Akshay Dua
Department of Politics, University of California, Santa Cruz

Fictitious commodification refers to the false treatment of certain things, which exist independently of markets, as market commodities. A concept associated with Karl Polanyi’s (2001[1944]) seminal work, The Great Transformation, in which commodities are defined as anything produced for market exchange, the principal fictitious commodities are labour, land, and money. In self-regulated market economies, these factors of production are uniquely subject to the mechanisms of supply and demand, despite not having been produced for sale (Polanyi 2001, 72). Labour is no more than “a human activity which goes with life itself,” land “only another name for nature,” and money just a means of exchange which emerges through banking or state finance (Polanyi 2001, 72). Nonetheless, The Great Transformation suggests that fictitious commodification is a “necessary condition of production” in market societies, critical for their economic organization even while generating the internal contradictions discussed below (Fraser 2014, 548-549).

Polanyi argues that the commodity fiction arises from the state-led expansion of markets and consequent subordination of social relations to economic activity, beginning with industrializing Britain and extending elsewhere (2001, 57; 188). More specifically, the enclosure movement and consequent creation of an industrial workforce in Britain facilitated the purchase and sale of land and labour on open markets, through which money increasingly became an object of exchange as all production was reoriented towards exchange (190). The creation of exchange markets not only for products of labour, but further for any conceivable good, was an inflection point in capitalist development. According to Polanyi, such processes were not organic, but instead the product of active state intervention to create markets for fictitious commodities, as well as machine production which effected “no less a transformation than that of the natural and human substance of society into commodities.” (44) Under  nineteenth century liberalism, these changes were an attempt to invert the longstanding embedding of markets in society and subject the whole of society to commodification (57). 

The perception of fictitious commodification as a historically contingent phenomenon was not entirely unique to Polanyi. As Dale (2008) highlights, various scholars in the early twentieth century wrote about the nineteenth century commodification of labour as either a falsehood or a catastrophic error (503). Ferdinand Tönnies, in his critiques of capital (2001[1887]) laid the foundation for Polanyi’s work in arguing that the very same labour, land, and money were “fictitious” commodities arising from the novel emergence of an economic sphere divorced from society in bourgeois civilizations (70, 81-82; Dale 2008, 504-505). We can even read Marx’s (2024[1873]) Capital, a work to which Polanyi was clearly if implicitly indebted, as offering a partial formulation of fictitious commodification. Marx makes clear that labour is the natural process through which humans engage their environments “in order to appropriate natural materials in forms in which such materials serve human life.” (153) The conversion of these natural gifts into commodities constitutes the “mystical” act of fetishism whereby abstracted labour products assume relations with one another through exchange (Marx 2024, 48-49). Marx even argued that the debate surrounding the derivation of exchange-value from nature betrayed “how deeply some political economists are deluded by the fetishism of the commodity world” (57). After all, under the labour theory of value, land and money lack any inherent value, thus being illogical subjects of commodification.

While Polanyi’s discussion of fictitious commodities was thus neither the only nor the first of its kind, he arguably offered the clearest vision of its potential consequences for wider society. Under the unrestrained commodity fiction, Polanyi saw the market as the “sole director” over human beings, their natural environments, and their means of exchange, as each could only be considered valuable insofar as they generate commodities, rent, or interest (2001, 76). The classical liberal antipathy towards any regulation over the market organization of production and distribution consequently tethers the use of fictitious commodities to their exchange function, allowing labour, land, and money to be used indiscriminately, disposed of, or even left unused in accordance with the exigencies of the market (76-77). If left unchecked, Polanyi contends that processes of fictitious commodification would contribute to no less than the demolition of human societies, as market mechanisms adjudicate over the (mis)use, despoliation, and ultimate destruction of human beings and their natural environments (73). Simultaneously, the fictitious conversion of money into a commodity would subject it to volatile shifts in value – tied to the circulation of gold in Polanyi’s time – which could suddenly cripple businesses and generate economic crises as prices oscillated (Desai 2020, 92-94). 

On the one hand, the coercive separation of human beings from their living labour and land through fictitious commodification robs both of their independent social value, facilitating a process of dehumanization and denaturalization (Özel 2019, 133). On the other hand, fictitious commodification has deep material ramifications, manifest in the destabilization or devastation of nature, human communities, and livelihoods that produce “crises of growing intensity.” (Fraser 2014, 544; Block 2003, 297) Put another way, unlike genuine commodities, the supply of labour, land, and money cannot be simply increased or decreased in the short term in response to higher or lower prices, lacking any ‘natural prices’ based on production costs or values (Desai 2020, 87). Consequently, Polanyi regarded state regulation as an inevitable response to the natural resistance of labour, land, and money to their fictitious commodification in order to limit the total “subjection of the surface of the planet to the needs of an industrial society” and ensure societal stability (2001, 79; 188). Institutions such as the New Poor Law, the Corn Laws, the Factory Acts, and central banking in nineteenth century Britain represented efforts to limit the exploitation of labour, ensure a stable food supply and protect farming populations from repeated displacement, and stabilize the money supply (Block 2003, 296). Block argues that Polanyi’s oft-misconstrued invocation of “utopia” in relation to a pure market society was no endorsement, but instead a contention that such a society was impossible, given that it would ultimately destroy itself if left to its own devices (282).

Academic interest in the Polanyian notion of fictitious commodities has steadily grown in tandem with contemporary waves of neoliberal commodification. Through Polanyi, scholars have made comparisons between today’s world and both ‘the great transformation’ of nineteenth century industrial Europe and the global economic collapse of the 1930s (see Koo and Ji 2023; Fraser 2014). Bringing this work into the twenty-first century, scholars have put it in conversation with the liberal and Marxist schools of economic thought with which Polanyi was often in tension. Block and Desai point to Polanyi’s rejection of the analytically autonomous economy assumed in both neoclassical and orthodox Marxist approaches, due to the need for national states to mediate the supply and demand of fictitious commodities in the interest of societal stability (2003, 282; 2020, 94). Fraser instead seeks to more explicitly unite Polanyi’s fictitious commodities with contemporary strands of anti-capitalist thought, arguing that it “affords the prospect of an integrated crisis theory that encompasses in one fell swoop the concerns of feminists, political ecologists and political economists.” (2014, 547) In foregrounding the capitalist impulse to destroy nature, devalue labour and care work, and perpetuate financialization, fictitious commodification emphasizes the destruction of varied “background conditions for commodity production” and thereby aggregates the ecological, feminist, and Marxian critiques of capitalism (Fraser 2014, 545; 549). Koo and Ji (2023), meanwhile, have sought to integrate fictitious commodification into what they term a “cultural political economy of institutionalization” that is attentive to the conjoined semiotic and material production of organic worldly substances that enables their “pricing, exchange, and price-based regulation in the market.” (195) As they put it, the triad of labour, land, and money identified by Polanyi are part of organic reality, with their commodification being “neither pure fiction nor absolute reality but a combined effect of cultural and material tendencies at various ontological levels.” (199-200) 

Many scholars (see Ghertner and Lake 2021; Goodwin 2021; Desai 2020; Mann 2006) focus their efforts on elucidating historical accounts of particular fictitious commodities, most notably land, whether in geographies or time periods outside the scope of The Great Transformation. Others still have challenged the Polanyian commodity fiction and its relevance to contemporary capitalism. Christophers (2016) maintains that the fictitious label discourages critical engagement with processes of commodification due to the assumption that subjects will naturally resist, as well as the ambiguity of Polanyi’s definition, which seemingly affords an abstract role to intentionality in commodity production and does not address the panoply of commodities which could qualify as fictitious, such as knowledge (137-141). Fraser (2014), too, argues that Polanyi’s ontological interpretation of fictitious commodities assumes that land, labour, and money can ever be encountered in a pure or natural state, independent of human power relations (547). Evidently, the Polanyian concept of fictitious commodification still bears relevance not only to our contemporary economic moment, but further to the politico-economic development of societies across time and space.

(See Critical Political Economy, Double Movement, Liberalism, Money, Nature, Triple Movement)

Bibliography

Block, Fred. 2003. “Karl Polanyi and the Writing of ‘The Great Transformation.’” Theory and Society 32 (3): 275–306. https://doi.org/10.1023/A:1024420102334.

Christophers, Brett. 2016. “For Real: Land as Capital and Commodity.” Transactions – Institute of British Geographers (1965) 41 (2): 134–48. https://doi.org/10.1111/tran.12111.

Dale, Gareth. 2008. “Karl Polanyi’s The Great Transformation: Perverse Effects, Protectionism and Gemeinschaft.” Economy and Society 37 (4): 495-524. https://doi.org/10.1080/03085140802357901.

Desai, Radhika. 2020. “Commodified Money and Crustacean Nations.” In Karl Polanyi and Twenty-First-Century Capitalism, edited by Radhika Desai and Kari Polanyi Levitt, 78-101. Manchester: Manchester University Press. https://muse.jhu.edu/book/76887.

Fraser, Nancy. 2014. “Can Society Be Commodities All the Way Down? Post-Polanyian Reflections on Capitalist Crisis.” Economy and Society 43 (4): 541–58. https://doi.org/10.1080/03085147.2014.898822.

Ghertner, D. Asher, and Robert W. Lake, editors. 2021. Land Fictions: The Commodification of Land in City and Country. Ithaca: Cornell University Press. https://doi.org/10.1515/9781501753749. 

Goodwin, Geoff. 2021. “Fictitious Commodification and Agrarian Change: Indigenous Peoples and Land Markets in Highland Ecuador.” Journal of Agrarian Change 21 (1): 3–24. https://doi.org/10.1111/joac.12368.

Hudson, Michael. 2020. “Debt, Land and Money: From Polanyi to the New Economic Archaeology.” In Karl Polanyi and Twenty-First-Century Capitalism, edited by Radhika Desai and Kari Polanyi Levitt, 61-77. Manchester: Manchester University Press. https://muse.jhu.edu/book/76887.

Koo, Bonwoo, and Joo-Hyoung Ji. 2023. “Karl Polanyi’s Theory of Fictitious Commodification as a Cultural Political Economy of Institutionalization.” Journal of Cultural Economy 16 (2): 183–202. https://doi.org/10.1080/17530350.2022.2144413.

Mann, Geoff. 2006. “Reflections on Scott Prudham’s Knock on Wood: Is Labor-Power a Fictitious Commodity?” Antipode 38 (5): 1069–72. https://doi.org/10.1111/j.1467-8330.2006.00493.x.

Özel, Hüseyin. 2019. “Commodification.” In Karl Polanyi’s Political and Economic Thought: A Critical Guide, edited by Gareth Dale, Christopher Holmes, and Maria Markantonatou, 131-150. Newcastle: Agenda Publishing. https://doi.org/10.2307/j.ctvnjbfgk.11.

Polanyi, Karl. 2001. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press.

Tönnies, Ferdinand. 2001. Tönnies: Community and Civil Society. Edited by José Harris, translated by José Harris and Margaret Hollis. Cambridge: Cambridge University Press.

Akshay Dua
Department of Politics, University of California, Santa Cruz

Creative destruction, as formulated by Joseph Schumpeter, refers to the perennial process by which the modalities and outputs of production are transformed under capitalism, through the destruction of economic structures and the creation of new ones. In this view, capitalism is a violently evolutionary process, generating radical innovations that simultaneously advance society’s productive capacities and upend existing enterprises. While Schumpeter initially drew upon Marx in delineating the turbulent path of capitalist development generated by creative destruction, he departed from the latter author in emphasizing the positive material effects of this process over its self-destructive tendencies.

The ongoing processes of creative destruction that characterize capitalist development facilitate rapid technological advancement in a cyclical pattern of revolution, growth, and stagnation that fosters long-term material progress punctuated by recurrent short-term downturns. Creative destruction may entail the emergence of new commodities, markets, production methods, commercial opportunities, organizational strategies, or transportation infrastructure, so long as the economy is “revolutionized from within” (Schumpeter 2010, 27). As a result of creative destruction, capitalist competition “strikes not only at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.” (Schumpeter 2010, 74) Though capitalism produces huge amounts of wealth, cheapens commodities, and raises general standards of living in the long term, it repeatedly destroys businesses and creates economic shocks associated with short-term unemployment, impoverishment, and crises of production. Creative destruction, then, is closely associated with the motive forces underpinning capitalist change, as the prospect of innovation holds the possibility of delivering monopolistic market power to its authors (Diamond 2006, 121-122).

For Schumpeter, creative destruction was the beating heart of capitalism. As he explains in his widely influential Capitalism, Socialism and Democracy (2010 [1942]), “capitalist economy is not and cannot be stationary,” owing partly to its steady growth but more fundamentally to its immanent dynamism (Schumpeter 2010, 27). The constant threat of “actual or potential competition from new commodities or methods of production” animates a steady stream of innovations which render erstwhile economic structures unprofitable in a series of organic revolutions (28-29). As “the essential fact about capitalism,” creative destruction renders the study of business strategy or even the operations of existing economic institutions a secondary priority in the analysis of capitalist development (73). Coining ‘creative destruction,’, Schumpeter sought to establish both the paradoxical impracticality of perfect competition in short-term market activity and the enforcement of behaviour analogous to perfect competition in the long run (74-75). Borrowing from Marx, Schumpeter held that “capitalist evolution is driven by technological competition between firms,” dismissing the notion that price signals fuel economic change by way of consumer choice (Fagerberg 2003, 129). Moreover, he argued that creative destruction gradually drove capitalism towards monopolistic competition by linking long-term success to costly innovations, while rejecting the association of monopoly and oligopoly with uniformly low levels of production and innovation (90). In his words, “the introduction of new methods of production and new commodities is hardly conceivable with perfect–and perfectly prompt–competition,” as firms are “in a less favorable position to evolve and judge new possibilities” in the short term (90-91). Thus, creative destruction undermines perfect competition in the short term but secures it in the long run, as sudden transformations in productive structures afford little possibility for adaptation but enable large-scale firms to displace their competitors over time.

The concept of creative destruction deeply informed Schumpeter’s normative and political views on capitalism. Although he recognized the significant misery for both workers and ‘entrepreneurs’ arising from cycles of innovation, as businesses collapsed and jobs were eliminated, Schumpeter held that capitalism was beneficial for the masses in the long term. In his view, creative destruction generates “an avalanche of consumers’ goods that permanently deepens and widens the stream of real income although in the first instance they spell disturbance, losses and unemployment.” (Schumpeter 2010, 59) Over time, capitalism thereby augments purchasing power and generally raises the standard of living through technological and scientific advances. The rationalization of production and development achieved through creative destruction evinces that “all the features and achievements of modern civilization are, directly or indirectly, the products of the capitalist process.” (111) That said, Schumpeter also believed that capitalism was destined for destruction and supplantation by socialism, not due to the failures or contradictions identified by Marx, but rather the success of capitalism (53-54). In one sense, the wealth and civilizational advancement emerging from creative destruction would eventually render social hierarchy and the working class obsolete (53-54). In another, the tendency towards monopoly would not only undermine the innovation associated with small-scale industry, but contribute to a bureaucratization and depersonalization of social institutions (140-144). Schumpeter’s position evidently draws upon and yet contradicts Marx’s vision of capitalist development: while both authors suggested that creative destruction would propel a movement towards socialism, the cause of this movement was variably identified with the material improvements and deprivations arising from capitalism.

Furthermore, Schumpeter held that the severe disjunctions associated with creative destruction would fuel “hostile reactions that constitute a latent challenge to the institutions underlying capitalism.” (Schubert 2013, 228) Ultimately, the boons of capitalism would be swallowed up by its repeated harms: that is, by the hardships paradoxically arising from the successes of capitalist development. In parallel, the huge technological advances and increasingly bureaucratized social order generated by creative destruction would render the social functions and elite status of the bourgeoisie obsolete (143-144). In Schumpeter’s (2010) words, “entrepreneurs and capitalists–in fact the whole stratum that accepts the bourgeois scheme of life–will eventually cease to function.” (139) Schumpeter (2010) thus expected the “perennial gale of creative destruction” to extend to the very last moments of capitalism, its self-destruction being the moment of creation of a new socialist civilization (73; 144-145).

Though Schumpeter’s prognostications did not come to pass, scholars have applied the insights of creative destruction to many historical and contemporary examples. Creative destruction was initially formulated in a context of industrial capitalism, typically referring to new technologies, consumer commodities, organizational methods, and scientific discoveries that transformed the apparatus of production, distribution, and consumption. It continued to be employed as such for much of the twentieth century, but found new footing in the late 1980s and early 1990s, accompanying a general growth in the academic interest in and acceptance of Schumpeter’s evolutionary economic ideas (Fagerberg 2003; Diamond 2009, 538). Particularly in the 1990s, the confluence of rapid technological advance, economic instability, and a tendency towards monopoly seemed well-accounted for by Schumpeter’s model of capitalist development (Akdere and Dinar 2023, 88-89). The breakneck pace of progress in computing, internet, information, and communication technologies accorded with Schumpeter’s systemic conception of innovation and technological diffusion achieved through creative destruction (Fagerberg 2003, 141; Reinert and Reinert 2019, 386). 

In subsequent years, creative destruction was applied to the analysis of particular industries and national economies as a whole. While authors such as Diamond (2006) suggest that the US has become so technologically advanced due to its institutional openness to creative destruction, others such as Liu (2013) have employed the concept to frame the study of the expanding copyright industry (139; 2). McClare and Thomas (2021), meanwhile, have sought to amend the systemic fatalism of Schumpeter’s creative destruction, arguing that the venture capital revolution – itself a process of creative destruction in the financial sector – has averted the capitalist collapse he envisioned by sustaining small-scale firms and thus preventing total monopoly. Still other scholars have further sought to leverage creative destruction to explain historical processes of capitalist development. Nicholas’ (2003) study of early twentieth century US capitalism uses  creative destruction to explain the way that market power stimulates, rather than suppresses, radical innovation, demonstrating that large-scale American firms were motivated by the pursuit of monopoly control over consumer markets. As Schumpeterian creative destruction has become more central to the field of modern evolutionary economics, its applications have continued to grow (Akdere and Dinar 2023, 88).

Despite Schumpeter’s strong association with creative destruction, though, the genealogy of the concept extends far beyond his figure. As multiple scholars (Reinert and Reinert 2019; Elliot 1980; Fagerberg 2003) have highlighted, Schumpeter’s ideas owe much to German economic thought of the nineteenth  and early twentieth  centuries. The most immediate connection to be drawn is to Marx, with whom Schumpeter himself engaged heavily in Capitalism, Socialism and Democracy. As Elliot (1980) notes, Schumpeter and Marx aligned closely in their understanding of capitalist’s developmental process as endogenous, uneven, cyclical, and revolutionary in character, regularly transforming the conditions of production and thereby generating both immense wealth and suffering (46). While Marx never used the term ‘creative destruction,’ his references to a violent evolutionary force underpinning capitalism that lay the ground for socialism was directly echoed by Schumpeter many years later, even if the latter viewed this force as ultimately beneficial for humanity in the long term (Akdere and Dinar 2023, 90). Even the monopolizing tendencies that Schumpeter identified with creative destruction were expressed by Marx: as Schumpeter put it, “more clearly than any other writer of his day Marx discerned the trend toward big business” (Elliot 1980, 56; Schumpeter 2010, 41). Besides Marx, Reinert and Reinert (2019) have traced Schumpeter’s thought to a series of other German thinkers, most notably Werner Sombart and Friedrich Nietzsche, who articulated the concept of creative destruction in economic and cultural terms, respectively (386). In this regard, Reinert and Reinert (2019) maintain that Schumpeter’s thought was not entirely novel within the German tradition, but mostly translated existing debates on cycles of social and economic change to an English audience (404).

Even as Schumpeterian creative destruction has obtained new life in the annals of evolutionary economics, it has remained the subject of debate. Arguably the most central of these debates concerns the long-run benefits of creative destruction, whether measured in material or normative terms. Though some scholars (Diamond 2006; McClure and Thomas 2021) have revived Schumpeter’s position that the long-term benefits of creative destruction outweigh the short-term costs for social welfare, Schubert (2013) argues that such conclusions are shaky. From a normative standpoint, it is unclear whether the things created are necessarily better than what is destroyed or whether it is even possible to evaluate the balance between gains and losses (Schubert 2013, 228-229). From a material standpoint, Schumpeter’s metric of social welfare as productive output or technological development possesses no clear connection to the actual distribution of access to said goods (237-238); a greater total accumulation of wealth does not necessarily equate to uniformly higher living standards.

The second major debate is more entrenched in evolutionary economics, concerning the relative capacities of monopolistic versus small-scale firms to effectively advance creative destruction. Scholars are divided over Schumpeter’s position on this matter. Diamond (2006) claims that Schumpeter’s original vision of creative destruction held that “large, monopoly firms are the most able and the most likely to produce new, leapfrogging innovations,” due to the difficulties of smaller firms in radically transforming modes of production (122). McClure and Thomas (2021, 77) and Elliot (1980, 56), however, indicate that Schumpeter saw the growth of large firms as inimical to competition, which served as the driving force of creative destruction. These disagreements frame the wider debate around the optimal conditions for creative destruction, sundered between the stances that large firms possess the requisite capital to produce innovation and that large firms face no incentives to innovate due to market domination. Schumpeter lends credence to both positions at various points, insisting that innovation is incompatible with perfect competition due to capital wastage, even as he argues that the growth of large firms stifles creative destruction by striking at the social institutions underpinning capitalism (2010, 90-91; 53-54; Akdere and Dinar 2023, 95). Further complicating matters, Schumpeter is clear that creative destruction always poses a threat to the survival of individual firms, even in conditions of monopoly or oligopoly (2010, 28-29). These seemingly conflicting positions have arguably structured much of the debate over the advantages of monopolistic versus highly competitive market economies for processes of creative destruction. 

Nonetheless, the very existence of these debates indicates the enduring relevance of Schumpeterian creative destruction for analyses of contemporary capitalism, particularly those sectors of the economy that experience rapid innovation and turnover. As capitalism continues to be an unparalleled force of both wealth generation and immiseration, the cyclical patterns and turbulent contradictions explicated by creative destruction offer much to political economy and its practitioners.

(See also: Capital,  Crisis, War)

Bibliography

Akdere, Çınla, and Gülenay Baş Dinar. 2023. “Schumpeter on Capitalist Development, Creative Destruction and Elites.” In Tensions Between Capitalism and Democracy Today, 87–109. Switzerland: Palgrave Macmillan. https://doi.org/10.1007/978-3-031-45547-6_4.

Diamond, Arthur M. 2006. “Schumpeter’s Creative Destruction: A Review of the Evidence.” The Journal of Private Enterprise 22 (1) Fall: 120–46. http://journal.apee.org/index.php?title=Fall2006_7.

Diamond, Arthur M. 2009. “Schumpeter vs. Keynes: ‘In the Long Run Not All of Us Are Dead.’” Journal of the History of Economic Thought 31 (4): 531-41. https://doi.org/10.1017/S1053837209990307.

Elliott, John E. 1980. “Marx and Schumpeter on Capitalism’s Creative Destruction: A Comparative Restatement.” The Quarterly Journal of Economics 95 (1): 45-68. https://doi.org/10.2307/1885348.

Liu, Jiabo. 2013. Copyright Industries and the Impact of Creative Destruction: Copyright Expansion and the Publishing Industry. Abingdon: Routledge. https://doi.org/10.4324/9780203076583.

Fagerberg, Jan. 2003. “Schumpeter and the Revival of Evolutionary Economics: An Appraisal of the Literature.” Journal of Evolutionary Economics 13 (2): 125-159. https://doi.org/10.1007/s00191-003-0144-1.

McClure, James E, and David Chandler Thomas. 2021. “Schumpeter’s Fatalistic View of Capitalism: How His ‘Essential’ Process of Creative Destruction Survived.” The Journal of Private Enterprise 36 (2): 77–102. http://journal.apee.org/index.php?title=PARTE5_2021_Journal_of_Private_Enterprise_Vol_36_No_2_Summer. 

Nicholas, Tom. 2003. “Why Schumpeter Was Right: Innovation, Market Power, and Creative Destruction in 1920s America.” The Journal of Economic History 63 (4): 1023–58. https://doi.org/10.1017/S0022050703002523.

Reinert, Hugo, and Erik S. Reinert. 2019. “Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter.” In The Visionary Realism of German Economics, edited by Rainer Kattel, 385–412. London: Anthem Press. https://doi.org/10.2307/j.ctvcb5979. 

Schubert, Christian. 2013. “How to Evaluate Creative Destruction: Reconstructing Schumpeter’s 

Approach.” Cambridge Journal of Economics 37 (2): 227–50. https://doi.org/10.1093/cje/bes055.

Schumpeter, Joseph A. 2010. Capitalism, Socialism and Democracy. London: Routledge.

Henry McLaughlin
Department of Politics, University of California, Santa Cruz

The “city as a growth machine” is a concept first put forward by sociologist Harvey Molotch in 1976 to describe how cities are not simply urbanized places where people live and work; city-place functions as means for local elites to accumulate capital. Molotch, writing with John Logan (1987), argues that places, specifically “land markets,” are created through processes of accumulation: powerful individuals and groups, potentially with otherwise divergent interests, coalesce to form “growth machines” and compete with other cities to attract capital investment. Similar to what marxist urbanists like Manuel Castells, David Harvey, and Henri Lefebvre were proposing in the 1970s, Logan and Molotch claim that modern cities do not develop “organically” or even according to a free market rationale, rather they function as (environmentally destructive) “growth machines” at the service of elite accumulation (1987). Chambers of commerce (which Molotch notes are often mistakenly assumed to be a part of city government (1993, 34)), claim that urban (re)-development will combat unemployment, housing crises, and fiscal crises. However, Moltoch argues that this is not the case: jobs actually come from “rates of investment return, federal decisions affecting the money supply, and other factors having very little to do with local decision making” (Molotch 1976, 320; 1993, 32). The discourse of development masks attempts to retrench political-economic power.

Following the Hungarian social democratic thinker Karl Polanyi, Logan and Molotch support their thesis by arguing that land is not the product of labor, it is a natural “free gift” and that its supply is fixed (Polanyi (1944) calls this a “fictitious commodity”). Urban land markets are therefore “inherently monopolistic, providing owners, as a class, with complete control over the total commodity supply” (Logan and Molotch 1987, 23). They do not fluctuate as neoclassical theory would dictate, rather because there is a qualitative difference in similarly sized allotments, because certain spaces become more desirable. Real estate “is essentially second hand” and there is no correlation between new housing and lower costs, nor between high vacancies and lower rent levels (Turner 1977, 39 as cited by Logan and Molotch 1987, 25). At the same time, there is a certain geographic or “landed” determinism in the use of redevelopment to solve urban social issues. Supposedly “value-free” land-use policies mask rentierism, and boosterism conflates this with a civic pride (what is good for landholders is good for the community), ensuring investors that a given locality is a safe bet. Furthermore, the contemporary financial obsession with risk is highly political in the context of the growth coalition. In relying on the public sector to fund infrastructure (often directly through public-private partnerships), municipal governments also take on the lion’s share of financial risk. In sum, the growth machine can only function with the help of ideology (Molotch 1993, 33), and Logan and Molotch argue that investment in urban and transurban infrastructure is not only done for society or for national/regional economies, but as an elite accumulation strategy and always at a cost to other cities.

Historically speaking, the authors suggest that the growth machine was thus an unopposed, driving force for U.S. expansion across the continent. We might see cities in the American west as not only “springboards” for conquering indigenous lands, but as spatial tools for rentier elites to prosper. Even transportation infrastructure (canals, ports, and railroads) did not necessarily develop for the benefit of an integrated national economy, but at the behest of elites in various cities and to the detriment of others. For example, in 1914 boosters successfully lobbied for a canal near Houston which helped spur local development by connecting it to global trade through the Gulf of Mexico, permanently putting it at  an advantage over nearby Galveston (Logan and Molotch 1987, 56).

In keeping with Logan and Molotch’s understanding of the growth machine, Harvey also shows how a sense of zero-sum inter-urban competition and macroeconomic development are interrelated, especially during periods of economic and political crises (1989, 3-5). The neoliberal period of the late 1970s and 1980s was characterized by a shift from urban managerialism to urban entrepreneurialism, where “even the most resolute and avantgarde municipal socialists could [find] themselves… playing the capitalist game and performing as agents of discipline” (5). The growth machine becomes the only means to urban prosperity, the economic rationale without alternatives. Harvey also proposes that this shift is the cause of a conceptual confusion in the scholarship about what a city is, a confusion between city [government] and urban [geography/society]. This is because urban entrepreneurialism implies a reflexive dialectic between urban political institutions and the built environment–they are directly related (6). Logan and Molotch’s analysis is therefore ultimately quite similar to David Harvey’s analysis of urban entrepreneurialism and his notion of “the urbanization of capital” (1989). City space has become a driving force for accumulation.

The growth machine concept is fairly simple and powerful in its applicability, but it has been challenged in constructive ways. In the 1990s, geographer Kevin Cox described both Logan and Molotch and Harvey’s analyses as the “new urban politics” (NUP) literature. Cox claimed that ‘the international hypermobility of capital’ NUP is concerned with lacks an empirical basis in many cases (1993, 433), and he suggested that firms tend to be more locally dependent than the literature presupposes. In other words, urban growth politics ought not to be reduced to a geography of tax breaks or cheap-labor pools. Furthermore, he noted that Logan and Molotch’s paradigm has a difficult task because it studies the potential for firms to move, not actual mobility (438). In fact, accumulation strategies often lead to the localization of capital (434), and city governments often shift their economic dependence to higher levels of government (states) rather than private capital (441). The reverse situation is therefore when growth coalitions arise, and any increase in political devolution since the 1990s would seem to corroborate Logan and Molotch’s argument. Where Logan and Molotch emphasize the role of capital (based on Southern California case studies), Cox implies that earlier urbanists were correct by emphasizing collective consumption and social reproduction in cities, and that dualities between economic and political, growth and anti-growth, and local and global explanations for urban development tend to break down (436-437). In Silicon Valley, for example, rising housing prices threaten to undermine capital’s ability to attract and sustain a skilled labor pool (439).

Finally, Cox identifies an overlap with literature on global cities that can help it theorize global-local relations more effectively, a line of thought developed by Delphine Ancien more recently (2011). The NUP might have been a particularly North American phenomenon, but has had growing global application in recent decades as American finance capital moves into global cities (Cox 1993, 446). Ancien (2011) explains that the NUP, especially where it emphasizes states’ urban growth strategies, helps us to better understand how the social relations within and between global cities require constant reproduction and thus political support, materially and discursively. For example, the UK government of the 1960s refused to devalue the pound in order to stimulate export industries; it was national policy to maintain London’s position as a financial service leader and thus the strength of the currency (2011, 2482), and the rest of the country (and its trading partners) bore the cost. Today, we therefore must study growth machines in tandem with globalizing cities and with greater attention to scale.

(See Accumulation, Capital, Class, Global City, Critical Political Economy, De/Reterritorialization, Urban Political Economy)

Bibliography

Ancien, Delphine. “Global City Theory and the New Urban Politics Twenty Years On.” Urban Studies 48, no. 12 (2011): 2473–93. https://doi.org/10.1177/0042098011411945.

Cox, Kevin. “The Local and the Global in the New Urban Politics: A Critical View.” Environment and Planning D: Society and Space 11, no. 4 (1993): 433–48. https://doi.org/10.1068/d110433.

Harvey, David. “From Managerialism to Entrepreneurialism: The Transformation in Urban Governance in Late Capitalism.” Geografiska Annaler: Series B, Human Geography 71, no. 1 (1989): 3–17. https://doi.org/10.1080/04353684.1989.11879583.

Harvey, David. The Urban Experience. Johns Hopkins University Press, 1989.

Logan, John R., and Harvey Luskin Molotch. Urban Fortunes: The Political Economy of Place. University of California Press, 1987.

Molotch, Harvey. “The City as a Growth Machine: Toward a Political Economy of Place.” American Journal of Sociology 82, no. 2 (1976): 309–32. https://doi.org/10.1086/226311.

Molotch, Harvey. “The Political Economy of Growth Machines.” Journal of Urban Affairs 15, no. 1 (1993): 29–53. https://doi.org/10.1111/j.1467-9906.1993.tb00301.x.

Polanyi, Karl. The Great Transformation: The Political and Economic Origins of Our Time.  Boston, MA: Beacon Press, 2001  [1944].

Turner, D.M. An Approach to Land Values. Geographical, 1977.

Henry McLaughlin
Department of Politics, University of California, Santa Cruz

The term “global city” is geographic and sociological; it refers to a city which has significant financial power and is a focal point or “node” in the global economy. While the associated term “world city” has been used since at least the 1910s (Geddes 1915), “global city” began to appear in the 1980s, when scholars such as Jonathan Friedmann and Saskia Sassen argued that the rise of high finance was contributing to a new international division of labor, and a hierarchy of “command and control” cities in the global economy (Friedmann and Wolff 1982; Friedmann 1986; Rodriguez and Feagin 1986; Sassen 1991). These authors also saw transformations within global north urban society itself: industry was making way for the agglomeration of financial institutions and related services (performed by the upper-middle class) on the one hand, and low-wage service jobs (performed by the urban precariat) on the other (Sassen 1991; Knox 1997).

The global cities research paradigm essentially began with Jonathan Friedmann and Goetz Wolff”s “world city hypothesis,” or the “spatial articulation of the emerging world system of production and markets through a global network of cities” in a hierarchical system of capital accumulation (1982, 309). Rooted in international political economy (IPE) and world-systems theory, Friedmann and Wolff, along with a variety of scholars in the same period such as Stephen Hymer (1972), Fernand Braudel (1982), and Jane Jacobs (1984), argued that cities rather than states were the driving force of global capitalism.

Having established this, however, Friedmann and Wolff were fundamentally interested in the socio-spatial stratification between the urban ‘citadel and ghetto,’ and asked how planners might serve the interests of residents, transnational corporations, and nation-states within the emerging system (Friedmann 1986, 69). They place seemingly local questions of urban capital accumulation and class conflict, as articulated by Manuel Castells (1972) and David Harvey (1973), within the context of the globalizing world system. Friedmann argued that the global control functions of respective cities affect their production and employment dynamics, and that “World city growth generates social costs at rates that tend to exceed the fiscal capacity of the state” (1986, 77). Corporations are often exempt from local taxes while the “the social classes that feed at the trough of the transnational economy insist… on the priority of their own substantial claims for urban amenities and services” (79). 

This new paradigm also introduced the idea that city specialization occurs at a world-systemic level rather than a regional one, and that this spatial structure is rooted in political economy rather than a naturalized ecology as the Chicago school (of sociology) had suggested. Nestor Rodriguez and Joe Feagin, for example, provide comparative historical evidence that specialization takes on different forms in different eras, and that urban studies in the past had been too concerned with local and cultural explanations. Terms like “node” and “division of labor” had been mistakenly “understood in a natural or technological sense rather than a political-economic context” (1986, 189). The authors see a relationship between financial and industrial cities (Amsterdam-Leiden, London-Manchester, and NYC-Houston) in eras preceding postwar globalization, and argue that specialization occurs through the global search for urban land and labor pools, and through globally-connected growth coalitions (Molotch 1976). For example, they note that “London developed as a world financial center even before it developed as a national financial center” (199) and that the New York financial district grew from the nearby port and Erie Canal rather than the city’s mid-Atlantic hinterland (204). Houston’s subsequent rise is then explained by the need of New York’s surplus financial capital to find a profitable outlet through industrial production and real estate (212). Specialization is not an outgrowth of natural processes or an invisible-hand type of logic, rather it is grounded in the (international) political economy of development.

Saskia Sassen further developed the concept of the global city by emphasizing the role of high finance in its formation. In The Global City: New York, London, and Tokyo (1991), Sassen explains that in the post-Fordist era there has been a shift in ‘economic gravity’ away from transnational banks and toward financial firms and their advanced producer services (the supporting firms of legal, accounting, and economic consulting) agglomerated in global cities (84). Financial institutions outsource highly specialized services in respective city spaces, while spreading their own internal business structures across a global archipelago of major cities. Sassen has four main arguments:

1) “the territorial dispersal of current economic activity creates a need for expanded central control and management” (4)

2) this new logic effects economic order within cities themselves as they must produce new supporting services and financial tools (and infrastructures) (5)

3) the city and the nation therefore take on a new relationship; there is a disjuncture between urban and national economic growth (8-9)

4) the growth of the global city produces new social orders as firms still tend to agglomerate to harness innovation and highly specialized, contractual labor markets (11)

Cities remain important because of the combination of knowledge and labor they provide, but they now have a tendency to disconnect from their regional economies and urban elites are denationalized. The city is more than a concentration of capital, people, and nature surrounded by a hinterland, but a concentration of financial forces (and all of the capital, people, and nature that entails) in a global network. Global cities’ financial districts became political-economic focal points for accelerating transactions through easy access to information, a well connected community, and backroom dealing.

Despite the seemingly political nature of these assertions, Sassen claims that she is not concerned with “power,” nor the political capabilities that global cities afford banks, large corporations, and supranational organizations (1991, 6). Rather than concentrating on the political-economic “drama” of corporate power, Sassen is concerned with the operational space where financial processes develop; the impenetrable world of futures and risk management has given rise to an operational zone where financiers buy highly-specialized labor at a moment’s notice (meaning no more “in house” specialization). Writing in the early 1990s, Sassen saw this new economy as loose, “intermediate” and “networked sector,” but because it has taken over the development of city space and continually implements massive redevelopment projects, it has perhaps become something more concrete, permanent, and powerful today. Furthermore, if we were to offer a political addition to Sassen’s argument, we might begin by noting that both financial districts as spatial agglomerations, and the financialization of global-urban real estate as a process, are sanctioned and supported by local and national governments hoping to win out in a global economic competition.

Turning to Sassen’s third thesis on the new relationship between the city and nation state, it seems that global city concept does not only describe a new set of social relations, an integrated community of experts, and a “nodal point” in the global economy, but it is also signals the reterritorialization of space in a global archipelago of financial enclaves. Any given global city space is more properly connected to global city spaces across the world than its hinterland, and each casts a “shadow” on smaller cities and regions. In urban geography, this manifests as a global connection of financial fortresses, but also of enclaved communities, of export processing zones, and of American securitized ports. Whether one is in Dubai, London, or Shanghai, the core of the global city reads as the same space (see also Beaverstock, Smith, and Taylor (2000)). What we might mistakenly read as integration and national connectivity is therefore best understood as a layer of financial, material, and informational flows separate from (but casting shadows on) regional economies.

In an important addition, David Bassens and Michiel van Meeteren (2015) take up this metageography, suggesting that a wider “world city archipelago” (beyond New York and London) remains essential for the realization of capital and the propagation of global uneven development against claims of “convergence.” For these authors, the command and control function for production has been “subsumed in a logic of financialization,” the financial services hold a “class monopoly” on the “the necessary and seemingly sufficient authority and expertise”  necessary for realization, and through their service fees earn “class monopoly rents” (754). The advanced producer service complex (APS) ‘aggregates service interventions in the production space, socially constructs material circuits of value, and enables capital switching’ (761). The APS complex constructs accumulation strategies through applied economic geography, centered on “emerging markets,” but also in carbon emissions markets and in pension funds (and thus in urban real estate) (763-764). 

Outside of the academy, geographer Peter Taylor and the Globalization and World Cities Research Network (GaWC)’s work on city hierarchy have had perhaps the most influence. The GaWC produces formal models of the global city network, and further elaborate on the subnodal intra-service firm networks which complement the supranodal geography of command and control (2001, 182-183). These models then allow the GaWC to rank cities within the global hierarchy. Regardless of its analytic value, the GaWC’s indexing of cities has become incredibly important because of how it is used by financiers, consultants, and city boosters themselves when opening offices and allocating capital (today we can also look at sustainability rankings)

Joshua Leon (2017) argues that the global city concept and indexing have been appropriated by neoliberal city managers and corporate power, that these elites ignore its complexity and internal academic debates, and that they create a discourse of competition to influence city governments’ actions in the world and degree of economic exposure to the world. States and cities provide generous tax incentives and subsidies to attract global capital, a process which Leon calls “municipal mercantilism” (14). Global cities do not rely on a “creative class” to compete (Florida 2003), rather “deploy state power to insulate themselves from markets” altogether. New York City, for example, has used public financing to attract and retain firms like Goldman Sachs and Bank of America, and skyscraper developers–a form of global city boosterism (Leon 15). Furthermore, cities in the global south like Shanghai, Dubai, and Doha (and even Tokyo) have gained “Alpha” status characteristic of free-market, cosmopolitan cities while being very much state development projects (Richard Child Hill and June Woo Kim (2000); see also Acuto 2022). Leon concludes that we should not disparage global cities research, rather understand how corporate sponsorship reduces it to a simplified “‘how to’ manual” (2017, 20-21).

There are numerous other additions to global city theory, such as various postcolonial critiques which challenge the appropriateness of “global city” in the global south and its potential to exclude cities that are not financial centers but nonetheless important for global production circuits (Robinson 2002; Smith 2002). Lusaka, for example, is thoroughly connected to the global economy through copper exports, even though it lacks access to financial markets and foreign currencies (Robinson 2002, 537). Another type of related scholarship complicates Sassen’s third thesis on the shifting relationships between the global city and the state. For example Neil Brenner (1998) and Eric Swyngedouw (2004) both effectively make the point that global city theory erroneously presupposes the declining power of the nation state in global political economy. The breakdown of the Bretton Woods system (itself a product of tensions in global economic scale) and the subsequent globalization of financial capital and currencies leads to new arrangements in production, planning, and regulation (Swyngedouw 2004, 39) where the state “glocalises.”

In sum, whereas for Friedmann and Wolff, “global city-territorial state relations are expressed as a geoeconomic battle between globally mobile TNS [transaction network services] and immobile state territories” which leads to fiscal crises in the latter (Brenner 1998, 8-9 on Friedmann and Wolff 1982, 312), and where for Sassen there is “systemic discontinuity” between the rise of global cities and declining industrial cities in the US, UK, and Japan (1991, 129-167) and a decline in territorial state sovereignty over global cities (1996), for these last authors, city-state and city-city political relations are not zero-sum: scholarship should not conflate the “withering away of state territory” with the reconfiguration of national scale to the global city.

(See Capitalist State, De/Reterritorialization, Enclave, Geopolitics, Growth Machine, Production, Urban Political Economy)

Bibliography

Acuto, Michele. How to Build a Global City: Recognizing the Symbolic Power of a
Global Urban Imagination. Ithaca, NY: Cornell University Press, 2022.

Bassens, David, and Michiel van Meeteren. “World Cities under Conditions of Financialized Globalization.” Progress in Human Geography 39, no. 6 (2014): 752–75.
https://doi.org/10.1177/0309132514558441.

Beaverstock, Jonathan V., Richard G. Smith, and Peter J. Taylor. “World-City Network: A New Metageography?” Annals of the Association of American Geographers 90, no. 1 (2000): 123–34. https://doi.org/10.1111/0004-5608.00188.

Brenner, Neil. “Global Cities, Glocal States: Global City Formation and State Territorial Restructuring in Contemporary Europe.” Review of International Political Economy 5, 1 (1998): 1–37. https://doi.org/10.1080/096922998347633.

Castells, Manuel. La Question Urbaine. Paris: F. Maspero, 1972.

Child Hill, Richard, and June Woo Kim. “Global Cities and Developmental States: New York, Tokyo and Seoul.” Urban Studies 37, no. 12 (2000): 2167–95. https://doi.org/10.1080/00420980020002760.

Florida, Richard. “Cities and the Creative Class.” City & Community 2, no. 1 (2003): 3–19. https://doi.org/10.1111/1540-6040.00034.

Friedmann, John. “The World City Hypothesis.” Development and Change 17, no. 1 (1986): 69–83. https://doi.org/10.1111/j.1467-7660.1986.tb00231.x.

Friedmann, John, and Goetz Wolff. “World City Formation: An Agenda for Research and Action.” International Journal of Urban and Regional Research 6, no. 3 (1982): 309–44. https://doi.org/10.1111/j.1468-2427.1982.tb00384.x.

Geddes, Patrick. Cities in Evolution. Williams & Norgate, 1915.

Harvey, David. Social Justice and the City. London: Edward Arnold, 1973.

Hymer, Stephen. “The Internationalization of Capital.” Journal of Economic Issues 6, no. 1 (1972): 91–111. https://doi.org/10.1080/00213624.1972.11503013.

Knox, Paul L. “Globalization and Urban Economic Change.” The ANNALS of the American Academy of Political and Social Science 551, no. 1 (May 1997): 8–27. https://doi.org/10.1177/0002716297551001002.x

Molotch, Harvey. “The City as a Growth Machine: Toward a Political Economy of Place.” American Journal of Sociology 82, no. 2 (1976): 309–32. https://doi.org/10.1086/226311.

Robinson, Jennifer. “Global and World Cities: A View from off the Map.” International Journal of Urban and Regional Research 26, no. 3 (2002): 531–54. https://doi.org/10.1111/1468-2427.00397.

Rodriguez, Nestor P., and Joe R. Feagin. “Urban Specialization in the World-System.” Urban Affairs Quarterly 22, no. 2 (1986): 187–220. https://doi.org/10.1177/004208168602200201.

Sassen, Saskia. The Global City: New York, London, Tokyo. Princeton University Press, 1991.

Sassen, Saskia. “The Global City: Enabling Economic Intermediation and Bearing Its Costs.” City & Community 15, no. 2 (2016): 97–108. https://doi.org/10.1111/cico.12175.

Sassen, Saskia. “Locating Cities on Global Circuits.” Environment and Urbanization 14, no. 1 (2002): 13–30. https://doi.org/10.1177/095624780201400102.

Smith, Neil. “New Globalism, New Urbanism: Gentrification as Global Urban Strategy.” Antipode 34, no. 3 (2002): 427–50. https://doi.org/10.1111/1467-8330.00249.

Swyngedouw, Erik. “Globalisation or ‘Glocalisation’? Networks, Territories and Rescaling.” Cambridge Review of International Affairs 17, no. 1 (2004): 25–48. https://doi.org/10.1080/0955757042000203632.

Taylor, Peter J. “Specification of the World City Network.” Geographical Analysis 33, no. 2 (2001): 181–94. https://doi.org/10.1111/j.1538-4632.2001.tb00443.x.

Md Mizanur Rahman
Department of Politics, University of California, Santa Cruz

Mark Howard
Department of Politics, University of California, Santa Cruz

The term trade can be used to describe both a particular form of labor (i.e. a work specialization such as carpentry), and also as a general term for the transfer of goods and services. In the context of free trade only the latter description applies. However, what may appear at first to be a simple concept—the free transfer of goods and services—is complicated by many factors deriving from the unavoidably political dimensions of free trade practices. Indeed, many scholars working in the field of International Relations characterize trade, and by association free trade, as a clash of interests and where interests clash so too do freedoms (Skonieczny 2018, 441).

Of course, all trade within a closed economy is generally understood to be free. Most typically this closed economy would be coterminous with a sovereign state, even where multiple nations exist within one state. For instance, the UK has multiple nations within its economic borders—England, Scotland, Wales, and Northern Ireland—and yet in theory (and in post-Brexit terms) has one closed economy—the UK economy. That means that the transfer of goods and services between entities within the UK can move freely, without quotas, tariffs, industry limitations, or currency considerations. The UK’s economy is, however, presently complicated by its partial embeddedness within the European Union (EU); the one major counterexample to a sovereign state as closed economy paradigm (hereafter, domestic economy). The EU is a newer form of economic community which serves as a potential alternative to the closed economy of the sovereign state. It works by creating a theoretically frictionless economy of currency, labor, capital, goods, and services movements between distinct political sovereignties, and in doing so is intended to operate in the same way as a domestic economy.

This is not, however, the domain in which the term free trade generally appears; free trade is more commonly used in discussions pertaining to trade relations between domestic economies (hereafter international trade) in what has become over time a vast international market, or collection of international markets. Thus what becomes apparent for our definition, is that free trade only appears as a term where we have a presumed a prior (or potential) state of unfree trade; a state that has been (or ought to be) undone through the implementation of free trade . Free trade on these terms is a freeing up of otherwise unfree trade relations, which in regard to international trade remains an ongoing and unfinished process. Indeed, Adam Smith (1776, 593) noted over 200 years ago that it would be utopian for us to expect complete freedom of trade to become reality, and so far he remains correct.

Classical Political Economists such as Smith understood international trade, and particularly free trade, to be desirable because it produces an expanded and unfettered market beyond the resources, producers, and/or consumers of any one domestic economy. Smith (1776, 29) argued that “the propensity to truck, barter, and exchange one thing for another” is a “certain propensity in human nature”, thereby implying that an expanded international market would lead to a greater capacity for humans to realize their true nature. There are however a number of other reasons offered through Classical Political Economy, beyond the human nature argument, that suggest an expanded international market to be a good thing. For one, bigger markets mean greater economies of scale—producing in quantity lowers costs, and provides a larger consumer base for greater volume of exchange (Chang 2014, 299).  For another, there is the possibility of greater productive efficiencies in what Ricardo refers to as comparative advantage. He gives a famous example involving the production and trade of cloth and wine between England and Portugal: assume England takes 100 hours to produce a certain amount of cloth, and 120 hours to produce a certain amount of wine, while it takes Portugal 90 hours for the cloth and 80 hours for the wine. Portugal has an absolute advantage in labor terms. However, says Ricardo, the opportunity cost of wine to cloth for England is in a ration of 6/5, while for Portugal it is a ration of 8/9. Because of the inverse opportunity cost, it is actually cheaper for Portugal to get cloth by making wine and then selling it to England, than it is for Portugal to produce cloth itself (Foley 1999, 60).

International trade is not necessarily free trade, however, and Ricardo’s thesis only applies in abstract theoretical terms that do not account for trade costs relating to market entry. In the absence of free trade, there are typically costs, such as tariffs, involved when trading between domestic economies; costs deriving from domestic economic policies put in place by sovereign states to give those sovereign states maximally beneficial economic outcomes. This suggests that while international trade may be beneficial for reasons of specialization and expanded market opportunities, free trade may not always be beneficial, nor desirable for that matter. Interestingly, one of the greatest early champions of protectionist policies (i.e. policies designed to create barriers of entry into a domestic economy by foreign domestic economic actors), was the US, who are today champions of free trade policies around the globe (Chang 2014, 48). So why the shift of position?

Put simply, there are reasons why free trade works for some economies and does not for others, and this depends on their level of economic development and the global demand relating to their economic specializations. Free trade negates what is known in technical terms as infant industry protection, a way for domestic economies to develop their own capabilities in a burgeoning industry by putting up barriers of entry to foreign economic actors, thereby blocking that industry from interference by other, more developed, economic actors (Chang 2014, 297). This is where protectionism can be beneficial, even if the term has today come to be seen as pejorative. The fact is, the US is the powerful nation it is today in part because its early protectionist policies allowed it to develop its industries relatively undisturbed by more technically advanced economic powers such as Great Britain, which was at that time (due to its empire, an example of unfree free trade) the greatest industrial power in the world. Now that the US is the world’s largest economy, it suits the US to have free trade policies with other nations, as it has a distinct economic advantage going into what are supposed to be equal trade interactions. This discourse of equality in economic freedom obscures what is in fact an unlevel playing field tipped to the advantage of developed economies. As it happens, the US has been far more inconsistent (and creative) on this point than many may think. Between 1981 and 1986, for instance, the US, under pressure to implement trade protection to stimulate its economy after years of stagflation, instead opted for currency depreciation relative to the currencies of its major trading partner (Frieden 1991, 448), a policy it currently criticizes China for given the negative impact it has on US trade. Free trade does not evidently signify trade practices free from hypocrisy.

It also does not signify trade practices free from unequal power relations. Isaiah Berlin (1969, 168) famously distinguished between two forms of liberty (i.e. social or political freedom): negative (e.g. freedom from interference from others), and positive (e.g. freedom to pursue an aim or cause). Most discourses of freedom focus on negative freedom, the removal of restrictions or threats. What is interesting about free trade  is that the form in which freedom appears in a trade agreement depends on who you are in that trade relationship: if you are a weaker economy that may benefit from infant industry protection, then free trade may actually mean negative freedom to trade without interference from others; if you are a strong economy with a distinct advantage, and in need of new markets, then free trade means both positive freedom to trade with the foreign domestic economy, and negative freedom from barriers to entry in that economy. The two are in tension, and rarely, unless there is genuine power parity, along with mutually compatible comparative advantage opportunities, is free trade not instigated without an element of force.

Being forced to be free is no kind of freedom, but such practices are very much part of the history of free trade. Gunboat diplomacy in the nineteenth century is a particularly brutal example of domestic economies being forced to engage in free trade, the most notable example being the infamously unequal Nanking Treaty that Great Britain imposed on China following their 1842 defeat in the Second Opium War (Chang 2014, 49). Today the imposition of free trade treaties constitute a central aspect of the neoliberal thinking propagated by US-created global institutions including the World Bank and the IMF. Though military force is no longer typically used—the US invasion of Iraq and subsequent implementation of neoliberal policies a (perhaps contentious) counterexample—weaker economies are frequently forced into free trade postures in return for debt restructuring or foreign aid (Harvey 2007, 7, 29). In the end, although the question we began with was ‘what is free trade?’, the question we arrive at is ‘what is actually free about free trade?’. The answer, it appears, depends on who you are.

(See Liberalism, Neoliberalism, Labor Migration)

Bibliography

Berlin, Isaiah. Four Essays on Liberty. Oxford University Press, 1969.

Chang, Ha-Joon. Economics: The User’s Guide. Vol. 1. Bloomsbury Publishing USA, 2014.

Cohen, Benjamin. “The IPE of Money Revisited.” Review of International Political Economy 24 (4) (2017): 657-680.

Folbre, Nancy. Greed, Lust and Gender: A History of Economic Ideas. Oxford University Press, 2009.

Foley, Duncan K. “Notes on the Theoretical Foundations of Political Economy.” 1999.

Frieden, Jeffry A. “Invested Interests: The Politics of National Economic Policies in a World of Global Finance.” International Organization 45 (4) (1991): 425-451.

Harvey, David. A Brief History of Neoliberalism. Oxford University Press, USA, 2007.

Harvey, David. Marx, Capital, and the Madness of Economic Reason. Oxford University Press, 2017.

Skonieczny, Amy. “Trading with the Enemy: Narrative, Identity and US Trade Politics.” Review of International Political Economy (2018): 1-22.

Smith, Adam. The Wealth of Nations. 2003 ed. New York: Bantam Dell, 1776.