The case for collaboration

...Without cooperative planning for these changes within firms, the impact on our lives could be extraordinary...

...We have learned from the bitter experience of the 1960s that fiscal stimulus can be excessive and inflationary if not planned correctly...

...Now, Congress is forced to draw up a budget and to debate not only the merits or demerits of a particular item in isolation, but to set a limit on the total and to debate tradeoffs...

...This prompted John Maynard Keynes to say that "in the long run we are all dead...

...Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back...

...They were horrified with New Deal interventionism and held out for reliance on automatic market forces as the solution...

...When these groups are successful in forestalling change, the consequence is a sort of "lemon capitalism" in which inefficient industries and firms are protected behind tariff walls, quotas, and price supports, and there is little, if any, incentive for cost-cutting or productivity improvements...

...But adaptation to these changes has necessitated large structural realignments that have created serious economic and social dislocations which have met with great resistance...

...There are usually always losers when strictly market forces arc at work — from farmers who arc hurt by falling food prices, to workers in heavy "smokestack" industries who are affected by the rcallocation of domestic production to high-tech products embodying new skills and capital equipment...

...already has sectoral policies — a few successful, most problematic...

...When markets fail and governments intervene, the shrillest voices and those with the most money and greatest political clout will reap the greatest rewards unless interventions are guided by a plan...

...We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessity but of their advantages...

...Until fairly recently, decisions on various categories of public expenditure were highly dependent on the power of the particular member of Congress who chaired the relevant committee...

...The maxim is so perfectly self-evident that it would be absurd to attempt to prove it...

...I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas...

...The question facing economists is not whether markets work, but rather whether we are in a time when market failures are so serious as to necessitate a different way of setting economic priorities and of guiding economic decision-making...

...And markets often are able to adjust to change quickly and costlessly...

...Economy,".has been its call for various levels of cooperation and collaboration to address and redress some of the structural problems we face...

...Despite the fact that vested interests in our political system together with the imperative of social justice (that forms the political mandate in our society) continually force government to respond to the adverse consequences of market forces, a strong intellectual appeal to laissez-faire liberalism remains...

...Take the rise in energy prices...

...Beginning in the 1970s, there has been a new interest in government's role in the economy, stemming largely from structural imbalances that have become increasingly severe...

...There was no central allocation scheme, although there was a majpr new role for the federal government in directing the macroeconomy...

...Extended to the private sector, a similar national forum could help establish and crystallize priorities...

...While some of the reaction to the suggestion that economic planning might be desirable within free-enterprise capitalism has been to misinterpret the intent of the bishops' message (they explicitly rale out endorsement of a highly-centralized form of planning), nevertheless, the bishops are proposing a departure from pure laissez-faire, market-oriented policies...

...Today per capita real income is lower than it was in 1977, despite the fact that our economy is growing rapidly...

...21 June 1985: 367...

...Sometimes, policy makers at the national level concoct schemes mat look workable and humane on paper but are unacceptable to those who would be affected by the policies...

...For instance, when the freeze in Florida ruined the orange crop, orange juice prices rose and people switched to lesscostly breakfast drinks...

...President Roosevelt's New Deal represented a massive effort by the federal governCommonweal: 364 ment to create jobs amid widespread unemployment running at roughly 25 percent...

...What is lacking is a guiding set of objectives precisely for the industrial structure of the economy...

...and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer...

...There are fundamental ethical principles that go beyond economics: the right to a job in a society that values work, to a decent level of material well-being in a society that values consumption, to an equitable income distribution...

...Another problem is the tendency for political interest groups nancy s. BARRETT is professor and chair of the department of economics of The American University in Washington, She has served on the senior staff of President Carter's Council cf Economic Advisors and as Deputy Assistant Secretary of Labor for Policy Evaluation and Research...

...Inequality, unemployment, excessive and counterproductive competition in international markets have been unacceptable by-products of a market system...

...Despite the fact that our economy is very different from that in Adam Smith's time, and our social goals and political institutions have changed, we look to competition rather than cooperation as the preferred mechanism for insuring efficient and equitable resource allocation...

...Not only was Keynes able to show mathematically that unemployment is possible, but he developed a systematic fiscal policy model that could guide policy makers in determining the correct amount of stimulus to balance an economy's wave-like rises and falls...

...And the use of computers enables employers to monitor workers' output in new ways...

...Cooperative efforts might actually help markets to work better if such efforts could garner community support and advice that would facilitate adjustment to change...

...Sometimes market outcomes have unacceptable distributional consequences...

...Practically all economists agree that markets are extremely efficient institutions for allocating scarce resources...

...We must begin to reorder our economic priorities on the basis of these moral principles and develop cooperative institutions to implement them...

...In 1974, the passage of the Budget Control and Impoundment Act changed this procedure...

...Some historical context may be constructive...

...Thus, we impose anti-pollution regulations on our steel and automobile industries without a guiding set of objectives for those industries...

...What inconsistencies are present in our regulatory policies in transportation, food, high tech, and other industries...

...It is sometimes argued that the U.S...

...there was no socialist revolution that changed the private property system or overturned the social order...

...We compensate for the adverse effects of these regulations by a system of trade protection, again without coordination...

...Indeed, the world is ruled by little else...

...a concern with social problems that includes alienation and frustration...

...There is a final aspect of collaboration described in the bishops' pastoral which deserves fuller discussion — the notion of workplace cooperation, both between labor and management, and among workers...

...It is absolutely essential to keep in mind this simple point...

...The bishops' pastoral does not provide answers to the problems it addresses...

...and a disenchantment with a political system that rewards wealth and vested interests at the expense of the poor and under-represented...

...There are two important lessons to be learned from Keynesianism in the 1930s...

...On the one hand, there is a new interest in the positive returns to cooperation in the form of productivity enhancement and quality control...

...When this process occurs willynilly, with no coordination, political clout rather than economic merit prevails...

...This conflict between the political demands of fairness and the response of markets to structural change is the most important single factor in our nation's extremely poor productivity performance over the past decade...

...To quote Keynes, as he rebutted his critics in 1936: The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood...

...A representative body faced with tradeoffs would offset the power of vested interest groups who each represent a single sector of the economy...

...not only in classical economics, but also in Marxian views of the inevitability of class conflict...

...Without cooperation at the local level, community groups will be marshaled to forestall change, producing more lemon capitalism, and bloating the budget with political payoffs rather than effective adjustment assistance...

...But the facts are that in our world, the not-so-invisible hands of a whole host of interest groups are lobbying, often successfully, for market interventions...

...But sectoral interventions will require a new policy model and some new, cooperative institutions for formulating priorities...

...The question men becomes: Is there a role for national economic planning in a capitalist market economy, and would such a process improve upon the existing laissez-faire approach...

...Many economists see the need for a sector-specific form of policy mat would improve the adaptation of our capitalist market system to these structural changes...

...I could point to numerous other countries, but there is also an example in our own congressional budget process...

...Some ivory tower economists continued to produce elegant mathematical proofs that unemployment was theoretically impossible under free markets, at least in the long run...

...We need to pay more attention to our work lives...

...Yet our very economic system generates considerable inequalities in terms of living standards and material well-being, producing tensions between our political and social values on the one hand and glaring inequalities generated by our free markets on the other hand...

...They argue that market forces have not and will not solve many of the problems we face in today's economy, and that cooperation rather than competition should be sought as a means of restoring social justice...

...As a consequence, the representative aspect of planning institutions becomes a central issue...

...The bishops' letter does not specify the particular mandate of such a body...

...But there is also a concern that people are losing faith in our free-enterprise economic system because of serious problems in major industries such as steel and autos, the crisis in agriculture, loss of American influence abroad, and our economic vulnerability to outside influences...

...We are committed socially and politically not only to equality of opportunity, but also to reasonably equitable distribution of outcomes...

...The scope of such a planning and participatory exercise should be the subject of national dialogue and debate, which is presumably what the bishops' pastoral letter has helped to initiate...

...This speaks of the need for planning at the national level — which is absolutely vital if effective redistribution is to occur — and local participation to ensure that aid is applied most effectively to where it is most needed...

...Only under complete laissez-faire does the invisible hand reconcile all conflicts...

...Unlike macroeconomic planning, which essentially involves manipulating budget and monetary aggregates, sectoral planning involves fundamental tradeoffs among various industries, geographic regions, and basic human needs...

...On the other hand, there are also times when markets work less efficiently...

...to oppose the free play of market forces when such forces threaten to produce an adverse result...

...Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist...

...Reports abound of the physical and emotional problems attendant to word processing and other computer-related jobs...

...Had we attempted to ration orange juice through a centrally-planned scheme, the result would undoubtedly have been a disaster...

...Finally, robotics and the like could produce major changes in the organization of work...

...The idea that there is an inherent conflict of interest between workers and employers is, of course, deep-seated...

...Oil is not like orange juice — it is a larger part of people's budgets, and suitable substitutes for it are harder to find...

...It was, after all, Adam Smith, back in 1776, who argued persuasively that competition, not cooperation, would produce the greatest wealth, not only for the individual, but also for society...

...The first major break with unbridled laissez-faire in this country came during the Depression cf the 1930s...

...Once market interventions are presumed, they must be done in the context of a plan...

...To argue a need for foresight, for the setting of goals and priorities, and the recognition that market forces do not always produce desired outcomes merely frames the context for discussion...

...For example: It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard of their own interest...

...Although we still have some macroeconomic problems to confront, we do have policy instruments and institutions with which to confront them if only we had the political will...

...Examples include agriculture, transportation, energy, and the myriad of industry-specific regulations, tax preferences, procurements, and trade policies...

...In some sense, our social and political institutions and values have evolved much more rapidly than our economic institutions...

...I believe this is because we lack a modern-day Keynes to break the old intellectual mindset...

...Of course the' 'invisible hand'' of the market has the distinct advantage of precluding a huge bureaucratic apparatus...

...But surely a starting point might be devoted to such issues as: what share of our Gross National Product should be devoted to health, education, urban infrastructure, and the like...

...When our political system attempts to offset these human costs, intervention is generally negative rather than positive — forestalling rather than accommodating change — producing lemon capitalism rather than enhancing productivity and the competitiveness of our industry...

...First, when market failures become such a political liability and create such serious social problems that these outweigh the benefits of market efficien21 June 1985: 365 cies, government will act...

...DEBATING THE ECONOMICS PASTORAL, U The case for collaboration NANCY S. BARRETT PERHAPS the most controversial aspect of the bishops' pastoral letter, "Catholic Social Teaching and the U.S...

...The pastoral letter rightly warns that this skepticism is undermining the credibility of our democratic way of life, and with it the moral principles that underpin our society and make it truly unique...

...Second, Keynesian economics, properly understood, is essentially a planning model for macroeconomic policy...

...Since no economist since Smith has held this view as unequivocally, one must go back to his Wealth of Nations to obtain the best statements of the laissez-faire doctrine...

...Others, such as strengthened pollution controls and other domestic regulations, were self-inflicted...

...For example, the provision of mobility grants for workers to move from depressed areas to growing regions of the country overlooked the fact mat most people prefer to remain in their communities, and many older, established people simply cannot afford to move...

...Consequently, mobility grants drain depressed communities of their youngest and most vital workers, exacerbating the problem of the communities' viability and adding to the taxpayers' expense without solving the problem...

...Moreover, new technology is threatening the "deskilling'' of many jobs and the depersonalization of human relations...

...Keynes broke with the economics profession, was generally ostracized by it, and yet wrote one of the most influential books ever written on the subject, providing the basic theoretical underpinning for macroeconomic policy intervention to achieve full employment...

...Keynes offered a mode of intervention that could eliminate the market failure (in this case unemployment) without changing the fundamental capitalist economic system and which allowed markets for individual goods and services to function normally...

...People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices...

...And another agency of government vigorously enforces the "antitrust" laws against Firms in these industries, as though the free market were still operative...

...Recognizing that many of our current economic woes are rooted in structural rather than macroeconomic market failures, why has there been so little impetus for action...

...Actually, in the tradition of Adam Smith, most economists have neglected the workplace...

...To quote Smith: Consumption is the sole end and purpose of all production...

...The causes of these imbalances were external in origin: the OPEC oil price hikes and the maturing of the Japanese economy are two of the most prominent...

...Commonweal: 366 YET WE DO have prototypes of cooperative planning efforts...