Tuesday, June 5, 2012
Sorely in Need of Competition
In 1889 Houghton Mifflin published Looking Backward: 2000-1887, a novel by Edward Bellamy that looked at the Gilded Age from the perspective of more than a century hence, when enlightened socialism had replaced brute capitalism, and the world had become a kinder, gentler, more egalitarian place.
Almost no one reads the book now, but at the time it was a sensation. The publishers couldn’t print copies fast enough. Apparently, during the time so beloved by Glenn Beck, a lot of people were thirsting for a more decent and humane alternative. By 1900 Looking Backward was the second best-selling novel in American history, trailing only Uncle Tom’s Cabin.
It’s hard to imagine now, but back then a lot of smart people assumed capitalism wouldn’t last another century. The inequality and injustice it spawned, they reasoned, were unsustainable, and either through revolution or the democratic process, some sort of socialism would take its place.
What got me thinking about this was a throw-away line in a recent New Yorker essay by Nicholas Lemann, reviewing several books on economic inequality. “It’s clear in retrospect,” Lemann wrote, “that the existence of the Soviet empire was a spur to social democracy, in the United States and in Europe, because it was a serious competitor whose main selling point was generous social provision. The West had no choice but to compete.”
Bellamy, Karl Marx and other communal utopian thinkers of the time guessed wrong about the future of capitalism at the same time they shrewdly critiqued its shortcomings and contradictions. Their mistake, in a general sense, was that they couldn’t imagine it tacking with the political winds and changing in any substantive way.
But as Lemann pointed out, capitalism — like the shopkeeper whose competitor is selling at a lower price — had to adjust or go out of business. The great majority of business leaders never got the point, were in fact singularly clueless. But they were bailed out by the democratic process and politicians, particularly Franklin D. Roosevelt. In a just world, there would be a statue of FDR in front of the New York Stock Exchange, with an inscription on the pedestal reading, “If not for him, we wouldn’t be here now.”
Socialism and communism are in bad repute at the moment, and as a consequence, capitalism is exhibiting the classic behavior of a monopolist. We all know what happens when a local store has no competition: It can easily become arrogant and unresponsive to its customers and employees. The customers of an economic system are the members of society at large, and like the customers of a business, they, too, benefit when there’s competition.
In a democratic society voters disgruntled with an economic system can, like customers of a non-performing business, take their custom elsewhere. Capitalism hasn’t yet honked off its customer base to that extent, but it’s certainly heading in that direction. If it isn’t diverted from the path it’s on, the consequences for all of us could be ugly.
Every economic system has its flaws, but a free market, coupled with a robust social safety net has been the least flawed alternative to date. Growing inequality, coupled with a rending of the safety net, inexorably drives society toward one of two unpalatable alternatives: A dictatorship to forcibly maintain gross inequality or a revolution to replace it with something else, which could turn out to be nearly as bad in a different way. Capitalism dodged a bullet once by smoothing out some of its sharper edges. It needs to do it again, but where’s the competition to provide the motivation?