[Marxism] Can capitalism survive?
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
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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