And the second aim?
Well, it's far more ambitious, even if the current article does little more than do some scene-setting for what will follow next in the series: the role of political ideologies in influencing how a national economy like the US's --- or Japan's or West Europe's or any other country's --- operates, particularly in shaping the interaction between the public and private spheres. That interaction, in turn, will heavily influence the flexibility and innovative prowess of a capitalist economy.
As you'll see, the two aims in this article hook together. With a sort of English spin on the analysis, let's begin with the second of them.
Part One:
THE SECOND AIM CLARIFIED: POLITICAL IDEOLOGIES AND DIVERSE ECONOMIC MODELS
State-Market Linkages
Consider the following diagram.
Oversimplified as it is, it's a good jump-off point to resume this series on the US economy. What it does is situate various real-world economies on an institutional spectrum running between two poles: total free market economies and total statist dominance. In turn, as we'll see in a moment or two, where any one national economy is found on that spectrum reflects the clash of dominant ideologies, historically and at present, that have influenced a particular country's economic and political development. If the US economy is unique in certain key respects --- especially the lack of historical hostility to capitalism here and an entrenched suspicion of big government --- it's because it has also had a far different history of state-and-society relations than Japan or West Europe, to take the two other major countries or regions of highly developed economies, and a far different ideological heritage that emerged out of those relations.
Britain, Australia, New Zealand, and Canada, as it happens, are the closest to the US on these scores, but there are still differences between those four and this country that this and the next few articles will try to explain even if it's possible once again, since the Margaret Thatcher era in Britain of the 1980s, to speak of a common Anglo-American form of capitalism.
| Statist Dominance | Communism / Asian Capitalism / EU Welfare State / US & UK | Free Markets |
|---|
Some Clarifying Remarks
Start with the right side of the spectrum. A totally laissez faire market economy doesn't exist these days, at any rate since Hong Kong was taken over by mainland China in the late 1990s; probably only Britain in the 19th century --- especially after shifting to free trade in the late 1840s --- approximated it among all major economies. That said, the dominant Anglo-American model --- which includes not just Britain and the US, but Australia and New Zealand --- is found close to that pole. Canada, as we'll see, historically hewed to that model until the 1960s. Since then, thanks to the almost unbroken dominance of the Liberal Party --- its bastion in French-speaking Canada --- the state sector has mushroomed to the point that overall government spending is almost indistinguishable from the levels in the EU. By contrast, Britain, Australia, and New Zealand --- all three of which were moving in the advanced EU welfare-state direction until the start of the 1980s --- have markedly reversed direction: cut taxes, cut regulations, and severely prune transfer payments and subsidies. The result? As we'll see in the next article, overall government spending in the three countries is closer to the US level these days than to the EU's.
Jump now to the opposite end of the spectrum, an economy totally dominated by statism . . . to the point that private property doesn't exist and the state seeks to plan and control everything in the economy and for that matter in society and politics. Think of Stalinist Russia or Maoist China in the past or North Korea today, the only Stalinist-Maoist communism around: all brutal, mass-murdering totalitarian systems. By contrast, despite their CP rule, Castro's Cuba and Vietnam these days are actively seeking multinational corporations to install and operate in their countries.
In between the two poles, moving leftward from the US-UK model of free markets, you'll find the dominant EU Continental welfare-and-regulatory state. It reflects a pattern of state-economy interaction that entails far higher levels of taxation, government spending, transfer payments, and regulations of business and labor activities. Support for the model is heavily entrenched in Social Democratic, Green, and Communist parties on the left, as well as among mass trade unions in the public and private sectors. On the right, the dominant form of conservatism is Christian Democracy by whatever name in the Latin Countries, or statist Gaullism in France, or paternalist conservatism of the sort that prevails in Scandinavia. For reasons of both social peace and stability, this European conservatism has done little when in power to reduce government spending, taxes, or welfare transfers; and on top of that, almost everywhere except in Holland and Scandinavia, conservative political parties have been wary of free trade with developing countries in manufacturing or agriculture.
The Asian Model
Closer to the statist pole is the remaining system of economic organization --- the state-led developmental model pioneered by Japan in the 20th century, and subsequently copied to a large degree by South Korea and to an extent other Pacific Asian capitalisms.
In this model, almost all businesses, especially the giant corporations, remains in private hands. To that extent, the system is capitalist. But though taxes and transfer payments are lower than in the EU welfare-state system, there is a much greater suspicion of free markets and free trade; and bureaucratic regulations, subsidies, and industrial targeting are lavishly used by the state despite some reforms of a market-oriented sort, introduced recently, that aim at reigniting dynamic economic growth. Simultaneously, the central bank in this Asian model has been much more involved in allocating savings for investment purposes and restraining mass consumption. In both the private and public sectors, all sorts of limits exist on import competition, and there abound all sorts of incentives to encourage exports and export-led economic growth.
Nor is that all. All over Pacific Asia, including Japan, various forms of cronyism have existed between politicians and bureaucrats on one side and big business and finance on the other --- the entire system riddled, historically, with massive corruption and clientelism that has favored authoritarian or one-party democratic rule. There are some changes here, especially in the democratic openings in Taiwan, South Korea, the Philippines, and Thailand since 1997 --- all to the great credit of the Asians themselves. Still, cronyism is built into the institutional structures of such a model, and major reforms that open up financial and business firms to public scrutiny have generally failed everywhere. Even in politics, transparency and accountability are far from what they should be if these countries are to regain economic dynamism of the sort they enjoyed from the 1950s through the mid-1990s.
The Asian Model At An End?
On all these scores, the Asian model amounts to a statist form of neo-mercantilism. . . . a policy of preference for exports over imports, production over consumption, and government encouragement of technological advance either directly or indirectly, with crony contacts and various degrees of corruption part of the accepted ways of doing business. Whether industrial targeting of this sort has ever worked effectively is another matter. Even if it did so in the early stages of industrial development, it's clear that in Japan since 1980 or so and South Korea since 1997, such industrial targeting --- along with the lavish use of subsidies, regulations, import restraints, and bank-dominated investment for industry --- has created a tiny Mt. Everest of market inefficiencies and dislocations that have smothered economic growth and dynamism, with no clear end in sight to the problems that afflict both economies.
The Chinese Model
Communist China's epochal transformation since 1979, it seems, aims developing over time a form of South Korean statist capitalism, at any rate of the sort that prevailed during the 40-45 year rule of the military and its political allies: corporatist and authoritarian, with the state role withdrawn from day-to-day running of the economy that will be left largely in private hands, but with a privileged role of access to the centers of political and bureaucratic and power for a few hundred giant corporations and their owners and managers. The hope, apparently, is that despite market-oriented reforms, the dominant Communist leadership will still be able to control the commanding heights of the Chinese economy that such a corporatist form of institutional organization would entail.
In particular, as in South Korea during the days of military rule, there would be massive industrial targeting and a heavily skewed form of capital investment that the Central Bank and a handful of large private banks would allocate for preferred corporate clients. The rest of the economy will be largely left to fend for itself, whether small or mid-sized firms or the labor force. Politics will remain authoritarian, even if degrees of free expression and elections to a rubber-stamp parliament are eventually introduced.
Whether China's CP rulers can make such an economy function with dynamic growth potential is another matter.
At some point, even South Korea's massive mountains of market distortions and inefficiencies brought the economy to a grinding halt in the late 1990s, since which time the economy has struggled to regain renewed vigor . . . this, mind you, in a democratic era and in a country of 45 million. China has 1.3 billion people, and a huge sprawling bureaucracy and tens of thousands of state-owned enterprises still. These are huge obstacles. Another barrier looms no less large. South Korea's authoritarian capitalism was dominated by a few generals and politicians, with wider links to a few hundred corporate heads. China, by contrast, has a Communist Party of 60 million people, with nearly two million full-time CP bureaucrats running the party and the government. All are privileged --- not just the CP apparatus-members; corruption and wealth-making are rampant; and at the top huge power and opportunities for family members becoming multi-millionaires on a vast scale.
Enter the biggest barrier of all to the CP's ambitions: the built-in conflict between such authoritarian control and the freedom needed, political and economic, that underpins a flexible, innovative economy of the sort that the US-UK model incoporates and the more reform-minded Scandinavia, Dutch, and Irish economies in West Europe. The more a modern rich economy is a knowledge-based one, the more freedom and decentralization --- with a big support for entrepreneurs, invention, and innovation --- are essential to economic success. If Japan and South Korea with their impressive technological talents, hard-work ethos, and high levels of savings and investment have been unable to move beyond their statist systems, how much more unlikely will it be that China's CP-dominated polity and bureaucracy will be able to transform China into a rich, innovative economy of a nimble sort that can adapt effectively to constant technological change and shifts in globalizing dynamism?
All these matters --- where countries economies are located on the spectrum --- reflect the impact of politics, both institutions and above all ideologies. And that brings us smack up against the theme that will dominate the next article in this series, and probably several others: the unique ideological heritage of the US, compared even with Britain, Canada, Australia, and New Zealand.
Part Two:
THE SECOND AIM FURTHER CLARIFIED: AMERICAN EXCEPTIONALISM
US Ideological Uniqueness
Recall what the 10th article in the series, back in August, dealt with and established. It showed that intellectuals almost everywhere, whether on the left or right, have been traditionally hostile to capitalism. It also showed something unique to the US, even compared to Britain, Australia, New Zealand, and probably Canada historically: that intellectual hostility has been far more muted here than elsewhere, and not just among intellectuals but in political parties and among the broad public.
Even to talk of hostility is probably to overdo the muted nature of American ideological disputes over economic matters, at any rate since the end of slavery and the destruction of the antebellum South by 1865.