Laissez-Faire has Failed the U.S. What Democrat Dares to Say It Loud?

WILLIAM PFAFF

December 05, 1991|By WILLIAM PFAFF

PARIS. — Paris-- President George Bush is in trouble because of the condition of the American economy. Unemployment and the threat of unemployment shadow the lives of millions of voters.

The cause of this condition has yet to be clearly identified by the administration's critics or admitted by the free-market theorists responsible for the policies followed by the U.S. government during the past decade.

Opponents of the administration argue that both the Bush and Reagan governments have encouraged industrial management directed to short-term financial return, which discourages research and investment, and have followed economic policies promoting reckless indebtedness. Hence the United States experiences an economic slump far more serious than a mere downswing in the business cycle -- which is how Mr. Bush and his friends see the problem.

The critics are correct, but there is more to be said. The deregulated market capitalism of the Reagan years was supposed to maximize industrial efficiency. In practice, the principal means by which it has sought to gain efficiency has been by cutting the burden of wages. This has created high unemployment and has tended to pauperize the remaining work force, which destroys demand.

What has happened was not part of the market bargain, and I do not think it was really expected by the economists who pressed these deregulated market theories on the public authorities. Industrialists have obtained their efficiencies in a savage competition in which the standard of living of workers has become one of the main stakes on the bargaining table. The result has been international pressure to reduce all workers to the standard of the lowest.

The United States today lacks strong unions and is without the social insurance structures of Europe or the life-employment industrial practices of Japan. As a result, pauperization is not too strong a word for what has happened to those Americans who have lost their jobs -- or have never found any. Hundreds of thousands are living in doorways or the streets and millions more exist in conditions of the utmost economic and social precariousness.

Those lucky enough still to be employed find that the threat of unemployment encourages employers to refuse wage raises or even to demand wage reductions. That this happens when management in some of the same American companies are taking personal salaries and benefits out of their companies wildly beyond anything practiced by European or Japanese management is an unspeakable obscenity.

Americans are peculiarly the victims of this situation. In Japan the main industries offer lifetime security even though working conditions and hours usually are onerous. In Western Europe unemployment benefits are good and the social-service net of retraining schemes, state-supervised pension plans, early retirement and health insurance protects the unemployed in ways scarcely imaginable in the United States.

Thus in what has amounted to an international competition to reduce the living standard of workers, the United States has been the loser. Yet the American economy has gained little or nothing from this. Free-market theory said the efficiencies gained by unrestricted competition would cause bad companies to fail but good ones to prosper and create more jobs than before. It was supposed in the end to be good for workers as much as for managers.

It hasn't worked that way. Competition has permitted few companies really to prosper and has actually produced disincentives to job-creation. Expansion often is dangerous because markets are so fragile. This might have been foreseen had anyone consulted the history of earlier periods of unregulated competition -- but who in American business or politics either knows or cares about history?

The unrepentant free-marketeer might still argue that while a pauperized work force and consumer class are not what the theory was supposed to produce, the market still knows best and workers (and unemployed) will just have to bite the bullet. The Invisible Hand will eventually work its miracle. Even Mr. Bush has come to understand, however, that he cannot say this to voters and in any case it is not true. Poor people cannot create or support a rich economy. Logic says that a policy which impoverishes American society cannot restore prosperity and American world competitiveness. It can only make matters still worse.

America's is only one of several contemporary models of capitalism, and on current evidence it is the least successful one. The Japanese model obviously is a success, whatever its costs, but it is a product of a special society and history and is unreproducible elsewhere.

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