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How to Put Humpty Together Again

Revitalizing America: Politics for Prosperity

by Ronald E. Müller
Simon & Schuster, 352 pp., $13.95

The American Future: New Visions Beyond Old Frontiers

by Tom Hayden
South End Press, 325 pp., $6.00 (paper)

As the performance of American business has progressively deteriorated since the mid-Seventies, the political fortunes of the left have also steadily declined. One explanation for this paradox has been the unwillingness of many liberal and radical critics of business to acknowledge the seriousness of the difficulties confronting the economy. Much time has been spent on a search for scapegoats to blame for the increasing scarcity of goods and services. If only—so the argument runs—the power of multinational corporations, the oil companies, conglomerates, agribusiness, the medical-industrial complex, the military-industrial complex, etc., could somehow be made accountable to the public, the nightmare of inflation and chronic unemployment would come to an end.

This view, along with many other familiar liberal solutions for the erosion of America’s once dominant position in the world economy—e.g., restricting plant closings, reimposing price controls on domestic oil and natural gas—sounds less and less convincing. But the tone of the intellectual debate has recently begun to shift. With the recent publication of such books as Lester Thurow’s The Zero Sum Society, Richard Barnet’s The Lean Years, and Paul Blumberg’s Inequality in an Age of Decline, some of the more influential liberal and radical writers have begun to recognize that the postwar decades of abundance have ended. No matter what controls we place on American corporations, they may fail to sustain the levels of private and public consumption to which we have become accustomed.

This recognition, however, can lead to two very different conclusions. The first holds that restoring the productiveness of the economy should be the main concern of liberals, since only if the system produces more will the US be able to afford the public amenities and social welfare that should be available in a decent society. It follows that what is wrong with supply-side economics is not its goal of encouraging growth, but rather the means it proposes to do so. The question for liberals is whether they can suggest ways of stimulating investment that will be both more equitable and more effective than the one offered by conservatives. As his title indicates, this is the position of Ronald Müller in Revitalizing America: Politics for Prosperity.

A quite different strategy, offered by Tom Hayden in The American Future, is to question not only the possibility, but also the desirability, of continuing to increase the nation’s output of goods and services. Instead of mindlessly seeking to restore the prosperity of the 1950s and 1960s, Hayden argues, we should regard the decline of America’s economy as an opportunity to conceive a new vision of a good society. If the American public were no longer mesmerized by the prospect of ever increasing wealth, other values, such as equality, economic democracy, community, and a healthy physical environment would finally become the principal concerns of American politics.

In the current atmosphere, the reforms proposed by these books seem unlikely to be adopted or even debated seriously. But they are important for what they reveal about the direction of the emerging liberal response to the conservative drift of the late 1970s.

It is hard to recognize that Revitalizing America was written by one of the authors of Global Reach. In that book, published in 1974, Müller and Richard Barnet accused private corporations in general, and the multinational corporation in particular, of everything from impoverishing the underdeveloped world to destabilizing the currency of the industrial one, from exporting jobs from the United States to fostering under-employment in Brazil. That some of its accusations were inconsistent seemed of secondary importance to the authors. Their purpose was to alert us to the dangers of a new set of private institutions, engaged in the historically unprecedented effort of managing the globe as an integrated unit.

Not only is Revitalizing America a far better book but its political tone is quite different. Müller wants the federal government to act more forcefully in economic matters but he also emphasizes the ability of “industrial capitalism” to expand wealth. His central argument is that the fundamental source of the difficulties facing the advanced industrial economies lies in the dramatic improvement of the bargaining position of third world governments vis-à-vis the multinationals based in the West. During the last decade, the global balance of economic power has radically altered. Both conservative and radical governments in the third world have learned to manipulate the competitive rivalries of the West for their own benefit. The most visible sign of this transformation is the emergence of OPEC, which has reduced the once fabled power of the Seven Sisters to that of middlemen.

Of equal importance has been the shift in industrial production away from the most advanced nations. Müller criticizes the “image that Europeans and Americans have of the Third World sweatshops staffed by dollar-a-day laborers”—an image, incidentally, that Global Reach helped to promote—because it “does not match…the reality of increasingly skilled technicians and corporate executives whose enterprises are now competing with Western multinationals.”

As of 1979, thirty-four of the world’s five hundred largest multinationals had headquarters in the third world. They included shipbuilding, electronics, and textile companies in South Korea, chemical and automobile companies in Brazil, manufacturers as well as a number of other giant firms in Singapore, Hong Kong, the Philippines, and Malaysia. The Banco do Brasil has become the world’s eighth largest bank while a Philippine accounting firm now competes internationally with the “Big Eight” accountants, such as Price Waterhouse. Industries such as ship-building, petrochemicals, autos, steel, textiles, clothing, shoes, and consumer electronics have been in relative decline in both Western Europe and the United States—a major source of political and social tension, since these are the very industries on which the relative prosperity of nations such as Brazil, Taiwan, South Korea, Singapore, Mexico, and Nigeria has to a large degree been based.

The purpose of Revitalizing America is not to celebrate the decline of the West. Müller contends, on the contrary, that the OPEC nations with their surplus of capital, the newly industrializing countries with their large labor pools, and the Western economies with their sophisticated technology and rich consumer markets have many compatible interests. The oil-exporting nations need to find places to invest their capital, the newly industrializing nations require additional capital investment to develop their productive capacities still further, and the developed nations would benefit both from a market for their own industrial exports and from additional imports of raw materials and inexpensive manufactured goods.

Why is there a global shortage of capital investment? Because, according to Müller, the mechanisms through which international trade and finance were so successfully managed in the postwar decades depended upon the extraordinary strength of the American economy. As American power declined in the early Seventies, Western banks, trade ministries, and organizations such as the International Monetary Fund ceased to function effectively. As a result, the petrodollars of the OPEC nations, instead of being recycled into long-term productive investments in both the industrial and the industrializing nations, now wander in the short-term Euro-dollar market, shifting from one currency or one corporate balance sheet to the next.

The industrial nations find themselves under strong protectionist pressures from workers concerned about the loss of employment from third world imports and from capitalists concerned about their inability to compete. Müller argues persuasively that this growing Balkanization of the world economy threatens to leave everyone worse off: Western consumers will be deprived of inexpensive manufactured goods, growing third world industries will be crippled, and inefficient industries in the West will be sheltered behind protectionist barriers.

This emerging pattern of neomercantilism is particularly threatening to the United States, whose government has historically left the management of foreign investment and trade primarily to American corporations. Müller notes that one reason why American companies frequently find themselves at a disadvantage in securing overseas contracts is that they are competing not simply with other companies owned by investors but with foreign governments. The latter, often in cooperation with their domestic producers, both privately and publicly owned, increasingly engage in direct negotiations with third world governments in order to guarantee access to raw materials and promote industrial exports. For example, the governments of Japan and France have both entered into direct arrangements with the Mexican government; in exchange for oil and natural gas, they have agreed to furnish Mexico with a package of technology and loans. The world is becoming rapidly divided into a series of regional trading blocs from which American companies are excluded.

Müller’s solution is for the US government to take the lead both in coordinating economic decisions within the US and in establishing a global Marshall Plan to help channel capital from both OPEC and the West into the industrializing world. The purpose of these funds would not simply be to stimulate the demand for Western technology and consumer goods—which by itself would be highly inflationary—but to help break the pattern that currently limits the third world’s output of agricultural products, energy, and mineral resources—the very commodities whose current scarcity threatens Western industrial growth. In short, Müller envisions the industrializing South functioning as the world’s “leading engine of growth” during the next two decades, with its expanded production of both raw materials and manufactured goods becoming the vehicle for the economic revitalization of the industrial North.

Many practical objections could be made to this scheme. It assumes both that OPEC actually wants to help to develop the non-Moslem world, and that third world leaders would not use these investment funds to stimulate industries that already produce more than the industrial markets can absorb. Both these assumptions are highly questionable. Moreover, as the public reaction to the Brandt report suggests—its recommendations are similar to Müller’s—there is currently no political constituency in either the United States or Western Europe favoring the export of capital to the third world under multilateral arrangements. The multinationals want to control the rate and location of foreign investment themselves. Trade unions and their political allies appear increasingly hostile to any movement of capital outside national boundaries—or even within national boundaries for that matter.

What makes Müller’s proposal appealing is not its feasibility, but rather its assumptions. He gives unexpected vitality to the old liberal idea that the US can do much to promote international development. While it has become fashionable to argue that the poverty of the third world is linked to the overconsumption of scarce resources by the industrial North, Müller convincingly demonstrates that nothing has been so destructive of the economic development of the third world than the slowdown of growth rates in the West that took place during the 1970s. The growth of each major region has become closely dependent on all the others. Müller’s book may also help put to rest the standard complaints from big business that a shortage of domestic savings and capital has been inhibiting investment. From a global perspective, there is no capital shortage; the real shortage is the lack of adequate investment opportunities. This is not simply an American problem, but an international one, and it is unlikely to be solved by reliance exclusively on workings of the market, whether international or domestic. That will not be effective in a world where enterprises that are either owned or supported by governments are becoming the most important economic units.

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