Market champions and the Canada trap (part 2)

Modern history has produced one non-lethal alternative to economic development’s reliance on capitalist markets — democratic socialism. By using public investment as an alternative to profit-seeking capital, socialists would deliver individual and community betterment more equitably.

Even after rebranding themselves as social democrats and befriending small business and Tory protectionism, however, they couldn’t match capitalist economies at making money or alleviating poverty. Socialist development produced fewer plutocrats. 

But the poor remained poor.

Left and right intellectuals offer different reasons for why they failed: cronyism, unpatriotic elites, US imperialism, bad harvests, vodka, the persistence of inefficient religious and ethnic prejudices, and the challenge of restraining public unions in societies that rely every day on numerous public monopoly services.

(Canadian progressives especially swooned over "public entrepreneurs" like Maurice Strong who promised professional politicians like Bob Rae and Pierre Trudeau that he could turn them into respected commercial investors as well as shrewd politicians.)

In any event, democratic socialist economics isn't offered to Canadians anymore as a nation-wide alternative by any major political party.

No reliable consensus exists, however, on how to best secure market capitalism’s promise.

We believe rhetorically that healthy economies — as well as political elites — need persistent competition. Markets that can’t be managed by yesterday’s winners are needed to drive progress. However, life here is too easy to submit wholly to market capitalism’s harsh logic.

The Canadian intelligentsia presumed Canada had two choices: continental Keynesianism or Canadian Keynesianism. In the trial-and-error of politics, the consistent winner is the latter. It wins elections not by its wins in economics but by the horror it makes of the American alternative. The USA, we are warned, is an awkward date internationally and a dying economic force as well.

A true economic union with the US may have been Stephen Harper’s first and true passion.  But Barack Obama is not interested in trying anything complicated that would merely excite Canadians. And, as important, Canada’s business leader, most high-profile economists, and consumer advocates haven’t given Harper any indication that they care that much.

Still, the status quo is fraying: after 25 years, Mulroney’s proud free trade agreement with the US still hasn’t closed Canada’s 20% productivity gap; only the resource exporting regions are holding up the Canadian dollar, competing successfully for private investment, and holding up the federal government’s generous transfer-payment system.

Often, the first step away from danger is to remember what’s past is past.

The great elixir for Canadian capitalism isn’t going to be an unfettered Canadian free market. The rest of Canada doesn’t exist even today as the primary market for Canadian traders.

In its most comprehensive, most recent summary of provincial input-output data and international and interprovincial trade flows, Statistics Canada spilled the beans.

In total, in 2010, Canadians earned $123 billion more from selling to foreigners than by selling to Canadian neighbors. And the US customer alone generated more income than all interprovincial trade. The largest, most urbanized, and most advanced provinces — British Columbia, Alberta, Saskatchewan, Ontario and Quebec — rely most heavily on the American consumer.

Nationalists can say the data is static. But nothing in the data is very new or offers any hint that the future will be more Canadian and less continental.

Of course, nationalist market champions are right to complain about interprovincial trade barriers. However, almost all the remaining barriers are in public procurement or caused by provincial monopolies in energy, food, and alcohol.

I’m for zero preferences in government procurement and full customer choice in energy services — and in wines, spirits, and dairy products. However, that’s because I want to pay less.

Conservatives would be more interesting and more credible by tackling big government for its rip-offs, phony business exploits, and infringements on our freedoms than by trying to make it smaller on behalf of an imaginary pan-Canadian market.

One transcontinental market for Okanagan and Niagara wines will benefit a few charming businesses but won’t secure decent middle-class incomes for the next generation living in Toronto and Vancouver. Building a fast rail line from Windsor to Quebec City will impress railway builders but won’t make Quebec an alternative to Michigan or Ohio for Windsor or London workers.

A perfect Canadian free market would attract intense academic interest.

But it wouldn’t earn us the money, security, and personal satisfaction that we would realize by being wholly awake and committed participants in the imperfect North American mixed economy we’re in this very moment.    

Crony Capitalism—as if

There’s probably an angry slogan lurking out there that will capture the rage against the economic order of the last three decades. It will have to be very good—and new. Globalization, free trade, deregulation, and the resurgence of traditional laissez faire values have fundamentally changed both the have and have-not worlds. Furthermore, the changes can be reversed.

“Crony capitalism,” however, doesn’t work. Indeed, it’s wildly off the mark.

It’s not surprising that this accusation has popped up on cardboard signs at OWS parks, especially near major financial centers. It’s been used to damn bailouts and egregious corporate bonuses. Also, the term goes nicely with an excellent slogan used in 1972 by one of Canada’s last socialists David Lewis—“corporate welfare bums.”

As an ideological concept, “crony capitalism” expresses the dark side of economic nationalism, the military-industrial complex, and the industrial strategizing that, we were told, would push Japan Inc, Germany Inc, and, now, China Inc. to the forefront. The dark side includes those hidden taxes we pay to support powerful entrenched relationships—higher prices and fewer opportunities for innovators and outsiders generally.

The reaction that changed the world wasn’t Cleaner Cronyism, but Neo-liberalisms.

Starting with Jimmy Carter, not Ronald Reagan, in the late 1970s, US and soon Western European policy consciously favored breaking down barriers for traders, investors, and individuals as the best way to create and share the wealth—and diminish the influence of crony relations.

Neo-liberalism was successful enough to more than double world trade and free half a trillion from severe poverty. It has made it easier for Americans to buy high-quality inexpensive goods and travel around the world. It has made it easier for American businesses, universities, and laboratories to attract talent globally and to drive down the costs of doing business. It has made it easier for young people without connections to break into and make money in American business. It has pushed us closer to a meritocracy that lavishes the winners and leaves the middle class on a treadmill.

Neo-liberalism has been around long enough to experience its first great crash.

Nevertheless, the scramble to stabilize the world economy in the winter of 2008 represented not the logic of the new order but a surrender to the past—a past of state-business crisis management on the right and state-business economic planning on the left.

Bailing out Wall Street and two auto companies should be seen as emergency measures to halt a recession—and keep alive the financial mechanisms that have facilitated globalization and intensification of capitalist development.

These measures were not designed to undo the gales of competition. There was nothing more “crony” about what happened than what happens when a fire crew puts out fire before finding out who is to blame.

Of course, a measure of good cronyism within a competitive mixed economy—of business and government people collaborating with one another to accomplish together what they can’t accomplish alone—should be welcome.

However, we’re a long way from the days of the gentlemen barons from Boston or New York telling Washington officials what to do. Cronyism doesn’t need 17,000 registered lobbyists in Washington.

Indeed, the term “panic capitalism” would best describe the erratic and shortsighted involvement of billionaires and CEOs in the recent legislative and political dramas in Washington and in their biggest booster, the Republican Party.