If We Want Reindustrialization
JULY 01, 1984 by CHARLES R. LADOW
Mr. La Dow of San Diego, is a retired teacher of social studies with an ongoing concern for maximizing the freedom of the individual.
When a person with the accomplishments of Felix G. Rohatyn calls for a reborn Reconstruction Finance Corporation, we are at least required to take note of his argument. A senior partner in Lazard Freres & Company, who has chaired New York City’s Municipal Assistance Corporation for eight years, Mr. Rohatyn is not only given large credit for saving the city from financial disaster; also his thoughts suggest how leading investment bankers may be thinking. For that matter, his point of view probably reflects that of the financial and business establishment at large. In an interview, in the January 30, 1984, Forbes, entitled “A Case for Reindustrializa-tion,” Rohatyn set forth his views.
Anyone interested in learning the details of the interview may read them in Forbes; but it is not necessary to delineate them here in order to meditate upon the very different roles, attitudes, and virtues required of good business as compared to good government. Although the successful businessman must possess foresight, his most important need is to deal with the realities of the here and now.
On the other hand, the statesman as a policy maker is measured by distant effect of today’s decisions, while he may often be allowed to ignore today’s disaster. This difference is recognized by terms of office vouchsafed to elected government officials, assuring them more time to achieve results. In our government, we can see, for example, that the House of Representatives, due to biennial elections, is more vulnerable to immediate pressures than the longer-termed President and Senate. Having the shakiest tenure of all, corporate executives are most tied to immediate results.
This observation brings into question the assumption that government will be better now that more businessmen are directing it than during heydays of the academics more favored by Democrats. Liberal academics have long been addicted to an ameliorative approach to society. This view, eventuating in the welfare state, is made to order for excellent business executives, like Felix Rohatyn, whose forte is untieing knotty situations by the efficient use of money. While Rohatyn is aligned with Senator Edward Kennedy, there are undoubtedly numbers of Republican businessmen who would go with Senator Robert Dole in resisting any dismantling of the welfare state. Not only does the remodelling of society offer even greater challenges than corpora-tion- building; but the temptations of sovereign power and the opportunities in market insight and juggling must be close to overwhelming.
The trouble with Mr. Rohatyn’s formula is that it will not achieve the end he hopes for: reindustriali-zation. It did not work in the 1930s and will not work now. Only World War II succeeded in revitalizing U.S. industry then and Rohatyn does not suggest, nor would he dare, a similar bailout for his revitalized R.F.C. Pumping public funds into business is a proven recipe for such eventual stagnation as we have lately experienced, even making due allowance for the miracles of computerism and robotry. Accurate circuitry cannot overcome the intelligence—and ambiguity—of human nature. To play on James Thurber’s wit, “The germs are more astute than the police.” As Fred Allen said, “The world is moving too fast for the Moses model man”; but he has his ways of slowing it down.
Pump money into business and the workers will busy themselves in pumping it out, while the distribu-tory bureaucracy takes its cut off the top. This breeds “price inflation,” adding to the costs of doing business. Meanwhile, escalating Federal debt, with this and all the other programs and commissions, push us into fiat money inflation exacerbating the original effect beyond rational prediction. Our business barometer, the stock market, flutters with uncertainty at each flip in interest rates.
Sound Money, Free Market
If we want reindustrialization, we must ask what brought industrialization in the first place. The answer is plain enough. The Industrial Age was ushered in by sound money and a free market. In our guilt over affluence, we tend to forget how awful conditions were before industrialization. Centuries saw direst need, while today’s poor thrive compared to their counterparts even so recently as 1920. Even then, we were already putting the brakes on capitalism—a process which has proceeded with increasing urgency ever since.
Under such difficulties, only the inventiveness, skill, and wisdom of the private sector has managed to create increasing wealth. At that, until the “computer revolution,” we were trapped in a state of “stagfla-tion.” We dare not count on such technological breakthroughs to save us. If we want reindustrialization, the heavy hand of government must be removed from the economy.
Commendable though it is for President Reagan to have commissioned J. Peter Grace to head a group to bring businesslike standards to the Federal bureaucracy, the effect can be no more than a poultice on the disease when surgery is called for. When a business is bankrupt, it is either a target for takeover, or must go out of business. Government, being a court of last resort, cannot be taken over—save by another government. We do not want that to happen. Therefore, a good many Federal agencies must go out of business. That is a moral, as well as a simple economic, truth. They have not only run us into unmanageable debt, but have also stretched the meaning of our Constitution beyond tolerable bounds. Beyond that, in the aggregate they have created an economic atmosphere in which our industries are in disarray and basic ones are losing out to foreign competition, or are pushed into foreign operations.
Lobbying for Favors
In a free market, expectations tend toward equilibrium with possibilities as individuals and firms set their standards and goals in light of their own peculiar strengths and handicaps. To the extent the welfare state enters into the scheme of things, persons are encouraged to ignore this wisdom and see the state as guarantor of their hopes and expectations. This provides an unde terminable multiplier effect on aspirations, which, today, is evidenced in intense lobbying, and even violence, rather than in productive efforts. To all concerned, business, labor, and the consumer, this state of affairs is cruel and immoral by any standard—regardless of constitutional issues.
Since government has nothing to draw resources from other than the economy, state support of its citizens’ expectations has the end result of trading dreams for goods. Recognizing it or not, we have found that Albert Jay Nock was right decades back when he said: “No state on earth can afford to support all its idle people.” A treasury debt of better than a trillion dollars is the proof of that.
There is wringing of hands on all sides concerning the debt and escalating budget deficits; but, although the “war on poverty” appears to have reached stalemate, we are now faced with indefinable claims of equality with respect to race, sex, and whatever else may come to mind. Also replacing handouts are efforts so absurd as to call for a pristine environment, an absolute safety standard, and salvation for all endangered species. Noble ideals for sure; but out of accord with both the vagaries of human nature and mother nature, herself.
Perhaps this observation was best epitomized by a newspaper comic strip, “The Wizard of Id.” Sir Rodney was delivering an ultimatum of the little king. He said that the king had ordered removal of all pollutants from the land, the sea, and the air. A peasant spoke up, asking: “Where do they come from?” (He must have been related to the little boy in the fable, “The Emperor’s New Clothes.”) Whatever may be said for these latest goals of the welfare state, they add an immeasurable cost and handicap to our industries in the frivolous way in which resultant regulations are made and applied. By and large they have been anti-reindustrialization in effect.
Nor is it probable that cost-benefit analysis could bring the bureaucracy into workable relation to the economy. Such power, however moderated, is inimical to the liberties proclaimed in the Ninth and Tenth Amendments. Although they may be unaware of it due to massive indoctrination, our people, like any others for that matter, are imbued with a necessity for personal independence. Although not immune to temptation to use political power for their own benefit, they are immensely resentful when it is applied to them individually. In playing up to that temptation, our politicians have so far been able to survive the resentment.
The Fading Dream
Since capitalism, disregarding the demonology of Marxism, has catapulted most of us into the middle class, where is that proletariat which assures them of continuing support in socialization? The dream is fading and the bills are coming due. Coercion is more palpable than the benefits in today’s welfare state. While it is in the nature of things that a large vested interest will support any status quo, and that most of us may accept the intolerable rather than upsetting change, it is still true that there was an American revolution a little over two centuries (three lifetimes) ago.
We are fortunate that we need go no farther than the purposes of that revolution to find our bearings toward resolving current difficulties. Hearken to the Declaration of Independence enumerating the outrages of King George III: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our People, and eat out their substance . . . He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their acts of pretended legislation . . . For taking away our charters, abolishing our most valuable laws, and altering fundamentally the Forms of our Governments.” Items deleted in this series of charges do not here apply.
However, most especially in the last four decades, the government with which we replaced George III has progressively erected a multitude of new offices and sent forth swarms of officers to harass and eat out the substance of our people. The accompanying regulations and ad ministrative law have surely subjected us to jurisdictions foreign to our Constitution, whose “pretended legislation” often runs even beyond any mandate of our supine elected officials. It is notorious that the bureaucracy is now largely beyond the control of President, or Congress, composing so many “independent agencies.” As for taking away our charters, the Federal leviathan has largely emasculated state and local government, all but abolishing the highest law on division of power.
If the basic reasons for our withdrawal to independence as a nation were not enough, there stands our “highest law,” the Constitution of the United States of America. No rational feat of legal legerdemain can construe that document as justifying the vast interventions into matters that were once truly civil rights. It is generally agreed that such were not the intentions of the Founders, but is widely assumed that this was changed by the Civil War Amendments (13th, 14th, and 15th). Not only did congressional debates leading to the formulation of those amendments fail to support such an assumption; but down to the beginning of these troublous times legal opinion held stoutly otherwise. It was generally understood that the meaning of a law was to be found in the intentions of its promulgators and ratifiers. Changes in such meanings must be made in clearcut definition and by due process. As it now stands, such changes may be made by passing court decisions. Civil rights historically have been understood by their classical definition as “the non-political rights of citizens.” They are now thoroughly politicized, having become public property. The outcome: continuous turmoil.
There exists no constitutional mandate for managing the economy, unless one chooses to stretch the “elastic clause,” or the “promote the general welfare” in the Preamble beyond the bounds of imagination. The government could promote the general welfare by ensuring a sound money, assuring free interstate commerce, properly handling public lands, judiciously managing foreign affairs including war responsibilities, and wisely using police powers incident to such duties, while guarding civil rights as reflected in the Bill of Rights. Such were the obvious intent in the general we]fare phrase and that “necessary and proper” in the elastic clause. To pretend otherwise is, in the words of Chief Justice John Marshall, to extend a power “in itself illimitable.”
Nothing exists in later amendments which could be legitimately construed to replace original limitations of power. Any state was free, within its boundaries, to prohibit intoxicating drinks—as Kansas first did—promote sexual equality and universal suffrage, regulate intrastate commerce and personal behavior within the limits imposed by the Bill of Rights. Chattel slavery, like indentured servitude, was soon to be doomed by industrialization, including that of agriculture; but, in any event, with the 13th Amendment in place, the Bill of Rights provided all necessary authority for the Federal protection of civil rights.
As for discipline of the states, the American people have proved them-selves fabulously capable of that by “voting with their feet” (or other transportation) in moving their business and persons to what they themselves considered the most favorable environments—and that without the least bit of Federal support or coercion. Perhaps the most obvious evidence of this has been the dispersal of our Black population throughout the country although it applies to all of our races and classes. And New York City has long been the Mecca of liberated women. According to personal limitations, each of us may be counted on to pursue his own welfare. Limitations are ineluctable.
The Vanishing Frontier?
Still, one must deal with the ultimate fatuity that Federal interventionism has become necessary: that the vanishing of the physical frontier and complexities of industrialization demand centralized control. First of all, we have not conquered the frontier, but have leaped over most of it. One can drive for hours through much of the United States without encountering anything but competing traffic, or perhaps wild animals. Even if we choose not to privatize it, honesty requires us to admit that most of our land remains undeveloped by any standard of modern industrialism.
As for complexity, the answer to that is simplification and decentralization. To use the economists’ words, economies of scale demand decentralization. Large enterprises, in order to survive, must break up their operations. Even more obviously, 50 disparate states, with their widely variant resources and activities, are beyond rational centralized control from Washington, D.C. Even to feel required to point this out seems, itself, to be an absurdity. In this light, the original blueprint of the Constitution appears to be ever so much more apposite to the current situation than when it was first struck off.
While adherence to oaths is taken more lightly in these days of easy divorce and overlooked treason, they still possess considerable force in a court of law. The constitutional oath is a case in point. Every public officer in the United States, down to the local public school teacher, is re quired to take that oath to “protectand defend the Constitution of the United States.” No intellectual fad, including that which passes as liberalism, or socialism, has a warranty of permanence. Now that its promises have been proved to be illusory, with tyranny and terrorism rife in much .of the world, a new respect for that oath may appear.
If those who swear take the trouble to study more carefully that splendidly brief, simple, but profound document—free of small print—we should be on the way toward that reindustrialization so devoutly hoped for by most of us, as well as by Felix Rohatyn. It will not happen until we truly turn to those principles which nurtured this industrial giant in the first place, but have since been eroded away by fraternal strife, misunderstanding, and corruption. It is high time for a new birth of liberty.