Two central and related insights generated by research in comparative political economy since the 1970s are that politics and markets are inextricably interwoven, and that markets are neither self-regulating nor self-sustaining. In advancing these claims, comparative political economists have worked to dispel the fallacious view, embraced by many neoclassical economists, that markets are naturally occurring and, therefore, function best when isolated from political intervention. It follows that markets require government support and the political mediation of competing interests if they are to thrive.
Steven Vogel’s Marketcraft takes these insights as its starting point and develops the bolder argument that markets are human creations inconceivable outside the context of political action. Echoing the insights of Karl Polanyi (The Great Transformation, 1944) that the economy is socially embedded and politically constructed, and Albert O. Hirschman’s observation (The Passions and the Interests, 1977) that capitalism, far from natural, arose in partial reaction to the despotic tendencies of late absolutism, Vogel’s meticulously researched and powerfully written book demonstrates that markets are institutional works in progress that are invariably subject to political renegotiation and reconstruction. He emphasizes market creation as a “craft,” a term that “highlights the artistry required for effective market governance” (p. 3). In his words, “real-world markets are institutions: humanly devised constraints that shape human interaction” (p. 1; original italics). Likewise, “market behavior is learned, not natural, and market operations are constructed, not free” (p. 3).
Vogel advances a series of “core propositions” that leave behind the misleading understanding of capitalist systems as varying along a spectrum of degrees of “freedom,” underpinned by the traditional but unhelpful “government-versus-market dichotomy.” Instead, he emphasizes market “governance,” as opposed to the more limited notion of “regulation,” since the former encompasses public- and private-sector market engagement and both state-based and socially embedded practices. It follows that the degree of state involvement cannot be measured in straightforwardly quantitative terms; certain kinds of state action—such as price controls—tend to limit freedom and constrain market behavior, while others—such as antitrust regulation—tend to expand it. By enlarging the scope of what constitutes market governance, the author not only recalibrates our conception of how markets work; he also reconceptualizes our understanding of what markets are.
In Chapter 2, Vogel connects this theoretical framework to studies of American and Japanese economic governance across a range of policy and institutional domains, beginning with a statement of the book’s central premise: “There is not a single market solution, but rather a multitude of possible market arrangements” (p. 15). He then identifies several domains crucial for creating markets and allowing them to flourish, including antitrust, intellectual property rights, corporate governance, capital markets, banking, labor markets, and sector-specific regulation. In these areas, Vogel argues, “government regulation and private-sector coordination are not impediments to markets, but rather preconditions to their creation, expansion, and dynamism” (p. 15).
Perhaps the strongest of these studies are Vogel’s analyses of antitrust and intellectual property, which provide the clearest examples of the need for government action to sustain markets. As he points out, antitrust compensates for capitalism’s natural tendency toward monopoly, as collusion enables firms to extract rents while undermining innovation. In the case of intellectual property rights, “markets literally would not exist if not created and sustained by political choices” (p. 36). In ways that parallel the story of the English enclosures told by Polanyi and Barrington Moore in his Social Origins of Dictatorship and Democracy (1966), Vogel argues that, although in less destructive ways, the conferral of patents and copyright protection creates private property out of the commons. In both cases, government plays an essential role, not merely in “making markets work,” but in creating them in the first place.
Chapters 3 and 4 present a rich comparative analysis of the American and Japanese experiences with “marketcraft” since World War II, with particular emphasis on changes since the 1980s. Vogel shows that even within the institutional, legal, and cultural parameters of a national political economy, there remains room for a range of responses to economic challenges, with some more successful than others. Here again, just as there is no single recipe for market creation, there is no unique strategy for market adjustment. Successful strategies, such as that which led to the “IT Revolution” in the United States, build on national strengths, in this case a well-developed innovative ecosystem, financial and regulatory structures that encourage venture capital, and universities that serve as “incubators and partners for venture firms” (p. 68). Unsuccessful ones, such as the deregulation of financial markets leading up to the financial crisis of 2008, tend to exacerbate their weaknesses, including the fragmentation of American financial markets, the ease of regulatory capture, and reliance on self-regulation. In both cases, however, the success or failure of particular strategies stemmed from political choices, rather than passive withdrawal of state officials. As Vogel emphasizes, this has been no less true over the past two decades than during the postwar heyday of the mixed economy, reflected in the counterintuitive fact that “the United States, the ‘freest’ of market economies, is arguably the most governed” (p. 43), which echoes his earlier study of regulatory reform in Britain and Japan (Freer Markets, More Rules, 1996).
In Japan, strategies of “marketcraft” were likewise informed by a series of political choices shaped by the strengths and limitations of the institutional context within which they developed. Beginning in the 1980s, Japanese officials pursued reform in financial regulation, labor markets, corporate governance, and other areas, designed to emulate the successes of their American counterparts in fostering innovation and enhancing competitiveness “without undermining valued institutions” (p. 87), including collaborative relationships among firms and between employers and skilled workers. In their pursuit of a Japanese IT Revolution, however, officials failed to accomplish their goals, in part because their reforms did not compensate adequately for norms ill-suited to the task, such as a preference for risk sharing over risk taking. For Vogel, the Japanese experience shows that “piecemeal reforms are not likely to produce convergence on a foreign model because market governance systems constitute complex combinations of interconnected laws, practices, and norms” (p. 110).
For all of the strengths of Vogel’s rich empirical studies of American and Japanese marketcraft, perhaps the book’s most powerful theoretical contributions are developed in Chapter 5, entitled “Marketcraft in Theory and Practice.” Here, the author shows that the prevailing vocabulary of market analysis betrays embedded assumptions and biases that tilt heavily toward market-liberal and market-rational paradigms. In a way that is relatively rare, even among scholars who have succeeded in “filling the gap” left by “standard economic models [which] assume away market governance” (p. 124), Vogel shows that the terminology that frames our discussions of political economy shapes the conclusions that we reach in consistent and often unnoticed ways. He cites an array of such instances, notably common use of “regulation” rather than “governance,” with the latter term connoting the active construction and reconstruction of markets, in contrast to an image of “regulation” as epiphenomenal and ontologically subordinate to markets’ operation. He places his work in fruitful conversation with both political theory, with its emphasis on concepts and contested meanings, and a lineage of economic sociologists who stress norms and the social embeddedness of economic behavior, including Mark Granovetter and Neil Fligstein. In Vogel’s formulation, such sensitivity to language helps to correct for a market-liberal “conceptual shorthand embedded in our language that inhibits a deeper understanding of real-world markets” (p. 117).
Vogel has written an extremely important book of great sensitivity and theoretical depth that makes a powerful case for rethinking how we conceive of markets in advanced capitalist political economies. As with any book, one can identify a few limitations, which in his case arise in instances in which he might have pushed his argument even a bit further. For example, although he criticizes the varieties-of-capitalism literature late in the book, and in particular its misleading view that “Liberal Market Economies” such as the United States are “less institutionalized” than “Coordinated Market Economies” like Germany (p. 133), he treats Japanese reform efforts as a campaign to move “towards” a LME, even though his analysis of the American model shows clearly that it is less “liberal” and more “coordinated” than many have suggested. More fundamentally, his emphasis on markets’ social embeddedness and the state’s role in constructing and maintaining them suggests the limitations of Peter Hall and David Soskice’s partial-equilibrium model and focus on firms at the expense of the state. One might also wonder about Vogel’s sanguine treatment of the American IT “revolution” as a successful case of “innovation and growth,” whereas such “innovation” has arguably brought with it dangers for American political stability in the wake of the 2016 election, as well as broader threats to individual privacy and social cohesion.
Such minor inconsistencies aside, Vogel has written an extraordinarily important work that combines deep familiarity with his cases, theoretical nuance and innovation, and great rhetorical verve. Marketcraft offers important lessons, not only to scholars seeking to understand the dynamics of market economies but also to policymakers hoping to develop strategies for sustainable, equitable, and politically legitimate growth trajectories in advanced industrial democracies. At a time when the very foundations of advanced capitalism are under intense pressure and its relationship to political democracy, long assumed to be its natural concomitant, is being called into question, such a work is welcome indeed.
