21.12.07

NOT QUITE FIFTIES NOSTALGIA. Robert Reich's Supercapitalism has a simple cover with an Ayn Randian sign of the dollar that upon closer inspection includes a serpent's tongue. That pretty well sets the tone for what is to follow. This Book Review No. 36 notes that Secretary Reich makes an effort to be evenhanded, although sometimes he stops a bit short of reaching the conclusion he is leading up to. Consider the passage that opens the first chapter.

Roughly between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy. It combined a hugely productive economic system with a broadly responsive and widely admired political system. America in those years achieved its highest degree of income equality (since measurements have been available). It generated a larger proportion of good-paying jobs than before or since, and more economic security than ever for more of its people. Perhaps not coincidentally, in those years Americans also expressed high confidence in democracy and trust in government, both of which sharply declined in subsequent years. That singular success and that powerful promise extended the moral authority of the American system throughout the world. In contrast to Soviet communism, America became an exemplar of both political freedom and suburban middle-class affluence.

The economy was based on mass production. Mass production was profitable because a large middle class had enough money to purchase what could be mass-produced. The middle class had the money because the profits from mass production were divided up between the giant corporations and their suppliers, retailers, and employees. The bargaining power of these latter groups was enhanced and enforced by government action. Almost a third of the workforce belonged to a labor union. Economic benefits were also spread across the nation -- to farmers, veterans, smaller towns, and small business -- through regulation (of railroads, telephones, utilities, and energy supplies) and subsidy (price supports, highways, federal loans). Thus did democracy offset the economic power of large-scale production and widely disperse its benefits.

But it was not quite a golden age. Women and minorities still struggled for political equality and economic opportunity. Much of the nation's poverty was hidden away in rural hollows or black ghettos. Foreign policy, ostensibly shaped by the perceived threat of Soviet communism, all too frequently pandered to the needs of large American firms for cheap resources abroad, such as bananas, tin, and oil. Civil liberties were imperiled during Senator Joe McCarthy's anti-communist witch hunt. Much of American life was monotonous, conformist, and deadly dull. And yet for all its shortcomings, democratic capitalism seemed to be working remarkably well, and on the way to working even better.

No, it wasn't undone by the hippies or the feminists or the civil rights movement, all of whom addressed the rigidities alluded to in that last paragraph. The rigidities implicit in the first two paragraphs offered incentives for enterprising people, both in the United States and in a world rebuilt after World War II, to compete away the inefficiencies that followed from those managed oligopolies. Secretary Reich understands that (p. 48).

Efficiencies were sacrificed, to be sure. Consumers did not receive the lowest possible price or best quality. They abided cars that became obsolete a few years after purchase and telephone repairmen who showed up two days late. Investors were similarly docile. Economist John Kenneth Galbraith described the typical stockholder as a "passive and functionless figure." Average daily volume of traded shares was only 3 million by the early 1960s; it did not rise above 10 million until 1970, and only thereafter took off -- as did share prices. Across the economy, many assets failed to be put to their most productive uses. Innovation lagged. As we have seen, few major new companies were founded during this period.

But most people enjoyed more security and stability, and a larger share of the nation's income, than they ever had before or ever would again. The average real wages of hourly worker continued to rise until the early 1970s. Social tranquility was preserved and protected. Something approximating the common good was achieved.

Tranquility? Common good? That's really material for a different book review. The focus of Supercapitalism is supercapitalism. Enter deregulation (to address the inefficiencies). Enter the corporate raider (to address the inefficiencies). Enter exports from the Pacific Rim (to address the inefficiencies). Secretary Reich's thesis is that deregulation has made businesses more responsive to shareholders (or else some raider will find underemployed assets to redeploy) and to consumers (a Wal-Mart, or internet shopping, make searching for the lowest price easier). That competition has not, however, worked out to the advantage of workers, particularly workers in mature-technology, low-skill-compatible industries. (The aftermath of World War II masked the traditional comparative advantage of the United States in high-technology, skill-intensive goods and services. An increase in the price of such goods -- which most emphatically do not include automobiles, primary metals, or food products -- can lead to a proportionately greater increase in the real return to the skill that is intensively used in the production of that good. Accordingly, there is no necessary vast conspiracy of the plutocracy raising the incomes of software developers, hedge-fund managers, real-estate hustlers, and producers of racy movies and lowering the incomes of automobile assemblers, farmers, and retail clerks. Secretary Reich gets this (p. 89). "As consumers and investors we want the great deals. As citizens we don't like many of the social consequences that flow from them." Thus -- new public policies. Here, however, he's on less firm ground. He dismisses (p. 140) a public-choice argument offered by former Speaker of the House Newt Gingrich by noting that in absolute terms, government's outlays as a share of national output peaked in 1983, after growing from 1947 to 1973. He then goes on to suggest that, in fact, the public policy we get is a public policy influenced by corporate lobbying. Perhaps property rights and liabilities are more difficult to define today than was the case when Adam Smith penned
To widen the market and to narrow the competition is always the interest of the dealers … The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
The outcome is still the same, and the stakes may be higher. Secretary Reich is on record in Supercapitalism in favor of higher taxes, and government provision of additional social services, particularly health care, which he argues helps make labor markets a bit more fluid. That same fluidity has the potential to address the absence of competitive forces to protect workers. The difficulty many employers report finding and retaining qualified workers might be another source of protection, although it's likely to appear at the top end of the pay scale first. The Secretary also proposes additional funding for the common schools. Fine, but can we mandate that they teach the Habits of Highly Effective People?

1 comment:

machinehead61 said...

"Enter exports from the Pacific Rim (to address the inefficiencies)." Wow, I beg to differ. You really jumped to a simplistic assumption on that one.

The American machine tool industry was the most efficient in the world until a subsidized, protected Japanese machine tool industry targeted our market after our tariffs were destroyed. Then they DUMPED - as they also did in Europe - below production cost into our market and all but destroyed our industry as proven by the USTC. But free trade at any cost economists dismiss these facts as "inefficiencies". And industries such as the machine tool industry are vital to our national security, but economists rarely bother themselves with national security when "efficiency" is the God to be served.