Tag Archives: Neoliberalism

The Rise And Fall Of The American Middle Class – William Lazonick. 

Social Europe

William Lazonick is a Professor at the University of Massachusetts Lowell, where he directs the Center for Industrial Competitiveness. He is also a Visiting Professor at the University of Ljubljana where he teaches a PhD course on the theory of innovative enterprise. Previously he was an Assistant and Associate Professor of Economics at Harvard University, Professor of Economics at Barnard College of Columbia University, and Visiting Scholar and then Distinguished Research Professor at INSEAD.


The Lewis Powell Memo: A Corporate Blueprint to Dominate Democracy. – Elizabeth Warren. 

In 1971, the U.S. Chamber of Commerce enlisted a corporate lawyer named Lewis Powell to write a secret memo.

As soon as Powell finished his thirty-three-page paper, the chamber, a national organization representing the interests of many of America’s largest corporations, quietly began passing it from one power broker to another.

For the CEO crowd, the memo was electrifying. Powell had held nothing back. He forcefully argued that the entire free-enterprise system was under attack—and he called on the super rich to counterattack with all their might.

Powell was an unlikely firebrand. He was mild-mannered, gentlemanly, and unfailingly polite. Many people remarked on his deeply ingrained civility. He was intensely proud of his Virginia roots, which were noticeable in his soft drawl, and he idolized Robert E. Lee. Tall and thin, Powell wore thick glasses and old-fashioned suits. Yet despite all his courtly manners, when it came to defending his corporate clients, he was a take-no-prisoners, shoot-them-all kind of guy.

Powell served on the board of directors for more than a dozen of America’s biggest corporations, and his dedication to advancing the interests of corporate America was legendary. His work for tobacco company Philip Morris included signing off on the company’s annual reports touting the health benefits of cigarettes, and he railed against the press for failing to give adequate credence to the industry’s claims about tobacco safety. He was close personal friends with the top lawyer for General Motors, and when newspaper articles about cars with dangerous designs and product defects began appearing, Powell viewed those stories—and the reporters who wrote them—with alarm. He fervently believed that such challenges undermined people’s confidence in corporate America and put our country right on the slippery slope to socialism.

Many of those who received Powell’s memo shared his view that America’s system of free enterprise was at risk, but it was his call to action that really galvanized his CEO readership. His advice was visionary: Fight back! Reshape Americans’ views about business, government, politics, and law. Fund conservative think tanks. Influence young people by reasserting business interests on college campuses. Pay professors to publish pro-business work.

Using example after example, Powell made it clear that he wanted to return America to the pro-corporate, largely unregulated government that, in his view, had served this country so well before the Great Depression.

In the darkest days of the Depression, Roosevelt had offered hope to “the forgotten man at the bottom of the economic pyramid.” Without a hint of irony, Powell now spoke tenderly to America’s millionaires:

“One does not exaggerate to say that, in terms of political influence with respect to the course of legislation and government action, the American business executive is truly the ‘forgotten man.’”

Rich guys just can’t catch a break.

THE PLAN: TAKE OVER GOVERNMENT

Two months after Powell sent his memo to the Chamber of Commerce, President Nixon nominated him for the Supreme Court. The paper remained secret until after Powell was confirmed. But his idea had already spurred the millionaires and CEOs who’d read the memo to stop complaining and start acting. The rich and powerful enthusiastically took up his call to arms and began to use their considerable wealth to alter America’s political landscape.

Their efforts began to pay off almost immediately. Just over nine years after Powell’s memo began to circulate, and with considerable support from a “Business Advisory Panel” of corporate CEOs, Ronald Reagan was elected president.

Reagan swept into office under the banner of free-market economics, and he was cheered on with many boisterous calls for “liberty” and “freedom.”

Reagan’s approach was unmistakably aimed at helping giant businesses and their top executives, but its advocates promised working people that all those benefits going to big corporations would “trickle down” to them as well. The economic plan was as simple—and as sweeping—as the plan Franklin Roosevelt had put in place nearly half a century earlier during the Great Depression. But Reagan’s plan turned Roosevelt’s on its head.

Elizabeth Warren

from her book: This Fight Is Our Fight, the battle to save working people. 

***

Written in 1971 to the U.S. Chamber of Commerce, the Lewis Powell Memo was a blueprint for corporate domination of American Democracy.

CONFIDENTIAL MEMORANDUM

Attack on American Free Enterprise System

DATE: August 23, 1971

TO: Mr. Eugene B. Sydnor, Jr., Chairman, Education Committee, U.S. Chamber of Commerce

FROM: Lewis F. Powell, Jr.

This memorandum is submitted at your request as a basis for the discussion on August 24 with Mr. Booth (executive vice president) and others at the U.S. Chamber of Commerce. The purpose is to identify the problem, and suggest possible avenues of action for further consideration.

Dimensions of the Attack

No thoughtful person can question that the American economic system is under broad attack. This varies in scope, intensity, in the techniques employed, and in the level of visibility.

There always have been some who opposed the American system, and preferred socialism or some form of statism (communism or fascism). Also, there always have been critics of the system, whose criticism has been wholesome and constructive so long as the objective was to improve rather than to subvert or destroy.

But what now concerns us is quite new in the history of America. We are not dealing with sporadic or isolated attacks from a relatively few extremists or even from the minority socialist cadre. Rather, the assault on the enterprise system is broadly based and consistently pursued. It is gaining momentum and converts.

Sources of the Attack

The sources are varied and diffused. They include, not unexpectedly, the Communists, New Leftists and other revolutionaries who would destroy the entire system, both political and economic. These extremists of the left are far more numerous, better financed, and increasingly are more welcomed and encouraged by other elements of society, than ever before in our history. But they remain a small minority, and are not yet the principal cause for concern.

The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians. In most of these groups the movement against the system is participated in only by minorities. Yet, these often are the most articulate, the most vocal, the most prolific in their writing and speaking.

Moreover, much of the media — for varying motives and in varying degrees — either voluntarily accords unique publicity to these “attackers,” or at least allows them to exploit the media for their purposes. This is especially true of television, which now plays such a predominant role in shaping the thinking, attitudes and emotions of our people.

One of the bewildering paradoxes of our time is the extent to which the enterprise system tolerates, if not participates in, its own destruction.

The campuses from which much of the criticism emanates are supported by (i) tax funds generated largely from American business, and (ii) contributions from capital funds controlled or generated by American business. The boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system.

Most of the media, including the national TV systems, are owned and theoretically controlled by corporations which depend upon profits, and the enterprise system to survive.

Tone of the Attack

This memorandum is not the place to document in detail the tone, character, or intensity of the attack. The following quotations will suffice to give one a general idea:

William Kunstler, warmly welcomed on campuses and listed in a recent student poll as the “American lawyer most admired,” incites audiences as follows:

“You must learn to fight in the streets, to revolt, to shoot guns. We will learn to do all of the things that property owners fear.” The New Leftists who heed Kunstler’s advice increasingly are beginning to act — not just against military recruiting offices and manufacturers of munitions, but against a variety of businesses: “Since February, 1970, branches (of Bank of America) have been attacked 39 times, 22 times with explosive devices and 17 times with fire bombs or by arsonists.” Although New Leftist spokesmen are succeeding in radicalizing thousands of the young, the greater cause for concern is the hostility of respectable liberals and social reformers. It is the sum total of their views and influence which could indeed fatally weaken or destroy the system.

A chilling description of what is being taught on many of our campuses was written by Stewart Alsop:

“Yale, like every other major college, is graduating scores of bright young men who are practitioners of ‘the politics of despair.’ These young men despise the American political and economic system . . . (their) minds seem to be wholly closed. They live, not by rational discussion, but by mindless slogans.”A recent poll of students on 12 representative campuses reported that: “Almost half the students favored socialization of basic U.S. industries.”

A visiting professor from England at Rockford College gave a series of lectures entitled “The Ideological War Against Western Society,” in which he documents the extent to which members of the intellectual community are waging ideological warfare against the enterprise system and the values of western society. In a foreword to these lectures, famed Dr. Milton Friedman of Chicago warned: “It (is) crystal clear that the foundations of our free society are under wide-ranging and powerful attack — not by Communist or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.”

Perhaps the single most effective antagonist of American business is Ralph Nader, who — thanks largely to the media — has become a legend in his own time and an idol of millions of Americans. A recent article in Fortune speaks of Nader as follows:

“The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.”

A frontal assault was made on our government, our system of justice, and the free enterprise system by Yale Professor Charles Reich in his widely publicized book: “The Greening of America,” published last winter.

The foregoing references illustrate the broad, shotgun attack on the system itself. There are countless examples of rifle shots which undermine confidence and confuse the public. Favorite current targets are proposals for tax incentives through changes in depreciation rates and investment credits. These are usually described in the media as “tax breaks,” “loop holes” or “tax benefits” for the benefit of business. * As viewed by a columnist in the Post, such tax measures would benefit “only the rich, the owners of big companies.”

It is dismaying that many politicians make the same argument that tax measures of this kind benefit only “business,” without benefit to “the poor.” The fact that this is either political demagoguery or economic illiteracy is of slight comfort. This setting of the “rich” against the “poor,” of business against the people, is the cheapest and most dangerous kind of politics.

The Apathy and Default of Business

What has been the response of business to this massive assault upon its fundamental economics, upon its philosophy, upon its right to continue to manage its own affairs, and indeed upon its integrity?

The painfully sad truth is that business, including the boards of directors’ and the top executives of corporations great and small and business organizations at all levels, often have responded — if at all — by appeasement, ineptitude and ignoring the problem. There are, of course, many exceptions to this sweeping generalization. But the net effect of such response as has been made is scarcely visible.

In all fairness, it must be recognized that businessmen have not been trained or equipped to conduct guerrilla warfare with those who propagandize against the system, seeking insidiously and constantly to sabotage it. The traditional role of business executives has been to manage, to produce, to sell, to create jobs, to make profits, to improve the standard of living, to be community leaders, to serve on charitable and educational boards, and generally to be good citizens. They have performed these tasks very well indeed.

But they have shown little stomach for hard-nose contest with their critics, and little skill in effective intellectual and philosophical debate.

A column recently carried by the Wall Street Journal was entitled: “Memo to GM: Why Not Fight Back?” Although addressed to GM by name, the article was a warning to all American business. Columnist St. John said:

“General Motors, like American business in general, is ‘plainly in trouble’ because intellectual bromides have been substituted for a sound intellectual exposition of its point of view.” Mr. St. John then commented on the tendency of business leaders to compromise with and appease critics. He cited the concessions which Nader wins from management, and spoke of “the fallacious view many businessmen take toward their critics.” He drew a parallel to the mistaken tactics of many college administrators: “College administrators learned too late that such appeasement serves to destroy free speech, academic freedom and genuine scholarship. One campus radical demand was conceded by university heads only to be followed by a fresh crop which soon escalated to what amounted to a demand for outright surrender.”

One need not agree entirely with Mr. St. John’s analysis. But most observers of the American scene will agree that the essence of his message is sound. American business “plainly in trouble”; the response to the wide range of critics has been ineffective, and has included appeasement; the time has come — indeed, it is long overdue — for the wisdom, ingenuity and resources of American business to be marshalled against those who would destroy it.

Responsibility of Business Executives

What specifically should be done? The first essential — a prerequisite to any effective action — is for businessmen to confront this problem as a primary responsibility of corporate management.

The overriding first need is for businessmen to recognize that the ultimate issue may be survival — survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people.

The day is long past when the chief executive officer of a major corporation discharges his responsibility by maintaining a satisfactory growth of profits, with due regard to the corporation’s public and social responsibilities. If our system is to survive, top management must be equally concerned with protecting and preserving the system itself. This involves far more than an increased emphasis on “public relations” or “governmental affairs” — two areas in which corporations long have invested substantial sums.

A significant first step by individual corporations could well be the designation of an executive vice president (ranking with other executive VP’s) whose responsibility is to counter-on the broadest front-the attack on the enterprise system. The public relations department could be one of the foundations assigned to this executive, but his responsibilities should encompass some of the types of activities referred to subsequently in this memorandum. His budget and staff should be adequate to the task.

Possible Role of the Chamber of Commerce

But independent and uncoordinated activity by individual corporations, as important as this is, will not be sufficient. Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.

Moreover, there is the quite understandable reluctance on the part of any one corporation to get too far out in front and to make itself too visible a target.

The role of the National Chamber of Commerce is therefore vital. Other national organizations (especially those of various industrial and commercial groups) should join in the effort, but no other organizations appear to be as well situated as the Chamber. It enjoys a strategic position, with a fine reputation and a broad base of support. Also — and this is of immeasurable merit — there are hundreds of local Chambers of Commerce which can play a vital supportive role.

It hardly need be said that before embarking upon any program, the Chamber should study and analyze possible courses of action and activities, weighing risks against probable effectiveness and feasibility of each. Considerations of cost, the assurance of financial and other support from members, adequacy of staffing and similar problems will all require the most thoughtful consideration.

The Campus

The assault on the enterprise system was not mounted in a few months. It has gradually evolved over the past two decades, barely perceptible in its origins and benefiting (sic) from a gradualism that provoked little awareness much less any real reaction.

Although origins, sources and causes are complex and interrelated, and obviously difficult to identify without careful qualification, there is reason to believe that the campus is the single most dynamic source. The social science faculties usually include members who are unsympathetic to the enterprise system. They may range from a Herbert Marcuse, Marxist faculty member at the University of California at San Diego, and convinced socialists, to the ambivalent liberal critic who finds more to condemn than to commend. Such faculty members need not be in a majority. They are often personally attractive and magnetic; they are stimulating teachers, and their controversy attracts student following; they are prolific writers and lecturers; they author many of the textbooks, and they exert enormous influence — far out of proportion to their numbers — on their colleagues and in the academic world.

Social science faculties (the political scientist, economist, sociologist and many of the historians) tend to be liberally oriented, even when leftists are not present. This is not a criticism per se, as the need for liberal thought is essential to a balanced viewpoint. The difficulty is that “balance” is conspicuous by its absence on many campuses, with relatively few members being of conservatives or moderate persuasion and even the relatively few often being less articulate and aggressive than their crusading colleagues.

This situation extending back many years and with the imbalance gradually worsening, has had an enormous impact on millions of young American students. In an article in Barron’s Weekly, seeking an answer to why so many young people are disaffected even to the point of being revolutionaries, it was said: “Because they were taught that way.” Or, as noted by columnist Stewart Alsop, writing about his alma mater: “Yale, like every other major college, is graduating scores’ of bright young men … who despise the American political and economic system.”

As these “bright young men,” from campuses across the country, seek opportunities to change a system which they have been taught to distrust — if not, indeed “despise” — they seek employment in the centers of the real power and influence in our country, namely: (i) with the news media, especially television; (ii) in government, as “staffers” and consultants at various levels; (iii) in elective politics; (iv) as lecturers and writers, and (v) on the faculties at various levels of education.

Many do enter the enterprise system — in business and the professions — and for the most part they quickly discover the fallacies of what they have been taught. But those who eschew the mainstream of the system often remain in key positions of influence where they mold public opinion and often shape governmental action. In many instances, these “intellectuals” end up in regulatory agencies or governmental departments with large authority over the business system they do not believe in.

If the foregoing analysis is approximately sound, a priority task of business — and organizations such as the Chamber — is to address the campus origin of this hostility. Few things are more sanctified in American life than academic freedom. It would be fatal to attack this as a principle. But if academic freedom is to retain the qualities of “openness,” “fairness” and “balance” — which are essential to its intellectual significance — there is a great opportunity for constructive action. The thrust of such action must be to restore the qualities just mentioned to the academic communities.

What Can Be Done About the Campus

The ultimate responsibility for intellectual integrity on the campus must remain on the administrations and faculties of our colleges and universities. But organizations such as the Chamber can assist and activate constructive change in many ways, including the following:

Staff of Scholars

The Chamber should consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system. It should include several of national reputation whose authorship would be widely respected — even when disagreed with.

Staff of Speakers

There also should be a staff of speakers of the highest competency. These might include the scholars, and certainly those who speak for the Chamber would have to articulate the product of the scholars.

Speaker’s Bureau

In addition to full-time staff personnel, the Chamber should have a Speaker’s Bureau which should include the ablest and most effective advocates from the top echelons of American business.

Evaluation of Textbooks

The staff of scholars (or preferably a panel of independent scholars) should evaluate social science textbooks, especially in economics, political science and sociology. This should be a continuing program.

The objective of such evaluation should be oriented toward restoring the balance essential to genuine academic freedom. This would include assurance of fair and factual treatment of our system of government and our enterprise system, its accomplishments, its basic relationship to individual rights and freedoms, and comparisons with the systems of socialism, fascism and communism. Most of the existing textbooks have some sort of comparisons, but many are superficial, biased and unfair.

We have seen the civil rights movement insist on re-writing many of the textbooks in our universities and schools. The labor unions likewise insist that textbooks be fair to the viewpoints of organized labor. Other interested citizens groups have not hesitated to review, analyze and criticize textbooks and teaching materials. In a democratic society, this can be a constructive process and should be regarded as an aid to genuine academic freedom and not as an intrusion upon it.

If the authors, publishers and users of textbooks know that they will be subjected — honestly, fairly and thoroughly — to review and critique by eminent scholars who believe in the American system, a return to a more rational balance can be expected.

Equal Time on the Campus

The Chamber should insist upon equal time on the college speaking circuit. The FBI publishes each year a list of speeches made on college campuses by avowed Communists. The number in 1970 exceeded 100. There were, of course, many hundreds of appearances by leftists and ultra liberals who urge the types of viewpoints indicated earlier in this memorandum. There was no corresponding representation of American business, or indeed by individuals or organizations who appeared in support of the American system of government and business.

Every campus has its formal and informal groups which invite speakers. Each law school does the same thing. Many universities and colleges officially sponsor lecture and speaking programs. We all know the inadequacy of the representation of business in the programs.

It will be said that few invitations would be extended to Chamber speakers. This undoubtedly would be true unless the Chamber aggressively insisted upon the right to be heard — in effect, insisted upon “equal time.” University administrators and the great majority of student groups and committees would not welcome being put in the position publicly of refusing a forum to diverse views, indeed, this is the classic excuse for allowing Communists to speak.

The two essential ingredients are (i) to have attractive, articulate and well-informed speakers; and (ii) to exert whatever degree of pressure — publicly and privately — may be necessary to assure opportunities to speak. The objective always must be to inform and enlighten, and not merely to propagandize.

Balancing of Faculties

Perhaps the most fundamental problem is the imbalance of many faculties. Correcting this is indeed a long-range and difficult project. Yet, it should be undertaken as a part of an overall program. This would mean the urging of the need for faculty balance upon university administrators and boards of trustees.

The methods to be employed require careful thought, and the obvious pitfalls must be avoided. Improper pressure would be counterproductive. But the basic concepts of balance, fairness and truth are difficult to resist, if properly presented to boards of trustees, by writing and speaking, and by appeals to alumni associations and groups.

This is a long road and not one for the fainthearted. But if pursued with integrity and conviction it could lead to a strengthening of both academic freedom on the campus and of the values which have made America the most productive of all societies.

Graduate Schools of Business

The Chamber should enjoy a particular rapport with the increasingly influential graduate schools of business. Much that has been suggested above applies to such schools.

Should not the Chamber also request specific courses in such schools dealing with the entire scope of the problem addressed by this memorandum? This is now essential training for the executives of the future.

Secondary Education

While the first priority should be at the college level, the trends mentioned above are increasingly evidenced in the high schools. Action programs, tailored to the high schools and similar to those mentioned, should be considered. The implementation thereof could become a major program for local chambers of commerce, although the control and direction — especially the quality control — should be retained by the National Chamber.

What Can Be Done About the Public?

Reaching the campus and the secondary schools is vital for the long-term. Reaching the public generally may be more important for the shorter term. The first essential is to establish the staffs of eminent scholars, writers and speakers, who will do the thinking, the analysis, the writing and the speaking. It will also be essential to have staff personnel who are thoroughly familiar with the media, and how most effectively to communicate with the public. Among the more obvious means are the following:

Television

The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance. This applies not merely to so-called educational programs (such as “Selling of the Pentagon”), but to the daily “news analysis” which so often includes the most insidious type of criticism of the enterprise system. Whether this criticism results from hostility or economic ignorance, the result is the gradual erosion of confidence in “business” and free enterprise.

This monitoring, to be effective, would require constant examination of the texts of adequate samples of programs. Complaints — to the media and to the Federal Communications Commission — should be made promptly and strongly when programs are unfair or inaccurate.

Equal time should be demanded when appropriate. Effort should be made to see that the forum-type programs (the Today Show, Meet the Press, etc.) afford at least as much opportunity for supporters of the American system to participate as these programs do for those who attack it.

Other Media

Radio and the press are also important, and every available means should be employed to challenge and refute unfair attacks, as well as to present the affirmative case through these media.

The Scholarly Journals

It is especially important for the Chamber’s “faculty of scholars” to publish. One of the keys to the success of the liberal and leftist faculty members has been their passion for “publication” and “lecturing.” A similar passion must exist among the Chamber’s scholars.

Incentives might be devised to induce more “publishing” by independent scholars who do believe in the system.

There should be a fairly steady flow of scholarly articles presented to a broad spectrum of magazines and periodicals — ranging from the popular magazines (Life, Look, Reader’s Digest, etc.) to the more intellectual ones (Atlantic, Harper’s, Saturday Review, New York, etc.) and to the various professional journals.

Books, Paperbacks and Pamphlets

The news stands — at airports, drugstores, and elsewhere — are filled with paperbacks and pamphlets advocating everything from revolution to erotic free love. One finds almost no attractive, well-written paperbacks or pamphlets on “our side.” It will be difficult to compete with an Eldridge Cleaver or even a Charles Reich for reader attention, but unless the effort is made — on a large enough scale and with appropriate imagination to assure some success — this opportunity for educating the public will be irretrievably lost.

Paid Advertisements

Business pays hundreds of millions of dollars to the media for advertisements. Most of this supports specific products; much of it supports institutional image making; and some fraction of it does support the system. But the latter has been more or less tangential, and rarely part of a sustained, major effort to inform and enlighten the American people.

If American business devoted only 10% of its total annual advertising budget to this overall purpose, it would be a statesman-like expenditure.

The Neglected Political Arena

In the final analysis, the payoff — short-of revolution — is what government does. Business has been the favorite whipping-boy of many politicians for many years. But the measure of how far this has gone is perhaps best found in the anti-business views now being expressed by several leading candidates for President of the United States.

It is still Marxist doctrine that the “capitalist” countries are controlled by big business. This doctrine, consistently a part of leftist propaganda all over the world, has a wide public following among Americans.

Yet, as every business executive knows, few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders. If one doubts this, let him undertake the role of “lobbyist” for the business point of view before Congressional committees. The same situation obtains in the legislative halls of most states and major cities. One does not exaggerate to say that, in terms of political influence with respect to the course of legislation and government action, the American business executive is truly the “forgotten man.”

Current examples of the impotency of business, and of the near-contempt with which businessmen’s views are held, are the stampedes by politicians to support almost any legislation related to “consumerism” or to the “environment.”

Politicians reflect what they believe to be majority views of their constituents. It is thus evident that most politicians are making the judgment that the public has little sympathy for the businessman or his viewpoint.

The educational programs suggested above would be designed to enlighten public thinking — not so much about the businessman and his individual role as about the system which he administers, and which provides the goods, services and jobs on which our country depends.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assidously (sic) cultivated; and that when necessary, it must be used aggressively and with determination — without embarrassment and without the reluctance which has been so characteristic of American business.

As unwelcome as it may be to the Chamber, it should consider assuming a broader and more vigorous role in the political arena.

Neglected Opportunity in the Courts

American business and the enterprise system have been affected as much by the courts as by the executive and legislative branches of government. Under our constitutional system, especially with an activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change.

Other organizations and groups, recognizing this, have been far more astute in exploiting judicial action than American business. Perhaps the most active exploiters of the judicial system have been groups ranging in political orientation from “liberal” to the far left.

The American Civil Liberties Union is one example. It initiates or intervenes in scores of cases each year, and it files briefs amicus curiae in the Supreme Court in a number of cases during each term of that court. Labor unions, civil rights groups and now the public interest law firms are extremely active in the judicial arena. Their success, often at business’ expense, has not been inconsequential.

This is a vast area of opportunity for the Chamber, if it is willing to undertake the role of spokesman for American business and if, in turn, business is willing to provide the funds.

As with respect to scholars and speakers, the Chamber would need a highly competent staff of lawyers. In special situations it should be authorized to engage, to appear as counsel amicus in the Supreme Court, lawyers of national standing and reputation. The greatest care should be exercised in selecting the cases in which to participate, or the suits to institute. But the opportunity merits the necessary effort.

Neglected Stockholder Power

The average member of the public thinks of “business” as an impersonal corporate entity, owned by the very rich and managed by over-paid executives. There is an almost total failure to appreciate that “business” actually embraces — in one way or another — most Americans. Those for whom business provides jobs, constitute a fairly obvious class. But the 20 million stockholders — most of whom are of modest means — are the real owners, the real entrepreneurs, the real capitalists under our system. They provide the capital which fuels the economic system which has produced the highest standard of living in all history. Yet, stockholders have been as ineffectual as business executives in promoting a genuine understanding of our system or in exercising political influence.

The question which merits the most thorough examination is how can the weight and influence of stockholders — 20 million voters — be mobilized to support (i) an educational program and (ii) a political action program.

Individual corporations are now required to make numerous reports to shareholders. Many corporations also have expensive “news” magazines which go to employees and stockholders. These opportunities to communicate can be used far more effectively as educational media.

The corporation itself must exercise restraint in undertaking political action and must, of course, comply with applicable laws. But is it not feasible — through an affiliate of the Chamber or otherwise — to establish a national organization of American stockholders and give it enough muscle to be influential?

A More Aggressive Attitude

Business interests — especially big business and their national trade organizations — have tried to maintain low profiles, especially with respect to political action.

As suggested in the Wall Street Journal article, it has been fairly characteristic of the average business executive to be tolerant — at least in public — of those who attack his corporation and the system. Very few businessmen or business organizations respond in kind. There has been a disposition to appease; to regard the opposition as willing to compromise, or as likely to fade away in due time.

Business has shunted confrontation politics. Business, quite understandably, has been repelled by the multiplicity of non-negotiable “demands” made constantly by self-interest groups of all kinds.

While neither responsible business interests, nor the United States Chamber of Commerce, would engage in the irresponsible tactics of some pressure groups, it is essential that spokesmen for the enterprise system — at all levels and at every opportunity — be far more aggressive than in the past.

There should be no hesitation to attack the Naders, the Marcuses and others who openly seek destruction of the system. There should not be the slightest hesitation to press vigorously in all political arenas for support of the enterprise system. Nor should there be reluctance to penalize politically those who oppose it.

Lessons can be learned from organized labor in this respect. The head of the AFL-CIO may not appeal to businessmen as the most endearing or public-minded of citizens. Yet, over many years the heads of national labor organizations have done what they were paid to do very effectively. They may not have been beloved, but they have been respected — where it counts the most — by politicians, on the campus, and among the media.

It is time for American business — which has demonstrated the greatest capacity in all history to produce and to influence consumer decisions — to apply their great talents vigorously to the preservation of the system itself.

The Cost

The type of program described above (which includes a broadly based combination of education and political action), if undertaken long term and adequately staffed, would require far more generous financial support from American corporations than the Chamber has ever received in the past. High level management participation in Chamber affairs also would be required.

The staff of the Chamber would have to be significantly increased, with the highest quality established and maintained. Salaries would have to be at levels fully comparable to those paid key business executives and the most prestigious faculty members. Professionals of the great skill in advertising and in working with the media, speakers, lawyers and other specialists would have to be recruited.

It is possible that the organization of the Chamber itself would benefit from restructuring. For example, as suggested by union experience, the office of President of the Chamber might well be a full-time career position. To assure maximum effectiveness and continuity, the chief executive officer of the Chamber should not be changed each year. The functions now largely performed by the President could be transferred to a Chairman of the Board, annually elected by the membership. The Board, of course, would continue to exercise policy control.

Quality Control is Essential

Essential ingredients of the entire program must be responsibility and “quality control.” The publications, the articles, the speeches, the media programs, the advertising, the briefs filed in courts, and the appearances before legislative committees — all must meet the most exacting standards of accuracy and professional excellence. They must merit respect for their level of public responsibility and scholarship, whether one agrees with the viewpoints expressed or not.

Relationship to Freedom

The threat to the enterprise system is not merely a matter of economics. It also is a threat to individual freedom.

It is this great truth — now so submerged by the rhetoric of the New Left and of many liberals — that must be re-affirmed if this program is to be meaningful.

There seems to be little awareness that the only alternatives to free enterprise are varying degrees of bureaucratic regulation of individual freedom — ranging from that under moderate socialism to the iron heel of the leftist or rightist dictatorship.

We in America already have moved very far indeed toward some aspects of state socialism, as the needs and complexities of a vast urban society require types of regulation and control that were quite unnecessary in earlier times. In some areas, such regulation and control already have seriously impaired the freedom of both business and labor, and indeed of the public generally. But most of the essential freedoms remain: private ownership, private profit, labor unions, collective bargaining, consumer choice, and a market economy in which competition largely determines price, quality and variety of the goods and services provided the consumer.

In addition to the ideological attack on the system itself (discussed in this memorandum), its essentials also are threatened by inequitable taxation, and — more recently — by an inflation which has seemed uncontrollable. But whatever the causes of diminishing economic freedom may be, the truth is that freedom as a concept is indivisible. As the experience of the socialist and totalitarian states demonstrates, the contraction and denial of economic freedom is followed inevitably by governmental restrictions on other cherished rights. It is this message, above all others, that must be carried home to the American people.

Conclusion

It hardly need be said that the views expressed above are tentative and suggestive. The first step should be a thorough study. But this would be an exercise in futility unless the Board of Directors of the Chamber accepts the fundamental premise of this paper, namely, that business and the enterprise system are in deep trouble, and the hour is late.

***

Lewis Powell

Greenpeace

The Mother of all Blunders – Bryan Gould. 

“Neoliberal economic policies have failed, and an important aspect of that failure has been that most of such new wealth as has been created has gone to the richest people in society.”

Jim Blogger, former NZ Prime Minister

Jim Bolger headed a government that set about cutting taxes and therefore public services, and weakening trade unions, policies often seen as the hallmarks of neo-liberalism, and that is to say nothing of Ruth Richardson and her boast of delivering “the mother of all budgets”.

It is beyond dispute that the countries which have enjoyed the best economic outcomes have been those – like the Scandinavian countries – which have at the same time most stoutly resisted the growth of inequality.  As for the rest, the application of neo-liberal policies has meant a poorer economic performance, accompanied by greater social division.

We do not have to choose, in other words and as is so often asserted, between social justice and economic success.  The former is an essential element in producing the latter and is not just a “luxury” we can do without.

Or, to put it in another way, the failure of neo-liberal policies is largely attributable to their inevitable tendency to exacerbate inequality and to foster a lack of concern for the less fortunate.

And a moment’s reflection will tell us why that is so.  An economy will always be more successful if it engages with and uses all of its productive capacity – and that means its human resources – rather than leaving some of them under-used and undervalued.

The loss and damage we sustain, if we fail to take account of the interests of the whole of society, creates not only a weaker economy, but a more divided and unhappier society.

In today’s politics, it is the right that is ideologically driven while it is the left that constantly seeks merely pragmatic solutions to pressing problems.  The left’s difficulties in attracting majority public support suggest that solutions to problems will stand a better chance of being accepted if they are seen to be grounded in a coherent analysis of what has gone wrong.

It may be that, in their anxiety to gain support from the “middle ground”, the left has too easily been frightened away from developing such an analysis.  Surprisingly, they seem reluctant to engage in an ideological debate and prefer to leave the territory uncontested.

If Jim Bolger can do it, and link outcomes to policy frameworks, why not the left?  But, if there were to be a next time, Jim, could you please see the light and find the road to Damascus a little sooner?

Bryan Gould

The Ideology That Dares Not Speak Its Name – Chris Trotter. 

“Neoliberalism (neo-liberalism) refers primarily to the 20th-century resurgence of 19th-century ideas associated with laissez-faire economic liberalism. These include extensive economic liberalisation policies such as privatisation, fiscal austerity, deregulation, free trade and reductions in government spending in order to increase the role of the private sector in the economy and society. These market-based ideas and the policies they inspired constitute a paradigm shift away from the post-war Keynesian consensus which lasted from 1945 to 1980.”

Admirably clear. And while there’s certainly scope for scholarly debate around detail and emphasis, Wikipedia’s definition is more than sufficient to dispel the feigned ignorance of neoliberalism’s most zealous defenders.

Why, then, do neoliberals like Hosking continue to insist that they have no firm grasp of the term’s usage – other than as an expression of left-wing abuse?

The answer is simple. To survive and prosper, neoliberalism and the policies it inspires cannot afford to be seen as ‘just another ideology’ – like communism or fascism. Rather, it must be accepted as a law of nature – as unyielding to human influence as the weather.

…… Bowalley Road

Populism is the result of global economic failure – Larry Elliott. 

The rise of populism has rattled the global political establishment. Brexit came as a shock, as did the victory of Donald Trump. Much head-scratching has resulted as leaders seek to work out why large chunks of their electorates are so cross.

The answer seems pretty simple. Populism is the result of economic failure. The 10 years since the financial crisis have shown that the system of economic governance which has held sway for the past four decades is broken. Some call this approach Neoliberalism. Perhaps a better description would be unpopulism.

Unpopulism meant tilting the balance of power in the workplace in favour of management and treating people like wage slaves. Unpopulism was rigged to ensure that the fruits of growth went to the few not to the many. Unpopulism decreed that those responsible for the global financial crisis got away with it while those who were innocent bore the brunt of austerity.

Anybody seeking to understand why Trump won the US presidential election should take a look at what has been happening to the division of the economic spoils. The share of national income that went to the bottom 90% of the population held steady at around 66% from 1950 to 1980. It then began a steep decline, falling to just over 50% when the financial crisis broke in 2007.

Similarly, it is no longer the case that everybody benefits when the US economy is doing well. During the business cycle upswing between 1961 and 1969, the bottom 90% of Americans took 67% of the income gains. During the Reagan expansion two decades later they took 20%. During the Greenspan housing bubble of 2001 to 2007, they got just two cents in every extra dollar of national income generated while the richest 10% took the rest.

The US economist Thomas Palley says that up until the late 1970s countries operated a virtuous circle growth model in which wages were the engine of demand growth.

“Productivity growth drove wage growth which fueled demand growth. That promoted full employment, which provided the incentive to invest, which drove further productivity growth,” he says.

Unpopulism was touted as the antidote to the supposedly failed policies of the postwar era. It promised higher growth rates, higher investment rates, higher productivity rates and a trickle down of income from rich to poor. It has delivered none of these things.

James Montier and Philip Pilkington, of the global investment firm GMO, say that the system which arose in the 1970s was characterised by four significant economic policies: the abandonment of full employment and its replacement with inflation targeting; an increase in the globalisation of the flows of people, capital and trade; a focus on shareholder maximisation rather than reinvestment and growth; and the pursuit of flexible labour markets and the disruption of trade unions and workers’ organisations.

To take just the last of these four pillars, the idea was that trade unions and minimum wages were impediments to an efficient labour market. Collective bargaining and statutory pay floors would result in workers being paid more than the market rate, with the result that unemployment would inevitably rise.

Unpopulism decreed that the real value of the US minimum wage should be eroded. But unemployment is higher than it was when the minimum wage was worth more. Nor is there any correlation between trade union membership and unemployment. If anything, international comparisons suggest that those countries with higher trade union density have lower jobless rates. The countries that have higher minimum wages do not have higher unemployment rates.

“Labour market flexibility may sound appealing, but it is based on a theory that runs completely counter to all the evidence we have,” Montier and Pilkington note. “The alternative theory suggests that labour market flexibility is by no means desirable as it results in an economy with a bias to stagnate that can only maintain high rates of employment and economic growth through debt-fuelled bubbles that inevitably blow up, leading to the economy tipping back into stagnation.”

This quest for ever-greater labour market flexibility has had some unexpected consequences. The bill in the UK for tax credits spiralled quickly once firms realised they could pay poverty wages and let the state pick up the bill. Access to a global pool of low-cost labour meant there was less of an incentive to invest in productivity-enhancing equipment.

The abysmally low levels of productivity growth since the crisis have encouraged the belief that this is a recent phenomenon, but as Andy Haldane, the Bank of England’s chief economist, noted last week, the trend started in most advanced countries in the 1970s.

“Certainly, the productivity puzzle is not something which has emerged since the global financial crisis, though it seems to have amplified pre-existing trends,” Haldane said.

Bolshie trade unions certainly can’t be blamed for Britain’s lost productivity decade. The orthodox view in the 1970s was that attempts to make the UK more efficient were being thwarted by shop stewards who modeled themselves on Fred Kite, the character played by Peter Sellers in I’m All Right Jack. Haldane puts the blame elsewhere: on poor management, which has left the UK with a big gap between frontier firms and a long tail of laggards. “Firms which export have systematically higher levels of productivity than domestically oriented firms, on average by around a third. The same is true, even more dramatically, for foreign-owned firms. Their average productivity is twice that of domestically oriented firms.”

Populism is seen as irrational and reprehensible. It is neither. It seems entirely rational for the bottom 90% of the US population to question why they are getting only 2% of income gains. It hardly seems strange that workers in Britain should complain at the weakest decade for real wage growth since the Napoleonic wars.

It has also become clear that ultra-low interest rates and quantitative easing are merely sticking-plaster solutions. Populism stems from a sense that the economic system is not working, which it clearly isn’t. In any other walk of life, a failed experiment results in change. Drugs that are supposed to provide miracle cures but are proved not to work are quickly abandoned. Businesses that insist on continuing to produce goods that consumers don’t like go bust. That’s how progress happens.

The good news is that the casting around for new ideas has begun. Trump has advocated protectionism. Theresa May is consulting on an industrial strategy. Montier and Pilkington suggest a commitment to full employment, job guarantees, reindustrialisation and a stronger role for trade unions. The bad news is that time is running short. More and more people are noticing that the emperor has no clothes.

Even if the polls are right this time and Marine Le Pen fails to win the French presidency, a full-scale political revolt is only another deep recession away. And that’s easy enough to envisage.

The Guardian

New Zealand’s Neoliberal Drift – Branko Marcetic. 

In New Zealand, neoliberal reforms have widened inequality and undermined the country’s self-image as an egalitarian paradise.

A few years ago, when the 2008 global financial crisis was just one or two years old, a coworker and I were talking about the increasingly common sight of homeless people in Auckland, New Zealand. While homelessness in Auckland was nothing new, we agreed that we were seeing more and more men and women curled up in doorways, draped in layers of old clothes and blankets, and holding up tattered signs asking passers-by for money on Queen Street, the city’s main commercial hub.

It was sad, I remarked, that while the problem seemed to be getting worse, the government seemed to be doing very little to help these people escape poverty. She too expressed sympathy for the poor and stressed the importance of giving them a leg up, but confessed she found it difficult to feel bad for homeless people. After all, New Zealand had a generous welfare state that made sure no one was left behind.

“I mean, if you can’t make it in New Zealand,” she said, “then there must be something really wrong with you.”

Her attitude is not particularly unusual — millions of New Zealanders share it. The image of New Zealand as a kind-hearted social democracy, a Scandinavia of the South Pacific, is deeply engrained in its culture.

In fact, this view extends far beyond the country’s borders. A Kiwi in the United States is likely to field three common queries: questions about the country’s natural beauty, about The Flight of the Conchords, and about how much more progressive New Zealand is than America. (There’s an occasional fourth that has something to do with Lord of the Rings.)

To be clear, New Zealand has earned this reputation. Its quality of life is consistently ranked among the highest in the world. In metric after metric — whether examining corruption or life expectancy — it rates well above average. Perhaps most significantly, New Zealanders themselves report extreme satisfaction with their lives.

All of these accolades cover up another truth, however: New Zealand hasn’t been a social-democratic paradise for a long time now. Often considered a “social laboratory,” New Zealand eagerly adopted radical neoliberal reforms in the 1980s like few countries before or since. Nevertheless, its kindly image persists, in and out of the country.

A Social-Democratic Laboratory

All countries have narratives. In United States, it’s the “American Dream,” the idea that hard work makes millionaires. In New Zealand, it’s the idea that a benevolent, liberal state will look after its people.

This self-image can be traced back to the period between 1890 and 1920, when the country became known as the “social laboratory of the world.” By then, New Zealand already had a long egalitarian streak: it established government life insurance in 1869 to help those who couldn’t afford private plans, assisted new immigrants, and embarked on an expensive public works scheme to lay roads and railway lines. But in 1879, a severe depression dented New Zealanders’ widespread belief in the free market and individualism.

The Liberal governments of Richard Seddon and then Joseph Ward, which first took power in 1893, passed a flurry of social welfare reforms, including distributing free textbooks, improving workplace conditions, establishing food and drug standards, and breaking up large estates to provide land for settlers. The Industrial Conciliation and Arbitration Act of 1894 instituted a guaranteed minimum wage and a system of compulsory arbitration for settling industrial disputes. The 1898 Old Age Pensions Act created one of the world’s earliest public pension schemes, even if it was small, means-tested, and only applied to “persons of good character.” (Much of this came at the expense of the indigenous Maori, who were dispossessed of more and more of their land to make way for English settlers and railroad lines).

Foreign visitors returned with tales of an egalitarian paradise and “a country without strikes”. American Progressives drew on New Zealand’s example to push for similar changes back home.

New Zealand’s reputation for progressive enlightenment continued into the twentieth century, even as consistent labor agitation undermined its popular image. The benefits of its burgeoning welfare state expanded over the years, particularly during World War I, when it began covering widows, the blind, influenza victims, and consumption-stricken miners.

Then, like the rest of the world, the Great Depression devastated New Zealand’s economy. The downturn hobbled the country’s labor movement. Widespread economic suffering — exacerbated by the country’s lack of unemployment relief — swept the Labour Party to power in 1935. Its leader, Michael Joseph Savage, promised New Zealanders a “reasonable standard of living in the days when they are unable to look after themselves.”

The country’s first Labour government gave unemployed workers an immediate Christmas bonus, launched a state housing program, established compulsory union membership, and started a Keynesian scheme of guaranteed prices for exports. The centerpiece of its stimulus package was the 1938 Social Security Act, which established universal superannuation for those sixty-five or older, universal free health care (at least in theory), and welfare payments for the poor and unemployed. Savage died trying to enact this bill, putting off cancer surgery to help get it passed and win that year’s election. (Once again, Maori were left out — the law’s language gave officials wiggle room to discriminate and pay them reduced benefits).

Perhaps most importantly, however, the government’s commitment to full employment would endure for decades to come. Successive Labour governments paired this policy with a gradually increasing family allowance, culminating in 1946, when a universal benefit for all families with children passed.

By 1949, the International Labor Organization (ILO) claimed the Social Security Act had “deeply influenced the course of legislation in other countries.” English prime-minister-to-be Clement Atlee praised New Zealand as “a laboratory of social experiment.” In 1944, Labour prime minister Walter Nash wrote that the country offered a “practical example” of what “may well become typical of most democracies tomorrow.”

While Labour’s time in power ended in 1949, its policies of government intervention New Zealand endured. The country remained a highly controlled economy with an extensive welfare state and widespread state ownership in various sectors through the 1970s. Government-guaranteed full employment enjoyed bipartisan support. Even Robert Muldoon, who served as the right-wing National Party’s prime minister from 1975 to 1984, once joked that he knew all seventy unemployed New Zealanders by name.

Weird Science

This all changed in the mid-1980s. As in the Depression years, a crisis sparked a political sea change. New Zealand lost a major trading partner with the United Kingdom’s turn to Europe in 1973, while a series of oil shocks through the 1970s plunged the country into recession. In 1965, New Zealand ranked as the sixth wealthiest country per capita; fifteen years later, it fell to nineteenth.

Again like in the 1930s, the Labour Party implemented a major political transformation, making New Zealand once again a “laboratory of social experiment.” But this time, Labour responded to the crisis by deregulating, selling off public assets, and slashing state investment.

The reforms came to be known, somewhat derisively, as “Rogernomics,” after the finance minister Roger Douglas, who would go on to found ACT, a radical free-market party that has recently embraced US Republican-style law-and-order policies. Prime Minister David Lange acted as an affable and charming salesman for the reforms but had little interest in either economics or policy more generally. For the most part, he allowed his team to experiment with the economy however they liked.

Through the 1980s and 1990s — first under Labour, then under National Party rule — New Zealand ushered in neoliberal reform on an unprecedented scale. Controls on wages, prices, rents, interest rates, and more were scrapped. Finance markets were deregulated, and restrictions on foreign investment were removed or relaxed. Based on the belief that welfare helped create unemployment by encouraging dependency, the system was overhauled in ways that the government’s own official encyclopaedia describes as “particularly swift and severe.”

In 1986, Labour slashed the tax rate for high-income earners and introduced a goods-and-services tax. This change effectively hiked taxes on low- and middle-income earners, given that they spend a larger proportion of their earnings on consumption. (Douglas even tried to institute a flat tax, which turned out to be a step too far for Labour.) Legislation in 1991 eliminated hard-fought reforms like compulsory union membership, compulsory employer-employee bargaining, and unions’ special place in this process.

Most state-owned assets were fully or partially sold off, including three banks, the Tower insurance company, shipping companies, the national airline and the country’s main airport, and various energy companies, among many others. In some cases, the results were disastrous, as when National sold off the country’s national rail network to a consortium of financial companies, who soon ran it into the ground forcing a government buyback. It wasn’t the only privatized asset the government later had to rescue. 

Government disinvestment from public services abandoned the most vulnerable citizens. Nearly all psychiatric hospitals closed down by the 1990s, their responsibilities passing on to nongovernmental organizations. University tuition fees shot up by nearly 1,000 percent in 1990 and have climbed steadily ever since. The price of attending college in New Zealand now ranks as the industrial world’s fourth highest. The abrupt end of farm subsidies and protectionist policies hit farmers hard, plunging them into debt and leading to a spate of suicides. One prominent Kiwi recalled seeing a beggar on the streets of New Zealand for the first time in his mid-fifties, an experience he described as “like being kicked in the stomach.”

All of this happened at a dizzying pace. And it had to because the reforms were hugely unpopular.

“It is uncertainty, not speed, that endangers the success of structural reform programs,” wrote Roger Douglas in 1993. “Speed is an essential ingredient in keeping uncertainty down to the lowest possible level.” Douglas would later reportedly advise foreign leaders to keep their equivalent programs hidden from the public and to implement them as quickly as possible to bypass opposition.

New Zealand once again became a global poster child for policy innovation, as Jane Kelsey outlines in The New Zealand Experiment. The New York Times gushed that a “heavily protected, over-regulated, high inflation economy” had been turned into “one of the most open in the world.” The Financial Times claimed New Zealand offered a “blueprint for a shrinking state.” The Wall Street Journal applauded that “this little Prometheus unchained itself from a rock of high taxes, high tariffs, heavy welfare burdens, and pro-union labor laws,” and celebrated that “anybody can follow New Zealand’s example to prosperity.” None praised New Zealand more than the Economist, however, which ran story after story on what it called a “free market experiment in socialist sheep’s clothing” that was “out-Thatchering Mrs Thatcher.”

New Zealand’s neoliberal employment reforms attracted policymakers’ attention internationally. In 1996, Newt Gingrich — then House Majority Leader — sent a congressional delegation to study the country as a “model” for industrial relations deregulation. Powerful neoliberal institutions like the IMF, the Asian Development Bank, and the World Bank exported New Zealand’s grand “experiment,” organizing and funding study trips, speaking tours, seminars, and reports that promoted the program.

Partly thanks to this, countries like Mongolia and Thailand copied New Zealand in their own reforms and worked closely with prominent architects of the experiment. In 1998, New Zealand’s minister of international trade boasted that the “success of New Zealand’s economic reforms” was now as internationally well known as its sheep, its rugby team, and its milk brand.

If you look narrowly at metrics like inflation and government debt, the reforms worked. If you look at more fundamental economic measures like employment, income levels, and economic growth — all of which free-market policies are supposed to boost — they were a miserable failure.

The economy shrank by 1 percent between 1985 and 1992, while other countries in the OECD saw 20 percent growth. Poverty skyrocketed, with one in six falling below the poverty line by 1992. Unemployment jumped, too, and even when it later fell, much of the recovery was in part-time work. Income inequality widened sharpley, with the bulk of income gains going to the country’s wealthiest citizens.

Binging on Neoliberalism

While these reforms profoundly shifted New Zealand’s politics, citizens’ self-image hasn’t kept pace. There remains a prevailing view that their country is an idyllic paradise apart from the rest of the world’s ills that, if anything, is too generous to its less advantaged citizens.

Surprisingly, many business leaders believe that New Zealand is an over-regulated, antibusiness economy hostile to economic success. Complaints that companies are mired in “red tape” never seem to end. CEOs regularly report that fear of regulations keeps them up at night.

These beliefs stand at odds with reality. Three times since 2005, New Zealand has topped the World Bank’s annual “Ease of Doing Business” report, which measures regulations that, at least according to the World Bank, enhance and constrain business activity. Every other year, it’s come third or, more often, second. It ranked first twice during Helen Clark’s Labour government, which often faced accusations that its legislation was making it impossible for businesses to succeed.

Furthermore, Forbes has listed New Zealand in the top three “best countries for business” each year since 2010. It ranked first in 2012. Two years later, Forbes called it best in the world when it came to “red tape.”

Every year since 2009, the conservative Heritage Foundation has put New Zealand in the top five countries for its “Index of Economic Freedom.” Investment banker and right-wing commentator Peter Schiff said he would like to live in New Zealand because of its lack of governmental interference.

Resistance to “the nanny state,” a paternalistic government unreasonably worming its way into every little of detail of individuals’ lives, has also become widespread. This belief most commonly finds its expression in complaints about the welfare program, which many think discourages hard work and desperately needs to be cut back. This narrative took center stage from 1999 to 2008, when Clark’s Labour government went some way toward slowing, though not ultimately reversing, the march of neoliberalism.

New Zealanders would be shocked to find that since 2001 and throughout all of the Labour years, social spending as a percentage of GDP has been on or below the OECD average. New Zealand has consistently appeared in the lower half of OECD social spending, closer to the United States than to countries like Finland, Denmark, Sweden, and even France and Germany, which rank far above it.

Nonetheless, popular myths about New Zealand’s safety net persist. Tales abound of unscrupulous beneficiaries gaming the system and ripping off taxpayers, or of apparently sociopathic parents churning out children just to receive more paltry benefits. Much of this is based on anecdotal evidence and high-profile yet rare incidents that receive heavy publicity. As per usual, it is also heavily racialized — the “dole bludger” that exists in popular imagination is usually Polynesian — even though 44 percent of working-class welfare recipients are Pakeha, or white.

The dramatic changes to the welfare system made by John Key’s National Government, which took power in 2008, are founded on these myths. As of 2012, single parents who wanted to keep their benefits had to start looking for work as soon as their child turned five (previously, they could wait until the child was eighteen); parents who had children while on welfare had to start job-hunting after one year. These changes enjoyed wide approval, even among voters who identified as left-leaning. Two years later the government promised to cut welfare rolls by a further 25 percent.

Meanwhile, charities like the Salvation Army reported a massive strain on their resources as overwhelming demand for food and other assistance outstripped their ability to provide it. Poverty, a normalized, structural feature of the New Zealand economy since the 1980s, has reached shameful levels: a third of the country’s children now live in poverty, and an increasing number of families live out of their cars as rents in cities go up.

Meanwhile, attitudes have hardened. A 2013 bill that would have provided free breakfasts and lunches at schools in low-income neighborhoods failed after the opposition called it “an abdication of responsibility of parenting.” One influential right-wing blogger and pollster mocked the bill as a plan to “replace parents”:

[I]f a family is so incompetent that [it] can’t arrange breakfast or lunch for their kids, then surely we can’t trust them to do dinner also . . . So I think we also need huge state owned dining places where kids can get their dinners for free.

After businessman and one-time Trump prototype Bob Jones said beggars were “fat Maoris” and “a bloody disgrace,” an online poll found that 72 percent of the nearly forty thousand respondents thought begging should be outlawed.

Such views also spurred a recent crackdown on welfare fraud, which saw as many as one thousand people a year being prosecuted for costing the country around $30 million annually. By contrast, less than a tenth of that number are prosecuted for tax evasion, despite the fact that this problem cheats taxpayers of $1 billion annually.

Public services have been further hollowed out over the past nine years. In its quest for budget surpluses, no matter how small and meaningless, the Key government slashed health funding, relentlessly defunded the Department of Conservation, and cut support for education at all levels. It has ramped up privatization over public objections, ignoring the fact that selling profitable state-owned assets for a one-time payment makes little economic sense.

Workers’ rights have also been steadily undermined — a stunning fact for a country once viewed as an international model for its labor laws.

Shortly after coming to office, the National Party introduced a three-month probationary period for all new employees, during which they could be fired for any reason without appeal. A 2010 Department of Labor survey and a 2016 Treasury report found this extra flexibility had done nothing to help employment, but had simply cut “dismissal costs for firms” while creating uncertainty for workers, a fifth of whom had been fired under the provision.

In 2010, the government passed legislation that excluded film workers from the definition of employees. Warner Brothers had threatened to move the production of The Hobbit to Ireland if the change wasn’t made, and the measure had been both publicly urged and privately promoted to top policymakers by the film’s director, national treasure Peter Jackson.

Anti-union sentiment became so bad that a group of global unions issued a joint statement in 2012 calling for “an immediate end to concerted attacks on workers in New Zealand” and “an end to the union-busting measures.” More recently, the government narrowly succeeded in revoking workers’ long-held right to rest and meal breaks.

While the benefits once afforded to workers and the poor are slowly being eroded, it’s never been a better time to be wealthy. Inequality may not be as extreme as in other countries, but as journalist Max Rashbrooke notes, the wealth gap has widened more quickly than anywhere else in the developed world.

Certainly, the National Party’s tax policies have helped: in 2010, the Key government embarked on a series of reforms that gave the biggest cuts to high earners and further raised the goods-and-services tax — a stealthily regressive tax regime that undermined any gains for lower-paid workers.

While New Zealand has been hesitant to welcome Syrian refugees, its doors are open wide if the price is right. It offers the global rich two separate residency visas, one of which — the Investor Plus, introduced in 2009 — has only two conditions: émigrés must invest $10 million over three years and spend at least eighty-eight days in the country in the final two years.

Since then, there has been an uptick in ultra-wealthy individuals gaining residency. As Peter Thiel recently showed, citizenship appears to be easily available to those with a high enough net worth.

Indeed, a recent New Yorker article revealed that New Zealand has become a popular refuge for billionaires preparing for the breakdown of society. But this has been known for years, at least since Robert Johnson told  the Davos World Economic Forum in 2015 that hedge-fund managers were buying farms as “boltholes” to escape increasing unrest over inequality. New Zealand’s absurdly loose rules around foreign property ownership make this strategy possible: buyers don’t need visas and pay no stamp duty. Until recently, it was one of the few developed countries to have no capital gains tax. (Even now, it only applies to houses sold within two years of their purchase.)

New Zealand’s laws benefit the rich in other ways. For years, it operated as a tax haven, allowing foreigners to stash income in anonymous trusts and pay no tax on it. John Key expressly requested this rule, which a top law firm said would put New Zealand on even footing with the Cayman Islands, Luxembourg, and Ireland — all world-famous tax havens. While some have denied this label, the Panama Papers heavily implicated New Zealand and showed that these trusts more than quintupled from two to eleven thousand over a decade.

Ironically, the politicians behind this continued neoliberal rollback all directly benefited from the programs they are now dismantling. The social development minister who cracked down on single parents on welfare was once a single parent on welfare. Former prime minister John Key, whose government sold off thousands of state houses, grew up in a state house. Virtually everyone involved in the reforms that have burdened generations of young people with student debt enjoyed the right of free education.

But a significant part of the population has long since internalized the idea that this is simply the way it has to be. Just prior to Donald Trump’s victory, the New Zealand Listener (the country’s equivalent to Time magazine) criticized Trump and Bernie Sanders for “their unimplementable and often mendacious policy prescriptions.” Some of Sanders’s signature policies included a public health-care system and free college — both of which once existed in New Zealand (and one of which, public health care, still does, albeit in a modified form).

The First Step

Despite adulation from people like Peter Schiff, New Zealand is hardly the libertarian promised land. It continues to have a robust government involved in many aspects of its citizens’ lives.

But neither is New Zealand the progressive paradise that foreign travelers once breathlessly described — or that many of its citizens still believe it is. Perhaps it never was, given that ideas about self-reliance and individualism have always been central to its culture and self-conceptions.

Still, decades of neoliberal reforms have not only hardened social attitudes and eroded some of the country’s greatest legislative accomplishments, but also rolled back many of the elements central to its self-image. A country once proud of its egalitarianism now has higher income inequality than much of the developed world. A country once known for its prosperity now suffers with shameful levels of poverty. A country that markets itself as “clean and green” now must face the reality of its environmental degradation.

For the vast majority of the population, much of this remains invisible, which explains why Kiwis continue to view their country through social-democratic-tinted glasses. Perhaps if they looked more honestly, they could start to solve these problems.

Jacobin Magazine

 

How economic boom times in the West came to an end – Marc Levinson. 

Unprecedented growth marked the era from 1948 to 1973. Economists might study it forever, but it can never be repeated. Why? 

The second half of the 20th century divides neatly in two. The divide did not come with the rise of Ronald Reagan or the fall of the Berlin Wall. It is not discernible in a particular event, but rather in a shift in the world economy, and the change continues to shape politics and society in much of the world today.

The shift came at the end of 1973. The quarter-century before then, starting around 1948, saw the most remarkable period of economic growth in human history. In the Golden Age between the end of the Second World War and 1973, people in what was then known as the ‘industrialised world’ – Western Europe, North America, and Japan – saw their living standards improve year after year. They looked forward to even greater prosperity for their children. Culturally, the first half of the Golden Age was a time of conformity, dominated by hard work to recover from the disaster of the war. The second half of the age was culturally very different, marked by protest and artistic and political experimentation. Behind that fermentation lay the confidence of people raised in a white-hot economy: if their adventures turned out badly, they knew, they could still find a job.

The year 1973 changed everything. High unemployment and a deep recession made experimentation and protest much riskier, effectively putting an end to much of it. A far more conservative age came with the economic changes, shaped by fears of failing and concerns that one’s children might have it worse, not better. Across the industrialised world, politics moved to the Right – a turn that did not avert wage stagnation, the loss of social benefits such as employer-sponsored pensions and health insurance, and the secure, stable employment that had proved instrumental to the rise of a new middle class and which workers had come to take for granted. At the time, an oil crisis took the blame for what seemed to be a sharp but temporary downturn. Only gradually did it become clear that the underlying cause was not costly oil but rather lagging productivity growth – a problem that would defeat a wide variety of government policies put forth to correct it.

The great boom began in the aftermath of the Second World War. The peace treaties of 1945 did not bring prosperity; on the contrary, the post-war world was an economic basket case. Tens of millions of people had been killed, and in some countries a large proportion of productive capacity had been laid to waste. Across Europe and Asia, tens of millions of refugees wandered the roads. Many countries lacked the foreign currency to import food and fuel to keep people alive, much less to buy equipment and raw material for reconstruction. Railroads barely ran; farm tractors stood still for want of fuel.

Everywhere, producing enough coal to provide heat through the winter was a challenge. As shoppers mobbed stores seeking basic foodstuffs, much less luxuries such as coffee and cotton underwear, prices soared. Inflation set off waves of strikes in the United States and Canada as workers demanded higher pay to keep up with rising prices. The world’s economic outlook seemed dim. It did not look like the beginning of a golden age.

As late as 1948, incomes per person in much of Europe and Asia were lower than they had been 10 or even 20 years earlier. But 1948 brought a change for the better. In January, the US military government in Japan announced it would seek to rebuild the economy rather than exacting reparations from a country on the verge of starvation. In April, the US Congress approved the economic aid programme that would be known as the Marshall Plan, providing Western Europe with desperately needed dollars to import machinery, transport equipment, fertiliser and food. In June, the three occupying powers – France, the United Kingdom and the US – rolled out the deutsche mark, a new currency for the western zones of Germany. A new central bank committed to keeping inflation low and the exchange rate steady would oversee the deutsche mark.

Postwar chaos gave way to stability, and the war-torn economies began to grow. In many countries, they grew so fast for so long that people began to speak of the ‘economic miracle’ (West Germany), the ‘era of high economic growth’ (Japan) and the 30 glorious years (France). In the English-speaking world, this extraordinary period became known as the Golden Age.

What was it that made the Golden Age exceptional? Part of the answer is that economies were making up for lost time: after years of depression and wartime austerity, enormous needs for housing, consumer goods, equipment for farms, factories, railroads and electric generating plants stood ready to drive growth. But much more lay behind the Golden Age of economic growth than pent-up demand. Two factors deserve special attention.

First, the expanding welfare state. The Second World War shook up the social structures in all the wealthy countries, fundamentally altering domestic politics, in particular exerting an equalising force. As societies embarked on reconstruction, no one could deny that citizens who had been asked to sacrifice in war were entitled to share in the benefits of peace. In many cases, labour unions became the representatives of working people’s claims to peacetime dividends. Indeed, union membership reached historic highs, and union leaders sat alongside business and government leaders to hammer out social policy. Between 1944 and 1947, one country after another created old-age pension schemes, national health insurance, family allowances, unemployment insurance and more social benefits. These programmes gave average families a sense of security they had never known. Children from poor families could visit the doctor without great expense. The loss of a job or the death of a wage-earner no longer meant destitution.

Second, in addition to the growing welfare state, strong productivity growth contributed to rising living standards. Rising productivity – increasing the efficiency with which an economy uses labour, capital and other resources – is the main force that makes an economy grow. Because new technologies and better ways of doing business take time to filter through the economy, productivity improvements are usually slow. But in the postwar years, productivity grew very quickly. A unique combination of circumstances propelled it. In just a few years, millions of people moved from low-productivity farm work – more than 3 million mules still plowed furrows on US farms in 1945 – to construction and factory jobs that used the latest machinery.

In 1940, the average working-age adult in western Europe had less than five years of formal education. As governments invested heavily in high schools and universities after the war, they produced a more educated and literate workforce with the skills to produce far more wealth. Advances in national infrastructure gave direct boosts to national productivity. High-speed motorways enabled truck drivers to carry bigger loads over longer distances at higher speeds, greatly expanding markets for farms and factories. Six rounds of trade negotiations between 1947 and 1967, ultimately involving nearly 50 countries that signed the General Agreement on Tariffs and Trade (GATT), brought a massive increase in cross-border trade, forcing manufacturers to modernise or give up. Firms moved to take advantage of technological innovations to operate more productively, such as jet aircraft and numerically controlled machinery.

Between 1951 and 1973, propelled by strong productivity gains, the world economy grew at an annual rate of nearly 5 per cent. The impact on living standards was dramatic. Jobs were just for the asking; in 1966, West Germany’s unemployment rate touched an unprecedented 0.5 per cent. Electricity, indoor plumbing and television sets became common. Stoves burning coal or peat were replaced by central heating systems. Homes grew larger, and tens of millions of families acquired refrigerators and automobiles. The higher living standards did much more than simply bring new material goods. Retirement by 65, or even earlier, became the norm. Life expectancy jumped. Importantly, in Western Europe, North America and Japan, people across society shared in those gains. Prosperity was not limited to the urban elite. Most people began to live better, and they knew it. In the span of a quarter-century, living standards doubled and then, in many countries, doubled again.

The good times rolled on so long that people took them for granted. Between 1948 and 1973, Australia, Japan, Sweden and Italy had not a single year of recession. West Germany and Canada did almost as well. Governments and the economists who advised them happily claimed the credit. Careful economic management, they said, had put an end to cyclical ups and downs. Governments possessed more information about citizens and business than ever before, and computers could crunch the data to help policymakers determine the best course of action. In a lecture at Harvard University in 1966, Walter Heller, formerly chief economic adviser to presidents John F Kennedy and Lyndon B Johnson, trumpeted the success of what he called the ‘new economics’. ‘Conceptual advances and quantitative research in economics,’ he declared, ‘are replacing emotion with reason.’

Wages and investment were private decisions, but Schiller hoped government guidelines would contribute to ‘collective rationality’

The most influential proponent of such ideas was Karl Schiller, who became economy minister of West Germany, Europe’s largest economy, in 1966. A former professor at the University of Hamburg, where his students included the future West German Chancellor Helmut Schmidt, Schiller was a centrist Social Democrat. He stood apart from those on the Left who favoured state ownership of industry, but also from extreme free-market conservatives. His advice called for ‘a synthesis of planning and competition’. Schiller defined his philosophy thus: ‘As much competition as possible, as much planning as necessary.’

Most fundamentally, Schiller believed that government should commit itself to maintaining high employment, steady growth and stable prices. And it should do this all while keeping its international account in balance, within the framework of a free-market economy. These four commitments made the corners of what he called the ‘magic square’. In December 1966, when Schiller became economy minister in a new coalition government, the magic square became official policy. Following Schiller’s version of Keynesian economics, his ministry’s experts advised federal and state governments how to adjust their budgets to achieve ‘equilibrium of the entire economy’. The ministry’s advice was based on an elaborate planning exercise that churned out five-year projections. In the spring of 1967, the finance ministry was told to adjust taxes and spending plans to increase business investment while slowing the growth of consumer spending. These moves, Schiller’s economic models promised, would bring economic growth averaging 4 per cent through 1971, along with 0.8 per cent unemployment, 1 per cent annual inflation and a 1 per cent current account surplus.

But in an economy that was overwhelmingly privately run, government alone could not reach perfection. Four or five times a year, Schiller summoned corporate executives, union presidents and the heads of business organisations to a conference room in the ministry. There he described the economic outlook and announced how much wages and investment could rise without compromising his national economic targets. Of course, he would add, wages and investment were private decisions, but he hoped that the government’s guidelines would contribute to ‘collective rationality’. Such careful stage management cemented Schiller’s fame. In 1969, for the first time, the Social Democrats outpolled every other party. The election that year became known as the ‘Schiller election’.

Schiller insisted that his policies had brought West Germany to ‘a sunny plateau of prosperity’ where inflation and unemployment were permanently vanquished. Year after year, however, the economy failed to perform as he instructed. In July 1972, when Schiller was denied control over the exchange rate, he stormed out of the cabinet and left elected office forever.

Schiller left with the West German economy roaring. Within 18 months, his claim that the government could ensure stable prices, robust growth and jobs for all blew up.

The headline event of 1973 was the oil crisis. On 6 October, Egyptian and Syrian armies attacked Israeli positions, starting the conflict that became known as the Yom Kippur War. By agreeing to slash production and raise the price of oil, Saudi Arabia, Iraq, Iran and other Middle Eastern oil exporters quickly backed the two Arab countries. Shipments to countries that supported Israel, including the US and the Netherlands, were cut off altogether.

Oil-importing countries responded in dramatic fashion. Western European countries lowered speed limits and rationed diesel supplies. From Italy to Norway, driving was banned on four consecutive Sundays in order to save fuel. The Japanese government shut down factories and told citizens to turn out the pilot lights on their water heaters. US truck drivers blocked highways to protest high fuel prices, and motorists queued for hours to top off their gasoline tanks. In a televised address, the US President Richard Nixon warned Americans: ‘We are heading toward the most acute shortages of energy since the Second World War.’

Faced with higher petroleum prices, economic growth in 1974 collapsed. Around the world, inflation soared. When oil prices receded, the world economy failed to bounce back. Double-digit inflation dramatically undermined workers’ wage gains. From 1973 to 1979, average income per worker grew only half as fast as it had before 1973. Help-wanted signs vanished as unemployment rose. The economic experts, only recently so confident that their rational mathematical analysis had brought permanent prosperity, were flummoxed. Stable economic growth had given way to violent gyrations.

The underlying problem, it turned out, was not expensive petroleum but slow productivity growth. Through the 1960s and early ’70s, across the wealthy world, productivity had risen a strong 5 per cent a year. After 1973, the trend shifted clearly downward. Through the rest of the 20th century, productivity growth in the wealthy economies averaged less than 2 per cent a year. Diminished productivity growth translated directly into sluggish economic growth. The days when people could feel their living standards rising from one year to the next were over. As the good times failed to return, voters turned their fury on political leaders. In fact, there was little any Western politician could do to put their economies back on their previous tracks.

To give a short-term boost to an underperforming economy, central banks and governments have a variety of tools they can use. They can lower interest rates to make it cheaper to buy a car or build a factory. They can lower taxes to give consumers more money to spend. They can increase government spending to pump more cash into the economy. They can change regulations to make it easier for banks to lend money. But when it comes to an economy’s long-term growth potential, productivity is vital. It matters more than anything else – and productivity growth after the early 1970s was simply slower than before.

Turning innovative ideas into economically valuable products and services can involve years of trial and error

The reasons behind slowed productivity growth had nothing to do with any government’s economic policy. The historic move of rural peoples to the cities, around the world, could not be repeated. Once masses of peasant farmers and sharecroppers had shifted into more productive work in the cities, it was done. The great flow of previously unemployed women into the labour force was over. In the 1960s, building thousands of miles of superhighways brought massive economic benefits. But once those roads were open to traffic, adding lanes or exit ramps was far less consequential. In rich countries, literacy had risen to almost universal levels. After that historic jump, the effects of additional small increases in average education were comparatively slight. If higher productivity growth were to be regained, it would have to come from developing technological innovations and new approaches to business, and putting them to use in ways that allowed the business sector to operate more effectively.

When it comes to influencing innovation, governments have power. Grants for scientific research and education, and policies that make it easy for new firms to grow, can speed the development of new ideas. But what matters for productivity is not the number of innovations, but the rate at which innovations affect the economy – something almost totally beyond the ability of governments to control. Turning innovative ideas into economically valuable products and services can involve years of trial and error. Many of the basic technologies behind mobile telephones were developed in the 1960s and ’70s, but mobile phones came into widespread use only in the 1990s. Often, a new technology is phased in only over time as old buildings and equipment are phased out. Moreover, for reasons no one fully understands, productivity growth and innovation seem to move in long cycles. In the US, for example, between the 1920s and 1973, innovation brought strong productivity growth. Between 1973 and 1995, it brought much less. The years between 1995 and 2003 saw high productivity gains, and then again considerably less thereafter.

When the surge in productivity following the Second World War tailed off, people around the globe felt the pain. At the time, it appeared that a few countries – France and Italy for a few years in the late 1970s, Japan in the second half of the ’80s – had discovered formulas allowing them to defy the downward global productivity trend. But their economies revived only briefly before productivity growth waned. Jobs soon became scarce again, and improvements in living standards came more slowly. The poor productivity growth of the late 1990s was not due to taxes, regulations or other government policies in any particular country, but to global trends. No country escaped them.

Unlike the innovations of the 1950s and ’60s, which were welcomed widely, those of the late 20th century had costly side effects. While information technology, communications and freight transportation became cheaper and more reliable, giant industrial complexes became dinosaurs as work could be distributed widely to take advantage of labour supplies, transportation facilities or government subsidies. Workers whose jobs were relocated found that their years of experience and training were of little value in other industries, and communities that lost major employers fell into decay. Meanwhile, the welfare state on which they had come to rely began to deteriorate, its financial underpinnings stressed due to the slow growth of tax revenue in economies that were no longer buoyant. The widespread sharing in the mid-century boom was not repeated in the productivity gains at the end of the century, which accumulated at the top of the income scale.

For much of the world, the Golden Age brought extraordinary prosperity. But it also brought unrealistic expectations about what governments can do to assure full employment, steady economic growth and rising living standards. These expectations still shape political life today. Between 1979 and 1982, citizens in one country after another threw out the leaders who stood for the welfare state and voted in a wave of more Right-wing politicians – Margaret Thatcher, Reagan, Helmut Kohl, Yasuhiro Nakasone and many others – who promised to tame big government and let market forces, lower tax rates and deregulation bring the good times back. Today, nearly 40 years on, voters are again turning to the Right, hoping that populist leaders will know how to make slow-growing economies great again.

More than a generation ago, the free-market policies of Thatcher and Reagan proved no more successful at improving productivity and raising economic growth than the policies they supplanted. There is no reason to think that the populists of our day will do much better. The Golden Age was wonderful while it lasted, but it cannot be repeated. If there were a surefire method for coaxing extraordinary performance from mature economies, it likely would have been discovered a long time ago.

Aeon