Challenge, August 15, 2018
Bob Kuttner is one of the country’s great icons of progressive economic policy. In addition to being a cofounder and co-editor of The American Prospect, he has written a huge number of books and articles over the last four decades from which I have learned a great deal. For this reason, I was anxious to read his newest book, Can Democracy Survive Global Capitalism (W.W. Norton & Company).
Long-time followers of Kuttner will not find much in the book new, although the argument is put forward clearly and forcefully. Kuttner lays out the basic story of a well-functioning capitalism in the three decades following World War II, followed by more than four decades of upward redistribution. The first three decades are ones in which the markets are explicitly regulated for the purpose of accomplishing social ends. This regulation is largely unraveled in the next four decades.
The post-World War II Golden Age is a period in which the United States sees rapid growth, that is broadly shared. Workers at the middle and bottom of the wage distribution saw wage gains that were equal to or even modestly above the rate of productivity growth.
The story in Europe and Japan was even better. Growth was more rapid in these countries as they quickly rebuilt from the war and then far-surpassed pre-war levels of output. At the same time they were hugely extending the welfare state, making pensions more generous and adopting universal health care insurance.
This all takes a turn for the worse in more recent decades. Growth slows, although the timing differs somewhat across countries. In addition, the benefits of growth are no longer evenly shared, with the richest one percent gaining disproportionately everywhere, and most of the workforce seeing little or nothing from the growth achieved over this period.
Kuttner points to these megatrends as backdrop to the rise of far-right political parties with questionable commitments to democracy. As he notes, this is not just a problem with peripheral countries without longstanding democratic traditions, but also in countries like France with the rise of Le Pen, Italy with its Five Star Movement, and of course the United States with the election of Donald Trump.
His basic point is straightforward. He argues that the traditional center-left parties in Europe and the United States have essentially bought into the policies that led to this upward redistribution of income. If broad segments of the working class don’t see champions on the left pushing an agenda that advances their interests, then they will turn to nationalist and racist demagogues who promise a better future at the expense of racial and ethnic minorities.
Kuttner’s argument is powerfully and compellingly presented. While I see little grounds for disagreement with the basic outline, I think there are important differences in how we can understand the path forward. Before I get to these, I first want to highlight three important areas where Kuttner is mistaken about the past.
Golden Age Stock Returns Were Great
The first issue has to do with stock market returns in the Golden Age. Kuttner notes that the stock market was relatively low in the Golden Age era and since then stock prices have risen sharply. The implication is that stock owners were somehow forced to sacrifice for the benefit of the larger society. This is not true.