WITH the collapse of the Soviet Union, it has become commonplace to say that capitalism has triumphed over communism. I think this is misleading and inaccurate notion. What has triumphed is the market-driven welfare state, the mixture of private enterprise and government paternalism that has become standard in western democracies. This is as different from the capitalism of Karl Marx’s time as communism. By 19th century standards, all western democracies are socialist, and that includes Mr Reagan’s US and Mrs Thatcher’s Britain.
This is not meant as a funny remark. The truth is that countries commonly regarded as highly capitalist today, have many characteristics which people would have called socialist a century ago. This may not be evident to breast-beating comrades in India who think the US is going to impose laissezfaire — a complete replacement of government activity by private enterprise — on the whole world. So listen to a few facts that appeared recently in The Economist of London.
Government employment in the US has been rising steadily through the supposedly right-wing years of Mr Reagan and Mr Bush, and has now actually overtaken employment in manufacturing For the bureaucracy to overtake the blue-collar workforce is a socialist feat that I suspect not even Mr Brezhnev could boast of. The number of officers in the US army grew by 7 per cent, while the number of soldiers shrank between 1980 and 1991. In 1965-85, the number of non-teaching staff in US school administrations rose 102 per cent, while the number of students shrank by 8 per cent.
A burgeoning administration is not a good measure of a welfare state, but government spending on the sick, aged and poor certainly is, and this too has risen fast. Nor is this trend limited to the US. This year, government spending by the G-7 (the seven richest developed countries) will touch a record 41 per cent, well above the 38 per cent ‘in 1980 when Reganism and Thatcherism came in. Everywhere, income tax is progressive. The total budget deficits of the G-7 will approach $ 500 billion. To put this in perspective, Mr Roosevelt during the New Deal had budget deficits of just a few million dollars
Every supposedly capitalist country provides generously (much more generously than supposedly socialist India) for its poor, sick and aged. Governments in all these countries provide public education, public health, and safety nets to protect the unemployed and handicapped. They have thousands of laws and controls to ensure that health hazards are minimised, consumers are protected against the rapacity of crooked businessmen, and minimum quality standards are observed in goods and services. I remember one article saying that there are no less than 80 controls (mostly related to health and quality) in the production of a hamburger in the US.
SYNERGY: This is anything but laissezfair. It is also a far cry from the western capitalism of Marx’s time, when six-year old children were made to pull cans in coal mines lacking light or ventilation, Democracy has ensured a form of government paternalism sensitive to public opinion in literally thousands of areas. Not only has this proved to be compatible with private enterprised the two have displayed considerable synergy.
Some breast-beating comrades might disagree, and say that Reaganism and Thatcherism have undone state paternalism. This is indeed what the two claimed they wanted to do, but that was just rhetoric. In fact they barely trimmed the fringes of the welfare state, which grew stridently under both of them.
During Mr Reagan’s tenure, government spending on the poor and unemployed rose’ from $ 86.5 billion to $ 129.6 billion; on social security for the aged from $ 118.5 billion to $ 219.7 billion; on medicare from $ 32.1 billion to 78.9 billion; and on health from $ 23.2 billion to $ 44.5 billion. It is well known that defence spending doubled under him. What is less well known is that social spending doubled too.
Was Thatcherism any different? Not at all. If you do not believe me just listen to what the editor of The Times, Mr Simon Jenkins, said in a column in 1989. “We pay more in taxes under Mrs Thatcher than we did under labour. Our public sector is far more costly on any index than the 1979 one. The welfare state is more extensive and expensive than ever before.”
Mrs Thatcher and Mr Reagan would be appalled to be called socialists, but they certainly were by 19th century standards. They only trimmed what they saw as the excesses of the welfare state, and did not dream of ending it. This is because there is an overwhelming public demand for it, a demand that in a democracy cannot be ignored. Social concern in western economies has been assured by democracy, and government ownership of the means of production has been shown to be irrelevant for achieving such ends.
LESSONS: What lessons follow for India? First, we need to laugh at constant accusations that the new economic policy in India aims at unbridled capitalism. Laissez fairs has never existed and never will. What the new policy aims at is a market-driven welfare state, where the benefits of efficient production are married with state measures to help the poor, sick and needy.
The debate is not between pure socialism and pure capitalism, but between degrees of socialism.
The second lesson is that we need to focus not on ownership of the means of production, but on making democracy altogether more representative. In every village the government today is seen as the enemy of the people, as a fountain of corruption and oppression. The debate on markets versus the public sector sounds irrelevant to people living with these harsh realities. We need constitutional reforms, of which I have written about in earlier columns, to ensure that political middlemen do not walk off with the fruits of democracy.