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“Competing Capitalism” and the New Rationales for Economic Collectivism

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Since the collapse of the communist governments in Eastern Europe and the former Soviet Union, the West has basked in the glory of the triumph of democracy and capitalism over dictatorship and socialism. The need for “market relationships” and a capitalist economy to assure both economic prosperity and political pluralism is now accepted by practically everyone.

But beneath the cover of this “rediscovery” of capitalism are emerging the latest rationales for economic collectivism. The common premise is that there is no such thing as “capitalism.” Rather there are different types of capitalism from which governments and societies may choose.

In the July-August 1992 issue of the Harvard Business Review, Herbert A. Henzler, professor of international management at Munich University, defends “The New Era of Eurocapitalism.” “The competitive battle senior [corporate] managers now face,” Professor Henzler says, “is a deeper struggle among different capitalist systems, each with its own distinctive set of values, priorities, institutions, and goals.” Corporate managers in the United States “are most deeply committed to free markets and the effectiveness of individual action.” While “capitalism in Japan is far less individualistic than its U.S. counterpart … Japanese managers are expected to use profits to fund high, sustained levels of corporate investment, not to distribute them to shareholders.”

On the other hand, says Professor Henzler, in Europe, under “our form of capitalism,” corporate managers “are expected to balance the need for corporate growth with the health of the physical environment and with the broader social welfare of the countries in which they operate.”

Thus, he explains, “Eurocapitalism supports a social compact” between business, labor and government, because “most Europeans would sacrifice the possibility of an unrestricted business environment that rewards a few with extreme wealth for the reality of many people with comfortable income.” Indeed, “because of our mercantilist tradition, Europeans know that the interests of private companies and the state can run together in comfortable harness,” with government serving as a “potential source of managerial ideas and approaches.”

In the Summer 1992 issue of The American Scholar, Thomas K. McCraw, Struas Professor of Business History at Harvard University, explains what he sees as “The Trouble with Adam Smith.” Professor McCraw admits that “the battle between Adam Smith and Karl Marx is over… Smith and capitalism have won. But now a second championship is under way, a contest between different kinds of capitalism. In one comer stands a relatively laissez-faire consumer variety represented by the United States. In the other comer is a more nationalistic, producer-oriented capitalism epitomized by Germany, Japan, and the ‘Little Dragons’ of East Asia.”

In Professor McCraw’s view, the essence of Adam Smith’s approach was “a lively concern with supply and demand . . . his prolonged passages attacking mercantilism . . . [and Smith's commitment) to the study of the individual" with "almost no notice of behavioral diversity deriving from nationality, ethnicity, gender, stage of life, or endowment with talent and intelligence." And Professor McCraw is especially appalled by what he considers Smith's "powerful aesthetic aversion to any type of collective action .... When operating in concert, all are depicted as ... scheming to extract more than a fair market price for their services."

For Professor McCraw, this represents a "naivete," because in our corporate industrial world of mass and giant production, long-term investments crucial to the nation's well-being cannot be left "to the whims of individuals, who usually act in their own short-run self-interest.... It must be done through organizations, and it is best done with the positive assistance of wise public policy." If we are to match our Japanese and German rivals, we must follow their lead and "act from a premise that the key unit of analysis is not the individual but the nation-state." There must be a concerted action by "firms, industrial groups, and elite public-sector ministries ... to deploy resources so as to achieve stronger economic performance." The key to America's future, in Professor McCraw's prevision, are "nationalism, technology, organization, and power."

And in the Summer 1992 issue of Foreign Policy, Clyde V. Prestowitz, Jr., president of the Economic Strategy Institute and general-director of the Pacific Basin Economic Council, tells us that we must go "beyond laissez-faire." Like our two other authors, Mr. Prestowitz argues that "the truth is that there are different forms of capitalism, each deeply rooted and in competition with the others." America's traditional policy of fostering global free trade and a borderless world must be set aside if America is not merely to survive in the world economy, but continue to be industrially and technologically preeminent. Our trading partners, particularly the Europeans and the Japanese, "pursue policies designed to foster a favorable mix of industries ... All of them ... have a producer rather than a consumer mentality." Where industries are located "can be influenced by policy, so that a clever country could raise its living standards by capturing a preponderance of [high-tech, high-profits] industries.”

Mr. Prestowitz believes that agencies in the government should be assigned the task of targeting high-tech, high-wage industrial winners; transportation and communication infrastructure should be invested in by the government; a national health-care program should be sponsored by the government; only those foreign investments should be allowed in the U.S. that benefit our “national interest”; and in trade negotiations with our world partners, we must be ready to fight economic wars to protect our industries from our foreign competitors. “Americans must reconcile themselves to a certain amount of trade management with Japan,” Mr. Prestowitz insists. And “to break old structures and overcome the effects of industrial policies [by our trading partners) it may be necessary to negotiate affirmative action for imports and foreign investment.”

In the post-Soviet era, both “socialism” and “central planning” have lost their respectability as language to be used in polite (and intelligent) society. And “fascism” has been a word banished from serious public-policy discussions for half a century. This has left the advocates of economic collectivism without a vocabulary — a legitimized set of terms with which to categorize and defend their case for government control and management of economic activity.

The economic collectivists, therefore, have resorted to their same trick they have used in the past: adopt the labels of their opponents and then subvert and pervert their meaning. At the beginning of this century, this was the method the socialists and the interventionists used when they stole the word “liberalism.” They argued that they — the newer liberals — wanted to complete the work the older liberals had begun. The new liberalism wanted to add to the “negative” protections of the older liberalism a set of “positive” protections to enhance human freedom in the form of governmental welfare guarantees and regulated or nationalized economy for a better serving of the common good.

Now a similar process is at work with the was “capitalism” and “market economy.” To manage trade between nations is no longer mercantilism; to foster government-business-labor partnerships for targeted and directed industrial development is no longer economic fascism; to regulate and tax business for purposes of income redistribution is no longer the welfare state; to assign governmental agencies the task of guiding the investment decisions of private enterprises is no longer state planning.

No, rather all such policies are now nothing more. than different forms of competing capitalisms. The older capitalism — the traditional conception of a market economy, with its emphasis on the importance of competition, efficiency, innovation, open markets and free trade — were all to the good at their time and in their place. But now times are different, and other forms of capitalism already in place in other parts of the world — must be adopted here in America, if America is to maintain and improve its place in the economic community of nations.

Through this linguistic subversion, the economic collectivists hope to legitimize their statist agendas by making it appear that arguing for planning, intervention and mercantilism is merely a dispute over which kind of capitalism we want. It also undermines the position of the actual advocates of a free-market economy because they will be placed on the defensive by appearing “merely” as the proponents of an extreme, old-fashioned form of the capitalist system. And if the free-market advocate calls these economic collectivists by their real names, he will be accused of name-calling and mudslinging.

This new war over words had better not be lost. The consequences would be too great.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).