Businessweek Archives

They're Not Eating Crow, But...


Economics

THEY'RE NOT EATING CROW, BUT...

What do you do when you're caught on the wrong side of history?

For U. S. radical economists, that's the question of the hour. For 25 years, the radicals' criticisms of capitalism and markets have been a small but persistent thorn in the side of mainstream economics. But now, the formerly socialist nations of the Soviet Union and Eastern Europe are rushing headlong toward markets. The membership of the Union for Radical Political Economics (URPE) is about 1,000, down from a peak of about 1,700 in the late 1970s. And they've even lost sole use of their name, as the term "radical" is increasingly being applied to Soviet economists who advocate a rapid transition to a market economy. Exults Edward P. Lazear, an economist at the University of Chicago and a senior fellow at the conservative Hoover Institution: "Radical economists are on the run. It's now politically correct to talk about markets and nothing else."

LONG LIST. But across the country, the URPEs are still alive and kicking. Most radical economists are reluctantly accepting the virtues of markets, but they're still passionate about the need for equality, even if it means a big government role in the economy. And they expect public opinion to turn against an unfettered free market once it becomes clear that the fall of Russian communism won't solve economic woes here in the U. S. They cite a long list of reasons: stagnant living standards, growing environmental problems, and competition with countries such as Japan and Korea where the government is actively managing the economy. "At the same time markets appear to have won, Western economies are finding out that a laissez-faire policy of totally unregulated markets makes no sense," argues Samuel S. Bowles, a radical at the University of Massachusetts at Amherst and one of the founders of URPE.

The collapse of the Soviet Union has even helped U. S. radical economists by ridding them of their biggest hangup: the need to defend practices they didn't believe in. Few radical economists approved of the Soviet Union's top-down control, central planning, or monolithic state-run businesses. But for the most part, they suppressed their doubts because even with its obvious flaws, the Soviet system seemed to meet its people's basic health, employment, and educational needs. And with the Soviet Union acknowledged as one of the world's two superpowers, socialism did seem a viable competitor to capitalism.

Now, events have liberated the radical economists to redefine socialism in terms of economic democracy and equality rather than a state-run economy. This vision of socialism has deep roots in American history, from the Wobblies of the 1920s through the New Left of the 1960s. In practice, it means extensive worker and community participation in economic decisions that are now made by corporations alone, including production, investment, and even R&D. Specific proposals put forth by radicals have run the whole gamut, from workplace democracy to worker ownership to a far greater role for government-funded investment than most mainstream economists, Democratic or Republican, would find acceptable.

LYING LOW. Most radicals even see the changes in the Soviet Union as buttressing their case. "A lot of the uprising was against the lack of democracy," says Julie Matthaei, a leading radical economist at Wellesley College. "It's distressing that people are interpreting events as if capitalism has won." Bowles, who was in Moscow in June, argues that Russians, rather than being true believers in capitalism, are using the rhetoric of privatization and markets to chop away at the bureaucracy.

But for all their optimism, most radical economists are lying low and waiting for the free-market storm to blow over. "It's hard to get a job when you're not a mainstream economist," says Matthaei, "and recent events haven't made it easier." And many developing countries, which once listened favorably to radical economists, are now enthusiastic converts to the free-market message. Says Robert Pollin, of the University of California at Riverside, a member of URPE's governing board: "The high-level bureaucrats in these countries all say the same thing, that there is no other model for development."

NEW FORCE. And the sheer magnitude of the Soviet collapse has altered the views of even die-hard URPE members. With the failure of central planning, they're much more willing to acknowledge that an advanced industrial economy can't function well without some form of markets. And keeping in mind the example of the inefficient state-run monopolies in the Soviet Union, more and more radicals are coming to accept international competition as an important force for raising quality and lowering costs.

But they're unwilling to concede that free-market capitalism is the only workable economic system. "Now that there is no argument over whether there should be markets or not," says Jeff Faux, president of the Economic Policy Institute, a Washington think tank that regularly sponsors work by radical economists, "it raises the question: What kind of capitalism do you want?"

For example, the pure form of the free-market model would remove government almost completely from the economy. Yet Faux points out that the toughest international competitors, such as Japan, have larger and more active public sectors than the U. S. Indeed, the demise of the Soviet Union now means that the most successful model of industrial development available to Third World countries is found in the East Asian economies where the central government takes a major role in guiding investment.

And the need to protect the environment argues for some government regulation, say most radicals. Even the market-based solutions currently in vogue need someone, usually the federal government, to step in and decide how much pollution should be allowed. "Global warming and other environmental problems," argues Bowles, "will be much more important than the collapse of the Soviet Union for determining how planned the U. S. economy will be in the long run."

Still, the radicals are closely watching the countries of Eastern Europe and the Soviet Union as they try to remake their economies. Right now, free-market advocates are in the ascendancy, both home and abroad. But the transition to capitalism is turning out to be messy and painful, and if that continues, radical economists may find that history has not passed them by after all.

HOW RADICAL ECONOMISTS

ARE CHANGING THEIR VIEWS

SOCIALISM

OLD: Socialism requires central planning and state-owned businesses

NEW: Socialism means worker ownership and workplace democracy and includes freedom of choice for consumers

MARKETS

OLD: Markets often lead to perverse outcomes and more inequality

NEW: Markets can and should be harnessed for social purposes

ECONOMIC DEVELOPMENT

OLD: The Soviet Union and other so-called `socialist' countries, while not perfect, did an acceptable job of filling people's needs

NEW: East Asian countries have prospered with the government guiding development using market signals and international market guidelines

GOVERNMENT

OLD: The government should run the economy to achieve equality and economic justice

NEW: The government still must act to protect people from the market's excesses, but it should not intervene everywhere

DATA: BWMichael J. Mandel in New York


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus