Laissez-Faire Capitalism - Assignment Example

Running Head: LAISSEZ-FAIRE CAPITALISM Laissez-Faire Capitalism [Name Of Student] [Name Of Institution] INTRODUCTION The economic rationale for laissez-faire has been able to show its historical basis in the political production of a particular social pattern. Legal scholars of the precedent few years tremendously supported supplementary government directive and additional authority for the courts, partially in order to be in charge of businesses for ecological and other motives, but more generally in hopes of accomplishing egalitarian results along the well-known lines of race, status and rank. AIM OF THE PAPER In this paper I will analyze the extent to which laissez-faire Capitalism is compatible with justice. BACKGROUND Economists are never as confident or as dogmatic as when they are giving advice to developing countries. From the World Bank and the International Monetary Fund, to say nothing of Washington's think tanks, pour forth the encyclicals and injunctions: Open your markets to foreign capital and goods. Respect intellectual-property rights. Pay your debts. Deregulate your domestic markets. Dismantle your state planning agencies and trust in the benevolence of the invisible hand. This advice has only one disadvantage: it doesn't work and never has. No country that has successfully developed has ever followed this path. Countries that eschew the laws of laissez-faire perform demonstrably better than countries that embrace it (Marshall, 2000). This has been true from the start of the Industrial Revolution, and it is true today. DISCUSSION Even nineteenth-century Britain and America, portrayed in economic lore as the most virtuously laissez-faire of rising economies, were never free traders. Britain developed its infant industries behind the walls of high tariffs and a tight technical embargo. It was illegal to export blueprints of textile machinery. Britain did not begin to embrace the god of the invisible hand until its own industries had achieved technological supremacy. Moreover, the peoples of the industrializing European countries were actually resisting the logic of the market and tried to limit its sway from the very beginning at the end of the 18th century. Thus, despite the dangers to the material reproduction of society, its members sought to limit the market mechanism through state measures to protect them against the ravages of the self-regulating market (Polanyi, 2003). The source of this self-protective movement which counters the influence of laissez-faire ideology can be located in the social and cultural destruction wrought upon society and its members by the treatment of land, money and, above all, labour as if they were commodities; "obviously the dislocation caused by such devices must disjoint man's relationships and threaten his natural habitat with annihilation". (Marshall, 2000) The catastrophe of the market is not, for Law supporting advocates, that it impoverishes workers as part of its routine operation, or that it has an intrinsic tendency to produce economic crises. Indeed he rejects the Marxist approach by noting that the industrial revolution and laissez-faire actually went together with rising material living standards. Those who stress exploitation partake in the "economistic prejudice": they "hide from our view the even greater issue of cultural degeneration". (Polanyi, 2003)For Law supporting advocates, then, the commodification of land and labour is "only a short formula for the liquidation of every and any cultural institution in an organic society". (Lacher, 1999) Law supporting advocates credited Robert Owen with first having highlighted this cultural contradiction at the heart of capitalism, and the need for societal self-protection. "Owen justly pronounced that unless legislative interference and direction counteracted these devastating forces, great and permanent evils would follow." (Marshall, 2000) In fact the self-regulating market was accompanied, from the beginning, by attempts to protect society from the "satanic mill" of the market, which "ground men into masses". Yet Law supporting advocates adds that Owen "did not, at this time, foresee that the self-protection of society for which he was calling would prove incompatible with the functioning of the economic system itself". (Marshall, 2000) By interfering with the market mechanism, society was able to protect humanity and nature against some of the worst consequences of the commodification of land and labour; yet precisely because these challenges were ad hoc rather than systematic, they were unable to overcome the organisation of the economy on the basis of the market pattern. This social pattern required that the market mechanism be self-regulating, yet self-regulation was increasingly impaired. Necessary from the point of view of society as it is, protectionism is not simply the solution to the ravages of capitalism, but an actualisation of the contradictory relationship between market economy and market society. The consequences of protectionism were catastrophic rather than benign precisely because the market pattern remained at the heart of social organisation. (Polanyi, 2003) Since the 1870s, laissez-faire was on the wane and protectionism began to recast the relationship between society, the state and the economy. It is this countermovement to the imposition of the self-regulating market which Law supporting advocates identifies as the proximate cause of the catastrophes of the first half of the 20th century. Nineteenth-century civilisation "disintegrated as a result of ... the measures which society adopted in order not to be, in its turn, annihilated by the action of the self-regulating market". (Marshall, 2000) The phenomena that expressed this disintegration included the increasing rivalry between states, imperialism, the rise of communism and fascism, and two world wars. How could this happen? Law supporting advocates argues that, with the ascendance of protectionism: In fact, this institutional separation became reproduced on an ever wider scale, as the self-regulating market was in some respects buttressed by protectionism. It coincided with a movement of world economic expansion through which most extra-European areas where submitted to the same commodification of land and labour that had been imposed on Europe (Polanyi, 2003). World trade now meant organization of life on the planet under a self-regulating market, comprising labor, land, and money, with the gold standard as the guardian of this gargantuan automaton. Nations and peoples were merely puppets in a show utterly beyond their control. States did not therefore, regain their autonomy by strengthening the protective armour of the nation in the process of increasing national protectionism. The world economy, however, became increasingly an international economy, in which states rather than individuals were the fundamental "units", intent on shifting the burdens of international adjustment (Hettne, 2001). One method of choice was imperialist expansion, leading to increasing rivalries between the European powers and thus the breakdown of the balance of power. But internal pressures for protection, especially when articulated by masses recently enfranchised, also continued to build and continuing economic crises sharpened the contradiction between market economy and democratic society (Hettne, 2001). Organised labour used its parliamentary power to press its sectional interests, while "capitalists built industry into a fortress from which to lord the country. Popular bodies responded by ruthlessly intervening in business, ignoring the needs of the given form of industry." (Lacher, 1999) George Washington, Alexander Hamilton, and Thomas Jefferson were all protectionists. So were Abraham Lincoln and Teddy Roosevelt. The United States developed behind high tariff barriers. Intellectual-property rights were scoffed at; for most of its first century of independence the United States refused to recognize foreign copyrights of any kind. American states repudiated their foreign debts--Mississippi is still in default from the time of Andrew Jackson. The guiding hand of government was visible in tariff policy, and it consciously selected which industries to foster and which to expose to international competition (Lacher, 1999). From the Northwest ordinance to the Homestead Act and the subsidized development of the transcontinental railroad, the American government acted vigorously and decisively to impose a basic plan on the nation's development and to support key industries. Even today, the most successful American export industry--aerospace--is the one most heavily guided, subsidized, and promoted by the American government. France, Germany, Japan, Italy, Sweden: any list of industrial nations that are rich today--that have successfully passed through a process of development--is a list of countries that diligently and consciously practiced protection and national planning. All of them have sheltered infant industries, ruthlessly trodden on the intellectual rights of foreigners, and developed on the basis of state planning. In fact, only in the economic backwaters of Latin America and Eastern Europe do government officials still listen patiently to the platitudinous tautologies of Cambridge and the intricate dogmas of Chicago. (Hettne, 2001)And even in Poland, the former Czechoslovakia, and Russia they are beginning to have their doubts. Mayor Anatoly Sobchak, for one, recently attributed St. Petersburg's relative economic success to the city's having fewer Harvard-trained economists around than any other Russian city. CONCLUSION Having lived through the Great Depression and its political consequences, these leaders supposed that laissez-faire capitalism required balancing by a strong state. Capitalism left on its own was seen as inherently unequal, antagonistic to community life and disruptive of the social order. However much they differed ideologically, the innovative politicians in the post-war era shared two important practical attributes: the desire to avoid a repeat of the turmoil and violence that emerged in the 1930s and the understanding that a large part of the problem of that decade could be assigned to laissez-faire economics and the passive state. (Polanyi, 2003)The major contribution of the founders of the welfare state is not to be found in the details of their prescriptions. Rather it is in their understanding that economic and social rights at a level beyond scarcity require a market economy — and that democracies with market economies require an active intervening government if they are to avoid growing inequality and instability. REFERENCES Hettne, "The International Political Economy of Transformation", in Bjorn Hettne (ed.), International Political Economy: Understanding Global Disorder (London and New Jersey: Zed Books, 2001); Lacher, "Embedded Liberalism, Disembedded Markets: Reconceptualising the Pax Americana", New Political Economy, Vol. 4, No. 3, 1999. Marshall, "Citizenship and Social Class", reprinted in T.H. Marshall, Class, Citizenship and Social Development (Westport, CT: Greenwood Press, 2000). Polanyi, "Obsolete Market Mentality", op. cit., p. 64. Cf. James Ronald Stanfield, The Economic Thought of Karl Polanyi: Lives and Livelihood (London: Macmillan, 2003 revised edition), pp. 58-60. Read More