For the Sake of a Theory

January 09, 1995|By WILLIAM PFAFF

Paris -- There is gathering resistance to that economic orthodoxy which says the marketplace can and should set our priorities in social policy, and which believes that maximizing global trade is the way to produce the greatest prosperity for all.

The religion of markets has given us the school of management which declares return on investment the primary criterion of corporate value and considers work-force layoffs and transfers of corporate production to low-wage countries evidence of corporate health. It is a school increasingly contested in both the U.S. and Europe.

The high levels of unemployment experienced in Europe and the United States since the 1970s are held by this school of thought to be the regrettable but essential result of increased national industrial competitiveness. But they have meant the transformation of 10 to 20 percent (or more) of the work force from active and remunerated participation in the national economy -- as contributors of wealth, consumers and taxpayers -- into state dependents.

Is this a proper deployment of the resources of the nation? The transfer of so many people from work, income, consumption and tax payment, to government dependence or indigence, non-consumption and non-contribution to the community, is clearly a loss to nation and economy, whatever it does for corporate performance as measured by profit return or international market share.

Obviously corporate competitiveness is a good thing, but a society measures itself by many criteria, and economic performance is only one of them. The orthodoxy of international labor-division, with its faith in the ''rising tide'' of wealth creation through trade (allegedly lifting every nation's economic boat), too often ignores the real-world obstacles, constraints, manipulations and time lags that prevent the international market place from functioning in the impartially benevolent way the theory promises.

History gives evidence for this argument. The conventional wisdom says free trade has given us our present prosperity while protectionism was responsible for the Great Depression and international crisis of the 1930s.

Actually, the economic ''miracles'' that took place in Japan in the 1950s-1960s, and elsewhere in Asia in the 1970s-1980s, all occurred under regimes of formal or informal protectionism -- which continue. The same is true of the great surge of the American economy in the 19th century. Imperial Britain dominated the world economy when it preached free trade but practiced imperial preference.

The great European depression between 1870 and 1890 coincided with an unprecedented lifting of tariff barriers, and GNP per capita in Western Europe ceased to fall only when tariff policies hardened in the 1890s. Protectionism in the 1930s was the result of the world economic crisis, not its cause. Average international tariffs on manufactured goods were stable between and the crash in 1929.

As James Fallows has pointed out, the current orthodoxy, dominated by American and British economists, committed to the theory of maximizing trade, prefers to ignore the reasons for the postwar success of the continental European economies and Japan. They gave (and give) primacy to production, not consumption.

They acted in the intellectual tradition of the 19th-century German economist Friedrich List (and, as Mr. Fallows notes, of Alexander Hamilton as well). List said that ''society's well being and its overall wealth are determined not by what a society can buy but what it can make.'' Note Germany's and Japan's continuing determination to remain manufacturing societies.

The belief that market forces must be allowed to determine social priorities contradicts the arguments even of the fathers of market thought. Adam Smith considered that the state even has a duty to set economic priorities. He considered it obliged to ''superintend . . . the industry of private peoples . . . directing it toward the employments most suitable to the interest of society.'' The state has a duty, he wrote, to erect and maintain ''certain public works and certain public institutions'' which, although they may be unprofitable to private entrepreneurs, ''may frequently do much more than repay [their cost] to a great society.''

Friedrich von Hayek, author of ''The Road to Serfdom'' and implacable enemy of socialism, wrote that ''the case for the state's helping to organize a comprehensive system of social insurance is very strong.'' It has been demonstrated that the market is the most efficient mechanism for determining economic advantage, but society, as Hayek indicates, is more than an economic machine.

Living people should not be harmed for the sake of some speculative advantage to society in the future. That is what totalitarian utopians do. They sacrifice the living for a theory about the future. The harm is real. The promised benefits, for those not yet born, may or may not arrive.

William Pfaff is a syndicated columnist.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.