by William Pfaff

Is it a case of murder, or has the Western economy deliberately, if unwittingly, attempted suicide and nearly succeeded?

John Maynard Keynes was not just talking about defunct economists when he wrote that the world is commonly ruled by dead ideas, its leaders the slaves of the past. He said, "Indeed the world is ruled by little else." If he were alive today, he could name management consultants and business gurus among those responsible for the economic crisis of the present day.

As 2011 begins, people still talk about the crisis of the Western economy as though we have been the victims of a blight from nowhere, like Haitians in a hurricane or blackbirds in Arkansas. No individual is held guilty for anything -- certainly none of the leaders of finance or business who insisted that markets know best, or the political leaders who empowered them.

Thus my suicide argument. Once the Western nations professed belief in a stakeholder capitalism, which was supposed to benefit nations as a whole, and whose principal actors -- managers, employees, labor forces, bankers and customers -- were regarded as a community possessing common interests.

This was the "enlightened capitalism" of the post-Second World War years in the United States and Western Europe. It was the product of progressive businessmen in the U.S., influenced by the two Roosevelt presidencies -- Theodore Roosevelt and the Progressive movement early in the 20th century, and FDR's New Deal -- enlightened unionism in the U.S., wartime Labour Party and Fabian thinking in Britain, and Social and Christian Democrats on the Continent.

It bestowed upon Americans and Western Europeans 30 postwar years that, today, are looked back upon as a kind of golden age of individual prosperity and enrichment, universal education and social achievement.

Mine obviously is the opinion of a sympathizer, but many conservatives in Western countries might in retrospect concede the economic and social accomplishments of the West during those years.

Certainly it was this democratic social order that defeated Communism. The so-called socialist system installed in Eastern Europe and the Soviet Union at the same time could not withstand comparison with the system achieved in the West, and collapsed.

Many factors since then have contributed to the destruction of the Western version of capitalism, but the most important for the U.S. was the theoreticians' rejection of manufacturing -- in its fundamental meaning: the making of things. In the 1960s it became common to argue that manufacturing, with its associated physical labor and consumption of raw materials, was inappropriate to a modern society, whose distinctive and determining advantage was its possession and use of knowledge and its capacity to innovate.

The new theory held that an advanced economy should supply thought, innovation and largely intellectual services to the world economy, leaving manufacturing to more backward societies, which then would exploit the resources of primitive economies. This also eliminated the onerous demand to pay wages to American workers.

Part of the transformation of this period was the acquired conviction -- influenced by the example of despotism in wartime societies -- that the state should divest itself of direct economic intervention. Economies should be privatized; the alternative would be the road to serfdom. Prime Minister Margaret Thatcher of Britain, a pioneer of privatization, is supposed to have said at the time when the English Channel tunnel was a controversial project that if business felt the need for such a tunnel, business would build it.

This was a denial of state infrastructure responsibilities, and the influence of this idea is apparent in the present day display of infrastructure dilapidation and disintegration in the U.S. as well as Britain. The unspoken (because it's absurd) assumption has been that if business needs bridges, highways and airports to meet expanding traffic, enhanced national power systems and so forth, then business can be relied upon to build them (even when, as would seem self-evident, the amortization of national infrastructure investment vastly exceeds the time-frame in which business corporations function).

This is one element in the national suicide attempt. Another was the Virtual Corporation theory, which encouraged the improvisation of essentially ephemeral management entities to exploit specific business opportunities singly or in alliance. Despite its opportunistic advantages, this destructured the national economy.

Today the U.S., to take the obvious example, suffers from weak consumer consumption. The lack of consumption is due to the export of high-wage manufacturing employment in the U.S. and Britain that in the past drove consumption. Germany and France experimented with this but drew back. They still are real heavy-industrial economies making high-value goods sold worldwide. The U.S. makes weapons, for its own use.

It continues to innovate, but the result is exploited by foreign low-cost labor, which then buys consumer goods. This should be no surprise, yet the reality of a virtual economy, producing only low-employment (even if high individual-value added) intellectual services seem not to have been foreseen. One current result is national and state government impoverishment.

Think of offshore investment funds and kindred innovations in finance that generate great wealth for a narrow elite with practically no employment for the population. Boeing recently has nearly destroyed itself through outsourcing.

Practically no corporate taxes are paid to Washington, since the profits of the new American economy are banked abroad in tax havens, and used for investment or speculation abroad. Corporations now are demanding a tax rate cut to 5 percent in place of 35 percent if they repatriate profits. For practical purposes it seems they don't want to be American. The nation and the general population are impoverished.


Western Economy on Suicide Watch?