Capitalism has become a loaded term in contemporary society; it is used in reference to wide ranging, differing and sometimes opposing perspectives. Consequently, there is a need to pin a working definition on this term and describe the forces at work which account for the growth of large scale organisations. Also in need of some description is society before capitalism to allow for comparison. The views of Marx and Weber on capitalist development will be critically examined using a variety of more contemporary sociologists, economists and historians. With reference of the forces within capitalism, next will be an investigation into the reasons for large scale growth of the private sector; followed by showing the symbiotic relationship of the public sector that accounts for its mutual expansion.
According to some historians, the modern capitalist system originated in the ‘crisis of the fourteenth century,’ where there were widespread conflicts between the land-owning aristocracy and the agricultural producers (Brenner, 1977). The subsequent decline of the feudalistic manorial system in England allowed tenant-farmers more freedom to market their goods and consequently incentivised investment in new technologies. Lords who did not want to rely on rents could evict tenant farmers or buy them out; then hire free-labour to work their land instead (Brenner, 1977).
According to Karl Marx, this rise in contractual relationship is intimately bound to the end of the obligatory relationship between serfs and lords. Marx characterises this transformation as ‘the historical process of divorcing the producer from the means of production.’ It was this ‘divorcing’ that turned the serf’s land into the lord’s capital. According to Marx, this reorganisation led to a new division of classes (Marx, 1867 cited in Fowkes, 1976).
Also incentivised was investment in production, along with the ‘enclosure movements,’ which transferred public lands to private landowners; land increasingly became viewed as a commodity that could be used to create wealth through grazing sheep rather than simply to provide sustenance for the peasants (Devine, 1999; Hobsbawm, 1968).
Marx and Weber recognised that capitalist activity has occurred in various forms and historical settings. However, both were more concerned with the modern phenomenon of capitalist activity being a principal factor in the organisation of entire societies. Marx’s emphasis is on the way in which the property-owning bourgeois class buy the labour power of the landless proletariat to meet their own ends. Weber on-the-other-hand stresses the organisational rationalism that sets Capitalism apart from its predecessors; the work of free citizens is now managed on a routinised and calculative manner unlike any other system (Watson, 1995).
According to Marx, the treatment of labour as a commodity led to people valuing things more in terms of their price rather than their usefulness, and therefore stimulating an expansion of the capitalist ‘system of commodities’. Marx observed that while some people bought commodities in order to use them, others bought them in order to sell them on at a profit. Weber counters Marx’s one-sided materialist and determinist view on the rise of capitalism by showing the part played by new ideas and social change that came from the rise of Protestantism (Watson, 1995).
The Reformation profoundly affected the view of work, dignifying even the most mundane jobs as adding to the common good and thus blessed by God, as much as any ‘sacred’ calling (Weber, 1930). The Roman Catholic Church assured salvation to individuals who submitted to their authority. However, the Reformation removed such guarantees. In the absence of such reassurances from religious authority, Weber argued that Protestants began to look for other ‘signs’ of their salvation. Worldly success became one measure of God’s grace; this had a profound impact on the way society viewed work and capital accumulation (Weber, 1930). In pre-capitalist societies, entrepreneurs often tried to encourage harder or longer work by offering a higher wage, with the expectation that labourers would see time spent working as more valuable and so engage it longer. However, the more common result was labourers spending less time working (Weber, 1930). At this time hard work was done simply because survival demanded; it was not a ‘duty’ to work hard nor was it seen as a way of improving oneself. (Watson, 1995).
Weber therefore introduced the idea of modern capitalism growing out of the religious pursuit of wealth; which meant a switch to a rational means of existence, wealth. At some point the Calvinist rationale informing the ‘spirit’ of capitalism became independent of the underlying religious movement behind it, leaving only rational capitalism. Essentially, Weber's ‘Spirit of Capitalism’ is actually more generally speaking a ‘Spirit of Rationalization’ (Bendix, 1977).
Surprisingly, Weber missed perhaps the most crucial ‘unintended consequence’ Protestantism had on the development of Capitalism; the promotion of mass literacy. Literate people provided greater opportunities for modernisation, development, rational organisation and therefore economic growth. Empirical tests have confirmed the presence of a rather strong and highly significant correlation between the early introduction of mass literacy and subsequent high rates of capitalist economic development (Korotayev, Malkov , Khaltourina, 2006). Furthermore, mass literacy facilitated the ‘Scottish Enlightenment’. A period in British history that not only provided industrial geniuses like James Watt, who is responsible for the engine driving the Industrial Revolution; but also many individuals pivotal in the founding of the social sciences. Individuals such as Adam Smith, David Hume and Adam Ferguson who were all applying Newtonian scientific principles – a central part of their higher education – to their insights on religion, economy and society in general. In effect they were fundamental to the process of rationalising society as a whole (Devine, 1999).
Marx and Weber agree that Capitalism generally refers to an economic system in which the means of production are all or mostly privately owned and run for profit, and in which investments, distribution, income, and pricing of goods and services are determined through the operation of a market economy. It is usually considered to involve the right of individuals and groups of individuals acting corporations to trade capital such as goods, labour, land and money (Marshall and Barthel, 1994).
The factory system and subsequent Industrial revolution arose from industrial inventions and innovations of the 18th century. Marglin (1980) argues that factories came from the need to secure control over the labour-power of the existing decentralized ‘putting out’ system. However, It could be argued that this was as Weber would call an ‘unintended consequence’ of industrialisation; seized upon and used initially by British colonialists to organise manual workers in this more administratively efficient manner (Hobsbawm, 1968); rather than being an actual root cause. Furthermore, the resilience of the cottage industries until late into the 19th century (Hounshell, 1984) reveals that the drive to secure control over labour-power was not as dramatic a proponent as Marglin suggests.
Nevertheless, industrialisation and the factory system produced a significant rise in what Marx calls ‘the organic composition of capital’ because machines and procedures were introduced dramatically increasing the output capability of workers. This initiated the phenomenon known as mass-production; the resulting drop in production cost and the increase in the speed in which products could be manufactured allowed commodities to be more affordable to the general population.
Thus the industrial capitalists had a seemingly insatiable ‘mass-market’ that they could not produce fast enough to satisfy. An impetus to extend the scale of production to accommodate this mass-market developed. The decline of the individual owner entrepreneurial business resulted as owners opted to raise the capital they needed for scaling up and expansion of their operation. They either sold shares which lead to the emergence of joint stock companies; and/or approached the bank for investment and thereby fused their industrial interests with the financial sector. This attempt to accommodate the mass-market is central to understanding the huge growth of private organisations from this period onwards.
However, within a capitalist society there exists a basic inequality in the distribution of resources. Particular social groups are in charge of the means in which wealth is produced; whereas for most social groups, their only means of earning a living is the capacity to work for a wage under the direction of others. These groups are subject to the calculated and systematic pursuit of profit by those who own or control that capital (Watson, 1995).
In a market capitalist society, increased competition leads to the growth of fewer but larger firms because organisations with access to most resources are able to marginalise weaker organisations and take over their markets. As a result of these large companies swallowing up the market, a process of concentration and centralisation of capital follows. Rationality is calculation, a force advancing the development of science and technology with an associated expansion of the technical division of labour and the bureaucratic organisation of work. (Watson, 1995)
Paradoxically, it is competition itself which fuels the growth in the `organic composition of capital’ and subsequently leads to monopoly, the rise in cartels and market rigging which stands in direct opposition to the principles of free-market capitalism (Lane, 2011). Weber notes that this rationalisation and its accompanying individualism, materialism and acquisitiveness are a threat to social solidarity because they create basic tensions within capitalist societies (Watson, 1995).
From the perspective of the market, organisations that run with lower productivities are penalised; they take longer to produce than those with higher productivities. Accordingly their products tend to be more expensive because they contain a higher labour cost. Consequently, they will not be able to access the mass market and therefore be relegated to niche/specialist markets where less profit is made (Lane, 2011).
Furthermore, firms with ‘higher organic compositions of capital’ are capable of producing cheaper goods more efficiently than firms with lower `organic compositions of capital’. Baechler (1975) argues that the defining feature of the capitalist system is ‘the privileged position accorded the search for economic efficiency’. This often manifests in employees losing their livelihood as a consequence of their employers’ honest and diligent pursuit of efficiency (in Watson, 1995 p97). Consequently, the more capital intensive have a tendency to marginalise the more labour intensive (Lane, 2011).
Organisations reflect their rise in the ‘organic composition of capital’ as they grow in size. However, structural contradictions concealed within the system of value production begin to reveal themselves in the tendency for the rate of profit to fall and producing periodic crises of over production/accumulation requiring systematic destruction of capital values and the forces of production for their resolution. Marx saw these tensions as capitalism carrying ‘within it the seeds of its own destruction’ (Marx, 1850). However, Marx appears to have underestimated the social, political and bourgeois response to these tensions as they attempt to rebalance the system. Weber on the other hand accepts that constant adaption is as likely as revolution or collapse (Watson, 1995). Business bankruptcies, downsizing, rationalisations, redundancies all serve to initiate renewed rounds of capital accumulation through substantially wiping out weaker competition; at the same time socially and politically weakening the working class, so that new labour rates can be imposed (Lane, 2011).
A common misconception particularly among anarcho-capitalists is that the public sector ascended solely in response to the private sector; that they are incompatible and in constant conflict with one and other (Marshall, 1992). Upon closer inspection particularly at state level, we get an altogether different picture. The public and private sectors are far from being bitter enemies. One could argue that they are two heads of the same Hobbesian Leviathan dedicated to the exploitation of the working class. For example, the state has always been crucial in safeguarding terms of trade, granting licences and charters that facilitated the plundering of the colonies or dividing up the spoils of War; all of which expedited capital accumulation in the private sector (Lane, 2011).
Public organisations invest in and maintain infrastructure crucial to commercial interests, such as roads, railways, docks, airports, communication networks, policing and courts. Public health and educational organisations train the next generation of workers and keep them healthy enough to work. All this supports the private sector in their exploitation of the masses. Additionally, state involvement in regulating, managing or even rescuing ailing private businesses; bringing them into public ownership. Something many have argued since the recent banking bail-outs; the consequential ‘Age of Austerity’ and cuts in the social services, conflicts directly not only with the interests of the general public (Inman, 2011), but also with the basic principles of market-capitalism.
Throughout history public organisations have emerged to secure control over the developing working class. As far back as 1351 the English parliament introduced the ‘Statute of Labourers’ which prohibited the movement and wage increases of workers in an attempt to recover from the labour shortage and instability in the years following the Black Death (Ibeji, 2011).
Growth in activities of the state is strongly linked to dispossession of the peasantry exemplified by the various ‘Enclosure Acts’; often leading to brutal ‘clearances’ of the native peasantry (Devine, 1999). The requirement to accommodate and regulate this growing land-less working class and their trade unions led to the growth of multiple organisations concerning employment contracts, health, welfare and political representation (Lane, 2011).
The need to manage these paradoxes within the ‘Capitalist Mode of Production’ led to the growth of numerous organisations dealing with social deprivation, poverty, and uneven development (Lane, 2011). Such as the formation of Poor Houses arising from ‘The Poor Law Amendment Act of 1834’ which swept away an accumulation of poor laws going back nearly five hundred years, and replaced them with a national work system for dealing with poverty and its relief based around the dreaded and deliberately unpleasant drudgery of the workhouse (Hobsbawm, 1975).
The importance of ideological campaigns to encourage work, thrift and duty has been highlighted in Weber’s analysis of the role of Protestantism. However, since the decline of religion various public organisation, not least the state have emerged to espouse similar ideological messages (Marshall, 1992).
In more recent history Globalization has fostered the need to regulate the terms of trade and competition between firms beyond national borders leading to the growth of multiple organisations concerned with trade and economic management. The growth of supranational organisations, like World Bank or the European Union as regulation of terms of trade becomes increasingly relevant in the interdependent globalized economy (Sweet and Sandholtz, 1997; Lane, 2011).
The above examples of the inducements to growth are focused primarily on the large state sector organisations. However, the forces within capitalism are not linear; rather they are fragmented and distorted by value relations and political agendas. As a result, there is still space for the existence of a wealth of smaller businesses and organisations operating within the nuances of the dominant economy. There are the various organisations of the working class themselves, such as trade unions and political parties; along with a whole range of other grass-roots level public organisations such as consumer groups, sports associations, environmental groups, neighbourhood associations and self-help groups (Lane, 2011).
In conclusion, the reasons for the growth of large scale organisations in the private and public sector within market capitalist societies is rooted in Protestant concepts of individualisation, self-improvement through work, capital accumulation as evidence of God’s grace, self-discipline, work ethic and most crucially, the ‘spirit of rationalization’.
These Protestant concepts in tandem with the resulting mass literacy played no small part in producing many of the geniuses, inventors and innovators that scientifically rationalized industrialised and modernised society.
The rationalising of society along with the technological inventions of the time were key factors in the evolution of large-scale public and private organisations. The increase in the ‘organic composition of capital’ caused by organisational and technological innovations of the factory system and subsequent affordability of products created a mass-market. The attraction of the mass-market serves as an impetus to borrow heavily in order to scale up operations, fusing industrial and financial interests allowing larger firms to swallow up the market ostracising independent traders and smaller firms.
Competition and rational pursuit of economic efficiency is responsible for the growth in this `organic composition of capital’ which is reflected in the growth of the organisation. Without state intervention this leads to the concentration and centralisation of capital in fewer hands. These paradoxical tendencies need to be regulated, managed and balanced through public organisations; which themselves grow to reflect the scale of the task they are required to undertake re-balancing the off-set created by the forces of Capitalism.
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