Air University Review, November-December 1981
Captain Steven E. Cady
The American economy and the economies of other major industrial nations seem to be on the verge of significant changes, ones that may alter fundamentally the world’s economic framework. These changes will require positive approaches to national and international policy to ensure continued economic progress, both for the United States and for the world.
World progress will depend heavily on the stability of the American economy and of other developed nations. To promote general economic progress, Americans need to confront some basic issues. What threats are there to American economic security? How should Americans meet these threats? How will the United States deal with the challenges to its progress in coming decades? What role will the United States play in the world’s future economic development?
These and other significant issues are discussed in three recent books about the American economy and international progress. Gerald R. Zoffer’s Economic Sanity or Collapse argues that the United States economy is locked into obsolete concepts and proposes possible solutions to America’s economic difficulties. Martin Carnoy and Derek Shearer’s Economic Democracy: The Challenge of the 1980s is a discussion of and call for alternatives to the present structure of American production, alternatives that would alter the control of capital. Barbara Ward’s Progress for a Small Planet examines major environmental and economic threats to the economies of developed and undeveloped nations, calling for a program of world cooperation.
Of all the problems facing Americans today, inflation is perhaps the most intractable one. Zoffer observes that no president since Franklin D. Roosevelt has succeeded in curbing inflation effectively.* Roosevelt adopted John Maynard Keynes’s program of deficit spending and applied it to the American economy. To stimulate it, Roosevelt pursued a policy of federal spending.
*Gerald R. Zoffer, Economic Sanity or Collapse: Including the Roman-Loebl Approach to Economic (New York: McGraw-Hill, 1980, $12.50), 340 pages.
That policy encouraged the growth of government bureaucracy and waste. The result, according to Zoffer, has been the development of powerful bureaucratic agencies, "modern-day dinosaurs," saddling private industry with innumerable federal regulations and wasting billions of dollars on useless expenditures. (p. 13) Programs such as CETA (Comprehensive Employment and Training Act) are staggering boondoggles. The government’s use of income transfers is simply an elaborate program of federal waste, one in which the government, in its role as "good fairy" to nonproductive Americans, distributed more than $250 billion in 1979 via income transfer programs: almost one-third of the national budget. (p. 45) In dealing with the energy crisis, Congress established the Department of Energy in 1977, requiring more government spending and taking the energy industry deeper into the federal regulatory jungle. (p. 65) While the programs instituted are intended to alleviate social and economic difficulties, they may be creating additional problems.
Zoffer believes that huge government-spending programs merely result in more inflation, which stifles private enterprise and works hardships on consumers. Yet, the federal government seems more concerned with spending than with inflation. More imaginative solutions to the problem are needed. Washington’s popular remedy for curing inflation, wage and price controls, is sheer folly. The author notes that those who call for controls do not seem concerned with the cause of inflation. They simply point an accusing finger at business and labor as being responsible for high prices, when the real cause of inflation is government spending.
Washington’s current attitude toward the nation’s economic problems is attributable in part to the influence of conventional economists. Many of these economists are followers of Keynes. They encourage government spending and regulations, policies which may be based on fallacious economic theories. Zoffer believes that the most glaring fault of conventional economists is their tendency to study the economy in the same way that natural scientists study nature. They try to construct economic laws that "are not derived from socioeconomic reality, but are simply accepted a priori and based on Newtonian mechanistic thinking." (p. 106) This attempt is a basic fallacy of conventional economics. The laws and phenomena of natural science exist independently of man. A scientific discipline such as physics studies the composition, properties, and reactions of atomic and molecular structures. Economics, by contrast, is a man-made science. Moreover, the underlying economic thought "is based on observations made over a century ago when the modern economy, the economy of the post-Industrial Revolution, was in its infancy." (p. 135) As Zoffer observes, man long ago transcended such simplified economic formulations by bringing new realities into existence. In the field of economics, however, obsolete thinking still prevails.
One problem may be that the significance of the Industrial Revolution has never been understood properly. It was probably not truly understood even by such profound thinkers as Adam Smith, Karl Marx, or John Maynard Keynes. Zoffer points out that these men regarded the Industrial Revolution as one in which the introduction of machinery was coupled with the division of labor to transform the productive process. This is a simplistic view of the Industrial Revolution, which was also an intellectual revolution that found expression in the social and economic domains. The nature of everything related to the productive process changes drastically. The author argues that the economy itself assumed the form of a dynamic organism, which should logically have put an end to mechanistic thinking about economic processes. Such was not the result, unfortunately: Smith, Marx, and Keynes adjusted themselves to the new conditions without basic changes. Economic thought remained "mired in the concepts of classical economics, which became obsolete with the coming of the Industrial Revolution." (p. 152) Under the circumstances, Zoffer believes that conventional economists are not likely to develop realistic solutions to the nation’s economic difficulties.
If conventional economists do not have the required answer, what is the solution to America’s economic problems? Perhaps, the country needs a new way of thinking. Zoffer contends that it is time to ask, once again, an old but fundamental question: What is the source of a nation’s wealth? In bygone times, labor was the source of that wealth. In exchange economies, commodities were produced by labor and exchanged for other commodities also produced by labor. The system was based on labor: the more people worked, the more was produced. Economies no longer operate that way. The development of "energy slaves," the use of the natural environment to man’s advantage, has altered the traditional system irreversibly. The ability to transform natural resources into productive use "has become awesomely efficient" as a result of the application of higher levels of thought and applied science. Involved in this transformation is much greater output than input. This difference between the new economic process and the traditional process is crucial.
Zoffer suggests that the difference between input and output may be termed social "gain," which, he asserts, is the true source of a nation’s wealth. (p. 253) The more social gain is achieved in the transformation process, the more wealth is created. Although social gain is not necessarily expressed in monetary units, everyone benefits from it: society as a whole, as well as its members. Presumably, government also benefits, but government planning plays no part in social gain. The role of government is limited to protecting social gain. The federal government should develop a program of government lending, not spending, calculated to reduce the size of its budget. A new system of taxation should be devised: one eliminating certain taxes, such as corporate taxes, which inhibit expansion. Such measures would contribute effectively to price stabilization, resulting in an immediate reduction in the federal budget and bringing inflation under control. Zoffer concludes that making such a program succeed will depend on the determination of the American people. They must want economic democracy, and they must be willing to take the action necessary to bring the federal government under their control. If they are willing to do so, economic democracy can become a reality.
Economic democracy is the central concern of Carnoy and Shearer’s book regarding American business practices.* Unlike Zoffer, however, these authors are more concerned with corporate power than with government bureaucracy. Carnoy and Shearer believe that the American economy faces problems which corporate capitalists are incapable of solving. Essential changes can be achieved only by transforming the means by which the economy is governed and production is sustained. The essence of such a transformation would be economic democracy, "the transfer of economic decision-making from the few to the many." (p. 3)
*Martin Carnoy and Derek Shearer, Economic Democracy: The Challenge of the 1980s (White Plains, New York: M. E. Sharpe, 1980, $15.00 hardcover, $7.95 paper), 436 pages.
Political as well as economic change is needed. A reform strategy is required to effect the desired changes. The authors have devised a strategy intended to bring about fundamental reforms. There are two essential elements in their reform program: the shift of investment control from corporate domination to the public, and the reconstruction of economic decision-making through democratic worker/consumer-controlled production. They argue that investment decisions are currently made almost entirely by private corporations. Any alternative economic strategy must, therefore, begin by restricting the power of the corporations. Needed is a strategy that will transfer capital from the corporations to the public, so that workers and consumers may decide democratically how to use the capital. Government must be encouraged to restrict corporate power. Over the next two decades, Carnoy and Shearer hope to see the development of a mass political movement winning control of local, state, and national government, a movement transforming American society into an economic democracy.
How, exactly, will political action bring about economic democracy? Perhaps political action should start on the local and state level. Carnoy and Shearer advocate the creation of public enterprises in the various states in order to bring about greater democratization of economic decision-making. Democratic control of investment would also be a step in the right direction. The basic elements in this arrangement would be both private and public employee funds and city-owned and state-owned banks, including large trust departments to handle pension funds. These resources should be accompanied by the establishment within the labor movement of a national pension fund investment advisory service to assist unions in fashioning strategies for using the pension funds.
An essential element in the development of democratic decision-making is worker control at the plant level. As Carnoy and Shearer point out, American industry already has some experience in this area: the producer cooperatives are obvious examples. Such cooperatives fall into two categories: those formed by workers as new firms (job creation) and those arising out of corporate divestitures (job preservation). The plywood factories of the Pacific Northwest fall into the first category and the asbestos firms of Vermont into the second. Such programs are basic grassroots movements designed to change worker-employer relationships. They are characterized by local control and individual involvement in decision-making.
Perhaps the greatest challenge will be the drive to control the nation’s largest corporations—the Fortune 500. Carnoy and Shearer frankly admit the task will not be easy, as the experience of enforcing the antitrust laws has demonstrated. New approaches have, however, been proposed. Ralph Nader and others have made a number of reform suggestions. These include federal chartering of corporations, federal minimum standards, and placing workers on boards of directors. In the final analysis, however, democracy in the workplace is most likely to come through aggressive collective bargaining and innovative labor legislation encouraging democratic participation on all levels of the corporation. Building both on new programs and on traditional practices, reformers will simply have to push for democratic changes.
Carnoy and Shearer believe that the 1980s hold promise for progressive political change. Although the 1970s were a relatively conservative decade, the authors observe that some significant liberal activity took place. They point to the interest in democratic management, the result of new and comparatively small-scale industries such as solar-equipment forms, publishing houses, and arts centers. The decade also witnessed some political successes by liberals at the local and state level. For example, the left-wing mayor of Madison, Wisconsin, Paul Soglin, established a city-owned development corporation to provide loans and technical assistance to local cooperatives and small businesses, and the attorney general of Arkansas, Bill Clinton, a former McGovern organizer, fought for consumer interests. Carnoy and Shearer contend that America needs more such activities, anticorporate activities leading toward economic democracy. What is needed "is not nationalization of the means of production from the top down, but democratization of the economy from the bottom up, starting with the workplace and the community," a progressive movement ensuring economic democracy. (p. 375)
The American progressive movement was destroyed in the 1950s but revived in the 1960s and is apparently still alive. Nevertheless, Carnoy and Shearer argue that if the movement is to make substantial progress jn the 1980s, multi-issue political coalitions must appear at the local and state levels. These coalitions would be in the reform tradition of American populism, the primary values of which have always been democratic in nature. Thus, it would appear that the fight for economic democracy will remain viable in the last decades of the twentieth century.
In whatever direction political and economic events in America may move, there is certainly potential for substantial change. British social economist Barbara Ward notes that we live in a time of unrest and social upheavals.* She believes that twentieth-century world upheavals have resulted from the accelerating and unpredictable course of the world’s scientific and technological revolution. This revolution has been accompanied by the increasing use of nonrenewable energy resources, a practice unchecked until the oil embargo of 1973. Now that the energy bonanza is over, industrial nations are trying to implement new energy policies.
*Barbara Ward, Progress for a Small Planet (New York: W.W. Norton & Company, 1979, $13.95), 305 pages.
As supplies of fossil fuels have dwindled, industrial nations have increasingly discussed conservation. Since 1973, national governments have, indeed, scaled down their projections for future fuel use. Nations now acknowledge cautiously that conservation is capable of reducing energy demand. Projections, however, greatly underestimate the potential application of conservation measures. These measures are still not recognized as an effective method for increasing the energy supply. Governments concentrate their efforts not on saving energy but on developing alternative sources of energy.
Coal and nuclear energy have naturally received the most attention, since they are so easily accessible. The dangers and environmental problems associated with these energy sources, however, encourage nations to search for energy alternatives. So far, the search has not produced satisfactory results. One problem may be the fact that our concepts are still based on the character of fossil fuels, encouraging us to look for solutions within a narrow range. Ward suggests that we need to exercise more imagination in conceiving new energy patterns. After the energy bonanza of the fifties and sixties, the developed nations have taken the "energy slaves" for granted: they still look to the natural energy resources on which they have traditionally relied. As a result, they have not developed long-term fuel-saving programs. Ward concludes that industrial nations, therefore, have at least a century ahead of them of using "bridging" fuels such as coal, oil, natural gas, and—as a last resort—nuclear technology. (p. 59) During this period, the world’s nations may gradually shift to using relatively harmless energy sources, possibly through a systematic program of conservation and energy alternatives.
Although a program of conservation and energy alternatives may eventually result in energy stability, such a program involves no drastic changes. For this reason, Ward is not convinced that conventional energy programs will be sufficient to meet future needs. She observes that we may be in the contradictory position of needing the Keynesian instrument of demand management yet unable to use the method without producing economic stagnation, inflation, or social dislocation. She seems to agree with Zoffer that a new look at the Keynesian approach is required. Ward argues that the nation may have to move toward a system of "private socialism," which is simply a call for representative economic democracy and cooperation. Under this system, government, union, management, and consumer representatives would meet periodically to assess the scale of resources and production required to produce sufficient income and work and to determine whether the economy could then produce the needed goods and services. (p. 137) However, even these changes may not be enough. Changes of an even greater magnitude may be necessary.
The world may need to effect some fundamental changes in its outlook. Ward believes that the United States and other industrial nations are possibly moving toward a new concept of the technological society, requiring new approaches by the developed countries. In the coming decades, the developed nations may join in an economic compact with the undeveloped countries. The world could be on the verge of a new international economic order, an emerging world community, a compact in which the interests of the member nations are paramount. Ward observes that energy concerns have opened a new phase in international negotiations. The time for a new understanding may be at hand, perhaps opening the door to a global compact between developed and undeveloped nations. The traditional suspicions and resentments may be overcome by simple self-interest. In searching for new relationships, markets, and opportunities, the developed nations may look to the undeveloped countries as economic partners. Since the world coming into being in the twilight of the twentieth century is one in which no nation "can escape a truly global destiny," (p. 264) the author concludes that the only choice remaining is international cooperation.
Ward’s observations are both interesting and thought-provoking. Since, however, Americans are uncertain about the course of future world events, they must keep their options open with respect both to international and to internal developments. Regardless of whether the United States and other nations move toward global economic union, we must stand ready to deal with events on the international stage. Global involvement will almost certainly be necessary merely to provide for the daily needs of American citizens. Adverse economic developments in other nations could, therefore, undermine America’s economy. The energy and resource policies of foreign nations will assuredly be a problem for quite some time to come. The United States must strive to develop programs satisfying its material needs in order to assure a stable economy. Not only will a stable American economy permit needed economic progress but it will also encourage the peaceful resolution of demands for economic change.
IN the coming decades, there will be repeated calls for change in the United States. In a democratic society, there will understandably be demands for more democracy in economic affairs and increased involvement with other nations. While these demands are likely to produce some uncertainty among Americans, they are in accord with the nation's democratic heritage and are no cause for prophecies of doom and disaster. Economic change does not portend inevitable conflict and disastrous upheavals. While moving progressively toward greater economic democracy and international cooperation, American can also promote internal stability; the two processes are not antagonistic. With positive approaches to the nation's economy and mutually beneficial programs in effect between the United States and other countries, America can simultaneously move toward economic democracy in American society and involvement with other nations.
Washington, D.C.
Contributor
Captain Steven E. Cady
(B.A., Texas Lutheran College; M.S., University of Southern California) is Deputy Chief, Regular and Reserve General Officer Division, General Officer Matters, Hq USAF. He has served in the Office of the Joint Chiefs of Staff and as executive officer and electronic warfare officer at Loring AFB, Maine. He was Loring's 1976 "Officer of the Year" and a 1978 "Outstanding Young Man of America." Captain Cady published articles in the Review and other military journals.Disclaimer
The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.
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