THE DOMINANCE OF ECONOMIC
DOGMA
Our
Captive Culture
and the Bio-Social
Forces that Will Free Us
Most
of the twentieth century was dominated by a struggle between the two economic
doctrines--capitalism and socialism, dichotomizing the national economy as
either guided by the government or by private interests. Here we concentrate attention on one manifestation
of this dogmatic operation as a typical sample--the 1980s and the 1990s.
With the collapse of the USSR in the mid 1980s, the world seemed a
fertile field for the complete dominion of “free enterprise”. Communism
had never been a serious threat in the U.S., despite the rantings of McCarthy
and other arch conservatives, but in the 80s, many people came to look upon
almost any actions by the national government as not only ineffective but
as a suspected danger, an echo of communism--to be replaced by privatization
to a maximum degree, or "devolved” to the states.
Bio-social theory can be used to detect and explain
the costs/benefits of established beliefs and practices. It will be necessary in addition to attempt
some anticipated outcomes of the beliefs under consideration. At the outset we must disqualify those who
are committed to a doctrine, an ism, whether capitalism, socialism or communism.
In America, capitalism is totally triumphant and is regarded as the
economic panacea for all time. Therefore we will address some contradictions
in the present system and how we have been unable to confront these changes
because of our cultural conditioning and commitment to doctrine.
Before doing so and diagnosing defects it is usually recommended to
present what Kuhn called the "normal" paradigm.
There are many benefits and advantages of capitalism.
To see where credit is due and where it is overextended, or even fallacious,
we may select one example of a recent work, which hails these advantages with
strength and clarity--THE HEROIC ENTERPRISE by Hood.
They have not been entirely hidden in the media and in books like Hood's. Before giving his list of virtues, he first
objects to business leaders being asked to do more than operate efficiently
and make the most money for stockholders.
This is the extent of their responsibility. When the executive enters or is pushed into becoming a public employer,
a civil servant, a legislator, a jurist or a social reformer, his proper function
suffers and so do those duties that he is not equipped to perform.
If he sticks to his work and does it well, he: "Creates jobs,
treats workers fairly, supports educational innovation, trains employees,
contributes to the wealth of cities, discovers new drugs and medical treatments,
makes workplaces and products safer, conserves resources, invents ways to
save energy and reduce or eliminate waste, gives women and minorities unparalleled
opportunities and contributes to the stability and quality of life of families.”
This sweeping claim cannot be accepted by assertion
but must be supported with prevailing cases, however it deserves credit to
the degree it is demonstrated as true. The
most important contribution of capitalists is innovation, at which the government
is described as being entirely deficient. This potential innovative advantage must be acknowledged, however
not overdone. When it came to the
need for new projects on a national scale, the government action was not paralyzed
in the development of the atomic bombs, the introduction of the interstate
highway system, the space program or even a new computer chip factory (discussed
later). Of course it necessarily did act in concert with private business,
so we had a coordination more than a conflict. Sometimes the coordination was lop sided to
the benefit of private interest, as occurred in the gift of enormous tracts
of land in the establishment of the railway system or the almost-giveaway
of government properties at the end of World War II.
Why do supporters of this heroic
phase actually operate with such a high degree of public benefit? Because, says Hood, they must. "If firms mistreat workers they cannot
be productive. If firms ignore issues
of education and skills among young people they will not be productive in
the future. If they discriminate against
women and minorities they pay the price in the market for employees and for
consumers. If they ignore the wastes
they generate they pay higher energy bills and disposal fees. Most importantly if firms fail to take advantage
of the opportunities they see to create new products or services to solve
society's problems, they will surely lose profits to competitors.” Credit redounds to this analysis, when judged
by actual results—whenever made operational. The last conclusion assumes that there is always some company out
there, eager and able to solve society's problems in each case and thereby
make a higher profit--which may be gratuitous and must be shown. Hood then addresses the question: When do corporations
act irresponsibly? It is when they
use tactics appropriate to other institutions. Examples:
We see illustrated in the above a tactic for avoiding
defect or deficiency in a doctrine by defining it out of existence. When capitalists seek and get government subsidies
or use lobbyists to protect from competition, says Hood, "They are no
longer engaged in commercial activity.” Friedman,
the Nobel economist requires "justly obtained profit" to qualify
for capitalist commercial activity. This is an offense to elementary logic and
operational science, i.e. the belief that the Hood/Friedman ideal standard
supersedes and even negates real life practices. Performance--not rhetoric or preferred definitions, is the real
test of meaning. We must look at and
be guided by the actual record in these respects, as will be done.
Enhancing profit by bargaining in bad faith or misinforming
workers and consumers is said to violate the above definition, therefore these
operatives are alleged not to be engaged in commercial, capitalist activity.
Trying to maneuver unions out of existence in the last half of the
20th century produced the same result. Consumers
continue to be badly misinformed (and also systematically uninformed) until
required by lack of a workable policy
The idea of "killing competitors at the point of
a gun" represents a wild statement, but which prepares for the conclusion
that these operatives are not capitalists but "gangsters". In reality corporations regularly try to reduce
competition, one way or another and with considerable success. (The preceding
claim does call to mind the famous American who praised capitalism in these
words: “The free enterprise economy gives you great opportunities if you just
seize them with both hands”, said Al Capone)
Hood identifies sound and unsound means of "corporate responsibility".
The latter includes layoffs, charity, health coverage and racial quotas.
There are ambiguities in this. Unrestrained
layoffs to maximize profits may cost the whole economy (to be discussed later). Charity is a minor factor. Pressures for health coverage will probably
mount, and if races are not employed in about the same ratio as their
population, then serious troubles are predictable.
Five ethical economic practices are listed which are reasonable, except
for emphasis on obligation to shareholders to allocate resources and investments,
to achieve the highest return.” This
is standard doctrine, but another Nobel economist, K.J. Arrow was critical
of the idea that it is wrong for a corporation to do anything but maximize
profits for its stockholders. Arrow recognized the advantages of the free
market but he also identified its shortcomings, thus demonstrating a less
doctrinaire and more independent interpretation (to be addressed later).
Maximizing profits can operationally result in minimizing
wages and security for workers. In
the spirit of Henry Ford and demand side economists, this can easily be counterproductive.
In conclusion, books of this kind are not just a convincing account
of real advantages, but an apologia for doctrine.
The author would have done well to quit while he was ahead.
The blessings of orthodox capitalism rest on the operation of an “invisible
hand”, which converts self interest into general welfare. It should see that
responsibility of the executive required knowledge of the costs/benefits of
performance, so we turn attention to the claim that it is generating great
change.
Under the heading “Post Capitalist Society”, Drucker
contends that traditional capitalism is about obsolete. We are entering a "new society” in which
the means of production are based increasingly on knowledge (although the
market system will continue as the integrator of economic activity). The concentration of capital in supercorporations
and pension systems has accelerated Berle and Means' thesis that control can
no longer rest with owners, even via the stockholders. The role of managers
is becoming dominant. Unfortunately
the "frantic 80s" resulted in the misuse of knowledge power to maximize
short term share values and immediate profits via leveraged buyouts and takeovers.
The key to the problem, according to Drucker lies in
responsibility. He believes that management
should act in the best interests of all the stakeholders, which includes employees,
investors, suppliers, communities and all involved. Drucker concludes that "Post capitalist
society will become a class society unless service workers obtain both income
and dignity " which he apparently thinks they lack. Polarization of incomes moves us in the "wrong
direction.” Drucker thinks that post capitalist society must be guarded against
the abuse of power, and the new knowledge base requires all participants to
share in the responsibility for a balanced operation. As for the organization, it has "full
responsibility for its impact on the community.”
But what will make those with power take this responsibility?
Certainly not just the recommendations of scholars like Drucker.
He offers one rather compelling factor... his prediction that we will
develop an objective, independent "Business Audit" to keep constant
track of an organization's performance and publicize its findings regularly.
Although Drucker does not mention this, it apparently would be something
like the GAO, which now performs a similar function, with general approval.
However leaders and businesses dominated by the "bottom line"
do not and will not readily increase the income and dignity of low wage service
workers. Most of them would argue
forcefully that they cannot afford to do so.
It is doubtful that a "business audit" would be able to change
this.
Drucker is correct about transformations resulting from
new technologies--the most recent being from manufacturing to "information",
but he comes up short in two respects: (1) Computerizing the economy cannot just replace
manufacturing (or the earlier agricultural base). We cannot eat, drive, wear (etc.) computer
printouts. (2) Drucker contends that
these earlier transformations "have caused hardly a stir.” They have occurred "in almost complete
silence". Unfortunately he is
ignoring the struggles and suffering which was part of the last transformation--the
often-violent conflict when labor organized to protect itself from exploitation
by the market, the great depression of the 1930s and the political battles
which accompanied these epochal changes. This was anything but "complete silence"
It is unrealistic to suppose that the transformation of globalized capitalism
will smoothly integrate with the essentials of democratic government.
This turns our attention to the doctrines and myths that will interfere
with any transformation.
It is important to compare capitalism as practiced today
with the system called for and as it functioned two centuries ago. To the degree we are using the same name for
something different and influencing the public mind thereby we can expect
trouble. Anyone trading on the old
system and the old environment in which it functioned is either ignorant of
the changes which have occurred, reveling in nostalgia or dogma. The aim here is not to return to the past,
or to advocate any alternative. It
is to point out the dangers of illusion, of misrepresentation, of being confused
about how the rules under which we operated have been altered. (See Appendix B)
Ignoring reality by those who know better, acting and
talking as if it did not exist is nothing new.
A foreign observer can detect this more readily than an American--
which may be demonstrated by listening to R. H.
Tawney speaking humorously about his experiences in America: "I remember a delightful visit to the
West of America. After passing some
weeks in a state-owned park and driving through 50 miles of state owned forests,
I crossed a river on a public ferry and after traveling some distance on a
municipal tram, I was conducted over to the civic electric works, and the
tax-supported hospital and the public schools.
I tried in vain to obtain refreshments at several saloons which had
been closed without compensation by the state, and finally visited the state
university where I heard a professor of economics, whose salary was defrayed
from public funds, deliver to a body of several hundred students, whose fees
were paid from the same source, a lecture on the importance of untrammeled
private enterprise and the dangerous immorality of socialism.”
The U.S. is unique in the prominence and persistence
of the debate concerning the relation between the economy and the government.
The arch conservatives are not content to demand less waste and greater
efficiency in those necessary government functions.
They keep up a drumbeat for cutting down to Ronald Reagan's ideal as
reported by the Reaganite, John Podhoretz:
"He never believed government was the answer to anything except
the provision of the common defense.” Usually
about 60-70% of the people express the opinion that government is too big
and has too much power. It is fascinating
to observe that when Gallup asked people how much responsibility government
had to meet social needs, the following results were obtained: "A great deal" or "A fair amount"
was chosen by 87% for health care; 83% for jobs; 83% for educational aid and
65% for reducing income diversity. There were no parameters given for these two
levels of response, but they cannot possibly be taken as supportive of big
cuts in government services.
Marxists argued that the growth of government in America
is a defensive maneuver by capitalists to save their system, but as Heilbroner
inquired: "How do they account
for the strong anti-government bias of the conservatives if they are being
"saved". He went on to identify
four areas where the role of government has grown: (1) military expenditures, (2) public education,
(3) welfare and (4) controls and regulations. These four elements have in common the impact
of technology. War has become technological
and therefore more demanding of high cost equipment; greatly increased education
is demanded by a technological culture; welfare is rising because people feel
the need of protection from the future shock of technology, and regulations
have been increased in order to buffer and control technological changes.
Drucker observes, "It has become fashionable these
last years to be ‘anti-government’... “Governments have become powerless against
the onslaught of special interest groups.” Neo conservatives represented the government as a threat to human
freedom because it could do (almost) nothing right. They regarded it as a kind of malignant growth in the body politick.
Thurow and Heilbroner responded as follows:
"Despite the efforts of the Reagan administration, government
cannot be disengaged from our economic structure, because it is not lodged
there like some great foreign body, but is woven and integrated into the fabric
of society at every level.” Those who call for the elimination of federal
activity or its drastic reduction ignore the fact that most other industrialized
nations (e.g., Germany, France, England, Japan) had a higher proportion of
public enterprise than did the U. S. The common American belief is that private operations are invariably
more efficient and productive than public. Studies by Pryke and Robson in England showed that the two were
about equal in efficiency and productivity.
An independent study by Shepherd at the University of Michigan found
that "British public enterprise can be equal to private.”
American history has been characterized by an adversary
relation between business and government, as well as between business and
labor. In REVITALIZING AMERICA, Muller
took note of this and called for more participation by all concerned in reaching
economic policy decisions. He said,
"It is no accident that countries which have experimented with consensus
seeking devices are among the most prosperous and successful at carrying out
demand-managed policies.”
Japan's early success was based on cooperation between
business, government and labor, working together to build a functional plan.
This process was well described by Taire in Current History.
Reviewing Muller's book, Business Week objected to it as "politicizing
business", but Fortune emphasized an important difference "The key
point here is that the policies have to be implemented through the regular
democratic legislative procedure, subject to review and criticism.”
The Japanese economy sagged during the 90s, from bad
loans, Asian competition, and how the government had protected smaller home
businesses. Japan had a lower rate
of high:low income people, (i.e. greater equity) than did the U. S. It is interesting that about the time Americans
were being criticized for overspending and increased bankruptcy, the Japanese
were being criticized for oversaving. At
this same time the American economy was booming while Japan was in recession.
One can only suppose that when its leaders get the bad loan problem
cleared up, the capital is there for recovery.
America and other western nations have combined the
political system of democracy with the economic system of capitalism. It has been assumed that these agree in representing
freedom of people (1) to choose their own governmental policies or (2) to
indulge in free enterprise and make money, believed to work out for the common
benefit. The political phase is assumed
to be dominant because it produced the universal governing laws, where power
was widespread and accountability clearer.
In the early stages of the economic phase, an Adam Smith
type of capitalism involved widespread accountability as well as power.
However as industry grew in size and scope, power became more concentrated,
first on a national scale, then on the international--where accountability
began to disappear. Because there were no laws to regulate the
operation an industrial anarchy arose. In
response, the capitalists offered the prospect of control by competition in
a free choice of products by the customers, but as Korten and Greider showed,
the competition merges into cooperation when expedient and profitable, for
the benefit of the wealthy but often at cost to the poorer segment (with the
middle class splitting between them).
The capitalist economic power is able to exercise increasing
influence over the media (by means of which democratic accountability is supposedly
maintained) but special interest can flourish and influence the product and
therefore the consumers. Korten and
Greider identified an increasing conflict between the accepted essentials
of democracy and the growing practices of oligopoly. Industrialists cite S. Korea and Taiwan as
showing how rightist dictatorships can evolve into democracy via economic
development, but they ignore the way economic power promoted dictatorship
in Germany, Italy and other nations. More
time is required for equalitarian economic development, as proven by the slow
growth of human rights in the western nations--representing struggles over
centuries. The behavior of super corporations
leaves much to be required on this subject.
The
Meretricious Global Market
The word meretricious is used here (and in a later segment)
to describe in dictionary terms,”deceitful and artificially attractive”, or
in general, misrepresenation or yet in vulgar jargon, “phony”.
The present economic icon is free enterprise.
There is much of it at the lower levels of business in the U.S. and
similar nations, but the higher we go in the scale of size the more it becomes
a misrepresentation. Two books written in the last decade of the
20th century described the extent and magnitude of the departures from reality
by the global corporations: WHEN CORPORATIONS RULE THE WORLD by Korten, and
ONE WORLD READY OR NOT by Greider. These books detail the relevant facts that
are contradictory to the common belief. They
need no repetition here. We can refer
to this as both captivity and misrepresentation.
The historic trend is unambiguous. Global corporations have been growing rapidly in their investment,
four times faster than world output and three times faster than world trade,
also faster in increased business volume-700% in 20 years. As a result their power in the international
economy has been dominant. 70% of
world trade is controlled by just 500 corporations, and 1% of the MNCs (multinationals)
own half the direct foreign investment. The combined assets of the largest 50 commercial
banks and financial corporations account for 60% of the 20 trillion dollar
stock of productive capital.
The dangers of multinational power were described during
the 1970s. The ECONOMIST hailed the
restoration of MNCs to economic leadership and public benefit. Globalization was seen as "the embodiment
of modernity and the prospect of wealth, full of technology, rich in capital,
replete with skilled jobs.” The magazine
also discounted the size and oligopolistic character of the globals.
It took the case of the car industry as proof of how they increased
competition, but its chart showed that in 1992, 55% of the world car market
was controlled by five companies. The idea of a new American car company appearing
and succeeding is improbable. A foreign
invader may succeed (rarely).
THE ECONOMIST did admit that there is some monopolization by the globals
but that is to be met by what they call "an international trust busters
forum". Of course there is no such international agency,
and the globals would certainly do their best to see that it does not exist.
The MNCs do have some "trade rules", but as
Greider commented, they "remain free to ignore” these agreed upon rules
whenever it suits their interests. They
regularly do so, even while proclaiming their dedication to the concept.” They claim and seek freedom from any national
government, but when some crisis develops, like that of Mexico in the mid
90s, then "National governments are expected to step in and provide the
funds and regulatory supervision to cleanup the mess.” Leaders in commerce and industry may wish to
"disable the social presence of the state, but not to do away with the
state that subsidizes, protects and promotes their interests.” The present struggle seems less about getting
rid of government than who gets to use it.
In another claim, rapidly becoming fraudulent, corporationists
have always claimed to be second to none their patriotism and Americanism.
When we examine their global business practices, we find that they
leave the country quite readily, moving to lower cost areas which offer cheaper
labor and more "benefits" (e.g., Mexico, Asia). Their allegiance
is purely to the bottom line. Business Week concurs: "These world corporations are developing
a chameleon-like ability to resemble insiders, no matter where they operate...
they move factories and labs around the world without particular reference
to national borders.” It is common
for a corporation to disappear after having been subsidized in various ways
by state and national government, with hardly a bow to patriotism.
As for the 3rd world countries to which the MNC retreats,
much is made of the need to stimulate their development, and the usual argument
is that MNCs, in setting up shop there will facilitate the process directly.
Descriptions of many such cases around the world from first hand observation
by Greider gives the lie to such claims.
Benefits are indirect and painfully slow.
Public, international agencies also operate "in reverse"
so far as aid in development is concerned.
The World Bank engages in what Korten calls "Creating a Demand
for Debt", revealing how this money may actually have the effect of putting
the country deeper into debt with less ability to repay it. "The reality is that most borrowing countries have been able
to service existing international debts only by increasing their international
borrowing.” Recently the loaners are asked to cancel the debt their people
have subsidized.
Another contradiction was seen when economic practices
of global corporations resulted in over-capacity and surplus growing out of
cost cutting, especially in labor and increased technology. From 1980 to 1993 the Fortune 500 companies
shed nearly 4.4 million jobs, more than 1/4 of what they previously provided.
During that same period, says Korten, "their sales increased by
14 times and assets by 2.3 times (and the average CEO compensation by 6.l
times) The effect was anticipated by P. Schavoir, former director of strategy
for IBM: "You can't become so
efficient that all this stuff is made without any labor content because then
you have nobody with the money to buy anything”-- echoing the policy of Henry
Ford. Schavoir’s observation must
be complemented by the accessory conclusion that if you keep wages down, while
production is booming the ultimate result is identical.
This strategy of a company was probably acceptable to
the extent that it seemed to succeed. Boeing,
the biggest airplane maker, appeared to be "Shrinking and booming at
the same time.” Its Seattle plant
was sharply down by 50,000 jobs since 1990... with many of its lines idle.
The Everett plant was working at about 50% of capacity, "Yet profits
topped 1.5 billion and were growing robustly" said Greider.
Evidently it was possible to shrink labor costs, simultaneously increasing
productivity, keeping the price high and profits to match.
Perhaps the unique product could explain the anomaly. While this is a supply side success, it does
not bode well for the demand side.
Part of the economic fraud resides in the growth of
financial speculation over productive investment. The trends and costs have been recognized by many observers. For example the editor of the Harvard Business
Review reported: “Most of the 800 billion that is traded (daily) goes to short
term speculation, from a few hours to a few days. That money is mostly involved
in nothing more than making money.” Phillips observed that the speculative
bubble was not controlled. Elsewere
he referred to this as “paper entrepreneurialism”. Korten concluded that “the speculators take
represents a kind of tax on the financial system to no useful end, the greater
the volatility of financial markets the greater the opportunity for these
forms of extraction”.
Muller offered
an earlier explanation, which predicted the later situation when he said,
"Rich Americans...no longer have confidence to place their money long
term in new factories or technologies. Instead
they are buying real estate, commercial paper or gold or acquiring each other's
corporations. None of these nonproductive
investments expands growth or creates jobs.”
(Since that time, gold is down, but so is R & D.
Corporate cannibalism is up and speculation is reaching the highest
levels.)
The case of George Soros makes an intriguing study in
this connection. Writing in the Atlantic Monthly, he acknowledged having made
an enormous fortune but now feared that "untrammeled intensification
of laissez faire capitalism and the spread of market values is endangering
our open and democratic society”--a surprising recognition perhaps, but not
surprisingly he failed to acknowledge that this was accomplished by speculative
operations on a giant scale. Korten
points out that Soros’ testimony before the House Banking Committee clearly
revealed the perspective of a professional speculator for whom volatility
is a source of profits, recounting cases in which Soros' enormous investments
had produced changes in the market value of German and British currency, and
in gold, to his monetary advantage. The
conclusion: Stable markets and exchange rates "are anathema for speculators
because they eliminate the volatility on which speculators depend. For his
role in protecting the opportunity for speculative profits, Soros extracted
an estimated one billion dollars from the financial system for his investment
funds.” There was of course no word
on this subject in the Atlantic analysis, but the author is due some credit
for questioning an icon.
The preceding cases reflect captivity, including dangerous
consequences of illusion. Korten and Greider stress the dehumanizing effects
of what they refer to as greed, passed down from those at the top--leaders
operating in the isolation of their high offices and under pressure to maximize
profits and success. Concern here
is with what will cause a change in the phenomenon of the "manic capitalism"
in Greider's subtitle. Both books
offer numerous reform proposals, which are reasonable, leading toward greater
human equity and therefore reduced conflict and pain in the future, unfortunately
with few prospects of implementation.
Korten calls for a "spiritual awakening" and
"mutual caring" as integral to the rescue. Much as this transmutation might be welcomed,
the record shows that such change comes in a different way...from various
failures of the system, which Korten does not address. Greider sees a more serious consequence.
If the supply side far outruns the demand then idle people, falling
wages and social frustration could lead to more violent response and an economic
depression, possibly worldwide. It
would seem to require some global economic shocks "before common sense
can prevail.” In that case, nations would be back “on their
own”, adrift from the globalized network.
The Washington Post described an "unprecedented
flow of money from the rich to the poor nations", citing figures from
the World Bank, but Korten described the unreliability of World Bank enthusiasm
and data. The Post writer hailed the
JRA Corporation, which makes jeans (in the Philippines) paying workers six
dollars a day, and thereby allegedly lifting people past the poverty level. This raises the questions: (1) just what the local poverty level is, and
(2) how such workers can afford to buy the products on six dollars a day.
The authors used the Philipines to prove globalizing prosperity, but
admitted that its starting point was with the dictator Marcos, who "turned
a robust economy into the sick man of Asia.”
The analyst then took the case of Nike Shoes. Its Indonesia plant employed 120 workers, paying
them $2.28 per day. The Nike company
allegedly "raised income and living standards" then it "moves
on as wages start to rise.” It was acknowledged that "improved living standards is not what
motivates companies to invest in poor nations.” Indeed not. It is maximizing
profits. The companies will often
emphasize that it is not just rock bottom wages they seek, but adequate roads,
power, transportation, raw materials, stability and concessions, plus--oddly
enough--potential buying power of its citizens, which disqualifies most of
the truly poor countries, and certainly the 2.28 workers.
In conclusion, MNC operations do contribute to development
and reduction in poverty, but as an irrelevant by-product, which may interfere
with their profits and proceeds at a very slow rate. The globals exploit anything and anyone for
their goal of profit maximization. They
adapt to requirements of labor, the environment and other social improvements
only when under heavy pressure, as Greider and Korten described. The public hears about the improvements but
not usually about the costs they impose in the interim.
Anticipators
Some earlier writers anticipated the rapid growth of
multinationals. It is worthwhile to
review a number of these preparators for the developments that followed. As early as 1968, Fortune magazine described
how MNCs could engage in juggling between subsidiaries to gain "multiplying
opportunities to buy cheap and sell dear.”
Their number increased (from 7,000 in 1970 to 35,000 in 1990) Barnett
and Cavanaugh said they were "becoming the world empires of the 21st
century.” These authors perceived
the danger of operating in the absence of political control and accountability,
except for competitors, with which they often formed "alliances.”
The MNC defenders early argued that they were the new
integrators and saviors of a divided world.
Turner found Americans defensive toward their MNCs, believing that
these must be sustained regardless of defects.
The CEOs were seen as captives of their own pressures to maximize income,
which meant minimizing it elsewhere. Barnet
and Cavanaugh observed, "Corporate managers have neither the consciousness,
the incentives nor the inclination to take on public responsibility that governments
are unable to perform in the international arena.”
But making MNCs accountable is essential "if the new world order
is to be democratic.”
An early model of economic internationalism
was displayed during World War II when American corporations joined with German
Nazi corporations (for example General Electric, I.G. Farben, Standard Oil
and Zeiss) sharing patents, industrial processes, dividing up world markets
while the war was going on. So long
as both sides were making money and controlling economic operations in their
own protected spheres, the war was irrelevant. Therefore wars are acceptable for supercorporations
as long as the profits are forthcoming. Naturally this collusion with the Nazis was
ignored/buried at the time by the media, and has been since.
Writing with foresight on the subject, Kindelberger
(in AMERICAN BUSINESS ABROAD) admitted, "This staff of executives is
likely to be committed to the aggrandizement of the corporation and their
own incomes and stock options which will overwhelm any tendency of the MNC
to behave like national corporations.” Operating in an essentially lawless
world almost insures a result of this kind.
Barnett and Cavanaugh observed, that "even in economic
terms, if we take into account the costs that damaged, displaced and despairing
people exact from the taxpayer--bills for running prisons, hospitals, welfare
programs, unemployment insurance and the like, this sort of efficiency is
no bargain.” Philips in ARROGANT CAPITAL
recognized that in shifting plants and jobs abroad big employee cuts “reward
shareholders but penalize communities, people and local taxpayers”--all of
which is likely to raise the question of what factors might direct the enormous
multinational power in more socially beneficial forms and increase accountability.
The following answers have been suggested by various observers:
The trend toward big business is unmistakable. In 1948, the 200 largest corporations controlled
48% of the nation's assets. In 1983
it was 61%. As expected, at the other
end of the scale, the small, independent enterprises have been shrinking.
In 1900 there were over eight million of these (or about 30% of all
businesses) By 1990 the proportion had fallen to 10%.
Three main causes were identified for this growth:
(1) Advances in technology have led to mass production of goods at
relatively low cost, (2) corporate mergers, leading to increased concentration,
(3) the effect of business cycles. Smaller
firms could not survive as well as the giants. (Statistical Abstracts (95)
reports business failure (per l0,000 firms) were in the 40s during the l970s,
rising into the l00s in the early 80s. New
incorporations, since the high (l986) have been dropping. The Abstracts adjusted its data for “expanded
business failures”. Mergers and acquisitions have been rising.)
Americans love to boast about the importance of new,
small enterprises as a part of capitalist freedom, and the opportunities represented,
and how they continue to appear spontaneously, but we ignore the above data
showing how they steadily disappear. There is not much to be done about causes #1 and #3 above. This
leaves only the second cause as offering opportunity for significant change.
Phillips in the above-mentioned book refers to a study
by Kennickell and Woodbum revealing a remarkable gain in wealth “ by the families
having 4 million or more in net worth. The top 1% of families had more wealth than the bottom 90%, owning
" 1.25 trillion worth of rental real estate, 1.25 trillion worth of stocks
and bonds, 222 billion in trusts and 524 billion in bank and other accounts
for a total of 3.1 trillion.” Phillips
notes that even Edward Luttwak, a conservative analyst was somewhat taken
aback. So there is excessive concentration
not only in corporations but also in families.
There have been several periods of "merger mania"
in American history, but the strongest and most recent followed upon the Reagan
presidency. The leap is read in the
figures. Mergers and acquisitions
for 1984 were about 2,200. This rose
to 4,200 in 1990 and shows no sign of serious reduction. In 1984 there were five great mergers, each
of which was larger than the total value of all the mergers during the previous
decade. Phillips observes that there
was "little interest in prosecuting under anti trust. Consent decrees became the favorite device.” The assistant attorney general under Reagan
ordered cessation of anti trust actions by the Justice Department, expressing
the Reaganite opinion that mergers and takeovers were part of a natural evolutionary
process. (Anti-trust revived somewhat under Clinton)
A. S. Miller in his treatise THE MODERN CORPORATE STATE
concluded that "the law in this country follows economics... wealth means
power.” To reveal the growing bond
between politics and economics, Miller traced causes for the rise of the supercorporation,
and identified the following factors:
1.
Technical and organizational requirements produce giantism,
according to Galbraith and Mason. This
is too simple, says Miller. Technology
does make large scale integration possible, but then, "Why is it carried
out?"
2.
Law and the legal system made for giantism. The government encourages growth of corporations
in size and number. Miller cites the
supreme court law which treats the corporation as a legal person, giving it
all the advantages and freedoms of the individual
3.
Willingness to sacrifice freedom for what appears to
be material security. Adams and Gray
make this point, and William Withers in FREEDOM THROUGH POWER goes even further
and charges: "When Americans
have had to choose between freedom and material well being, they have chosen
the latter every time.”
4.
The supercorporation is the result of "a drive
for economic position and power by the American ruling class" to use
Miller's words. Mills and Domhoff
develop this thesis, although with little support. Size becomes an end in itself, and the aim is to monopolize in order
to secure wealth, status and power. Galbraith
adds that this is the way to reduce risk. Miller concludes "The rich and the superrich
use the corporation in much the same way their predecessors in feudal days
used land ownership.”
5.
Another hypothesis is that supers are institutions growing
out of the western frontier (Webb and Landes), but this view concentrates
on land and forgets the great influence of the technological frontier.
Some economic observers have sensed
that competition tends to produce concentration by eliminating the smaller
producers. E. H. Carr for example
declared "The result of free competition has been to destroy competition;
competing individuals have replaced themselves by monopolistic groups as economic
units.” In the early stages at any
rate, larger size was more profitable and successful. It offered advantages such as larger volume,
rationalizing procedures, gaining more capital to engage in predatory pricing,
buying out competitors and winning government contracts. The biggest companies have more capital for
research, although they may not release it or use it effectively. The power of advertising must not be ignored
as an influence used to greater advantage by the bigs. Finally the takeover technique contributes,
and as studied by Walter Kissinger "is harmful to our free enterprise
system.” According to D. T. Kimball,
who was head of Leeds and Northrop, "The greatest benefit usually goes
to the speculators.”
Objections
to growing industrial concentration are often passed off (by the industrialists)
as unjustified, and no threat of any kind; however it does concentrate and
magnify power and therefore the capacity to control, which explains the waning
power of anti-trust. It is not to
be forgotten that the supercorporations are in business to maximize profit,
which they do very successfully. As Domhoff points out, businessmen have a standard reaction, they
feel "powerless and constantly complain about government interference
and frustration.” This thesis was
developed more recently by Lapham in a Harpers essay.
Corporate criticism is even directed at democracy. Silk and Vogel record detailed statements from
the Conference Board of Businessmen. One of them asked, "Can we still
afford one man, one vote? We are tumbling
on the brink... One man one vote has undermined the power of business in all
capitalistic countries since World War II.” Their repeated fears of weakening entrepreneurs was inverted by
the supply side power of the 1980s.
Loewenstein came to the following conclusion: "The
authority of the powerholder is indispensable for carrying out the purposes
of the state society on the one hand; the liberty under authority of the power
addressee is equally indispensable. The
establishment of a harmonious equilibrium presents the eternal question of
man in society.” The workable arrangement
sought by both--consciously or unconsciously, is a balance between them, a
cooperation, not a victory. Unfortunately in America "winning is all
that counts" not only in sports but business as well.
Gilding the Lily
Phillips in his book THE POLITICS OF RICH AND POOR identifies
parallels between the 1980s and two earlier period of American history: the
roaring 1920s and the Gilded Age of the later 1800s. Since Phillips' book received plaudits from
the left (Gov. Cuomo) as well as from the right (Richard Nixon) it is hard
to regard it as biased or doctrinaire. The
head of the crusade to supply side economics was Ronald Reagan. He was converted by Gilder and Laffer, whose
message he helped to sell the American people--yearning for something different.
With charm, charisma and as a father figure he represented Americanism,
optimism and faith in a rosy future. Reagan
had confessed little knowledge of or preparation for political-economic leadership,
but he did recognize that "a substantial part of this political thing
is acting and role playing, and I know how to do that.
So I used to worry, but I don't any more.”
The task was made easier when the USSR collapsed.
Podhoretz supported the president’s position saying
"Ronald Reagan never promised to manage government better, he only promised
to get the government off our backs. For
that reason he was not tagged for scandals which occurred on his watch.
They somehow only proved Reagan right--proof that the system was out
of control. That explains why he was the Teflon president.”
The idea that scandals prove correctness is pure dogmatism;
furthermore Reagan's teflon coat was the result of his charisma and ingenuous
nature, as well as his acting ability. As a result Reagan could pass off incredible gaffes--both qualitatively
and quantitatively which would have destroyed a lesser figure.
Therefore Reaganites could just ignore them.
For a catalog of these (cited) mistakes, see REAGAN'S REIGN OF ERROR
by Green and McColl. It must not be supposed that this was a new
presidential way. Reagan acknowledged
that he was following Calvin Coolidge, who, according to Beard, believed that
"Taxes were to be reduced, not indeed on goods consumed by the masses
but certainly on the incomes of those who sat highest at the American feast...to
leave money in the hands of the rich for investment so that the opportunities
of the poor to gain profitable employment might be multiplied.”
The election of 1994 swept in a new set of neo-conservatives
led by Gingrich who became Speaker of the House. Although the congress railed against government power, in practice
they only wished to replace it with the power of business wealth. The Speaker seemed to be pre-empting some of
that potency when he declared, "I want to shift the entire planet...
I'm unavoidable... I represent real power.”
The elaborate tactics employed in PR control of the voters by the conservative
candidates was well-described by the New Yorker.
Quite understandably, the 94 congress
pushed hard for "devolution" of control from Washington D.C. to
the states. A standard book on American
government by Baker, Pomper & McWilliams recognized: "One advantage
of the large corporations and organizations is precisely that they are better
able to control government, or protect from regulation.” If they get their way easily with the national
government, then state and local governments have proven less able to resist
the power. They have been subservient
toward the giants, trying to persuade them to locate nearby (or not to leave)
bidding against each other with bigger tax cuts and other benefits.
What was the effect on incomes of supply side "gilding"?
For example:
In comparison with these results we must consider the
effect on the average weekly income of workers at about the same time. From 1970 to 1990, this result was a drop from
298 dollars (weekly) to 257, down by 14%.
The reduced per- capita wages was compensated in many cases by two
worker families, which sometimes resulted in improved living standards, but
if children were involved, the improvement was marginal to nonexistent. Employment grew during these years, but in
the low paid service jobs.
Why do these "average" workers support a policy
that is costing them while enriching the wealthy? There are multiple causes, but the following
are most important: It is first a matter of electoral arithmetic. Those in the lower and low middle class do
not vote in the same proportion as do the more affluent. Edsall provided figures showing the superiority
of white collar turnout over blue collar (1964-80) It increased from 25 to
48%. This is combined with the related
fact that elections are now decided by a very low turnout. If, as in 1994, 35-40% of eligible voters turnout,
a candidate getting 20-25% may get a "landslide", then why do the
poorer, the probable dissenters not turn out in support of their interests?
There are several reasons:
The promise to "get government off our backs"
is effective and must be explained. There has always been a latent suspicion of government in America,
waiting to be tapped. The "tappers"
in this case are not content to call for reduction of waste and an increased
efficiency--which is always possible in some degree, and to be encouraged.
It is always politically advantageous to one party to ride and promote
anti government activity (until it gets elected and can get in on the pork.)
Reaganomics was not without defenders. For example R. C. Smith exulted: "The
1980s were among the most dynamic of all the thousands of years of financial
history. The markets soared, wealth
created in abundance, especially by the ‘new men'.”
Smith hailed this new breed of enterprisers like Michael Milken, as
"nerveless, glib, combative, thoroughly trained in the in the new ordnances
of his trade.” Ordnance was a well-chosen
word, indicating violent conflict and "shoot-outs". These are more commonly referred to as speculators.
More support came from Toffler who hailed the exploits
of Milken. He repeatedly supported
our high arms expenditures because of their profitable, civilian economic
spin-offs--ignoring studies which show that civilian projects of the same
magnitude benefit more people, produce constructive goods and threaten less
destruction. Toffler concludes that
there is a moral basis for judging the proper amount of power to be specially
concentrated, but his proposals show insufficient understanding of bio-social
science. The deceptive and artificial
has been implied in the foregoing. More
direct attention to it is now in order.
The Meretricious National Economy
It is appropriate to start with
the case of Adam Smith, to whom the conservatives turn as their model. Smith assumed an economy of small businesses,
managed by owners, with full knowledge of the operation. That situation ceased to correspond with reality
more than a century ago. Smith was
opposed to big business (corporations) as he was opposed to big government.
Both interfered with free enterprise.
In his treatise, he condemned corporations a dozen times, reported
Korten (with no approbation). Nevertheless
corporationists keep referring back to him as their theoretician. They laud
the role of small business, at least in principle believing that it is the
essential first step to better things. Smith
in another volume asked about the causes for the pursuit of money by the rich
man. He identified “Desire to keep his place or rank as befits his image and
as maintains the approval of the spectator.” He considers the case of the
person who “devotes himself to the pursuit of wealth and greatness…He begins
at last to find that wealth and greatness are mere trinkets of frivolous utility.”
Profitable misrepresentation is common in political
economy, and it works often enough to continue. According to capitalist theory, enterprises that are grossly mismanaged
(including corruption) should fail and disappear. Philips puts it this way: "Large banks and corporations guilty of
overspeculation and overleveraging would have gone under as the capitalist
process of destruction and removal suggest they should have.” But bailout set in, pursued by conservatives
as well as liberals. There was Chrysler,
after Iacocca's long complaints about government intervention in business.
There was the Penn Central loan, to pay off its individual creditors.
There was the Lockheed bailout (which led Treasury Secretary Connally to hail
"a new partnership between government and industry”, assigning risk to
the public sector and profits to the private).
The rescue of Franklin National Bank was followed by the First Pennsylvania
Bank. There was also the rescue of Continental Illinois.
Then the Hunt brothers tried to corner the silver market and failed,
needing a billion dollar transfusion--which they got, courtesy of Burns and
Volker (who did not cease to denounce government spending on food stamps for
the poor)
After the savings and loan disaster,
the president and congress rushed in to bail out the participants.
Few lawmakers raised questions about this response.
Senator Bradley was one: "To
date only 23 people have been convicted.
Guilty S & L executives have been given extremely light sentences,
which have often been suspended. The
American people are rightly incensed by this.
They want to know why they should pay for S & L mismanagement and
corruption when the people responsible are hanging on to their limmos, their
mansions and their planes. Surely
we should recover what we can from the crooks before we reach into the taxpayers'
pockets.” Size and influence made a difference because
they had allowed dozens of small banks in the Midwest to go under, without
a transfusion, which would have been much cheaper than saving the giants. There was an accompanying effort to divert
attention, by excluding the debt from the yearly budget. President Bush, and the majority voted to cover
it with an issue of federal "junk" bonds carrying a high rate of
interest to which there would be little notice. Senator Hollings objected:
“Next You’ll have drug bonds, nuclear waste bonds, go to Mars bonds” but Bush’s
Chairman of the S.E.C. (Breedon) still favored more de-regulation. The anti-government forces of the 90s were
characterized by highly vocal complaints against government aid for individuals,
groups, even states, but the performance was another matter. For example, one of the 1996 presidential candidates,
Senator Gramm rose early in life largely through aid and employment by the
government, not as the entrepreneur type, upheld as the ideal. When it came to getting government projects
(pork) for Texas, he was so successful that one critic said the state was
in danger of getting trichinosis.
It was the same for House Speaker Gingrich. His model was always free enterprise and use
of the government only to make way for it, but his career was spent working
for and in the government--"a creature of the public sector" said
Michael Barone, senior writer for U. S. News and World Report. The Wall Street
Journal pointed to another misrepresentation by the Republican revolutionaries. Congressman Gingrich had been attacking the
Democratic majority "for being subservient to special interest groups,
ineffective and unethical in its behavior.”
But the Journal used the Freedom of Information Act to review his communications
with the administration over the years, concluding "He has used his position
in a series of noteworthy intercessions to help his own friends with special
connections.” P.F. Drucker in his
book POST CAPITALIST SOCIETY declared: "The pork barrel state increasingly
undermines the foundations of a free society The elected representatives fleece
their constituents to enrich special interest”. Kelly's ADVENTURES IN PORKLAND
reports no distinction between political parties when it comes to garnering
handouts from the federal government.
As we have noted, the Reagan revolution called for the
most complete non-regulation of private business, which had great appeal,
especially when coupled with transferring power to the states. It produced the Savings and Loan robbery; it
produced the sell-off of national forests.
It had produced another attack on the FDA (reminiscent of the no-regulation
disaster described in Sinclair's THE JUNGLE). When it came down to actual practice, the non-regulators
often did not want it themselves. A first-hand response from former Secretary of the Treasury William
Simon throws light on this. "During
my tenure at Treasury, I watched with incredulity as businessmen ran to the
government in every crisis, whining for handouts or protection from the very
competition that has made this system so productive.” Phillips reports similar behavior on the part
of both business men and government leaders. We may recount a few examples:
Senate leader Dole had made objections to enriching
special interests, but he arranged for a tax credit (worth as much as 100
million a year) for production of ethanol, a fuel made from grain. The beneficiary was Archer Daniels Midland
Company in charge of the process. The
head of this company, Dwayne Andreas had been a longtime Dole contributor. (Another Dole beneficiary--and vice versa--was
Gallo Wines). For yet another case: The Wall Street Journal found that the
government had enough depleted Uranium on hand for a hundred years of war,
but the Pentagon wanted to spend another 200 million for an additional 36
million pounds. The supplying company
was Nuclear Metals Inc., which happened to operate in South Carolina. Who put this item in the budget? Senators Strom Thurmond and Ernest Hollings
of South Carolina, also regular complainers about government spending.
A rather recent example of the contradiction of capitalist
doctrine with actual practice was seen in the computer chip crisis, described
by Hedrick Smith. The mid- 1980s saw
"the conspicuous success of Japan and the appalling collapse" of
American leadership in computer chips. The
American companies seemingly could not launch effective competition.
By early 1987, Ronald Reagan stepped in with the proposal of Sematech,
a government operation to fund a unified challenge to Japan.
Smith admitted: "Only
catastrophe, real or imminent could have moved Reagan to go against all he
believed" and take this action (recommended by Secretary Weinberger).
The U.S. had become so dependent on the Japanese product to make its
missiles it could not always obtain this easily.
The government acted in Sematech through DARPA, a Pentagon research
agency (however industry was to run the operation).
Within Sematech, normally fierce rivals worked together--ATT, IBM,
Intel, etc. One CEO commented that "American companies
always cooperate during a war but never in peacetime”. Evidently an economic
war was a sufficient stimulus. It
was necessary for Sematech to build its own chip plant. One study found "the free market had never
generated a chip industry anywhere.” The
last U. S. optical lithography firm
(Perkin and Elmer) a first rate installation, was almost swallowed up by the
Japanese.
Sematech finally succeeded and restored the U. S.
position. Plainly a tidal wave of global change threatened and forced
a revision of capitalist stereotype regarding government as a pathological
manifestation. (Not suprisingly this transition received little public attention).
We must note a similarity in Reaganite behavior between this experience
and his behavior starting the nuclear extrication as described in Chap.4.
In both cases it required a crisis to reverse his thinking and actions.
Nevertheless the dogma of hated and incompetent government lives on.
It is profitable as well as traditional.
Summary and Conclusion
Americans are captivated by the power of economic doctrine.
They are unaware of or indifferent to changes that have occurred, but
the market system is very different from that of 200 years ago.
Drucker believes that "developed countries are moving out of anything
that could be called capitalism.” The
people in charge are changing. The
concentration of industry and power are growing, which leads to the reduction
of competition, the growth of planned markets and prices, primarily for the
benefit of the producers.
The corporationists automatically object to government
regulations, not just the bureaucratic variety, but to those designed to make
the system operate more equitably. On the other hand, the industrialists work diligently and successfully
for government operation to their advantage--subsidies, tax privileges, contracts
(especially with the military) and other kinds of private benefits.
They try with notable success to staff government agencies with their
own men, who then "regulate" or "deregulate" for greater
profits.
The doctrinaire capitalists broadcast joy at how their
system was sweeping the world in triumph, but naturally they were silent when
the new breed of free enterprisers in Southeast Asia, Japan (not to mention
the criminalization in Russia) got their countries into crises through bad
investments and get-rich-quick schemes similar to the Americans' performance
in the Savings and Loan scandal. The
respective governments were then forced to step in and exercise some more
effective regulation.
The mania of supercorporations for the "bottom
line" brings wages toward their bottom line and therefore undermines
the system. These disruptive elements
are papered over with misrepresentation and are at odds with democratic principles.
In democracy, the order is that government and business are accountable
to the people, through the franchise. Korten's
conclusion is appropriate: "Globalizing national economies and giving
free reign to corporate power invert this order.
The market becomes the first concern; government becomes subordinated
to corporate interests... When the market reigns the corporation is king.”
Under the heading "Capitalist Paradox", the
editor of Harpers undertook to evaluate the economic system. As Lapham saw it, there are two conflicting
threads in our economic fabric: the obsession for money, with its corrupting
influence on the one hand, and the great innovations of technology and the
arts which capitalism generates on the other.
This is a paradox that few want to face. As expressed, "Hardly anyone likes to admit that the highest
achievements of the western mind spring from the same soils that nourish the
lush flowerings of corruption and greed.”
Lapham recounts his visit with a tycoon (among the MNCs) who praised
dictatorships where he only had to bribe one man in order to conduct business
in a third world country. Almost everyone
is seduced by money, concluded the editor and those who aren't "make
their choices not so much on moral grounds as on the basis of empirical observations.”
(Concern for money is a necessary evil to retain the systemic virtues,
and you can't have one without the other).
The balance between positive and negative sides is alleged to be very
delicate, and if we turn away from it, striving for a final resolution, the
winner would be "sanctimonious tyranny" rather than the reformer's
democratic revolution.
In the beginning, Lapham is correct. Capitalism in whatever form or stage has strong
and weak points, but the situation is not a paradox because the opposing attributes
are entirely comprehensible and can be balanced. The author loses his way when he assumes that
basic change is not possible and if the "reformer" attempts it,
he will harvest only the negative features.
Perhaps a simple homology will illustrate. Imagine it is the year 1,000 A. D. The dominant system is feudalism. It offered the benefits of protection and a kind of shelter for
the masses, granted by the lord of the manor.
But under this system, a human was often worth less than a horse, and
men might be sacrificed with relative impunity. Following Lapham's thought, it would be dangerous to challenge this
nicely balanced system. If you did,
your "harvest” would be discharge from the manor to perish.
Yet the system did change and for the better. To be sure it was a very long and painful process. Capitalism is changing. A "don't rock the boat" argument
will not stop the process, and never has.
In America we have swings from supply side domination as at present,
to "demand side" and back, where government activity has shrunk
or grown. A more defensible conclusion
is that made by the prize- winning economist, K. J. Arrow in his Fels Lectures and published as LIMITS OF ORGANIZATION.
Arrow first recognized some advantages of the price system:
(1) it allocates things swiftly, (2) it is not necessary to understand
the workings in detail for it to operate, (3) it promotes a high degree of
freedom to introduce needed industry, products and services. (Industrial concentration and cartelization
reduces this freedom somewhat more than Arrow assumes.) Arrow then agreed that the system can be attacked
on the ground that it "makes a virtue of selfishness" He said that
some economists have argued that it is wrong for a corporation to do anything
other than maximize profits for its stockholders, but this "stretches
the point rather considerably.” Arrow admits there are "profound difficulties
with the price system within its own logic.” Some of these have been identified. Capitalism allocates quickly but not always
justly, says Arrow. A key drawback
is that it does not provide any dependable standard for income distribution. This is very difficult because many things
cannot be priced. Moreover there is
apparently no objective criterion for what constitutes just allocation, which
varies among Nobel economists from Friedman to Solow.
The current polarization of income in the U. S. is now
generally recognized. The lower 20%
of the population has seen their income decline. The upper 20% has been rising strongly. The Kenickell and Woodbun study found that the top 10% of families
gathered more wealth than the bottom 90%-- a total of 3.1 trillion dollars
in assets. The demand-siders keep
expecting the supply-siders to get us into economic depression because they
are undercutting the system, developing an "under-class" with shrinking
consumer demand, less economic security in their employment or their future...
however:
There are two anomalies here that demand explanation. First, why no economic downslide as predicted?
Several theories were offered by Pearlstein in The Washington Post,
which might have effect. One other explanation might be that we have the highest
proportion of our population in history that is relatively affluent. As Edsall
put it (in THE POLITICS OF INEQUALITY),” Americans as a whole have become
relatively wealthy”. If production is aimed at this new, affluent market we
could have enough gross demand and consumption to keep the system humming. That prediction remains to be tested, however it has never happened
before. A second question: Why does not the “underclass” protest and organize
more vigorously. Ambivalence was shown
in Gallup's finding that about 2/3 of Americans thought wealth should be redistributed
and 2/3 thought the country benefits from having a wealthy class.
Obviously the latter prevails operationally.
All Americans have been culturally conditioned to accept orthodox capitalism
as not only the best possible system but also the most feasible option. Even during the great depression of the 1930s, the red scare was
trumpeted loudly and often, but there was no serious threat of socialism or
even a successful third party. At that time, the big "supply-siders"
were quiet and restrained during the depression. They became somewhat more socially minded and less resistant to
New Deal reforms.
A fascinating and possibly significant event occurred,
reported by Stewart in his study of insider trading (DEN OF THIEVES).
Ivan Boesky in a commencement address at the University of California
told the grads, "I want you to know that I think greed is healthy.
You can be greedy and still feel good about yourselves.” Spontaneous applause broke out. (This was just before Boesky was
convicted and sent to prison, so the grads must have still regarded him as
an economic model of success). Greed
was good. This event says something
important about the grads, and also about the University of California. It
seems that change of values will not come quickly, or without a breakdown
of some kind. Theories must be tested
not only by their explanatory power, but also by their relative success in
anticipating outcomes, to which we now turn.
Prognoses
In general there have been two main forecasts about
the future of capitalism--the Marxist, that it will collapse by being unable
to handle its productivity, and the capitalist that it will produce growth
and prosperity without end, if let alone.
An early prediction was advanced by Sombart (in THE QUINTESSENCE OF
CAPITALISM), wherein he claimed to have made "short work of prevailing
formulas as to the origin and nature of capitalism.” He asked: "Will it
ever be played out?" His answer:
"I believe it will.” He foresaw three failures, the last being the
most significant because it anticipates a no-growth economy, which strikes
at the heart of orthodoxy. The population cannot grow indefinitely, nor can
the land or the resources. Can capitalism
survive on replacement, but no growth? Present
guess: probably at a reduced level of operation. We noted Drucker's view that standard capitalism
is about over; the old capitalists have disappeared and a management revolution
is underway. A new system based on knowledge is emerging, but its relation
to the free market is not clear.
Years ago Heilbroner suggested that the capitalist and
socialist systems would move toward some common features. Just as planning and regulations are used reluctantly
in the U. S., he observed, "It is not surprising that we find so many
motivating principles of the market being introduced into command society,
such as free movement of workers and bonuses for higher production.
Bonuses have been one of the effects of profit.”
The ‘profit’ is the state's and is used as an efficiency- maximizing
indicator. Its role could be enlarged, but probably not
brought to completion.
As a stimulus for innovation, individual enterprise
is too productive to be ignored. As
a manifestation of phylogenetic motives it will always appear in some form. On the other hand planning is also indispensable
to keep the system going at every level and in both private and public enterprises.
Superior performance on this score will be socially selected over time. At present, the great polarization of wealth
and income has resulted in two prognoses: a revolution or a strong reformist
response such as the 1930s. Even in
the depths of the great depression there was no close approach to revolution;
it is not part of the American tradition.
Will there be another depression (as distinguished from
the customary recessions)? Batra predicted
one for 1990. Davidson and Rees-Mogg
predicted the "Great Reckoning "would change the world of the 1990s...both
obviously premature at best. The latter
said their depression would be global in scope and "would be most severe
in the advanced countries.” They gave advice on how to prepare and protect
against the effects, which they found (expectedly) would be more possible
for the wealthy than for the masses. The
poor, they said, would suffer "because of chronic failure to take advantage
of their opportunities". But
opportunities are nowhere near equal among these groups. The rich allegedly will flee from the urban
centers to smaller, wealthier centers (example given: Aspen Colorado.) The masses will try to duplicate the escape.
This view of mass millions swarming to smaller towns boggles the mind.
These authors anticipate that government help in the coming crisis
will be much less than the 1930s. In
their words, it will be "farewell to the welfare state and socialism.” (It is contended that redistributing the wealth
would be killing the golden goose). While
much attention is given to the effects of the great reckoning, the authors
hardly mention possible causes.
What are the kinds and motivations for corporate change?
Nader predicts it will occur as a result of breakdowns, not because
of the zeal of liberal reformers. Lodge anticipates more use of corporate charters
for guidance. Gaibraith hopes for
boards of directors to be replaced by teams of public auditors who would oversee
operations in the public interest and recommend needed changes. At this time privatization is the rage, but
a more eclectic pattern can be expected to grow as it did in some of the Scandinavian
countries where all modes of organization were treated as useful when needed,
private, public, hybrids, cooperatives. Shepherd listed many of these types, reviewing factors pertinent
to cost/benefit in each case.
As to the role of multinationals, the rate of growth
in assets between 1982 and 1993 was 130% (3.5 trillion to 8.1 trillion)...no
signs of slowdown. They are the first
to try managing the world as an integrated economic unit, say Barnett and
Muller, and according to Aurelio Peccei who was Director of Fiat and founder
of the Club of Rome, "the most powerful agent for internationalization
of society.” Perlmutter said we are "moving toward
a world of very large MNCs and very small entrepreneurial firms of the one-man
show variety. I come out with a round
number of 300 giants" How well these giants are run will make a difference
in the outcome, he said, despite Schumpeter's
denial ("even if they were all managed so perfectly as to call forth
applause from the angels in heaven.”) We have observed their power and motives and freedom from public
regulation, but this shows some signs of restraint. Dupont and Cyanamide accepted a minority interest in their Mexican
plants and Goodyear only manages tire companies in Indonesia for a fee.
Smaller countries keep pressing for a "Piece of the action.”
In the event of a globalized depression, there are two
options (1) an integrated global response and/or (2) western nations such
as the U. S. would resort to Keynesianism or even autarchy. As for (1), there
is no formal global agency to take such action, especially on the political
front. The UN would be essentially powerless, as has
been desired. During the Depression
Decade in America, many analysts could perceive the absurd incongruity between
the potential and the reality. The
nation had the essentials for full-scale operation, namely: