Capitalism Requires Government

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Being systemic also means that these problems cannot be cured from within the economic system itself. These problems can only be addressed from the outside by coordinated collective efforts – the efforts of people acting through their governments. This doesn’t mean that the government cannot at times utilize the forces of the market to help solve these problems – such as when it creates a market in pollution rights, or when it auctions off a limited number of licenses to harvest lobsters. But these are not “market solutions” as conservatives like to trumpet; these are “government solutions” that utilize markets to achieve their goals.

Once the extent and severity of the shortcomings of a market economy become obvious, it becomes much clearer why we have big government in the United States. The public has repeatedly turned to government to provide important things the market cannot – such as clean air, retirement security, equal access to a good education, city planning, and health care for those who cannot afford it. Nor can we rely on markets to provide a more just, free, and secure society. Government is also necessary to make sure that market economies don’t hurt people in a variety of ways, including cars that blow-up or roll-over, or mines that collapse. That is exactly why most Americans say they do not want to see consumer or workplace regulatory protections dismantled. 11 Even David Stockman, ardent free-marketeer and lead man in the effort to reduce government in the Reagan administration, eventually had to reluctantly admit that the American public would simply not put up with capitalism in its raw form. Upon leaving office as budget director, he observed rather sadly that “The American electorate wants a moderate social democracy to shield it from capitalism’s rougher edges.”12

Why Taxes, Regulations and Social Programs are Good for Capitalism

That, then, is the traditional justification for government regulation of business and market: only government can address the many serious problems caused by laissez-faire capitalism. Even if government rules decrease somewhat corporate growth and profits, they promote important things that Americans care about – like better health care, safer workplaces, a cleaner environment, and more economic security. But this rationale leaves out an important – and more intriguing – reason why government “interference” in the economy is desirable. The fact is that many government actions that hurt businesses in the short run are actually good for business in the long run. Most regulations, for instance, are not only good for the American people, they are also ultimately good for business as well. This point may not seem obvious at first. But I will argue that the central pillars of the modern democratic state – the regulations and social programs that conservatives and business interests often oppose so vehemently – actually work in important ways to the benefit of the business community and capitalism itself. What business thinks is bad for it economically can be very beneficial, and even essential, for it politically.

How can this possibly be true? To see, we need only asks ourselves a simple question: What would happen to market capitalism without all of these regulations and social programs? Fortunately, we don’t have to try to speculate about the answer to this question; we merely need to go back to the first several decades of the twentieth century. This was the time before big government – before extensive regulations and expensive social programs – an era that anti-government conservatives consider a golden age. But what they forget is that at that time, around the world and even in this country, growing numbers of people were becoming very discontent with capitalism. They were also becoming increasingly interested in alternatives such as socialism, communism, and anarchism. The communist revolution in Russia prompted a wave of attempted socialist uprisings or threats of uprisings throughout much of Europe after World War I. Rosa Luxemburg led one uprising in Germany, and the communists actually overthrew the government in Bavaria and briefly established a soviet state. Another short-lived communist government was established by revolutionaries in Hungary in 1919. The success in Russia also inspired a host of anti-capitalist movements and incidents in other countries: there was a wave of factory occupations in Italy, a wide-spread series of strikes in Britain, and a general strike in Winnipeg, Canada. Later, in the 1930s, in the Spanish Civil War, anarchists and communists fought side by side for control of the country.


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