Catalysis and Consumption

You mean this might actually be a *good* thing?

A couple of weeks ago, I took sceptical aim at a post by Nancy Birdsall at the Center for Global Development in which she revealed that she and her colleague Andy Sumner would be initiating a research programme looking into the middle classes, and in particular, what she calls ‘the catalytic class’. I (with all the subtlety of a steroid-guzzling sledgehammer with STUDENT OF POLITICAL ECONOMY embossed on its head) made the point that ‘the catalytic class’ was merely a synonym for capitalists.

In this post, I want to draw out some of the subtlety from the sledgehammer, because there’s value to the research agenda they speak of: it’s true that the middle classes and capitalists have a hugely important role in the development of an economic system that successfully employs large numbers of the poor and provides the resources required for the state to provide public and market sub-optimal goods it must. However, I would strenuously argue that to focus on the ‘catalytic class’ is incorrect: rather, we must understand the conditions under which catalysis occurs.

Further, the role of the middle classes in general and how they function, and the role of capitalists and how they function are quite different, though they are profoundly connected as well, and its important to understand both the differences and the connections.

To start with, it’s very important to be clear about who I am talking about when I say ‘middle classes’ and ‘capitalists’. After my first post, a really good response came up from Chris Prottas. He’s quite critical of my initial shot at the CGD, arguing that the catalytic class were a very special subset of the middle classes who, in fighting for their own betterment, inadvertently improve the lot of the poor as well. The key passage:

Yes, the emergent bourgeoise are capitalists … but what makes them (potentially) a special ally of the poor is that they economically support a new set of public interests to compete with those of the existing elite… To the extent this new class’ power benefits from public goods that benefit the poor, the emergent bourgeoisie may indeed catalyze positive change that would not otherwise occur…

The catalytic class are a special subset of bourgeoisie: bourgeoisie that happen to have interests that align with the poor. It is a happy accident that they benefit from the same public goods. It is a happy accident that their source of wealth increases demand for labor from the poor. To call them simply capitalists is to lump them with the bourgeoisie that make a fine living virtually detached from the poor.

Emphasis mine. Much of this criticism stems from confusion of terms. A capitalist, according to the classical definition, is a very special case of the middle class: a person who holds a large volume of capital and extracts value from wage-labour by using this capital. This is very important. It’s not sufficient that he is middle class, or bourgeois, or that he is rich. What is necessary that the source of the profits he makes is the use of wage-labour and capital together, to increase the value of the goods he or she produces over and above the cost of the labour he hires. It’s for this reason I highlight the sentence above: using the term capitalists is therefore serving to do the exact opposite of what has been suggested: it isolates those members of the economically powerful classes who employ the poor. People whose livings are made through feudal structures of landholding, or through speculation are not in the classical sense capitalists.

The middle classes more generally are those with means in the middle range of society – not the very rich (be they capitalist or the hereditary rich who employ few) nor very poor. They are defined by their capacity to consume. This is the crucial distinction: the middle classes are such because of their consumption (and their cultural and social norms), while capitalists are defined by their productive relationships. Both are important in the transformation to a dynamic economy, but it’s only the latter that truly catalyse the economic transformation and with it, the fortunes of the poor.

It’s clear how capitalists help the poor: they provide jobs. Where an economic activity provides wage-labour, two positive benefits are observed by the poor in direct and indirect fashion. Directly, previously unemployed people and previously underemployed people now have the opportunity to earn more – where previously jobs did not exist, or employment was insufficient to utilise all the man-hours available from each person, a new, full-time job now exists. What’s more, in places where informal social security networks are important, this translates into direct gains for a much larger number of people than those employed.

The indirect gains are also relatively straightforward. A vibrant, capitalist economy expands quickly, as the incentive of the capitalist is always to increase the value he extracts from labour by applying more capital and better organisation. This surplus then powers further investment and thus further employment as the economy expands – all great news for the poor. The transition to a capitalist economy is something that has happened in virtually every developed economy in the world, and even in China a sort of state-backed capitalist distribution of resources and incentives obtains.

It is thus the capitalists above all others who can correctly be described as a ‘catalytic class’. However, the great question is ‘how do we stimulate the existence of capitalism?’ What converts the entrepreneurial (for these are abundant across the world) into capitalists? I’ve covered this before, and don’t wish to restate myself, except to note that the characteristics of the class that become capitalists themselves need no manipulation; rather the ability to accumulate capital, the role of property rights (strong, but flexible), and infrastructure and other related conditions need to be addressed.

Where it’s necessary that I add to what I’ve previously argued, however, is concerning the role of the middle classes more generally. Almost all of what I’ve discussed before has focused on the role of reforming the ability of capitalists to accumulate sufficiently to power a massive productive transformation of the economy. However, there’s a definite case to be made that there is a consumption-driven revolution that needs to take place alongside this. This is not a new argument: it’s a slightly different view of what Jan de Vries argued in 1994 when he wrote the ‘The Industrial Revolution and the Industrious Revolution’ in the Journal of Economic History (I couldn’t find an ungated version to link, unfortunately).

De Vries argued that concurrent to the Industrial Revolution, there was an observable increase in output from small working units attributable to harder work, rather than better organised or more technologically-driven work, which he called the Industrious Revolution. This increase in production did not involve the transition from small units of production to the large-scale production characterised by the new factories being built around England and the rest of Europe; and the increased profits and consumption that resulted from this served to provide some of the capital and demand that allowed the industrial revolution to take root. Since he made this argument, other economic historians have shown that his assumption that the industrious revolution was primarily powered by harder work rather than technology may have been incorrect, but the fact that there was an increase in production and correspondingly in consumption before and alongside the movement to large-scale capitalist production remains intact.

The concept of the industrious revolution is probably most valuable when one analyses its consumption effects. Chris Bayly has shown that industrious revolutions took place around the world, and were characterised by the increasing availability and desire for luxury goods that had previously only been widely available to a small elite. This democratisation of consumption had a profound economic impact – it provides a surplus and internal market which can sustain the transition to capitalism, but also creates a culture of consumption that is crucially important to motivate the change of economic structure in which the household ceases to be the locus of economic activity. In other words, the emergence of a more-rapidly consuming middle class can motivate the movement towards capitalist production, if the constraints to such a form of production have been weakened. It’s through this effect that the middle classes have their greatest effect on the poor, if like me you believe that the best thing for the poor is more and better employment.

(There is a distinct benefit that the middle class (or a subset thereof) can bring to the poor as well – the demand for public goods. This is a point made by Chris Prottas in the piece linked above, and it’s very valid. These demands are dependent on their economic and political power and thus can be linked at least partly to their role in an industrious revolution).

This is a very brief consideration of what is, after all, a very complicated and diverse transformative experience. However, it serves to illustrate a few issues raised by Birdsall and Sumner’s proposed lines of research. Firstly, that the ‘catalytic’ class, insofar as it impacts directly on the poor, requires research concerning how best to remove constraints to it, rather than a direct focus on its characteristics. Secondly, that the role of the middle classes, even those distinct from the catalytic class, remains crucial and operates at least partly through their consumption behaviour. And thirdly, it raises the point that the entire process of economic transformation, through which the poor benefit substantially through job creation, needs careful consideration, as the different agents in the process each behave and change differently and with potentially significant effects for each other.

One thought on “Catalysis and Consumption

  1. Chris Prottas

    April 9, 2011 at 5:34pm

    Ranil, Thanks for the clarifying post and most of all your agreeable disagreement! It is a pleasure to come across. I think we’re on the same page for the most part but I’ll offer some thoughts over the next couple days. I enjoy the blog.

    best,

    Chris

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