Capitalism Requires Government

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Many people today wonder how anyone could have become such a radical, anti-capitalist revolutionary. But they are forgetting the horrendous conditions that many people were living under in unregulated capitalist economies – the grinding poverty, the enormous economic inequality, the lack of adequate health care for most people, the absence of old-age pensions, the widespread unemployment, the unchecked and abusive power of monopolies, the environmental squalor of the cities, the dangerous and often lethal working conditions, the inevitable and hugely destructive economic depressions. It was these unaddressed problems of capitalism that led to the creation of communism and communist revolutions. Some people were so upset and disgusted with the widespread injustices and suffering caused by of laissez-faire capitalism that they were willing to take up arms and risk their lives to throw out the entire system and to start over with new and untried economic systems. The extreme problems of capitalism drove them to those political extremes.

The United States was not immune to these problems or this kind of political and social unrest. In 1912, Eugene Debs, the Socialist Party presidential candidate, offered a radical critique of capitalism and won the support of nearly a million voters. Some unions, like the Industrial Workers of the World, wanted to replace capitalism with worker-controlled production. The IWW was instrumental in organizing the Seattle General Strike of 1919 where 60,000 workers went out on strike and paralyzed the city for a week. The influence of the Socialist Party and the IWW only abated when federal and state authorities jailed their leaders, deported many of them, harassed their members, shut down their newspapers, and denied them use of the mail.

The 1930s and the Great Depression, however, saw a resurgence of interest in anti-capitalist ideas and movements. Political unrest was growing. There were food riots, widespread labor violence, street protests, and increasing political instability. In this atmosphere, communist and socialist parties experienced growing support and began to exert more influence in unions as well. In addition, socialist and communist groups became very popular on college campuses. To students, they seemed to be the only organizations that could explain the causes of the Depression and who offered alternatives to a malfunctioning capitalist system. Into this highly volatile and precarious political situation stepped Franklin Delano Roosevelt and his New Deal programs. Anti-market conservatives have reviled Roosevelt ever since as a "socialist" who betrayed capitalism; but in reality, his government programs actually saved capitalism by stabilizing the economy and developing programs to alleviate the suffering it was causing – all of which had the effect of undermining political unrest.

Examining the deeper political implications of New Deal, the political scientist Edward Greenberg concluded in his book Capitalism and the American Political Ideal that Roosevelt’s efforts can best be seen as ultimately aiding the cause of business and conservatives:

[T]he New Deal is best understood as a series of attempts to save a faltering and depressed capitalist system by further regulating and rationalizing the economy, by bringing important elements of the labor movement into the established political life, and by staving off social disruption and revolution through expansion of the welfare role of government. … the New Deal represents, paradoxically, a conservative expansion of government activities. While it is traditional to define any expansion of government activities as “liberal,” I would argue that since this expansion was directed toward preserving and cementing the position of capital and maintaining the social class system, it must, in the end, be judged “conservative.”13

Ironically, then, free-market conservatives and business leaders who worked so hard against Roosevelt and his policies were actually working against their own long-term interests. They failed to see that capitalism actually needs some “socialism” to make it less destructive and more palatable to most people.

Today, the corporate community and anti-government conservatives fail to see this point as well. They fail to understand that government policies that protect consumers, make workplaces safe, provide economic security, eliminate poverty in old age, provide health care to the poor, and prevent and repair environmental damage are what “humanize” capitalism and make it tolerable to people. In this way, businesses are a lot like sulky teenagers. They resent their parents’ rules – such as no drinking and driving, no unsafe sex, no experimentation with hard drugs – which they simply see as constraints on their freedom and their fun. They refuse to see that these rules are for their own good, their own long-term health and welfare.

Similarly, businesses and free-market conservatives have been unable to appreciate how government efforts to humanize capitalism have been for their own good. Instead, they have resented and opposed virtually every effort to make capitalism less harsh – from the 40-hour week and the abolition of child labor to Social Security and Medicare. They should see the costs they pay for these policies as a premium on a vital form of political insurance. Government regulatory policies and social programs are crucial in undermining popular discontent about the problems of a free-market economy and serve to co-opt potential anti-capitalist and anti-business political movements. These “liberal” reforms provide and sustain the social and political peace on which profitable business activity ultimately depends.

Even Ben Bernanke, chairman of the Federal Reserve, understands how essential government safety net programs are to maintaining public support for our market system. He has warned of the "painful dislocations" associated with capitalism and has stated that if "we did not place some limits on the downside risks to individuals affected by economic change, the public at large might become less willing to accept the dynamism that is so essential to economic progress."

There is one final ironic twist to all of this. Modern government’s achievements in reining in abuses of corporate power and humanizing capitalism have actually backfired on those who champion an active role for government in society. These successes have fostered an illusion that a market economy is relatively harmless. Few people remain alive who actually experienced the severe problems of the “bad old days” of capitalism before the New Deal. Today, many think we are living in a natural “free market” system, but in reality it has been extensively tamed by myriad government policies. It is as if we lived in a world where all we knew about wild animals is what we learned by going to the circus, and thus came to believe that bears and elephants were naturally gentle creatures. Frustratingly, then, it has been the government’s triumphs in addressing the many problems inherently caused by a free-market economy that has allowed conservatives to argue that markets are naturally benign and largely problem free – and so we do not really need much government.14

Beyond the Myths of Government and Markets

In the end, anti-government conservatives get it wrong about both markets and government. In their zeal to justify shrinking the state, they intentionally misrepresent both of these institutions and how they interact. The market is not God and the government is not the Devil. Despite their enormous advantages, markets are not benign and self-regulating. They create numerous social, economic, and political problems that only government can correct. Government is also not the sworn enemy of business and capitalism. Conservatives can only promote this misleading caricature of government by deliberately ignoring the myriad ways that government aids business and makes a market economy possible.

Anti-government conservatives are constantly warning that government is primarily a threat to business and the economy – that unless we reduce it, it will “kill the goose that lays the golden eggs.” But as we’ve seen, this is far from the truth. The modern state is more like the farmer who feeds and waters the goose, builds the facility that houses it, inoculates it from disease, clips its wings so it can’t fly away, protects it from predators, cleans up its excrement, and tames it so it won’t bite people. If we appreciate those golden eggs, we should also appreciate the efforts of the farmer who helps make the egg production process possible. Similarly, those who celebrate the achievements of business and a market economy should also acknowledge and celebrate the role government has had in those accomplishments. This would be the fair thing to do; but of course it would not fit into anti-government conservative orthodoxy.

The basic lesson is this: we Americans need to realize that our economy has thrived not in spite of government, but in many ways because of government. The American economy that so many people admire is not the mythical free market that operates without government interference. Our version of a market economy is highly constructed, regulated, subsidized, and humanized by government laws and policies. And we are all better off for it. Even if it were possible to create a world of free markets that were left entirely alone by government, none of us would want to live there.



For more on the relationship between government and capitalism, see: How Government is Good for Business.

To see how government programs work quietly to improve our daily lives, see:  A Day in Your Life with Government.

See also:  Why We Need More Government, Not Less.

1. For more on this issue, see David Moss’ excellent book, When All Else Fails: Government as the Ultimate Risk Manager (Cambridge, MA: Harvard University Press, 2002) chapter three.

2. Moss, chapter five.

3. Robert Kuttner, Everything for Sale (. New York: Alfred A. Knopf, 1997) p. 212.

4. Kuttner, p. 218.

5. Dick Armey, The Freedom Revolution (Washington D.C.: Regnery Publishing, 1995), p. 316.

6. Armey, p. 68.

7. See for example, Timothy M. Smeeding, et al., “United States Poverty in a Cross-National Context.” In Sheldon H. Danziger and Robert H. Haveman, editors, Understanding Poverty (New York and Cambridge, MA: Russell Sage Foundation and Harvard University Press, 2002) pp. 162-189.

8. Benard Wasaw, “Rags to Riches: The Americans Dream is Less Common in the United States than Elsewhere,” Century Foundation, March 19, 2004.

9. Jo Blanden, et al., “Intergenerational Mobility in Europe and North America,” April, 2005. IntergenerationalMobility.pdf

10. "As Rich-Poor Gap Widens in the U.S., Class Mobility Stalls," The Wall Street Journal, May 13, 2005.

11. Charles Noble, The Collapse of Liberalism (New York: Rowman and Littlefield, 2004), p. xvi.

12. David Stockman, The Triumph of Politics: Why the Reagan Administration Failed (New York: Harper and Row, 1986) p. 394.

13. Edward S. Greenberg, Capitalism and the American Political Ideal (Armonk, NY: M.E. Sharpe, 1985) p. 93.

14. Thanks to Sam Rosen-Amy for making this point to me.


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