[Marxism] Can capitalism survive?

Louis Proyect lnp3 at panix.com
Mon Mar 23 08:04:24 MDT 2009

American Capitalism Besieged

By Robert J. Samuelson
Monday, March 23, 2009; A15

"Can capitalism survive? No. I do not think it can." -- Joseph 
Schumpeter, 1942

The story of American capitalism is, among other things, a love-hate 
relationship. We go through cycles of self-congratulation, revulsion and 
revision. Just when the latest onset of revulsion and revision began is 
unclear. Was it when Lehman Brothers collapsed? Or when General Motors 
pleaded for federal subsidies? Or now, when AIG's bonuses stir outrage? 
No matter. Capitalism is under siege, its future unclear.

Schumpeter, one of the 20th century's eminent economists, believed that 
capitalism sowed the seeds of its own destruction. Its chief virtue was 
long-term -- the capacity to increase wealth and living standards. But 
short-term politics would fixate on its flaws -- instability, 
unemployment, inequality. Capitalist prosperity also created an 
oppositional class of "intellectuals" who would nurture popular 
discontents and disparage values (self-enrichment, risk-taking) 
necessary for economic success.

Almost everything about Schumpeter's diagnosis rings true, with the 
glaring exception of his conclusion. American capitalism has flourished 
despite being subjected to repeated restrictions by disgruntled 
legislators. Consider the transformation. In 1889, there was no 
antitrust law (1890), no corporate income tax (1909), no Securities and 
Exchange Commission (1934) and no Environmental Protection Agency (1970).

We have subordinated unrestrained profit-seeking to other values. "We've 
gradually taken into account the external effects (of business) and 
brought them under control," says economist Robert Frank of Cornell 
University. External costs include: worker injuries from industrial 
accidents; monopoly power; financial manipulation; pollution.

Great reform waves often proceed from scandals and hard times. The first 
discredits business; the second raises a clamor for action. Parallels 
with the past are eerie. "No one in 1928 thought that the head of the 
New York Stock Exchange would end up in Sing Sing (prison) in 1938," 
says historian Richard Tedlow of the Harvard Business School. That was 
Richard Whitney, convicted of defrauding his clients. Flash forward: 
Bernie Madoff, once head of Nasdaq and a member of the financial 
establishment, goes to the slammer, a confessed swindler.

Some guesses about capitalism's evolution seem plausible. The financial 
industry -- banks, investment banks, hedge funds -- will shrink in 
significance. Regulation will tighten; required capital will rise. 
Profitability will fall. (Until recently, finance represented 30 percent 
or more of corporate profits, up from about 20 percent in the late 
1970s.) More of the best and brightest will go elsewhere.

But Schumpeter's question remains. Will capitalism lose its vitality? 
Successful capitalism presupposes three conditions: first, the 
legitimacy of the profit motive -- the ability to do well, even 
fabulously; second, widespread markets that mediate success and failure; 
and finally, a legal and political system that, aside from establishing 
property and contractual rights, also creates public acceptance. Note 
that the last condition modifies the first two, because government can 
-- through taxes, laws and regulations -- weaken the profit motive and 
interfere with markets.

The central reason Schumpeter's prophecy remains unfulfilled is that 
U.S. capitalism -- not just companies, but a broader political process 
-- is enormously adaptable. It adjusts to evolving public values while 
maintaining adequate private incentives. Meanwhile, the striving 
character of American society supports an entrepreneurial culture and 
work ethic -- capitalism's building blocks. As for new regulations, many 
don't depress profitability because costs are passed along to consumers 
in higher prices.

It's also wrong to pit government as always oppressing business. Just 
the opposite often holds. Government boosts business.

Some New Deal reforms helped "by making risk more manageable," says 
Stanford historian David Kennedy. Deposit insurance ended old-fashioned 
bank panics. Mortgage guarantees aided a post-World War II housing boom. 
Homeownership rates skyrocketed from 44 percent in 1940 to 62 percent in 
1960. Earlier, the federal government distributed 131 million acres of 
land grants from 1850 to 1872 to encourage railroads. Land, as well as 
bank charters and government contracts, often went to the well 
connected. Cronyism is sometimes capitalism's first cousin.

Still, the present populist backlash may not end well. The parade of big 
companies to Washington for rescues, as well as the high-profile 
examples of unvarnished greed, has spawned understandable anger that 
could veer into destructive retribution. Congressmen love extravagant 
and televised displays of self-righteous indignation. The AIG hearing 
last week often seemed a political gang beating.

If companies need to be rescued from "the market," why shouldn't 
Washington permanently run the market? That's a dangerous mindset. It 
justifies punitive taxes, widespread corporate mandates, selective 
subsidies and meddling in firms' everyday operations (think the present 
anti-bonus tax bill). Older and politically powerful companies may 
benefit at the expense of newer firms. Innovation and investment may be 
funneled into fashionable but economically dubious projects (think ethanol).

Government inevitably expands in times of economic breakdown. But there 
is a thin line between "saving capitalism" from itself and vindicating 
Schumpeter's long-ago prediction.

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