The "controlled bankruptcy" of GM to be announced tomorrow (editorialized by Robert Reich here ) has got me thinking back on a class I took in college with Nobel laureate Edmund Phelps. Phelps’s class was refreshing for its historical and sociological perspective (and doubly refreshing for its lack of problem-sets) and its focus on seeing events through the prism of economic institutions. Namely, he presented a sort of meta-analysis that broadly contrasted American capitalism with European "corporatism". The latter described a system of economic processes that sought to gain the acceptance of a large set of stakeholders–workers, unions, management, and the state–before major decisions on the life or death of companies were taken. The former left these decisions to the marketplace.
At the time I took the class, I was wrestling with what seemed to be the dark implications of "cowboy capitalism". Was the most harsh and heartless system also the most efficient? This seemed like a terrible outcome. Phelps helped me out of this philosophical quandry by casting American capitalism in a slightly different light by focusing on its institutions: the ease with which one could start a business, the lack of business regulations, liquid capital markets and high availability of venture capital, limited liability provisions, and, most crucially, bankruptcy proceedings. In one class, he pointed out that, though American capitalism was merciless towards the losers in the economic game, it was also the land of second chances. Bankruptcy allowed companies to be easily destroyed while allowing individuals to escape, thereby increasing incentives towards entrepreneurship. (Limited liability was another aspect of this principle.) Yes, by allowing creative destruction, American capitalism could lead to a higher level of churning in the labor market and thus more uncertain lifestyles, but it also presented comparatively more job opportunities (mainly, again, through increased entrepreneurship). Ease of firing was balanced by ease of hiring. (One fact running counter to this is the existence of employer-based health care).
Phelps capped this meta-analysis of capitalism vs. corporatism with a variation on a Neitzchian aphorism: happiness was the result not of a stable lifestyle and ease of access to resources, but of the realization and exercising of one’s skills. (The Neitzchian version (from Thus Spake Zarathustra, I think): the goal of life is not to survive, but to expend one’s energies.) That American capitalism also provided for better access to resources was an added benefit. (Here’s a link to a Phelps article that sums up these views . Also here ) Thus, "dynamism" was the key to happiness in an economy, not lazy comfort.
Barack Obama is forcing corporatism on America. It goes without saying that we didn’t vote for this (the only thing it seems like we did vote for was a lack of hysterical craziness (GOP)). But, from the financial bailouts on down, it’s what we’re getting. The GM decision is corporatism at its best: a decision about the structural make-up of the US economy being made not by the marketplace but by a partnership of creditors/shareholders, management, the unions, and an interventionist government. Under capitalism, GM probably would have been liquidated under a chapter 7 bankruptcy proceeding long ago, and the industrial heartland would be hard at work retooling for a new age.
European stagnation, or European prosperity, could be around the corner, depending on your point of view.
(I, for one, welcome the day when I can march the streets or write to my president to righteously protest the "precariousness" of my lifestyle just because I can’t find a job.)
