Progressivism and Globalization

In passing the Federal Trade Commission and Clayton Acts, which supplemented the Sherman Anti-Trust Act and the Interstate Commerce Commission, Congress established a system of federal regulation of business. The rationale for federal regulation as opposed to laissez faire competition was self contradictory. The chief argument was one that primarily served capitalists' interests: over-production and the need for liquidity in credit markets (which was accomplished via the Federal Reserve Bank and ultimately the abolition of the gold standard in 1933). However, the chief concern in the public mind was unreasonable restraints of trade, "bad trusts", who harmed the public via monopoly restrictions on prices. Note the contradiction: big business constitutes monopoly power which restrains production to raise prices; but the chief problem according to Progressive advocates of regulation of business was overproduction and too-low prices.

The Progressives also argued that a central government power was necessary to eliminate harmful competition or irrational decision making among some big businesses. But the Progressive argument begged the question. If managers of big businesses might be irrational, why might not officials of the Federal Trade Commission or Interstate Commerce Commision also be irrational, greedy, power hungry or unreasonable? Was Theodore Roosevelt necessarily more rational or moral than John D. Rockefeller? What would have made him so, a halo? Would he have made a better manager of oil companies than John D. Rockefeller was? What evidence was there that government bureaucrats or experts were more rational or effect at managing large concerns, or could contribute meaningfully to the management of the firms?

In today's world, a century after the Progressive era, firms are no longer national in extent, purpose and often allegiance. They are global. Competition is global. There is no agency to supervise the global firms. Toyota, Mercedes and GM all compete without the benefit of government guidance. Yet there is no monopoly power and there is no overproduction. These were imaginary problems claimed by primitive ideologues with little knowledge of how economies work.

The model of management that the Progressives advocated that experts in government agencies can provide management help to large firms is woefully out of date. The chief knowledge of importance to business is, as Hayek pointed out, on the spot. It is specific knowledge concerning production and quality improvement processes. It is not abstract or theoretical and it is not found in business schools or economics departments.

Taiichi Ohno's model of lean manufacturing and continuous production, like Hayek's concept of on-the-spot-information, suggests that the modernist view of expertise as generalizable knowledge is inappropriate to the post-modern world. Knowledge evolves from production processes, which dictate process improvements through specific constraints and requirements that differ from firm-to-firm. The idea that an expert with a Ph.D. can tell firms what processes to use or how to improve quality is as antiquated as the idea that government inspectors are necessary to ensure good quality meat.

The phenomena of big business was striking to the popular mind of the late nineteenth century. The spectacular rise of large firms such as Standard Oil, which were protected by high tariffs and likely would not have grown to the extent that they did without the tariffs impressed people who grew up toward the end of the era of the horse and buggy . The rise of large firms, and the tariffs and other government support for their rise, led to public concerns about monopoly, excessive power and unreasonable competition. But the public fear of large corporations did not reflect an understanding of their vulnerability to creative destruction. The owners themselves were afraid at the time and repeatedly complained about lack of profit, overcompetition and destructive competition. But this was very much in the public interest. Nothing should make the public happier than a capitalist who makes no money because prices are drive down by competition. But the public was unable to disect the pro-capitalist gist of the Progressive argument.

The left of the late nineteenth century, like the left today, is a pro-centralization movement, and therefore it is closely aligned with, despite its hatred of, big business Republicanism. The Progressives favored large scale firms managed by government bureaucracy because they believed that the highest development of industry had occurred in the early twentieth century. The spectacular growth of the large firms seemed to them the pinnacle of human economic achievement. They could not, as we cannot, envision future management and technological developments. To them, the oil mining technology of Standard Oil and the Ford assembly line were humanity's ultimate triumphs. These advances were important, but are primitive by today's standards.

In order to achieve these breakthroughs, capitalist free market competition was essential to innovation. Without "overproduction" cost saving technology would not have been the subject of creative thought. Without economic stress capitalists would not have supported the invention of new products that created competitive advantage (in 1980s lingo). But the Progressives could not see that the advance of capitalism was a dynamic process and the technology of the 20th century by the standards of the 24th century (assuming that progressivism does not prevail) will seem even more backward and primitive than the technology of the 16th century seems to us today.

Ray Kurzweil has argued that technology advances at ever quicker rates. Kurzweil's argument depends in part on Moore's law, which does not seem to be materializing now and assumes a rate of advance that is quicker than past and recent rates by orders of magnitude. One need not buy into Kurzweil's singularity argument to believe that future advance will be quicker than past advance. Technological advance depends on interaction and creativity. Informationi technology has increased the rate of interaction, so the rate of advance has been increasing. But much of the advance has been in information technology. Therefore, we can expect escalating rates of advance. This has occurred despite attacks on the flow of information. Much of the twentieth century world was darkened by dictatorship: communism covered China and Russia and a corrupt socialism dominated India. National socialism dominated the world's political systems, and progressive regulatory systems, income taxation and inflationary Federal Reserve policies that allocate credit away from innovative firms toward financial firms hammered at progress in the United States. Despite the Progressive assault on human progress, except for the period of high tariffs, depression and war from the late 1920s through the 1950s, the twentieth century still saw progress, although not at the rate that could have been, and perhaps slower than the late 19th century rate, which saw less circulation of information for less intervention.

The economy has become more global and competition is no longer "managed" (like a child who believes he is a policeman, so Theodore Roosevelt believed he could manage the economy) yet overproduction is not a problem, nor is unfair competition.