M A R C H 1 9 9 7
by Lester C. Thurow
"Our wondrous machine, withal its great power and creativity, appears to be running out of control toward some sort of abyss."
Strong stuff, this, in the service of Greider's bold argument that the logic of global capitalism is leading to a world-historical financial disaster. But how much of it is true? What part is debatable? What has been left out?
Yes, modern communication technologies have unleashed global finance. Just as clearly, capitalist financial markets are unstable. But financial crashes are as old as tulip mania in Holland in the 1630s or as young as the Japanese crash of the 1990s. And as we have just seen in Japan (a stock market that dropped by two thirds, property values that are down 60 to 80 percent and still falling), not even spectacular crashes change the economic system appreciably -- much less bring it down.
Global finance does undercut governmental regulation. The Cayman Islands, population 35,000, are the fifth largest nation in the world in terms of booking bank loans, because businesses in Taiwan and elsewhere use them to avoid local government regulations that would prevent the businesses from investing in mainland China. But many would argue that technological deregulation is a good thing, since it stops governments from doing what they shouldn't be doing anyway.
National governments are played off against one another in bidding wars to attract industry, much as Alabama, bidding against other states, was led to pay an outlandish subsidy for its Mercedes automobile factory. But the governments (state or national) that make such payments are the economically foolish of the world. The winners know that other ways of spending their money -- educating and training their labor forces -- give a much bigger economic bang for the buck than bribery does.
Free-market ideological blinders in favor of deregulated, privatized markets do exist. When New Zealand -- a country with zero percent per capita growth in gross domestic product over the past seven years -- was ranked third on the World Economic Forum's index of national competitiveness mostly because it has done more deregulation and privatization than any other country, ideology certainly dominated reality. But there are pendulums in such fads, and the conventional wisdom will rather quickly return to a more balanced view.
Marx's vision of capitalist overproduction did not take into account technological change and the uncrowded investment opportunities it creates. Cellular phones expanded the market for phones. The videocassette recorder became a household necessity but also expanded the market for movies. Mass tourism was born with the jet airplane, and along with it came the need for hotels, airports, and taxis in strange, previously isolated places. Electronic communications hardware has made culture and entertainment into one of the world's biggest industries. Movies and TV shows are a major American export. Investments in Internet companies make people rich overnight.
Privatized infrastructure investments provide great opportunities for absorbing capital in both the developed and the underdeveloped world. China's need for transportation and telecommunications infrastructure alone could absorb much of the world's capital supply. America's deteriorating infrastructure needs a great deal of capital as well. As governments retreat from these investments under the pressure of budget deficits, vast new opportunities open up for investors.
Sooner or later the central banks of the United States, Japan, and Germany, forced to recognize that the inflationary dangers of the 1990s are not those of the 1970s and 1980s, will relent and allow real growth rates to accelerate beyond their current low limits. Democracies are not forever going to allow the misguided fears of unelected central bankers to limit growth in ways that destroy both the economic system and democracy itself. Even a modest acceleration in world growth rates would absorb an enormous amount of capital -- the surplus production that Greider sees as haunting twenty-first-century capitalism.
Capitalism also comes with an automatic feedback mechanism that prevents a gross excess of capacity. Seeing falling returns on new investments, capitalists consume their income rather than saving and investing it. Demand for consumer products goes up; investment in new consumer-goods factories goes down.
Greider's vision of overcapacity and falling returns clashes with his own arguments elsewhere in the book that a "rentier regime," with "real long-term interest rates . . . stuck at historically high levels," has been created by slow growth and repressive central-bank policies. Interest payments are up since the early 1970s. There is, as well, a lot of room to push capital's returns up by pushing labor's share down -- by moving, or threatening to move, production to low-wage areas.
Greider is also inconsistent in his argument that global business now negotiates from a position of overwhelming strength vis-à-vis national governments and his view that governments outside the United States use the Japanese model of managed trade to sap American economic strength by forcing facilities to close in the United States and re-open in their own countries. Governments with great power to manage trade and business firms with great power to avoid government management cannot simultaneously exist.
Greider rightly points out,
The ideas and programs that formed the modern welfare state originated from the values of the right as well as the left, from the conservative religious impulse to defend the domain of family, community and church against the raw, atomizing effects of market economics as well as from the egalitarianism of anti-capitalist socialism. The welfare state was, in fact, an attempt to devise a fundamental compromise between society and free-market capitalism.Democracy is at its core a belief in radical equality -- one person, one vote, no matter how smart or dumb, how hardworking or lazy, how well informed or ignorant. Such an egalitarian ideology cannot easily co-exist with ever rising income inequalities. What Greider leaves unexamined is the role of the state as an investor in the educational skills, research and development, and infrastructure necessary for growth in today's man-made brainpower industries and for the invention of the industries of tomorrow. In the end our societies will rise or fall not because of some financial boom or crisis but because of our willingness -- or unwillingness -- to make such social investments. They are our equivalent of the irrigation systems that underlay the prosperity of many ancient societies -- and that were maintained or not.
Greider ends his book with a dark environmental paradox.
The collective dilemma, shared by rich and poor, fuses these social and economic dimensions: if industrial growth proceeds according to its accepted pattern, everyone is imperiled. Yet, if industrialization is not allowed to proceed, a majority of the world's citizens are consigned to a permanent second-class status, deprived of industrial artifacts that enhance life's comforts, the tools that multiply human choices.The latter proposition, however troubling to environmentalists, is undoubtedly true. That is why it is important to say that Greider's clash between environmentalism and economic growth is not the simple one he outlines. Market economies deal quite nicely with limitations on natural resources. As resources become scarcer and rise in price, consumption falls, replacements are found, and resource deposits that were too expensive to recover become recoverable. Higher oil prices lead to more-fuel-efficient cars; the electric car starts to look like a viable option; and the tar sands of northern Alberta become a good source of oil.
Local environmental problems (smog, polluted rivers) are not automatically addressed by the market, but the desire of consumer-voters to live in a clean, healthful environment is going to lead to government regulations that quickly force the market to clean up its act. Most measures of local pollution have shown sharp improvements over the past twenty-five years in America. As incomes rise in the developing world, voters there will have an equal interest in a livable environment.
Where both the market and the political process fail is in dealing with global environmental issues, such as global warming and the thinning ozone layer over the North and South Poles, in which the effects occur over long periods of time and their severity is highly uncertain. Crises aren't clear; solutions can be postponed, and problems allowed to fester. The decline in quality of life is so slow that we don't notice it and therefore don't do anything about it.
Here are Greider's solutions:
Restore national controls over global capital. Tax wealth more, labor less. Stimulate global growth by boosting consumer demand from the bottom up. Compel trading nations to accept more balanced trade relations and absorb more surplus production. Forgive the debtors, especially the hopeless cases among the very poorest nations. Reorganize monetary policy to confront the realities of a globalized money supply, both to achieve greater stability and open the way to greater growth. Defend labor rights in all markets, prohibit the ancient abuses renewed in the "dark Satanic mills." Withdraw from the old labor-capital battleground by universalizing access to capital ownership. Reformulate the idea of economic growth to escape the wasteful nature of consumption. And, in the meantime, defend work and wages and social protections against assaults by the marketplace.Many of these things would be good things to do. One does not have to believe in ever falling real wages to think that a compulsory savings system to broaden capital ownership would be a good thing. One does not have to believe that environmentally corrected per capita growth rates are a bad thing to want to eliminate some of the negatives that do exist. Belief in global free-market capitalism does not require belief in child labor and unsafe working conditions.
But these policy recommendations miss the central economic problem. Capitalism
is myopic and cannot make the long-term social investments in education,
infrastructure, and research and development that it needs for its own future
survival. It needs government help to make those investments, but its own
ideology won't allow it either to recognize the need for those investments or
to request government help. That is the ideological paradox of our time.
Copyright © 1997 by The Atlantic Monthly Company. All rights reserved.
The Atlantic Monthly; March 1997; The Revolution Upon Us; Volume 279, No. 3; pages 97-100.