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Tuesday, February 22, 2005
WHY NO SOCIALISM OR MARXISM IN AMERICAN POLITICAL LIFE: 6th in a Mini-Series of Articles This, the 6th article in a lengthy mini-series on the American ideological spectrum --- its unique nature on both the left and right, and how, in turn, that uniqueness has helped shaped the US economy’s institutional structures and government policies --- is a direct follow-up of the previous article. That article looked at economic equality and inequality. So too does the current article. Up to now, the mini-series has dealt with the left-side of the American spectrum: in particular the reasons why it alone, in all the industrial countries, has never been attracted to Marxism or any other socialist variants. So far, come to that, we’ve looked only at economic explanations --- such as the extraordinarily high wages of American labor in the 19th and 20th centuries (always comparative viewed), our unusually high standard of living, and the uncommonly wide diffusion of property ownership. The previous article moved on to probe the distribution of income in American life since the early 19th century. It showed that right down to 1970, Americans also enjoyed the most equitable distribution among industrial countries. It also showed, in a fast, top-skimming way, nothing more, how this has markedly changed since then. The Big Change Specifically, the US now ranks at the bottom in income equality among industrial countries. Interestingly, too, Britain --- which was 2nd to the US in limiting income inequality in 1970 --- now ranks 2nd from the bottom, slightly ahead of the US. Is this just a coincidence? No, not really. As you’ll eventually see, Britain is the most dynamic of the big countries in the EU, just as the US is by far among all industrial countries. Hence, in brief, the need for this follow-up argument, which will strive to deepen the analysis of the previous article and make more sense of the big turnabout in the US’s income-distribution over the last three decades. More Specifically, A Trio of Aims Here The argument that unfolds in this article has three specific aims, each delved into carefully. Specifically, we want to know . . . 1. How serious the big changes in the distribution of income have been, and whether they’re worth worrying about much . . . at any rate, as much as numerous left-leaning sociologists and economists happen to, not to forget the dominant thrust in media reports. As we’ll see, the impact of those changes on the well-being of low-income American people turns out to be noticeably exaggerated, and for several reasons --- all carefully spelled out. 2. What the various causes of the turnabout in the income-distribution actually are. It turns out that most scholars who specialize in analyzing the distribution of income, never mind the media journalists who report on its changes, either skirt or outrightly fail to delve into some of the most significant causes at work here . . . mainly, it seems, because these causes conflict with their ideological or moral propensities. The outcome is largely a flight from reality. As you’ll see, these skirted causes include striking demographic shifts, a startling decline in two-parent families among poorer Americans, and finally the impact of high-voltage immigration flows into this country since 1965. . . . roughly 35-40 million, depending on the actual number of illegal ones . . . and possibly even 45 million or more according to the latest survey of illegals that will be looked at later on here. When economists --- usually others not specializing in distributional matters --- do discuss the recent changes in income-distribution, they too tend to skirt these latter, non-economic causes and instead focus mainly on shifts in technology that favor educated workers and the growing globalization of the US economy . . . influential in both cases, to be sure, but far from an adequate explanation. 3. What the trade-offs have been for Japan and EU Continental countries whose governments have striven, by a variety of policies, to offset the other, more universal causes of growing income inequality in their countries: by ever high minimum wages; by growing regulations of their labor markets that have made them increasingly rigid; by a huge leap in government spending since 1970 and very high taxes; and until recently, by ever higher levels of welfare transfers. The wider outcome? With two or three exceptions --- Sweden and Denmark and Finland, all tiny, fairly homogenous countries --- the rest of the Continent EU members and Japan have experienced slow or stagnant growth and increasingly high levels of long-term unemployment.
PART ONE:
(i). The Changes In The Distribution of Income Are Complex,
First off, as you’ll see when you read through the argument, things aren’t as simple as the latest Lou Dobbs CNN report or New York Times article --- or even the more sophisticated works of American or European scholars specializing in the topic of income-distribution that now number several hundred and end up being posted at the Luxembourg Income Study site . . . a whole cottage industry, it seems, of excessively narrow mental work compiled in just a few years. Few --- hardly any, to be more exact --- seem to grapple with the more controversial causes just mentioned, or the tradeoffs in economic growth and job-creation that have entangled those countries whose economies in West Europe or Japan seek to block what Joseph Schumpeter, the great Harvard the great Harvard economist of the 1930s and 1940s, called the recurring forces of creative destruction. Meaning? Well, that brings us to a second point that allows us to dig deeper than the usual stick-to-the-surface analyses found nearly everywhere else . . . .
(ii.) Creative Destruction Clarified For Schumpeter and his followers, capitalism is never incremental in its changes, never inclined to equilibrium as in neo-classical economics. Instead, at its core, it’s always inherently dynamic and prone to change suddenly in abrupt, tumultuous ways, thanks to the interaction of two kinetic forces: 1) recurring breakthroughs in revolutionary technologies and 2) driven men and women, consumed by dreams of wealth and glory, as the bold entrepreneurs who bring them successfully to the market-place.
Ever since the start of the industrial revolution, these radically restructuring technologies have erupted every few decades in clustered waves; and as they break forth over the economic landscape, they challenge the economic status quo within and across countries relentlessly, with jarring shock-force. Dislocations are inevitable. Whole industries and firms using older, standardized technologies --- however revolutionary they once were in earlier decades --- are suddenly threatened with obsolescence, the owners, managers, and work-forces left behind as increasingly outmoded relics of the past. Think of the horse-and-buggy trade and the new internal combustion engine at the start of the 20th century. Or the whaling industry, the lantern and candle industries faced with electrification at roughly the same time. Both revolutionary technologies altered our lives --- the way we work, spend our leisure, move from place to place, communicate with one another --- in core, hyperkinetic ways. More recently, thanks to globalizing forces --- especially the rapid rise of Asian manufacturing --- the challenges to old-line industries and the spin-off dislocations to national economies have accelerated with rippling force.
Note Quickly: Not all old-line industries will disappear when the dislocations shoot up and multiply within a national economy. Many of these industries --- think of the automobile, steel, and textile industries in the US during the 1980s --- will survive and remain competitive, but only if they restructure painfully, cut their labor forces, and find ways to improve productivity and maybe even the quality of their products. Again, these three industries are a good example. Generally competitive and with productivity equal to the Japanese and others now, their labor forces have had to be trimmed by a good 50% on the average. None of these changes were easy to absorb. Overall, to emerge a more updated, far more competitive economy based on the new radically restructuring technologies, the US economy had to shed a good 10 million manufacturing jobs in the 1980s and early 1990s. The shedding, for that matter, is continuing today, with 4 million more jobs lost to overseas competition the last four years; and it will no doubt continue way into the future . . . especially since the combined shocks of breakthrough technologies and fast-paced shifts in manufacturing prowess across countries will not likely ease any time soon, let alone die off.
Old-Guard Backlashes Inevitable Needless to add, the forces of the status quo --- capital, labor, and management --- will not accept decline gladly. They will almost always fight back. At first, only a few bold, risk-taking entrepreneurs --- obsessed with dreams of wealth and glory like the Carnegies, Rockefellers, Fords, Bill Gates, the Walmart family, or the giants who created the Hollywood motion picture industry from scratch --- are there to challenge the powerfully entrenched, diehard forces. Enter a key Schumpeterian concept --- creative destruction. Only if the old, increasingly uncompetitive industries --- agrarian, mining, manufacturing, or service, it doesn’t matter --- are allowed to run down or disappear will there be enough capital and managerial talents and scientists and engineers freed up in any national economy to let the new, more promising industries that embody these revolutionary technologies come into existence. That’s what creative destruction means. And it never unfolds without creating winners and losers, though eventually the great masses of people living in the advanced countries will all be winners once the initial dislocations and turbulence are absorbed and a more productive, competitive economy is solidified. That's what a newer, more competitive economy with ever higher levels of productivity entails.
(iii.) Enter The Next Point: Countries Vary Markedly Here Some countries, as it happens, have more flexible economic institutions and policies to deal with the rippling dislocations of radical economic change and creative destruction. Those that do --- the USA pre-eminently, plus a handful of smaller economies --- will generally allow the innovative changes to occur without prolonged resistance by the old order. In that case, the forces of creative destruction will play out in the market-place fairly quickly, and the shock-power of the initial economic and social dislocations will be more easily absorbed. As old industries decline and shift their location elsewhere to more dynamic but lower-wage developing countries --- or just disappear in the home-country --- then investment capital, managerial talent, and scientists, engineers, and other skilled workers will be freed to allow the most competitive of the new start-up firms to expand and replace them. Whole new industries will emerge. Big spillover effects of a positive sort will radiate across other industries and sooner or later --- sooner in this instance --- throughout the entire national economy. By the later 1990s, a good 75% of the Fortune 500 Companies didn’t even exist three decades earlier: Microsoft, Intel, Cisco, Amazon, Walmart, what have you. In short order, the ways we live, work, and spend our leisure will be altered almost beyond recognition, once and for all. (Whether the great entrepreneurs were all decent people is another matter. Henry Ford was a notorious racist, who had to apologize publicly for his blatant anti-Semitic views. The Walmart family’s giant store-chain, which has revolutionized merchandising in this country --- the retail industry logging the biggest jump in productivity during the 1990s, not least in response to Walmart’s challenges --- may be engaged in squeezing some of its workers. And so on. And yet, in time, these innovative giants also built great universities --- Stanford, Chicago (Rockefeller), Vanderbilt --- or created the American public library system (Carnegie) or have spent a billion dollars on trying to improve American public education (the Bill Gates Foundation). Posted by gordongordomr @ 04:35 PM CST [continue] [ 5 comments ] Thursday, January 20, 2005 WHY NO SOCIALISM OR MARXISM IN AMERICAN POLITICAL LIFE: 5TH Article in a Series This is the 5th article in a long mini-series --- now about 6 weeks old, with roots back to early December 2004 --- on the unique nature of the American ideological spectrum, both on the left and right, and how in turn that spectrum has helped to encourage the innovative prowess of the US compared to other countries, making it the richest country in the world in per capita income for well over a century. Right now, that lead is greater than at any time since the late 1950s. We’re roughly 55% richer than either Japan or the European Union average, and since the 4 big EU countries’ per capita income is either at that average (Germany) or slightly above it --- Britain, Italy, and France --- that huge lead applies to them as well. A Problem for Economics Mainstream growth theory in economics can’t explain this persistent US lead, far from it. Essentially, despite some qualifications, it postulates a variety of convergence catch-up variants, all of which predict that rich follower countries able to sustain long-term GDP growth should, at some point in the future, catch up to the leader's levels of productivity and per capita income. That future point is called the steady-state, a hypothetical end condition. In it, all advanced industrial countries with good human capital and institutions should be equally rich, and they should all be on or very near the technological frontier. The large gap with the US --- now 10-12 decades old --- defies all these variants. Not so our buggy analysis. In particular, the much more ambitious series on the US economy that the current mini-series is part of --- the wider series stretching back over the months to July 2004 --- seeks to make sense of that huge American lead, past and present. That long-lived lead --- greater now than at any time for the last half century or so --- isn’t an accident, even if mainstream economic growth theories can’t account for it. On the buggy view, it’s the persistent outcome of a specific complex of national culture and institutions --- political, legal, administrative, financial, business, and educational (especially on the university level) --- that don’t have full counterparts elsewhere, despite some overlapping similarities in many of the institutions with other English-speaking countries. From Culture and Behavior to Ideology The key cultural traits in American life that operate here are easy enough to pin down, even if harder to explain. They reflect uncommonly flexible attitudes and behavior toward change, risk-taking, and entrepreneurship that have no full equivalents abroad . . . even in the English-speaking world. An unusual work-ethos with roots in Puritan traditions that stretch back to colonial times is another uncommon American trait, and since hard work has generally paid off for almost everyone (except slaves in the Antebellum South), the trait has been reinforced over time and internalized in American mind-sets long after Puritanism itself disappeared as a specific Protestant religion. One result? For the first time in history, a large society has emerged in which the rich and the affluent now work longer and harder than poor people. Something else. To this list of unique cultural and behavioral traits, add the persistent impact --- past and present --- of a politically charged set of values and beliefs regarding the proper roles of the state and private sectors of American life, both on the right and left of the US ideological spectrum.
PART ONE: How Other Industrial Countries Differ In contrast to the US, powerfully institutionalized regulations and controls over the economy flourish everywhere on the Continent of Europe and in Japan, with a large regulatory-and-welfare state in place. The following table, which traces government spending as a percentage of GDP since 1870 in major industrial countries down to the mid-late 1990s, captures the huge differences with the USA that follow from these statist traditions. The table, as you'll note, doesn't cover Japan. No matter. A second table --- set out immediately afterwards --- will bring out the sharp increase in Japanese governmental spending since 1960, a surprise to many people.
Source: Vito Tanzi and Ludger Schuknect Public Spending in the 20th Cen- tury: A Global Perspective (Cambridge Univ. Press, 2000), chapter I
In Britain, Australia, and New Zealand, an advanced statist apparatus with high levels of taxes and welfare emerged after WWII too, exactly as it did in the EU and in Japan. All that changed in the 1980s for these three English-speaking countries, whose statist traditions were never as extensive, historically, as on the Continent or in Japan. The causes of the change? Sluggish economic growth and lagging competitiveness brought about major free-market reforms in those countries; these, in turn, moved their economies closer to the American system, much to their benefit. Since the reforms, Britain--- once a near laughing-stock in the EU at the end of the 1970s --- has outperformed almost all the EU countries save Ireland, another relatively free-market country by European standards; it has not only closed the per capita income gap with Germany and France, but today has a clear lead over them. Australia and New Zealand too have regained much of their earlier lost ground in an era of anti-welfarism and deregulation. And Ireland's pro-business policies, implemented in the 1980s too, transformed that country from one of the two or three poorest in the EU into the very richest. Only Canada --- ruled for almost all of the 4 decades since the start of the 1960s by the Quebec-based Liberal Party --- has let the state sector and welfare transfers grow in a semi-EU way, making their economy something of a half-way house between the EU welfare state and the Anglo-American model. And even Canada has begun in the last few years to retrench, cutting back government spending to regain more dynamism. Even so, the ideological legacies on both the left and right in Britain, Australia, and New Zealand --- not to forget Canada --- still differ from those in the US. Statist tendencies are particularly strong on the left, but they also exist in some sectors of the conservative and liberal parties in those countries.
Here's another way to gauge the large differences in the size of the governmental sector across industrial countries, particularly since 1960 . . . a period in which full employment and prosperity had been achieved everywhere in the industrial world, but in which the welfare state continued to expand with high-pulsating speed in almost all the EU and Japan, along with Canada and New Zealand. Note how government spending climbed almost 4 times as fast on the average between 1960 and 1996 than it did in the USA.
Note: Make sure you interpret the average increase of spending as a % of GDP in those three and one-half decades properly.
Look at Sweden in 1960. Government spending absorbed 31.0% of total GDP that year. In 1996, such spending had more than doubled as a % of GDP, not just gone up by 35.1% over the initial figure. It's an astounding surge, all occurring after the initial rationale of high taxes and welfare redistribution was achieved: ending poverty and ensuring that the sick, the old, and those who can't work for mental or physical reasons were taken care of. What has gone on there --- as in other advanced welfare states --- is that organized groups vie with one another to get governmental benefits, including wage increases given governmental controls over labor markets. In Sweden, virtually everyone is organized in a trade union or business association, and the huge state sector is no exception to union membership. For their part, politicians --- eager to get re-elected --- then repeatedly make concessions to various groups. If certain groups --- think of French unions that are ubiquitous in the transport systems, telecommunications systems, the postal system, and the media --- don't get their way, they can play havoc with the economy by going on strike. In Sweden, strikes are fairly rare by French or Italian standards, but the prospect of losing the next election can force governments there or anywhere from pursuing necessary reforms to restore economic vigor.
Source: James Gwartney and Robert Lawson, Economic Freedom in the World 2001: Annual Report To Clarify American Exceptionalism On the political right, American conservatism has never been statist in the sense found in conservative parties in both Japan and all over the Continent of West Europe even now. Not only that, it has also has lacked the patrician and paternalistic influences that have marked the Tory wing of the British Conservative Party, routed --- possibly for good --- by Margaret Thatcher’s anti-statist reforms of the 1980s. On the left --- which our chief concern in this and the last three articles of this mini-series --- the Democratic Party has no socialist or Marxist legacies in its history and so differs from all other left-wing democratic parties on this score, whether in Europe, Latin America, or Asia. The British Labour Party, note quickly, is no exception here. Even though it was never heavily influenced by Marxism, it was formally committed to the full nationalization of British industry between 1918 and the late 1950s --- a sweeping, full-blooded socialist program . Only under the deft leadership of Tony Blair, who has won three general elections, has the party swung around to accepting the free-market reforms of the Thatcher era . . . and even then only after protracted internecine conflicts.
Our Chief Aim Can Be Rephrased As A Question . . Specifically, what explains the unique lack of socialist and Marxist influences in American politics, past or present? Supplying an answer is what the current article is about, a direct continuation in this endeavor of the three earlier installments in this mini-series . . . which pinned down some influences so far, all economic in nature. A key point rears up here. Try to keep it in mind. Plainly put, the various influences in American history that immunized our politics from socialism have been multiple and range across politics and socio-cultural developments as well as economic ones . . . each and every one with roots that extend back over the centuries to colonial and early post-revolutionary times. So far, the three immediate articles have probed economic influences only. For that matter, another such influence --- income inequality, always comparatively viewed --- is the chief topic of today’s article. Note quickly though. None of this means that we’re slighting political institutions and policies, or socio-cultural trends over the centuries, in shaping our ideological spectrum, whether on the left or right. It does mean that it takes time to set out a complex, multi-faceted argument, and it will take at least one more article --- dealing with the raw entrepreneurial energy and risk-taking in American life, a major source of both jobs and innovative technologies --- before we can move on and focus on politics and eventually social and cultural influences.
PART TWO: Three Related Economic Developments Have Been Dealt With So Far Each of these has been probed at length, and what follows is a capsule summary, with some pivotal implications teased out in graphic form.
1. An uncommonly high standard of living marked American development from the outset, with US per capita income the highest in the world for well over a century now --- something, as we’ve repeatedly noted, that mainstream economic growth theory can’t easily explain, just the contrary. These days, hard as it might be to believe, that lead over others is greater than at any time since the 1950s: nearly $40,000 compared to the EU average of around $26,000 and Japan’s per capita income of $28,000.
Posted by gordongordomr @ 03:42 PM CST [continue] [ 2 comments ] Wednesday, January 5, 2005 WHY NO SOCIALISM OR MARXISM IN AMERICAN POLITICAL LIFE: 4th Article in a Series This is the 4th article in a mini-series on the unique nature of the US ideological spectrum, all part of a larger, far more ambitious series --- stretching back now, it seems, through 14 articles to the battle of Gettysburg --- on the innovative prowess of the US economy, always comparatively viewed. Thanks to that prowess, the US has been the richest country in per capita income for well over a century now . . . a lead that defies standard economic growth theory, in all its variants. Right now, at the end of 2004, the US is 55% or so richer than the EU average for West Europe; and since the British, French, Germans, and Italians have a per capita income roughly the same as that average --- Britain slightly richer than the others --- the US lead is especially vivid and startling, no other words for it. Japan’s per capita income, come to that, is about that of the British, and hence the US lead over it is no less startling, The articles on ideology are doubly relevant here to explaining this huge, surprisingly long-lasting US lead: in particular, they're part and parcel of an institutional and cultural approach that underpins the overall argument of the series on the US economy’s innovative powers. Note: doubly relevant. How so?
True, the British Conservative Party is an exception to this rule in Europe, but only in part: the Tory patrician wing, which extends back to the pre-democratic, pre-industrial period of the 17th century --- and was dominated by land-owning aristocrats right down to the start of the 20th century, decades after the vote was extended to the middle classes and the working classes --- had no trouble accommodating itself to the advanced welfare-and-regulatory state that the Labour Party created in Britain after 1945. That accommodation persisted until the 1980s. It helped, in the patrician and paternalistic circles of the Conservative Party, to stabilize British society and guarantee law-and-order . . . their major concerns historically (along with expanding British power and influence abroad). At that point, the party and Britain were turned topsy-turvy. Margaret Thatcher unleashed a 12 year free-market revolution in British life that earned her the enmity of not just the British radical left, but the Tory right in the Conservative Party as well.
Note that roughly similar observations apply to the Australian Liberal Party, that country’s major right-wing party, in the era of John Howard . . . Prime Minister now since 1996 and recently re-elected about the same time as George Bush was here. Of course, the Liberal Party there had no patrician aristocratic wing. Australians had fled an aristocratic-dominated Britain in the 19th and early 20th centuries. Still, the Liberal Party had little trouble accommodating itself to the large welfare-and-regulatory state that the Australian left created after 1945 --- at any rate, until the 1980s.
The nature and causes of the Republican Party’s anti-statist ideology will be the subject of future articles in this mini-series. Right now, our task is to continue the analysis ---- started a couple of weeks ago --- that probes the various reasons for the unique nature of the American political left and its general indifference, historical and in the present, to a socialist, heavily statist way of organizing the US economy of the sort found West Europe today . . . despite some pro-market reforms in Germany and elsewhere to make the economies there more competitive.
And so, down to business The nature and causes of the Republican Party’s anti-statist ideology will be the subject of future articles in this mini-series. Right now, our task is to continue the analysis ---- started a couple of weeks ago --- that focuses on the US left: specifically, in order to sift out and explain the various reasons for its general indifference, historical and in the present, to a socialist, heavily statist way of organizing the US economy in the sense that prevails in West Europe or Japan. Yes even today . . . despite some pro-market reforms in Germany and elsewhere, it needs to be added, to make the economies there more competitive and vigorous.
PART ONE: A Brief Refresher of Where the Argument Was Left Hanging Fire: The First Two Influences Summarized In a previous buggy article published on December 16th, 2004, two major economic influences that shaped the American ideological spectrum on the left were discussed at length:
Note that the startling American lead in living standards hasn’t been fully closed by the EU or Japan in the 90 years that have elapsed since then. On the contrary, it is still huge, with the US now enjoying about a 55% higher per capita income than the EU or Japan at the end of 2004. You want more evidence? Here’s some that is especially vivid. Two Swedish economists study noted recently that if any of the four big EU countries --- Britain, France, Germany, or Italy --- were suddenly to join the U.S. federation, each would be the fifth poorest of the existing 50 states, ranking just ahead of Mississippi, West Virginia, Arkansas, and Montana, and tied with Oklahoma: all five of these, note with care, overwhelmingly rural states and far below average American per capita income. Tiny Sweden itself (9 million people) would be the 7th poorest state. The second richest EU country --- tiny Denmark (4 million) --- would be the 10th poorest, and Ireland with 4 million people too and the highest EU living standard would rank 14th among the poorest U.S. states.
A Third Economic Influence: Huge as the gap between West Europe and the US happened to be in living standards and wages, what stands out even more strikingly, is the difference in land ownership. In 1830 --- at a time when the US was overwhelmingly an agricultural country --- 80% of the American population owned and worked the land for their livelihood. Nothing like it had ever been seen before in history. Just how great the differences in land ownership were on the two sides of the Atlantic are brought more vividly in the following table.
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