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Heilbroner Reading

POSC 120
Braunwarth
Heilbroner Reading

Questions:

  1. How does Heilbroner feel capitalism has "triumphed"?
  2. How does Heilbroner differentiate between better and worse forms of capitalism?
  3. Can you relate Heilbroner's arguments to other readings we've had in this course?

The Triumph of Capitalism

NPQ: China's communist party ideology chief has said: "capitalism has no patent right on the market." The Soviet ideology chief has said that "socialism has lost its advantage over capitalism in the race for economic development" and that "we must now admit that our concepts of public property have proven untenable."

In Peru, the novelist and presidential candidate Mario Vargas Llosa is saying "we must massively privatize the public sector" to create wealth in that poor country and escape terminal underdevelopment. Mexican President Carlos Salinas is boldly reversing years of revolutionary accomplishment: he is opening the borders to foreign capital and seeking to privatize the heretofore untouchable public pillars of the Mexican economy.

Is the real meaning of this global perestroika that there is no alternative to capitalism?

Robert Heilbroner: As I wrote recently in the New Yorker, less than 75 years after the contest between capitalism and socialism officially began, it is over: capitalism has won.

The tumultuous changes taking place in the Soviet Union, China and Eastern Europe have given us the clearest possible proof that capitalism organizes the material affairs of humankind more satisfactorily than socialism. However inequitably or irresponsibly the marketplace may distribute goods, it does so better than the planned economy, with its proverbial lines of waiting consumers. The degree of resemblance between our major depressions and their standard economic performance has become too much for even the most fervent ideologue.

For the first time in this century - and for the first time in my life - I would argue that socialism has no plausible economic framework. Only half a century ago, the great question was how rapidly the transformation from capitalism to socialism would take place. That was the assumption shared by all the giant economic thinkers of the mid-century, from the liberal John Maynard Keynes to the very conservative Joseph Schumpeter.

Now, the great question of the last years of this century must be posed the other way: Will socialism evolve into some form of capitalism?

NPQ: The confident challenge by Nikita Khrushchev, that "we will bury you" has been turned by Mikhail Gorbachev and Deng Xiaoping into the rather more accommodating stance of "if you can't bury them, join them."

Heilbroner: It is in this sense that capitalism has triumphed. There is no question that the reforming socialist countries are introducing major structural elements of the capitalist virus into their system, namely, independent centers of economic decision-making, profit incentives, free choice, market competition and even private property. It scares them to death, and they are moving cautiously, but they are moving definitively. The interesting question now is how far they can go and still call their system socialist.

Having lost out decisively in reality, it is not surprising that socialism has also lost much of its intellectual force as a hope of humanity. The denial of democracy within socialist systems may well be at the bottom of this. But there is also an economic side.

When you look at all the Western literature on socialism, it is clear in retrospect that there was an enormous unexamined faith in the capability of planning in complex economies. Planning seemed an obvious remedy to the social inequality and misallocation of investment that the invisible hand meted out along with the creation of wealth. If the invisible hand created problems, the visible hand would correct them, and, by extension, the more visible the hand, the fewer the social problems.

It took a very long time before we started to realize that a complex economy requires the decentralized dynamic of a market for allocation; and it took still longer to realize that a market is not something you just put in place like a policy. The market is an entirely different way of organizing power; it is driven by greed and self-interest. Hence, the problem. The market may be a necessary instrument to obtain socialist ends, but the market itself contradicts many socialist values. It is, in fact, the antithesis of everything socialism stands for.

Although my heart goes out to perestroika, there is something I think Gorbachev and company don't yet fully realize. When they talk about the market, they tend to mean consumers having free choice - GUM-like Macy's. But that is just the tip of the iceberg. The real market has to do with freedom of behavior. I don't mean freedom from all social pressures - no society could exist without such pressures. I do, however, mean freedom from the heavy hand of the state. I think the Beijing Spring and the subsequent crackdown shows the Chinese communist leaders are beginning to understand the subversive implications of private economic freedom.

The market sets up a power structure that acts in its own particular interests. The market creates interest groups that behave as they will, sometimes abiding with political power and sometimes not.

NPQ: Yet, the reason socialist ideology became such a dominant intellectual force in this century was the shared assumptions by the great thinkers of the age that capitalism had certain built-in, self-destructive contradictions. Marx, Keynes and even Schumpeter thought socialism was inevitable, not because Soviet troops would occupy the West but because capitalism would destroy itself from within.

There were several "crisis tendencies" of capitalism that were supposed to bring about its collapse as a dynamic economic system: through competitive struggle, smaller firms would be eliminated and replaced by large monopolies that would stagnate; the exploited workers would prove unable to earn a sufficient wage to purchase enough consumer goods and depression would set in from "underconsumption"; the rate of profit would fall because workers would be replaced by technology which had limited possibilities for exploitation; markets would rapidly become saturated with consumer goods, causing the capitalists to run out of investment opportunities; the core capitalist countries of Europe and America would so rapaciously exploit the Third World that global revolution was inevitable.

At least since the Great Depression, none of these crisis tendencies of capitalism seem to have materialized.

Heilbroner: There is more life in capitalism than any of the thinkers you mentioned ever imagined.

I don't think anybody but Schumpeter gave sufficient due to the "creative destruction" dynamic of capitalism; the incessant drive to create new markets and new products, always undermining established structures with innovation, always fending off stagnation. Yet, even Schumpeter didn't know what a bear he had by the tail.

Marx himself didn't grasp the full force of this dynamic, whose power he certainly saluted in his manifesto. Marx believed that the competitive elimination of the small, creative entrepreneur by larger and larger monopolies was implicit in the dynamic of the system. That turned out, however, to be only part of the dynamic. The surviving companies were more, not less competitive.

NPQ: Silicon Valley, where scientific entrepreneurs peeled off of the large industrial corporations, was also not on their economic map.

Heilbroner: It was not on their map.

Keynes and Adam Smith were also both extraordinarily static in their conception of technology. Within 30 years of Keynes' talk about vanishing investment opportunities we began to experience an enormous burst of technological innovation that afforded plentiful opportunities for investment - computers, satellite telecommunications, jet aircraft, nuclear power, bioengineering. Everybody today, left and right, has ceased to worry about the closed investment frontier.

NPQ: And, rather than self-cannibalizing, capitalism has shown a marked talent for turning its own externalities into market opportunities which forge new hard and soft technologies turning garbage into energy, cleaning up toxic wastes, bioengineering medical diagnostics, curing drug or tobacco or alcohol addiction - are all hot new areas of products and services now.

Heilbroner: I must add though, that what seems to be ignored here is the old distinction between productive and unproductive wealth that ran from Adam Smith through Marx.

If you make money cleaning up pollution, you are not adding to net wealth, you're just bringing society back to the level it started from before pollution. Sure, there is money to be made, but by Peter robbing Paul. That is not real growth.

NPQ: Marx believed that the profit rate would fall as technology displaced the industrial worker. He argued that, not only did profit come primarily from exploiting the worker, but as technology replaced the worker, his purchasing power as a consumer would fall and he would be unable to sustain the capitalist by buying his products.

Heilbroner: Marx understood that there were other forms of profit, for example, trading profit. As long as you can buy tabor cheap somewhere in the world and sell your manufactured product at a profit, capitalism can sustain itself Eventually, competition in a truly global market will diminish profit margins, but that is a long way off in a world that has hundreds of millions of desperately poor people willing to work at any wage.

So, I don't worry about the falling rate of profit. As I have said elsewhere, capitalism may not work well, but it can work well enough especially now that socialism has lost so much of its appeal. Capitalism will have its crises - that is in its logic - but I doubt that these will bring it to its knees.

NPQ: What about the crisis of underconsumption where workers are displaced by technology or exploited to the point they don't have sufficient purchasing power to keep the capitalist engine going?

Heilbroner: I think this Marxian diagnosis retains an important kernel of truth. There are underconsumptive tendencies on a global scale as well as on a national scale.

There is a perpetual drive in capitalism to keep wages down and keep profits high, which gives birth to labor-replacing technology.

Moreover, in this country, we are the victims of a union-bashing, soak-the-poor mentality that bodes no good. But it need not bode disaster. In Europe in particular, the underclass is sufficiently provided for through welfare and unemployment benefits so that it is not, so far, a political threat. Also, members of this underclass move in and out of the tabor force on a regular basis, working for two months, making some money, then moving back to the margin, and then back again into the labor force.

In other words, to paraphrase the German philosopher Jurgen Habermas, capitalism has successfully created the 75 percent society. The majority are comfortable, the rest are not. But the economic minority doesn't constitute enough of an economic or political threat to set the political will of the mainstream in motion to find a solution.

NPQ: What about the exploitative relation between the core and periphery? The capitalist core of America and Europe was supposed to have sucked the Third World so dry of its own wealth that their terminal poverty would incite revolution.

Heilbroner: On the contrary, capitalism is moving out of the core into the periphery. Look at the fantastically successful Asian countries like Korea, Singapore, Taiwan and Thailand. Their success has changed the parastructure of world capitalism.

As a result, it is entirely imaginable that world capitalism in the future will look quite different from the way it looks today. In particular, it may very well have found new and powerful "core" outposts in parts of the world that are still "peripheral."

NPQ: That sounds like "post- imperialism." Lenin had it reversed. Perhaps imperialism is not the highest stage of capitalism, as Lenin thought, but proliferating capitalisms - which act as the next stage of imperialism.

Heilbroner: Exactly. Who knows? Rome fell, Europe rose. A century hence, America may be peripheral to world capitalism and Brazil may be part of the core.

NPQ: So, where revolutions took place - in China, Vietnam or Cuba - their impetus was nationalism, not the crisis dynamics of capitalism.

And now, revolution is nowhere in sight.

Heilbroner: Here, I think there is an important point to be made about how the conservatives have been better at grasping the nature of social life than radicals.

When you think about it, all the aphorisms we use to describe social life - "all power tends to corrupt," or "the more things change the more they stay the same" - are conservative. Conservatives have put front and center in their thinking the nature of the human condition and its hierarchical tendencies.

They have often said that capitalism is the natural system of life and socialism is unnatural. This can be, and usually is, mere cant. But behind the cant is a powerful insight: the impulse toward equality in social life is easily overcome by the acceptance of domination and the admiration of the upper classes.

One of the deeper meanings of Thorstein Veblen's Theory of the Leisure Class is the fact that the lower classes don't resent the upper classes, they emulate them!

Why haven't we had class war? Because the lower classes want to be like the upper class. The conservatives have always understood this.

NPQ: Keynes argued capitalism would have a tendency to stagnate unless investment was socialized. He didn't trust capitalists to make the right investment decisions to keep their own system alive.

Now, it is precisely those places that did socialize investment, like the Soviet Union, Poland or Mexico, which are stagnating, while capitalism bounds dynamically along.

Heilbroner: Well, it depends where you are on the spectrum. If I were Gorbachev, I'd certainly denationalize investment. The bureaucratic ministries have truly been the death of dynamism.

But if you were to ask me what the single most important growth ingredient would be in the US, I would not say private investment but public investment - highways, communications, education. God forbid, that doesn't mean it must be done under the blanket of one huge Ministry of Public Investment. But it must be done.

NPQ: Jack Kemp, the Secretary of HUD, runs around America quoting newspaper headlines about how the communists have found the truth at last. With an "I told you so" attitude, he points out how the socialist world has recognized that, after all, capitalism is the natural system.

How is his celebration of the triumph of capitalism different from yours?

Heilbroner: Although I am much more sanguine about the economic prospects for capitalism, I am not so sanguine about its civilizational prospects. Capitalism does wonders for economic growth, but little for moral growth or cultural enrichment. Capitalism is a system full of self-debasement. Witness the commercial vulgarity that pervades our media-hypnotized culture; it is an offense to the human spirit.

While capitalism's internal economic contradictions are not what will destroy it, its internal cultural contradiction may. That is why I use the word "triumph" when speaking of capitalism. There is something Roman and decadent about the word; something grandiose, not grand. I use the word with a great deal of irony.

It is now clear that the Achilles heel of capitalism lies outside, not within, the realm of economics. The crises of capitalism involve other kinds of concerns - political participation, social morale, cultural integrity, ecological balance, and international cooperation. Nobody knows how to manage these problems. And all of these problems are exacerbated by the incessant dynamism of capitalism.

NPQ: Paradoxically, it is business civilization - triumphant capitalism's collective product which is the ultimate threat to its survival. Business civilization undermines the authority, values and institutional framework of the societies where capitalism has become triumphant.

Schumpeter noted this subversive character of capitalist dynamism and so did Marx in his famous phrase about the revolutionizing effect of the reign of the market: "All that is solid melts into air; all that is sacred is profaned."

It seems the clearest manifestation of capitalist triumph in America today is neglect of the future. While we are dynamically organizing our material life, who is taking care of the children? Who is nurturing the soul? Who is saving the forest? Who is even rebuilding the bridges? Where is the investment in the future?

Must creation of the present entail destruction of the future? In the end, then, "creative destruction" seems quite a tragic affair.

Heilbroner: The success of capitalism arises largely from the uncoordinated efforts of individuals and firms to make money. Clearly what is lacking in that process is foresight. Each individual has his own foresight; but there is no overall foresight.

That is the nature of the beast in capitalism; that is the nature of the private economic realm. "Do your own thing" is the cultural and political consequence of the hegemony of that realm in society; it is the motto of the Republic of the Private Realm. Business civilization lacks any capacity for long-term consideration about society as a whole.

Long-term concerns have traditionally been the domain of government and the political realm. Even in aristocratic and other types of hierarchical authority structures there was a sense of stewardship. Whether emperor, king, general secretary or president, the leader of government embodied the universal values of the society. As the agent of governance, he was steward of the whole society and the link to posterity. Until its triumph, capitalism had never before been able to so thoroughly impose its vision on society. Political, social and cultural authority have always been its constraint.

In this country especially, but in capitalist countries as a whole, the businessman, precisely the non-steward, has become the figure embodying the values of the whole society. And since governance is not his role or his concern, the capitalist societies have come to lack a framework both for economic advancement and for vision.

This may be an endemic problem, but it seems to display a great deal of variance from one capitalism to the next. Several European nations have been able, far better than we, to balance the private and public realms. Sweden has. Norway has. France and Germany have to some extent. Each of these countries has found some mechanism to project long-term goals without stultifying market dynamism; yet they haven't allowed the market to cannibalize their future.

In the United States, we are nowhere on this score. Zero. We can't even raise the taxes to pay for the education of a skilled work force, safe streets and reliable infrastructure that successful capitalism needs for its own survival.

NPQ: There was a time in this country when there was a balance between the public realm and the realm of private economic freedom. We built great universities and the interstate highway system; we sent three million people to college on the GI Bill.

What happened?

Heilbroner: In the late 1940s and the early fifties, America took on, in some basic sense, the Keynesian agenda. We built a welfare state. Collective bargaining was enforced and the trade unions became strong and established. We built infrastructure.

Our recovery from depression and war was enormously important in the history of capitalism. What we did in those years laid the foundations for America's "wonder years" of economic expansion and affluence in the late 1950s through the sixties.

But then, for reasons not so easy to explain, the bloom came off the American rose. It didn't come off the Swedish rose. And it didn't come off the rose of the European welfare state.

I suspect that, unlike Europe, American politics, because it is so rooted in an isolationist and individualist culture, is very vulnerable to the kind of simplistic know-nothingness which has damaged our public realm from McCarthyism through supply-side economics.

Today, America is paying with its future the price of the hyperindividualism it practiced in the 19th century.

NPQ: And the Democratic Party, once the bearer of the virtues of the public realm, has itself degenerated into little more than the executive committee of the savings and loan industry.

So capitalism has triumphed, but America is declining.

Heilbroner: Let me put it this way: Adding together its cultural as well as economic tendencies, it seems to me that there are likely to be unsuccessful capitalisms and successful capitalisms - successful not just economically, but politically, culturally and socially. I fear that America may be among the less successful ones, with its quality of life degraded, because of the imbalance in favor of the private realm.

Similarly, there may be successful socialisms, perhaps like Hungary, that manage to open up freedoms of the private economic realm with a mix of part planning and part market. Then, there may be less successful socialisms, quite possibly the USSR, where state planning, despite market reforms, continues to constrain private life.

In the Third World there wilt be countries so weighed down by their ecological and institutional poverty that they will remain paralyzed. And then there will be those, like Mexico, that may be able to bring about some increasing cultivation of political democracy and decency.

So, we seem to live in a time when we are heading for a spectrum of capitalisms, ranging from good to bad, and perhaps a spectrum of socialisms, from good to bad, which wilt overlap the capitalist ones. The spectrums may well overlap, with the best socialisms far better than the worst capitalisms.

NPQ: Is that the famed convergence?

Heilbroner: Yes. My guess is that there will be less difference between the successful socialisms and the successful capitalisms than between the unsuccessful socialism and successful socialism, or between unsuccessful capitalism and successful capitalism.

NPQ: What is left of economic theory after the triumph of capitalism?

Heilbroner: Today, there is no economic theory of capitalism, only a highly refined theory of an imaginary world called the "market." But the market is not the same as capitalism. It is only a part of capitalism. There are no "worldly philosophers" like Schumpeter or Keynes who are thinking seriously about the long-term prospects of the system as a whole.

Some argue that the triumph of capitalism has left us at the doorstep of "post- history." It may be more precise to say we are finally coming to grips with the end of the economic century. From now on, I am quite convinced, the main problems will not be economic, but cultural and political.

NPQ: After the triumph of capitalism, what remains of the socialist ideas that held such sway for the better part of this century?

Heilbroner: I don't want to leave the impression here that I believe the celebration of greed is all that makes the world go around and the socialist values of equality and social decency are to be dismissed as mere figments. What I am saying is that an economy without a serious dose of the market is not a viable economic system. I am saying that the hypotheses regarding -scientific socialism" have proven untrue. I am not saying that the ideas, ideals, and desired ends of socialism are unattainable, only that they lie much further away than most socialists have, to date, realized.

The recent death of America's most renowned socialist figure, Michael Harrington, may serve as a marking point and metaphor for socialism in the time of capitalist triumph. In his last book, Socialism, Past and Future, the only thing Harrington was able to rescue out of all the conventional definitions of socialism, including the idea of participation from the bottom up, was the importance of continuous, voluntaristic pressure for social justice. For better or worse, that is what remains of socialism today. Socialism is, as Harrington says, indispensable as a source of social progress within capitalism. But it is not yet a plausible alternative to it.

Last Updated: 11/14/2014
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