The Left, The Right, and the Question of Moolah
Occasional Salient writer and full-time tango dancer Matthew Cunningham takes on economics, history and politics, laying out the facts so you can make up your own mind about this shithole we’re in. This is the full article which encompasses alternate economic theories. Feel free to engage in debate about what we should be doing.
Were he alive today, Nostradamus would be having a field day. “I told you so, you dicks!” he’d rant in a funky French accent. “The end is nigh! Armageddon approaches! Repent! Repent!” He wouldn’t be alone, either. The economic doomsayers and their torrent of emotionally charged rhetoric on the pending collapse of the global economy would fit right in with the 16th Century prophet. The world is faced with the greatest economic crisis since the 1930s, they say—without quite telling us by what measures they have drawn that damning conclusion.
Whilst I would love nothing more than to rant about the irresponsibility of the media and its “blood and crises sell more papers” mentality, that’s not why I’m writing this article. I am more concerned with the practical question of what we can do about it. The thing is, the myriad of answers to that question are confusing and contradictory. The Righties tell us that we need to cut public expenditure to put more money back into the pockets of consumers and employers; the Lefties say that the state should spend more money to shore up the economy. They’re not the only ones talking; farther from the centre on both sides of the political spectrum, various alternative economic arguments are coming out of the woodwork. All of this information is borne on the tide of popular jargon – liquidity crises, sub-prime mortgages, industry bailouts, revenue-stimulating tax cuts, and all other manner of clever catch-phrases. Who is right? Who is wrong? Is there even a right or wrong solution to a problem like this? I won’t attempt to answer these questions here. What I will do, however, is provide a summary of the economic positions of each of the two main groups (with further reading on Salient.org.nz), varying groups in the hope that it will stimulate some much-needed discussion.
The Right
Individual Liberty
Of all the economic positions out there, it is that of the Right that holds the truest claim to be the standard bearer of capitalism. The Right stands for minimal state intervention in the economy in the belief that the private market is better equipped to handle the complex set of processes and decisions associated with an industrial economy. At the core of this argument lies the concept of efficiency; the decentralised nature of the free market, combined with the higher level of accountability inherent in private financial investment, results in a more organised and effective economy, better able to cope with the dynamic flow of supply and demand. The idea is if everyone is operating in their own interest, the economy will balance itself out in a sort of dynamic equilibrium. Pioneering economists like Adam Smith and David Hume called this the ‘Invisible Hand’ – the economy, they argued, would be able to automatically guide itself via the ‘rational self-interest’ of its patrons. This also facilitates the core Rightist position of individual liberty—do as you will with your money, so long as it doesn’t harm me.
Historically, the economic position of the Right has gone through a number of incarnations. It was solidified at the beginning of the twentieth century with the advent of laissez-faire economics, which resulted in a decade of unprecedented economic prosperity after the First World War. The advent of the Great Depression and the Second World War cast aspersions over the promise of unregulated capitalism, leading to a consensus among Western countries in the value of state intervention that would last until the seventies. That all changed with the champions of the New Right. Economists like Milton Friedman and Friedrich Hayek, and politicians like Ronald Reagan and Margaret Thatcher, challenged the post-war consensus with their belief in deregulation, privatisation and tax reduction. This led to the sale in many Western countries of former state-run enterprises in the fields of telecommunication and electricity.
So what does this all represent to the right? It means if the government advocates a hands-off approach, the private sector will be better able to manage the economy through its innate efficiency. This equates to several key economic positions:
• By limiting state intervention in the economy, a government can afford to reduce taxes. This means, at the end of the day, more money in the pockets of everyday citizens, which in turn allows them greater purchasing power to ‘consume’ goods. This has a positive effect on industry which facilitates economic growth
• By not directly addressing the rich / poor economic divide through state intervention, the government allows the rich to keep more of their money. This is beneficial for the state because, statistically, the rich spend more of their money in areas of the economy that facilitate economic expansion. This includes financial investment in existing businesses as well as the creation of new businesses. Creation of new companies and new jobs means more wealth is being brought into the country, resulting in a bigger financial “pie” for everyone to take their slice from.
• The kinds of essential services most frequently argued as being necessary for state intervention (i.e. healthcare, education, welfare) can be far more efficiently provided by a free market system. State-run enterprises are cumbersome and are not held to the same level of accountability that free market enterprises, by necessity, are. If a free market enterprise is inefficient and loses too much money it goes belly-up; if a state-run enterprise does the same it will continue to operate in this fashion without being affected because its source of capital is drawn from the state coffers. In other words, when the state intervenes, taxpayers are inevitably held accountable to governmental inefficiency.
• Less state involvement in the economy ultimately means more personal freedom for the individual. The individual’s finances are exercised solely in the fields in which he or she chooses, rather than those chosen for them by the state. Furthermore, the lowering of restrictions on trade further enhance the liberty of the individual to spread their resources in whatever manner they see fit. As the old adage goes, “the freer the markets, the freer the people.”
By promoting the core tenet of individual liberty, the economic Right asserts the inherent morality of limiting the role of government solely to law enforcement and the defence of private industry.
The Left
Collective Fairness
The Left contrasts the Rightist definition of liberty by framing it within the context of fairness; if an individual is free to make use of their capital as they please, are they not also free to use it in a manner that leads to the exploitation of others? According to the capitalist concept of self-interest, an individual will always dispense their resources in a fashion that is designed to benefit themselves rather than society. However, without the existence of an independent agent designed to ensure the individual’s resources are not dispensed in a manner that detriments the liberty of others, society as a whole may arguably become less free. If the state meets the requirement of being democratically elected, it holds the most credence to fill the role of this independent agent on behalf of the societal body.
It is the economic mission of the Left to hold the perceived drawbacks of unregulated capitalism to account without actually abolishing the free market and private enterprise. It seeks to safeguard society from exploitation through the regulation of the free market. It also aims to mitigate the unequal distribution of resources inherent to capitalism by ensuring access to services deemed essential to individual survival and dignity, including healthcare, education, and a social safety net in case of unemployment or disability. This all boils down to the question of what is free and what is fair – whilst the two terms may not be mutually exclusive, they can certainly mean different things in different circumstances. The economic position of the Left, then, seeks to bridge the gap between freedom and fairness through the mechanism of the state.
The Left owes much of its history to the advent of socialism. 19th century intellectuals like Karl Marx denounced the capitalist system as exploitative of the working class; capitalism, they claimed, was the logical progression of feudalism, whereby the have-nots in society were being exploited by the new means of industry. However, several socialist and labour movements abandoned the revolutionary line at the beginning of the 20th century, advocating instead a process of worker-oriented reform of the capitalist system. The purpose of this process was to regulate capitalism through state-level practises aimed at fairness and redistribution in the pursuit of social justice. More commonly, this was known as the ‘Third Way’ – a path between capitalism and socialism aimed at producing a mixed economy.
Whilst elements of Leftist economics had been introduced in several countries in the early 20th century, it was only with the onset of the Great Depression that the consensus over laissez-faire capitalism was truly challenged. The position of economist John Keynes epitomised this new approach; his focus on massive public spending to ‘pump-prime’ the private market influenced the New Deal position espoused by President Roosevelt. Keynes’s ideas were almost universally applied in the Western world after the Second World War, leading to the so-called ‘Keynesian consensus’ on state spending that lasted until the late seventies. The current economic situation has led to a resurgence of Keynesian thought, with economists like Paul Krugman and Joseph Stiglitz calling for greater international cooperation to combat the recession.
The key economic positions of the Left can be summed up thusly:
• Whilst capitalism by itself is an efficient generator of wealth, it can lead to exploitation, poverty, and a vast divergence between the rich and the poor when it is not regulated. In the interest of fairness and equality, the state must intervene in the economy where necessary to protect the economic rights of the individual and ensure universal access to essential services. This ensures individual freedom is tempered by the common perception of what is fair.
• Whilst the free market may be beneficial to the consumer in terms of choice and price, public consciousness dictates that in some circumstances the market is inappropriate. Services such as education, healthcare and welfare should be made available from the public purse to all, regardless of their status or income. The division of cost for these services across the entire taxpaying body ensures minimal possible cost for all beneficiaries and ensures a fair redistribution of wealth between rich and poor.
• The provision of public services in the area of education, healthcare and welfare ensures a set standard of service for all individuals regardless of their status or income.
• Public enterprises and services have the potential to be more efficient than private enterprises. This is because they are not driven solely by the profit motive, but rather by the service motive. As there are no shareholders to satisfy nor profit margins to meet, a public organisation need only strive not to exceed its budget in order to be considered efficient.
• Unregulated capitalism is doomed to an endless boom-and-bust cycle without state intervention. The concept of the “Invisible Hand” is flawed due to the fact that individuals with vast reserves of capital are not guaranteed to spend capital in times of crisis. In such circumstances, the guiding hand of the state in rejuvenating industry is essential to greasing the wheels of the capitalist engine. Public intervention in private industry will then cause a run-on effect in growth, profit and employment.
• Economic growth depends on the purchasing power of the consumer – if the consumer has no money to buy goods, industry is starved of growth. Adopting an economic stance that seeks to redistribute wealth to the lower income bracket increases the purchasing power of the working class, thus enabling them to purchase more goods. This facilitates economic expansion – which in turn creates more jobs and enfranchises yet more consumers with money to spend.
In tempering individual liberty with collective fairness, the Left seeks to manage the excesses of unregulated capitalism through state intervention.
Non-Conformist Economics
There are several other theories on economics that do not fall strictly within the left-right capitalist dichotomy. Whilst these theories are generally less mainstream than the dominant economic frames espoused today, they are worth mentioning in the greater context of this discussion. Whilst I have neither the space nor the inclination to discuss EVERY economic theory here, I will mention the key theories proposed as alternatives to capitalism in the last two centuries.
Socialism – Collective Equality
In the 19th Century, a German philosopher and intellectual by the name of Karl Marx looked at the capitalist system around him and saw a fundamental divide between the worker and the employer. The worker, he claimed – or more specifically, his labour – was being exploited by the employer for the purpose of generating profit. This became more pronounced with the advent of finance – the investment of capital in private enterprise by wealthy individuals for the purpose of making a profit off the labour of its employees. Furthermore, the worker had no say in this – high-level business decisions lay in the hands of its financiers, whose sole provision to the company was their money. To Marx, this represented an unfair distribution of the surplus value of the worker’s labour that was akin to slavery. The abolishment of this financial ‘capitalist’ class, and the appropriation of the means of production by the worker, was therefore the goal of what became known as socialism.
It was only with the birth of the Soviet Union under the leadership of Vladimir Lenin that Marx’s ideas were solidified into a practical economic structure. By basing the political configuration of the Soviet state on a hierarchy of democratic centralist workers’ councils, Lenin claimed that the highest echelons of the state were the physical embodiment of the working class – the ‘Dictatorship of the Proletariat’ in practical form. Therefore, central to socialist economics was the vesting of the means of production in the state. What this meant, realistically, was the economic policy of the left taken to its ultimate conclusion – public ownership and management of the entire economic system and the abolishment of the private market.
The common term for this form of socialist economics is a ‘planned’ or ‘command’ economy. The state assumes responsibility for planning and implementing the entire economic process – the rate of production and distribution, the dissemination of funds and wages between industries and individuals, and the direction of industrial policy. Effectively, all economic decisions are made by the state without recourse to the private market. State management will usually take the form of a high-level plan – a set of goals to be achieved by the industry within a set timeframe. According to socialist theory, a planned economy provides a much more equal distribution of resources among the population. Since the state is the embodiment of the working class, it can be relied upon to act in the best interest of the people.
However, the policies of the Soviet Union do not represent the only form of socialist economics. Whilst command economies have been adopted by virtually every socialist government over the last century, there are dissenting views on what truly constitutes the appropriation of the means of production. Recent isolated examples, such as Zanon Ceramics in Argentina, demonstrate how worker-occupied factories can function fairly efficiently despite the collapse of the financial backing behind it. In a broader sense, companies organised on an employee ownership model (such as those that advocate Employee Stock Ownership Plans [ESOPs]) could be considered micro-economic models of socialist economics. Other socialist theorists advocate variants on participatory or binary economic models, which will be discussed separately below.
Corporatism – Collective Cooperation
Typically the preferred economic system of fascist movements, corporatism represents a blending of political and industrial power in the interest of managing the economy. Since fascism was essentially aimed at forming a rigid, totalitarian national unity, corporatism was designed to forge a similar sense of unity and cooperation in economic matters. It involved governing along occupational lines rather than geographical lines; rather than organising a parliament based on representatives from different regions of the state, it envisaged one based on representatives from all key industries of the national economy. Each industry, or corporation, represented a key field of interest in the economy – for example, steel, agriculture, fishing, engineering, woodworking, and textiles. Not a corporation in the usual sense, this system of grouping aimed to map each key area of the economy into a political unit. The reasoning behind this stated that leaders of industry, with representatives from employer, worker, and consumer interests, were far better equipped to manage a modern economy than representatives elected on a geographical franchise. This approach was combined with a focus on autarchy – disconnecting from the global economy and promoting domestic self-sufficiency.
Historically, corporatist economics evolved as a perverted twist on the ‘Third Way’ position espoused by the left. Building on the ideas of syndicalists like Georges Sorel and Alceste De Ambris, and early fascist experiments such as the Charter of Carnaro, individuals such as Benito Mussolini, Giovanni Gentile and Alexander Raven-Thompson gradually evolved the concept of corporatism during the 1920s and 1930s. They rejected the excesses and failures of unregulated capitalism in favour of a state-managed economy directed at serving the best interests of the state. However, they equally rejected socialism, preferring the idea of ‘class collaboration’ over that of the class struggle. Rather than abolish the private market entirely, the corporatist economy sought to regulate and manage it through a political system designed specifically to represent economic interests.
Participatory Economics – Participation by Degree
Participatory economics, or parecon, is the brainchild of political theorist Michael Albert and economist Robin Hahnel. Whilst parecon shares socialism’s opposition to the unfair distribution of resources under the free market, its core purpose is to allow greater participation for all members of society in the economic decision making process. Albert and Hahnel assert that each and every person should have a say in each decision in proportion to the degree the decision affects them. Whilst their theory has never been implemented at a nation-wide level, Albert has experimented with parecon through Z Communications, a media group he co-founded with Lydia Sargent.
To facilitate this process of decision making, parecon advocates the establishment of consumer and producer councils divided on a geographical basis. This horizontal division is supplemented with a vertical division, with neighbourhood, city-wide, state-wide, and nation-wide councils nested above each other in a hierarchy. When an economic decision is proposed – such as the construction of a playground, a bridge, or a highway – all councils that are affected by this proposition are consulted in the decision-making process. Whilst a playground may be solely a neighbourhood issue, building a bridge or a highway may require a wider consultation process at a city or state wide level, respectively.
Binary Economics – Reformed Capitalism
Binary economics, whilst fundamentally supportive of private enterprise and the free market, proposes significant reforms to the banking system and the level of workplace democracy. It is based upon the idea that there are only two factors in an economy that influence production – the labour of the employee and the capital of the investor. Whilst all employees may own their labour, binary economics stresses that the proportion of employees who own significant deposits of capital is far less. It is the goal of binary economics to remedy this imbalance.
Firstly, binary economics seeks to eliminate one of the most common means by which capital is unfairly distributed – the charging of interest on bank loans. It advocates instead the widespread availability of interest-free loans, within appropriate lending criteria, to allow a broader allocation of investment capital to members of society. Secondly, binary economics promotes workplace democracy through employee ownership plans. By providing employees with shares in their company as their career progresses, it is claimed that a greater sense of ownership and dedication is cultivated in the staff. This also serves the purpose of spreading financial capital among the employees rather than a few wealthy shareholders. This is, incidentally, rather popular, with many companies around the world already operating under Employee Stock Ownership Plans (ESOPs).
Social Credit – Production / Consumption Alignment
Social Credit was developed by a British engineer named Clifford Hugh Douglas in the first half of the 20th Century. It argues that there is a fundamental disconnect between the wages that an employee is paid versus the cost of the goods that they produce – in other words, the wage of the employee is insufficient to meet the higher cost of the goods they have produced. Asserting that the only purpose of the economy is to provide consumer goods, Douglas claimed that the economy was not providing the consumer with the required spending power to purchase those goods.
Douglas proposed two main reforms to this system – the adjustment of prices to ensure that individuals could consume as much as they produced, and the provision of a National Dividend to redistribute wealth through consumer rebates based upon the rate of consumption versus the rate of production for a particular item. Whilst his ideas were also never adopted at a national level, they became popular with many far right-wing movements during the Great Depression.
Conclusion
With such a vast field of economic theories, it is small wonder there is such dissension over how best to combat the current economic crisis. Here in New Zealand our government seems to advocate an economic policy on the right of the capitalist spectrum (with tax cuts and pro-business legislation). Other nations in Europe and the Americas have injected billions of dollars into the private market to prevent the collapse of major firms. President Obama has already been tipped as the new Franklin D. Roosevelt, proposing vast public works programs to combat unemployment. Is there a new Keynesian consensus and a second ‘Bretton Woods’ type agreement on the horizon?
This article provides you with the economic arguments and various political positions in society so you can engage in rich and well-informed debate. You’ll notice I have not mentioned the advantages or disadvantages of any system. This I leave to you.
So, where do you stand?