Social Reality and "Free Markets"

...Capitalism is persistently at odds with values of equity, fairness, political equality among all citizens, and democracy...

...Thus the Scandinavian countries, Austria, Germany, and the Netherlands, among others, have developed what are sometimes called systems of democratic corporatism...

...Probably more often than not, an ideology is not very helpful even as a general guide...

...But it does mean that no sensible person should expect an ideology to provide solutions to concrete problems...

...Likewise to pose the issue as "planning versus the market" is, in the light of the experiences of advanced democratic countries, simply silly...

...Yet no sooner had it arrived than discontent with its consequences began to bring about state intervention to regulate markets—efforts so successful that Herbert Spencer, an advocate of unregulated market capitalism, lamented the long list of regulatory actions he could compile by 1884: regulations governing food and drink, penalizing the employment in mines of boys under twelve not attending schools and unable to read and write, empowering Poor-Law officials to enforce vaccination, extending compulsory vaccination to Scotland and Ireland, punishing chimney sweepers who compelled boys to sweep chimneys so narrow that the boys often suffered injuries and sometimes death, providing controls for contagious disSPRING • 1990 225 "Free Markets" eases, empowering local officials to set up public libraries at public expense, and so on...

...A good deal of "central planning" exists in these countries, particularly in the form of fiscal, budgetary, and monetary controls...

...Even during the brief period of the New Economic Policy, Leninist 224 • DISSENT "Free Markets" doctrine led directly to the suppression of opposition parties...

...Although these systems performed magnificently in achieving their limited purposes, in both countries they were rapidly dismantled after the war ended—in part because the public would no longer tolerate the restrictions they imposed...

...Of course there is an enormous amount of complexity, variation, and qualification packed into my all-too-brief description of the experiment and the conclusions from it...

...Nevertheless, I want to suggest that your path lies somewhere between the economic system you are rightly rejecting and full reliance on a market economy...

...If the historical experiment is not as clear-cut as it looks, there are nonetheless good reasons for thinking that a predominantly state-owned, centrally directed economy will prove to be incompatible with democracy in the notsolong run...

...Yugoslavia, by contrast, furnishes an example of a "socialist" country where the absence or weakness of these instruments for central influence over the economy has led to disastrous economic consequences...

...228 • DISSENT...

...Polanyi argued that the visible failures of state intervention in England from the 1790s to the 1830s, particularly the disastrous consequences of the Poor Laws, profoundly influenced the thinking of several generations of important thinkers, from Bentham, Burke, and Malthus to Ricardo, Marx, Mill, Darwin, and Spencer...

...Our society, including the economy, is too dynamic to allow for permanence in public policies...

...7. Because intelligent choices of public policies require both technical understanding and sensitivity to the values involved, in modern democratic countries a form of specialized intellectual activity has evolved that tends to combine both aspects of policy...

...Therefore even if systems of state ownership and centralized direction of the economy had not proved themselves inefficient in meeting the needs of relatively modern, well developed countries—as they clearly have—you would be wise to reject them on the separate ground that they pose a standing danger to democratic institutions...

...The expression democratic corporatism is used because economic policies of exceptional consequence are made, more or less beyond the reach of parliament, by agreements among the major corporate entities, in particular the trade unions and employers' associations, sometimes together with organizations representing consumers or farmers...

...Only metaphorically is history a laboratory...

...It is no simple or easy task to manage a market-oriented economy in such a way as to maximize its advantages, which are great, and to minimize its disadvantages, which are also great...

...and they turned their political efforts instead to finding specific solutions to the concrete problems that a market economy inevitably gives rise to...

...and what has emerged is a product of the special characteristics and the unique history of each country...

...Instead, all the world's most advanced and successful economies are mixtures of markets (themselves of enormous variety) and deliberately imposed government interventions in the market (also of incredible variety...

...Just as no one, to my knowledge, predicted the time or speed of this dramatic transformation, so no one, I believe, can accurately predict the subsequent course of these democratic revolutions...

...Alternative solutions invariably engage important values as well—equity, equality of opportunity, liberty, security, progress, and community, among others...

...Economic organization, we insisted then, poses knotty problems that can be solved only by painstaking attention to technical details...

...1. Many of the criticisms of capitalism advanced by socialists were essentially correct...

...How best to do so is, and surely will continue to be, a subject of continuing debate and political struggle...

...We are now engaged in discovering—or rather rediscovering— how much damage can occur if public policies are based on the simple-minded assumption that everything, or almost everything, can be entrusted to the marketplace...

...Even in the United States, which is often thought of as the very citadel of laissez-faire capitalism, to describe briefly all the ways in which governments — national, state, municipal, regional, district, and so on—regulate, supplement, displace, or otherwise alter the operation of markets would take a small library...

...But I hope you will permit me to share with you a concern over one of the many issues you confront...

...With its arrogant assignment of the role of vanguard to the Communist party, which in practice means the hegemony of the party leaders (or leader) in a one-party system, orthodox Leninism denies a place to the political pluralism that a country requires if it is to be democratic...

...We have something very much like a historical experiment, so it would appear, that leaves these conclusions in no great doubt...

...To put it more formally, it looks to be the case that market-oriented economies are necessary to democratic institutions, though they are certainly not sufficient...

...There is not the slightest reason to think that the search for the best mix has anywhere come to an end...

...5. Actual practices in the advanced democratic countries are, then, far too diverse and complex to be captured by ideologies...

...I believe that experience since then strongly confirms this judgment...

...From the experiences of these countries— to whose political and economic institutions you may now be looking in search of feasible solutions for your own problems—we can, I think, draw the following conclusions...

...An unscrupulous president— Richard Nixon comes immediately to mind— might well have used that power in far more sinister ways...

...they were unable to replace capitalism with the centralized state socialism many of them believed to be ideally preferable...

...The lesson many liberal thinkers of the time drew was that state intervention, even for humane ends like the care of the rural poor, was likely to cause far more harm than good...

...But I urge you to avoid the mistake of the classical liberals whose ideas were formed in reaction to the failures of mercantilism and the Poor Laws...

...Where many socialists went badly wrong was in believing that the evils they saw could best be solved by abolishing markets, competition among economic enterprises, and the seeming "anarchy" of the price system, and by transferring the ownership and direct control of the economy to "the public," or "society," as represented by the state...

...2. In making their economies more humane, socialist, labor, and social democratic parties contributed to—though they were not the sole authors of—the development of the mixed economies that exist in advanced countries today...

...In urging these considerations, I am reminded of a book published nearly half a century ago that bears rereading today— The Great Transformation by Karl Polanyi...

...6. It seems obvious, then, that the search for solutions to the problems generated by a predominantly privately owned, marketoriented society has been and will continue to be a major element in the political agenda of every democratic country...

...Had they endured, I shudder to think of the effects they could have had on American and British political life...

...And it looks to be the case that state-owned, centrally directed economic orders are strictly associated with authoritarian regimes, though authoritarianism definitely does not require them...

...for the changes will be resisted by many people, not only office upon office of bureaucrats but others whose security, income, status, careers, and indifferent work habits depend on the continued existence of these obsolete systems...

...we cannot rerun the experiment at will to sort out all the causal factors...

...3. In addition, a century or more of efforts to arrive at a feasible and politically acceptable mix of market and nonmarket elements has not produced a definitive, stable, or uniform solution...

...It is not for me to instruct you, who are on the spot and in touch with unfolding events, as to how you might best meet the daily challenges to your efforts to bring about the changes you seek in political life, the economic order, social relations, ideas, and beliefs...

...The alternative they should support instead, they concluded, was a full market economy with self-regulating markets in land, labor, capital, and money...

...Thirtyfive years ago, Charles E. Lindblom and I argued that it had become increasingly difficult for thoughtful persons to find meaningful alternatives posed in the traditional choices between socialism and capitalism, planning and the free market, regulation and laissez-faire...

...The list extended for several pages...

...it would be a misfortune for your countries...

...The point is that you do not have a single model of relatively satisfactory "market economies" to consider for possible emulation in your countries...

...Although the economies of these countries are often described as "free market" systems, they are not...

...If you wish to look to the most advanced economies for guidance, then, you should not allow yourselves to be misled by dogma about "free markets...

...instead, you have many models...

...Not only would this be a misreading of the experience of the advanced democratic countries...

...So we continue to be engaged, as we have been for generations, in attempts to find a more acceptable balance between market and nonmarket arrangements...

...It does not necessarily mean "the end of ideology...

...To keep technical knowledge in your countries from becoming the monopoly of any particular group, you will probably need to create and maintain a considerable measure of pluralism among organizations engaged in the analysis of public policies and you will need a supply of well-trained specialists to staff them...

...It is also a historical fact, as I hardly need to remind you, that all "socialist" countries with predominantly state-owned, centrally directed economic orders—command economies—have not enjoyed democratic governments, have in fact been ruled by authoritarian dictatorships...

...For such an economic order places enormous resources in the hands of leaders— resources for persuasion, inducement, corruption, and coercion...

...Attractive as you may find the Swedish model, for example, you should not assume that it can be transferred to your country, where the necessary conditions may not exist now or in the foreseeable future...

...If these mixed economies are a far cry from the centralized systems you wish to dismantle, they are also very far from the classic liberal model of a self-regulating market economy...

...Yet not only do the patterns of democratic corporatism differ greatly among these countries, but in others, such as Britain and the United States, "corporatist" structures are comparatively weak, in part because unions and employers' associations are much less inclusive, more fragmented, and more decentralized...

...In the United States, laissez-faire has been dead in practice for a long time...

...And since 1884 it has lengthened...

...Thus while they never achieved "socialism" in the sense they commonly thought, they did help to make their economies more decent, humane, and just than was the capitalism of Marx's time...

...In the United States, for example, we are now harvesting the consequences of eight years of the Reagan administration, during which deregulation and worship of the beneficent effects of the market dominated the thinking, and to some extent the policies, of that administration...

...In the midst of our rejoicing over your victories, however, some of us are also concerned, as you must be, over the difficulties that lie ahead...

...And a rather new type of intellectual has developed to engage in this activity: the policy specialist...

...Their numbers, variety, and differences in perspectives and institutional loyalties tend to ensure that expertise is not monopolized by any single group, such as the White House or a Congressional committee...

...This is the question of the place of a market economy in a democratic country...

...Reacting to the failures of state ownership and central direction of the economy, you may be tempted to conclude that the best alternative for your countries is to turn everything over to unregulated markets...

...It is a historical fact that political institutions of the kind you seek and are now engaged in creating—in short, what you and I ordinarily call democracy (that is, actually existing though not ideal democracy)—have existed only in countries with predominantly privately owned, market-oriented economies, or capitalism, if you prefer that name...

...I realize, of course, that to rid your countries of these systems will require a hard, tough, and probably protracted battle...

...In your own political struggles, the experiences of democratic countries with advanced economies may be helpful to you...

...In this country, even a scrupulous president would have found it hard to resist the temptation to use his power over the economy to discourage opposition...

...It is also a historical fact that some "capitalist" countries have also been—and are—ruled by authoritarian dictatorships...

...Conceivably, that task may be so difficult that what I am about to say will seem to you to be almost irrelevant to the immediate situation you face...

...For even if solutions often depend on technical knowledge, rarely, if ever, is technical knowledge enough...

...But democrats everywhere are already entitled to rejoice over the enormous vitality of democratic ideas demonstrated by the actions of the people in your countries...

...To take one example, questions about property and the most suitable forms of ownership admit of no simple answers...

...As in the past, the search will take place amidst political controversy...

...Polanyi's account is consistent with a much broader range of historical experiences in the countries where today we find the most advanced and successful market economies: in Europe, North America, Japan, and the Pacific...

...For this task, neither ideological perspectives, such as a belief in the need for democracy and a market economy, nor technical knowledge bearing on the specific problem at hand, whether that of economists, engineers, scientists, or whatever, will, by itself, be sufficient...

...Although the locations and functions of policy SPRING • 1990 • 227 "Free Markets" specialists vary among the democratic countries, in the United States policy specialists are now located in major institutions of all kinds, not only in the executive branches of government at every level—national, state, and local—but in the Congress and the state legislatures and municipal councils, in the political parties, business firms, trade unions, lobbying organizations, independent research centers, and universities...

...In short, independently of a state-owned, centrally directed economy, Leninist political views would no doubt have been sufficient to bring about the suppression of oppositions and the creation of authoritarian regimes...

...As far as I know, the only instances in democratic countries of a centrally directed economy (though not widespread state ownership) were the comparatively brief experiences of Britain and the United States in the Second World War, when the need to mobilize all possible resources for the war effort led to the creation of systems of centralized allocations and price fixing...

...Each country's pattern to some extent reflects the country's unique, or, at any rate, far from general, conditions and history...

...And with the passage of Poor Law Reform in 1834, a self-regulating market economy seemed finally to have arrived...

...And it should...

...even eight years of Reaganism have not restored it to life...

...Not only do "public" and "private" mask an almost infinite variety of possibilities, but no reasonable person—or society—would, after carefully examining the concrete possibilities in specific situations, conclude that any single form of ownership and control would invariably be superior to all others...

...Thus the apparently strict association between dictatorship and the stateowned, centrally directed economic orders of the "socialist" countries is contaminated, so to speak, by Leninism...

...In Western Europe, however, socialists discovered that they could not achieve these goals...

...Public versus private ownership and control of the means of production" is no more than a simplistic slogan...

...I strongly doubt, however, whether we Americans, or people in any other democratic country, will ever manage to arrive at a point where market and nonmarket forces are all at a stable equilibrium, politically speaking...

...4. The experience of the democratic coun226 • DISSENT "Free Markets" tries with the most advanced economies also tells us that no single pattern, or even a dominant one, has emerged...