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The Wrecking Ball of Innovation

In our newfound worship of productivity and the market have we not simply inverted the faith of an earlier generation? Nothing is more ideological, after all, than the proposition that all affairs and policies, private and public, must turn upon the globalizing economy, its unavoidable laws and its insatiable demands. Together with the promise of revolution and its dream of social transformation, this worship of economic necessity was also the core premise of Marxism. In transiting from the twentieth century to the twenty-first, have we not just abandoned one nineteenth-century belief system and substituted another in its place?

Like the old master narrative, the new one offers scant guidance to making hard political choices. To take a simple instance: the real reason Robert Reich’s “citizen” might be confused about global warming is not because he is also a part-time investor and consumer. It is because global warming is both a consequence of economic growth and a contributor to it. In which case, if “growth” is good and global warming bad, how is one to choose? Is growth a self-evident good? Whether contemporary wealth creation and efficiency-induced productivity growth actually deliver the benefits they proclaim—opportunity, upward mobility, happiness, well-being, affluence, security—is perhaps more of an open question than we are disposed to acknowledge. What if growth increased social resentments rather than alleviating them?5 We should consider the noneconomic implications of public policy choices.

Take the case of welfare reform—in which Reich himself was very active, both as Bill Clinton’s labor secretary and as the author many years ago of a proposal to replace public welfare with grants to businesses that hire the unemployed.6 In 1996 the Clinton administration effectively eliminated most federally guaranteed entitlements to public assistance. Reversing the developments of the previous half-century, Congress ended universal benefits and made welfare conditional upon a demonstrated willingness to seek and accept work. This was in line with developments elsewhere: the shift from welfare to “workfare” characterized reforms in Britain, Holland, and even Scandinavia (e.g., the 1991 Norwegian Social Services Act entitling local authorities to impose work requirements upon welfare recipients). Universal rights and need-based provisions were replaced with a system of “work-enabling” incentives and rewards: the proclaimed goal of getting people “off” welfare accompanied a belief that the outcome would be both morally exemplary and economically efficient.

But what looks like sensible economic policy carries an implicit civic cost. One of the fundamental objectives of the twentieth-century welfare state was to make full citizens of everyone: not just voting citizens in Robert Reich’s limited sense but rights-bearing citizens with an unconditional claim upon the attention and support of the collectivity. The outcome would be a more cohesive society, with no category of person excluded or less “deserving.” But the new, “discretionary” approach makes an individual’s claim upon the collectivity once again contingent on good conduct. It reintroduces a conditionality to social citizenship: only those with a job are full members of the community. Others may receive the help necessary for full participation, but not until they pass certain tests and demonstrate appropriate behavior.

Stripped of its rhetorical finery, modern welfare reform thus returns us to the spirit of England’s New Poor Law of 1834, which introduced the principle of least eligibility, whereby relief for the unemployed and indigent was to be inferior in quality and quantity to the lowest prevailing wages and conditions of employment. And above all, welfare reform reopens a distinction between active (or “deserving”) citizens and others: those who, for whatever reason, are excluded from the active workforce. To be sure, the old universal welfare systems were not market-friendly. But that was the point: welfare, in T.H. Marshall’s words, was supposed “to supersede the market by taking goods and services out of it, or in some way to control and modify its operations so as to produce a result it would not have produced itself.”7

Market optimization—displacing social or political evaluations of public policy with measures evaluated primarily for their economic efficiency—is also the proclaimed justification for the privatization frenzy of recent years. But here, as with welfare reform, what purports to represent the future has actually begun to resemble the past, breaking up the public and collective agencies of the modern era into fragmented and privately held assets reminiscent of a much earlier age. With the advent of the modern state (notably over the course of the past century), transport, hospitals, schools, mails, armies, prisons, police forces, and affordable access to culture—all of them essential services not obviously well served by the workings of the profit motive—were taken under public regulation or control. They are now being handed back to private entrepreneurs (or, in the case of many European cultural budgets, to the vagaries of individual delusion and frailty in the form of semiprivate national lotteries).

In some cases—transportation and mails, notably—these services don’t promise an economic return (e.g., when they have to be provided in remote places) and taxpayers must underwrite or guarantee the private sector’s profit margin in order for the state to find buyers. This is just old-fashioned subsidy under another name; and (as Robert Reich acknowledges) a perennial source of moral hazard, inviting irresponsibility and often corruption. In other cases private companies take a hitherto public responsibility—provision of prisons or railroad carriages or health care—off the hands of the state, sometimes paying a fee for the privilege and recouping their outlay by charging citizens or communities who use the facility in question. Typically, the public treasury reaps a one-time gain and is relieved of an administrative burden, but at the expense of foregone future income and a loss of control over the quality of the service contracted out. In Britain today this is designated as PPP: “Public–Private Partnership.” In ancien régime France they called it tax farming.8

The real impact of privatization, like welfare reform, deregulation, the technological revolution, and indeed globalization itself, has been to reduce the role of the state in the affairs of its citizens: to get the state “off our backs” and “out of our lives”—a common objective of economic “reformers” everywhere—and make public policy, in Robert Reich’s approving words, “business-friendly.” The twentieth-century state in its “soul-engineering” guise has surely left a bad taste. It was often inefficient, sometimes repressive, occasionally genocidal. But in reducing (and implicitly discrediting) the state, in forsaking public interest for private advantage wherever possible, we have also devalued those goods and services that represent the collectivity and its shared purposes, steadily “reducing the incentive for competent and ambitious persons to join or stay in state service.”9 And this carries a very considerable risk.

The market requires norms, habits, and “sentiments” external to itself to hold it together, to ensure the very political stability that capitalism needs in order to thrive. But it also tends to corrode those same practices and sentiments. This much has long been clear.10 The benign “invisible hand”—the unregulated free market—may have been a favorable inaugural condition for commercial societies. But it cannot reproduce the noncommercial institutions and relations—of cohesion, trust, custom, restraint, obligation, morality, authority—that it inherited and which the pursuit of individual economic self-interest tends to undermine rather than reinforce.11 For similar reasons, the relationship between capitalism and democracy (or capitalism and political freedom) should not be taken for granted: see China, Russia, and perhaps even Singapore today. Efficiency, growth, and profit may not always be a precondition or even a consequence of democracy so much as a substitute for it.

If modern democracies are to survive the shock of Reich’s “supercapitalism,” they need to be bound by something more than the pursuit of private economic advantage, particularly when the latter accrues to ever fewer beneficiaries: the idea of a society held together by pecuniary interests alone is, in Mill’s words, “essentially repulsive.” A civilized society requires more than self-interest, whether deluded or enlightened, for its shared narrative of purpose. “The greatest asset of public action is its ability to satisfy vaguely felt needs for higher purpose in the lives of men and women.”12

The danger today is that, having devalued public action, we are no longer clear just what does bind us together. The late Bernard Williams, after describing the “objective teleology of human nature” in Greek ethical thought—the belief that there are facts about man’s place in the world which determined that he was meant to lead a cooperative life—concluded that

some version of this belief has been held by most ethical outlooks subsequently; we are perhaps more conscious now of having to do without it than anyone has been since some fifth-century Sophists first doubted it.

In which case who, today, will take responsibility for what Jan Patocka called the “Soul of the City”?13

There are two overriding reasons to worry about the soul of the city, and to fear that it cannot be satisfactorily substituted with a story of indefinite economic growth, or even the creative destruction of the wrecking ball of capitalist innovation. The first reason is that this story is not very appealing. It leaves a lot of people out, both at home and abroad; it wreaks havoc with the natural environment; and its consequences are unattractive and uninspiring. Abundance (as Daniel Bell once observed) may be the American substitute for socialism; but as shared social objectives go, shopping remains something of an underachievement. In the early years of the French Revolution the Marquis de Condorcet was dismayed at the prospect of commercial society that was opening before him (as it is opening before us): the idea that “liberty will be no more, in the eyes of an avid nation, than a necessary condition for the security of financial operations.”14 We ought to share his revulsion.

The second source of anxiety is that the never-ending story may not last. Even economies have histories. The last time the capitalist world passed through a period of unprecedented expansion and great wealth creation, during the “globalization” avant le mot of the world economy in the imperial decades preceding World War I, there was a widespread assumption in Britain—much as there is in the US and Western Europe today—that this was the threshold of an unprecedented age of indefinite peace and prosperity. Anyone seeking an account of this confidence—and what became of it—can do no better than read Keynes’s Economic Consequences of the Peace: a summary of the illusions of a world on the edge of catastrophe, written in the aftermath of the war that was to put an end to all such irenic fancies for the next fifty years.15

It was Keynes, too, who anticipated and helped prepare for the “craving for security” that Europeans would feel after the three decades of war and economic collapse that followed the end of the Gilded Age. Thanks in large measure to the state-provided public services and safety nets incorporated into their postwar systems of governance, the citizens of the advanced countries lost the gnawing sense of insecurity and fear that had dominated and polarized political life from 1914 through the early Fifties and which was largely responsible for the appeal of both fascism and communism in those years.

But we have good reason to believe that this may be about to change. Fear is reemerging as an active ingredient of political life in Western democracies. Fear of terrorism, of course; but also, and perhaps more insidiously, fear of the uncontrollable speed of change, fear of the loss of employment, fear of losing ground to others in an increasingly unequal distribution of resources, fear of losing control of the circumstances and routines of one’s daily life. And, perhaps above all, fear that it is not just we who can no longer shape our lives but that those in authority have lost control as well, to forces beyond their reach.

Half a century of security and prosperity has largely erased the memory of the last time an “economic age” collapsed into an era of fear. We have become stridently insistent—in our economic calculations, our political practices, our international strategies, even our educational priorities—that the past has little of relevance to teach us. Ours, we insist, is a new world; its risks and opportunities are without precedent. Our parents and grandparents, however, who lived the consequences of the unraveling of an earlier economic age, had a far sharper sense of what can happen to a society when private and sectional interests trump public goals and obscure the common good.

We need to recover some of that sense. We are likely, in any event, to rediscover the state thanks to globalization itself. Populations experiencing increased economic and physical insecurity will retreat to the political symbols, legal resources, and physical barriers that only a territorial state can provide. This is already happening in many countries: note the rising attraction of protectionism in American politics, the appeal of “anti-immigrant” parties across Western Europe, the call for “walls,” “barriers,” and “tests” everywhere. “Flat worlders” may be in for a surprise. Moreover, while it may be true that globalization and “supercapitalism” reduce differences between countries, they typically amplify inequality within them—in China, for instance, or the US—with disruptive political implications.

If we are indeed going to experience a return of the state, an enhanced need for the security and resources that only a state can provide, then we should be paying more attention to the things states can do. Today we speak contemptuously of the state: not as the natural benefactor of first resort but as a source of economic inefficiency and social intrusion best excluded from citizens’ affairs wherever possible. The very success of the mixed-economy welfare states—in providing the social stability and ideological demobilization which made possible the prosperity of the past half-century—has led a younger generation to take that same stability and ideological quiescence for granted and demand the elimination of the “impediment” of the taxing, regulating, and generally interfering state. This discounting of the public sector has become the default condition of policy discourse in much of the developed world.

But if I am right and our present circumstances will not endure indefinitely, we might do well to take a second glance at the way our twentieth-century predecessors responded to the political challenges of economic uncertainty. We may discover, as they did, that the universal provision of social services and some restriction upon inequalities of income and wealth are important economic variables in themselves, furnishing the necessary public cohesion and political confidence for a sustained prosperity—and that only the state has the resources and the authority to provide those services and enforce those restrictions in our collective name.

We may find that a healthy democracy, far from being threatened by the regulatory state, actually depends upon it: that in a world increasingly polarized between insecure individuals and unregulated global forces, the legitimate authority of the democratic state may be the best kind of intermediate institution we can devise. What, after all, is the alternative? Our contemporary cult of untrammeled economic freedom, combined with a heightened sense of fear and insecurity, is leading to reduced social provision and minimal economic regulation; but these are accompanied by ever-extending governmental oversight of communication, movement, and opinion. “Chinese” capitalism, as it were, Western-style. Is this what we want?


Supercapitalism’: An Exchange January 17, 2008

  1. 5

    Among recent contributions to this longstanding discussion see in particular Avner Offer, The Challenge of Affluence (Oxford University Press, 2006), reviewed in The New York Review, October 11, 2007, and Benjamin Friedman, The Moral Consequences of Economic Growth (Knopf, 2005), reviewed in The New York Review, January 12, 2006; also Fred Hirsch, Social Limits to Growth (Harvard University Press, 1976), and, classically, John Kenneth Galbraith, The Affluent Society (Houghton Mifflin, 1958). As Hirsch observes (p. 66, note 19), the question, for example, of whether redistribution “destroys wealth” can’t be answered by economic criteria alone. It depends on what constitutes “wealth,” i.e., what we value.

  2. 6

    See Robert Reich, The Next American Frontier: A Provocative Program for Economic Renewal (Viking, 1984).

  3. 7

    T.H. Marshall, “Value Problems of Welfare Capitalism,” Journal of Social Policy, Vol. 1, No. 1 (1972), pp. 19–20, quoted in Neil Gilbert, Transformation of the Welfare State: The Silent Surrender of Public Responsibility (Oxford University Press, 2002), p. 135. As Gil-bert concludes, “Policies devoted entirely to cultivating independence and private responsibility leave little ground for a life of honorable dependence for those who may be unable to work.”

  4. 8

    For privatization at work, in the country which has been most exposed to its depredations, see Christian Wolmar, On the Wrong Line: How Ideology and Incompetence Wrecked Britain’s Railways (London: Aurum, 2005), and Ally-son Pollock, NHS plc: The Privatisation of Our Health Care (Verso, 2004). Gordon Brown, Britain’s new prime minister, recently invited some of America’s more notorious for-profit health companies—Aetna and United HealthCare among them—to bid for the management of Britain’s hospital operations. Even the ultra-free-market Economist acknowledges the fallacy of “privatisation”: commenting on the bankruptcy of Metronet, one of the firms now running London’s Underground, it noted that since the government has “awarded Metronet ‘hundreds of millions of pounds’ to carry on its work…it is taxpayers who will have to foot the bill.” See The Economist, July 21, 2007.

  5. 9

    See Victor Perez-Diaz, “Political Symbolisms in Liberal Democracies” (unpublished paper, January 2007), p. 16.

  6. 10

    See, for example, Adam Smith, The Theory of Moral Sentiments (1759). Also Daniel Bell, The Cultural Contradictions of Capitalism (Basic Books, 1976).

  7. 11

    If we cannot moderate the extremes of fortune generated by the market and perpetuated by inheritance, the consensual basis of the market economy may not survive.” Tobin, World Finance and Economic Stability, p. 209. For “favorable inaugural condition” see Hirsch, Social Limits to Growth, p. 11. The crucial role of public coordinating institutions in furnishing the preconditions for stable markets and economic growth is also brought out in Barry Eichengreen’s recent study of postwar European capitalism, The European Economy Since 1945: Coordinated Capitalism and Beyond (Princeton University Press, 2006).

  8. 12

    Albert O. Hirschman, Shifting Involvements: Private Interest and Public Action (Princeton University Press, 1982, 2002), p. 126 (emphasis added).

  9. 13

    Bernard Williams, The Sense of the Past: Essays in the History of Philosophy (Princeton University Press, 2006), pp. 44–45. Concerning Patocka’s question I am grateful to Dr. Jacques Rupnik for his unpublished paper “The Legacy of Charter 77 and the Emergence of a European Public Space.”

  10. 14

    Esquisse d’un tableau historique des progrès de l’esprit humain” (Oeuvres de Condorcet, VI, 191), quoted in Rothschild, Economic Sentiments, p. 201.

  11. 15

    John Maynard Keynes, The Economic Consequences of the Peace (Harcourt, Brace, Jovanovich, 1920), Chapter 2: “Europe Before the War.” Economic mirages are not confined to imperial capitals. Here is how Ivo Andric described the optimistic delusions of his fellow Bosnians in those same halcyon times: “Such were those three decades of relative prosperity and apparent peace…when many…thought there was some infallible formula for the realization of a centuries-old dream of full and happy development of individuality in freedom and progress, when the…century spread out before the eyes of millions of men its many-sided and deceptive prosperity and created its fata morgana of comfort, security and happiness for all and everyone at reasonable prices and even on credit terms.” Ivo Andric, The Bridge on the Drina (University of Chicago Press, 1977), p. 173.

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