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A Hard Case

Two Cheers for Capitalism

by Irving Kristol
Basic Books, 274 pp., $10.00

I’ve often thought how pleasant and easy and also remunerative it would be, were one so motivated, to make the case for modern business organization—what many including Irving Kristol call capitalism. One would avoid, above all, the cataleptic and self-refuting litany of the neoclassical market. A thousand or so huge corporations now supply about half of all private product in the United States. No one of sound mind, unless extensively conditioned by economic instruction, can any longer be persuaded that these firms, which now make up the characteristic sector of the economy, conform to the market-controlled and politically passive model of the neoclassical creed.

They have a highly visible ability to raise and cut prices. Since watching television is still common, the effort to cross the market and manage the consumer is also widely seen. The papers speak similarly of corporate pressures on the Congress, as does Jimmy Carter, a man who seems safely, above any suspicion of being anti-business. The unique foreign policies of the oil companies, ITT, and Lockheed have been well celebrated. The way big steel in these last weeks has converted from warnings about regulation and big government to demands for more of both has not been at all reticent. The close and symbiotic relationship between the Pentagon and the weapons firms was highlighted nearly twenty years back by Dwight D. Eisenhower. And, with all else, General Motors, Exxon, and IBM simply do not look like the textbook microcosms. So the defense would begin by no longer trying to get people to believe the patently unbelievable about the subordination of the modern large firm to the market and the state, an effort that principally persuades people that there must be something vaguely illegitimate or fraudulent about the large corporation since it tries so elaborately to misrepresent itself.

Having accepted that the corporation transcends its market and has power in the state, then an effective and adequately insouciant defender would say, What a good thing! By controlling its prices and managing its customers, it can plan. If hundreds of millions of dollars and several years are to be spent on producing a new automobile model, there must be some assurance about the eventual price of—and consumer response to—the particular compromise between novelty and banality that is so expensively contrived. If billions are to be put into an oil pipeline across Alaska or a gas pipeline across Canada, there must also be a tight grip on the eventual price. It would be insane to leave that to the unpredictable gyrations of the competitive market. The big corporation eliminates or subdues market forces and substitutes planning. In the modern economy planning is essential.

It would also be held that only a big corporation can deal effectively with big government; the small competitive entrepreneur doesn’t have much access even to Michael Blumenthal, James Schlesinger, and the other Carter populists, and it is not concern for the small man’s state of confidence that has made modern economic administration a minor branch of psychiatry.

Further, as the corporation develops, it takes power away from owners or capitalists, lodges it firmly and irrevocably with the management—the corporate bureaucracy. Capitalists, no one needs to be reminded, were a socially indigestible force—individualistic, uncompromising, power-hungry, often rapacious, always ready for a fight. Modern corporate bureaucrats, in contrast, are faceless, cautious, courteous, predictable, and given to compromise. As a consequence, and because of their power over prices which they can raise to offset cost increases, we have had, in the big business sector of the economy, an unprecedented period of labor peace, though, to be sure, at the price of persistent inflation.

For the same reasons, reference to the class struggle, the prelude to the final conflict, has come to have a slightly archaic sound, and among full-time union employees of the thousand largest corporations in the United States there aren’t many, perhaps not any, who fall below the “poverty line.” Nor are there any complaints of shortages of automobiles, depilatories, weapons, and other mass products of the corporate sector. This sector extends its technology to agriculture, and the government here follows the corporate practice of giving producers reasonably firm prices against which they can invest and plan. Housing and health care please almost no one but this could be because they do not lend themselves to largescale organization and planning.

The corporations do pursue their own goals and not those of the public at large. And there is the problem of inflation. But the small numbers involved make solution of these problems administratively feasible. In the defense we are now outlining, it would be readily conceded that much must be worked out with the government. And more in the future. Prices and incomes must be restrained if inflation is to be within tolerable limits. And, as the market is replaced by planning, there is no way by which supply is surely adjusted to demand. Energy, where the need for such planning is now accepted in principle if not in pending legislation, is a portent. It is agreed that, with the passage of time, there will have to be an increasing number of planned adjustments of demand to supply. Corporate and public bureaucracy will become increasingly intermingled, as already is the case with oil, atomic energy, and space adventure. The corporation, it would be said, paves the way for the requisite national planning and by removing power from the owners even goes far to socialize itself.

Finally it would be part of this defense that while in the manner of all disciplined organization the corporation denies liberty of expression to quite a few people, those so oppressed do not in the least seem to mind. The repression operates against the important participants in the management. In all public utterances they are well advised to reflect an institutionally acceptable viewpoint, what is often called even in noncommunist countries the party line. Very often they are required to say what the guardians of the official truth, the public relations executives, have written out for them, a derogatory thing. And the sanctions for speaking in conflict with the corporate perception of truth, if subtle, are severe: those so disposed may be praised for their character but they are not promoted. That over time becomes expensive.

There is also, in the upper ranks of the corporation, an equally subtle discouragement of other forms of expression. Here is an exceptionally privileged and compensated group of men which produces almost no poets, essayists, novelists, painters, philosophers, or composers and, as compared with law and the universities, very few politicians. The understanding, never explicit, is that such expression is to be avoided. A man whose interests and energies are partly so engaged may be praised but he is also thought a trifle eccentric and unreliable. So it is part of the corporate discipline that he set such matters aside. The repression appears almost innocently in the dictum: “We expect a man to give his full time to this job.”

But it would be held on behalf of modern enterprise that this repression, however real, is loved. The pecuniary rewards are large enough to compensate for the surrender of individual thought to corporate thought and expression. The pecuniary and social costs of contracting out are high but less painful than in the formally planned economies. And there is even, as John Steinbeck once said of the State Department, a measure of contentment and comfort in knowing that thought is available, along with all else, from the organization.

Meanwhile thought and expression by people outside the corporation are not controlled or condemned. They may be considered inconvenient or annoying but the modern corporate man, in contrast with the old-fashioned capitalist entrepreneur, does nothing about it. A generation ago every reputable university board had a few vintage entrepreneurs who were stoutly in search of heresy in the economics department or at other socially vulnerable points. The modern corporate man would not dream of intervening, even though, as I shall note presently, Mr. Kristol thinks that, financially speaking, he should.

All in all, it’s quite a good case, and it only becomes possible when one has dispensed with the conventionally implausible authority of the market. Much is missing, including such matters as distribution of income, distribution of power, the position of minorities, social values and purposes, the tendency of the well-articulated desires of corporate executives and the generally privileged to be mistaken for the needs of the masses, and the risks that are taken of nuclear extinction. But I have been concocting a sample brief, not offering a balanced view.

Were I asking for someone to make this case, I’ve long thought it would be Irving Kristol. He is Henry Robinson Luce Professor of Urban Values at New York University, and his academic auspices* are exactly right. Harry Luce, in a groping, erratic, charming way, spent much of his adult life looking for a rationale for the kind of big businessman that, to his unending astonishment, he had become. Mr. Kristol is also far too sophisticated to buy the primitive neo-classical and free-enterprise model in its Simple or William Simon form. He has even the good judgment to put himself at some distance from Milton Friedman. A further qualification, which honesty requires me to record, is the breadth of his reading, which, as this volume makes abundantly, even repetitively clear, extends to all of my books, and with nearly total recall. Only a greater measure of agreement might be wished.

Alas, Kristol doesn’t do the job, as I trust even less partisan judges will agree. For one thing, capitalist instinct may have intervened. I suspect him of having tried too aggressively to increase productivity by splicing together too many previously published pieces and doing a little mislabeling. As individual essays, what are here called chapters would be literate, sharp, and suggestive, however one might disagree. As parts of a book, they do not hang together. There is no coherent, progressive case.

But the more serious problem is ambiguity, indecision, and perhaps even a very slight lack of courage. Mr. Kristol accepts the decline of the market, agrees that the modern corporation has political power. And he is intensely critical of the way both power over prices and power in political matters are used or not used. Thus he thinks the oil companies, after the Arab boycott and the OPEC price hike, were insane to rake in the money while explaining that profits were not as high as they once were or should be. It is, obviously, their decision he is attacking, not the impersonal award of the market. He also believes corporate executives are more interested in excluding their stockholders from power in the corporation than in mobilizing them as a constituency for political ends, and he sees much other misused or unused political power. He concedes that the managerial revolution is real and that the corporate technostructure is the decisive political force. One could not on these matters ask for more.

But having gone all this distance, he then retreats, some would say abandons the field, and makes the neoclassical market the bulwark of his defense of capitalism. He notes that “Americans who defend the capitalist system, i.e., an economy and a way of life organized primarily by the free market, are called ‘conservative,’ ” and he leaves no doubt that, subject to some “neoconservative” concessions to government intervention, this is how his beliefs classify him. It is the peculiar national sin of American liberals, he asserts, that they do not see that the market is on their side. And even more powerfully he avows that

One of the keystones of modern economic thought is that it is impossible to have an a priori knowledge of what constitutes happiness for other people; that such knowledge is incorporated in an individual’s “utility schedule”; and this knowledge, in turn, is revealed by the choices the individual makes in a free market.

This assertion is truly unwise. For if, as Mr. Kristol concedes, the corporation can influence prices, those absolutely indispensable “utility schedules” operate not against the free market that he so specifically requires but in practice against a rigged price schedule, one that reflects the economic power of the corporation. In consequence, the corporation deeply influences consumer choice through the relative prices it charges. (This result is even a wholly accepted “keystone” of neoclassical economic thought, one that is readily verified if one thinks of the effect that corporate decisions on, say, oil prices have on consumer choice.) And if, as Mr. Kristol partly agrees—and would have difficulty wholly denying—the modern firm spends hugely to influence consumer taste, that sacrosanct utility schedule, already destroyed by corporate price-fixing, is itself partly the creation of the corporation.

So Mr. Kristol is a truly devastating force against his own keystones. He might have argued that, in a relatively rich society, many of the prices and tastes so influenced by the corporation have no very profound effect on welfare—that the consumer is malleable because, being well supplied, his or her needs are not so urgent as to command deep thought. But this he does not stress, and there are limits beyond which, even in the most gracious of moods, one should not have to go in making an author’s case.

In Mr. Kristol’s system the corporation is the enemy of the market by which he defends the corporation. But this curious result, not surprisingly, he does not wish to concede, perhaps even admit to himself. So, deliberately or unconsciously, he comes up with another inimical force where the corporation is concerned. It is the professors, journalists, scientists, assorted pundits, whom he groups together as the New Class. They react adversely to the corporation partly out of a sense of inferiority, partly out of envy of executive pay and expense accounts, partly out of a defensive reaction to the economic preoccupations of the corporation and specifically to its service to the consumer economy. This, in contrast with the concerns of the mind or soul, the New Class holds to be vulgar. Derived from these attitudes are an excessively costly concern for the environment (which Mr. Kristol, after conceding the adverse effect, would leave entirely to his market), a prodigal attitude toward public services and the welfare state, and a generally feckless commitment to closing tax loopholes and redistributing income. The need, he believes, is for a strenuous effort by business and its friends to educate the New Class, although he has only contempt for past business efforts to promote a better understanding of free enterprise, and, characteristically, he thinks advertisements on its merits do as much harm as good.

The nature of the alternative remedial education, which one imagines will be a fairly challenging task, Mr. Kristol does not make completely clear. He does say that corporations should distinguish between their friends and their critics in distributing corporate largesse. And, as to both this and the remedial education, he urges that they be guided by their friends within the New Class, a convocation that, almost certainly, would include Mr. Kristol.

One wonders, however, if such discrimination would not stir a certain amount of adverse comment and even antagonism in the New Class, although I do agree with Mr. Kristol that a fair number of them are open to purchase if the price is sufficiently high. I would be even more troubled by his diagnosis. Over the years, as a certified participant in the New Class, I have never noticed the envy or sense of inferiority of which he speaks. My impression, rather, is of people who tend, if at all, to a definite self-regard and self-assurance. Maybe Mr. Kristol, during the course of his researches; should have made a brief field trip to Cambridge. I would judge that my Classmates manifest a concern for corporate behavior, as for government, not out of envy but because they sense rightly that this is where the power lies. Were trade unions, the Baptist Church, or The Public Interest equally powerful, they would be on to those and just as strongly.

But the ultimate question in educating the New Class gets back to what one can sell. Here Mr. Kristol has his greatest reason to worry. He is too sophisticated and open to the evidence to accept the case for the market. But being a conservative in mood as well as in politics, he cannot bring himself to sell anything else. So having destroyed the case for the market, he goes back to it. This is generally thought to be a cold season for liberals. Mr. Kristol, in a literate and learned way, has shown that it is also a hard time for conservatives.

  1. *

    A powerful influence this. For much of my life I was Paul M. Warburg Professor of Economics at Harvard. The donor, the late James Warburg, was, by most calculations, a socialist. Mr. Kristol, in this book, is almost tearfully distressed that I am not more generally recognized to be such.

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