Economics Professors Roger Backhouse and Bradley Bateman make a case in a recent editorial that with the fall of communism, the economics world has become too focused on abstractions and have, like big too-big-to-fail modern financial institutions, possibly lost sight of the larger economic problems and discussions a democratic society should be having in the wake of such failures and the failures of governments to maintain responsible economics of their own. They point out that “government spending” is too abstract for real political debate because spending ranges from Veterans’ needs to Medicare to Social Security to defense spending and a host of other programs that constitute far smaller line items.
In other words, it’s time to have a larger discussion about the relationship of the kind of economy we want and how we want to live as a society, the kind of conversation that was so animated by the threat of communism in the 20th century. From the professors:
Another downside to the “dentistry” approach to economics is that important pieces of human experience can easily fall from sight. The government does not cut an abstract entity called “government spending” but numerous spending programs, from veterans’ benefits and homeland security to Medicare and Medicaid. To refuse to discuss ideas such as types of capitalism deprives us of language with which to think about these problems. It makes it easier to stop thinking about what the economic system is for and in whose interests it is working.
Perhaps the protesters occupying Wall Street are not so misguided after all. The questions they raise — how do we deal with the local costs of global downturns? Is it fair that those who suffer the most from such downturns have their safety net cut, while those who generate the volatility are bailed out by the government? — are the same ones that a big-picture economic vision should address. If economists want to help create a better world, they first have to ask, and try to answer, the hard questions that can shape a new vision of capitalism’s potential.
Wherever one may come out in such a discussion is not the point. The point is that we live in sufficiently complex times that the question of “government spending” and “debt” are too general to address the point Americans might rather be having, namely, the kind of society we want to live in, and how best to structure our system of capitalism to achieve those ends.
To that end, I have to plug a fantastic book 20 years in the making by the pioneering economist and Harvard Business School professor (emeritus), and my favorite professor from my time there, Professor Bruce Scott. His new book is entitled, Capitalism: Its Origins and Evolution as a System of Governance. Professor Scott’s book is a good place to start for just such thinking and discussion called for above. Professor Scott emailed me the prologue, but the book is now available on Amazon (I’m waiting on my copy). Here’s a tiny part of the prologue:
Today Wal-Mart is truly an icon of successful US capitalism. At the same time, with its vast purchasing budget and influence as an employer, Wal-Mart also represents the power of the private sector to potentially abuse the system. As in this case, Wal-Mart, like other firms even a fraction of its size, can hire a platoon of lawyers and thereby outspend and overwhelm local zoning boards made up of elected officials who typically depend upon outside legal counsel. The latter must ask their electorates to pay for legal counsel in order to defend their interests, a request that potentially pits the short-term interests of a mobile fraction of the population against the long-term interests of other fractions, some with histories dating back two or even three hundred years. How adequate is it, then, for these towns to retain nominal authority over zoning when, given their small size, they cannot practically exercise it? Potential new arrivals can simply circumvent the rules these towns set by developing their stores just across the town line. Radical decentralization may have been a stroke of genius in 1787, when the local governments were of similar scope as the entrepreneurs who served the town, but today no such balance of power exists. US capitalism has vested great economic power in its large firms to achieve great results, not least in terms of increased selection and lower prices, but it has done so in a context where the firms’ corresponding charters of incorporation do not require them to take into consideration how their actions affect the welfare of the communities that they affect. Since the Civil War, and still more since 1980, this lack of explicit responsibility to the community at large has implicitly oriented the mandate of US firms towards enhancing shareholder wealth. In turn, this focus on enriching a small minority of the population has become a distinctive aspect of American capitalism and is, in fact, an attribute that I will consider in some detail in this book.
… The author is the Paul Whiton Cherington Professor of Business Administration at Harvard Business School and has done extensive research and teaching in the field of economic strategies of nations.
