'Regulatory Capitalism, Globalization and the End of History' (RegNet Research Paper No. 2014/33) by the superb Peter Drahos
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Regulatory capitalism is a capitalist order in which actors, both state and non-state, use a wide array of techniques to influence market behaviour. Many actors find themselves in regulatory relationships, relationships in which they are sometimes the regulator and in other contexts the regulatee. Regulatory capitalism is characterized by webs of relationships and interactions that produce what scholars within the University of Hokkaido Global COE program term 'multi-agential governance'. The globalization of regulation has seen many more regulatory states become 'regulatees' in various domains, meaning they have taken on standards set elsewhere. Comparatively few states can claim to have been standard-setters as opposed to standard-takers in the process of regulatory globalization.
Using as point of departure the study of regulatory globalization that I conducted with my colleague John Braithwaite, which was published in 2000 under the title of Global Business Regulation (GBR), I want to focus on the rise of Brazil, Russia, India, China and South Africa (BRICS) as agents of regulatory globalization rather than as emerging markets. ...
Someone with a lot of faith in regulatory capitalism might argue that it is only a matter of time before
regulatory capitalism produces responsive strategies that secure a level of sustainability for the earth
system that is consistent with continued human occupation and use of the system. Views about the
future cannot be settled until it arrives. My caution about investing faith in the regulatory capacity of
today’s capitalism lies in the extractive nature of what I take to be its central and driving institution –
property rights. One of capitalism’s fundamental characteristics is ever higher levels of commodity
production and exchange. Drawing on a distinction made by Marx between use value and exchange
value some things, such as eco-systems, have a use value without necessarily having an exchange
value. Capitalism as a system of commodity production relies on property rights in the process of
converting things that have use values into commodities i.e. things with exchange values. The best
illustration of this process is the way in which the ‘commons’ is rhetorically characterized as leading to
a ‘tragedy’ of destructive overuse and the solution is seen to lie in its commodification through private
property rights. The commodification solution tends to ignore the history of stateless societies of
indigenous peoples. These societies, operating with very different systems of resource control and
property to be found in capitalist societies, were not only able to avoid the tragedy of the commons,
but in many cases were able to increase their surrounding levels of natural capital. The
commodification solution also overlooks the centrality of the intellectual commons to human creativity
and to freedom.
The role of exclusive property rights in capitalist systems of production is generally justified on the
basis of some notion of efficiency, either allocative in the case of tangible goods or dynamic in the
case of intangible goods. These efficiency arguments ignore a swathe of problems, including the real-world information problems in being able to internalize all externalities through property rights, as well as the presence of transaction costs and unequal distributions of power that disrupt efficient
bargaining. As Yoshiyuki Tamura has argued there is a structural bias in favour of the expansion of
intellectual property rights, an expansion that is difficult to justify in terms of efficiency.
Capitalism’s property solution to the so-called tragedy of the commons is not about saving multifunctional
ecological systems, but rather about allowing a particular commodity system such as cattle
production to follow an economies-of-scale logic. This economies-of-scale logic heightens rather than
lessens the destructive impact of commodity production on vital use values being generated by
different kinds of commons. The purpose of property rights in this commodity system is to maximize
the rent extraction process or allow a more ‘efficient’ rent seeker to obtain a market transfer of the
resource. Mainstream economics lends ideological legitimacy to these processes by giving very little
recognition to the problems of natural resource constraints in devising production functions.
Essentially regulatory capitalism, like other capitalist orders before it, prioritizes exchange value over
use value. It is true that regulatory capitalism does more to regulate the process of commodity
production, using principles such as polluter pays or through the invention of new managerialist
techniques for natural resources. However, as data from the IPCC and the MA, along with many
other sources, show the main game is the conversion and degradation of the earth system’s use
values so that commodity production and exchange can march on. The real tragedy of capitalism has
much less to do with the commons and much more to do with unsustainable levels of
commodification.
The faithful optimist in the adaptive power of regulatory capitalism might point to some encouraging
signs of systems adaptation. The emergence of ecological economics is allowing us to place dollar
estimates on the use value of the earth’s systems and cycles. So, for example, the coastal wetlands
of the US help to protect it from damage from cyclones and hurricanes. Economic modeling suggests
that these storm protection services from the wetlands amounts to more than (US) $23 billion per
year, making the preservation of wetlands a highly cost-efficient exercise. There are attempt to
devise regulatory models for trade in ecological services. A number of countries have moved
towards purchasing defined environmental services that have an environmental goal such as the
reduction of the pollution of land or the maintenance of biodiversity. These are obviously encouraging signs. However, the problems that regulatory capitalism faces at the earth systems level are of a different order to those it has faced in individual industry sectors where it has progressively
assembled a track record of, as Malcolm Sparrow puts it, picking important problems and solving
them.
Drahos concludes -
Regulatory capitalism is a distinctive order of capitalism characterized by dense webs of relationships
and an array of regulatory techniques in which the state and non-state actors can end up either as
regulator or regulatee. The BRICS have in the last decade or so emerged as market powers
confronting regulatory domains that have since World War II globalized to a significant degree. As
section 3 of the paper suggested the BRICS have entered regulatory orders not of their own making
and often under conditions of US and/or EU hegemony. To some extent individually, but clearly
collectively they are now in a position to form an effective veto coalition to global regulatory agendas
coming out of the US or EU. They have yet to translate their economic power into the networked hard
and soft power that has seen the US state and US multinationals be such effective actors of global
regulatory change. In the area of global financial regulation there is an urgent need for approaches
that shift regulatory capitalism way from the instabilities being generated by US crony financialism.
For the moment the BRICS can at best be described as taking modest steps in this direction.
In section 4, I suggest that regulatory capitalism may represent the end of history, but not quite in the
sense intended by Fukuyama. My central contention in this part of the paper is that addressing the
problems of the earth system will require much more than the smart use of regulatory techniques.
These techniques will not of themselves be enough to prevent the tragedies of commodification, the
shadows of which loom ever larger. What is also needed is for us to re-think the operation of
capitalism’s most fundamental institution – property. Whether the rise of the BRICS will help to bring
about such a revolutionary process is hard to say. No doubt there will be much criticism of my claim,
as well as different ideas on how to begin the task of re-thinking property. My own view is that we
need to study more closely the idea of a property cosmos in which conditional permissions play a
much more central role than exclusive rights. Examples and variants of such a property cosmos are
to be found in the indigenous societies of Australia, societies that were able to adapt to the great
droughts and ice ages that occurred during their 50,000 year occupation of Australia. Central to this
extraordinarily long period of continuous occupation was the way in which these indigenous societies
were able to integrate cosmology and property