Managerial versus Statist Ideology

In Work and Authority in Industry the sociologist Reinhard Bendix traces the evolution of managerial ideology in England, the US, Russia and East Germany (the book was published in 1956). Bendix dissects the ideologies of managerial power in each nation. In the case of the nations that turned out to be economically successful, the United States and the UK, there was an evolution of ideology. Bendix traces the pattern whereby Calvinism gave way to an emphasis on virtue, as in the case of Benjamin Franklin's writings on success. In turn, the virtue ethic morphed into social Darwinism and social Darwinism into the New Thought ideas that positive thinking leads to success. In turn, the success-conscious ideology was replaced by scientific management. Bendix implies that the scientific management and human relations school ideas that were prevalent in the 1950s were themselves ideological rather than empirically based. That was not the case. Scientific management had an efficiency rationalization that 19th century managerial ideologies, based on justification to aristocrats in England and to the public, lacked. However, scientific management in fact increased productivity. To the extent that the human relations school tempered scientific management and reduced labor problems while maintaining constant or increasing levels of productivity, it too could be validated. However, the chief advances in the second half of the twentieth century in management, lean manufacturing, computer integrated manufacturing and total quality management, had even greater effects on productivity.

Political ideologies have not advanced in the same manner as managerial ideologies. THe ideology of the 19th century, laissez faire, was associated with rapid industrial advance. Its competitor, mercantilism, had been associated with economic progress in the 17th and 18th centuries, but paled in comparison to the progress that laissez faire generated in the 19th. This was true in Britain and the US. Marxism, various strands of socialism and in the late 19th century progressivism evolved as critiques of some of the social ramifications of laissez faire. These ideologies, though, once implemented, were unable to evolve, unlike the managerial ideologies. Marxism today does not posit an economic model much different from Marxism in the 19th century. Oskar Lange was unable to overcome the arguments of Ludwig von Mises, and in any case socialism in practice was unable to efficiently implement Lange's idea. Similarly, the ideas of Progressivism intensified into the New Deal, but have not evolved since the early twentieth century. Progressives today still rely on scale economies rather than innovative management practice as a source of value. But scale is no longer a critical source of economic value. Correspondence of output to customer needs, reduction of loss through stabilization of the production funciton and taut management of production processes (along with evolution of organization structure to flatten hierarchy and increase employee responsiveness) have not been viewed as possible within the public sector. Much as processes have failed to improve, so program conceptualization, strategy and flexibility in the public sector remain rooted in early twentieth century bureaucratic forms. The evolution of centralizing tendencies in public sector management goes back to the 17th century and reflects the ideas of Lord Shaftesbury and other mercantilists. The debate between Federalists and anti-Federalists, Whigs and Jacksonian Democrats and Progressives and advocates of laissez faire revolved around the question of the relative merits of centralization and decentralization, of price versus central plan, of economies of scale versus dynamism of innovation. However, unlike the ideology of decentralization and laissez faire, which considerably evolved in the twentieth century, the ideology of Progressivism and planning stagnated.

Contours of American History I

I'm almost done reading William Appleman Williams's 1961 Contours of American History. Williams is considered a New Left historian (how "new" he is I don't know, the book is 47 years old and he died in 1990). I disagree with his ideological orientation, especially his hatred of property rights and his intense dislike of the laissez- faire policies of the Jacksonian period through about 1900. For instance, he refers to the 19th century laissez-faire philosophy as "reactionary" even though he develops the argument that the mercantilist or corporatist philosophy that originated in feudal England is preferable. In other words, he calls a 100 years old philosophy reactionary, but he does not so call, and instead praises to the heavens, a 400 year old philosophy, not considering that it might be reactionary to re institute a 17th century mercantilist model in 1900. Moreover, he expressly notes that real wages and standards of living were going up in the late nineteenth century and that there was a large degree of innovation. Yet, he insists that laissez-faire was a failure because of business "depressions". This was the corporate argument made at the time by economists such as DA Wells, but Williams does not question it.

One question that I am left with is why the left has so obsessed on restoring mercantilism or even feudalism, and accuses anyone who disagrees with the anti-property and anti-individualist stance as "reactionary". This is an illogical, almost insane, position. First, emphasis on individualism and property rights led to innovation and increasing living standards. Second, it is reactionary to advocate an older philosophy, not a newer one, and mercantilism is older than laissez-faire. Third, Williams has no interest in applying his significant and imaginative intellect to attempting to ascertain why laissez-faire was attacked.

That said, this is one of the most brilliant books I have ever read. Williams said it all in this sense:

1. He outlined how elitist economic interests have advocated mercantilism from the pre-Revolutionary War period through the Federalist era and then renewed them in the Progressive and New Deal eras. He falls down in the Jacksonian period in that he ignores the mercantilist impulse in the Whig philsophies of Abraham Lincoln and the American System of Henry Clay.

2. His exegesis of the frontier hypothesis is wonderful. He points out that Americans traditionally saw expansion to the frontier as a source of economic bounty. This was the famous argument of Frederick Jackson Turner. Then, he pushes the argument further, and this is where I got really excited. He argues that the emphasis of late nineteenth century business executives on large scale industry and state support for large scale industry was a function of the expansionist argument. John R. Commons too argued that "expansion of markets" is crucial to explaining labor relations, but Williams puts the expansionist vision into brilliant historical context. Globalization (he does not use that term as he wrote in 1961) and the emphasis on large scale business is a function of the expansionist impulse, and he documents that well. Thus, Americans have been obsessed with creating big business because they believed that "expansion" creates wealth. The Japanese don't have quite the same obsessions.

3. He argues that the New Deal was the fulfillment of Progressivism. I find this much more believable than the claim that there was a gulf between Progressivism and the New Deal. This leads to the question: if Herbert Hoover was a Progressive, how did the New Deal differ from what Hoover proposed? The National Industrial Recovery Act was essentially the implementation of fascism in America, but the Supreme Court overturned it. Hoover still favored a degree of individualism and property rights, and Roosevelt went a bit further than Hoover wanted to in the social democratic direction. The outlines of most of what Roosevelt did were already discussed in the Progressive era. Roosevelt's most extreme syndicalism was overturned. Hoover did not support the NIRA, which didn't go into effect in any case.

4. Williams outlines the new order as syndicalist, and it is. Economic interests, namely labor and management, were reflected in the new feudal or corporatist order. I quote these two paragraphs

"It is of course essential to evaluate the combined significance of these decisions within the framework of the syndicalist approach that had been present in the Progressive Movement from the very beginning of the 20th century and which the New Deal consolidated...In that system, the citizen was almost wholly dependent upon the definition of public welfare that emerged inside the national government as a consensus among the leaders of the various functional-syndicalist elements of the political economy. The possibility that Hoover had projected in 1921-22 had emerged as reality: the United States was 'a syndicalist nation on a gigantic scale'.

"Yet the citizens' political activity was carried on within a framework that was organized on an entirely different basis: i.e., geographic boundaries which had only the most causal and accidental relationship to the syndicalist structure of the political economy. That discrepancy left the citizen without any effective, institutionalized leverage on the crucial and centralized decisions affecting every phase of his life."*

What Appleman has done is conjoin the special interest theory of regulation with the historical narrative. Syndicalism recreated the mercantilist system of the Federalist period and earlier (and a little later) but it also created a free-for-all whereby those with the best representation would be able to extract the most wealth from the political system. Mancur Olson did not write until a bit later. His point was that special interests gain economic rents through structural advantages.

Although Appleman spiritually supports mercantilism, he does so despite a factual base that points in the opposite direction. The mercantilist model is not appropriate to the modern world because it is not responsive; it does not respond to change; it leads to bureaucracy; and it is not democratic. Most of all, it leads to oppression of less represented groups by better represented groups.

*William Appleman William, The Contours of American History. Chicago: Quadrangle Books, 1966, p. 448.

Late 19th Century Closing of America's (Economic) Frontier

In the 19th century there were two strands in American political ideology: the statist-developmental and the laissez-faire-agrarian. In the Federalist period from 1788-1800 the conflict between Hamilton and Jefferson concerned in part the extent of government intervention, taxation, central banking and centralized planning in which the federal government should be engaged. The Federalists favored a high degree, Jefferson's Democratic Republicans a lesser degree. Due to the nature of American economic development, the influence of the French physiocrats who emphasized the importance of agriculture to wealth, and Jefferson's personal background in Virginia, he coupled his belief in reduced centralized power with a belief in the importance of agriculture. The Jeffersonian perspective defeated the Federalist one in 1800, and for two decades there was a single party. Differences reappeared over centralization by the 1820s. Henry Clay's Whigs, an offshoot of the Democratic Republicans, adopted some of the impulses of the Federalists coupled with Jeffersonian distrust of big cities. Clay's American System emphasized government investment in public works and canals, economic development, central banking, and high tariffs to support business, and in these ways shared some of Madison's Federalist impulses. Thus, the American System and the Whigs were more Madisonian than Jeffersonian. Madison had initially been a Federalist, and then rejected Hamilton's more aggressively statist ideas. The Whigs' basic orientation was derived from the country philosophy but may be said to be suburban as opposed to country. Clay and the Whigs believed in balance in government and opposed the spoils system. They favored a middle course between city and country and perhaps today's love of suburban life hearkens back to the Whigs. In contrast, Jackson is most famously associated with the spoils system and central banking. The opposition to central banking is a country position but the spoils system is a court position.

Neither the Whigs nor the Jacksonian democrats were fully associated with the court and country philosophies that characterized England under George III. Historians emphasize this distinction, but by the 1830s both sides had elements of the country philosophy and both sides had elements of the court philosophy. Jacksonians believed in the spoils system, which was characteristic of the elitist court philosophy but tended to favor agrarianism, states' rights, slavery, racism, dispossession of the Cherokees and other Native Americans, and the rights of plantation farmers, the closest American class to the English landed gentry who were associated with the English country philosophy.

In contrast, the Whigs favored central banking, the corporate form of economic development, government investment in the economy and linkages between government and business, which were court philosophies. On the biggest fight between the Jacksonian Democrats and the Whigs, the Whigs took the pro-bank court position and the Jacksonians took the anti-bank country position. Clay and his followers, including John Pendleton Kennedy, Daniel Webster, and evangelical leaders like Charles G. Finney began calling their party the "Whigs" in part because they saw Jackson as an excessively strong executive. With respect to his own power, Jackson adopted a court perspective.

The Whigs combined the religious views of evangelicals who were often Abolitionists with an opposition to slavery, opposition to "manifest destiny" and expansion through war, especially the Mexican War, and rights of Native Americans, which were all anti-elitist views. Also, they were less aggressively in favor of the spoils system than were Jackson's Democrats. But they favored economic development through statist, centralized means.

Jackson, a Democrat who was in many ways Jefferson's heir, believed in the country philosophy too, but the Democratic egalitarianism was reserved for white males. As president, Jackson ignored John Marshall's Supreme Court (Marshall was a Whig, not a Democrat) and allowed Georgia to force the Cherokees to leave their settlements that had previously been established by legal treaty to march in the famous "trail of tears". The nineteenth century attacks on the Indians and racism were in large measure partisan attitudes. The Whigs opposed them, the Jacksonian Democrats favored them.

Abraham Lincoln was a Whig who implemented many of Henry Clay's ideas. This was overshadowed by the Civil War and abolition. Although the nineteenth century is remembered as a laissez-faire period, it is important to keep in mind that key improvements such as the Erie Canal and high tariffs throughout the century protected American business. Thus, big business flourished not just because of laissez-faire but because of laissez-faire and government support. It is not clear that firms would have become so large without the government support.

In the post-Civil War period the Republicans, the successors of the Whigs, adopted a more laissez-faire economic philosophy than the ante-bellum Whigs held. The reason for this may be that business had grown to the point where public works, tariffs and other subsidies became less important than they had previously been because business, to include the railroads, oil and manufacturing, had begun to grow to a point where it was internationally competitive.

The ideological assertion of laissez-faire in the late nineteenth century via the ideas of Charles Graham Sumner, EL Godkin and other "Mugwumps" was short lived. One of the characteristics of the Whigs was their strong emphasis on morality, and these late 19th century Whigs (cum Republicans) shared the belief that the economy ought to be moral and ought to inculcate morality. Thus, the apparent conflict between the corruption associated with the growth of big business, urban government-business connections and the laissez-faire ideas of the late nineteenth century Republicans created considerable cognitive dissonance. Again, it was not the laissez-faire so much as the government support coupled with laissez-faire that caused the corruption in cities. You cannot have bribery unless politicians are bribed.

This led to an odd step. Seeing the corruption in government associated with big business, Americans began to argue that the corruption could be solved by more government. This is an "infinite regress" argument that is a logical fallacy. But almost all of social democratic ideology (under the misappropriated rubrics "liberalism" and "progressivism") is based on this infinite regress. If government in the cities was corrupt and so failed to manage its relationships ethically, then the solution is to add additional layers of government. By the 1880s Charles Sumner in his book "What the Social Classes Owe to Each Other" was debating this logical fallacy, but it somehow was ignored by the advocates of social democracy. Hence, over the next 100 years, increasingly corrupt and ineffective government expanded for illogical reasons. The end products of social democracy, Enron, Worldcom, Bear Stearns and Fannie Mae are examples of corruption and incompetence on a scale that nineteenth century moralists could not have imagined.

Frederick Jackson Turner's thesis that the frontier had closed intensified a sense of scarcity as the rugged individualism of the late nineteenth century seemed to have lost its primary outlet. Moreover, in the late nineteenth century Americans increasingly looked to Germany for higher education because of the absence of research universities here. In the late nineteenth century more than 10,000 Americans obtained degrees in Germany at a time when fewer than five percent of the population had attended college. This coincided with the institution of Bismarck's social democracy, and it is natural that many of those educated in Germany would have imported social democratic impulses when they returned to the United States. This resulted in battles between the Mugwumps and advocates of the anti-laissez-faire historical school that Richard T. Ely and John R. Commons advocated in America in the late nineteenth and early twentieth century. Although institutionalist economics never became dominant in economics here, it had a strong effect on practical policy. Commons drafted the first workers' compensation laws, for example.

The laissez-faire philosophy of the late nineteenth century anticipated developments that were to occur in the twentieth century, but its advocates could not anticipate the developments theoretically and so lost the policy debate. First, the growth of corporations in large scale "trusts" and the employment of thousands of workers in a single firm or even in a single plant seemed to augur the end of individual entrepreneurship. Second, the belief of Abraham Lincoln and the Whigs that work as an employee was a temporary stop-off to self-employment was difficult to believe given the increasing scale of industry. Third, the spoils system in the cities between the 1830s and the early twentieth century had become associated with corruption and with support for the same large firms, so that the moralistic Whig impulses were violated by the growth of somewhat corrupt big businessmen like Jay Gould. Fourth, the opponents of laissez-faire emphasized the role of freedom in the growth of big business, ignoring the tariffs, land subsidies to railroads, public improvements and various other supports that government had provided to big business in order to facilitate its growth. Fifth, the advocates of dissolution of the trusts and then Progressivism ignored the fundamentally fluid nature of the economy which meant that the trusts were not permanent and were not necessarily economically viable unless grounded in efficiency. Over time, it turned out that some trusts, like Standard Oil, were efficient, but that others were not. Sixth, and most importantly, developments in the economy beginning in the 1930s began to render scale of considerably less significance in economic development. These developments included changes in the nature and rate of innovation, changes in manufacturing technology and changes in the importance of information flow to production processes. America (and the developed world) began to move from a mass scale economy where low costs were paramount to one where innovation was the most important variable. The supports to business that encouraged investment of capital in a single, large-scale firm with long production lines and large plant investments that would take a long time to recapture were no longer what was needed for economic development.

However, government policy did not change. The Progressives, failing to anticipate the coming emphasis on lean manufacturing, the transmission of information, flexibility, and the need to replace firms with new ones that were better attuned to change, emphasized policies that facilitated investment in large plants. These included regulatory regimes that deterred entrepreneurial start ups, central banking, diversion of capital to large firms and support for large firms' exports that favored large firms over small ones at the very time that fluidity and innovation were becoming more important in the economy than scale.

Sadly, the late nineteenth advocates of laissez-faire did not anticipate the importance of fluidity of the economy until the Austrian economists, Ludwig von Mises and Friderich A. Hayek discussed the impossibility of centralized economic planning. Thus, the Progressives, believing themselves to be pragmatists and to be coping with change and solving problems related to change instead developed regulatory and central banking that were forestalling economic development and change. The American frontier closed not physically but fiscally because of human inability to know the future direction of economic and technological innovation. The cognitive limits on information have been so severe, that eight decades past the point where these changes began to manifest, social democrats like Barack Obama and the New York Times continue to ritualistically harp on the importance of modernist regulation that is eight decades out of date.

Repeal the Federal Income Tax

April 15 is nearly upon us. Those who pay taxes might consider the low quality of government services and the high amount of federal tax that they pay. On balance, the income tax destroys savings and personal independence, while the uses to which Congress has put the money are of scant value. The income tax should be repealed. I have written the follwing letter to my Congressman, Maurice Hinchey:

April 14, 2008

Dear Congressman Hinchey:

I urge Congress to repeal the federal income tax. Congress has not proven itself intellectually or morally fit to take possession of so large a share of the American purse. I urge you to return the money to the American people, except for a small amount that Congress might devote to its own education by taking basic economics and ethics courses.

Sincerely,


Mitchell Langbert, Ph.D.