The future of free enterprise as seen 50 years ago

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While looking for something else, I came across this article from Time from February, 1972. It's five pages long and might take a few minutes to read, but it's rather interesting to compare views back then versus how they are now.

One thing it focuses on is price controls, as the article was written just after Nixon imposed price controls and other regulations on the economy - which were supported by business.

Time Essay: The Future of Free Enterprise - TIME (Page 1)
Time Essay: The Future of Free Enterprise - TIME (Page 2)
Time Essay: The Future of Free Enterprise - TIME (Page 3)
Time Essay: The Future of Free Enterprise - TIME (Page 4)
Time Essay: The Future of Free Enterprise - TIME (Page 5)

THE U.S. is universally recognized as the capital of capitalism, the land of free markets and the home of resourceful entrepreneurs. More than any other country, it has been known for leaving an entrepreneur free to decide prices for his products and set wages for his workers, free to grow and prosper—and free to go bankrupt if he failed. Historically, the U.S. Government has often done much to strengthen those twin pillars of free enterprise, private ownership and unfettered competition. Americans have grown so accustomed to living under free enterprise that they rarely even think in terms of class struggles, expropriation, the proletariat or other concepts that mark national debate elsewhere.

It compares the U.S. to other nations where there was greater government involvement in the economy, such as in Japan:

Only in the U.S. are airlines, radio and television networks, telephone systems, power companies and all other major industries owned primarily by private individuals. By contrast, Japan is a corporate state in which government and industry are so closely interrelated that it is difficult to tell which segment is in control. Half of France's auto industry is owned by the state; 35% of Italy's industrial production is state controlled.

It's interesting that government interference would later propel Japan to great heights economically, while Reagan's "trickle down" system brought America to an economic doldrums which continued to this day.

Recently, however, free enterprise in the U.S. has been under heavy pressure—not so much from the New Left or consumerist critics as from some of the system's primary defenders, namely the Republican Party and private businessmen. By ordering the first controls in the nation's history (outside of a military emergency) clamped on wages, prices and rents, President Nixon made one of the boldest encroachments so far on the free-enterprise system. Nixon's New Economic Policy is, in fact, only the latest and most dramatic in a series of events that seem to challenge the principle of free enterprise. In business, the role of Government is fast growing larger—as savior, subsidizer, owner, regulator, decision maker.

It is business leaders themselves who often urge the Government to step in. When the aerospace industry tumbled into trouble last year, its generally conservative captains importuned Washington for subsidies to bail out Lockheed (successful) and save the SST (unsuccessful). When the housing industry slumped in the late 1960s, home builders pressured the Government to increase subsidies greatly; under the present Administration, the number of federally assisted housing starts has jumped 150%, to almost 400,000. After passenger rail service had become a hopeless drain on profit, Congress last year relieved the railroads of that burden by creating Amtrak, the Government-sponsored rail corporation.

The article raises some pointed questions which were just as relevant back then as they are now:

The Government's recent actions raise troubling questions. Does free enterprise have much of a future? If so, what should be done to preserve and strengthen the system? If not, what will replace it?

Actually, the system has never been as free as its folklore suggests. Business and Government have often been partners in a common-law marriage. What is happening now is largely an intensification of a long process of Government involvement.

"Does free enterprise have much of a future? If so, what should be done to preserve and strengthen the system? If not, what will replace it?"

The irony is that, the propaganda of Reaganites and other capitalists have always portrayed government interference as some kind of anathema and that the only ones who benefit are the "welfare bums" and "leeches" they perceive among the lower classes. But in fact, it was and continues to be big business which benefits and demands government interference when they need it.

As the essay notes, businesses have been the primary advocates of government interference from the very beginning, when it was quite beneficial and lucrative to them:

Many early American capitalists built their fortunes by prying favors and subsidies out of the Government, including publicly financed roads and canals that were tailored to their needs, direct land grants and protective tariffs. The first steps toward Government regulation of industry were prompted not primarily by bureaucrats or muckrakers but by businessmen themselves.

The brainwashing of the Reagan era has put a lot of people off the idea of price controls, but as we can see, such was considered a legitimate and useful option for the government to keep employment high and prices low.

The Government's influence on the private economy will become even greater in the future. But the nation is not creeping toward a corporate state or outright socialism.

First, Washington will involve itself more and more as a goal setter and rules maker for business—largely because many business leaders want it to do so. Banker David Rockefeller, General Motors' ex-Chairman James Roche and A.T. & T. Chairman H.I. Romnes are among the prominent nonrevolutionaries who have endorsed the National Urban Coalition's proposed "counter-budget." which calls for the Government by the mid-1970s to establish a guaranteed annual income, start a national health-insurance program, and double federal outlays for education.

Even top business leaders supported a guaranteed annual income (now called "UBI"), national health insurance, and increased spending for education - which were all roundly rejected by the time Reagan came into office. I wonder what happened to cause business to suddenly change its tune.

Second, the Government will become a sterner policeman of private enterprise. Responding to a surge of rising public expectations about corporate performance, Washington is stepping up its regulatory efforts. Nixon-appointed heads of federal agencies are already outdoing their Democratic predecessors in bedeviling businessmen with tougher rules on auto safety, toy safety, food and drug quality, truth in advertising, disclosure of financial information and other securities practices, as new regulations proposed last week by the SEC indicate (see BUSINESS).

As the article correctly points out, stiffer regulation is not a constraint on free enterprise:

Stiffer regulation, however, is not a constraint on free enterprise. In an increasingly large and complex economy, regulation is what prevents the pursuit of profit from leading to harmful products, destructive dis-economies like pollution, the exploitation of customers and other threats to the stability of the business system.

Third, the Government will likely continue some form of surveillance over wages and prices. In his economic report to Congress two weeks ago, President Nixon implied that controls will remain at least until the end of this year and perhaps longer. Beyond that, the U.S. will probably have some looser form of Government wage-and-price supervision more or less indefinitely.

A lot of these ideas were handled reasonably, even by conservative economists. It wasn't until the Reagan era that they all morphed into crazy, paranoid McCarthyites, believing that any government intervention in the economy was Stalinist.

But even from a capitalist point of view, these controls can actually be beneficial to the economy and to business:

If the Government, whether under Republican or Democratic auspices, can curtail inflation and revive the economy by using such tools as controls and guidelines, free enterprise will be greatly strengthened.

However, as noted in the article, the government needs to be more vigorous in pursuing antitrust legislation and going after the giants of capitalism. But as we would later see, mergers, acquisitions, and hostile takeovers made the giants even bigger, while the little guy got squashed.

Free enterprise should be valued, preserved and strengthened. It is not fundamentally endangered by Government attempts to set rules or goals for business to solve social problems or by efforts to straighten out the economy by setting wage-and-price controls. The real threat comes from quite another source: the steady increase of economic power concentrated in large corporations and large unions.

Free enterprise is also restrained by giant national unions. Because they are often more powerful than their generally small employers, the building-trades unions can demand — and get — exorbitant wage increases, make-work practices, and restrictions on the use of new methods and materials.

Actually, it was Reagan who broke the unions, although it's true that unions were becoming too big and too corrupt. However, they didn't need to throw out the baby with the bathwater.

The U.S. should make free enterprise even more competitive and more responsive to the nation's needs. That may require some more effective form of Government planning to coordinate the resources of businesses with the spending and taxation policies of federal, state and local governments. The capitalist economy may thus eventually take on some features of socialism, just as socialism over the years has adopted some practices of capitalism. Yet a nation that accounts annually for nearly half of the non-Communist world's gross national product, and has more individual business enterprises than many countries have people, is surely strong and diverse enough to accommodate the best features of both systems.

This article is almost 50 years old, yet we're still having these same basic arguments about economics.

It's interesting because, statistically, this was the point when America's economy peaked in terms of real wages. We've had mainly economic stagnation ever since.

As the chart indicates, the U.S. economy got worse in the 80s and 90s, during the Reagan-Clinton era. But the evidence clearly shows profound economic decline as a result of Reagan's and Clinton's policies, which is why wage/price controls and other government regulations are sorely needed at this point.

Thoughts?

 

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