How Society Makes Itself: The Evolution of Political and Economic Institutions.

McClough, David

How Society Makes Itself: The Evolution of Political and Economic Institutions, By Howard J. Sherman. Armonk, NY: M.E. Sharpe. 2005.

How and why do social institutions change? This is the organizing question addressed by Howard J. Sherman in How Society Makes Itself: The Evolution of Political and Economic Institutions. Sherman's organizing framework revolves around four aspects or pillars of society: technology, economic institutions, social institutions, and ideology. He relies on this framework to demonstrate the interdependence of these four pillars in describing and explaining the evolution of society from prehistoric communalism to the global capitalism of today.

Sherman acknowledges in the preface that the book is written for a broad audience rather than for experts, in part, because evolutionary institutional change affects everyone thus, we should all be interested (p. ix). Sherman admirably balances the trade-off between breadth and depth to deliver and interesting and useful book. Experts likely can benefit from this multidisciplinary introduction to social evolution. Nonetheless, this book is well suited as a complementary text for introductory courses that seek to expose students to economic history and the evolutionary approach to the study of economics. The text seems most appropriate for economic history, political economy, and general economics courses.

Sherman presents the book in fourteen short, easy-to-read chapters tracing the evolution of human institutions from prehistoric communal societies through slavery, feudalism, and capitalism to corporate capitalism and global capitalism. A short appendix specifically reviews the multidisciplinary history of evolutionary thought. The early chapters present a familiar story regarding the transition from prehistoric communal societies through slavery and feudalism to capitalism. However, Sherman expands the description of transition from one economic system to the next by exploring how technological innovation resulted in the ability of an individual to produce a surplus thereby creating wealth and the need to protect wealth through creation of political institutions that evolved to represent the interests of those who controlled the surplus. Moreover, Sherman demonstrates how ideology evolves to support emergent economic and political systems that come to reflect differences in wealth and power.

Another interesting treatment found in the early chapters examines technological innovation. Sherman demonstrates how economic stagnation resulting from a lack of technological innovation occurs naturally given political and social institutions that distort, if not, eliminate incentives to innovate. In this way, Sherman offers an alternative perspective that identifies particular types of social relations as necessary conditions for technological innovation.

The later chapters focus almost exclusively on the United States after the Civil War. The Civil War ended slavery in the South and allowed capitalism to emerge as the dominant economic system throughout the country, which, in turn, resulted in capitalists replacing slave owners as the dominant force in government. Sherman proceeds to illustrate how government policy shifts to favor capitalists over land owners. This episode of US history is illustrative of social evolution throughout history as conflict leads to crisis resulting in institutional change.

Sherman uses the US experience to reveal how government supports capitalist efforts to secure monopoly profit at the expense of workers. He reports that government provided generous subsidies to corporations building the transcontinental railroad while also supporting the corporations in their efforts to maintain minimal wages paid to workers. Sherman's argument that crisis leads to change is supported by discussion of the emergence of the Federal Reserve System in 1913 and the New Deal during the 1930s. The Federal Reserve System was created in response to a series of monetary panics occurring during the late 19th century. The New Deal was a direct response to the failure of the capitalist economic system represented by the Great Depression. Only in crisis is it possible to implement institutional change that challenges the status quo.

The book would benefit from discussion revealing how institutional change does not necessarily harm capitalists but rather links different types of capitalism. For example, the creation of a central bank and development of many of the social programs of the New Deal contribute to economic stability, which fundamentally benefits capitalists. Provision of minimal income support and a minimum wage maintains demand during periods of recession thus affording capitalist ventures greater opportunity to survive economic recessions. It should not be omitted that workers benefit as well from policy intended to stabilize the economy.

Global capitalism begins with the collapse of the Soviet Union, although according to Sherman the process had been proceeding in different countries at different rates for hundreds of years. With the collapse of the Soviet Union and the commitment by China to introduce capitalism, capitalism becomes the dominant economic system throughout the world. Sherman emphasizes the role of technological innovation as a contributing factor to corporate globalization. Specifically, he identifies innovation in communication and transportation which serve to diffuse and perpetuate the capitalist ideology throughout the world.

Consistent with the evolutionary perspective of the book, Sherman considers the possibility of economic democracy evolving from global capitalism. Economic democracy follows conceptually the idea of political democracy but applies specifically to the economic sphere of social relations. Economic democracy is presented as a viable alternative to the failed soviets of the former Soviet Union. Sherman presents cooperatives as examples of economic democracy. He reviews consumer cooperatives, such as condominium cooperatives; energy cooperatives, such as the Rural Electrification Administration; producer cooperatives, such as Denver Yellow Cab Co. and Rath Packing Co.; and financial cooperatives, such as credit unions. In all cases, Sherman reveals how democratic principles are applied to economic decisions. For example, in producer cooperatives each employee has one vote used to elect a board of directors responsible for hiring managers. Moreover, profit is either reinvested or distributed to all employees. Exploitation and alienation are eliminated by addressing inequality through democracy.

Democracy and greater equality are noble and appealing goals; however, are cooperatives the mechanism through which these goals are achieved? According to the National Cooperative Bank, the ten largest purchasing cooperatives reportedly had $12 billion in revenue in 2004. (1) Ace Hardware and Carpet One are organized as purchasing cooperatives. Purchasing cooperatives seek to create efficiency and purchasing power by negotiating purchases of larger quantities from suppliers. These well-known retailers operate as cooperatives rather than as franchises to maintain the independence of the retail store owner. Ace Hardware is comprised of nearly 4,700 independent hardware retailers in the U.S. Carpet One is comprised of 1,000 independent carpet retailers throughout North America. (2) The decision to participate in a cooperative business structure is consistent with the rational actor model in which firms pursuing self-interest seek to maximize profit. The benefits that accrue to members of the cooperative accrue to the owner of the firm, not necessarily the workers. In fact, the cooperative may actually harm the workers of the supplier firms without benefiting the workers of the member firms of the cooperative.

The class-based argument presented by Sherman is limited to cooperatives in which workers are also owners. Regardless, even this more narrow definition of a cooperative does not necessarily result in an improved lot for the worker. Cooperatives face an array of challenges including the principal-agent problem and moral hazard in investment decisions. The rational actor hired to manage an employee-owned cooperative will seek to satisfy the board of directors that controls his employment rather than seek to satisfy customers, which is more likely to benefit the workers. In addition, moral hazard is likely to interfere with investment decisions as members vote in favor of investments that they would not otherwise choose. In both instances it is not clear that the increase in democracy improves the situation of workers.

In summary, How Society Makes Itself" The Evolution of Political and Economic Institutions presents a useful and interesting introduction to the evolution of society. This book presents the familiar transition from one economic system to the next with an emphasis on the importance of social relations. The interdependence between technology, economic institutions, social institutions, and ideology is reinforced throughout the text. Numerous examples are presented to illustrate how ideology and political institutions evolve to support economic institutions that result in inequality.

Footnotes

(1.) National Cooperative Bank, "NCB Co-op 100," October 2005.

(2.) Ace Hardware and Carpet One websites.

DAVID MCCLOUGH

Bowling Green State University