PS 201 Introduction to US Politics

The American Political Economy Lectures

Fall, 1998

 

Conflicting Views of the Relationship of Capitalism to Democracy
  Elite Democratic -- Economic Liberalism Popular Democratic Critique
Markets Markets efficiently allocate resources, spur efficiency and innovation, steer production toward consumer demand (a benign "invisible hand") Markets produce environmental and social externalities, engender wealth stratification and social hierarchy, are liable to be nonresponsive to collective needs, and suffer periodic crises rooted in their unplanned and uncoordinated nature (a malign invisible hand).
Markets maximize voluntary relationships and minimize the need for political coercion The wage relationship is itself often coercive, since most people must sell their labor to live, while corporations can usually replace workers from the pool of unemployed
Competition is open to all (equal opportunity) and advancement is based on merit (inequalities of outcome are justified) Competition is unequal (initial conditions vary); factors other than merit (race, gender, etc.) frequently intervene; and the system is liable to systematic biases in what it rewards and excludes
Consumers are sovereign--their decisions drive the market--therefore business elites are ultimately accountable to consumers Consumer preferences are shaped by advertising; consumers cannot express preferences for collective goods in the market; consumer sovereignty implies the subordination of the poor
Human

Nature

Capitalism and markets reflect human nature:

People are naturally self-interested

Freedom is economically based, and this consists of the capacity to acquire, consume, innovative, and produce (consumer culture and entrepreneurship)

When rational egoism and material fulfillment alone dominate, the fabric of collective life becomes tattered. Freedom is as much a matter of political participation and personal expression as it is the pursuit of economic gain, and personal fulfillment comes as much from care for and cooperation with others as from private pursuits.
The

State

The public interest is best served by non-interventionary ("laissez faire", "deregulatory") government, since:
    • Government regulation is often clumsy and inefficient
    • Regulations burden businesses, reducing profitability, which:
      • discourages investment and slows economic growth
      • makes them less competitive, weakening America in the global economy
      • Growth of government saps money better used in private investment
      • Welfare programs often reward people for idleness and cultivate dependency
    • Bureaucracy should be lean, conservative in its approach, and technocratic (expertise insulated from politics)
    • Big government tends to become arrogant and tyrannous, thus a threat to freedom
Government intervention can promote the public interest:
    • By reducing and preventing environmental externalities (pollution control, habitat protection, etc.)
    • By mitigating the harsh social and economic effects of the market economy on individuals (Social Security, unemployment compensation, aid to children)
    • By protecting public and worker health and safety (health and safety standards, assessments of new drugs and chemicals, licensing for professional and technical jobs, etc.)
    • By providing collective goods that cannot be profitably produced (education, highways, national defense, etc.)
    • By macro-economic management to minimize economic downturns, limit inflation, and maintain high levels of employment
    • By enforcing basic norms of fairness and equality, and by protecting citizens against discrimination (civil rights, sexual harassment, labor organizing, etc.)

Bureaucracy should be open, accountable, and participatory, and should seek to reconcile public involvement with quality science.


The danger of governmental tyranny is best met through increased democracy, not limitations of power.

Corporate

Power

Corporations take risks in order to produce socially useful products; they embody faith in the future and the "spirit of giving" (Gilder, Wealth and Poverty) Corporations produce for private profit; public benefit is neither their primary goal nor a necessary result. The growth of advertising has raised to a high art the manipulation and fabrication of desires. Corporate planning shapes markets and public policy. Corporations do take risks, but they also strive to shift risk-taking and losses onto others (government and people).
The political power of corporations is overstated; what power they do exercise is a legitimate defense of their interests. (Alternatively: the hierarchical organization of political power is desirable because it contributes to social stability.) Corporations exercise substantial direct influence on politics through campaign contributions, lobbying, funding of 'think tanks', etc. More important still is their structural influence: private control of investment makes the state dependent on corporations for economic growth, taxation (tax revenues are affected by economic cycles) and borrowing. "Business confidence" determines investment. See text pages 94-95.
The internal hierarchy of corporations is a rightful prerogative of private ownership, essential to effective management, and is voluntarily accepted as a condition of employment. Key institutions, notably the workplace, ought to have democratic authority structures if people are to participate effectively and believably in shaping society and gain experience in democratic decision-making. See text page 84.
Labor Unions Labor unions are coercive; workers should not be forced to join or contribute to them (union shops), nor should union leaders have the power to make political contributions not specifically authorized by members. Labor unions and the labor movement are essential as a countervailing power to that of corporations, and laws protecting the right to organize and the right of unions to participate effectively in the political process are required if labor is to have any influence.