Economic Insanity: Chapter 5 (part 2)

Of Course the Rich Are Getting Richer (Part 2)

The Irrelevance of Right and Left

Neither major political orientation offers a viable solution to the growing economic inequality that prevails in modern America. The conservatives insist that the best course is just to leave the beast alone, and everyone will prosper. This strategy is arguable at best. If we leave the beast alone, the gap between rich and poor will widen at an accelerating pace, companies will continue to replace workers with technology in their drive to increase productivity, our ability to consume all that we produce will continue to shrink, disposable income will drop while consumer debt rises, and we shall not prosper. The standard of living for most Americans will slip as the middle class continues to lose weight.

The liberal response, on the other hand, attempts to alter only the effects, and not the functioning, of capitalism, by redistributing income—in essence, to paint stripes on a baboon and then expect it to behave like a zebra. For many reasons, the welfare state has proved itself a major disappointment.

No true liberal, of course, would suggest that everyone be made absolutely equal in economic matters. The true, rational liberal suggests only that we narrow the wide disparity between rich and poor by redistributing money, the fruit of capital ownership, to bring the very poor up to a certain minimum level of consumptive (though not productive) capacity.

Both conservatives and liberals tend to look at economics as a game. Conservatives insist that there must be both winners and losers. If we were to make it so nobody lost, they argue, we would also make it so nobody could win. And then the game would become pointless, like playing tennis without an opponent. The liberals, of course, don’t want to do away with the game—they just want to spot the weaker opponent a few points, possibly a whole set, so that the inevitable losers don’t get trounced so badly. No shutouts allowed in the game of liberal economics.

The principal flaw of income redistribution programs is that they create dependency among the poor and sabotage the motivation and creativity of entrepreneurs and executives. Free handouts never motivated anyone to become a contributing member of society, and taking away the apples from a hard-working fruit farmer’s tree may make him scratch his head and honestly wonder why he’s in the business in the first place.

Is there an alternative, then, to the flawed liberal and conservative economic strategies? Of course there is, and both sides would probably wax indignant over it, because it strikes at the root of the increasing inequality that both sides, in their own way, yearn to preserve. This alternative, however, is both logical and consistent with our American ideals: Instead of fixing the score by redistributing income, the fruit of capitalism, we should instead consider leveling the playing field by redistributing capital, the source of income and the only factor that inspires motivation and creates genuine opportunity.

Finding a Balance

Adam Smith theorized that the inherent self-interest of people would promote the interest of society and create an equalizing effect by benefitting both sides in any economic transaction. This would transpire as if an “invisible hand” were guiding their actions, causing them to “promote an end which was no part of [their] intention.”¹ The problem we discover when we try to apply this theory to transactions in our modern economic system is that Smith was talking about a far different society than the one we live in. In Smith’s day, capital ownership was far more limited and widespread. Today, the gargantuan businesses and bureaucracies of modern capitalism have dramatically shifted the balance of power in society, effectively paralyzing Smith’s invisible hand and negating any widespread societal benefit that might accrue through the economic interaction of two self-interested parties.

There is no mutual benefit, for instance, and society as a whole is worse off, when an impersonal organization has so much power that it can use, abuse, fire, or require a dehumanizing conformity from individual employees, whose only real recourse is to quit. In theory, Smith’s invisible hand operated between two parties, neither of which was significantly more powerful than the other. In this circumstance, a balance would arise in terms of benefit, not just power. Equality of opportunity and of outcome would be served. We can realize such equality, of course, only when ownership is both widespread and limited. Democracy and equality are all about ownership. You can’t really have either without it.

Achieving true democracy and functional equality is virtually impossible where opportunities are divided, as Peter Block points out, between a class of executives who are paid as much as possible and a lower class of laborers who are paid as little as possible. This double-standard pay system creates a situation in which workers are, by definition, part of the problem, and not a group that stands to benefit from any of top management’s solutions. Workers are seen as a cost, something that eats away at profit and must be minimized as much as possible.

This schizophrenic wage system illustrates perfectly the gulf in our society between capitalists and noncapitalists. Capitalists, we might well say, are those who are made independent because the system conspires to pay them as much as possible. They can accumulate capital, lend or invest money, and earn interest. Noncapitalists, then, are those who are made dependent by a system that is designed to pay them as little as possible. They accumulate debt, pay interest, and never really own their time, productive energy, or technical skills. For them, the invisible hand is not only invisible, it is nonexistent. No true mutual benefit ensues, because they cannot exchange anything meaningful from a position of equal strength.

The Organizational Society

Widespread and limited ownership of capital is a foreign idea in our modern-day capitalist society. We live in an organizational world, one in which capital is controlled by a few hands and large, impersonal organizations dictate not only the work-lives of millions of Americans, but also our lives away from work: everything from our entertainment to the consumer-based identities we buy off the shelf come from large organizations.

Immense organizations and the rules that govern their ownership and management prevent any true democracy or equality from existing in modern America. These gargantuan businesses and bureaucracies have dramatically shifted the balance of power in our nation, creating a divisive society of haves and have-nots. We have come a long way from the original blueprint.

The historian Paul Johnson points out that the Declaration of Independence “laid down what no other political document in the whole of history had yet claimed, that men were ‘endowed by their Creator’ with the right not only to ‘Life’ and ‘Liberty’ but the pursuit of Happiness. By this last, what the Founding Fathers had in mind was the acquisition of property, which they saw as the precondition of human felicity. Without widely dispersed property, true individual independence, and so a sound Republic, was impossible.”²

This perception that small but universal ownership is necessary in a truly free society soon withered, however, before the rising sun of capitalist conquest, and the focus of those interested in improving the total human picture shifted from equal ownership, which was given up as a practical impossibility, to a vain (and still ongoing) attempt to create a viable substitute for true equality—in short, a counterfeit.

Huge corporations, says Christopher Lasch, as well as the wage system and a more and more intricate subdivision of labor, made it pointless to restore the independence of individual proprietorship. Instead of giving the wage earner a piece of the action (a piece of the capital), “enlightened social policy” would make his job secure, his working conditions tolerable, and his wages equitable. “Hardly anyone asked any more whether freedom was consistent with hired labor. People groped instead, in effect, for a moral and social equivalent of the widespread property ownership once considered indispensable to the success of democracy.” But redistributing income, guaranteeing job security, and turning the working classes into consumers are nothing more than pale substitutes for property ownership; for none of these strategies produce “the kind of active, enterprising citizenry envisioned by nineteenth-century democrats.”³

An “active, enterprising citizenry” is only possible when the citizens own substantial quantities of capital—so that they can be producers. By contrast, a society weighted down by an immense host of practical noncapitalists must be, by definition, a society of subordinate role-players and consumers.

If we do not fully own our time, energy, skills, and, most of all, our production, how can we possibly achieve the American Dream? The ideals that make up that Dream—equality, liberty, democracy, unity, human dignity, justice, even material prosperity—are not fully available to us if we do not own the fundamental building blocks of our lives. The American Dream, as discussed earlier, is not simply an economic wish. It is a much grander ideal that encompasses every aspect of life. And if we are not completely free during a third of our waking hours, then even our lives away from work lose some of their meaning.

What we have not learned in all these years is that you can’t disconnect a person’s political, social, and economic circumstances without damaging all three. A society filled with authoritarian businesses restricts in a very real way a person’s political influence and social development. Hired laborers, regardless of how well compensated they are, will never achieve the levels of independence, community spirit, and equality necessary to make democracy work—either in the nation as a whole or in the organizations where they labor.

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1. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwin Cannan (New York: Modern Library, [1776] 1937), 423.

2. Paul Johnson, “An Awakened Conscience,” Forbes, September 14, 1992, 183.

3. Christopher Lasch, The True and Only Heaven (New York: Norton, 1991), 207–8, 224–25.