Tikkun Magazine, March/April 2009
Rethinking American Capitalism
By Thad Williamson
Barack Obama ascends to the presidency in the midst of the most severe crisis American capitalism has faced since the Great Depression. Resolving that crisis will almost certainly require dramatic public action on a scale not seen since the 1930s. But dramatic action that fails to address the fundamental structural issues driving the crisis—and in particular the generation long trend toward rapidly growing inequality—is unlikely to be successful.
Hence, the time is ripe to reconsider the institutional structure and moral assumptions of American capitalism, from the bottom up. While Obama's advisers are likely to exercise better judgment than the free market ideologues who have run the show in recent years, progressives should not count on people like Larry Summers and Timothy Geithner, establishment figures with deep ties to the corporate establishment, to address the deeper questions. They may have the technical expertise to contain the fire and calm the markets down, but they are not going to push for a fundamentally new set of economic priorities.
Already the $819 billion stimulus package the administration aimed to push through Congress in its first month has been criticized for relying too much on tax cuts and lacking an overarching vision for its public investment components. Other liberal economists believe that the scale of the stimulus package, while huge, is still inadequate to the task at hand. In the meantime, questions about whether (or when) the federal government will pursue nationalization of banks grow louder with every passing week. And still others question whether Obama's goal must be not simply ramping up the economic growth machine again but moving toward a different kind of economy, an economy that places human needs, respect for community, and ecological sustainability ahead of GDP growth.
Obama's Inaugural Address showed that the president understands the need to move toward new barometers for measuring economic health. Obama flatly stated that we must judge the economy not on its size but on the extent to which it delivers opportunity to all. Obama has also moved to make "green jobs" and energy efficiency a centerpiece of his recovery plan.
Calling for a bold change of direction and actually taking meaningful steps in that direction are two different things, of course. It's up to progressive social movements to take advantage of the historic opportunity the Obama administration represents by pushing for a fundamentally new set of economic priorities. But if spiritual progressives and our allies are to become a credible, forceful voice, we will need to pay close attention to the hard-headed realities of how our existing system works (and fails to work), and to directly challenge dominant ideologies justifying the status quo.
Fortunately, three important new books—Joel Magnuson's Mindful Economics; Douglas Hicks and Mark Valeri's edited collection, Global Neighbors; and Gar Alperovitz and Lew Daly's Unjust Deserts—have arrived on the scene to help show the way. Together these books provide a well-timed critique of the fundamentals of our economic system, in each case connecting the critiques explicitly to ethical and in some cases theological conceptions of what makes for a good human life and what makes for a just society.
These books each do what religion does at its best: they break through the dominant economic discourses and provide an alternative way of viewing social reality. They then describe measures for improving our economic system that would help much more than corporate bailouts.
To Get Good Government, Voters MUST Understand Economics—So Read This Book
Much discussion of economic policy is wrapped—arguably quite deliberately—in a shroud of mystery. When former Treasury Secretary Henry Paulson forcefully demanded that Congress approve a $750 billion bailout this past September, the strongest argument offered was "because we say so." Few members of Congress, let alone ordinary citizens, were equipped to understand in any level of detail either the causes of the financial crisis or the nature of the institutions involved in the crisis and subsequent bailout.
There is no hope of holding political elites (be they Republican or Democrat) accountable on economic policy if ordinary citizens do not understand the nature of the institutions governing American capitalism. Joel Magnuson's Mindful Economics thus provides an enormous service by explaining, step-by-step, the basics of capitalism and the specifics of its American incarnation.
Magnuson's book describes all of the following (and more): corporations as legal and financial institutions; labor law and the core national laws regulating the American economy; the origins of the U.S. national currency; the role of banks and financial institutions; the Federal Reserve System and how it controls money; Wall Street, investment banks, stocks, and bonds; international trade and America's growing indebtedness; a short history of postwar business cycles; and a clear discussion of why financial markets are prone to instability. A principal accomplishment of his book is simply allowing readers to make sense of the maze of institutions governing our political-economic system.
But Magnuson does much more than this; he also provides a well-informed critique of how the system works. For instance, he shows how the semi-public Federal Reserve System is fundamentally undemocratic and geared toward protecting the interests of a small class of business owners first. The Fed has enormous power over the management of the economy, but it is not democratically accountable to ordinary Americans in any meaningful sense.
Magnuson is also effective and accurate in describing the nature of America's contemporary economic problems: our crushing household and national debts, the huge trade deficit, and the long-term trend toward heightened inequality and social polarization. He also provides a cogent description of the real estate bubble.
The book was published before the financial crisis hit this fall, so it's noteworthy that Magnuson explicitly predicted that the real estate bubble would soon burst and that a federal bailout would be required to deal with the aftermath of the collapse.
Magnuson's writing serves as an essential reference work on how American capitalism functions. This book shows how, contrary to free market rhetoric, the operations of capitalism and the exercise of government power are deeply intertwined. The descriptive analyses are written in an accessible way, without sacrificing nuance or resorting to rhetorical flourishes.
But Magnuson does more than simply provide a good primer on American capitalism. In the latter stages of the book, he sketches out his conception of "mindful economics": economic thinking that takes seriously such ethical values as ecological sustainability, social justice, and economic stability.
Putting such values into place requires moving to a different systemic arrangement. While Magnuson does not go into great detail about what such an arrangement might look like, he makes very clear that the place to start is by fostering democratically organized business enterprises, rooted in local communities. These might include coops, worker-owned firms, or publicly owned enterprise.
For those skeptical that such small-scale, localized initiatives could ever produce system change, Magnuson points out that all large-scale historical transformations have started first as isolated local developments, including the emergence of capitalism itself. After all, he notes, Wal-Mart was once just a neighborhood store in an Arkansas town.
Good Samaritan Economics: But Who Is My Neighbor Now?
Magnuson is not alone in trying to return to fundamental ethical principles to rethink our dominant economic paradigms. Douglas Hicks and Mark Valeri have assembled an impressive collection of essays critically examining the U.S. and world economies from the standpoint of Christian social ethics in Global Neighbors: Christian Faith and Moral Obligation in Today's Economy. (Full disclosure: Hicks is a colleague of mine at the University of Richmond.)
These essays all address the question of what it means to be a conscientious Christian amid a world of stark global inequalities and rampant corporate-dominated capitalism. While most of the essays draw explicitly on scripture and on Christian theology (historical and contemporary), one need not be a Christian to find these essays useful and insightful.
The touchstone for several of these essays is Jesus's parable of the Good Samaritan. As Thomas Walker points out, the force of that parable—told by Jesus in response to the question "Who is my neighbor?"—is not so much in defining what a good neighbor is, as in radically upending conventional expectations that "neighbors" are those with whom we are proximately connected by geography, religion, or nationality. Persons conventionally defined as "strangers" can act as neighbors; it follows that we have moral obligations too to people outside our immediate circle.
Figuring out what a neighborly obligation means in the context of a global economy is not a straightforward question. Eric Gregory observes that a long tradition of Christian thought dating to Augustine holds that while faithful Christians have a general obligation to love everyone, we have a particular obligation to love those nearer to us, with whom our lives are most centrally intertwined. Hence it is appropriate we devote most of our attention to loving our families and contributing to our local communities. This is the case even though we also (as the Good Samaritan parable shows) have an obligation to aid the stranger who appears in our midst, as well as those among us who are shunted aside by dominant social conventions. Augustine, Aquinas, and other figures thus translated Jesus's injunction of universal love into a realistic ethic that takes account of our situatedness as human beings and the fact that human beings cannot love everyone equally.
The reality of globalization unsettles this understanding, however. In a global economy, the consumption habits of the professional middle class of rich countries directly and indirectly affect the livelihoods of persons thousands of miles away whom we do not know and have little incentive to think about. But "out of sight, out of mind" is not an acceptable ethic for just living. Finding ways to expand the moral imagination of Americans so they can see the connections between our affluent lives and those of the much less affluent is an urgent practical and theological task. The reasonable assumption of the assembled authors is that biblical texts and theological traditions may have something useful to contribute to that task.
For instance, Kent Van Til returns to the book of Genesis to construct what he terms a "biblical anthropology." Human beings are created in God's image, Genesis tells us. Part of being made in God's image is that we continue God's creative work on Earth. This means working and tilling the land, and creating wealth and knowledge. The Bible also articulates a conception of social justice; at various points the Bible indicates that helping the poor is akin to helping God.
Van Til shows how sharply these conceptions contrast with the image of humanity generally employed by mainstream economists, who depict human beings as rational maximizers of individual satisfaction. (Nobel Laureate Amartya Sen, who has developed a much richer account of human capabilities giving a central role to our creative capacities, is an extremely important exception.)
In a similar vein, Rebecca Todd Peters shows how the patron saint of free-market economics, Adam Smith, was actually a highly sophisticated moral thinker who saw markets as being helpful within a particular social context marked by individuals with strong ties to one another and strong social norms mandating proper and just behavior. While it is true that the butcher supplies us our dinner out of his own self-interest, it is equally true that the butcher does not try to defraud his customers because he knows that he will be judged harshly by his neighbors if he does so, and because he could not stand to think of himself as a bad person.
Peters points out that we have traveled a long way from the pre-capitalist world of Smith to the global, corporate-dominated capitalism of today, and that a close reading of Smith shows that it's folly to believe Smith would have endorsed or even recognized contemporary corporate capitalism. What's worse, it's a mistake to think that Smith thought that economic growth and expanded consumption were good for their own sake. Rather, increased consumption is a good thing only insofar as it contributes to human happiness and well-being. An economic mechanism capable of ending poverty and putting shoes on feet should be admired. One that causes us to work endless hours in order to generate needless trinkets need not be.
Failing to recognize this, and assuming that economic development is a "value-free" process, can cause even well-intentioned people to pursue wrong-headed strategies. Peters cites the example of former World Bank head Robert McNamara, who felt a keen moral obligation to help the global poor but assumed the best way to do so was through massive capital investment projects (dams and the like), in which the affected parties had little if any say.
Why Moral Arguments Are Not Enough and Theory Is Critical
Making a point developed at further length in her forthcoming book Another World is Possible, Peters notes that the McNamara case shows that a simple desire to help the poor is necessary but not sufficient for effective action to end poverty and empower the oppressed. Well-meaning people can and often do promote development strategies based on wrongheaded economic theories; many people sincerely believe that corporate-led capitalism is the only model that can liberate humanity from poverty.
Critics of the status quo thus must do more than present moral arguments about why the developed world should do more to help alleviate poverty; they also must critically engage dominant economic theories and offer alternative strategies of their own. Peters thus reaches a similar conclusion to Magnuson: we cannot hope to change the world without getting serious about understanding and assessing political economic structures.
In this light, it's reasonable to think that Peters and most if not all of the other contributors to Global Neighbors would be supportive of the Network of Spiritual Progressives' proposed Global Marshall Plan, which aims not only to devote between 1 percent and 2 percent of U.S. GDP to fund global development but also offers some careful thinking about how to use the money in ways that enhance development and autonomy rather than undercut or ignore the desires and needs of poor people in the developing world.
The Democrats' Lack of Good Arguments for the Justice of Egalitarianism
Give money to help the poor or downtrodden at home and abroad? But that's our money you're trying to take away! Isn't that the socialism John McCain, Sarah Palin, and Joe the Plumber were warning us about?
A striking feature of recent Democratic presidential campaigns is the seeming unwillingness or inability of Democratic candidates, who all generally support more progressive taxation structures that increase the degree of redistribution carried out by government, to explain the philosophical underpinnings of their position. Even Barack Obama shied away from offering a principled argument challenging the enormous concentration of wealth. Obama instead simply pointed out (rightly) how modest his proposals for increased taxes on the very rich are, while telling Joe the Plumber (again rightly) that the economy will do better when more people have money to spend.
Such arguments had a pragmatic usefulness in the campaign, but they don't get Democrats and liberals off the back foot when it comes to arguing about the morality of redistributing wealth. This is a problem with serious political consequences; as political scientists Michael Graetz and Ian Shapiro pointed out in their important 2005 book about the politics of the estate tax, Death by a Thousand Cuts, Democratic policymakers over the last decade have had no principled answer to conservative activists' claim that inheritance taxes are an immoral tax on death.
Gar Alperovitz and Lew Daly provide progressives with some welcome and fresh ammunition for fighting back and for justifying a redistributionist agenda in their new book, Unjust Deserts. Alperovitz and Daly are attempting nothing less than to shift the entire framework for our thinking about distributive justice.
(Full disclosure, part two: I have coauthored a book with Alperovitz and I attended graduate school with Daly.)
Yet Alperovitz and Daly's work is not just another brief against the extraordinary concentration of wealth characteristic of contemporary American society, with the top 1 percent of citizens owning over one-third of all wealth (including over one-half of all stocks).
Rather, Alperovitz and Daly turn on its head the most common justification for massive inequality: that such inequality is a just result of individuals getting to keep the wealth and economic value they themselves created. In Alperovitz and Daly's view, that claim is fundamentally wrong, precisely because it fails to recognize that the production of knowledge and wealth is a communal activity that stretches across generations. Most of what we have and know today is due not to our own superior genius or superior effort, but to the fact that we stand atop a long train of technological development and evolution.
To see the significance and novelty of this argument, it will help to compare it to the leading secular liberal account of egalitarian social justice, which was provided by the late Harvard philosopher John Rawls. According to Rawls, theological views of the kind discussed in Global Neighbors, whatever their merits, cannot serve as the basis of a public philosophy for a diverse, pluralistic society.
Instead, we should seek an account of social justice that is as neutral toward conceptions of the good life (including theological conceptions) as possible and that diverse people can endorse, whatever their own philosophical and theological views.
Rawls then builds an argument for egalitarian social justice using the expository device of the "original position." The idea is simply that a just social structure is one that free, rational individuals who knew nothing of their own particular circumstances would choose, given the chance to set up the rules of society in an "original position." Because people are at least mildly risk averse, no one would agree to a set of rules that created the possibility that one (and one's family and children) might be permanently disadvantaged; hence the parties to the agreement would choose a set of rules limiting inequalities to just those that actually increase the well-being of the disadvantaged.
An important feature of Rawls's account of justice is that it makes no room for traditional moral judgments about character, effort, and desert. The fact that one works harder or smarter than another does not entitle one to a greater share of goods in Rawls's view. If we tried to link distribution to effort and other personal characteristics, we'd be forced to endorse a particular conception of the good life (one that values hard work) and impose that framework on persons who might happen to think that a life that maximized peaceful contemplation (or time spent watching wrestling on TV) was the best sort of life.
Rawls thus aimed to de-link distribution from desert. But while the philosophical case he makes is formidable, his position is at odds with popular thinking about economic justice. Empirical studies of how Americans think about distributive justice consistently show that Americans stubbornly believe that there should be some correlation between effort and earnings. Indeed, as philosopher David Miller has pointed out, that linkage can often lead to support for progressive economic conclusions: many people believe that hard-working low-wage workers should be paid better because they are working so hard, and that it's not fair that one can work as hard as one can and still not be able to afford a standard of living that meets basic needs and allows one to function as an equal citizen.
Other liberal theorists such as Ronald Dworkin have tried to correct Rawls's view by making a distinction between misfortune resulting from one's own choices and those due to circumstances beyond one's control. But as writers such as Elizabeth Anderson have pointed out, it's very difficult to separate out those factors in practice, and trying to do so could encourage not social solidarity but a familiar form of judgmentalism in which the relatively well-off blame the poor for their woes.
All this leaves secular liberal advocates of egalitarian social justice in something of a dilemma. Americans simply don't believe that there should be no connection between effort and earnings, but any attempt to distinguish between the "deserving" and "undeserving" is likely to produce an unattractive, judgmental politics antithetical to egalitarian social solidarity.
Why the Wealthy Have Not In Fact Earned Most of Their Wealth
Alperovitz and Daly's argument that most of what we claim as the fruit of "our" efforts is in fact a gift of the past offers a way out of this conundrum.
Alperovitz and Daly note that as early as the nineteenth century, classical economists such as David Ricardo made a distinction between earned and unearned income. Thinkers such as (among many others) Thomas Paine, John Stuart Mill, Henry George, J.A. Hobson, L.T. Hobhouse, and G.D.H. Cole all developed arguments to the effect that society should receive an explicit return for its contributions to increasing economic value attached to rising land values and to industrial development. The idea that society makes economic growth possible and that the desert-based moral claims of individuals should be situated against that larger reality is not so much a radical new idea as a forgotten truth that Alperovitz and Daly are helping us to recover.
Indeed, Alperovitz and Daly are able to enlist support for their argument from a seemingly unlikely source: economists and scholars of technological development such as Robert Solow and Simon Kuznets, who recognize the centrality of knowledge and its collective creation to the production of new wealth. Alperovitz and Daly, drawing on this body of literature, conclude that "perhaps as much as 90 percent of the twentieth-century productivity gains that lie behind our common prosperity may derive from knowledge broadly understood."
If it turns out that little of what the wealthy control now is attributable to individual effort, how can large fortunes such as that accumulated by Bill Gates be justified? Alperovitz and Daly argue that they can't. To be sure, there is a pragmatic case for continuing to permit patents and for providing other incentives to stimulate further research and creative activity. But we must reject the idea that the person who happens to add the last increment of value to a vast, collective creation produced over many generations is thereby entitled to the whole.
If we were to take seriously the reality that our affluence is primarily the result of the accumulated knowledge and capital of the past and not our personal efforts, we would be forced to reject the assumption that the highly unequal distribution of wealth we witness both nationally and globally are in any way the byproduct of just economic arrangements. (Importantly, recognizing this point does not require abandoning the moral intuition that there should be some connection between economic reward and effort.) Those who claim a disproportionate, lion's share of economic wealth are not simply claiming their just deserts; rather, they are usurping the common inheritance of humanity, while excluding the vast majority of the national and world populations from a fair share of that inheritance.
Alperovitz and Daly thus (like Magnuson) call for a fundamental rethinking of how wealth is distributed, and for developing new forms of ownership that are democratic and that "spread the wealth around," as Barack Obama has put it. Alperovitz and Daly's argumentation and practical proposals offer progressives a chance, after a generation of playing defense, to again assume the initiative in challenging the grotesque distribution of wealth and resources and explaining why, not as a matter of charity or expedience but of moral desert, wealth should indeed be spread around.
A Moral Argument Obama Will Have to Use
Note also that the logic of the tight constraints facing Obama as he assumes the presidency will almost certainly force Obama in this direction: if the resources needed to carry out health care reform and other expensive proposals are to be garnered, the natural place to start is with the incomes and estates of the super-rich. But Obama will not be able to tap that vast well of resources too often so long as he appeals only to pragmatic arguments to explain why.
At some point, he must exercise the same kind of leadership he carried out with respect to America's racial divide during the primary campaign, and explain to the American people that the vast fortunes accumulated by America's wealthiest are not the product so much of their holder's individual virtues but of the supportive environment provided by the United States and by the long accumulation of human knowledge that undergirds our current wealth. There is no reason, Obama might argue, why continued expansion of our technological capacities should have the effect of hardening economic inequalities, rather than being harnessed toward the common good and (as called for in his Inaugural Address) the extension of "the reach of our prosperity" to "every willing heart."
The very rich will not like it, and the right wing will predictably cry "socialism." But a President Obama willing to withstand the criticism and make the case would not only bolster his prospects for getting the resources needed to fund his programs; it would also help alter our public understanding of wealth and how it is created, steering us away from the myth that individuals create wealth simply through their individual efforts and toward recognition of the central role of community, extending across both time and space, in making prosperity possible.
Thad Williamson is an assistant professor of leadership studies at the University of Richmond. He coauthored Making a Place for Community: Local Democracy in a Global Era (Routledge 2002) with David Imbroscio and Gar Alperovitz.
Source Citation
Williamson, Thad. 2009. Rethinking American Capitalism. Tikkun 24(2): 41.
