Conformity, Rigidity and Decline

Max von Weber developed the thesis that America's Protestant roots led to a focus on capitalism because several Protestant sects view success in the world as evidence of divine grace. Reinhard Bendix developed Weber's spirit of capitalism thesis further in his Work and Authority in Industry in which he saw a historical pattern in the American interpretation of divine election's being carried forward in an ideological justification of managerial power despite the nation's democratic value system. Managers and big businessmen are entitled to social approval and legitimacy because of an evolving ideological justification. Bendix argued that the religious justification became a moral one, then shifted into social Darwinism and a biological justification. The ideological justification of managerial power then focused on psychological variables such as positive thinking. Frederick W. Taylor's scientific management was but one additional step on the road of ideological justification of business power. Taylor's scientific management, which holds that an industrial engineer is necessary to design work and control workers in turn evolved into the human relations school which argued that managers could understand workers' emotions and so constitute an elite, continuing the religious interpretation of divine election as applicable to management.

However, as Bendix emphasizes in his comparative study, managerial authority is justified in alternative ways around the world. The existence of managerial power is in part the result of economic and business necessity, for business cannot be managed democratically. Organizations can be managed democratically if there is little need for coordination. As coordination needs incrase, the possibility of democratic governance diminishes. Thus, capitalism, which depends on free market coordination and so does not require direction is most consistent with democracy, while socialism, in which government officers must direct the economy as well as the civil and military state functions tht exist under capitalism, tends toward dictatorship and suppression of diversity. Universities require little coordination because the work of scholarship is individual or collaborative on a small-group basis, hence universities can be run relatively democratically, but collaboration and coordination on a large scale is required of large manufacturing firms, so they must be run on an authoritarian basis. Thus, one of the most important writers on the subject of unity of command was not an American Protestant but a French Catholic, Henri Fayol. Fayol, a mining executive, emphasized authority, discipline, unity of command and unity of direction in his book General and Industrial Management, published in 1917. But Fayol's principles of management focus on large-scale industrial enterprise, and so may be less important to small firms, firms where coordination is not necessary (such as in universities, think tanks, firms with heavy emphasis on individual salesmanship or consulting firms). Thus, as Thompson has pointed out, technology is likely to influence the method of control. Thompson argued that there are three basic kinds of technologies, pooled, sequential and reciprocal. In sequential technologies tasks are performed in a required order and planning is critical. An example would be an assembly line. In pooled task interdependence the workers work separately but are guided by a central office. Coordination demands are minimal. Examples would be many service industries, sales offices where the salesmen work separately and universities. In reciprocal interdependence work may be broken into units that must interact flexibly. Thompson argued that sequential processes require the most control and should be grouped by process. In contrast, work requiring pooled processes need to be coordinated at a high level and coordination may not be possible. Reciprocal technologies such as involving teamwork need to be coordinated at a low level. If there are multiple reciprocal technologies then complexity necessitates decentralization.

Thus, the nature of authority relations may be imbued with a religious sense but may also shift with changing technology. The demands of government and the economy may shift in response to changing technology. As innovation changes the pace and rate of interaction, the nature of authority relations, public intervention in the market place, political control and the flexibility of government agencies might need to change along with it. Regulatory systems that mandate standard practices may be inappropriate in an economy where the flexibility of pooled or small group reciprocal relations requires rapid change. Yet because of the religious quality of authority structures, political factions may insist on ritualized patterns that seem important to them.

Americans in part believe in a natural aristocracy, one that is created by markets. But the religious aspect of Americans' value system may permit the emphasis on markets to be replaced by tradition. Because a businessman was successful in the past, there is a tendency to believe that he is entitled to success in the present and future as well, even if his decisions fail to correspond to reality. Thus, public conformity tends to support regulatory and financial systems even when the technology to which they respond have changed, have moved from sequential to pooled and reciprocal. The United States is no longer a manufacturing country, but its financial and regulatory regimes assume the importance of large firms, rigid production requirements and the need for government-supplied financing.

In Louis Hartz's Liberal Tradition in America Hartz argues that because America lacks a feudal tradition, it has never been drawn to socialism. Rather, he argues that Progressivism and New Deal social democracy are variants of Lockian liberalism. American society was based on Locke and was free prior to the American revolution, so Americans did not overthrow a feudal past. Rather, the American revolution reinforced values that were already present (p. 10):

"Here is a Lockean doctrine which in the West as a whole is the symbol of rationalism, yet in America the devotion to it has been so irrational that it has not even been recognized for what it is: liberalism. There has never been a liberal movement or a real liberal party in America: we have only had the American Way of Life, a nationalist articulation of Locke which usually does not know that Locke himself is involved...Ironically, 'liberalism' is a stranger in the land of its greatest realization and fulfillment. But this is not all. Here is a doctrine which everywhere in the West has been a glorious symbol of individual liberty, yet in America its compulsive power has been so great that it has posed a threat to liberty itself. Actually, Locke has a hidden conformitarian germ to begin with, since natural law tells equal people equal things, but when this germ is fed by the explosive power of modern nationalism, it mushrooms into something pretty remarkable. One can reasonably wonder about the liberty one finds in Burke.

"I believe that this is the basic ethical problem of a liberal society: not the danger of the majority which has been its conscious fear, but the danger of unanimity, which has slumbered unconsciously behind it: the 'tyranny of opinion' that Tocqueville saw unfolding as even the pathetic social distinctions of the Federalist era collapsed before his eyes...The decisive domestic issue of our time may well be the counter resources a liberal society can muster against this deep and unwritten tyrannical compulsion it contains. Given the individualist nature of the Lockean doctrine, there is always a logical impulse within it to transcend the very conformitarian spirit it breeds in a Lockean society..."Amricanism" oddly disadvantages the Progressive despite the fact that he shares it to the full, there is a strategic impulse within him to transcend it...In some sense the tragedy of these movements has lain in the imperfect knowledge that they have had of the enemy they face, above all in their failure to see their own unwitting contribution to his strength."

American conformitarianism has accepted a regulatory reform and institution of elites that is impractical because technology and the pace of market change has rendered them obsolete. As Americans sense a deterioration, not only in the average hourly real wage but also in the volatility of the housing and stock markets, they sense that there is something amiss; that systems have not responded to their expectations. But the systems have become institutionalized to a degree that has never existed in America before. Previously, because Americans lived in a laissez faire world, only the courts, the local governments and a few federal systems such as the post office were institutionalized rigidly. Now, much of American life, not only in the public sector in areas like Social Security have become rigidly institutionalized and unable to change, but also in the private sector. Firms are no longer permitted to fail.

Inflation Explodes, Trouble Ahead for Stock Market

According to the New York Times, "The Consumer Price Index, which measures prices of a batch of common household products, rose 1.1 percent in June, the Labor Department said. That increases caps a year where inflation has surged to proportions seen by some as threatening the stability of the American economy. In the last 12 months, the price index has risen 5 percent, the biggest annual jump since May 1991."

If you multiply the 1.1% rate in June, it comes out to 13.2%, a rate big enough to remind me of the post-Vietnam years of the late 1970s. This augurs ill for the stock market because the inflationary monetary expansion in which the Republicans have engaged since '82 is coming home to roost. These cycles take 25 years and perhaps more, to complete, hence generalizations about good or bad economic results over a 1-24 year period are impossible to make.

If the Fed takes action to slow inflation by reducing interest rates it will take several years, there will be unemployment, New York City is going to hell in hand basket (if you recall the near-bankruptcy in the mid 1970s during a similar correction you know what I'm talking about), and the stock market is in for a rough ride that makes this year's look like a ride on Mary Poppins's umbrella.

The country's planning elite, the Wall Street crew and the captains of industry, Jim Cramer, Alan Greenspan and the Fed have brought the coming recession to you courtesy of their inability to run the monetary system.

Gold is down today probably related to the correction in the oil market and to the realization that the Fed is going to correct. Hence the dollar is stronger. Our economy has had so much loose cash that has been created by the Fed and diverted into immoral and incompetent hands that there are all kinds of crazy things going on, and the public will pay while the hedge fund managers who have extracted billions from the 25 years of inflation will sit back on their verandas and enjoy the show.

Social Mythology and Public Dismay

In his 1972 article "Myth of the New Deal"* "New Left" historian Ronald Radosh writes:

"The New Deal reforms were not mere 'incremental gestures'. They were solidly based, carefully worked out pieces of legislation. They were of such a character that they would be able to create a long-lasting mythology about the existence of a pluralistic American democracy, in which big labor supposedly exerts its countering influence to the domination that would be otherwise undertaken by big industry.

"One cannot explain the success of the New Deal by pointing to its rhetoric. The populace responded to FDR's radical rhetoric only because it mirrored their own deeply held illusions. They could not comprehend how the reforms that changed their lives only worked to bolster the existing political economy, and they did not realize that many sponsors of the reforms came from the corporation community themselves. The integration of seemingly disparate elements into the system was successful. Labor did not get its share and it did benefit from the development of a permanent war economy and the military-industrial complex. Many of those who lived through and benefited from the New Deal most likely view its accomplishments in much the same way as Schlesinger or Carl Degler. One can never be sure whether they reflect the explanations offered by the 'vital center' historians or whether these historians merely reflect the false consciousness of their own epoch."

Radosh wrote this in the early 1970s, just as Richard Nixon changed the monetary regime by abolishing the international gold standard and just as employers were about to shift their supportive stance toward labor unions, which Radosh documents in his article, to a more anti-labor stance. I have previously blogged that there was a major shift in the pattern of stock returns as related to real wages around 1971. Between 1932 and 1971, net of cumulative inflation, stock returns were about 5.9% compounded, and between 1971 and 2008 they were also around 5.9% compounded. However, from 1932 to 1971 real wages increased 2.6% compounded, while from 1971 to 2008 real wages declined -1.1% compounded. The 1971-2008 period was characterized by high inflation (the highest 40-year period of inflation in America's history) but real stock returns were held constant at 5.9% net of inflation. As well, the post-1971 period was characterized by manufacturing's exiting the country, a decline in the quality of education, and declining unionization. The one variable that the Progressive and New Deal policies have ultimately held constant is corporate stock returns net of inflation. Real wages, unemployment, inflation rates and public welfare gyrate, but in the end real stock returns find their way back to the baseline real 5.9% level.

At the time Ronald Radosh wrote his article in New History of Leviathan it could still be argued that the statist Progressive and New Deal ideologies integrated social justice concerns. This is no longer the case. Rather, it is apparent from my earlier blog that Radosh's argument is actually understated. The New Deal labor union edifice was easily overturned because of declining manufacturing presence, globalization, declining scale in post-modern American industry and employer resistance to unions. Hence, unions' ability to represent workers has diminished just as inflation escalated. Unions lack the resources to organize small shops, and it is more profitable for them to concentrate on government workers who enjoy monopolistic privileges and can impose costs on taxpayers. The one variable that has been fairly steady since Franklin D. Roosevelt's election in 1932 has been returns on the Dow Jones Industrial Average, net of inflation. Since 1971 workers' real wages have declined, but returns on the Dow have remained strong even in spite the past eight years' stagnation, a period characterized by relentlessly increasing inflation as the mismanagement and incompetence characterized by the Progressive and New Deal regimes has become evident in corporate scandals, inept real estate investment and taxpayer-financed subsidies to millionaire investment bankers through the Fed's low interest rate regime and through direct subsidies to incompetently run firms like Bear Stearns.


*Ronald Radosh, "Myth of the New Deal" in Ronald Radosh and Murray N. Rothbard, editors, A New History of Leviathan: Essays on the Rise of the American Corporate State, New York: EP Dutton, 1972, p. 186

Government Is the Problem: Phil Orenstein on Immigration Reform

Over at Democracy Project Phil Orenstein chronicles the inability of a highly skilled mechanical engineer in his high-tech manufacturing firm to obtain a visa to stay in the US. Instead, Gianluca Mattaroccia, the Italian techie, is returning to Italy with a six figure salary offer. Phil notes that while legitimate immigrants with unique skills that are in demand globally cannot obtain a visa, those willing to come to the USA illegally but who lack skills and wish to mooch off welfare are welcomed with open arms. Phil's article points out that combined with America's bad educational system, dominated by progressive educationists who fail to provide the basics, our immigration laws do not work because they are ineptly administered:

"While American schools have succumbed to progressive pedagogies that focus more on social justice education and feel good outcomes than on competency, there is certifiable proof that Chinese schools have left us far behind, according to Andrew Wolf in the New York Sun. As we keep dumbing down proficiency tests year after year to make the results appear better and Mayor Bloomberg and Chancellor Klein look like heroes, our children and businesses suffer. Thus our own students graduate with less proficiency compared to foreign students who possess more competence with 21st century skills. The answer isn’t to kick out the smarter, more proficient foreign workers and students, so we can go on fooling ourselves that our schools aren’t failing.."

Phil suggests an argument against immigration restrictions, not because of the pros or cons of limiting low-wage immigration in order to protect low-wage American workers, but because the US government lacks the competence to administer an immigration program intelligently. I think that there is much merit in this idea. What scares me is that these bozos want to control what goes on on the operating table, your refrigerator, and your living room.

Isn't it time to roll back government bureaucracy?