How to Put Humpty Together Again

As the performance of American business has progressively deteriorated since the mid-Seventies, the political fortunes of the left have also steadily declined. One explanation for this paradox has been the unwillingness of many liberal and radical critics of business to acknowledge the seriousness of the difficulties confronting the economy. Much time has been spent on a search for scapegoats to blame for the increasing scarcity of goods and services. If only—so the argument runs—the power of multinational corporations, the oil companies, conglomerates, agribusiness, the medical-industrial complex, the military-industrial complex, etc., could somehow be made accountable to the public, the nightmare of inflation and chronic unemployment would come to an end.

This view, along with many other familiar liberal solutions for the erosion of America’s once dominant position in the world economy—e.g., restricting plant closings, reimposing price controls on domestic oil and natural gas—sounds less and less convincing. But the tone of the intellectual debate has recently begun to shift. With the recent publication of such books as Lester Thurow’s The Zero Sum Society, Richard Barnet’s The Lean Years, and Paul Blumberg’s Inequality in an Age of Decline, some of the more influential liberal and radical writers have begun to recognize that the postwar decades of abundance have ended. No matter what controls we place on American corporations, they may fail to sustain the levels of private and public consumption to which we have become accustomed.

This recognition, however, can lead to two very different conclusions. The first holds that restoring the productiveness of the economy should be the main concern of liberals, since only if the system produces more will the US be able to afford the public amenities and social welfare that should be available in a decent society. It follows that what is wrong with supply-side economics is not its goal of encouraging growth, but rather the means it proposes to do so. The question for liberals is whether they can suggest ways of stimulating investment that will be both more equitable and more effective than the one offered by conservatives. As his title indicates, this is the position of Ronald Müller in Revitalizing America: Politics for Prosperity.

A quite different strategy, offered by Tom Hayden in The American Future, is to question not only the possibility, but also the desirability, of continuing to increase the nation’s output of goods and services. Instead of mindlessly seeking to restore the prosperity of the 1950s and 1960s, Hayden argues, we should regard the decline of America’s economy as an opportunity to conceive a new vision of a good society. If the American public were no longer mesmerized by the prospect of ever increasing wealth, other values, such as equality, economic democracy, community, and a healthy physical environment would finally become the principal concerns of American politics.

In the current atmosphere, the reforms proposed by these books seem unlikely to be adopted or even debated seriously. But they are important for what they reveal about the direction of the emerging liberal response to the conservative drift of the late 1970s.

It is hard to recognize that Revitalizing America was written by one of the authors of Global Reach. In that book, published in 1974, Müller and Richard Barnet accused private corporations in general, and the multinational corporation in particular, of everything from impoverishing the underdeveloped world to destabilizing the currency of the industrial one, from exporting jobs from the United States to fostering under-employment in Brazil. That some of its accusations were inconsistent seemed of secondary importance to the authors. Their purpose was to alert us to the dangers of a new set of private institutions, engaged in the historically unprecedented effort of managing the globe as an integrated unit.

Not only is Revitalizing America a far better book but its political tone is quite different. Müller wants the federal government to act more forcefully in economic matters but he also emphasizes the ability of “industrial capitalism” to expand wealth. His central argument is that the fundamental source of the difficulties facing the advanced industrial economies lies in the dramatic improvement of the bargaining position of third world governments vis-à-vis the multinationals based in the West. During the last decade, the global balance of economic power has radically altered. Both conservative and radical governments in the third world have learned to manipulate the competitive rivalries of the West for their own benefit. The most visible sign of this transformation is the emergence of OPEC, which has reduced the once fabled power of the Seven Sisters to that of middlemen.

Of equal importance has been the shift in industrial production away from the most advanced nations. Müller criticizes the “image that Europeans and Americans have of the Third World sweatshops staffed by dollar-a-day laborers”—an image, incidentally, that Global Reach helped to promote—because it “does not match…the reality of increasingly skilled technicians and corporate executives whose enterprises are now competing with Western multinationals.”

As of 1979, thirty-four of the world’s five hundred largest multinationals had headquarters in the third world. They included shipbuilding, electronics, and textile companies in South Korea, chemical and automobile companies in Brazil, manufacturers as well as a number of other giant firms in Singapore, Hong Kong, the Philippines, and Malaysia. The Banco do Brasil has become the world’s eighth largest bank while a Philippine accounting firm now competes internationally with the “Big Eight” accountants, such as Price Waterhouse. Industries such as ship-building, petrochemicals, autos, steel, textiles, clothing, shoes, and consumer electronics have been in relative decline in both Western Europe and the United States—a major source of political and social tension, since these are the very industries on which the relative prosperity of nations such as Brazil, Taiwan, South Korea, Singapore, Mexico, and Nigeria has to a large degree been based.

The purpose of Revitalizing America is not to celebrate the decline of the West. Müller contends, on the contrary, that the OPEC nations with their surplus of capital, the newly industrializing countries with their large labor pools, and the Western economies with their sophisticated technology and rich consumer markets have many compatible interests. The oil-exporting nations need to find places to invest their capital, the newly industrializing nations require additional capital investment to develop their productive capacities still further, and the developed nations would benefit both from a market for their own industrial exports and from additional imports of raw materials and inexpensive manufactured goods.

Why is there a global shortage of capital investment? Because, according to Müller, the mechanisms through which international trade and finance were so successfully managed in the postwar decades depended upon the extraordinary strength of the American economy. As American power declined in the early Seventies, Western banks, trade ministries, and organizations such as the International Monetary Fund ceased to function effectively. As a result, the petrodollars of the OPEC nations, instead of being recycled into long-term productive investments in both the industrial and the industrializing nations, now wander in the short-term Euro-dollar market, shifting from one currency or one corporate balance sheet to the next.

The industrial nations find themselves under strong protectionist pressures from workers concerned about the loss of employment from third world imports and from capitalists concerned about their inability to compete. Müller argues persuasively that this growing Balkanization of the world economy threatens to leave everyone worse off: Western consumers will be deprived of inexpensive manufactured goods, growing third world industries will be crippled, and inefficient industries in the West will be sheltered behind protectionist barriers.

This emerging pattern of neomercantilism is particularly threatening to the United States, whose government has historically left the management of foreign investment and trade primarily to American corporations. Müller notes that one reason why American companies frequently find themselves at a disadvantage in securing overseas contracts is that they are competing not simply with other companies owned by investors but with foreign governments. The latter, often in cooperation with their domestic producers, both privately and publicly owned, increasingly engage in direct negotiations with third world governments in order to guarantee access to raw materials and promote industrial exports. For example, the governments of Japan and France have both entered into direct arrangements with the Mexican government; in exchange for oil and natural gas, they have agreed to furnish Mexico with a package of technology and loans. The world is becoming rapidly divided into a series of regional trading blocs from which American companies are excluded.

Müller’s solution is for the US government to take the lead both in coordinating economic decisions within the US and in establishing a global Marshall Plan to help channel capital from both OPEC and the West into the industrializing world. The purpose of these funds would not simply be to stimulate the demand for Western technology and consumer goods—which by itself would be highly inflationary—but to help break the pattern that currently limits the third world’s output of agricultural products, energy, and mineral resources—the very commodities whose current scarcity threatens Western industrial growth. In short, Müller envisions the industrializing South functioning as the world’s “leading engine of growth” during the next two decades, with its expanded production of both raw materials and manufactured goods becoming the vehicle for the economic revitalization of the industrial North.

Many practical objections could be made to this scheme. It assumes both that OPEC actually wants to help to develop the non-Moslem world, and that third world leaders would not use these investment funds to stimulate industries that already produce more than the industrial markets can absorb. Both these assumptions are highly questionable. Moreover, as the public reaction to the Brandt report suggests—its recommendations are similar to Müller’s—there is currently no political constituency in either the United States or Western Europe favoring the export of capital to the third world under multilateral arrangements. The multinationals want to control the rate and location of foreign investment themselves. Trade unions and their political allies appear increasingly hostile to any movement of capital outside national boundaries—or even within national boundaries for that matter.

What makes Müller’s proposal appealing is not its feasibility, but rather its assumptions. He gives unexpected vitality to the old liberal idea that the US can do much to promote international development. While it has become fashionable to argue that the poverty of the third world is linked to the overconsumption of scarce resources by the industrial North, Müller convincingly demonstrates that nothing has been so destructive of the economic development of the third world than the slowdown of growth rates in the West that took place during the 1970s. The growth of each major region has become closely dependent on all the others. Müller’s book may also help put to rest the standard complaints from big business that a shortage of domestic savings and capital has been inhibiting investment. From a global perspective, there is no capital shortage; the real shortage is the lack of adequate investment opportunities. This is not simply an American problem, but an international one, and it is unlikely to be solved by reliance exclusively on workings of the market, whether international or domestic. That will not be effective in a world where enterprises that are either owned or supported by governments are becoming the most important economic units.

Tom Hayden is not troubled that American multinationals are no longer able to satisfy the material aspirations of Americans. On the contrary, he seems relieved. He lists the now familiar facts of America’s economic decline not to indict the performance of American capitalism but rather to show that the frontier ethos is exhausted. For Hayden, the symbol of all that is corrupt and distorted about America’s values is George Armstrong Custer, the “blond, long-haired young general,” whose “greed, arrogance” and “racist venality” led to his inevitable destruction by an indigenous people who rejected acquisitiveness in favor of “the spirit, the community and the sacred unity of all living things.” Fortunately, in Hayden’s view, we can no longer rely upon the further exploitation of either our own resources or of those of the rest of the world to sustain our consumer appetites. Both the earth’s ecological fragility and the decline of American power make this impossible.

If Revitalizing America, proposes a liberal alternative to supply-side economics, then The American Future seems concerned to respond to the kind of issues raised by the Moral Majority. Hayden is troubled by the dissoluteness of American society: our materialistic philosophy not only threatens to isolate us from the rest of the world—the revolution in Iran is a case in point—but is undermining our own ethical principles. Now that America’s last frontier, that of overseas expansion, has exhausted itself, we are at last in a position to revise our obsolete consumer mentality. What might we replace it with?

Hayden hasn’t spent most of the last decade living in southern California for nothing; instead of seeking to dominate the “outer world,” we can, he believes, develop an “inward-looking consciousness.” Instead of striving for more possessions, we can seek increased self-knowledge. In place of our consumer culture, we can substitute the values of “caring, friendship and creativity.” The result would be “a new morality,” which emphasizes “inner rewards” instead of external conquests. Instead of behaving like Custer or Jay Gatsby, we should follow the example of Thoreau.

What Hayden has done is to take values and impulses—one hesitates to call them ideas—that emerged out of the seemingly unlimited material abundance of the Sixties and early Seventies and try to apply them to the quite different economic conditions of the Eighties. Thanks to OPEC, the styles of life and experimental values of the counter-culture no longer need be restricted to the children of the upper middle class. Americans generally can now experience the spiritual renewal that comes from “paring down our material expectations to what we really need.” In short, the stagnation of the American economy is not a global catastrophe; it is a splendid opportunity.

It is hard to follow this argument. Anyone with a sense of the daily lives of American families should recognize that a prolonged period of slow or negative growth is likely to lead not to an outburst of self-understanding and community, but rather to heightened racial tensions and class conflict. Few things are as likely to reduce the interest of Americans in their inner development as their inability to pay for the middle-class way of life to which they have come to feel entitled. Some well-to-do people may have become so dissatisfied with their pursuit of higher income and the things it can buy that they will urge the government to deemphasize economic productivity and growth and instead concentrate on the “quality of life.” But it is difficult to see how an attack on materialism can be the basis for a political program that hopes to extend its influence beyond such places as Santa Barbara.

Hayden himself does not pursue his own argument very far. It is true that the overall effect of the kinds of economic reforms he proposes throughout his book would make most people poorer. He wants corporations to pay for all their social costs, including their effects on the environment, as well as provide “meaningful” work for all Americans. He would also substitute labor-intensive for capital-intensive technology, restrict the development of fossil fuels and petrochemicals, and curtail overseas investment. The result would be to reduce productivity and thus make the American economy much less competitive internationally. So far, so good, if the aim is to “pare down” economic expectations. But there is little in The American Future that suggests that its author has thought through the actual implications of the policies he advocates. While favoring less consumption in principle, he strongly opposes government or corporate decisions that threaten to reduce it in practice. Thus, Hayden wants the government to control energy prices strictly, increase public access to health care, provide additional subsidies for housing, reduce the price of food, and provide tax relief for the middle class and the poor. A plausible case can be made for each of these policies, but not on the grounds that they are likely to reduce private consumption or encourage conservation. Aside from advocating that we conserve more energy, Hayden never tells us precisely what commodities we should consume less of or how—in the absence of higher prices—we are to be persuaded to do so.

In the three pieces that Hayden has published since the election, the last of which is described as a postscript to this book, Hayden devoted only one short paragraph to criticizing “consumer madness” and extolling “frugal self-assurance.”¹ But these essays also make what seems to me extremely perceptive analyses of the failures of liberals to acknowledge the changing concerns of the American voting public. Hayden attributes the decline in liberal electoral strength to the inability of Democratic political leaders to respond to the anxieties many people have about patriotism, personal safety, tax relief, national security, and religion, while allowing such concerns to be exploited by rightwing forces. He cautions progressive Democrats against attempting to build a new liberal coalition by simply adding up the particular demands of each “progressive” constituency, such as women, minorities, or labor. Such a strategy would, in his view, be divisive and serve to undermine the broad political appeal of a left-of-center alliance. The self-examining and questioning tone of these pieces makes them among the most sensible and refreshing analyses of the conservative electoral triumph to be written by anyone on the left since November. Unfortunately, they have very little to do with the views Hayden offers in The American Future.

The central idea of Hayden’s plan for reform, which he discusses at length in his book and to which he alludes only casually in his essays, is economic democracy. This appears to comprise two elements: greater equality of income, particularly among the races and between the sexes, and the democratic control of production. Hayden distrusts both government regulation and allocation through the marketplace. He hopes that such reforms as worker control of pension-fund investments and consumer, community, and worker representation on corporate boards will, among other things, produce a better working environment, eliminate unsafe and useless products, end environmental abuses, increase opportunities for minorities, and reduce the scale of the multimillion-dollar pornography business. (The last would take place because women would control half the economic power in the United States. The reasoning behind this claim escapes me.)²

Hayden makes some careless mistakes about matters that are important to his argument.³ But the most serious flaw in his view of the American economy, and one that sharply contrasts with Müller’s analysis, is its provincialism. Hayden virtually ignores the effects of foreign competition on the US and appears indifferent to the dependence of other nations on American exports of food, industrial products, and capital. For example, The American Future has nothing to say about the spectacular growth of the semi-conductor industry in California, now currently engaged in fierce competitive struggle with the Japanese over the control of the market for the next generation of micro chips, estimated to be worth one billion dollars a year. He does not consider how such a growth industry would be affected by economic democracy.

A strong case can be made for greater economic democracy in the US, but it would have to be based on a firmer analysis of the competitive position of the US in the world economy. It would also require a more precise analysis of the impact that more democratic processes for controlling decisions would have on productive efficiency, so that the prospective costs as well as benefits of participation could be evaluated. Unfortunately, Hayden considers neither of these two questions. He could have benefitted from the impressive analysis of the second of them by Martin Carnoy and Derek Shearer in their book Economic Democracy: The Challenge of the 1980s.⁴

Increasing the participation of local communities and workers in corporate decisions might possibly improve the productivity of employees and might decrease some of the costs associated with regulation by government bureaucrats. There is considerable evidence for the view that people work better when they have a say in the production process. But increasing participation could also saddle the economy with another layer of legal controls on management—with no improvement in either their social responsibility of corporations or their capacity to be more productive. Again Hayden should have spelled out more clearly just how economic democracy will work in practice.

The main source of new wealth that Hayden appears interested in promoting is solar energy—an industry which appears to offer the advantages of being labor intensive, decentralized, and benign in its effects on the environment. But while solar energy certainly deserves a larger share of government support, the promise of solar or other forms of soft energy does not provide the basis for reorganizing the corporate economy. Both large and small corporations in several countries are already investing considerable sums in order to make solar energy economically workable. The costs of production are still much too high to make any large-scale commercial application possible, and it is difficult to predict when this situation will change. As Lester Thurow and Robert Heilbroner conclude in their recent book, “…there is no chance that late twentieth-century America can look to the sun to replace dependence on oil.”⁵ Ironically, Hayden strongly opposes the one policy most likely to make solar energy more competitive—the decontrol of natural gas and oil prices.

Nonetheless, he may be correct in his basic argument. As the continuing power of OPEC and the tightening of environmental constraints suggest, we may indeed be entering an “era of limits.” The current global economic crisis may not be a limited period of adjustment before another long wave of capital accumulation, as Müller hopes, but rather the permanent ending of the steady increase in growth rates which we have come to take for granted and to which the rest of mankind aspires. In that case, a lowering of material expectations will indeed be necessary, difficult as it will be for many to accept.

But there is no way of knowing which position is correct. That industrial capitalism has for the last three centuries consistently proved more resilient than its critics have predicted does not mean that those who now argue that its ability to create additional wealth is exhausted are incorrect—though it should encourage a certain skepticism about such a perspective. We will know for certain when the limits of growth have actually been reached only after American industries have in their different ways tried to increase them—and mostly failed. As Marx wrote of eighteenth-century Europe, “what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?” American liberalism requires a new vision, but it is one that must encompass the moral and political necessity of increasing production and improving productivity. Müller doesn’t have any better answers than the rest of us about how to accomplish this, but at least he has accurately identified the real problem.