[Previous] [Main Index] [Next]

Tuesday, May 3, 2005

BUGGY BACK: AMERICAN IDEOLOGIES AND AMERICAN ECONOMIC PERFORMANCE IN COMPARATIVE TERMS

Yes, buggy's back, and he thanks all those visitors to the buggy site who have inquired the last few weeks why he hasn't been publishing many articles of late . . . or any at all since mid-February.

Well, he's happy to say . . . nothing too serious behind the slowdown; no earthshaking causes involved at any rate. What then? Largely a buggy desire to do some other things for a while, all taking more time than the buggy prof had originally estimated --- nothing new there, just the opposite; plus, hesitant though he is to talk about himself here, a few mood-swings that, every so often, implode in the buggy mind and send it whirling in odd, off-the-wall ways. No matter. Not to fret. Why worry about some moody nuttiness? Daffy Duck did OK with it most of the time, no? In any case, Prof bug's still here --- is it so awful then?

Sooner or later, moreover, the head-stuff gyrations invariably slow down to a more manageable pace. When that happens, the prof's mind emerges fairly loose and freewheeling again, full of renewed verve and fresh kick-ass brio.

Like right now.

And right now too, quickly shift your own minds to the buggy business of the day --- a resumption of our strung-out series, 7 articles old now, on


 

How America's Unique Ideological Spectrum, On Both the Left and Right, Has Also Structured
An Unique Economic System --- Comparatively Viewed.


Since December 2005, an ambitious series on this country's ideological heritages on the left and right has been chugging along, even though --- the last three months or so -- at a pretty tentative lumbering speed. No help for it. Not as long as buggy was on whirligig cycle anyway. So far, a good 7 articles on the topic have appeared; this is the 8th. After the initial article, the series has been probing the left-side of the American spectrum, seeking to sort out the various historical reasons --- economic and otherwise --- why, of all the industrial countries' political left-wings, the US's alone was indifferent to Marxist and other socialist appeals.

The result has been a Democratic Party that has been largely pragmatic and reformist, accepting American capitalism as generally beneficial to all Americans, but in need of institutional and policy reforms that --- so the party's long-standing record shows --- stopped way short of creating the kinds of advanced welfare-and-regulatory state-capitalisms that flourish all over the EU except in Britain now. Whether the Democratic Party can continue hewing to this moderate, down-to-earth line is another matter.

Enter The PC-Left

Mostly like yes, but no one can deny that another left-wing has emerged, centered in universities and the media, with support among grass-roots Democratic activists even if not much enthusiasm among the voting public.

Its name? As just mentioned, the familiar pc-left --- Aka The School of Resentment and Grudge, a term originally directed at them by Harold Bloom, formerly one of Yale's most prominent deconstructionist critics before he moved on in disgust; and subsequently adopted and elaborated on by Richard Rorty, the only original thinker of import to associate with the tenured left- radicals before he too decamped and among other things agreed in print that they're "creeps". . . "semi-literate, politically useless, and odiously self-righteous and self-congratulatory."

Who Are They?

Generously put, little more than a mishmash of aging mouth-eaten Marxists, their eyes still straining to find a decent Marxist state anywhere; that's what; plus . . . lots of cloud-chasing Pacifists and Globalists, likewise creaky at the hinges and ardent chanters of Noam Chomsky crackpot tirades on the evils of American Neo Paleo-Imperialism, responsible for all the world's ills right down to explaining why your girlfriend or boyfriend --- or husband or wife --- are all lousy lovers who are as skilled in bed as a Water Buffalo, and as exciting to the same degree. Then, too, there're all the bustling hordes of Post-Modernist Space-Cadets and Critical Theorists who admire the writings of Nietzsche, the Nazi Heidegger, several windbag French irrationalists, and Theodore Adorno, the icon of the early Frankfurt School of Critical Theory . . . a very in-guy now who saw jazz as portending the imminent triumph of Fascism in America. For all of them, obscurantism counts a great deal; clear arguments and concerns for evidence --- a bourgeois fetish, a hangover from what Derrida calls logocentric fallacies --- are brushed aside as superficial. And don't overlook all the anal-compulsive deconstructionists stumbling around in the PC-mists too . . . men and women in literary studies of no less tangled thought and style who spout cryptic mumbo-jumbo even in their sleep; never mind whenever they're perched high up on their lecterns and rap and jive their recondite gibberish amid all the blackouts and loud hallucinating outcries that their heavily snoring, zonked-out students emit now and then in their nightmarish captivity. None of which is meant to short-change the hyperkinectic swarms of Outer Space Queer-theorists, likewise flipped out and monomanically meschuga . . . and all but lacking their Buck Rogers helmets and ray-guns to complement their daily climb into their mental spaceships and subsequent lift-off into their Inter-Galactic skyhootings.

And finally, to end a catalogue of obscurantist and dogmatic pedants that could run on and on --- not enough mental hospitals in the world to house them all --- we have to mention the multitudes of monomanical feminist scholars down with a life-long case of antsy indignation and utopian longings. To a person, convinced that the human mind is a total blank at birth and hence not just wholly malleable, but malleable in ways that fully accord with their own pious hopes . . . at any rate, with non-stop socialization and an occasional beating with whips and knees-to-the-groin administered by you-know-who. (Not admittedly a new doctrine; rather, one pioneered by Lenin and Stalin as well as Mao, Pol Pot, and Fidel Castro and all the other heroes of the mothballed Marxists around the world, all equally convinced that the mind's a complete blank and in need of revolutionary change and brainwashing before the New Communist Man emerged, able to appreciate just how much their revolutionary forebears had done for them.)

Anything In Common Here?

Sure. Because look . . . even if these whacko-city denizens add up to a pretty motley lot at first glance, at bottom they all share a set of base-line values and outlook that are easy to pin down. Specifically,

They're alienated from mainstream American life; they see American capitalism as exploitive and controlled by a Robber Baron elite at the expense of the masses of duped Americans; and they're convinced the US and US-led globalizing forces are responsible for the world's ills.

Simultaneously, to go on,

They cling to their bug-eyed utopian dreams charged with various loads of rage and resentment directed at American mainstreamers for frustrating their dreams' realization; and they are wholly fixated on Identity-Issues --- gender, sexual, ethnic, racial, and class-ist (their term) ---that, we're assured, determine everything important about an individual's psyche and behavior.

What, everything???

Yep, no qualifications needed. With the human psyche, to repeat --- in all its variants, whether good or bad and cognitive or emotive --- assumed to be fully moldable, like a piece of floppy wet clay in the hands of hyperactive second-graders in their first art-class ready and eager to do what teacher tells them to; after which, nothing but gold stars and oohs and aahs later that day from mom, dad, and granny.

Enough For Now Though

In a few days, we'll continue the analysis of the New Left, and in particular set it against the more pragmatic and reformist Mainstream Left in this country. One thing we'll be particularly attentive to is finding out whether the New Left has had much influence on average Democratic Party voters and on its Congressional leaders' specific policies. Very little in domestic policies, you'll see. In foreign policy it's not so clear. Starlingly, a historical somersault has occurred in Democratic and Republican ranks: 75% of Republican supporters now endorse a US policy to promote democracy abroad as the safest and surest way to underpin American security in the world. The equivalent Democratic figure is 20% or so!



 



What The Series on US Ideologies Has Tried To Do So Far

Published a few months ago, the initial four articlesshowed that the US left markedly shrugged off any Marxist or other Socialist appeals for three economic reasons, with other reasons --- political and cultural --- not yet dealt with even now. Specifically,
  • The US had an unusually high standard of living throughout the 19th and 20th centuries compared to West Europe and Japan.


A recent Swedish study noted 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.

  • The US's unskilled work force had by far the highest wages in the world in 19th century: 99% higher Britain's in 1840 or so and --- despite 30-35 million European immigrants flowing here over the next several decades --- still 55% higher than the British equivalent in 1914. (Britain, remember, was the pioneer industrial country. Compared to overwhelmingly agrarian American in 1840, its almost totally industrialized economy had a per capita income about 30% higher. Much of American income until the 1870s was produced by small farming families, only a limited part of which would be sold in the market-place.)


  • And throughout the 19th and most of the 20th centuries, there was far wider property ownership here than in Japan or West Europe --- and hence a far wider middle class until recently. Even now 60% of the poorest Americans --- those in the bottom quintile of income-earners --- own their own home (compared to an average 69% for all income levels). More extraordinary still, 49% of Americans currently designated as living in poverty are home-owners. 73% own a car; 30% own two cars; and 98% own color tvs.


To all this we added two articles on an added influence: US income distribution, which --- contrary to pc-gibberish --- was the most equitable across the industrial countries in the 19th century and in the last one right down to 1970. That mini-series isn't yet completed, so no need to say more about it here.

All of which brings us bang-up to how . . .

 

The Current Argument Will Unfold

Given the long interval that's intruded since the start of this series on American ideologies --- remember, stretching back through 5 months of psychic hip-hop --- the wiser course today will rivet the argument to two related tasks, one hard to separate from the other:

  • A fast-moving effort to summarize briefly the 7 article-series on American ideologies, always comparatively viewed


  • More important still, a close, sustained look at the major economic spillovers that follow from our ideological spectrum compared to the dominant ones in the EU and Japan. In particular, for the way capitalism is organized here compared to its counterparts in the EU and Japan, and how that has produced far different economic performances over the last century or so.


The argument's overarching theme?

It's captured in the section heading for Part Two, an inch or two below your eye level. One final preliminary point to keep in mind here: the argument will unfold through five parts, and should it turn out that the twists and turns spin out for a long time --- a likely outcome what with the way things are shaping up in prof bug's mind --- we'll divide it into two articles, the latter installment to follow lickety-split tomorrow or the day after, depending on the availability of the relevant statistical data.

 

PART ONE:
WHAT'S BEHIND THE FALTERING ECONOMIC PERFORMANCE IN THE EU AND JAPAN
COMPARED TO THE US'S RECORD SINCE 1990 Or 1905 Or 1825?
THE ROLES OF IDEOLOGY AND INSTITUTIONS AS EXPLANTORY FACTORS


Run your eye again over the last few words: it captures this series arch-theme since its start last December. Its aim has been to show how the divergent kinds of ideologies and institutions in the US, Japan, and West Europe explain in large measure the far superior performance of the US economy for almost two centuries now . . . US manufacturing productivity already well ahead of Britain's as early as 1820, an astonishing finding in recent scholarship. (See David Landes, The Wealth and Poverty of Nations, Norton, 1998, p. 300.) A

Agreed: one little stat --- even a startling one --- doesn't add up to much. The claims about the superior performance of the US economy needs to be carefully documented. Yes, the claims of superior performance need to be documented. Not to fret. You'll find lots of evidence set out in droves, over various time periods, in Part Three of this article. For the time being, stick with . . . oops, it just dawned on Prof Bug.

Maybe, after all, this is a good point to pause a moment in the analysis and trot out one of the many tables and charts that you'll find in Part Three . . . this one, as you can see, showing that the US lead over West Europe in per capita income in 2005 is essentially what it was in 1905. As for Japan --- a very poor country in 1905 --- there has been some catch-up convergence, only it stopped in the late 1980s and since then Japan's per capita income has slipped back from about 85% of the US level to about 70%. It's still slipping, by the way; and is likely to continue to do so for years to come.

Untitled Document
Per Capita Income 1905 - 2004
  1905 1950 1990 2005*
USA 4,565 9,561 23,740, 40, 650
W. Europe 3,054 4579 16,872 26, 437
Japan 1,157 1,921 18,789 28, 230
Germany 3,104 3,810 18,596 27, 381
Britain 4492 6, 930 19,817 27, 490
Sources: Angus Maddison http://www.eco.rug.nl/~Maddison/ for the data in the first three columns; Bureau of Economic Analysis; CIA World Factbook; OECD, and The Economist for the year 2004


*The first three columns of per capita income are taken from Maddison impressive work (a real achievement, worthy of a Nobel prize), with Maddison using a 1990 constant dollar that he converts into Purchasing Power Parity (PPP) back over the centuries. For 2004, by contrast, the buggy prof has used a later PPP-converter --- based on the US$ for 2001 --- which is found at the BEA web site. Hence the reason for the big jump in the per capita income for all the countries compared to Maddison's 1990 figure.

Note that this is no sleight-of-hand. By using an updated dollar, Prof. Bug is able to draw on the more current figures for GDP and per capita income that are found at the BEA, the CIA World Factbook, Eurostat, the OECD, and the World Bank. Needless to say, the real percentage gaps in per capita income across these countries and regions remain what they would be if Maddison had extended his figures through 2004.


And now, with these striking economic figures glanced at, nudge your attention back to what . . .

Prof Bug Was Saying, A Moment or Two Ago

Namely? For the time being, stick with an analysis of the explanatory roles of ideology and institutions in shaping the outcomes just listed in the table . . . which, when you get down to it, is what we've been doing in the 7 articles published for far in the series, with today's installment the 8th. All these articles --- with maybe 8 more to come; or possibly 18 (who knows at this point?) --- have grappled with two overlapping tasks:

1) How and Why American political ideologies have turned out to be unique in the world, both on the left and right.

2) How, in turn, our resulting political spectrum is itself unique, entailing a different sort of capitalist system compared to Japan and all of West Europe other than Britain: far less statist, far more flexible and innovative, and far more inclined to let technological, economic, and other dislocating changes play out more freely in market-oriented ways


By now, even these two bald statements about the buggy aims at work here should make one big thing perfectly obvious: in this series stretching back to December 2004, we've not been interested in American ideologies just for the heck of it, illuminating as a such a study might be --- especially if it's done in comparative perspective. Rather,

  • To use our findings about ideological heritages --- American, West European, and Japanese --- to explain the kinds of economic and political institutions, including state-economy relations and the resulting kinds of capitalism, that have emerged in the US, the EU, and Japan.


  • And then, in turn, to show how both institutions and ideological heritages go a long way to accounting for the diversity of Japanese, European, and American economic performance: above all, the dominant lead the US has had in the levels of per capita income and productivity for over a century now . . . and probably longer.


For mainstream economic growth theories --- whose variants needn't bother us here --- the failure of convergence catch-up growth to erode the American lead is a puzzle, pure and simple. And as long as they don't take account of different ways capitalism is structured --- heavi statist-capitalisms in Japan and the EU Continental countries and more market-oriented capitalisms on the other (reinforced by a limited central state in the USA, and a separation of powers in Washington D.C.) --- mainstream theories will continue to puzzle their practitioners.
Two-Final Points, Which . . .

You need to grasp before jumping ahead to Part Two's ideological and institutional analysis. Bluntly put,

1) The Continental EU-15 countries needed a highly structured regulatory-and-welfare state after 1945 as the only means of ensuring their social peace --- an end to a 100 years of ideological strife, class-conflicts, mass violence, and the clash between socialism and capitalism. What's more, they need it today as much as in the past.

That need puts a clear limit on what governments will be able to do in order to reform their top-heavy statist-capitalisms --- virtually all stuck in a murk of stalemate amid rapidly aging populations and shrinking work-forces in the years to come --- and restore economic vitality and competitiveness. That doesn't mean some reforms might not materialize and work, but duplicating what Margaret Thatcher was able to do in Britain in the 1980s is ruled out by their very different histories and ideological heritages. (Even then, Britain is only 2/3 the way toward full competitiveness on the global scale --- still in big need of far more entrepreneurial vigor and risk-taking, more reduction in state spending, and a vast change in its work ethos.)

2) Even in Britain, never mind the Continental EU countries in the west, scarcely any of the populations would like to live in an American style society and economy --- free-wheeling, rough-and-tumble, full of what Europeans would regard as pushy people who don't know their place, full too of pressures to work hard and succeed in ways that are probably repulsive to most of them. Least of all would they like the uncertainties and constant change that mark American life, not just economic, which entail a far different conception of self-responsibility and self-initiative.

The big risk-takers in West Europe probably left for the New World a long time ago; and 60 years of dependence on the Nanny State hasn't produced a new generation of them to take their place --- just the opposite. Doubly so, come to that, because of the rapidly aging nature of all the West European populations . . . older people, for obvious reason, less inclined toward big risks and changes than young people.


 

As for Japan, despite some variants in the way welfare payments are made, roughly the same conclusions hold.

Whatever bold changes the Japanese were capable of in the past --- in the Meiji Revolutionary era of the late 19th century or in forging an impressively vigorous economy after 1945 --- the population today seems overwhelmed by a raw pervasive craving for social stability and harmony . . . doubly so because, if anything, they are aging even more rapidly than the West European peoples. Scarcely any of the Japanese seem prepared for the kinds of large costs and dislocations that an energetic reform program would entail as a means to restoring economic dynamism. And the inertia here, note quickly, isn't just a matter of a stalemated political system running a stalemated stagnant economy --- the LDP fragmented into jealous factions representing various interest groups and constituencies, the total lack of an effective political opposition, governments as fronts in any case for powerful bureaucrats (now tarnished in public eyes), and pork-barrel legislation that makes Congress look like an assembly of Saints.

The core problem lies elsewhere. It's psychological and social --- a fear of ambitious change aggravated by almost instant dread in the face of the economic and social upheavals any full-tilt restructuring of the Japanese economy would entail.

 



PART TWO: THE ECONOMIC SYSTEMS THAT DIFFERENT IDEOLOGICAL HERITAGES IN THE US, JAPAN, AND THE EU HAVE CREATED AND INSTITUTIONALIZED

(i.) How Capitalist Systems Differ in the US, Japan, and The EU-15

The best way to grasp how unique the American system of free-market capitalism is --- including the nature of state-economy interactions here and the institutional structures of the resulting economic system --- is by way of contrast:

  • How and why we have a decentralized Federal system of government with divided powers at the center, and the EU countries and Japan all have powerful central governments (even Belgium and Germany, with weak federal structures);


  • How and why they have had no choice, given their long history of social strife, class conflicts, violence, and extremist ideologies --- again with some variants across Scandinavia, Holland, and Britain --- to fashion a huge statist-form of capitalism, and we --- with a far different history on these scores --- prefer a much more decentralized free-market system with limited state controls over it;


  • How and why their state-dominated capitalisms lead to political calculations trumping the logic of market economics, and out relatively free-market capitalism (always understood comparatively, mind you) largely separates politics and economics. Largely; not entirely. But glaringly so when you set the US system against Japan's and those in the EU countries.


  • And how and why, as a result, their status quo is politically frozen and resistant to economic change --- however great the pressures happen to be for sweeping institutional and policy reforms of a radical nature --- and why, in contrast, ours is unusually adaptive and fairly quick to change, dislocations and all.


So, to bring out these differences, start with Japan and the EU countries and look at . . .

 

(ii.) The Ideological Heritages in Japan and Europe And Their Statist Capitalisms

Bluntly put, they have all had very different histories than the US, and hence their ideological heritages have been much different than the US's, and so have their economic systems --- not just after 1945, but well before it.

The Political Left

In particular, everywhere in the EU and Japan during the19th and early 20th centuries, the organized political left opted for various forms of Marxism and socialisms --- including, don't forget, large mass-based Communist parties in Germany, Austria, and the Latin countries. Japan was no exception here. Class conflicts sharpened in the 1920s and early 1930s, and a strong socialist movement --- Marxist-Leninist in ideology --- emerged until it was crushed by quasi-fascist and military repression. Only after 1945 --- neutral Sweden an exception, developing a modern welfare state in the early 1930s --- did the West European elite take power and shape a compromise system similar to the Swedish compromise model, not fully socialist but not fully capitalist either.

So much for the left. Tilt your attention now in the other direction toward . . .

The Political Right in Japan and West Europe

In both places by the early 20th century, there were essentially only varieties of state-dominated ideologies that recoiled from not just socialism and communism, but also 19th-century style free-market liberalism as well. The latter existed, but never formed a large mass party except in Britain, though to an extent the French Radical party and the German Liberal Party --- down to the late 19th century anyway; not afterwards --- echoed certain rumblings of it. In both Japan and West Europe too, extremist, racist, and militarist right-wing movements pushed to the fore in by the start of the 1930s --- whether reactionary and clerical (strong in Portugal, Spain, Weimar Germany, and pre-Nazi Austria), or outrightly fascist in Italy, or militarist and racist as in Japan, or fanatically Nazi and genocidal in Germany after 1933 and then Austria four years later. Observe rapidly.

Note swiftly though.

Scandinavia and Holland --- Switzerland too (not an EU-member) --- had far different traditions; but even there, the dominant conservative parties were always in favor of a large state role to guide and manage economic development. The same was true of Britain. Liberalism and the Liberal Party went into steady electoral decline after 1914, losing votes on the left to the new Labour Party, and on the right to the Conservatives. No less important, the Tory wing of the British Conservative Party --- with powerful roots in pre-democratic, pre-industrial England of the 17th and early 18th centuries --- came to dominate the liberal-minded wing by the 1930's; and that domination lasted for the next 50 years, during which it fully assimilated to the British welfare state after 1945 and changed only in the radical backlashes of the 1980s Margaret Thatcher era.

What have been the long-term net effects of all these statist-embracing ideologies on the left and right? Easy to say. After 1945, they led directly to. . .

 

(iii.) The Modern Regulatory and Welfare-State Capitalisms in Japan and the EU vs. the US Free-Market Capitalism

A prefatory remark or two first, to clarify the terminology here.

The US free-market capitalism tag would be misleading if you were comparing it against the neo-classical model of a capitalist economy that existed, say, before 1945 --- which assumed a laissez-faire market system with little role for governmental regulations, taxes, or social-security policies, never mind macro-economic policies to stabilize the economy by use of fiscal or monetary instruments. Probably no economy in the world operated that way except Britain's in the middle of the 19th century, after it removed tariff protection around its agriculture and opted for free trade. Throughout that century, US governments --- state and federal --- played an active role in fostering infrastructural development; owned most of the land, which it transferred in homestead acts to anyone willing to farm it; and used a variety of tariffs to protect manufacturing industries until 1900 or so.

What's more, since the New Deal era of Franklyn Roosevelt in the 1930s, the role of government in this country's economy has grown in numerous ways: social security legislation, progressive taxes (up and down), Medicaid and Medicare, limited welfare policies for the poor, earned income-tax credits for the working poor (which boosts their income by 10-20% depending on the category), environmental legislation, and the like. Simultaneously, government spending grew steadily from the mid-1930s through the late 1970s, since which time it's leveled off.

Granted all that, the tag used to described the US economic system these days --- free-market capitalism --- does make sense when its set against the far more state-dominated economies in Japan and the EU.


And Now Refocus On The Statist Capitalisms That Japan and the EU Countries Forged After 1945.

To end decades of domestic strife, violence, and ideological extremism --- all aggravated by jingoist nationalism and militarism that found its natural culmination in totalitarian Fascisms and Nazism and the horrors of WWII --- the mainstream parties in West Europe and Japan moved quickly, after 1945, to overcome the ideological clashes and domestic strife of the past by fashioning powerfully entrenched forms of statist-capitalism: large social spending, increasingly large welfare transfers, high taxes, subsidies, nationalized industries, and regulations of just about everything in sight.

There are, of course, variations here --- within the EU itself and between the typical EU-15 Continental country and Japan.

In the EU, Britain looms as the big exception . . . at any rate since the end of the 1980s. Until the start of that decade, it was indistinguishable from its Continental equivalents except for a miserable economic performance, Britain about 15-20% poorer than Germany and France, with the gap growing. That entrenched system, managed by both the Labour and Conservative Parties, was first disrupted, then largely dismantled, amid growing domestic conflict and economic chaos by a series of determined reforms carried out by Margaret Thatcher's Conservative Party. Not surprisingly --- for economists anyway --- a far better economic performance that followed. Today, Britain has surpassed both Germany and France in per capita income; has less than half the unemployment they do; and creates far more new jobs yearly than they do.

Otherwise, despite some minor differences between them, the EU-15 Continental countries' systems are almost indistinguishable.

 

Japan

In Japan, the contrasts with the EU welfare-states need to be noted too. Government spending in that country was held back until the 1980s, and so were taxes and state welfare distributions. Since then, its government spending --- lower than the US's in 1979 by a large margin --- now exceeds it by a noticeable margin, with the gap still growing. Japan's government, moreover, faces an even more pressing need to find money to support a rapidly aging population where more and more retirees will be living on tax-supported pensions . . . at a time when the working population will be shrinking. True, that's a huge problem for the EU countries too. Their financial strains on this score, though, won't begin to overwhelm them until 10-12 years into the future. Japan's are starting right now. (American problems with social security are projected way into the future --- 2040 or so. What's more, both native birth-rates and immigration will not shrink the working population nearly as fast as in the EU or Japan. Contrary to the overwrought rhetoric of the Bush administration, there is no crisis, and fortunately both public opinion and an attentive Congress won't go along with his ideologically charged schemes of privatization.)

Oh, and another thing.

Japan's elite export-oriented firms, plus lots of the uncompetitive ones sheltered from international competition, have provided more private pensions than their EU counterparts. That looks encouraging on the face of it --- but shouldn't be exaggerated, and for one startling reason: until recently, Japanese savers --- including its big firms --- had to invest their pension savings in rigidly protected Japanese financial institutions, all of which, insulated from American and EU banks, brokerage firms, and insurance companies, paid a paltry 1.0 2.0% interest on those vast savings, year in, year out.

Otherwise, the differences between them are narrowing, not growing; and that's true in economic performance, not just institutions and policies.

As you'll see in a few moments --- diagrams and tables galore awaiting you --- their economic performances are all abysmal save Britain's, thanks to the big reforms carried out by Thatcher governments in the 1980s: stagnant or slow growth; surging long-term unemployment; an eroding work ethos --- especially in the EU, less so in Japan; falling birth rates even as work-forces shrink in size while the numbers of pensioners soar; fear of change throughout the economies and societies of these countries; and aversion --- increasingly marked as the populations all age rapidly --- to risk-taking of any sort, not just entrepreneurship.

 

Just Dawned on Prof Bug: One Table Will Help Document These Claims in Striking Fashion Right Now:

It's the most comprehensive of the tables that Prof Bug created a few weeks back while Daffy Duck somersaults were taking place in his bugged-out brain --- and will be backed up in Part Three by lots of other tables and diagrams:

Untitled Document
  USA UK Japan Italy France Germany
Inequality (1994-97) Top 10% Income Earners Ratio
To Bottom 10%


5.6:1
 
  4.6:1   4.3 :1   4.7:1   3.5 :1

3.2:1
 
Output (Year = 2004) Per Capita Income     $40, 100     $28,370     $29,400     $27, 700     $28,132     $28,600
Effort % of Pop 18-64 Working Full Time Hours Worked Yearly     62.3% 1792   59.3% 1671   57.1% 1801   44.6% 1591   51.7% 1453   50.9% 1446
Efficiency (Year = 2004) GDP per worker       $73,100     $54.800     $50, 100     $59,500     $63,100     $53, 500
Unemployment (2005)   5.3%   4.7%   5.2%   9.9%   10.2%   11.9%  
Dwelling Space Sq. Feet Per Person

--- Poor Households
--- All Households  
 
438.6

721.2


381.1
  N.A.   N.A.   378.8   424.0


 

(iv.) The Nanny State vs. Loose, Freewhelling American Individualism

The regulations produced by the shipload daily in Japan and West Europe, observe quickly, are almost always detailed, voluminous, and head-spinning in their strained efforts to control the behavior of hundreds of millions of people in minute ways. . . at any rate from an American standpoint. Viewed from it, the Nanny State and the political and bureaucratic elites who are in control of it operate on shared assumptions that they know best what's good for you, the average citizen, and are willing to offer lots of rewards in return for agreement or submission: you choose the term you prefer here. Hence the enormous power in policy-making and policy-administration that accrues to above all the elite bureaucrats everywhere in Japan and the EU . . . including the huge regional bureaucracies in Brussels. There's nothing like this here, and Americans who have never lived in Japan or the EU have no idea what all this all entails.

Take the Proposed EU Constitution, Up For Approval Everywhere There

The US Constitution was 5 pages long, a statement of general principles about institutional power and the rights of American citizen; nothing more. It created a system of government that has lasted for 219 years, with only one brief breakdown in the civil war era. The EU Constitution, 70,000 words long, takes over 500 pages to get to the end, and Heaven knows what it all amounts to. It's safe bet that not 1 out of 1 million EU citizens has ever read it from beginning to end; and no less safe to assume that the few hundred who have don't know what they're really committing themselves to. Essentially, it vindicates what Anglo-American specialists in comparative constitutional law have always claimed: in the US and traditionally the other English-speaking democracies, you're free to do what the law doesn't prohibit. In the EU countries on the Continent (and also in Britain now), you are essentially free to do only what the law says you're able to do.

Come to that, the approval by each of the 25 country-members in the EU will vary in its methods across them. Only about two-thirds or so will even risk referenda. In Germany, for instance, approval is limited to the legislature, period. German elites, you see, know better than to trust the increasingly restive German population with a popular referendum: it might be voted down as will probably happen in Britain later this fall, and possibly --- a neck-and-neck battle in public opinion --- in France this month.

Japan Again

Japan even goes further in these respects. To their extraordinary regulatory and other legal constraints on individual behavior, you need to also consider series of intensely powerful group pressures within society as well to ensure conformity. The result is a built-in system of pervasive social norms and expectations that will punish virtually any deviant behavior, with the punishment aptly captured in the Japanese adage, "the nail that sticks its head out will be hammered in."

All of which brings us back to a key question: what explains these far different economic and political systems, including not just contrasting state-economy interactions, but almost opposite views about individual behavior and responsibilities?

The answer, which you probably have figured out for yourself by this point in our argument:

  (v.) Far Different Cultural and Societal Heritages As Mirrored in Political Ideologies and Existing Institutional Structures

What we have at work in the statist-capitalisms of the EU and Japan on one side, and on the other the US system of relatively free-markets --- are very different traditions of individualism and individual responsibilities vs. statist paternalism in dealing with the vagaries and problems of life.

Survey Data Back Up Our Buggy Analysis

It's no accident that the global surveys carried out each year by the Pew Research Center find that in the EU only about 25% on an average believe that if people are continually in economic trouble, the fault lies with them and the way they've organized and led their lives. In the US, the corresponding figure if around 60%. From an American viewpoint, the Japanese and the European peoples --- with their different histories and cultural and ideological heritages that extend back over the centuries to hierarchically organized societies in the Middle Ages and way into the early Modern era --- need and want a Nanny State to take care of them. If that means endless bureaucratic intrusions and controls --- all found in the fine print of every long-winded regulation put out by the Japanese and West European governments, never mind the EU Commission --- so be it. It's the price for such maternalism in political guise.

In a word, they want and need an advanced welfare-state system, controls and all. And the dominant elites in Japan and the EU countries --- not to forget the regulation-mad bureaucrats in the EU Commission and its vast network of bureaucracies --- are only too happy to take and wield such power. Everything in European history encourages them to see themselves as the natural masters of the untutored masses. They know what's good for the masses, and they urge the masses to trust them: we know better, and you know it's true. Oddly, it is.

Nor is that all. Few West Europeans these days would like to live in the kind of rough-and-tumble system of capitalism that we have. To do that requires risk-taking of all sorts and a willingness to renounce the Nanny State's maternalism and take charge of your own life. Culturally, it doesn't suit them --- just the contrary. Then, too, probably most of the risk-takers in Europe left for the New World before 1945. Nor is that all. A good 60 years of Nanny State dependency has undermined their initiatives in these areas --- something the buggy prof didn't first say, rather the prominent Swedish economist, Assar Lindbeck, in an article published in 1993. As for Japan, the few risk-takers there --- say, talented Japanese scientists, the sort who win Nobel prizes --- already have departed and won them while pursuing careers here or in West Europe.

No politician in Japan or in West Europe can afford to ignore these preferences of their electorates, at any rate if they hope to win or stay in power. Period




A Democratic Twist Here in Contemporary Japan and West Europe

There is, it's true, a huge difference for West Europe's and Japan's elites in an era of mass democracy of the post-WWII period compared to their pre-democratic eras, right down through most of the 19th and into the 20th centuries.

In particular, as we just tried to drive home, the leaders of political parties have to court any electorate's votes . . . the pre-condition of holding power and legitimizing the statist systems, with all their secrecy in policy-making and policy-administration that follow . . . legislatures all over the EU and in Japan extraordinarily weak by comparison with Congress. And so, in order to allow the powerful bureaucrats and politicians to get their policy-business done in the statist systems, Prime Ministers and the powerful French president have to cater, however unwillingly, to the fickle ups-and-downs in public opinion and voting preferences. Otherwise, in the next national election, the opposition comes to power with all the privileges and authority that it entails.

Even in Japan, where no Opposition of any effective sort exists, the existing leade of the Liberal Democratic Party --- in power for about 50 years now, with only a brief 9 month interlude in the early 1990s an exception --- has to worry that any loss of seats in the two houses of the Japanese Parliament can mean a rebellion within the parliamentary ranks . . . all divided into a variety of factions, observe quickly, that compete for pork-barrel handouts to their constituents and, of course, for leadership of the party and country.

From the same US standpoint, what this amounts to is an extraordinary form of paternalism (or maternalism) amid a startling concentration of power at the center.

 

(vi.) Which Dominates ---The Logic of Politics or the Logic of Economics?

It's a pivotal question, this --- which cuts to the heart of why the US, Japanese, and EU economies have performed differently: far differently, to put it bluntly . . . something often startling figures to measure performance will bring out in Part Three today. In the meantime, a few more theoretical points need to be made by way of illuminating the differences between their statist-capitalisms and the US's free-market capitalism.

Competing Logics

In all systems of capitalism, two logics vie for influence, One is political, the other economic. All advanced democratic industrial countries have to compromise between them, of course; but the resulting balance is heavily skewed in the EU and Japan toward one pole, and in the US toward the other.

In their state-capitalisms, to clarify briefly, politics almost always trumps economics, and the logic of political calculations and maneuvering dominates the logic of free-market adaptation to necessary changes . . . whether under the relentless pressure of revolutionary technologies or the forces of fast-acting globalization and the related shifts in economic dynamism away from Japan and the EU to the new Asian dynamos and the US. What follows? Over the decades, the existing status-quo in Japan and the EU Continental countries is walled in and guarded by an extraordinary range of huge, well-organized vested interests, both in the private and public spheres . . . so much so that it is extremely resistant to change.

And now time for the promised data, with the rest of the substantive argument to follow in Part Four.

 

PART THREE: THE ECONOMIC PERFORMANCES OF THE TWO SYSTEMS EXAMINED

First, consider the performance of the US system vs. those in Japan and West Europe over what matters most, at any rate in the long run: the ability of an economy to sustain constant growth in GDP and raise living standards of its people. Even the democratic left in Japan and West Europe --- those anyway not crackling with dreams of some elusive cloud-chasing socialist leap into the future --- seem to appeciate this. (Yes, a purposeful repeat of what you saw earlier in this article, with some added commentary to follow.)

Long-Term Economic Growth 1905-2005 in Per Capita Income and GDP

Untitled Document
Per Capita Income 1905 - 2004
  1905 1950 1990 2005*
USA 4,565 9,561 23,740, 40, 650
W. Europe 3,054 4579 16,872 26, 437
Japan 1,157 1,921 18,789 28, 230
Germany 3,104 3,810 18,596 27, 381
Britain 4492 6, 930 19,817 27, 490
Sources: Angus Maddison http://www.eco.rug.nl/~Maddison/ for the data in the first three columns; Bureau of Economic Analysis; CIA World Factbook; OECD.


*The first three columns of per capita income are taken from Maddison impressive work (a real achievement, worthy of a Nobel prize), with Maddison using a 1990 constant dollar that he converts into Purchasing Power Parity (PPP) back over the centuries. For 2004, by contrast, the buggy prof has used a later PPP-converter --- based on the US$ for 2001 --- which is found at the BEA web site. Hence the reason for the big jump in the per capita income for all the countries compared to Maddison's 1990 figure.

Note that this is no sleight-of-hand. By using an updated dollar, Prof. Bug is able to draw on the more current figures for GDP and per capita income that are found at the BEA, the CIA World Factbook, Eurostat, the OECD, and the World Bank. Needless to say, the real percentage gaps in per capita income across these countries and regions remain what they would be if Maddison had extended his figures through 2004 .


Note the striking fact here. Contrary to all forms of mainstream economic growth, each of which variants postulate some form of convergence between dynamic follower countries and the lead country on the technological frontier, there has been no closing of the gap with the US by West Europe for a good century! As for Japan, yes it has closed the gap, but only because it was so poor in 1905. Essentially, it entered the 1950s with about 30% of the levels of US per capita income and productivity, closed on them impressively for abou 40 years until the gaps were only about 15%, and then fell back abruptly to roughly where it was in the late 1960s.





 



The first date here is a natural starting point for looking at the performance of the US, EU, and Japanese economic performances. It was in 1975 that a turning point in global capitalism was reached: the shocks of oil price rises combined with the big breakthroughs in Pacific Asian industrial development, and --- we now know --- represented the beginning of the latest Schumpeterian long-wave of radical technological eruptions on the economic landscape. In all three regions of the advanced industrial countries, economies were badly dislocated, and the sustained high-level growth rates of Japan and West European countries converging on US levels of per capita income and productivity were cut by as much as 50-60%. The US, the rich leader country, had been growing much slower since 1945 exactly as convergence catch-up growth theories postulated.

Which countries would then recover the most rapidly to the combined shock-effects of globalizing forces, high oil prices, stagflation policy dilemmas, Asian industrial competition, and radically restructuring technologies in information and communication areas?

That was the pivotal question, and still is 30 years later. Here's the evidence once more.

Untitled Document 
  USA EU Japan German France Britain
Average GDP Growth Rate 1975-2004 3.4% 2.0% 2.0% 1.6% 2.1% 2.0


 

As you can see, the US enjoyed an annual growth rate of 3.4% over the past 29 years --- 70% more than the EU average and Japan's rate. Roughly the same ratio applies to Germany, France, and Britain.



GDP, Per Capita Income, Income-Distribution, Productivity Levels and Unemployment Levels

Agreed, a big mouthful this section heading. And yes, you're right: the same table cropped up a few pages ago.

No matter. It captures three or four other trends and outcomes that the average citizens in any economy might be concerned with --- productivity, income-distribution, and unemployment added to GDP and per-capita income growth --- even though, as the first two buggy articles in the mini-series on income equality and inequality noted, Americans have shown far less interest historically than West Europeans or Japanese on this topic. The reason's simple. Income equality was always greater here than in Europe or Japan right down to 1970. More important, wages for unskilled labor were noticeably higher in the 19th century and down to that period too (or since, for that matter); and Americans were far more attached to equal opportunity, not to economic results viewed, let us face it, in artificial manner.

After all, there are about 100 million households in the US, and abou 140 million workers. To divide their incomes into quintiles or deciles and then compare them is something scholars or technocrats do, not what average people think in terms of. No matter. What counts is that West Europeans and Japanese have always lived until the post-1945 period in societies marked by pronounced class-based hierarchies and vast gaps in not just income and wealth, but status and power and authority. Only natural, then, that their populations may be more concerned with economic outcomes than ours. (Only natural as well to add, then, that envy and resentment are far more visible in European life than here.)

To the four economic outcomes just mentioned, we've also added a measure of labor productivity across several EU countries, Japan, and the US, plus aveage household space. Why the latter? The average EU media type --- a politically correct ideologue almost everywhere on the Continent, who naturally feels degrees of envy and resentment toward the unusually rich and powerful USA as well --- has no idea what average Americans live like compared to his EU counterparts. It reminds us what the two Swedish economists said recently: if the big 4 EU countries --- Germany, Italy, France, or Britain --- suddenly joined the US federation, they would rank 5th from the bottom among the existing 50 US states, with the four poorer ones all rural and largely non-urbanized: Montana, Arkansas, West Virginia, and Mississippi. If the entire EU joined, on an average it would rank as the 7th poorest.

Note that the poorest Americans have more household space than the average EU citizenry.





Untitled Document
  USA UK Japan Italy France Germany
Inequality (1994-97) Top 10% Income Earners Ratio
To Bottom 10%


5.6:1
 
  4.6:1   4.3 :1   4.7:1   3.5 :1

3.2:1
 
Output (Year = 2004) Per Capita Income     $40, 100     $28,370     $29,400     $27, 700     $28,132     $28,600
Effort % of Pop 18-64 Working Full Time Hours Worked Yearly     62.3% 1792   59.3% 1671   57.1% 1801   44.6% 1591   51.7% 1453   50.9% 1446
Efficiency (Year = 2004) GDP per worker       $73,100     $54.800     $50, 100     $59,500     $63,100     $53, 500
Unemployment (2005)   5.3%   4.7%   5.2%   9.9%   10.2%   11.9%  
Dwelling Space Sq. Feet Per Person

--- Poor Households
--- All Households  
 
438.6

721.2


381.1
  N.A.   N.A.   378.8   424.0


 

GDP Growth Since 2000

Here are two ways of setting out the data. One is taken directly from the New York Times, a chart of growth here, in Japan, and in the EU. The other recreates the chart's data in table form, broken down for GDP trends across 6 countries (a buggy creation). First the chart:



Untitled Document
  Average Gov. Debt % of GDP 2001-2004 Average GDP Annual Growth 2002-2005* Estimated GDP Growth 2006 **
USA 2.8% 3.3% 3.2%
Japan 6.4% 1.2% 1.9%
Germany 3.4% 0.6% 1.5%
France 3.8% 1.5% 2.1%
Italy 3.6% 0.5% 1.5%
Britain 1.9% 2.4% 2.2%


 

Employment Rates in the EU and US By Gender and Age. Also Hours Worked Per Year

This breakdown, nicely prepared recently by the US Bureau of Labor, gives you a better idea of employment across several key categories here and in the EU.

Labor Productivity in the EU and US: Corrected For Different Rates of Unemployment and Participation in the Work Force


There are some misconceptions about how to measure labor productivity --- annual output of the workforce in an economy, with all other contributions to that output are held constant in statistical regressions: should output be measured by each hour of contribution to GDP, or according to each worker over the year. The misconceptions --- which economists don't hold too; no, only EU media types, politicians, and not well informed EU citizens --- are that hourly output is more important because, to put it bluntly, its the only performance-measure where some EU countries outdo the US.

The problem is, most of the gains in output have been caused there by firms simply lopping off excess marginal workers, not from either better education or skills of the work force or from more capital investment or --- most important of all for long-term productivity gains --- from investing in, diffusing, and reaping the gains in labor productivity from the radical new technologies. It takes years and years --- sometimes decades --- before even fairly flexible firms, their managers, and their work-forces are able to move up a learning curve and put to good efficient use these new technologies. In the US, for instance, it took a good two decades for firms to do this. Between 1975 and 1995, to put it differently, the rate of labor productivity growth in the US economy stagnated at around a poor 1.3% a year. Only afterwards did the explosive growth in productivity hit the economic landscape, since which time the US economy continues to reap the gains.

Something else too.

It's one thing for EU firms to cut out excess workers to become more efficient, and another thing to simply add most of the redundant workers to the ranks of long-term unemployment in the EU. That is exactly what has happened. It's a strange thing to brag about, but then the typical EU journalist --- gabby as he or she is on about any subject under the sun --- has never taken a rigorous economic class in their lives, and know little or nothing about it that isn't folk-lore stuff in the pc-arsenal.

So what is the solution? Simply to do what the EU Central Bank executive did in setting out labor productivity trends per worker/ per hour in the US and EU, corrected for growing unemployment in the EU compared to here as well as hours worked. The resulting corrected results are shown in the last column here.



Source: EU Central Bank


The next diagram traces trends in labor productivity measured per worker over the year, a much more straightforward way to calculate it.

(For an updated, easy-to-read summary of these studies --- together with others that the McKinsey Global Institute carried out in both industrialized and developing countries --- get hold of a 2004 book, The Power of Productivity, by the firm's head, William W. Lewis --- a Ph.D. physicist who got tired of mathematical abstractions and wanted to apply his math and theoretical skills to economic and financial problems.)



 

Government Spending and Taxes In the EU, Japan, China, and the US

Two charts here. The first captures the level of government spending across the US, Japan, China, and some EU countries. Notice first how Britain's government spending, for all the Thatcher reforms, still is way higher than the US's. Then note how Japan's government spending is quickly closing in on the British level, a big turnabout from the era of fast growth in Japan until 1990.


Source: http://www.mises.org/fullstory.aspx?control=1804&id=79 for gov spending


The next diagram sets out the tax burdens in the EU and US, the source here being the EU Commission.

Labor Market and Product Market Flexibility

Both these diagrams are taken from a very recent Bureau of Labor
study of the comparative economic performance of the US, Japan, and the EU countries. In these charts, note the use of ranked data on an ordinal scale of 0 - 6. The lower the ranking, the greater the flexibility in labor and product market. As for the measures that went into it, several crosschecking ones are used by the BLS, and if you want, you can click on this link to load up the study's 3rd chapter in Adobe 7.0.

The first chart plots how easy it is for firms to hire, reassign, or lay off workers as well as to set pay and hours . . . with overtime in the US regulated in most states by the way, but nothing like in the EU. Right now, believe it or not, French workers from across all industries in the private and public sectors are up in arms, marching, marching, to protest a government proposal that they all work an extra 1 minute, 59 seconds a day without added pay. The reason? To increase productivity and hence eventually government revenue to finance the huge burdens in welfare and other social spending that the French state can no longer afford. The fiery rhetoric from the ranks of the workers protesting --- and union leaders and Socialist and Communist politicians --- is reminiscent of Marxist agitprop of the pre-1970 period.

Well, what else would you expect --- some of you are probably thinking --- from the bloody-minded French? No, not confined to them; far from it. A Swiss couple who visit Santa Barbara each year --- the husband a talented political scientist who headed a Swiss team to advise the Chinese government on improving the efficiency of Chinese bureaucracies --- said three years ago that their daughter, in her mid-30's, was lucky to find a job at a department store in Geneva. One week, as sales were booming more than the managers had expected, they asked the employees to stay an extra five minutes for four days in order to prepare better for the opening hours of the next day's business. She was outraged! All the employees were!

Imagine, having to work five minutes extra in a high-rush period of sales without compensatory pay. This, remember, is in Switzerland, where government subsidies and regulations make the Swiss economy --- not in the EU --- indistinguishable from its neighbors' rigidities. (One final point: don't be misled by low numbers of official unemployment in that country of 5 million citizens. There are over a million foreign workers legally there on short-term permits. If unemployment begins to rise, the permits aren't renewed, and the workers are escorted to the borders. Job-creation is as miserably lagging in Switzerland as in Germany, France, or Italy.)



Enough for now: The remainder of the argument --- parts four and five (already done) --- will appear tomorrow in a follow-up article.