Globalization, the Distribution of Power, and Full Employment

Power and conflict have virtually no role in mainstream economics, the main reasons being the pervasive influence of the competitive model and the difficulty in incorporating power quantitatively in formal models. However, two important contributions to our understanding of the impact of power on the economy are Kalecki’s theory of the political business cycle (1971) and Keynes’ analysis of how persistent high unemployment affects power struggles and the stability of a capitalist system (1936, Chapter 24). In Kalecki’s theory, conflict is a natural outcome of a social order that combines capitalism with full political democracy, because of the tensions between the political demands flowing from universal suffrage and the distributional rewards generated by the market system. Kalecki believed that in the long run, full employment capitalism and full political democracy were incompatible. To survive, capital had to retain a minimum amount of power, and prolonged periods of full employment denied them this critical minimum. However, having the upper hand in both the market and the political arena, capital could alter the terms of the conflict and the degree of labour militancy by varying the distribution of political power, i.e. more or less democracy, and the distribution of economic power, i.e. more or less unemployment.