Regulation theory

Regulation theory originated in Europe and North America in the 1970s in response to the emerging crisis of the postwar economy and its mode of regulation. The new concept of 'regulation' entered the anglophone world in the late 1970s and early 1980s through the work of the Parisian 'regulation' school. French work on 'regulation' arose in part in opposition to neo-classical economists' obsession with the market-driven tendency towards general equilibrium - a process that allegedly flows from disembedded economic exchange among pre-constituted rational economic actors (Jessop, 1995). Capitalism is deemed so contradictory and conflictual that crises will periodically trigger a trial-and-error search to find new ways of regularizing capitalist expansion. This provides the basis for regulationist work on different stages and varieties of capitalism.

Regulation theory discusses historical change of the political economy through two central concepts that are introduced by the dominant Parisian School, “accumulation regime" (AR) and "mode of regulation" (MR). The concept of regime of accumulation allows theorists to analyze the way production, circulation, consumption, and distribution organize and expand capital in a way that stabilizes the economy over time. For example, Fordism involves a virtuous circle of mass production and mass consumption. A mode of regulation is an ensemble of norms, institutions, organizational forms, social networks, and patterns of conduct that can stabilize an accumulation regime (Lipietz, 1992). An MR is a set of institutional laws, norms, forms of state, policy paradigms, and other practices that provide the context for the AR's operation. Typically, it is said that it comprises of a money form, a competition form, a wage form, a state form, an international regime, and many more elements. MRs support ARs by providing a conducive and supportive environment, in which the ARs are given guidelines that they should follow. In cases of tension between the two, a crisis may occur.

A real-life illustration:  In Medieval Europe, the countryside was not well-suited to the operation of capitalist markets.  It was feudal.  The peasantry was too closely regulated, controlled, and subjugated by the lords of the manor.  They could not engage in trade or buy and sell real-estate without the Lord's permission.  Rural life was local, people didn't travel very far.

In the towns, however, feudal relationships were weaker, and trade could flourish.  The towns were places where the regulatory environment of feudalism did not get in the way of commerce and capitalism.  Towns developed long-distance trade connections.  Freed from regulatory constraint, capitalism flourished for some time in the medieval towns until the towns began to develop their own regulatory frameworks. They generated rules about market days, locations, who could sell what and when, who would belong to a particular guild, who you could employ and on what terms, etc. Merchants who wanted to maximize profits found the late medieval/early modern town a difficult environment. Many of the towns which had flourished in the Middle Ages declined and stagnated in the 16th and 17th centuries.

The next wave of economic development then involved urban industries moving outside the traditional medieval guild towns into small villages and to parts of the country where the capitalist could escape regulation. They also involved industries breaking out of the constraints of guild rules.

A new generation of urban industrial centers emerged, cities like Manchester, Birmingham etc., where the leading industrialists championed laissez-faire economics. Under their accumulation regime, they didn't want regulations or controls to get in their way. They wanted free trade because their industries were so powerful that they could dominate foreign markets. Eventually, though the new industrial cities and nations began to regulate the capitalists, and the new labor unions developed controls over wages and working conditions.

Capitalism therefore looked to fresh opportunities to escape regulation, and by taking itself global and trans-national has undermined the strength of the regulation.  Under the threat of moving production to a low-wage region it has been possible for companies to defeat labor unions in high-wage countries.  Wealthy industrial societies have been persuaded to dismantle the welfare state to remain competitive.