Published on Monday, July 15, 2002 in the Guardian of London
This Strange Silence From the Left Free Enterprise Flaunts Its Failings and Social Democrats Say Nothing
by Roy Hattersley
Imagine if you can a scandal - comparable to those sweeping through commercial America - infecting the economy of a genuine social democratic country. It is hard to construct a hypothesis which mirrors fraud on the scale which is alleged to characterize the six major companies - Qwest Communications, WorldCom, Enron Corporation, Tyco International, Computer Associates and ImClone Systems - which are now under criminal investigation by the US Justice Department. But let us pretend that, 10 years ago, the Swedish social fund - by which that country's trade unions helped to manage tax-financed investment in socially desirable projects - had been accused of publishing bogus balance sheets and lining the pockets of its directors.
There is no doubt what the reaction would have been. The chorus of excoriation would have been carefully orchestrated by the Adam Smith Institute. The scandal would have been denounced, not as an aberration but the result of socialism's inherent weakness. We would have been told that nothing better was to be expected from a system which disturbed the equilibrium of the free market. There would have followed confident, if not very carefully argued, explanations of why inefficiency and corruption is the inevitable result of tampering with a system which makes us prosperous. Now the six great companies - not to mention Arthur Andersen - have all demonstrated how fallible free enterprise is. And the world's social democrats have not said a word.
It is, I fear, an indication of social democracy's crisis of confidence. The Friedmanites and Hayekians have not won the intellectual argument. But they have shouted their opponents down. We have been bombarded with the undoubted truth that technology makes the global market irresistible. But that honest fact has been embellished with two corrupt and self-serving inventions. First, there is no way in which the multinational corporations can be even deflected from their chosen course and, second, we should rejoice that unrestrained freedom produces the best of all possible material worlds. It was, perhaps, pointless to say: "Tell that to the starving people of sub-Saharan Africa." But we might now expect the weakness in the argument to be appreciated by those Enron employees who were encouraged to invest their life savings in the collapsing corporation while its senior executives methodically transferred their considerable wealth to other companies.
The fundamental flaw in unregulated capitalism ought to be obvious. Men and women of apparent intelligence and generally recognized probity openly argue that "greed is good". We applaud the notion that the acquisitive instinct makes the world go round. So we should not be surprised if one or two men and women with masters' degrees in business administration try to make it spin a little faster with schemes which are a credit to their ingenuity but not their honesty. The profit motive breeds corruption.
The best that capitalism can argue in its own defense is incompetence - a plea which makes nonsense of the claim that competition is the guarantee of efficiency. Perhaps, in the primitive societies, where (according to Adam Smith) a fair wage could be calculated by the time it took to catch and skin a badger, the fear of being undercut and driven out of business did keep prices down and performance up. But the men who ran Xerox and Arthur Andersen had not read The Wealth of Nations. Either that or, as Adam Smith warned, they combined to insulate and protect each other from the bracing winds of market forces. The inevitable success of capitalism is one of history's confidence tricks.
Do not write to tell me that a command economy of commissars and rationing is consistent with neither freedom nor prosperity. I know that already. But I also know that if we treat the laissez-faire alternative as President George Bush treats it - near to perfection as any economic system can be but embarrassed by the behavior of half a dozen unrepresentative rogues - we will never deal with its inherent flaws. The president's speech to Wall Street last week aimed "to restore confidence in the markets". It should have described government action which, by first punishing and then preventing wrongdoing, made renewed confidence justified.
Yet social democrats have remained depressingly silent. Perhaps it would have all been different if 92-year-old John Galbraith could emerge from his gothic house in Cambridge, Massachusetts, and smite the forces of the ungodly. But there must be somebody with the time and the talent to write a genuine exploration of modern capitalism's fundamental shortcomings. He or she could begin with the story of a real Swedish economic catastrophe - the unique reduction in national income in two consecutive years. That happened when the free marketers briefly became the Stockholm government. It passed, at the time, virtually without notice. Why do we social democrats lack the confidence to smite our undeniably vulnerable foes?
© Guardian Newspapers Limited 2002
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