October 8, 2013

Behind the Republican blustering during the government shutdown circus lies a myth that the government holds back American capitalism. Eric Ruder says it isn't so.

"WE'RE REALLY very energized today, we're very strong. This is about the happiest I've seen members in a long time." Thus proclaimed Rep. Michele Bachmann on the second day of the government shutdown.

This happy mood seemed to have two components. Firstly, in Bachmann's view, the Republicans had finally found a strategy for fighting back against Barack Obama's health care law--by demanding it be delayed or defunded in return for funding the federal government. But second, the Republicans think they are taking a principled stand against what they denounce as a "big government" intrusion in our lives.

Of course, Bachmann wasn't alone, nor was she voicing a particularly novel idea among proponents of shutting down Big, Bad Government. Any number of Republicans could be heard making this same case in recent months. For example, in March Sen. Ted Cruz (R-Texas) inveighed against "government control [because it] hurts those struggling to achieve the American Dream."

Setting aside whether Republicans like Bachmann and Cruz will continue to celebrate as polls show their strategy backfiring badly, there's no question that this idea--that government is remarkably inefficient compared to the private sector--is an article of faith in mainstream U.S. politics.

Tea Partiers protest the intrusions of the government

The argument goes like this: At best, government presents bureaucratic obstacles to economic efficiency, in the form of burdensome red tape, onerous taxes and ill-advised allocation of resources to unworthy projects (Solyndra, anyone?). At worst, government intervention in the economy is inexorably speeding the U.S. toward the nightmare of "communism."

Surely, we can all agree that the state must be kept at bay so as not to crush technological innovations that are the lifeblood of the free enterprise system?

Like the ubiquitous iPhone, right? More than 250 million iPhones have been produced and sold since 2007, each serving as a tiny monument to the entrepreneurship of Apple founder Steve Jobs, the ingenuity of private enterprise and the dynamism of American capitalism.

Or do they?

ECONOMIST MARIANA Mazzucato, author of The Entrepreneurial State, recently gave a lecture challenging this precise point, in which she pointed out that all the core technologies that make the iPhone work--the Internet, GPS, touchscreens and cellular communications--were the fruits of direct government investment in research and development projects.

The government also provided early financing to what we consider some of the most innovative companies around--Apple, Compaq and Intel, among others--through the Small Business Innovation Research program and other similar programs.

The commonly held wisdom is that the U.S. is home to tech giants such as Facebook, Google and Apple--rather than, say, Europe--because the state sector is so much larger in other countries. But this turns reality on its head, according to Mazzucato. It's the "visible hand" of U.S. government investment in research and development--investments that venture capital firms generally consider too risky to undertake--that has, in fact, given the edge to U.S. tech firms.

Or consider another sector regarded as a citadel of innovation and private enterprise efficiency: the pharmaceutical industry. Drug company executives regularly defend the patents on the products they market--and the exorbitant prices these patents allow them to charge--as the only way they can recoup their costly expenditures on research and development.

Life-saving drugs may be denied to some patients who can't afford them, but, argue these executives, isn't that better than not having the drugs at all because the companies didn't have the money to fund innovative research?

Again, reality bears little resemblance to the pharmaceutical industry's self-serving stories. According to Mazzucato, citing the research of health care expert Dr. Marcia Angell, fully 75 percent of the truly innovative drugs brought to market by the pharmaceutical industry were discovered in national laboratories funded by the state. What's more, explains Angell, author of The Truth About Drug Companies: How They Deceive Us and What to Do About It, in an interview for Mother Jones, the industry spends 2.5 times more on marketing and administration than it does on research and development.

So it would make more sense for corporate executives at Bristol Myers Squibb, Pfizer and Merck to argue that they must charge such high prices to pay for their outsized advertising budgets!

In fact, despite the mantra of private-sector superiority over government bureaucracy, what's remarkable is how frequently reality fails to correspond to the mythology. Single-payer health care--where the government guarantees health care to all and determines what it will pay to health-care providers such as hospitals and doctors for providing their services--is actually more efficient than private, for-profit health care systems.

According to Physicians for a National Health Program:

Private insurers necessarily waste health dollars on things that have nothing to do with care: overhead, underwriting, billing, sales and marketing departments as well as huge profits and exorbitant executive pay. Doctors and hospitals must maintain costly administrative staffs to deal with the bureaucracy. As a result, administration consumes one-third (31 percent) of Americans' health dollars, most of which is waste. Single-payer financing is the only way to recapture this wasted money. The potential savings on paperwork, more than $400 billion per year, are enough to provide comprehensive coverage to everyone without paying any more than we already do.

Likewise, charter schools, private prisons and privatized public infrastructure (such as Chicago's sale of its parking meters and the Skyway bridge to private corporations) again and again result in either substandard outcomes for consumers, obvious inefficiencies or both.

THESE MYTHS about the inefficient state versus the greased lightning of the free market have now fueled three decades of neoliberal orthodoxy that focuses on privatization, deregulation and lower taxes as the salvation for society's ills.

Before the rise of the neoliberal juggernaut, even the most conservative economists had grudgingly accepted the need for the state to intervene in order to "solve" market failures--and surprise!--after three decades, they still do. However fundamental their ideological commitment is to neoliberal faith, however frequently they issue heated denunciations of the sloppy state, conservatives again and again end up looking to Big Government to give them a helping hand.

Of course, both parties continually lavish billions upon billions in funding on defense spending--and their favored defense contractors--even though the U.S. already possesses the most overwhelming arsenal of military hardware in the history of the world. At the same time, both parties have been committed to "ending welfare as we know it," as Bill Clinton famously pledged.

In reality, the political elite, the wealthy and Corporate America only dislike government spending when they aren't the beneficiaries--which explains their distaste for welfare spending that benefits the poor. The corporate titans are pleased as punch about welfare spending that serves the interests of Big Business--such as the many forms of government investment in tech innovation that allows venture capital firms to later swoop in and make massive profits after the government has absorbed all the risk by funding the research.

And both parties supported the Bush administration's bailout of American financial institutions after those same institutions recklessly crashed the economy making bad bets on an obviously overheated housing market. Suddenly, after years of insisting that the government couldn't possibly fund anti-poverty programs, better schools or sufficient workplace safety inspections, the neoliberal architects of the economy found literally trillions to bail out the icons of American capitalism.

Now that the bailout has returned banks to making fat profits, where does that leave the taxpayers whose money funded all this? Facing an unprecedented slew of budget cuts, high levels of unemployment and an ongoing foreclosure crisis. And how many politicians demanding drug tests for people who receive food stamps have demanded the same of bank executives enjoying massive year-end bonuses also as a consequence of government policy? Please let me know when you find one.

The bailout thus allowed the financial giants to "socialize" their losses while privatizing the profits.

GOVERNMENT SPENDING isn't the root of all evil, but it still serves the interests of the wealthy and Corporate America to portray it as such. CEOs insist that high taxes are crushing their competitiveness because, they say, U.S. corporate tax rates are among the highest in the world.

And they are--until you take into account all the loopholes. Such loopholes allowed Apple to avoid billions in taxes. FedEx, Facebook and Southwest Airlines actually received money back from the federal government in 2012.

Such loopholes--and the army of corporate lobbyists thronging the halls of Congress to make sure the loopholes stay whole--also help to explain why general appeals by politicians to "lower taxes" are so dishonest.

According to investigative reporter Joshua Holland, there has been a radical shift in the income tax burden from corporations to individuals:

At the beginning of World War II, individuals and families paid 38 percent of federal income taxes, and corporations picked up the other 62 percent. That's changed significantly--last year, individuals and families paid 82 percent of federal income taxes, and corporations kicked in just 18 percent.

So it's easy to see why appeals to "lower taxes" gain traction with American workers--but then end up benefitting the corporations and the wealthy who have the campaign contributions and the high-powered lobbyists to make that a reality.

Without question, most people don't support giving billions of dollars in subsidies to oil corporations at a time when they are reaping the most gargantuan profits ever recorded by any corporations ever in the history of the planet. But on the other hand, they don't hear nearly as much about such corporate welfare as they do about those feckless Americans allegedly using food stamps, which provide families less than $1.50 per person per meal, to feast on spreads of champagne and caviar.

In the face of such tax injustice, we can and should answer the politicians' call to "lower taxes" with our demand to "tax the rich"--so that the people who can most afford it pay more, and the people who can least afford it pay less.

To continue functioning, capitalism always has and always will require state intervention to save the system from itself. Without such intervention, history has shown that markets frequently fail to keep society from screeching to a halt--and even with massive state intervention, they still fail. A more equitable tax structure would go a long way toward softening the many social ills and other life-disfiguring hardships that such crises inflict on the lives of working-class and poor people.

But the truth is that there are enough resources in our society so that no one needs to ever go without adequate food, clothing or shelter; without a quality education; or without top-notch medical care. The problem, however, is that these resources are in private hands instead of at the disposal of society as a whole.

But to get from here to there, we will have to go beyond simply more state intervention; it will be necessary to place the economy's resources as a whole--as well as the decisions about how to use these resources--fully in the hands of working people, who are the direct producers of wealth and who have a direct, material interest in the use of that wealth for the good of all.

This may make Michele Bachmann sad, but the rest of us will be the happiest we've been in a long time.