Who said that?

“civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all”.

It was Adam Smith! Yes, as Esping Andersen says ‘Adam Smith sometimes read like Karl Marx’
– page 236, tome II, The Wealth of Nations (1776), 1961 edition E. Cannan. London: Methuen.
– page 10, the three worlds of welfare capitalism, 1990)

The great transformation – selected quotes

On the nineteenth century:
Nineteenth century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state. Classified in one way, two of these institutions were economic, two political. Classified in another way, two of them were national, two international. Between them they determined the characteristic outlines of the history of our civilization”
The nineteenth century produced a phenomenon unheard of in the annals of Western civilization, namely, a hundred years’ peace – 1815-1914. Apart from the Crimean War – a more or less colonial event – England, France, Prussia, Austria, Italy, and Russia were engaged in war among each other for altogether only eighteen months. A computation of comparable figures for the two preceding centuries gives an average of sixty to seventy years of major wars in each. But even the fiercest of nineteenth century conflagrations, the Franco-Prussian War of 1870-71, ended after less than a year’s duration with the defeated nation being able to pay over an unprecedented sum as an indemnity without any disturbance of the currencies concerned.”
Replace ‘gold standard’ with ‘the Financial system’:
“With the international gold standard the most ambitious market scheme of all was put into effect, implying absolute independence of markets from national authorities. World trade now meant organization of life on the planet under a self-regulating market, comprising labor, land, and money, with the gold standard as the guardian of this gargantuan automaton. Nations and peoples were mere puppets in a show utterly beyond their control.”

The breakdown of our civilization:

“But if the breakdown of our civilization was timed by the failure of world economy, it was certainly not caused by it. Its origins lay more than a hundred years back in that social and technological upheaval from which the idea of a self-regulating market sprang in Western Europe. The end of this venture has come in our time; it closes a distinct stage in the history of industrial civilization”

The great transformation, the political and economic origins of our time, Karl Polanyi

Coping with Globalisation

It’s interesting that liberalisation of trade is often seen as an ideal most forcefully defended by liberal countries such as the US. Though it is true that in rhetorical terms liberal countries have advocated for more globalisation of trade, the empirics tell a different story. The figure below* carries that point graphically. On the Y axis there is spending on Active Labour Market Programs (ALMPs) expressed as a percentage of GDP in 2001, while the X axis displays the log of the average share of external trade in GDP for the period 1970-1999.

First, countries which are often portrayed as more social democratic (Scandinavian countries) and/or less liberal (Belgium, Germany) than the US have de facto much more open economies.

A second finding is that there seems to be some correlation between the degree of openess of a country and how much they spend on ALMPs. This is not surprising given that the latter policies facilitate the reallocation of labour that openness may call for.

This is nothing new and echoes Rodrik’s argument that “the welfare state is the flip  side of the open economy”. But this then raises of what happens when the welfare state is put under strain by austerity measures. Liberals beware: austerity at home may not be the best way to promote open economies.

*The graph is taken from the presentation slides “Active Labour Market policies around the world, Coping with the consequences of globalisation” by a reference in this field of research: Peter Auer, chief employment analysis and research at the ILO.

Working time before the welfare state and employment regulations

In the dictionary of the workers’ movement one learns that the average working day for men, women and children in the early 19th century in France was a striking 15 hours. Bear in mind this is an average, some could reach 20 hours a day. This extreme working time did not suffice to ensure even subsistence nutrition, leading some comentators at the time to declare: “Vivre pour l’ouvrier c’est ne pas mourrir” (page 15).
This rythm was not without consequences, looking at the evolution of life expectancy in some places in France is instructive. In Mulhouse, the average life spans for workers was above 25 years old in 1812, by 1827 it had fallen to 21 years old (page 16).