Defining Prosperity

A half a year into the greatest economic crisis since the Great Depression (see prior post on that comparison) the time apparently has come to ask what we've learned.

Today's New York Times Week in Review leads with a story titled "Redefining Capitalism After the Fall." The article keys off of President Obama's address on the economy last week at Georgetown University. And--most signficantly of all, of course--The American Interest just today posted the text of the essay Zoltan Acs and I have written on the very topic of the future of American capitalism. The title is "Defining Prosperity." (We originally proposed "The End of Growth;" that phrase now appears on the cover linked to our piece.) Here's how we start:

In a classic essay published exactly twenty years ago, Francis Fukuyama wrote that the triumph of the West was evident in the total exhaustion of viable systemic alternatives to Western liberalism. The end of the 20th century witnessed not just the conclusion of the Cold War, but indeed “the end of history”, a phrase Fukuyama intended to signify not the long-predicted convergence between capitalism and socialism, but rather “the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”

Over the past twenty years, a rather large number of observers have misunderstood, often to the point of bowdlerization, what Fukuyama said. Some did understand but disagreed. Now, however, the size and nature of the current economic crisis is causing some who have both understood and agreed to wonder whether the “end of history” has been replaced by “the end of growth”, the return of Malthus, or some other such phrase whose real meaning is plain: the replacement of liberalism’s inevitable universalization with its more likely decline or even demise.

Is such dramatic speculation warranted? Are we really in a systemic crisis, one in which an old order of political economy has been shown to be both unsustainable and immoral—to be, indeed, fundamentally misaligned with 21st-century realities? Many see evidence that a dangerous imbalance in the relationship between business and government grew gradually over the past thirty years. They insist, as a consequence, that government must take a much more assertive role in ensuring that public good is not sacrificed to private greed.² If our leaders assume, as James Galbraith recently stated, that “we are going to have to reorganize and restructure many things, including the financial system, which has been poisoned by the abuses and negligence of the past few years”, then we are in for major structural change—for better or worse.

What if this diagnosis du jour is wrong? What if, as some believe, the crisis, both in the United States and worldwide, is really the consequence of a half dozen or so contingent decisions that, had they been made differently, would have validated the basic system we had—before the bailouts and before the “stimulus”?³ What if, despite the lurid display of corporate malfeasance we have witnessed over the past year, the only thing we have to fear about liberalism is the fear itself that something is deeply the matter with it?

Before we get locked into a bipartisan “recrimination bubble” as we debate this central question, it is worth considering, calmly and carefully, an even more fundamental issue: What exactly are we asking of our institutions? In particular, how did we come to care about economic growth in the first place, and why do we almost universally now lament its absence? It turns out that the real question we need to ask before all the others is not, “At what level does our political economy require change to ensure economic growth?” or “Has growth come to an end?” but “What is the end of growth? What is its purpose?”