from Robert Locke
“Convergence theory states that as societies become increasingly industrialized, they begin to resemble other industrialized societies. That is, they converge towards other forms of social organization” Ashley Crossman
When I first ran across convergence theory in the 1980s in the European Institute for Advanced Studies in Management (Brussels) academics in management and economics were very much under the dominance of the Americans, and the convergence talked about was on American models. My problem was that I had, although an American, learned about economics as a discipline and management as a process from a study of Germany. At the EIASM, where I held a chair 1982-84, I discovered not only that this institute was completely dominated by US outlooks but that nobody there (there was a notable absence of people from the German speaking world in the institute) knew much about Germany. And I knew that much in Germany diverged from US management and industrial experience.
.Anybody who knows some history should realized that. R R Palmer in The Age of the Democratic Revolutions: A Political History of Europe and America, 1760-1800, made it clear that in the 18th century democratic revolutions took place in the US and on the literal of Europe’s Atlantic coast: these societies were transformed. But no similar transformation took place in central Europe, which if deeply affected by the French Revolution, remained throughout the 19th century authoritarian monarchies and societies with many of the characteristics of a feudal past still in vogue. (The same could be said of Japan). I learned that societies that had undergone democratic revolutions in the 18th century industrialized in the 19th and 20th, because of them, differently than societies like Imperial Germany and Japan that had not. The latter industrialized differently but nonetheless successfully. For convergence people, however, who believed the British and American experience was normal, the fact that there could be highly industrial societies that followed different paths had to mean that they were “anachronisms.”This conclusion has led to some tortured views, the Hans Ulrich Wehler school in German historiography, for example, that tried to blame the First World War and the Second, on Germany’s failure to develop a liberal parliamentary system. Because such a system is a “normal” evolution, Germany reached a turning point in history and didn’t turn: The reactionary autocrats and aristocrats retained control over the country, when normally, they should have lost it. How with such a bunch at the helm, Germany became by 1913, a highly advanced social, economic, and industrial society this convergence view cannot explain.
The convergence as opposed to a divergence view also clarifies the limitation of economic thought from the beginning. The classical economists lived in a London-centered world emporium in which they developed their theories, which they wrote large. In “Reassessing the basis of economics: From Adam Smith to Carl von Clausewitz,” rwer 61, 26 September 2012, I noted that had we shifted our attention away from the London-Emporium to continental Europe, we would have based economics not on the behavior of the individual but on the behavior of the nation-state, since it was the principle pre-occupations of people in Europe in the late 18th and early 19th century (and still is throughout the world). Using Carl von Clausewitz as an example, the economics would have been quite different from a divergence point of view from that assumed in standard classical and neo-classical convergence parlance.
The same is true of the recent reaction to Pikkety’s claim: “If the rate of return on wealth ® is greater than the rate of growth, then wealth is likely to be ever more concentrated.” Most of the debate seems to be about what Pikkety means by Capital i.e., that he was emphasizing financial not physical capital. Merijjn Knibbe in his post (May 1), “The definition of capital and the difference between the productivity and the profitability of capital,” for example, notes:When we want to analyze economic growth, we might want to use an index of the amount of physical capital. When we want to study inequality, it might be wiser to look at the liability side of the balance sheet (finance capital).” Financialization, the transition from management capitalism to finance capitalism, or more specifically the change from viewing a business as a vehicle for earning “returns on investment . . . based on the value created by productive enterprise” to viewing a business “as assets to be bought and sold for maximizing profits through financial strategies.” (Ball & Appelbaum, p. 2) fully accounts in the form of stock options for the increase in the upward distribution of wealth to the top 1% in recent years. (Dünhaupt). Financialization is one key to understand growing inequality.
The point is that the financialization process is another example of convergence theory: what began in America and the UK spread, especially after the fall of communism in 1990 to the rest of the world using the financial theories and managerial tools of US-UK finance capitalism. But there is evidence that places outside their obit, with divergent business and banking traditions reacted, because of them, differently and more successfully to financialization and to the crisis it brought. Bülbül, Schmidt, and Schüwer’s study offers an example. Without a knowledge of these divergent traditions, the discussion of inequality cannot be properly understood nor it growth resisted through leveraged opposition to the convergence pressures exerted from US-UK expositions.
References
Ball, R & Appelbaum, E. (2013). “The Impact of Financialization on Management and Employment Outcomes.” Upjohn Institute Working Paper 13-191. Kalamazoo, Mi: W. E. Upjohn Institute for Employment Research.
Bülbül, D., Schmidt, R. & Schüwer, U. (2013). Savings Banks and Cooperative Banks in Europe. House of Finance Goethe University, Frankfurt am Main, White Paper Series No. 5 (August 20)
Dünhaupt, P. (2011). “The Impact of Financialization on Income Distribution in the USA and Germany,” retrievable on line.