Relentless Revolution to Now

In America, the late 1800's is often called the Gilded Age. This was the age of large increases in the size of corporate entities and large increases in corruption of government by big money. Labor movements arose to protect the welfare of workers. There was an explosion of laws passed by state governments to do this, but the Supreme Court ruled that many of these were unconstitutional because they violated the “freedom to contract” that was held to be part of the Constitution. Around the time of World War I we saw the two most important constitutional amendments since the post-Civil War amendments (13-15), which gave blacks the rights of citizens. These were the 16th Amendment which created the national income tax and the 19th amendment which gave women the right to vote. Interestingly, the 17th amendment made senators appointed by popular election and the 18th amendment, which was later repealed in 1933, established prohibition of alcohol. The only two nontechnical amendments after that were limiting the president to two terms and eliminating the poll tax.

There is no question that the American economy soared after World War II. Appleby writes that it grew by 50% during the war. The reasons for post-war prosperity are still debated, but it seems pretty clear that the war was connected with the ending of the Great Depression. Most of Europe was destroyed as well as large sections of Japan. The U.S. infrastructure was undamaged and we entered a economically great era, not only for the economy as a whole but for workers. According the Appleby, this progression ended about 1973. “Disparities among all employed Americans shrank all through the postwar era until 1973. The rising tide, extolled in business literature, buoyed by strong unions, did lift all boats” (p. 324).

Of course, virtually no one at the time saw this year as a pivotal one. To pay for the Vietnam War, LBJ had printed money rather than raising taxes. The result was the weakening of the dollar, which led the U.S. to go off the gold standard in 1971. The price of oil also quadrupled. On average, the rate of growth in the capitalist world halved during the next fourteen years. American oil production reached its zenith in 1955, by which time two-thirds of the world’s oil passed through the Suez Canal. The U.S. had supplied almost 90% of the oil used in World War II.

The late 1970's produced the phenomenon known as “stagflation,” inflation accompanied by high unemployment. Keynesian prescriptions for ending recessions came into question. Not only increasing oil prices, but the failure to cut off popular spending programs when recessions ended contributed to inflation. “The comfortable understanding among big business, big labor and big government was coming apart” (p. 331). We entered into an era where deregulation, in order to promote competition, became a moving intellectual force. Its most popular theorist was Milton Friedman, who explained that a volatile inflation rate contributed to unemployment because it contributed to uncertainty. He also recommended a new monetary policy, but in actual practice this was only employed for the years 1979-82 and failed to prevent a recession. And deregulation of the banking industry led to the savings and loan crisis of 1981.

The story of the 30 years since Reagan took office is a very disputed one today. This should not be surprising, as it is always harder to discern important patterns in the recent past. The Japanese manufacturing system improved production by “exquisite attention to detail and made cost-efficient by constant improvements in every phase...where personnel in research, design, sales and production worked closely together” (p. 338). The arrival of the personal computer, and later the internet, drastically changed capitalist countries. These were also personally popular, which astounded experts as much as the popularity of the television in the 1950's. Equally surprising, while the quality of computers drastically increased, the price decreased annually by 20% per year. But, “after astounding the world, Japan slid into a prolonged recession in the 1990's”...and “exposed some of the structural weaknesses in the Japanese economy, the most prominent being the cozy relationship between its leading banks and corporations and the government” (p. 356).

This era saw the rapid economic growth of southeast Asian countries (the “Little Tigers”), lifting many out of poverty. They did this by finding export niches in the world economy, aided by their “people’s commitment to acquiring the skills and learning for labor-intensive, complex production processes” (p. 353). “In a unique mix of government direction and free market dynamics, these countries have confounded many an economic prediction, none more hallowed than the idea that inequality accompanies economic development” (p. 355). And now, of course, we have seen the dramatic rise of India and China.

In the closing chapter of the book, Appleby delves into our current troubles. I will leave the details aside, other than a couple observations. She divides capitalism’s critics into three groups; one sees capitalism as destroying society through the materialistic preoccupations of citizens. “Others fight capitalism for the sins of globalization that has enlarged the scope of the rich countries’ rapacity at the expense of the vulnerable poor. The multinational corporation is the bogey of the antiglobalization movement because it is seen as acting without social responsibility or sensitivity to human needs. Critics depict multinationals as octopuses whose tentacles cling to any profit-promising scheme, however dubious. A third group wants to work within the framework of capitalism to make the system more open, more fair, and as responsive to people as dollars” (p. 423).

She says that Americans “are learning that what’s good for a national economy is also good for a global one; competition, open access, and cooperative ventures. Nothing promotes growth more than having rich neighbors...” (p. 435). I question whether the majority of our population has learned this lesson.

She also calls the government and the economy the “two leviathans” in our lives. When corporations and government work hand-in-hand we are left without some of the checks and balances for which our Constitution is famous, and “the market’s own corrective mechanism will be disabled.” While in the near future, our close encounter with disaster may provide more self-regulation, in the long run we need to improve our systems of financial regulation.

Appleby’s conception of the history of capitalism is one of continuing pervasive changes in economic structure, society, government, law, values and human experience; a relentless revolution...often moved forward by scientific and managerial innovation...creating greater wealth, but often dangerous byproducts. It is not a unified, coordinated “system,” but rather “a set of practices and institutions that permit billions of people to pursue their economic interests in the marketplace” (p. 433). Where it goes from here is speculation.

One’s perception of the current state of the world depends on one’s meta-narrative of history. When I read accounts of the current fiscal crisis at the CATO Institute (see “A Perfect Storm of Ignorance” by Jeffrey Friedman in the new issue and “Did Deregulation Cause the Financial Crisis” by William Niskanen in the July/August edition), I am struck that some people are living in a different world because their view of history is so different. I get the same feeling reading Naomi Klein’s The Shock Doctrine. I don’t expect those who see the world as these authors do to change. One’s view of history gets bound up with one’s identity, which may itself just be another narrative construction, among various possible sources of disagreement. After all, people are still arguing about the causes of the Great Depression and the Industrial Revolution.

Obviously, I think a lot of what Appleby has to say is right. And I think we need some structural changes in our financial regulations. I am also skeptical that we really understand our current situation. But I am not a total skeptic, as the writers at the CATO Institute seem to be. Below are a couple articles, the first from the current issue of The Economist, on these problems. I should stress that this periodical is one that espouses a positive view of capitalism. The second is a humorous review of various books on the recent financial crisis that perhaps reflects a rather left-leaning cynic’s view of the financial world. Time to reign in the Masters of the Universe.

Link to Http://www.economist.com/opinion/displaystory.cfm?story_id=15474137

Link to Http://www.thebaffler.com/viewArticle/131/0/1/