It’s always tricky for a reviewer to judge a book written by a classmate. That’s the case here. Edward Luttwak is a good writer, but has written a book that, while purporting to be about economics, is actually the stuff of worn sociology and tired psychology.
As the title, Turbo-Capitalism, indicates, Luttwak is aware of the economic power of market capitalism. He goes to great lengths describing the efficiency, wealth-creating track record, and possibilities of markets and their superiority over socialism and other government-directed economic systems. He clearly explains how capitalism’s efficiencies and moneymaking benefits are changing the world.
But Luttwak doesn’t stop there. This is just point one on the journey to lambaste the beast he identifies as “turbo-capitalism,” a capitalism infused with technology, free trade, deregulation, and the most recent supercharger: privatization. Luttwak swoons over the “good-old days” when markets were constrained by punitive tax rates on the rich, redistributive social policies, and regulations covering nearly every industry, from transportation and energy to agriculture and communications. When government was there to constrain capitalists, greedy corporate executives, and unfettered entrepreneurship, consumers were protected, workers felt more secure and earned more, and families had a higher quality of life. Less stress, less crime, less pornography, Luttwak declares.
Alas, “turbo-capitalism” blows all that away, particularly in nations that haven’t grown up with capitalism. Luttwak makes a hackneyed point followed by an interesting one. He argues that the new post-1970s strain of capitalism is extremely tough on most American families. Technical change, longer work weeks, greater competition from abroad, proliferating two-income households, sudden mass firings, repeated layoffs, and increased labor mobility with the added distance from loved ones it requires—all this creates crime and alienation. The same complaints have been heard and refuted over and over.
Yet he follows with the challenging point that two forces operate in the United States to avert wholesale revolt against the evil fallout of turbo-capitalism. First is the legal system, where two million lawsuits per year against U.S. companies deliver “empowerment” and bring restitution to the “economically victimized” among the population. Second is our Calvinist value system. He defines the Calvinist system by three interconnected rules: (1) winners (that is, the rich) diminish envy by self-restraint, giving to charity, and not over-flaunting their wealth; (2) most losers blame only themselves for their fate; and (3) both winners and losers vent their frustrations by demanding harsh punishment for rebellious losers. Luttwak warns that other nations importing turbo-capitalism generally lack these institutionalized safeguards of societal stability and therefore risk being destabilized to the point of destruction if capitalism is not restrained.
At least this argument is new. I do not, however, find it persuasive because I don’t accept Luttwak’s premise that there is anything so frightful or “destabilizing” about economic liberty, no matter what label is attached to it.
At the heart of Luttwak’s book is a populist theme that runs like this: Trial lawyers are to be applauded, because they are the tamers of greedy corporations. America’s tax system is not nearly progressive (redistributive) enough. Free trade is an ideological plot by powerful firms to weaken unions, impoverish workers, and make them capitulate to management demands. Ditto deregulation. He claims that many airline pilots and mechanics today, after deregulation, can’t afford to own a house or pay for a college education for their kids. Even if true, which is doubtful, others have benefited from deregulation and can now afford more for themselves and their families. What’s the good in stifling competition just to keep earnings high for select groups of workers?
Turbo-Capitalism is bound to confuse readers who were never exposed to economics. On the one hand, Luttwak does an excellent job of describing the costs of a labor contract in Europe versus the United States, thereby explaining Europe’s astronomical unemployment rates. But he also claims that the U.S. economy is in a “surplus-of-everything” phase that causes low unemployment. For example, he finds it “unexpected” that a consequence of turbo-capitalism is low unemployment, but ascribes it to “cheap labor.” He misses the fact that “titan” industries like steel and autos have been compelled to downsize by more agile, lower-cost, higher-quality producers. He never mentions that most of the employment downsizing he complains about has been accomplished by generous early retirement payouts, attrition through retirement, and the decision not to fill openings.
Luttwak does utter some important economic truths. For example, applying public choice theory to trade policy, he writes, “Nothing is more natural than the attempt of bureaucrats to find new justifications to keep their bureaucracies well funded.” And regarding government intervention in markets, Luttwak recognizes that “virtually any form of industrial policy can easily become a further way of looting the public treasury, or exploiting hapless consumers, or both.” Nevertheless, the author ignores that wisdom and endorses more government power to alleviate the supposed evils of turbo-capitalism.
Luttwak ends the book with this sentence, “Turbo-Capitalism, too, shall pass.” Readers who hold time precious might consider taking a pass on Turbo-Capitalism.
David Littmann is senior vice president and chief economist with Comerica Bank in Detroit, Michigan.