Reform Capitalism

Unknown1-300x219Portrait of Adam Smith (1723-1790) an economist. public domain image

From my History in Politics series:
June 17th, 2011

Historically, all kinds of justifications have been given for the economic phenomenon, born in the late 18th century, which came to be known as Capitalism. Perhaps the all-time favorite was “the invisible hand” thesis, proffered by Adam Smith, (1723-1790) a Scotch economist centered in Edinburgh and the University of Glasgow. This much manipulated phrase still has current usage and is taken to mean that there should be no interference with the mystical, magical workings of ultra laissez-faire Capitalism because left to its own profit-making devices, it will provide prosperity for all.

Early Capitalism through its Industrial Revolution techniques did, indeed, increase wealth. Adam Smith, whose most famous work was entitled The Wealth of Nations, had aimed his barbs at the previous economic system in fashion, namely Mercantilism, which entailed a good deal of interference by governments that were controlled by monarchs and their aristocratic hangers-on. Yes, wealth did increase under laissez-faire (meaning “leave alone in French) but so did poverty. Working and living conditions were so bad that a backlash developed and was best articulated by a pair of German economists, Karl Marx and Friederich Engels, who offered an alternative they called Socialism, the extreme form of which, known as Communism, grew into a powerful political movement.

The argument advanced by Marx and Engels was that Communism, arising from the conflict between Capitalism and the Proletariat (the working class) would triumph in the end and establish itself in power worldwide. But they also predicted that this would happen first in the western European countries like England, France, Germany, Belgium, Holland, Italy, etc, which were the most industrially advanced. These were also the Imperialist powers, who had taken over the rest of the world in Africa, Asia and, to a certain extent, in Latin America. However, directly contradicting Marx and Engels, Communism first took hold in an undeveloped albeit imperialistic country, Czarist Russia, and later in countries where native revolutionary groups used its ideology to unify their people and break free of their western overlords.

Okay, what of the United States during this period? We, ourselves, had become very industrialized and working conditions here, while not as bad as in Europe, were still pretty dire. The Capitalism practiced on our side of the Atlantic was just as raw and exploitative and the hard-hearted attitude that fed it, exemplified beautifully by Charles Dickens in his portrait of Ebenezer Scrooge at the beginning of A Christmas Carol,” was equally dominant in society. But because the U.S. had essentially been a “classless” country – no aristocracy allowed – the economic divide between haves and have-nots was not as bitter as it was overseas. The impulse toward any organized Socialism in America was for the most part very weak.

That is, until the Great Depression descended upon us during the presidency of Herbert Hoover. This world-famous Iowan, a strong supporter of Woodrow Wilson in World War I, had been wooed in vain by the Democrats to be their presidential candidate in 1928 and instead had been elected then as a Republican. His strict adherence to the laissez-faire code of the free market’s solving all economic problems resulted in a do-nothing response to the horrendous crisis that gripped America and the world after 1929. The smashing triumph of his Democratic opponent, Franklin Delano Roosevelt, of New York, clearly showed the American public’s desire for a precipitous change.

Actually, FDR had run on a fairly conservative platform, promising among other things a balanced budget. But with a third of our people in utter poverty and unemployment at 25%, he saw that budget cutting would only make things worse. What was needed – he came to the conclusion – was government intervention and soon, a parade of initiative was coming out of Washington, pushed by an activist administration. Despite the cries of conservatives that this was Socialism, Communism, Fascism, what have you, progress was made on dealing with the country’s ills until in 1937, having listened to those who opposed his program of interventions, he pulled back and the economic improvement stalled, awaiting the attack on Pearl Harbor and the U.S. entry into World War II before there was a full mobilization of our resources.

This use of government as an economic engine generated the greatest boom in American history and it lasted well into the post-war era. Sacrifices by both industry and unions, as well as programs like the G.I. Bill and Federal Interstate Highway construction helped keep the American economical ball rolling. Only in its military expenditures could our biggest rival, the Soviet Union, even come close to matching us while its civilian economy and that of its satellites was a continual horror show. The lie was easily given to the Communist claim that they could create a better life for working people and when the population behind the iron curtain recognized that the Capitalist system they’d been taught to scorn was so far superior to their own in meeting consumer needs, the end was soon in sight for pure Marxism.

However, the Capitalism we experienced then was not the unrestricted tooth and claw “creative destruction” of the early 19th century. It had become what I call “Reform Capitalism.”

This was a fruitful mixture of private and public entities pooling their efforts to offer needed services. In my family, I had the opportunity to see how this gamble worked in the area of affordable housing. My father was a contractor in eastern Massachusetts. Before World War II, he had built private residential homes on his own and was wiped out by the Depression. Defense spending in which my Dad created apartments for workers in war industries helped him get a new start, and after VJ Day, he continued in cooperation with the Federal government, constructing affordable Section 8 housing under FHA. This particular program allowed the developer to make a limited profit – 6%, if I remember – and after 20 years of administering the property, the contractor owned it and could sell it if he or she chose. Meanwhile, rents stayed reasonable. A win-win situation for both the private and public sectors. “Reform Capitalism,” working well.

As the middle class in America has halted its expansion and begun a pronounced decline because of constant attacks made against it, particularly in the manipulation of the tax structure and the skewing of national wealth into fewer and fewer hands, this secretly orchestrated activity by reactionary die-hards must be resisted. The Grover Norquist, Heritage Foundation and Koch brothers crusade to reduce the American governmental system in the same trajectory that Osama bin Laden had planned for it – that is weak and shrunken to nothing – needs constant exposure and opposition. Reform Capitalism – the public-private partnership of our most prosperous years in America – not only should be allowed to flourish again, but to be strengthened and modernized and once more commanding center stage.

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