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:
THE SIGNIFICANCE OF AMERICAN IDEOLOGY IN HELPING TO ACCOUNT FOR THE COUNTRY'S INNOVATIVE PROWESS

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.

All Government Spending % of GDP

	1870	1920	1937	1960	1980	1990	1996
Canada	n.a.	n.a.	25.0	28.6	38.8	46.0	44.7
France	12.6	16.7	29.0	34.6	46.1	49.8	55.0
Germany	10.0	27.6	34.1	32.4	47.9	45.1	49.1
Italy	13.7	25.0	31.1	30.1	42.1	53.4	52.7
Sweden	5.7	10.9	16.5	31.0	60.1	59.1	64.2
UK	9.4	26.2	30.0	32.2	43.0	39.9	43.0
USA	7.3	12.1	19.7	27.0	31.4	32.8	32.4
Average	10.8	19.6	23.8	28.0	41.9	43.0	45.0

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.

TOTAL GOVERNMENT SPENDING 1960-1996
						Increase
Country	1960	1970	1980	1990	1996	1960-1996
Australia	21.2	25.5	34.0	37.7	37.5	16.3
Belgium	34.5	36.5	50.7	54.6	54.5	20.0
Canada	28.6	35.7	40.5	47.8	46.4	17.8
Denmark	24.8	40.2	56.2	58.6	60.8	36.0
Finland	26.6	31.3	36.6	46.8	59.4	32.8
France	34.6	38.9	46.1	49.9	54.7	20.1
Germany	32.4	38.6	48.3	45.7	56.0	23.6
Ireland	28.0	39.6	50.8	40.9	37.7	9.7
Italy	30.1	34.2	41.9	53.8	52.7	22.6
Japan	17.5	19.3	32.6	31.9	36.9	19.4
Netherlands	33.7	46.0	57.5	57.5	58.1	24.4
New Zealand	27.7	34.4	47.0	50.0	42.3	14.6
Spain	13.7	22.2	32.9	43.0	45.4	31.7
Sweden	31.0	43.7	61.6	60.8	66.1	35.1
Switzerland	17.2	21.3	29.3	30.9	36.9	19.7
United Kingdom	32.2	39.2	44.9	42.3	43.7	11.5
United States	28.4	32.5	33.7	34.8	34.6	6.2
Average	27.0	33.3	42.8	46.3	48.0	21.0
a

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:
THE EARLIER ARGUMENT SUMMARIZED

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.

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?

• The US lacks a statist-conservatism of the sort that is rife on the Continent of West Europe and in Japan . . . the dominant political parties there, for generations now, suspicious of free markets and capitalist competition of the sort Americans take for granted.

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 US also lacks, on the left, a socialist or Marxist tradition that marks deeply the history of all the dominant left-wing parties in West Europe and Japan . . . to the extent one can even find an organized Japanese opposition party since the 1960s. The American left can draw on some radical and populist traditions, stretching back to Jefferson and in various trade union movements (especially the CIO and the miners, both organizing mass industrial workers and badly exploited mine workers early in the 20th century), but never a socialist heritage, let alone one marked by Marxist views of capitalism.

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:
ECONOMIC REASONS WHY THERE IS NO SOCIALIST HERITAGE IN THE US: CONTINUED

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:

• An unusually high standard of living, with the US the richest country in the world in per capita income for well over a century now.

• And, more to the point, an unusually high real wage in the US early on, compared even to Britain when that country, the industrial pioneer, was much richer in per capita income. More specifically, the average wage earned by unskilled labor in the US was double the British wage in 1830, and still almost 60% higher in 1914 despite a mass outflow of poor people from Britain and Europe in the interval, nearly 40 million people, most of it to the US itself.

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:
Unusual Land Ownership in the 19th Century

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.

 

% OF POPULATION THAT OWNED ALL AGRICULTURAL LAND AVAILABLE
1830	1880
USA	France	England	Scotland	Ireland	Belgium	Netherlands
80%	60%	15%	8%	4%	36%	60%

Sources: Tom Bottomore, Classes in Modern Capitalism and Johan F.M. Swinnen The Political Economy
of Institutional Change