 Americans have traditionally been the most
enthusiastic champions of capitalism. Yet a recent American
public opinion survey found that just 50 per cent of people had
a positive opinion of capitalism while 40 per cent did not. The
disillusionment was particularly marked among young people
18-29, African Americans and Hispanics, those with incomes under
$30,000 and self-described Democrats.
Three elections in a row in the U.S. have been bloodbaths by
recent standards for incumbents, with the left side doing well
in 2006 and 2008 and the right winning comprehensively in 2010.
With the rise of the Tea Party on the right, and the Occupy
movement on the left, this suggests far more is up for grabs
than usual in this election year.
So how justified is disillusionment with market capitalism? This
depends on the answer to two critical questions. Do today’s
problems inhere in today’s form of market capitalism or are they
subject to more direct solution? Are there imaginable better
alternatives?
The spread of stagnation and abnormal unemployment from Japan to
the rest of the industrialized world does raise doubts about
capitalism’s efficacy as a promoter of employment and rising
living standards for a broad middle class. This problem is
genuine. Few would confidently bet that the U.S. or Europe will
see a return to full employment as previously defined within the
next 5 years. The economies of both are likely to be constrained
by demand for a long time.
But does this reflect an inherent flaw in capitalism or, as
Keynes suggested, a “magneto” problem (like the failure of a car
alternator) that can be addressed with proper fiscal and
monetary policies, and which will not benefit from large scale
structural measures? I believe the evidence overwhelmingly
supports the latter. Efforts to reform capitalism are more
likely to divert from the steps needed to promote demand than to
contribute to putting people back to work. I suspect that if and
when macroeconomic policies are appropriately adjusted, much of
the contemporary concern will fade away.
That said, sharp increases in unemployment beyond the business
cycle—one in six American men between 25 and 54 are likely to be
out of work even after the U.S. economy recovers—along with
dramatic rises in the share of income going to the top 1 and
even the top .01 per cent of the population and declining social
mobility do raise serious questions about the fairness of
capitalism. The problem is real and profound and seems very
unlikely to correct itself untended. Unlike cyclical concerns
there is no obvious solution at hand. Indeed the observation
that even Chinese manufacturing employment appears well below
the level of 15 years ago suggests that the problem’s roots lie
deep with the evolution of technology.
The agricultural economy gave way to the industrial economy
because progress enabled demands for food to be met by only a
small fraction of the population, freeing large numbers of
people to work outside agriculture. The same process is underway
today with respect to manufacturing and a substantial range of
services reducing employment prospects for most citizens. At the
same time, just as in the early days of the industrial era, the
combination of substantial dislocations and greater ability to
produce at scale is enabling a lucky few to acquire great
fortunes.
The nature of the transformation is highlighted by the 50-fold
change in the relative price of a television set of a constant
quality and a day in a hospital over the last generation. While
it is often observed that wages for median workers have
stagnated, this obscures an important aspect of what is
occurring. Measured via items such as appliances or clothing or
telephone service where productivity growth has been rapid,
wages have actually risen rapidly over the last generation. The
problem is that they have stagnated or fallen measured relative
to the price of housing, health care, food and energy or
education. As fewer and fewer people are needed to meet the
population’s demand for goods like appliances and clothing, it
is natural that more and more people work in producing goods
like health care and education where outcomes are manifestly
unsatisfactory. Indeed as the economist Michael Spence has
documented, a process of this kind is underway; essentially all
employment growth in the U.S. over the last generation has come
in non-traded goods.
The difficulty is that in many of these areas the traditional
case for market capitalism is weaker. It is surely not an
accident that in almost every society the production of health
care and education is much more involved with the public sector
than the production of manufactured goods. There is an
imperative to move workers from activities like producing steel
to activities like taking care of the aged. At the same time
there is the imperative of shrinking or least slowing the growth
of the public sector.
This brings us to the charge that the governments of industrial
market capitalist societies are bankrupt. Even as market
outcomes seem increasingly unsatisfactory, budget pressures have
constrained the ability of the public sector to respond. How and
when–and not whether–basic programs of social protection will be
cut back, is now back on the table. The basic solvency of too
many capitalist states seems in question.
Again the problems are very real. While I believe more than most
that the U.S. government will be able to borrow on very
attractive terms for a long time, if as I fear private borrowing
remains depressed, there is no denying that the current path of
planned spending and planned revenue collection are
inconsistent. And Europe is teaching us that markets can take
significant fiscal problems and make them catastrophic by
becoming too alarmed too rapidly.
At one level the answer here is simply to insist on more
political will and courage. But at a deeper level, citizens of
the industrial world who believe that they live in progressive
societies are right to wonder why increasingly affluent
societies need to roll back levels of social protection.
Paradoxically, the answer lies in the very success of capitalism
which has made the opportunity-cost of an individual teaching or
nursing or administering that much more expensive.
When outcomes are unsatisfactory, as they surely are at present,
there is always a debate between those who believe that the
current course needs to be pursued with increased vigor and
those who argue for a radical change in direction. That debate
is somewhat beside the point in the case of market capitalism.
Where it has been applied it has been an enormous success. The
challenge for the next generation is that while that success
will increasingly be taken for granted and indeed will become an
increasing source of frustration in these pinched times, its
success cannot be matched outside the market’s natural domain.
It is not so much the most capitalist parts of the contemporary
economy but the least—those concerned with health, education and
social protection–that are in most need of reinvention. |
