perfectly competitive” market economy, demonstrated a drive to create monopolies around the successful variants of new products, as well as a drive to achieve economies of scale. Both these enhancers of profits also generated increases in real, net income for society.

    Since the mid-1950s, however, the industrial firms that were the great achievements of industrial capitalism have become the playgrounds of finance capitalism. While some industrialists continue the Model-T Ford-iPhone tradition of product development, capitalists as a class are mainly rentiers who mine value from existing industry by securitizing and stripping assets out of successful firms, abusing the weaknesses of corporate governance rules. (Overleveraged “trusts” of the 1920s and earlier were a U.S. precursor of finance capitalism.)

    Efforts to identify benefits from finance capitalism, in terms of increases in real, net income for society, have not come up with much. Paul Coller’s guesstimate, which Jim Fox reports, is probably as good as any: no net increase in overall income and some transfer of existing income to the wealthy.

    Works Reviewed on Nationalism and Capitalism

    The works that UAA reviewers considered seem to me to frame questions in ways that, once the basic terms are clarified, don’t make much sense.

    “What Went Wrong with Nationalism?” Nothing went wrong with nationalism. Rather, you either like it or you don’t (depending on your personality type). On the anti-nationalism side: “Well, nationalism generated a long history of ethnic wars, genocide, and apartheid-type states.” On the pro-nationalism side, what went “wrong” would have to be: “My side lost.” (Of course, if your side won, then all is well.) Neither view of the historical record changes one’s perspective on nationalism per se.

    “What’s the Future of Capitalism, Particularly in the U.S.?” The discussions of the works by Steven Pearlstein and Paul Collier make it seem that “capitalism” is being used either to mean “the U.S. economy” (Pearlstein) or economists’ vision of trends in a technologically driven market economy (Collier). There are only hints at the existence of capitalists or of what “capitalist” or “not capitalist” could possibly mean. Pearlstein apparently sees that regulation is in the picture, but he has mixed feelings about it. Collier seems to give up altogether on industrial society and hopes for a Gandhian return to the community.

    Aside from reviewing others’ writings, if you want to say what will happen to capitalism in the future, the answer is clearly, “Whatever we want.”

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