Market, State, and Dystopia

A dystopia is a utopia in reverse. The post-1980 era is likely to be remembered as a free market dystopia--a headlong compulsion to throw away the mixed economy that was built on the ruins of depression and world war in favor of a marketized society. This compulsion has been ground into the lenses of the press, the economics profession, and the political class generally. It is presumed that greater marketization is desirable and in any case inevitable, despite accumulating evidence to the contrary. And though we now have a Democratic president of liberal spirit, who is well placed to reverse the conservative assumptions of the 1980s, the White House is providing scant intellectual revision. Much of the New Democrat creed accepts the premise that more of society should be marketized; it just wants to do the job more humanely.

To look at today's economic conundrums, against the turbulent economic history of the twentieth century, is to appreciate the continuities of a recurring malady: the excesses of a market economy. In the 1930s, joblessness was the great catastrophe. Today, in a jobless and feeble economic recovery, industry is trying to compete by shedding labor. But that doesn't solve the macroeconomic problem. Productivity gains in individual firms do not translate into broad gains in living standards for ordinary people.

Labor is increasingly just another commodity in oversupply, subject to a short-term price-auction. Managers resist hiring permanent employees because they want the flexibility to stay lean and competitive. So the economy is generating--at the low end--part-time and temporary jobs. At the high end, professionals who once had stable relationships with employers are now consultants, contractors, and freelances. Job security is disappearing.

In the business literature, all of this chaos and insecurity is cause for celebration, because it makes the corporation more like an economics textbook; it presumably compels even the lowliest worker to think of herself not as an employee but as an entrepreneur. At a recent conference on the future of the corporation, the buzzword of choice was the "virtual corporation." Like the "virtual reality" of computer cyberspace, the virtual corporation has almost no corporal existence. It is not a permanent set of owners, managers, and employees based in a physical site, but a tiny group of core strategists, connected to an ever-shifting set of contingent hired hands, linked by fax, phone, modem, and short-term handshakes. If the suppliers can be replaced overnight, if the customers are free to seek a better deal elsewhere, if the stockholders are free to sell their shares--if the corporation is a series of one-night stands--why should the employees have any long-term claims on their jobs?

Just as Marxists once looked forward to the creation of a New Socialist Man, imbued with the values of socialism, today's dystopian capitalists imagine a new capitalist man and woman who will internalize the values of the market. These new creatures are armed with no reciprocal guarantees, only with a set of marketable skills, one of which is skill in the marketing of the self. The new insecurity also assures that newly contingent employees will be in perpetual competition with each other, which keeps labor costs low.

Well, so what? Shouldn't everybody be alert and entrepreneurial? Shouldn't industry relentlessly reduce costs? Beyond the more obvious psychic costs, this brave new workplace exacts economic costs that are beyond the grasp of the dystopian theorists. When the entire labor market is under this kind of competitive pressure, wages tend to be battered down below rates of productivity growth. Workers can no longer buy what they make. Despite the wondrous ingenuity with which industry makes, manages, and markets, the economy stalls.

In retrospect, the economy of the postwar boom in Europe, Japan, and America had an equipoise in which worker purchasing power rose roughly in tandem with rising productivity. Nearly everybody gained. With near-full employment, workers had the bargaining power to demand rising wages and greater job security. A social contract between worker and manager was implied and was assumed to have mutual benefits. The instruments of that equilibrium included stronger unions, a more activist state, and the unintended Keynesian consequences of Cold War economic planning and public investment. All of these instruments are today in disrepute, and no western government is either appreciating their beneficial function or actively seeking their replacement in the new era.

The rush to global free trade only compounds the dilemma. As Harley Shaiken's article in this issue ("Going South," p. 58) suggests, establishing free trade areas among nations with gross disparities in living standards widens the gap between productivity and purchasing power, especially when no nation is seriously pursuing full employment.

The dystopian consensus represents the victory of assumption over evidence. It filters out dissenting views. To propose limits on contingent employment, to insist that employees are stakeholders, to call for a significantly stronger labor movement, or to suggest that free trade is often a mixed blessing--is to define oneself as unsound.

At another conference this past summer, the world's central bankers repaired to Jackson Hole, Wyoming, to bemoan the sad state of their toolkit. "Central banks don't have as much control over their economies as they used to," the International Monetary Fund's director of research told the New York Times. Of course they don't. Thanks to globalization and deregulation, more than a trillion dollars of foreign exchange is privately traded daily. Thanks to the proliferation of unregulated banks in places like Grand Cayman, central bankers lose control of monetary policy. Thanks to baroque new financial instruments, banks are a dwindling part of financial markets. To the extent that central bankers control the money supply via commercial banking, they lose influence as banks give way to virtual money markets.


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What is striking amid the central bankers' lament is the almost universal assumption that all of these changes toward greater marketization are by definition desirable, beneficial, and in any case irreversible. A central banker who suggested that perhaps the world would be better off if financial markets were more highly regulated, if exchange rates were fixed, if speculative money movements were prohibited--all of which were the case during the postwar boom--would be bundled off to Zurich for reconditioning.

Why is the capitalism of the 1990s hell-bent on marketizing itself into oblivion? After all, the mixed economy that thrived after the Great Depression saved capitalism from itself. The capitalists of that era made a nice living, despite (or rather thanks to) regulation, unions, Keynesian stabilization, and a measure of planning. I offer two reasons. The faltering of the postwar economic regime, after 1973, allowed a new generation of marketizers another turn at the microphone. People like Milton Friedman were suddenly taken seriously. And once the ideal of freer markets gained currency, the logic fed on itself--and became very attractive to society's most influential people, especially those with short memories.

If you are materially successful, it is only natural to think that the invisible hand dispenses rewards justly. (It rewarded you, didn't it?) If you run a large corporation, it is only natural to resist intrusions, whether from regulation, taxation, or trade unions. This set of self-interests soon hardens into dogma. Once current, this dogma dominates the marketplace of ideas, too, since it also is only natural for the well-heeled to reward theorists who validate their own preconceptions. Money falls from trees onto free-market journals and think tanks that flatter their benefactors, while outfits like The American Prospect must beat the bushes for class traitors. (Try raising money from your local millionaire to commend the taxation of the rich.)

Another irony is that at the very moment of the final disgrace of Marxism, capitalism is again showing tendencies that seem almost Marxian. The new virtual labor market looks suspiciously like a reserve army of the unemployed. The new tension between owners and employees looks almost like a class struggle. The sheer intellectual dominance of the marketizers and their kept academicians looks almost like a hegemony of a ruling class.

I resist these conclusions, just as I recoil from the stilted terminology. I'm not a Marxist, I'm a Keynesian. Economic history tells me that the best available economy is neither a dystopian pure market nor a dystopian socialism, but a mixed economy. Capitalism, when offered a Keynesian rescue, keeps resisting redemption and vindicates harsher critics.

A century ago, another theorist who I like rather better than Marx, Thorstein Veblen, ridiculed the marketizers of his day. He was particularly savage on those theorists who insisted that economic man behaved just like textbook man, making choices based on an instantaneous calculation of "utility maximization" in a social and historical vacuum. "If, in fact," Veblen wrote, "all the conventional relations and principles of pecuniary intercourse were subject to such a perpetual rationalized, calculating revision, so that each article of usage, appreciation, or procedure must approve itself de novo on hedonistic grounds.... it is not conceivable that the institutional fabric would last overnight."

Veblen, alas, was mocking a realm that was still pure theory. Today his description increasingly fits actual labor markets and actual financial markets. As the real economy moves precariously closer to a dystopia, the damage to the social fabric is as real as Veblen warned. How far must the harm extend before capitalism is again saved from itself, and will the next saviors be as benign as Veblen and Keynes?

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