Roads to Social Capitalism
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Roads to Social Capitalism

Theory, Evidence, and Policy

Peter Flaschel and Sigrid Luchtenberg

The current crises in the financialization of capitalism, and their repercussions on the financial viability of entire countries, severely question the achievements of mainstream economics and its disregard of Keynes’s theory of effective demand and finance. In view of this, Peter Flaschel and Sigrid Luchtenberg consider roads to a type of capitalism that could eventually be considered as ‘social’ in nature. The authors underpin their study with theory, empirical evidence, and policy from a positive as well as a normative perspective. As points of departure for their concept of social capitalism, the theoretical framework provides a synthesis of the work of Marx, Keynes, and Schumpeter on ruthless capitalism, regulated capitalism, and competitive socialism.
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Chapter 2: Segmented Labour and an Employer of Last Resort

Peter Flaschel and Sigrid Luchtenberg


The folly is now patent of the economic wisdom that preaches to the labourers the accommodation of their number to the requirements of capital. The mechanism of capitalist production and accumulation constantly effects this adjustment. The first word of this adaptation is the creation of a relative surplus population, or industrial reserve army. Its last word is the misery of constantly extending strata of the active army of labour, and the dead weight of pauperism. (Marx 1954, p.603) Chapter 1 has provided insights into a period of capitalism where nearly no hindrances existed for the exploitation of the working population so that capitalism could be described as failing with regard to the development of a society in which all members are able to live in an acceptable way. As we have shown, social legislation began in Europe (in Germany under Bismarck) at a time when many workers (including children) were suffering from too much work and little income with no social insurances. It lasted until the 1920s before unemployment insurances were established in European countries. The question now is whether the present situation of the working population can be considered as acceptable or whether we see again a failing capitalism at work which needs urgent changes. If we look at the case of Germany, for example, we find a larger portion of the active working population in a situation which can be compared with the Marxian reserve army of the preceding chapter: Low income work, atypical work, ‘part-time’...

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