Thünen has much in common with Gossen: both authors published in German, and both authors applied differential calculus to economic analysis. Moreover, both authors were ignored by their contemporaries, and did not live to see the positive comments made about their innovative works by later marginalists such as Jevons (see chapter 4) or Marshall (see chapter 7).

But whereas Thünen investigated the supply side of the economy, Gossen turned his attention to demand. We will start by investigating his Development of the Laws of Human Intercourse and the Consequent Rules of Human Action, which was completed in 1853 and published in 1854. In this work, Gossen investigates how consumers make choices – or rather, how they should make choices – by comparing the pleasure that is provided through the consumption of different goods. In order to acquire these goods, individuals must provide labour to earn income with which to buy them, and that labour is usually painful and must therefore also be taken into account. Whereas Gossen’s “doctrine of enjoyment” relies on pleasure (and its opposite: pain), later marginalists would use the term “utility” (and “disutility”) to describe the potential that an object has to provide pleasure (or pain) for an individual consumer.

The second part of this chapter therefore analyses this important concept. The term “utility” was already widely used by French economists (“utilité”), but it lacked a proper definition until it was provided by Jules Dupuit (1804–66), who also elaborated on how “utility” should be properly measured.

Gossen’s laws of human enjoyment

The background to Gossen’s analysis is a positivistic and religious world view. According to Gossen, an individual being should organize his/her life in such a way that the total sum of all enjoyment over his/her lifetime is maximized. In other words, individuals should try to maximize their pleasures over the total duration of their lifetime.

This does not imply that individuals should simply consume as much as possible, since the achievement of some pleasure (“Genuss”) in the present may be followed by some pain (“Entbehrung”) in the future. For instance, the enjoyment of excessive amounts of food and drink may be enjoyable tonight but will probably generate pain tomorrow morning.

The model below is closely based on Murshed (2010: chap. 2). There are two sides to the potential conflict: a government side and a rebel group. Both sides have access to resource rents or booty, which could be viewed as the greed motivation for conflict. The rebels have some historical grievances, based on relative deprivation and/or other forms of horizontal inequality against the government, which can be assuaged by a transfer from the government.

The modern resource curse literature can be traced back to the 1970s, when it concerned itself mainly with macroeconomic problems faced by economies that had received a windfall income from a commodity or oil price boom. This literature, known as the “Dutch disease” literature, was not necessarily focused on developing countries. Rather, the emphasis was on the inflationary pressures brought on by greater spending power, and real exchange rate appreciation, including possibilities of nominal exchange rate overshooting. There was also the spectre of unemployment increasing if there was a strong wealth effect on money demand from the resource windfall. There would be a change in the economy’s steady-state equilibrium composition of output, away from traded goods to non- traded goods, on account of the real exchange rate appreciation. In practice, it meant some deindustrialization. The analytical models underlying these processes can be found in the literature published mainly in the 1980s, as for example, in Neary and van Wijnbergen (1986) and Murshed (1997: chap. 6).

The commodity (mainly oil) price booms of the 1970s indirectly contributed to the developing country debt crisis in Latin America and elsewhere in the 1980s. Due to the lack of domestic absorptive capacity in many capital-surplus oil-rich economies, some of the oil rents or petrodollars were invested in international capital markets. This played a part in increased lending by Western commercial banks to other developing countries, culminated in the developing country debt crisis of the 1980s when Mexico defaulted on servicing its debt in 1982 (Ffrench-Davis & Devlin 1995).

Initially, the Dutch disease literature had developed economies such as the Netherlands, Norway and the United Kingdom in mind. Later there were extensions of Dutch disease to developing countries, including the effects of large-scale guest worker remittances (see, for example, Lartey, Mandelman & Acosta 2012), as well as the effects of foreign aid (for example, Fielding & Gibson 201 3): unrequited transfers that worked very much like resource windfalls. The term “resource curse” was popularized following Auty (1993) to describe the economic failures of resource- rich economies.

Although the golden era of capitalism was primarily national, the last decade of the twentieth century saw a greatly increased transnationalization of economic, political, social and cultural relations. This led to a new era of globalization, which has had a decisive impact on workers worldwide, although much of the flourishing globalization literature seems to ignore the role of workers on the whole. This chapter seeks not only to introduce some of the major parameters of this new great transformation but also to explore its limits and contradictions from a labour perspective. A fundamental thesis is that workers and the workers’ movement are, and will become, increasingly central to the new globalizing capitalist order. Capitalism is being reconstructed but so too are the world of work and the organizations of workers, as I show in the section on the new global labour force. I examine in particular the increased flexibility and feminization of this new global labour force. The final section on the global social movements explores the extent to which globalization has created the conditions for a new social movement for workers worldwide.

A new great transformation

Globalization, whether viewed as a panacea for the new century or demonized as the source of all our evils, had become the new “common sense” for our era from around 2000. In a relatively short period of time the term “globalization” spread across academic disciplines, spawned multiple research centres and generated a vigorous counter-movement. It is a most labile term, fluid and slippery in its meaning and its political implications. As a starting point we could do worse than Paul Drache’s (only slightly tongue-in-cheek) conclusion that “[t]he simple truth is that one-third of the globalization narrative is over-sold, one-third we do not understand because it is a process unfolding and one-third is radically new” (Drache 1999: 7). Globalization appeared as a new grand meta-narrative, just as we were being told that the meta-narratives of labour and socialism were dead. It is presented in much of the academic literature – not to mention more popular outlets – as a homogeneous, irreversible and all-encompassing process.

How could nature’s boaunty turn into a curse? It strains credulity to think that environmental gifts such as land, water, forests, minerals and fuels could become a curse for nations or peoples richly endowed with them. Yet the term “resource” or “natural resource curse” (see Auty 1993 for an early use of the expression) has gained currency in the last quarter of a century among economists and social scientists. Some have argued that the scepticism with which natural resource endowments are viewed harks back to Adam Smith (see Lederman & Maloney 2007). It refers to the stylized fact that developing countries richly endowed with, or heavily dependent on, natural-resource-based economic activities on the whole consistently underperform compared to resource- “poor” developing countries. Among the many examples cited to support this claim are comparisons between resource-poor countries in East Asia, such as South Korea, and oil-rich African or Latin American states, such as Nigeria or Venezuela. Economies in the latter group performed poorly in the last quarter of the twentieth century.

Is this poor performance due to the countries’ natural resource status? The 1980s and 1990s were lost decades for sub-Saharan African economies, as were the 1980s for the Latin American region (see Table 1.1), and, therefore, other regional or neighbourhood factors could also be at work. Table 1.1 shows that more recently, after 2000, developing country growth was robust in nearly all regions and countries, and there was also a commodity price boom that has just ended. Thus, evidence for the deleterious economic effects of the resource curse may have become weaker.

The economic misfortunes that beset resource-rich developing economies in contrast to their relatively resource-poor counterparts appears to be a phenomenon that began to be highlighted during the latter part of the twentieth century, particularly during the last two decades. This is, in no small degree, attributable to the extraordinary economic success achieved by certain resource-poor East Asian countries such as South Korea, whose average standard of living has caught up with richer industrialized countries, in contrast to the relative decline in resourcerich Latin America and Africa.

Marginalism is a branch of economic theory that investigates what goes on at the margin of economic activity. Economic activity can be divided into producing and selling (the supply side), and consuming and enjoying (the demand side).

Let us imagine a farm that grows potatoes that are sold to and bought by the inhabitants of a small village. The amount of available fertile land is limited, which implies that the farm can only produce a certain amount of potatoes. Let us further assume that the population of the village grows, and consequently more potatoes are needed to feed the villagers. As the farm can only produce a limited number of potatoes, the inhabitants of the village will bid against each other to buy them and the farmer will be able to raise the price of the potatoes. Given that the price of potatoes has increased, the farmer may find it profitable to increase production. She may try to find additional land for cultivation, but this would require serious investment. The farmer may also try to produce more potatoes on the land she already has, by employing more labourers and/or by utilizing more equipment and manure. In either case, producing more potatoes will drive up the cost of growing each potato for the farmer. The farmer will increase her production if the additional income that she generates by selling more potatoes exceeds the additional expense required to produce them.

Economists would consider this to be the “margin” of the economic activity: the conditions under which the last potato is produced. An additional potato will generate additional income or marginal revenue, but it will also have to be produced using additional expenses or marginal costs. Therefore, when more potatoes are produced, which means that the margin is extended, the marginal cost of a potato will increase. The farmer will produce more potatoes as long as the marginal revenue from a potato exceeds the marginal cost of that potato. The marginal revenue is determined by the price that the inhabitants are willing to pay for a potato. Since potatoes are required for the survival of the inhabitants, they are in high demand.

The processes of globalization have brought previously closed (or semi-closed) economies into the global capitalist economy, but have also excluded parts of the world – such as broad swathes of Africa – from the new order. This chapter traces the fate of workers in the Global South from the transition from colonialism to the new international division of labour to the era of globalization, with particular attention paid to transformations in countries such as Brazil, South Africa and South Korea, where considerable levels of industrialization were achieved. I also examine what was once particular to the South – but is now also increasingly a Northern phenomenon – namely the high level of informal working relations and practices. There is a particular focus on women working worldwide, bringing to the fore the gendered nature of the globalization process, which has different impacts across regions and classes. The final section, on Polanyi’s double movement, shows the extent to which we cannot really study workers in the North and South separately any more. The dialectic of the double movement has created new working classes and new forms of resistance in all parts of the world, which, while distinct, have similar roots in the uneven accumulation of capital on a global scale.

It is sometimes forgotten, or denied, by the critics of development that “[t]he period of 1950 to 1980 was also – and in an important sense – the Golden Era of development for the poor countries of the world” (Singh 1994: 171). This is not the wishful thinking of a modernization theorist or the preaching of a World Bank apologist but the sober verdict of the ILO. It is indeed vital to recognize the unprecedented economic development of the South since the Second World War, in spite of all its unevenness and its glaring inequalities. In fact, the industrial revolution in the South actually bettered the record of the Global North in the second half of the nineteenth century. As Ajit Singh summarizes this startling historical reality: “The South did this in half the time, at twice the growth rates, and with five times the North’s population in the nineteenth century” (Singh 1994: 171– 2).

William Stanley Jevons is the first main author of the marginal revolution. At first sight his work is very similar to that of Gossen. Jevons acknowledges the importance of Gossen’s writings: “Gossen has completely anticipated me as regards the general principles and method of the theory of Economics” (Jevons 1879: xxxviii). There are also, however, some substantial differences between the two.

First of all, Jevons’s analysis departs explicitly from the moral philosophy of Jeremy Bentham (1748–1832), called “utilitarianism” (see below). Furthermore, Jevons puts an even stronger emphasis on mathematics than Gossen, and in particular on calculus. Finally, Jevons goes beyond Gossen when he realizes that the theory of rent, which we discussed in chapter 2, is “a theory of a distinctively mathematical character, which seems to give a clue to the correct mode of treating the whole science” (Jevons 1879: vi). In other words, Jevons realized that the theory of rent could be transformed into a general theory of economics. This insight was worked out further by Alfred Marshall and John Bates Clark, as we will investigate in our chapter 7.

Jevons’s main work in economic theory, The Theory of Political Economy, was published for the first time in 1871. He had already presented a “Notice of a General Mathematical Theory of Political Economy” at a conference of the British Association for the Advancement of Science (now known as the British Science Association) in 1862, and in 1866 he published an article titled “A brief account of a general mathematical theory of political economy” in the Journal of the Statistical Society. These works did not, however, receive a lot of attention. The second edition of Jevons’s Theory of Political Economy (TPE), which appeared in 1879, was a substantial revision and extension, and in what follows we will refer to this text.

Jevons argues that “political economy” has to be replaced by the more convenient term “economics”, as it is similar to the names of other branches of human knowledge, and as several important economists (including Marshall) were already using this concept (Jevons 1879: xiv).

Léon Walras wrote his most important work, Elements of Pure Economics or the Theory of Social Wealth (EPE, 1874), at around the same time as Jevons published Theory of Political Economy. At first sight, the theories of Jevons and Walras appear to be very similar. Jevons describes the process of exchange, which allows trading bodies to exchange commodities in order to maximize their utility; in equilibrium, the ratio of exchange between two goods will be equal to the relative valuations for both trading bodies. Walras calls this the “condition of maximum satisfaction”, and he recognizes that his analysis is very similar to that of Jevons. Moreover, Walras praises Jevons’s use of mathematics.

However, Walras’s work does not depart from Bentham’s theory of utilitarianism. More importantly, Walras goes beyond Jevons in his description of the entire economy. For Jevons, the process of exchange takes place between two trading bodies that are exchanging two goods. He does of course know that there are more than two trading bodies and more than two goods in modern markets, but his analysis remains restricted to this simple case. Walras, by contrast, aims to develop a mathematical model that describes the economy as a whole.

We saw in the previous chapter that every act of exchange alters the conditions of supply and demand, since after the exchange the trading bodies will hold more or less of each commodity. This will in turn affect their relative valuations, and therefore the ratio of exchange or the market price. However, a different price for one good may also have implications for another. For instance, we all know that the price of airline flights tends to increase when the price of oil goes up. This is obvious, because oil is an important input for the airline flight industry. But even goods that do not seem to be interconnected may influence each other. For instance, housing is usually a large share of the budget of any consumer. When the price of housing increases, consumers may then have to cut their spending on nearly all other goods.

Since the emergence of capitalism the world has been divided into rich and poor, colonialist and colonized, First and Third Worlds, developed and developing countries and now, as they are termed, the Global North and Global South. This dichotomy is beginning to shift, as the globalization of capitalism is beginning to create a global labour force that increasingly experiences the same precarity wherever it is located. Whether it becomes a fully developed global working class, conscious of its own interests, depends on the internal struggles within the labour movement as much as on the development of the global economy.

I start with an analysis of the progress experienced in the North by the working class since the Second World War under the New Deal and the welfare state, the gradual unpicking of this settlement with the advent of neoliberal market policies and the impact of the collapse of the Soviet Union in the 1990s, up to the present-day gig economy. The following chapter takes up the story of the workers of the Global South in the same timeframe from the postcolonial 1950s to the new division of labour in the 1970s, which saw a massive increase of the working class and its ability to impose some improvements in labour standards. Finally, I chart the emergence of a new labour scene in the 1990s, which saw the North and South fading as the dominant analytical paradigm, to be replaced by that of the “global precariat”: a precarious proletariat, with a global constituency. It is the struggles of this “global precariat”, as part of the working class and not opposed to it, that will decide whether there is a new global working class in the decades to come.

Managing resource rents efficiently and equitably is a challenging task, particularly when they are of the mineral, fuel or point-sourced variety. This is mainly because of their non-renewable characteristic, but also because once we regard natural capital as an asset its sustainable depletion involves saving, and investment in other assets – a matter that is addressed by the concept of genuine savings. Furthermore, there are inter- generational equity issues to consider. If a non-renewable asset is to be depleted, arguably some provision needs to be made so that future generations are not entirely deprived of the rents thereof. This chapter addresses some of these issues. I begin by briefly outlining matters related to assigning exploration and extraction rights for minerals and fuels; the next section outlines theoretical issues in connection with genuine saving and sustainability when natural resources are present and utilized for production; I then examine how resource rent windfalls and discoveries should be optimally utilized in the context of consumption, saving, paying off external debt and investment decisions, and whether investments should be in the domestic economy or in international markets. Optimal decision-making in this context can sometimes imply being less concerned about the welfare of future generations compared to the present generation in capital-scarce low-income countries. Finally, the last section considers management issues connected with sovereign or national wealth funds that arise out of saved resource rents. Much of the discussion in this chapter refers to optimal rules and policies in the absence of the mismanagement and policy errors that engender the resource curse.

Assigning exploration rights

On the surface, taxing oil and gas revenues seems not to alter producer behaviour, as these revenues are presumed to remain on stream irrespective of the rate at which they are taxed. But, as Boadway and Keen (2008) point out, the fear that the sovereign owner of these revenues might impose punitive taxes on these flows may actually discourage investment in the development and extraction of these resources; potential investors would therefore need to be assured that future tax burdens will not be excessive.

This chapter examines the empirical evidence on the effects of resource rents, and whether they turn into a “curse” for the economy. There is an abundance of empirical research examining evidence for the existence of the resource curse, as indicated in Chapter 1. As far as the economics discipline is concerned, some of these studies involve cross-country econometric analysis, others look at the problem in a subnational context, and then there are more descriptive country case studies. I begin with measurement issues concerning important variables in this connection. This is followed by a survey of the cross-country econometric evidence regarding growth and resource rents, including literature that regards institutions as playing an important mediating role in growth, along the lines of Acemoglu, Johnson and Robinson (2001, 2005). The next section is concerned with the impact of resource rents on institutions, mainly in terms of democracy, but also corruption at a cross-country level. The cross-country econometric results are extremely variable as to whether there is a curse or not, depending on a whole host of factors, such as choice of variables (covariates), measures of resource richness chosen and also uses of evolving econometric techniques. Results using dynamic panel data analysis are considered the most reliable under the present state of the art in econometrics. I then review the subnational evidence on the resource curse when resource rents negatively impact on resource-producing regions relative to the rest of the national economy. Finally, I briefly examine a few country case studies of resourcerich economies, with some nations avoiding the resource curse, whereas others do not.

Measurement issues

It is worthwhile defining how resource intensity is measured. This can be important, as the ranking among nations with regard to resource dependence might change, depending upon the metric utilized. Furthermore, different units of measurement may cause fluctuating statistical significance in empirical models analysing the effect of resource abundance on other economic phenomena, such as growth or education spending. One way of measuring resource dependence would be simply to look at the proportionate contribution of mining (or mining and agriculture) in national income.

Resource rents, particularly of the point-sourced variety, were widely regarded to be a major factor contributing towards the risk of civil war in developing countries, following the influential work of Collier and Hoeffler (2004). According to this view, conflict reflects elite competition over valuable point-sourced natural resource rents, and this is when the rent-seeking contests associated with the presence of resource rents in weak institutional settings, which we reviewed in Chapter 3, descend into outright warfare. Fearon and Laitin (2003) argue that civil war risk is mainly attributable to diminished state capacity: the inability of the state to either provide public services or suppress rebellion in weak and failing polities with weak institutions that are also characterized by low incomes. Resource rents should augment the state’s resources, but not always when there is largescale rent-seeking by powerful actors.

There is a longstanding position, however, that relative deprivation (Gurr 1970) and the grievance that it produces fuel internal violence. Identity can be crucial to grievance mobilization. This is due to the collective action problem, as discussed in Olson (1965). Ethnic identities, whether based on race, language, religion, tribal affiliation or regional differences, may serve as a more effective amalgam for the purposes of group formation, compared to other forms of more transient difference, such as socio-economic class. The formation of enduring identities is therefore central to mobilizing groups; see Tilly (1978) on this. Large-scale conflict between groups cannot proceed without the presence of palpably perceived group differences, or grievances, which may have historical dimensions. More recently, Stewart (2000) has introduced the notion of horizontal inequality, the inequality between groups, rather than the inequality that may exist between individual households in an otherwise ethnically homogeneous population (vertical inequality). In this connection, it has to be borne in mind that resource rents may become a source of grievance, if they are distributed unequally, or if certain groups are excluded from the benefits of the resource rents, particularly in resource-producing regions.

This chapter reviews how the presence of natural resource rents can encourage internal conflict, usually taking the form of civil war.

At the beginning of this book, the development of marginalism was described not as a revolution, but as a slow, cumulative process. Many key ideas and theories had already been formulated before the 1870s, when the important works of Jevons, Walras and Menger appeared. But it was in the 1930s that “marginalism” started to gain a central place at the core of economic theory and the newly emerging economic discipline. This process was accompanied by a growing professionalization of the field. Furthermore, the use of mathematics within economic theory had gained general acceptance at around the same time. It was also the era in which methods were developed to measure important economic magnitudes, such as the national income (the total value of all goods and services produced by a nation within a year) and the rate of inflation (the level of price increases within the economy) (see Landreth & Colander 2002: 454–5).

In this chapter we will consider the contribution of “marginalism” to these developments. First, we will examine the extension of the marginalist vocabulary by John Hicks (1904–89) and Roy George Douglas Allen (1906–83). By introducing the notion of the “marginalist rate of substitution”, authors could circumvent concerns about the possible measurement and quantification of (marginal) utility. This approach also led to the development of “indifference curves” and “indifference maps”, which are now central components of microeconomic theory.

Marshall had realized that economists could not simply take the conditions of “perfect competition” for granted, since markets are often dominated by a small number of large firms, which therefore have substantial market power (though not a monopoly position). In order to deal with markets that are somehow “in between” perfect competition and monopoly, several approaches were developed. We will first examine the theories of imperfect competition that were posited by Joan Robinson (1903–83) and Edward Hastings Chamberlin (1899–1967). We will then investigate several models that pay closer attention to how exactly firms compete. The model of quantity competition emerged from the writings of Antoine Cournot. The model of price competition emerged from a paper written by the mathematician Joseph Bertrand (1822–1900), which was (ironically enough) intended to be a criticism of the approaches provided by Walras and Cournot.