Over the last four decades, there’s been a growing trend among conservative parties in Western democracies toward ever increasing radicalization and a drive toward an almost fanatical ideological purity. We’re seeing this play out almost farcically in the current Republican primary process, and up here in Canada, we’ve seen it on a smaller scale in the way the “red tories” have become all but extinct in the Conservative Party. This drive to ideological purity is strange on its own, but what I’d like to talk about is the way one particular article of faith among conservatives in general has been working out in the world’s economies.
The article of faith is that the best people to run a country’s economy are the people who are the best at running companies; basically, that being personally wealthy means you will be the best person for the job of managing and growing a healthy economy. On the surface, this seems like a reasonable assumption to make; being successful at making money seems like a pretty good bona fide for the position of finance minister, at least on paper. However, following this particular article of faith and taking the advice of the wealthiest people in our society when they tell us the best thing for everybody is to slash top tax rates, deregulate markets and financial institutions, and constantly push the idea of global free trade, has not led to the results we’ve been promised. Not only has this country been hemorrhaging manufacturing jobs constantly since our biggest companies shipped production overseas to countries with much lower wages and little or no protections for workers, but the jobs we’ve been getting back in return haven’t been the high-paying, high-skill jobs we were promised would flow out of the free trade agreements we were locked into, rather they have been mostly in retail and service industries.
While on paper the unemployment numbers don’t look like a total catastrophe, when you dig past the question of simply how many people are working and ask what jobs they’re working at compared to the job market of 20-30 years ago, the conservative plan doesn’t seem to be working out all that well for anyone earning a wage in this part of the world. While the stock market has been hitting all kinds of record highs and big corporations have been taking in record profits, not a lot of people on the ground are seeing record-setting pay raises, or any at all for that matter, while household debt is the only record high most middle class families are setting these days.
So why is this happening? What’s the fatal flaw with the idea that rich people know best how to manage a country’s finances? To put it in philosophical terms, the problem is that conservatives are making what is known as a category error; they believe that companies’ accounts and countries’ economies run on roughly the same principles, when the reality is that they are two very different things indeed. While the purpose of a company is to make money through increasing efficiencies where it can, cutting costs wherever possible, and taking a pretty hard-nosed approach to the world in general, the purpose of an economy has a completely separate focus. Where a company is focused on maximizing profits for stockholders, a country’s economy has to be concerned with maximizing the returns for all stakeholders, not just the managers and owners, and not just in terms that can be written down on a balance sheet.
A company’s executives are responsible to its board and shareholders, it is concerned with its own supply chain, its own productivity, its own profitability, and anything not on a balance sheet is considered an externality. In the context of running a business, this is a perfectly sound way to run things, it’s how businesses succeed in their world. The problem is, the kind of person who excels in the world of business is uniquely unsuited for the world of macroeconomics on the scale of a national economy precisely because of the kind of mindset it takes to do really well in the world of microeconomics. Yes, Donald Trump can make a hell of a property deal, but would you really want him being the guy . . . god, doing anything, ever?
The people in charge of a national economy have to be concerned with not just maximizing profits, but with seeing to it that society as a whole is served in a way that meets the needs of people living in it. Efficiency does matter, but is not of primary concern if a particular inefficiency means a net gain is made overall in the well-being of the general population. The job of government is not to see to it that widgets are made in the most cost-effective manner possible, it is to facilitate the overall flourishing of society in the nation they serve. That means being a patron of the arts, providing funding for massive infrastructure projects that do not turn a direct profit, but enable people to do more as a society. Governments are not supposed to turn a profit, they’re supposed to help people build happier, more secure lives. When people are staring down the barrel of crippling debts and stagnating wages, what kind of happiness and security is our government building for us?
Taking a totally optimistic view of the type of person advocating this conservative article of faith, they may sincerely believe that in just the way they would pay their employees more and hire more people if their profits were to go up, so would everyone who benefitted from a huge cut in their taxes, kicking off a virtuous circle of profit and wealth sharing, but the problem is that this just doesn’t track in the broader scope. It very well might be the case that if we gave Joe Factory Owner a break on his taxes, he’d be able to afford more staff at higher wages, but it could just as easily be the case that he happily pockets all of those tax savings and either tucks them away in his mattress or spends it on an extra week’s vacation, benefiting nobody but his investment broker and some bartenders in Cancun. Or it could even be the case that the increased profits to his company just can’t translate to any extra jobs because his factory is already making all the widgets the market needs right now, so extra workers would lead to wasted overproduction. He might want to hire more people, but the fact is it would be an act of charity on his part, not sound business management.
The virtuous circle fails to come together because reality and ideology don’t match up, and we’ve seen the results of this disconnect in this country in the way Conservative governments have consistently racked up our largest public debts and strung together records of deficit spending, even turning private business losses into public liability in the form of corporate bail-outs in the wake of the 2008 financial meltdown.
What’s going on is analogous to someone who is an excellent driver with a spotless record believing that’s all the credentials he needs to become a successful city planner. You might be the best driver in the world, but that doesn’t mean you know anything whatsoever about how best to lay out an infrastructure system that best facilitates people getting from one place to another. For that matter, the best city planner in the world might not even have a driver’s license at all, because physically getting in a car and driving around town has that little to do with the job of city planning. Thinking someone can manage an economy because they can manage a company is the same kind of category error as thinking the best driver is going to know the best way to lay out a new subdivision, and the traffic jam our economy has become is the result.