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Opinion piece by Richard Epstein
12 March 07
The
Road to Stagnation
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It
is a regrettable truth about political discourse that no bad
lesson ever gets unlearned.
The climate of political opinion in the
United States
, and probably in much of
New Zealand
, offers somber confirmation of that melancholy truth.
At issue in both nations, and everywhere else around
the world, is a struggle two models of economic organization.
One is market driven.
The other is corporatist.
The
Market Model The
market model, which received its clearest articulation in Adam
Smith’s The Wealth of
Nations, believes that competition in labor, product
and capital markets is the surest road to economic prosperity.
The purpose of the state is to provide a stable
platform on which these private activities can take place.
Its function includes the maintenance of law and order,
the provision of a social infrastructure, the preservation of
a stable currency, the enforcement of property rights and
contracts, and the control of private monopoly.
That
system in turn has two key areas in which the state should not
intervene. First,
it should not interfere in international trade.
Neither tariff barriers or domestic subsidies are any
part of a sound programme.
Second, the state should not in domestic affairs
attempt to divide markets among dominant firms, or regulate
price or wages of any good or service sold in competitive
markets.
The
upshot of the market regime is a steady improvement in human
wealth and happiness. The
proposition does not mean, of course, that everyone benefits
uniformly from all innovation and exchange.
Quite the opposite, the market model accepts as both
inevitable and desirable the proposition that some successful
firms will outlive their usefulness and go into bankruptcy or
be acquired by new and savvier upstarts.
Of course, as some firms go under, workers will be left
to fend for themselves, often at considerable personal
dislocation. These
costs, however, have to be paid to keep the economic system
from falling into a permanent state of decrepitude, for the
old and inefficient can be propped up only by imposing taxes
or barriers to entry on newer and more efficient rivals.
The
Corporatist Vision The
corporatist vision fights the dislocation and disruption that
the market model embraces as the mark of progress.
Its grand plan is to entrench the status quo by
creating an economic order in which dynamic competitive change
is displaced by the corporatist model that envisions long-term
alliances among government agencies, large firms, and labor
unions. This
agenda controlled American New Deal policies from the 1930s
through the 1960s. It
has three key components.
First,
high tariff and other import barriers.
These are paired with efforts to impede the outsourcing
of American jobs overseas, which are denounced, courtesy of
John Kerry, as the fiendish efforts of “Benedict Arnold
CEOs”. (For New
Zealanders who do not know this particular bit of American
revolutionary folklore, Benedict Arnold was an American
general who turned traitor).
In a perverse sense, these restrictive measures make
sense. Corporatism
requires the monopoly profits that competition from overseas
whittles away. The
rise of companies like
Toyota
and Nissan in the
United States
comes of course at the expense of the old line American car
companies and their unionized workforce.
Second,
the corporatist vision requires strengthening the legal
position of labor unions, which today represent no more than
eight percent of the private
US
workforce - which still leaves them with ample political
clout. The key
step is a Democratic initiative that has already passed the
House of Representatives, which removes the need for secret
elections before unions are certified as collective bargaining
agents. Instead,
the union gets its monopoly position solely by acquiring
requisite number of signed authorization cards from individual
workers - opening the door wide to manipulation, bullying and
fraud.
Third,
the corporatist strategy imposes barriers to entry by outside
entries, for which the increases in the minimum wage and the
imposing of zoning restrictions - both tried against
Wal-Mart’s - are two key components.
What
is so dismaying about the resurgent Democratic Left in
American politics is that its desperate effort to preserve and
divvy up monopoly power will eventually collapse from its own
inherent inefficiencies. But
in the interim the programme causes massive dislocations.
The remaining union workers at the Ford Motor Company,
for example, have had to make major concessions at the
eleventh hour in order to stave off impending bankruptcy.
But all the while, the rest of the world moves further
ahead because its workers and firms are not trapped in these
corporatist fetters.
I
am confident that the new grand corporatist alliance will
fail. The new tech
industries don’t fit the pattern, and too many people of all
political persuasions sense the ultimate futility of pursuing
this bygone strategy. But
in the interim, the current leftward push absorbs intellectual
and political energies better spent on other issues.
To modify a phrase from Hayek, why at this late date
must we travel once more down the road to stagnation.
Richard A.
Epstein is the James Parker Hall Distinguished Service
Professor of Law at the University of Chicago and the Peter and
Kirsten Bedford Senior Fellow at the Hoover Institution.
His latest book is “Overdose:
How Excessive Government Regulation Stifles
Pharmaceutical Innovation (Yale University Press, 2006). He has lectured and published frequently in New Zealand.
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