Freedom for the pike is death for the minnow.
- Isaiah Berlin
In this paper, I make the following points: capitalism is a creative/destructive system; the democratic welfare state emerged to tame the destructive side of capitalism while promoting its creative side; changes in the international economy have undermined the ability of the democratic welfare state to do its job; and any attempt to recreate political economic consensus to control the destructive side of capitalism must take into account the nature of the economy as a system.
The Capitalist System
Two facts stand out from an examination of the history of capitalism. First, capitalism has been successful in producing amounts of goods and services unprecedented in history. Second, it has done so in a temporally and spatially uneven manner, i.e., capitalist development has proceeded very unevenly between countries and among regions within countries. The capitalist system developed in both North America and South America, but one more so than the other. Certain countries and regions became dynamic centers of development, while others stagnated on the periphery. Then the process shifted, and once growing areas stagnated and stagnant ones developed. And, of course, development has proceeded cyclically through booms and busts in each country and region. This process extends to individual industries and even households. These imbalances are naturally generated by the process of capitalist development. One of the great economists of the twentieth century, Joseph Schumpeter, captures this dynamic process in his concept of "creative destruction."
The price of this creation of new products, new jobs, new technologies, and new industries is the destruction of the old products, jobs, technologies, and industries. And the closing or relocation of plants with their loss of jobs hurts families and communities - here and now. The new plants and jobs frequently are located elsewhere and use a new generation of workers. The gains are in new and lower cost products for people as consumers.
This process of creation and destruction always has been present in the U.S. economy - the textile industry moved from New England to the South, the growth of supermarkets wiped out mom-and-pop grocery stores, petroleum replaced coal, etc. In the last 20 years, the challenges have come ever more from abroad. The textile industry has moved on from the South to various places overseas, Japanese autos and steel have captured a large part of the market from U.S. firms, etc. The result has been better products at lower prices, new technologies, new jobs, and lost jobs and devastated communities, in addition to balance of trade deficits.
During the past 60 years, citizens have turned ever more to government as the social institution with the task of softening the destructive side of these economic forces. In the domestic economy, the result was the New Deal-Keynesian consensus that reigned from the end of World War II to the mid-1970s. However, control of the destructive side of the capitalist development process in an expanding world economy has become ever more difficult as U.S. dominance has declined.
The Changing International Economy
A closer look at the history of the world economy is essential to understand the winds of change that have been buffeting the world and the United States in recent years. At the end of World War II, U.S. dominance of the world economy was unchallenged. The dollar became the international currency, and the...