This is the 4th article in a buggy series on how ideologies and institutions --- political, administrative, legal, financial, and business-organizational, including the multiple links between states and markets --- have created over the last several decades two kinds of dominant economic models in the advanced industrial countries. One of them, statist-capitalism, dominates Japan and the EU-15 Continental countries of West Europe. The other --- market-oriented capitalism --- prevails in the English-speaking countries of Britain, Australia, New Zealand, the US, and (to an extent) Ireland and Canada.





What We're Up To Today

Three Tasks Dominate . . .

our argument today, which is a direct follow-up of the previous three articles in the series. To grasp what we're up to here, it will have helped if you've read those three earlier articles or at least run your eye over them; but in case you haven't, part one today will briefly summarize many of the main points found in those earlier articles. In the series' 1st article --- it was published on May 3rd --- you'll also find a brief account of the various reasons that lay behind Prof Bug's fairly long absence on this web site . . . to be exact, a good two and a half months, always assuming that it interests you.

Each of the three tasks divides the argument into a separate part.

1) In part one, you'll find a deeper analysis of the two dominant forms of capitalism in the industrial world than the earlier articles in this series were able to unpack. Among other things, some variants in each group of industrial countries will be carefully distinguished --- even though, in the end, it turns out that these variants don't obliterate the much clearer distinction between the English-speaking market-oriented countries and the state-capitalisms that prevail in Japan and the EU-15 Continental countries.

2) In part two, more importantly, you'll see that the market-oriented countries --- the USA, Britain, Australia, New Zealand, Ireland, and possibly Canada (something of a half-way house now between the two models) --- have noticeably outperformed Japan, Germany, France, Italy, Spain, and even most of the small EU countries on the Continent for a good 15-20 years now. What's more, those market-oriented countries that were former adherents to the state-capitalist model and developed an advanced regulatory and welfare-state economy after WWII --- Britain, Australia, New Zealand, and to an extent Ireland --- have also done much better since their dismantling of most of their state-capitalisms in the 1980s than they had in the earlier three decades.

What do we mean by "outperform" or "done much better"?

The answer's simple and straightforward: the ability 1) to generate a higher rate of growth in GDP and per capita income on one side, and on the other 2) to create more new jobs and hold down unemployment.

Right now in 2005, the average unemployment rate in the EU is over 10% --- higher still in France, and 12% in Germany. By contrast, the average rate of unemployment in the market-oriented countries is about half the EU level. Worse yet for the state capitalisms, you'll see that increasingly their unemployment is long-term and structural, rather than cyclical; and that long-term unemployment is especially hard on young people in the EU. Japan does better, at any rate as far as its official statistics go; but there have been doubts voiced both by Japanese and foreign economists that these statistics aren't fully accurate . . . a point discussed at length later on today.

As you'll see, part two has a lot of tables and diagrams to bring out these key differences in the economic performance of statist-capitalisms and market-oriented ones..

3) Part three turns to an analysis of what ails the statist-capitalist countries --- especially the big ones, Japan, Germany, France, and Italy (though not only them) --- when it comes to generating economic growth and job-creation . . . two huge deficiencies, it should be added, that reflect a more general malaise: waning economic dynamism and competitiveness.

As you'll find out, the key problem that underlies these deficiencies reflects a rooted failure to alter their economic status quo sufficiently to keep pace with radical changes afoot in global capitalism, now a good 25-30 years old: above all, a surge of radically restructuring technologies, a speed-up of globalizing forces, and marked shifts in economic dynamism outside Europe and Japan --- especially in Asia and the US. By contrast, the market-oriented countries have done far better on adjusting to these changes, and at the forefront of the successful adapters is the US itself.

A Foretaste Of What You'll Find

The following table --- reproduced from the previous buggy article in this series --- brings out this laggard performance in striking ways:

Real Per Capita Income As A Percent of the U.S. Level

	1955	1960	1970	1980	1990	2004
USA	100	100	100	100	100	100
Canada	72	73	78	92	95	77
Germany	53	66	73	78	79	67
Japan	21	30	56	66	79	69
France	49	59	71	77	77	68
UK	64	69	66	66	73	68
Italy	37	46	58	67	69	66

Sources: Richard Katz, Japan: The System That Soured; OECD; CIA WorldFactbook 

The next diagram is even more startling in the ways it brings out the huge US lead over the EU. Developed by Pavle Sicherl, a professor at a Slovenia university, as part of a recent study he did for the Association of European Chamber of Commerces --- published March 2005 --- it shows the huge time lag between the EU's economic situation in 2002 or 2003 in certain key indicators and the US's position a good 20 or 30 years ago, all depending on the measure selected. The text above the chart is the EU professor's taken verbatim, and all references to it and the chart should be strictly to this source:



Source: Pavle Sicherl, http://www.sicenter.si/td_echamb.htm

Professor Sicherl, whose study is both ingenious and illuminating, has also developed a diagram that shows how many years into the future the EU would need to catch up to the US in 2002-2003 on the same indicators, all depending on how much faster the EU would have to grow annually in order to match the US. As he points out, even the assumption that it would grow at a 0.5% annual rate faster than the US is doubtful. How to interpret the diagram is explained immediately after in Professor Sicherl's own words:



Source: Pavle Sicherl, http://www.sicenter.si/td_echamb.htm

"This graph shows the time needed for convergence with the US for the range of various scenarios of higher growth rates in the EU than in the US. For instance, if the R&D per capita would grow in the US at 3% per year and in the EU at 4% per year (an example of 1% positive difference in the graph) the equalisation would only happen in 2064 (even at a 3% positive difference scenario it would only happen around 2022). For GDP per capita, if yearly growth would be4% in EU and 2% in the US (at present the reverse might be closer to reality), the equalisation would happen only in2020. It is worth remembering, however, that in the recent past the respective growth rates for these indicators have been mostly higher in the US. In other words, even the worst scenarios above will only come about with a considerable EU improvement."



Two More Tasks Complete The Argument --- But in the Next Article

Why The Need For A Follow-Up Article?

The answer: quite simply --- nothing more exciting --- to keep today's argument, already quite long and full of tables and diagrams, from spilling over its boundaries. That seems a convincing reason, no? But note: seeing as how these next two tasks are integral to the entire buggy argument, it seems worth while taking a few seconds here to foreshadow them. There's another advantage for this here. Once you've read these foreshadowing comments, you'll be better armed to follow the twists and turns of the substantive argument that unfolds today in parts one, two, and three.

4) What explains the failure of the statist-capitalisms in Japan and the EU continental countries to adapt their economies to the jolting, high-tempo changes in global capitalism that won't go away --- just the contrary? Part four, which starts the follow-up article, tackles the problem from a new slant in this series using a Schumpeterian analysis. A great Harvard economist of the 1930s and 1940, Joseph Schumpeter has recently garnered the recognition he deserves as the pioneer theorist of long-term economic growth that, he argued, is driven by three over-powering influences:

1. Revolutionary technological breakthroughs, which come in long-term waves --- roughly every 50-60 years since the start of the industrial revolution in the late 18th century --- and radically alter the ways in which humans work, live, and spend their leisure; and for that matter (something Schumpeter himself didn't elaborate on) alter the distribution of global power among potential great powers. The latest wave of radically restructuring innovations started in the early 1970s, with big advances in computers and later software that have revolutionized information and communications technologies in both the civilian and military sectors.

2. Bold, risk-taking entrepreneurs --- obsessed with dreams of glory and success (exactly like great athletes, scientists, scholars, artists, inventors, and other unusually talented mold-breakers) --- who dedicate their lives to creating and then expanding new start-up businesses that will bring the technologies successfully to the market-place. Think of Henry Ford and Andrew Carnegie and the moguls who built the Hollywood movie studios of the interwar period, or more recently Bill Gates as well as the founders of Intel and Amazon and Google and --- on a more prosaic level, but no less fundamental in their impact --- of McDonald's, Dell Computers, WalMart, and Costco.

Such risk-taking entrepreneurs haven't appeared in West Europe for decades --- most likely the risk-takers in Europe having long departed for the New World in the 19th and early 20th centuries; and the ones who stayed on, Jews and other outsiders, were probably killed off in the Nazi Holocaust. In place of risk-taking and compulsive dreams of success, what seems to prevail in the EU-15 today is a vacation-ethos that shapes the life-style of almost everybody, from bureaucrats and shopkeepers all the way through corporate, media, and university hierarchies. Two other dominant attitudes seem to jostle for center-stage in West European outlooks these days. One is an all-pervading anxiety about the future of their countries, not just economically, but culturally and politically as the largely alienated Muslim populations continue to swell in size while native European populations are shrinking demographically. The other adds up to a dreamland expectation that EU governments will be able to protect the existing economic status quo while somehow reviving their countries' economic vigor and competitiveness . . . at any rate if only the right political leaders could be found.

Those who wonder why so much anger and defiance of their mainstream political and bureaucratic elites were on display the last few days in France and Holland --- where large majorities told them to bug off in the referendum-vote on the new EU Constitution --- will find the root-causes in what we've just said . . . provided you add one more large source of anxiety among the European populations, Britain included: the huge surge of violent crime in Europe over the last two decades. Few Americans appreciate how scary this has been for Europeans. New York is now one of the safest cities in the world. The same is true of almost all big American cities these days, and the level of violent crime in this country places it in UN studies toward the bottom third of industrial countries. Australia and Britain are at the top, and most of West Europe place higher than the US too. So far, with a few faltering efforts, the mainstream politicians and governments in the EU have done little more than cluck-cluck and finesse these fears. The outcome? A big opening on the right for populist parties, including radical and racist ones like Le Pen's National Front in France.

For what it's worth, these same UN studies --- carried out every 4-5 years by a Dutch university team that uses sample surveys to probe the numbers of crime-victims across countries (a far more reliable measure than official crime statistics gathered by police forces) --- show that Americans are far and away the most confident of 25 or so industrial countries when it comes to going out in public places and having confidence in their police.

As for Japan, to return to our main theme here, new successful entrepreneurs haven't had any economic impact for decades either. In typical Japanese fashion, giant corporations tried instead to foster start-up spin-offs within their existing hierarchically structured organizations . . . a tactic also emulated by many EU companies. The result was predictable: total failure.

The consequences for Japanese and EU innovation have been marked and multiple. Big established corporations, to put it bluntly, have huge vested interests in perpetuating their own corporate status quo, and what follows for the national economy is fully predictable: without bold entrepreneurs to create new start-ups that will bring any revolutionary technologies successfully to the market place --- never mind create swarms of new jobs --- a country's economic status quo will harden all the more. By contrast, a good 75% of the existing Fortune 500 Companies in the US didn't even exist 30 years ago.

3. Schumpeter's third insight about long-term economic growth, which --- as it happens --- turns out to be the most relevant for our buggy purposes to explain why the English-speaking market-oriented countries have so noticeably outperformed their rivals that adhere to a state-capitalist system: specifically, the forces of creative destruction.

Meaning?

Simply said, the need of capitalist economies --- however wealthy or poor --- to let old and uncompetitive firms and industries run down or go bankrupt in order to free enough capital and human talent for new, more promising industries and firms, closer to the technological frontier, to take root and expand within the national economy. If they do adjust fairly quickly (jarring dislocations and all), then the national economy of a rich country will likely emerge reinvigorated and remain competitive despite its high wages compared to dynamic developing countries. If they don't adapt easily, then . . . well, they'll end up overwhelmed by mountains of market inefficiencies and experience the kinds of economic problems that the statist capitalisms of Japan and the EU countries exhibit these days in all directions.

5) The final task --- which, to repeat, will unfold in the follow-up article --- can be quickly sketched in. Thanks to our Schumpeterian analysis, we'll be able to probe more deeply the tenacious defenses that statist capitalisms have erected around the political and economic status-quo to blunt and resist the forces of creative destruction.

The earlier buggy articles showed that the failures to of Japan and the EU countries to overhaul and adapt their national economies to the powerful and relentless changes afoot in global capitalism --- one surge after another of revolutionary technologies, the fast-moving tempo of globalizing forces, and radical shifts around the world in economic dynamism (especially the emergence of new industrial competitors in Asia) --- reside largely in the ways in which statist-capitalisms are organized institutionally and ideologically, the two going hand-in-hand. In such systems, political logic turns out to trump economic logic; and more to the point, political calculations and maneuverings --- by governments, by politicians in opposition, and by a vast array of powerful private and semi-private vested interests lodged within the national economy that have clear political clout (not to forget the majority of the electorate) --- dominate the logic of market incentives and adaptation to the radical changes going on in global capitalism.

A Schumpeterian analysis illuminates this political logic in penetrating ways. The interactions of politicians and political parties anxious for electoral success on one side and electorates and huge vested interests on the other are what underlie the resistance to creative destruction in Japan and the EU Continental countries, in the upshot of which an increasingly ill-performing economic status quo is maintained and resistant to necessary fundamental changes.

Note quickly. Political calculations and maneuverings within the market-oriented English-speaking countries are no less marked by self-interested politicians and powerful vested interests that seek to defend the status quo. That's obvious. It's inevitable. People's self-interested behavior doesn't change when they switch from the private to the public sectors. Even so, these countries have one big advantage in adjusting to unremitting changes in their economic environment, technological or otherwise: their different ideological and institutional heritage limits the scope of politically inspired, invariably short-sighted policymaking to resist the high-pulsing forces of creative destruction and radical economic change.

Part One:
THE TWO DOMINANT MODELS OF CAPITALISM CLARIFIED

In earlier buggy articles, as you might recall, the two ideal-type models of capitalism --- the statist-capitalisms of Japan and the EU Continental countries and the market-oriented English-speaking capitalisms --- have been discussed at length. What needs to be done here is to deepen the analysis of each, and that means essentially two things: 1) showing what the countries that adhere to one or the other economic system have in common despite some variants in each group, and --- more important still --- 2) showing how the two groups nonetheless differ in fundamental ways.

This is the 3rd buggy article published here since prof bug came back to the site earlier this month. If it interests you, you'll find an explanation in that article --- published May 3rd, 2005 -----click here. It should set you straight on the topic.

What We're Up To Today

Our argument today continues the mini-series started on May 3rd that deals with the role of institutions and ideologies --- the two interacting and mutually reinforcing --- in accounting for the superior performance of the US economy over the last century or more, always viewed in comparative ways. Compared with what precisely? The answer: with the statist-capitalisms that prevail in Japan and the EU-15 countries on the Continent. Yes, there are some noticeable differences between Japan and the EU Continental countries, just as there are some variants of the advanced regulatory and welfare-state economies in West Europe. Seen in comparative terms, though, those differences pale if these statist-economies are set against the capitalist model that prevails in the English-speaking countries --- Britain, Australia, New Zealand, Canada (to an extent), and above all the US itself --- all of which have more market-oriented economies.

The nature of the two systems was delved into at length in the previous two article. For present purposes, it should be enough to remind that what the underlying . . .

. . . Logic of The Two Systems Is:

In statist-capitalisms, remember, states dominate markets, and the logic of politics and hence political calculations and maneuverings trump the logic of market incentives and market adaptations to radical changes of all sorts ---- whether caused by revolutionary technologies, swift-moving globalizing forces, the surge of dynamic competitor countries in Pacific Asia and India, or vrious disruptions and dislocations in the global political-power system. Simplifying considerably, market-oriented economies can be said to reverse this causation. Not that politics doesn't play a role in economic life. Obviously it does. Probably only Britain in the mid-19th century was ever a strictly laissez-faire system. For that matter, a regulatory apparatus and a minimal welfare state exist in all the English-speaking countries --- more so in Canada than elsewhere --- thanks to almost 4 decades of unbroken rule by the Quebec-based Liberal Party --- and slightly more so in Britain than in the US, New Zealand, or Australia.

Even so, the logic of market incentives and adaptations tends to be the prevailing force behind economic adjustments to the sorts of radical changes just mentioned.

Something Else: The Key Topic in This Mini-Series Is A Problem for Mainstream Economics

Of those English-speaking economies, all of which have improved their economic performances compared to the statist-economies since starting a long cycle of deregulation and limiting government spending --- including efforts to reform or hold back welfare expenditures --- back in the early 1980s except for Canada, the US stands out for its economic dynamism, innovative capabilities, and unmatched levels of per capita income and overall productivity levels. As we saw in the 1st article published on May 5th, American per capita income is roughly 55% higher than the EU average or Japan's. What's more, contrary to convergence theories of catch-up growth --- explained at length in a few moments from now --- that US lead is roughly what it was in 1905 over West Europe and in 1970 for Japan.

How is that lead possible? What underpins it?

Answering these two questions is what this and the next article in the series intend to do, stressing --- as our wider series on the performance of the US economy that goes back 10 months now to last July has tried to show --- the pivotal roles of economic and political institutions and ideologies in explaining the superior US performance. More to the point, today's article clarifies the nature of the problems that the persistent American lead creates for mainstream growth theories in economics.

A Schumpeterian View Looms Next

The next article --- already done, just needing HTML formatting to be published --- will then tease out all the findings and implications in the first 3 articles, today's included, by shifting our focus to look at the logic of the two capitalist systems in Schumpeterian terms.

Above all, in that follow-up argument, we'll be applying Joseph Schumpeter's insights into the role of creative destruction in driving technological progress and economic growth forward in those economies that allow their status quo to change quickly --- for all the dislocations and turbulence that ensue --- in order to adapt to revolutionary new technologies and the related dynamic forces of rapid-moving globalization. Meaning what precisely? In plain, pared-down terms, creative destruction means that radically restructuring technologies can't implant themselves powerfully in a national economy unless old standardized industries and firms --- manufacturing or service or agricultural --- are allowed to restructure and shrink drastically or even go bankrupt in order to free enough capital, entrepreneurial energies, managerial talent, scientific and engineering talent, and skilled workers to create new, up-to-date firms working on the technological frontier and expanding as fast as they can . . . both in the domestic market and abroad. In the process, dislocations and turbulence will mark the transition. Painful bankrupticies and restructuring of old firms and even whole industries will multiply and shoot up in all directions. Lots of the work force will have to be retrained. If the transition's successful, all sorts of growth-enhancing spillovers will occur in a national economy that adapts this way . . . at any rate, once the new promising firms and the restructured old ones that remain competitive learn to make good use of the new technologies.

It's the major way --- maybe the only --- for wealthy industrial economies with high wages and incomes to rejeuvenate themselves and spring and vault briskly into the future.

Note in passing. For Schumpeter, creative destruction can't work effectively unless the economic status quo is flexible and --- no less important, a huge drawback for Japan and the EU countries --- there is ample scope for the raw, raucous energies of glory-minded entrepreneurs to create new start-up firms that will bring revolutionary technologies successfully to the market-place. These radically restructuring technologies --- which change the ways we live, work, and spend our leisure, not to mention their impact on the distribution of global power among large countries --- erupt in long waves every 50-60 years. We're now in the midst of the 5th wave since the 18th century's industrial revolution, the 3rd, 4th, and 5th waves dominated by the US. The 5th wave started in the 1970s. Huge breakthroughs in communications and information technologies began to erupt on the scene, followed soon afterwards by radical developments in biotech. Nanotechnology --- which seeks to work at the molecular level of materials --- is the next breakthrough on the horizon, part of the ongoing wave (possibly never to end) of revolutionary innovations in a knowledge-based economy.

In all these waves, the giant pioneer firms that came to dominate the global scene all began as entrepreneurial start-ups. The 5th wave is no exception. A good 75% of the Fortune 500 American Firms these days didn't even exist 30 years ago. In the statist-capitalisms in Japan and the EU Continental countries, by contrast, the equivalent ranks of giant companies have remained virtually unchanged over the same period . . . an occasional Nokia or S.A.P. or Airbus (the latter heavily subsidized by 5 EU governments) the noticeable exceptions in all senses of the term. Whatever their achievements in the past, these statist-capitalisms have apparently run out of unruly, risk-taking entrepreneurs . . . the status quo in Japan and the EU Continental countries tenaciously manned and guard-dogged by worried, anxious managers, workers, politicians, and vested interests galore.

It gets worse for them.

In particular, whatever else we know about big established companies, their ability to innovate radical technologies that challenge their existing production processes --- themselves guarded by vested interests galore at all levels of management and throughout almost all their sub-divisions --- is noticeably limited. Not all are sluggish and overly bureaucratized, but most are; and even those that aren't --- think of IBM, dominant in pc's at the start of the 1980s --- can't spin-off new start-up divisions that take over capital, talent, and time from top management with ease. For 15 years, both huge German and Japanese companies tried that route in ICT, their countries drastically lacking entrepreneurial energies and risk-taking. And for 15 years, they have been blatant flops.









 

PART ONE:
WHAT ACCOUNTS FOR THE HUGE AMERICAN LEAD IN PER CAPITA INCOME, NOW A CENTURY OLD BY NOW?

One Thing For Sure, Standard Economic Growth Theories Aren't Much Help Here

On the contrary, they all postulate various kinds of convergence catch-up growth, and that means the rich lead-country on the technological frontier will sooner or later have its lead cut or disappear entirely, with all countries --- at least those whose populations have good enough skills to work with modern technologies (plus one or two other things according to the theorist in question) --- playing catch-up growth and ending up at roughly the same levels of productivity and per capita income.

Convergence Theories

There's actually a variety of convergence theories, but they need not concern us here other than to list them briefly and draw one clear inference for our own purposes:

• unconditional convergence: just mentioned, all countries end up in a long-run steady state of economic growth where they have similar levels of productivity and per capita income;

• conditional convergence: countries will have different long-run levels of per capita income and productivity in the steady state of economic growth, but similar growth rates;

• conditional or unconditional convergence limited to certain countries: those, to be more precise, whose populations are educated and skillful enough to work with modern technologies that they can import and diffuse through their economies;

• and country-specific long-run growth rates and per capita income and productivity levels: it all depends on certain auxiliary (pre-) conditions, mainly market-oriented government policies, legal protection of private property, and political stability.

The one inference we can draw? When it comes to dealing with the advanced industrial countries --- the EU-15, Japan, the US, and Australia, Canada, and New Zealand --- unconditional convergence ought to apply to them. That's the general consensus, not only among growth theorists, but the media everywhere and politicians apparently in Japan and all over the EU. All these countries qualify for membership in the convergence club; they all grew faster at times in the 20th century than the US itself; they all have educated, skillful populations; and they all satisfy the pre-conditions for sustained catch-up growth. Meaning? In shorthand terms, it refers to a variety of economic opportunities for follower countries to grow faster than the rich lead country and close the gap with it in the levels of per capita income and productivity.

Catch-Up Opportunities Clarified

This is the second article published since prof bug's return to this site on May 4th, 2005. If it interests you, you'll find an explanation in that article --- just below here --- for his long absence. Whether you read that explanation or not, what follows here will make more sense if you've at least looked over the substantive argument unveiled in that article. Toward the very end of today's follow-up analysis, you'll find an hilarious exchange between an American financial specialist who heads a dynamic, unusually successful hedge-fund and a half-British, half-French financial specialist whose own company in London just went belly up and wants a job with the American one. It's not just rollicking in its funny sarcasm --- on the American side --- but a vivid illustration of the huge gap in outlook and expectations that divides average Americans and Europeans about professional life and the work-ethos.

In the meantime, here are some buggy comments to help situate the exchange in a wider economic and social context.





What We're Up To Today

In the previous article, you'll recall, prof bug continued the ambitious, stretched-out series --- now in its 9th article --- on US ideologies on both the left and right: how they're unique; how they differ in the concrete from the dominant political heritages in Japan and the Continental EU-15 countries; and how --- the real payoff here --- they've shaped far different kinds of capitalist economies.

Those in Japan and in the EU-15 (aside from Britain) are statist-capitalisms, in which politics trumps economics, and the logic of political calculation and maneuvering dominates the logic of market incentives and adjustments to necessary changes --- whether to radically new technologies or to relentless, fast-moving globalizing forces --- that any economy has to undertake, sooner or later, to stay vigorous and competitive. No surprise really. Not, at any rate, where political calculations intrude and overwhelm the logic of market-oriented refoms. Politicians, after all, want to get elected, and their supreme guiding rule is easy to set out: if in opposition, get elected; if in power, get re-elected. It's that simple.

What follows?

The second a Japanese or EU-Continental government proposes major changes in the status quo, it faces the prospects of big backlashes in public opinion and mounting auguries that it will be punished in the next election. Until then, meanwhile, powerful vested interests that man and guard the existing status quo can be counted on to engage in their own backlashes . . . not excluding strikes, mass rallies, growing social conflict, and worse.

Exceptions?

Once in a while, it's true --- almost always in their last term in power, amid clear signals of an impending crisis --- a Prime Minister or a President might embolden himself and propose a tough-minded change in economic or social policy.

Chancellor Gerhard Schroeder in Germany, after frittering away 6 years of reform-possibilities, recently summoned the courage to overhaul his country's extraordinary featherbedding unemployment rules --- in the process of which he had to cut himself loose from his position as head of the Social Democratic party, so infuriated were the ranks of party members and activists. As a result, Germany is now about 15% of the way toward the finishing line: a rejuvenated, competitive economy, not that Schroeder has bothered explaining this to the German people, who --- after being beguiled and duped for a good 3 decades now by German governments of every hue --- expected miracles to occur the second the reform of the unemployment system went into effect. Bread-and-circus rhetoric, plus heads-in-the-sand denials, seem to mark almost all the social and economic policymaking in the EU for the last 20 - 25 years, whether on the national or regional levels.

In Japan, where there is no organized opposition, Liberal Democratic Party governments --- if anything --- outdo their EU counterparts in systematic denial, the tendencies here aggravated by factionalism in the party itself . . . not over policy matters, rather over which faction is on top and which pork-barrel handouts will be put in its members' hands.

Here, oppositely, President Bush --- convinced somehow that a tiny majority in the last election gave him political capital --- tried to prod Congress and the American people into believing that a Social Security crisis looms in this country (it doesn't) and hustle both into accepting a full-tilt privatization scheme. Fortunately, in this case --- as with Hillary Clinton's health scheme 12 years ago --- the US system is structured to frustrate a sweeping ill-thought change of the status quo. Our status quo is hardly perfect. There are problems with our health system, but a proposed fix like Clinton's would have been disastrous. And there will be problems with social security, but a good 35-40 years down the road. That leaves plenty of time for incremental adjustments in social security taxes and benefits, all depending on the state of the economy over the next four decades.



PART I
THE RESULT?

After 60 years of political and bureaucratic dominance, the statist economies of Japan and almost all the EU have buried themselves under heaped-up piles of market inefficiencies --- almost Alpine-size in height and jagged ridge-line--- that will require excavation projects on a heroic scale if they're ever to restore economic vitality and competitiveness. Will the projects materialize? Not likely; certainly not easily.

Then, too, those on the Continent of Europe who hope for a major excavation-specialist on the order of Margaret Thatcher to emerge in their countries will likely be looking in vain for a long long time; maybe always. British ideological conditions --- especially the heritage of a liberal (read: laissez-faire) economy of the 19th century have no counterpart on the Continent, let alone in Japan. What's more, Thatcher herself came to power by accident: the Conservative Party needed a new leader in the last 1970s, and the two lead candidates stalemated one another. In the upshot, she was given the leadership of the party, and scarcely any of the members in the Parliamentary party that chose her had any notion that she would prove to be the most radical Prime Minister in modern British history. Then, too, as a final difference, public opinion in Britain had grown contemptuous of the powerful trade-union leaders, who had emerged looking like the caricature played so brilliantly by Peter Sellers in a film of the late 1950s, I'm All Right Jack.

Above all else, as you'll see in a few moments, the existing Japanese and EU Continental populations are far more attached to their status quo than the British were in the 1980s. The former needed a large regulatory-and-welfare state, and they still do. As much as ever; maybe more so --- at any rate compared to any other period since the mid --- 1950s, and for a simple reason:

Economic costs and dislocations are bound to shoot up and multiply in every direction irrespective of what governments do or don't. The rapid shifts in economic dynamism, together with other globalizing forces, make that bet on the future a certainty. And in the EU, if not necessarily Japan, all these turbulent shocks will be aggravated by another near certainty: growing social strife and a swerving toward ideological extremism, especially on the right in almost all the EU countries on the Continent, made all the more turbulent and even possibly violent by mushrooming conflicts between the shrinking native-born European populations and the rapidly expanding Muslim minorities . . . more and more alienated and at odds with the post-modernist trends that continue to mark West European social and cultural life.

And there's more. Right now in 2005, violent crime has been soaring in the EU and making it a frightful prospect for average Europeans to go out at night in most cities. Typically, it's one more disturbing trend that the average EU government has preferred to sidestep and lather with reassuring rhetoric rather than confront head-on . . . much to the benefit of right-wing extremist parties, who fill the void in the political spectrum here.

The Near-Future Prognosis

No one should deny what the stakes are here, much as governments, opposition parties, and the EU media tend to do, evasion and the soft-soap treatment part of their operational modus vivendi. Still, now and then, an unflinching, hard-headed appraisal of the EU's economic and social prospects comes to light. One appeared last fall. It came from Wim Kok, a former Dutch Prime Minister who headed a team of 13 experts commissioned by the EU to look in depth at its economic problems and prospects. What they found shook them all, Kok definitely no exception. When his team's lengthy report was ready for publication, he observed to the EU media that without radical economic changes in the EU countries . . .

*A series of "devastating effects" might follow, including institutional "contraction and decline" on the regional and national levels alike. "In sum, Europe has lost ground to both the US and Asia; its societies are under strain; and some ugly forces are beginning to manifest themselves."

*If these trends continue, then "what is at risk ... is nothing less than the sustainability of the society Europe has built and to that extent, the viability of its civilisation".

Kok himself has subsequently come out for a massive switch in the EU-15 to an American style of capitalism. That, of course --- for reasons familiar to all buggy readers --- is a no-go in the European Union (or Japan). The populations there wouldn't like it, wouldn't accept it, and wouldn't tolerate governments aside from Britain's that would push for it.

The latter point is pivotal. It's worth repeating, and it will be later on here. Grasp it, and you'll be a long way toward understanding the dilemmas and trimming evasions that mark the EU governments' various approaches to their swarming economic troubles.



Part II:
THE AMERICAN CONTRAST

Unlike Japan and the EU countries on the Continent, the US political system is uncommonly decentralized, and in Washington D.C. there is a separation of powers that hems in that hems in the development of a large centralized state. If you ask why, the answer is simple. It reflects a strong ideological thrust in American politics going back to the first days of the US Constitution.

And Since 1789?

Obviously, history didn't stop in that year. Over the last two centuries, both the US left and right have been overwhelmingly reformist and pragmatic, largely accepting American capitalism as working in the interest of the great masses of people.

An unusually high wage level for unskilled labor from 1789 was one reason; another was uncommonly widespread property distribution; and a third was the most equitable income-distribution in the industrial world right down until the 1970s. A fourth reason has been a very high standard of living standard, so that if the EU-15 were suddenly to join the US federation, they would on an average be ranked the 5th poorest state in the union --- just ahead of four rural, non-urbanized, non-industrialized ones: Mississippi, Arkansas, West Virginia, and Montana. All this helped to generate a reformist attitude toward capitalism of a pragmatic, non-ideological sort on the US left, otherwise totally immune to Marxist and other socialist appeals.

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.

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.