A Perverse and Socially Destructive Economy

Over the weekend, an article ran supporting the French-style economy over the American and British version. There is a copy of it here. This is a feel-good piece for why the French are doing great and have no need to reform. In fact, it charges that free market capitalism just sort of happened and was probably a horrible mistake.

The new American and British market capitalist model, which dictated deregulation of industry and privatization of state enterprises in the 1970s, and globalization of international markets in the 1990s, exists as a result of free political decisions and ideological choices that were anything but inevitable. History may one day describe them as having been perverse and socially destructive.

A few points here. The author, William Pfaff, is confusing the US and British reforms. The British did go through a major round of privatization in the late 1970s and early 1980s under Margaret Thatcher. In contrast, the US had never nationalized its industries the way that Britain had. A few industries were deregulated, most notably the airlines.

Globalization is nothing new, either.  It is a continuation of the creation of a global economy which has been going on for decades.

He then goes on to invent an idylic history in which American businesses did not exist to make money, but instead to promote social good. The results were unconscionable.

This is what underlay the transformation of American corporate culture, and of the American business corporation from an institution with national identity, constrained to reconcile interests of owners, employees and community, into the modern global corporation, effectively controlled by its managers and mandated to the single objective of producing "value" for stockholders, while handsomely rewarded its executives.

This change transformed labor into an anonymous commodity and put both blue-collar and white-collar staff into competition with an effectively unlimited global labor supply, resulting in employment insecurity, reduced or static wages, diminished or eliminated benefits and pensions, and the destructive social pressures of falling living standards.

Pfaff needs to read up on 19th and early 20th century American labor practices.

Are any of these claims true? The unemployment rate is below 5% which was once thought to be impossible. The American economy is growing much faster than the French economy. Our standard of living is also rising.

I will grant that medical benefits are an issue in the US but rising medical costs are causing cutbacks in medical coverage everywhere. It is just hidden better in other countries such as Canada (long waiting lists for treatments that are same-day in the US). Pensions are an issue with overly generous employers like GM but that doesn't help Pfaff's case. GM got itself into trouble by acting like Pfaff thinks a corporation should behave and granting pensions it could not afford.

He goes on:

In the United States, the new model of corporate business has evolved toward a form of crony capitalism, in which business and government interests are often corruptly intermingled, the system resistant to reform because of the financial dependence of both major political parties on contributed money.

Is he talking about Enron? Halliburton? Native American lobbying scandals? Probably he thinks that readers will know that some sort of scandal happened somewhere and will not look any deeper.

Europe, one would think, should be looking for social and economic evolution on its own terms. It is perfectly capable of doing so, as a modern industrial society that in aggregate terms is larger and wealthier than the United States, as well as less shackled by obsolescent ideology and entrenched special interests - its problems with union corporatism notwithstanding.

Actually, Pfaff's column indicates some really serious problems with obsolescent ideology. As for larger and wealthier "in aggregate terms", that means adding up all of the wealth on a continent with a larger population and finding that it amounts to more than the smaller US. When figured this way, China is also larger and wealthier. Anyone want to swap living conditions with the average Chinese? Worse, because of the differences in economic growth, America will soon be richer in the aggregate than the larger Europe.

This is a case of whistling in the dark.