Robert Solow, Suzanne Berger, Joshua Cohen, Kenneth Arrow at MIT – SHASS 50th Anniv. Colloquium 2000


[MUSIC PLAYING] JOSHUA COHEN: I think
we can get started. I’d like to welcome you all
to this last session of this two-day colloquium– just to make sure you’re
in the right room– this is the 50th anniversary
celebration session for. And our question for
this final session is, is capitalism
good for democracy? Or we could put the question
more colorlessly as, what is the relationship between
capitalism and democracy? Now I have the– I guess there’s been enough
turnover between the two days that I should
reintroduce myself. My Josh Cohen, I
teach in philosophy, and I’m the head of the
Political Science Department. And for this session, I’ve
been given the easy task of introducing a question
that requires no explanation and speakers that require no
introduction, so I’ll be brief. At least– well, it may not
seem like I’m being brief, but it’ll be brief for me. [LAUGHTER] So writing in the middle
of the 19th century, Marx proposed some
answers to the questions of today’s session. He said, “capitalist democracy
is possible only as,” in his words, “a spasmodic
exceptional state of things. It’s impossible,” he
continues, “as the normal form of society.” And the reasoning for this
conclusion was straightforward. He said, “the classes whose
social slavery the constitution is to perpetuate–” proletariat,
peasantry, petty bourgeoisie– “it–” that is, democracy– “puts in possession
of political power through universal suffrage. And from the class
whose social power it sanctions–” the bourgeoisie– “it withdraws the political
guarantees of this power. It forces the
political rule of the bourgeoisie into
democratic conditions which at every moment help the
hostile classes to victory and jeopardize the very
foundations of bourgeois society. From the ones, it demands that
they should not go forward from political to social
emancipation; from the others, that they should not
go back from social to political restoration.” Now Marx was hardly
alone in thinking that the political
equality ingredient in a democratic state couldn’t
coexist with the inequality and private power ingredient
in a capitalist economy, that either democracy or
capitalism would win out. In the mid-19th century,
he shared that outlook with conservative opponents
of universal suffrage who feared the very thing
that Marx hoped for. When this school was
founded in 1950 at MIT, it wasn’t uncommon to
think that the experience of the previous 30 years– Depression, fascism,
communism, and world war– had demonstrated the
truth of these earlier argument about the
irreconcilability of capitalism and democracy. To be sure, there
were some who thought that in the United States, at
least, the New Deal had saved democratic capitalism,
but it’s worth recalling that conservative
opponents of the New Deal thought that had paved
the way to a new serfdom, and that even its
proponents, the New Deal and democratic
capitalism, may not have been entirely confident
of its long-term stability. Now something has changed
in our understanding of the combination of
capitalism and democracy. Marx, as well as the
conservative critics of democracy, may have been
onto something and thinking that there are interesting
tensions between capitalism and democracy. Maybe it’s an– maybe
it’s an awkward marriage, but not every awkward
union ends badly. In any case, the
confident thesis that capitalist
democracy couldn’t last has been overtaken by events. And the aim of our
session this afternoon is to explore some
of the changes in the world and changes in
thinking about the world that have taken place over
the past 50 years and led to different
conceptions of the relationship between capitalism
and democracy. We have three very
distinguished speakers with us who’ll each speak for
about 15 to 20 minutes on our topic, after which we’ll
have some open discussion. And I’ll introduce
them now in the order in which they’ll speak. Our first speaker
is Robert Solow, who is Institute Professor
Emeritus and Professor of Economics Emeritus
at MIT, winner of a Nobel Prize in
economics and the National Medal of Science. Bob is publicly
known for his work on technological change
and economic growth, but he’s secretly a Luddite
who doesn’t use email. [LAUGHTER] I shouldn’t say
doesn’t, I should say refuses to use email
as an act of refusal as I recently rediscovered. [LAUGHTER] Kenneth Arrow is the Joan Kenney
Professor of Economics Emeritus at Stanford. Also winner of a Nobel Prize in
economics and a National Medal of Science. And there are three
bodies of work, at least, that are closely associated
with his name, one of which precisely specifies the
conditions under which Adam Smith’s invisible hand
hypothesis about markets is true, a second
describes the problems in combining the separate
values of individuals into a coherent
social valuation, and a third on issues
about decision-making under uncertainty. Suzanne Berger,
our third speaker, is the Rafael Doorman
and Helen Staubach Professor of Political
Science and Director of MIT’s MISTI program– that is the MIT Initiative
on Science and Technology. She’s written on French
politics, and more broadly, on the disparate economic impact
of different national ways of organizing political life. Suzanne, I can also testify
from after 24 years, is the best colleague
you could imagine having. Now I know Bob Solow
and Suzanne Berger well, although I should say that Ken
Arrow is the only one I ever took courses from– he doesn’t
know about– when I was a graduate student at Harvard. I twice in consecutive
years sat through his course on micro theory. I can’t say that I– [LAUGHTER] –why I sat through it twice. But I did. But I know– I do know all
three of– the work of all three of them well, and I do
want to make a comment that applies to each, which is
that they all are known for addressing topics
of large significance with attention to the demands
of reason and evidence, but also without ever
losing sight of the fact that the social sciences
are moral sciences in which the final
stakes are human lives. Bob. [APPLAUSE] ROBERT SOLOW: Is it OK– can I be heard if I
just sit here and– it’s on. OK. JOSHUA COHEN: Is it OK
with the people up there? OK. Good. I don’t mean you in the back,
I mean them in the booth. It’s OK with them. OK, good. ROBERT SOLOW: Well, there
was a famous recent occasion in the history of this
country when a question asked of an important person
was answered by the reply, it depends on what
you mean by “is.” [LAUGHTER] The question we’re supposed to
discuss here is capitalism– is democracy– which is it? Is capitalism good
for democracy? But in this case, I think
it depends on what you mean by capitalism, actually. I should start by telling
you in an old cliche where I come from,
where I’m coming from. My most deeply-held political
belief is that power corrupts. I don’t know if absolute
power corrupts absolutely, these limiting propositions
are sometimes hard to work out, but I do think as I look
at the political world that power corrupts. And therefore, for me, the
basic problem of democracy is to avoid undue
concentrations of power, to avoid the accumulation
of too much power almost anywhere, actually, and
certainly in the wrong places. The problem is delicate because
some concentrations of power are needed in a society because
there are economies of scale– not only economies of
scale in production, but economies of scale
in the performance of other social functions,
and it’s very hard to get them done well
without some group body institution acquiring a
certain amount of power. It seems to me, and
it’s always seemed to me since I was a kid, actually,
that I hated school. That’s probably where I got
this notion that power corrupts. But this goes back
a long way with me. It always seemed
to me that this is the really fundamental
argument against socialism as an alternative to capitalism. It’s true that there
is no real example of the successful running
of a socialist economy. But even if that
could be fixed, even if one could find ways of
operating a socialist economy efficiently, the
fact that it means, it involves giving
economic power to the state in a big way– that is, attaching
economic power to the locus of political
power strikes me as a recipe for tyranny. To have, from a certain
degree of abstraction, only one employer in a
society, one source of finance and all that suggests to me
that corruption will result. In my youth, I had friends
who thought that Stalinism was a perversion of
socialism, and I wondered even then if they were not wrong. I personally would
have little or nothing to say against
democratic socialism, except the suspicion
that it’s an oxymoron. All the socialism as
we have observed– not so many, but all
the ones we’ve observed seem to have either originated
or finished in tyranny. One of them seems just to
have finished the other day. So coming now to the
precise question posed for this meeting,
capitalism has going for it that on paper, at least,
it separates economic power from political power, and this
was thought about explicitly in the philosophical
origins of people like Locke I’m thinking of. On paper, capitalism
turns private property into a buffer for the individual
against a political power. It defines a sphere in
which you are your own– in which you are your own boss. A person’s home is his or her
castle to put it that way. But in fact, it’s
not that simple. It’s very far from
being that simple. We know from observation– and
there are some good reasons in principle, in theory
for believing it– that laissez faire
capitalism tends to generate vast inequalities
of income and even vaster inequalities of wealth. Any capitalist society living
its natural life, so to speak, will make these big extremes,
and in particular, there will be a group of very rich
and very wealthy people. Leaving aside whether
that kind of inequality is intrinsically a good
thing or a bad thing, it seems to me that there
is an endemic tendency in capitalist democracies for
the very wealthy to want to buy political power,
to use their wealth to purchase political power. We see that all
around us here today, most clearly in
campaign financing where the influence of money
on the electoral process is, I think, a real
danger for democracy. And this is not
true only of the US. Helmut Kohl got himself
into a lot of trouble for what, by American
standards, would be a mere peccadillo, would
be something you would barely report to your accountant. And the same thing is true in
other democratic capitalist countries, there is a tendency
for wealth to want to buy– to want to buy power. It’s not– Texas oil tycoons
do not play an important role in our political life because
of their intellectual or moral quality, particularly. [LAUGHTER] During the Reagan and
Bush administrations, we had the spectacle– and I– I guess still naive enough
to have been shocked by it, not so many other people were. We had the spectacle
of the representatives of big business sitting with
the Republican majorities of congressional committees
writing up and marking up legislation. So the trouble with
unregulated capitalism is that political power gets
absorbed by economic power to a larger or lesser
extent, but sometimes to a very large extent. And so we run the
danger of ending up from this point of view
where socialism ends up, only by the back door,
but with economic power and political power
sitting in the same hands. And this suggests to me
that probably the best we can do for democracy is
partially regulated capitalism. And I have– one
could go on at length about the kinds of
regulation that are required, but I’ll just
mention two or three. First of all,
capitalism which is– does engage– in which
the government, at least, engages in redistribution
of income and wealth to relieve inequality and to
limit the extreme accumulation of wealth and therefore of both
economic and political power. Secondly, one wants
democratic capitalism in which there is serious
public intervention to limit monopoly
and exploitation, and to preserve competition– real competition wherever
that is possible. And third, the third thing
I want to mention now is the public provision of
seriously good education for everybody for the
purpose not only of providing a skilled labor force
and all that stuff, but to promote economic
and social mobility, to promote the
circulation of people through the economic system. One could imagine
easily, because we do other forms of
intervention in economic life, but it’s the– it seems to me the natural
habitat for democracy is not unregulated capitalism,
but regulated capitalism, what we used to call
the mixed economy. There will surely be imperfect,
but it’s the best we can do. I want to make only
one more remark now. Some of you will have noticed
that the sort of society I’m suggesting as a good idea
is exactly what Hayek, Friedrich Hayek in The Road to
Serfdom was arguing against. Josh mentioned The Road
to Serfdom parenthetically in his introductory remarks. Hayek thought, I
presume seriously, that the first steps toward
serfdom, what I was earlier calling tyranny, are
precisely the steps that I think are necessary
to preserve the compatibility of capitalism and democracy. As a forecast, of course,
The Road to Serfdom stands as one of the
really great failures, like Marx’s forecast of the
progressive impoverishment of the working class in
capitalist economies. It’s 50 or more years
since The Road to Serfdom, and during that time,
the slippery slope from antitrust
policy or regulation of other kinds toward serfdom
has not shown itself at all. I think Hayek could
have been seen to be wrong on the day
The Road to Serfdom was published because
it was perfectly visible that those capitalist
countries like Norway, the Netherlands,
Sweden, which did more interfering in the economy
and ought, according to Hayek, have been further down the
road to serfdom than the more laissez faire places
like the United States, we’re not like that at all. They were both more
regulated than the US, and generally more free as
more open to unconventional ideas than American society was. That may still be true
comparing those countries. There is no reason
to suppose that there is a slippery slope
from, again, what used to be called the middle
way toward Hayek’s notion of serfdom, and
I guess the middle way– not necessarily
Sweden– is what I’ve been advocating this afternoon. Thank you. [APPLAUSE] KENNETH ARROW: First of
all, I should explain– it may be quite obvious to
you that I’m not a historical scholar or a
political scientist– perhaps we’ll hear from the
professional after I speak– that I’m not– this is
not research of mine that I’m acquainted with. And it’s possible
to argue, however, this is a subject
in which researchers in the real scientific sense
is unlikely to cast much light as a general impression–
what we know generally make up most, at least, of
what there is to say, though no doubt it would
be illumination in studying particular historical incidents
in the, say, for example, of changes from
democracy to the opposite or dictatorships of one kind
or another or vice versa. I also– in fact, I
must say, having been– I would have given a simple
answer to this question before I was asked– in fact, I did on
one occasion, and I participated in a
written symposium on the 25th or
30th anniversary– I forgot now– of Joseph
Schumpeter’s Capitalism, Socialism, and
Democracy in which he said capitalism seems
to be a necessary condition for democracy,
though clearly not a sufficient one
since there are plenty of capitalist dictatorships. And there have been– there have been and even–
and there are today. But having this
question posed, I’ve been thinking a lot
about it, and so really I don’t know
whether I should continue, but anything I
say now is sort of in the middle of
development of my thinking. One of the interesting
questions– well, you can ask
in the first place what the terms mean–
what is democracy and what is capitalism? Democracy, I think– I don’t think we’re– the working day definitions
are good enough for us. I mean, some nominal legal
equality of political power along a very broad
class of people. And with–
accompanied, of course, by the political freedom. The freedom of the
press, freedom of speech, and freedom of
assembly and so forth which are necessary to
implement– the freedom to criticize, some kind
of– and of course, you can get then into very
interesting questions– for example, access to
government documents becomes a thing. There’s a difference, for
example, between Great Britain and the United States
in that respect. And there are other differences. What I found a little more
puzzling, and I must say, I don’t even know the answer. I’m not prepared to give an
answer– is what is capitalism? The reason that’s important
is because in a sense, in the modern day world,
we think of the alternative is capitalism or socialism. Historically– of course, there
was a pre-capitalist feudal– at least in the Western Europe– feudal– feudalism
as an alternative. And the way we usually
tell the history– I don’t know– I don’t
know how accurate it is– of the emergence of the
more democratic regimes, say the gradual developments
in Great Britain or the more sudden developments,
shall I say, in France– revolutionary in the
strict sense– the– are– the idea is usually
it’s the middle classes, but the emerge– there was
an emerging capitalist system within a feudal
framework, and somehow, along good Marxist lines,
there was a– these two were irreconcilable in a democracy. It was a shift of
political power away from the king and
nobles and all that. I’m sure that any real historian
would tell me this is all– it’s not really right,
and of course, we have– although it does
correspond, I believe, to [INAUDIBLE] account,
a rather famous account of the development the French
Revolution, it was pointed out it was the more progressive
regions of France where the revolution was. It was not the hopelessly
impoverished regions where the peasants were
totally repressed that was the center of
revolutionary activity. So you can give that more
than one interpretation. One is that the bourgeois– So there is this
association, then, of the emergence of
democracy with capitalism. Of course, you go into little
details, some of this fuss gets lost. Then why did Germany develop in
a very different way of 1914, Germany was a limited democracy. That said, there was a popular
election, universal suffrage, but the powers of the Reichstag
were just very much less than those of the
British parliament. So the emperor and
his cabinet still, although they had to
deal with the Reichstag, were by no means
subservient to it in the way that the
British cabinet is or the American
president being elected or these different
forms of responsibility. So the capital– so they– now one way of looking at it
is maybe the capitalist systems were different. I’ll come back to this
in several forms, but I– the truth is I’ve no
very definite answer as to what it is. And this is a matter and
suddenly a great moment not merely for the
analysis of democracy, but even for the analysis
of economic growth, as we’ll come back
to at a later point. The plus side, of course, why
capitalism might be thought of to be a great contributor to
the preservation of democracy is the argument that
Bob has already given, namely that it avoids
concentration of power. At least it spreads power–
economic power is different from political power, it can
provide a kind of a shield for the– for dissidents. For dissidents, it gives
a kind of protection. The more I thought about
it, the connection to this, the more– the less convincing
this argument came to me. And there’s nothing
wrong with it in itself, but the trouble is, if you look
at the way political power is– anti-democratic political
power is exercised, or even democratic political
power and its populists and majoritarian phases
when it becomes– when the majority
oppresses the minority, as has certainly happened
in various episodes, but certainly if we
consider a dictatorship, the economic power
the state is usually one of the least
powerful weapons. I mean, killing people,
power, putting them in prison, torturing them– rather considerably
more effective than depriving them of jobs. I think you’ll find it
in the Soviet Union, for example, dissidents who were
not– who, say, were allowed out of prison. They [INAUDIBLE] They got jobs. They weren’t kept out. They might not get the jobs
they felt they deserved, but even these dissident
intellectuals usually worked as a translator,
some kind of motive, and they weren’t
really starved to death except in a couple of cases. Well, they wanted
to go after them. They went after them in much
more brutal and effective ways than economics. So the economic power is
instrument of repression. It strikes me as
kind of marginal. The additional
economic power conveyed by the gulag, the concentration
camps for dissidents in Germany is a– not thinking about
death camps now, but the political
concentration camps. These are the ways– well, or to take
another example, the beginning of the Chinese– when the Chinese
communists took over, somehow about 30 million former
landlords have disappeared. And I think, yeah, now it’s
pretty clear, they were just– I mean, the statement was
they were being deported to the border provinces,
but it’s pretty clear now, they were all just killed. They didn’t want anything. So this was not wasting time
just taking away their land, for example, which might be
an example of economic power. It wasn’t even–
I mean, if China– like all of these
regimes, you’ll always find
exceptions people who were treated perfectly well,
old capitalists and landlords would be perfectly
well, but there was a fair amount of just
plain prison and worse. Also, if capitalism
is good for democracy, one might expect that
more capitalism– I’m saying there may be
degrees of capitalism– should lead to more democracy. Well, of course there’s
a lot of problems– what do I mean by more capitalism? Well, one test is the
size of the state. For example, what percentage
of the national income of a country goes
through the state? Roughly, the tax bite. And as Bob has
already pointed out, there are countries like
Sweden, which to this day, over 50% of the– 50% or so of the national
income goes through the state. And nobody would allege that
they’re less democratic– in fact, some people
say the opposite– than those with much smaller,
let’s say, like Japan and United States, which have
considerably smaller fractions going through them. And most European countries
are between Sweden on one hand and the United
States on the other So it doesn’t appear the size
of– at least empirically– this is a very crude
empirical statement, but at least on a contemporary–
using cross-section analysis, as we would say, you don’t
see much evidence of this. Well, another arguing might
be, that’s the wrong criterion because the state– when
the state just takes money from some people and
gives it to the other, it isn’t really
interfering with freedom. It’s not– it’s
not a direct kind. So you might take state
ownership of industry. We have a very curious
example of this. If you look at the Italy
in the post-war period until about 10 years ago
or so, 15 years ago, they had a rather large fraction of
Italians she was state-owned. This was not a deliberate
policy, by the way. In the Depression,
the fascist government was bailing out
failing industries and wound up sort
of just by accident owning a very large fraction– Olivetti, for example,
was a state-owned firm. It’s been privatized, but
it was a state-owned firm. As far as I know,
this country– it was never used for
political purposes. It was never an
instrument of a thing– so that you had a large
fraction of state ownership without any either– not only did not affect
the Italian democracy, but it– that nobody
even realized it was even being used in this way. So I’m getting more skeptical
about the idea of state ownership and things–
or actually instruments by which democracy
is undermined. Now, in fact, there
seem to be cases– there seem to be some
arguments, some sense– although it may be
a perverse sense– state ownership may
increase democracy. One of the troubles,
of course, one gets, if a democratic power
is sufficiently small– if the power of the state is
sufficiently small, people– and the United States, of
course, is a prime example– may be uninterested
in participating. Now we have state
ownership, one of things you find every time you
have state ownership is that the employees– and managers, too,
for that matter– start exerting political power. It sort of energizes
the democratic system, people get involved. Of course, not– from an
economist point of view, this is a bad thing. But from the point of
view of the viability, there is– it actually creates
an interest in the workings of the democracy. If the democratic power is
sort of itself unchallengeable, then if I want higher
wages or I want to keep an industry
from being closed down– you see this in Israel,
by the way, which is another state that
has until recently been a high percentage
of public ownership, and where the employees
are very vigorously El Al or the telephone
monopoly have been very vigorous
and effective, by the way, in using
the democrat– using their power as voters to
affect government policy. Now, this may be a bad
thing, but it’s certainly not a threat to democracy, it’s
a threat to something else. School teachers in
the United States are significant–
sorry, at the local– this is more at the local
level, although it’s entered the public
campaign also as you see in the promises of
one of the candidates. Another possible thing
is the role the state not in actually either spending
money or in owning things, but in directing resources. Direct government controls
of one kind or another, which, as Bob has said,
there’s a whole continuum of directions. Now I find very interesting
the examples of developing countries where it is
certainly the philosophy of many developing countries
in the post-war period was, it’s hopeless for us to catch
up on a laissez faire basis. The only way we can do it
is by government direction. This was very common. In fact, one might
almost say universal. Let me take India,
Korea, and Taiwan. In all of these countries,
the state played a major role. Directed resources,
said you can’t do this, you can do that, this
is through by– either by control over credit, control
over imports, various ways. Now India started out with
a democratic constitution, which is that it
has on the whole managed to maintain even fending
off the Indira Gandhi attempt to destroy it or limit it. Korea and Taiwan started out
as authoritarian regimes. What’s really interesting
is these state-controlled regimes– in the case of India,
the democracy’s preserved; in the case
of Korea and Taiwan, authoritarian regimes have
become democratic precisely in an era when the state
was playing a major role– they still play major
roles, but diminished– in the economy. So no matter how you
define the capitalism, the correlation between
capital is more or less capitalism, more or less
democracy, not the same. Let me take an even
more striking example– ah, haven’t been watching
my time, but I think we’re– and the question, suppose you
have a democratic government and it’s capitalist. Do you expect this to help
fend off a threat to democracy? I’ve been talking here
about democracies. Authoritarian regimes
becoming democratic. Well, we have a very– at least
one very conspicuous case, and that’s Germany in 1933. End the ’32, beginning of ’33. Here we had a pretty
well-developed capitalist economy. I don’t think anyone would not
describe the German economy as capitalist. Eh, there were a few feudal
hangovers in the east, but they were not– they didn’t play– they played
some small role in the story, but I don’t– let me not go into details. We have a squashing of
a democratic government by a dictatorship, a very– one of the most brutal
and totalitarian of all dictatorships, certainly. And not only did– not only
did capitalism not prevent it, but I see no evidence
that capitalism even provided any kind of a defense. It’s not even that they
lost the war, somehow. It was– like the capitalists,
the fact that it was a capitalist country seemed
to play no role whatever in the transform– the Hiterite take over. So it’s– so I say, the idea
that capitalism provides any kind of– that in principle, it provides
any kind of protection. Then we can go, the
question, can capitalism be a threat to democracy? Well– and Bob has certainly
touched on that question– essentially the problem
may be that democracy– when you have political power
divorced from economic power– this is going back way
to that quotation Marx that Professor Cohen cited. If capitalism– the equality– political power is in
the hands of a majority, and it may well be
that it will take steps which are anti-capitalist. And when it does, say, against
the owners of capital– against those who
have profited by– those who have most profited
most by the capitalist regime. Of course, as Bob
says, one thing we have in a capitalist regime
is very considerable inequality I gotta say one thing. I think what happens
in every regime is considerable inequality. I’m not sure that capitalism
is any particularly distinguished in this respect,
but the socialist regimes have in fact considerable
income inequality. But whatever it is, you have– in other words,
there is equality, and very considerable
inequality in the capitalist– in a capitalist regime. And then, of course,
you have a divergence between economic power. Economic power is translatable
to political power. The United States, we’re
thinking of buying the power, but there are other ways,
like buying military power instead of interfering
in democrat– and that’s, of course,
we have in Chile. 1973. We had it in Spain in 1936. Very much the same story. A left-wing government comes
in with a big so– not– wasn’t by any means
purely socialist. As a matter of fact, it
had socialist and communist elements in it. Immediately there’s
a counter-revolution. In this case, it’s because–
in both those cases because of the fact that there
was a strong military power. Why that’s– why the military
is kind of a third power, and that’s– why that’s
a separate power in some countries and not in others
is something I don’t– is a fact, but I don’t know why. I don’t have any
explanations for that. So that’s a case– those are
cases, at least, in which– and of course, Latin
America will exemplify that over and over again. Those are cases in which
capital– that which– in fact, a capitalist interest. Sometimes it’s even particular
capitalist interest rather than a general capitalist interest. Can produce a
subversion of democracy, or capitalism may actually
be a danger to democracy. To be fair about it, I think
that almost any power structure in this– say in a civil society,
a non-government– a non-political–
which differs strongly, which is powerful
somehow, and which differs from the
political majority can lead to similar situations. In the modern world, probably
ethnic considerations have played some
of the same role that I’m describing
here to capitalism. But capitalism is one
of the dangers in this– in particular contexts. So since– it’s not very clear
as to why capitalism is related to democracy in
any permissive way according to these
historical accounts. And as– on the
other hand, there does seem to be an association. Of course, I– our evidences– I should be careful– our
evidence in some sense is dominated by one
or perhaps two cases, namely the Soviet
Union and China. Eastern Europe I don’t count,
because Eastern Europe is, to a very large– mainly
on the simply the– Soviet tanks. There’s no great mystery as
to why East Germany and Poland and Romania and so forth
became a communist country– Yugoslavia is a bit of
an exception that way. They’ve got their– its
own indigenous things and that’s a complicated story. In Czechoslovakia,
there was, in fact, a strong communist
movement, but not true of any other countries. So Hungary last free election
gave the communists 10% of the vote Now we
could– we have– and the whole– and even
Czechoslovakia was quite– the communists in Czechoslovakia
we know very well moved– as those in Hungary,
too, for that matter– moved against– even a
dissidence within the communist period could not– was not
tolerated as we know in 1953 and– 1956 and 1968, or 1953 in
Berlin, as a matter of fact. The– so I don’t
really count those as examples of
capitalism– having to do with capitalism or democracy. In the Soviet Union– but of course, the interesting
thing about the Soviet Union and China, since capitalism
could hardly have been said to have been a well-developed
phenomenon either of those countries– it was– I don’t know– there are
capitalist elements, all right, but there was– there was a
lot of non-capitalist elements. So that’s why I say there’s
some difficulty finding– I mean, capitalism–
but I think one would agree that pre-World
War I Russia was not a great example of a
well-developed capitalist system. There were sectors of
the country, and so China even less so. So that the take– the
communist takeovers there were– are not much evidence on the
question of the relationship. Let’s see. So in a sense,
our identification of socialism with dictatorship
and capitalism with democracy in a way fails, but
of course, there are not many examples
of the former, and they’re rather special. Then on the latter,
there are a lot, of course, as I’ve said
over and over again, authoritarian capitalist
states, nobody denies that. Not even the most
laissez faire economist. Milton Friedman agrees
to that statement. So another point of view– for whatever association
there is is that really, there is a third variable here– economic growth. Speaking or
summarizing a lecture, there is of a theory
sometimes called the Aristotle-Lipset hypothesis. I think there’s some quote– Aristotle, of course,
interpreting– Aristotle in modern
terms is always at best a tricky
business and contentious, because the circumstances
were so different, but there are some ideas
apparently, Aristotle and then Seymour Martin
Lipset put forth some view many years ago that people
taking cross-sections and doing statistical analysis
claim to find this, that essentially economic
growth leads to democracy. And we have tended to view
that economic growth is itself stimulate– or
capitalism is itself– so you see a major
enterprise in the development of economic– a major
cause of economic growth. So this suggests that whatever
association– now, by the way, I mentioned these as
hypotheses are advanced and seriously studied. The way they say they approved
I think would be nonsense, and of course, one
thing is clear– if you fit statistically the
variance around the fitted lines, it’s pretty– it’s very, very big. For example, there was one
big cross-section analysis designed– due to Robert Barrow. And I– whereas I’m
a theorist and I look at the theory of the model. I looked at the– he actually tabulated
the residuals, and China was way off. The economic– or the
democracy in China was– registered a very low
level, well below what would have predicted by the
economic growth of China. So even if there’s some vague
statistical associations, like a lot of these
other associations, like the alleged relationship
between intelligence and income, which– it’s there. It’s perfectly real. It’s just not as big– as
nearly as big as people think. And the evidence–
statistical evidence there, unlike a country– comparing countries
is really dubious. In the case of the intelligence,
I think that we really– we have much better data, and
the evidence is very striking. Now we’re not likely to get– so the hypothesis we’re
discussing today, in a way, it’s not likely to get
a test because everybody says they’re capitalists today. We got to– I mean, we
can discuss, as Bob and– not surprised, those
who know us will not be surprised that my political
opinions are not very– are hardly different
from those of Bob. We sign a lot of
statements together. So I don’t want to repeat
his points, but of course, I think it’s quite
clear, and I won’t– that the– from the point
of view of economic growth, which is at least
helpful in democracy– I don’t know that we
know any more than that– is that the capitalism itself
doesn’t work very well when it’s not well-regulated
and not proper– when there isn’t the checks
and balances which can only supplied by a democracy,
a democratic– powerful democratic state with– and access to free
information by all citizens. Thank you. [APPLAUSE] SUZANNE BERGER:
Well, our topic today is, is capitalism
good for democracy? But as a political
scientist, I guess I think the great
surprise in human history is how good democracy
has been for capitalism. And the great surprise has
been that even in societies in which capitalism has
generated enormous inequalities of property, wealth,
wages, and opportunities, the majority does not
vote to confiscate the riches of the super rich. The majority does not vote to
flatten income inequalities through the tax system, let
alone to overturn property rights or the market economy. And what I’d like to
talk about with you this afternoon is why
capitalism and democracy have been compatible, and
whether this compatibility can survive the
globalization of capitalism. As we see waves of
cross-border flows of capital, goods, and services
transforming our economies, what’s going to happen to
the fit between capitalism and democracy? Over the past 200 years,
more and more countries have come to have both liberal
democratic governments in which they choose leaders in
competitive elections, and at the same time,
free market economies with private property rights. These two systems have coexisted
with remarkable stability despite the inequalities
that capitalism generates. No electorate anywhere
that I know of has ever voted in free elections
to overturn capitalism. There have been very strong
anti-capitalist political movements of both left and
right in Europe and in Asia and in the United
States, indeed, but where political
change has taken place through free and
democratic elections, anti-capitalism has
never won the day. Now this result that democracy
and capitalism can co-exist was not always
taken for granted. I don’t think you need to
have been a Marxist or Marx to have had a great doubt about
the potential compatibility of democracy and capitalism. In fact, it was
the great anxiety of the Founders of
the American republic that democratic
politics might trample the rights of the propertied. To take the formulation of
one of the Founding Fathers, James Madison, he writes
in the Federalist Papers, the great danger
in a democracy is that citizens might organize,
they might mobilize, they might form a faction to
push their economic interests against property-holders. And here– I’m
quoting Madison now– “Democracies have
ever been spectacles of turbulence and contention. They have ever been
found incompatible with personal security or
the rights of property. In general, democracies have
been as short in their lives as they have been
violent in their deaths.” So I think the
question we might start with is why these
dire predictions about democratic government
and an economic system based on individual property rights
and on a free market economy have proved wrong, and I
think there are basically two reasons. First, the constitutional
engineering of Madison and the founders of other
liberal democratic societies did, in fact, work to protect
the rights of individuals and the functioning
of a market economy. Institutions like the Bill
of Rights, the Supreme Court, federalism, and much
else did in fact build dikes that protect
property and protect markets against democratic majorities. And secondly, and
this is the point I want to focus
on this afternoon, democracy and capitalism
have been compatible all these years, I think,
because until recently, capitalism had been
largely contained within national boundaries. Governments still
stood on the frontiers of their national
economies, and they regulated the flow of labor,
capital goods, and services between their own societies
and the international economy. Within domestic
societies, governments acted to cushion the
most disruptive features of capitalism. Business cycles, unemployment,
inflation, depression, environmental degradation. Now of course, some liberal
democratic governments buffered and
regulated capitalism more than others, and in
some times more than others. But what strikes me is
that in the United States, both Republicans and Democrats,
like Social Democrats and Scandinavia, like
the Tories in Britain, all acknowledge some measure
of government’s responsibility and government’s capability
for regulating capitalism to mitigate its
negative effects. To put it another way,
the potential clash between democracy
and capitalism was averted by constitutions that
made our democracies something other than pure democracies,
and by politics that made our capitalism something
different than the textbook models of capitalism. Now today, I think globalization
threatens to undermine this historic compromise. And by globalization, I
mean simply the emergence of a single world
market and a single set of prices for goods,
services, capital, and labor. And of course, there
are many changes that are driving this forward,
new technologies, the fall of the Berlin Wall, the
worldwide liberalization of financial markets, the rise
of big new consumer markets, the rise of big new producers
outside the old developed world. Globalization means that
more of the population everywhere becomes more
vulnerable to economic forces outside their own country. It means a widening
of the inequalities that we’ve already seen
grow in our own society. And at the same time,
globalization apparently reduces government’s
capabilities for shielding citizens
against markets. In fact, far from
shielding citizens against the harshest blows
of globalization, today, governments’ credibility
with international investors seems to depend on
governments’ willingness to subject citizens to the
full force of market pressures. So for example, in the Asian
financial crisis, South Korea, Thailand, Hong
Kong, they virtually competed in making
commitments to impose the burdens of adjustment
on their own citizens without regard to
their relative ability or their relative willingness
to absorb the pain. Now I think the result
in our own country and abroad has been the
growing fear of globalization. The protesters in
Seattle and Prague may look like marginal
and violent individuals, but it’s a fact that their
slogans make a lot of sense to many ordinary
mainstream citizens. It’s a stunning
fact to me that even after years of economic
growth and prosperity in the United States, that
surveys find that over 50% of people say that free trade
is bad for the United States. Now what this reflects
is undoubtedly not economic
sophistication, but it is a measure of the
growing disease, the sense of a loss of control over
the basic foundations of societal well-being. And I think many people
fear that there’s no one who can be held
accountable for basic choices about society’s use of
resources and society’s allocations of reward and risk. When citizens ceased to believe
that they together with others can shape their own future,
then liberal democracies are in trouble. And I think that’s the
fundamental challenge we face today. It’s not only an issue of
how to protect weak groups in our society, even though
that is very important, but I think that even
more difficult question in a world with an
international economy but no international government
is how to bring globalization into the domain of human
choice and human decision? How to bring globalization
into the domain of liberal democratic process? How can we make the
globalization, how can we make capitalism
in a global economy compatible with
liberal democracy? Now I think one
solution to this dilemma could be to provide individuals
with resources that would allow each person to protect
himself in the new economy, and that way, we would reduce
the burden of expectations on what governments need to do. What kind of resources would
we want people to have? Well, the kind of
education and training that would allow a person
to reinvent herself in her job over the
course of a lifetime. We’d want people to be able to
diversify their assets so as to spread family risks,
so that for example, an average family’s life
savings and wealth would not be so heavily concentrated
in the ownership of a house, a home, whose value
depends on many factors outside an individual
or the family’s control. And I think such policies would
be major gains in our society, and they’re policies on
which most of us can agree. But even if we were to imagine
the best of education systems, even if we were to add a
kind of minimum safety net for those people who
are not intelligent enough or not agile
enough to take advantage of these opportunities,
I think there still remains a big question,
and the big question is, are citizens in a
democracy willing to accept that the basic social
distributions of risk, resources, and uncertainties
move so far beyond their reach, move so far beyond
democratic accountability? And on this question,
diagnoses and prescriptions obviously diverge widely. Some people think
there’s nothing that government can do with the
national or international level to regulate globalization. Thomas Friedman, who writes on
the op-ed page of The New York Times, put it in a
very striking way. He describes a
globalized economy as a race of Formula 1 cars. And he says, if you’re
worried about drivers smashing into the walls, what you can
do is give them better driving lessons and improve the skills
of the ambulance technicians to clean up after the wrecks. But, says Friedman, you
can’t put bales of straw all around the walls
of the racetrack to buffer the accidents, or else
you’re going to ruin the race. If you don’t want to
be a Formula 1 driver, then walk or bicycle,
but watch out– you’re going to be run
over by a Formula 1 driver. Now as a professor at
MIT for many years, I’ve devoted all my
professional life to educating Formula 1 drivers. [LAUGHTER] I know how much they
contribute to the giant leaps forward in science, technology,
and human organization that are transforming human
well-being around the world. And yet, I believe– and I know from discussions with
my students– that most of them believe that we want
to live in societies in which the basic rules about
the game, the basic rules about the race are decided not
just by and for the fastest drivers, but by all that people. And our problem, like
James Madison’s, is to find institutions
that all allow us to reconcile democratic
control and capitalism. That capitalism
today is global makes this the most difficult and
important of challenges. MIT, as I have known
it, is a university driven by real-world
problems, and I think here we have one
that deserves our best thinking and imagination. And it’s my hope for MIT
and my hope for the one to grow on for the school that
we can bring our Formula 1 faculty and students together
to respond to this challenge. Thank you. [APPLAUSE] AUDIENCE: My comment
is directed at– AUDIENCE: Wait up. AUDIENCE: My comment is directed
primarily at Professor Arrow. I was listening
very interestingly and finding myself
in the funny position of agreeing with
his point of view while disagreeing vehemently
with one of the examples. I grew up in Italy
in the ’50s and ’60s, and I can guarantee you
that that concentration of economic power was
indeed corrupting. It indeed generated a lot
of examples of everything from the most base graft to
the very programmed and planned usage of millions of
votes of individuals who would benefit
from that system in order to support
a political system. However– KENNETH ARROW: You’re part of
the Institute of [INAUDIBLE]?? AUDIENCE: No. KENNETH ARROW: That’s
what I had in mind. AUDIENCE: I’m thinking
of [INAUDIBLE],, I’m thinking of [INAUDIBLE],,
I’m thinking of [INAUDIBLE] and of various others. However, it didn’t work in
the direction of tyranny, primarily because
as a population, we tend to prefer to discuss
these things over a good meal with a lot of wine, and that
tends to calm the spirits and to focus on
important things in life. But I do want to say that
over 15 years in this country, one of the items that I
find most interesting– and I think the topic of today’s
symposium is a symbol of it– is a peculiar
obsession with thinking that capitalism and democracy
are indeed connected. And I’m wondering if the
question shouldn’t be, what else besides
the economic system, be that capitalism or
socialism, is indeed conducive to the kind of
remarkably open society which I think this
country is one of the best examples in the world? JOSHUA COHEN: It’s not the
quality of the cuisine. [LAUGHTER] KENNETH ARROW: Well, thank
you for your comment. There is, of course,
an important point, which I alluded to in one form,
but I didn’t go into detail, which is, when you have
an economy, let’s say– let’s say a capitalist economy
in conjunction with a political system which has
economic power– state ownership,
regulatory behavior– you have, of course, the
question of translating that power into– the economic power translates
into political power, and one form takes, of course,
is straight corruption. As you suggest, it can
be used by the government to try to buy votes I think
it was one of your points– it could be used for personal
gain to get privileges and so forth. That is, of course, a
fundamental dilemma of which there’s no way of avoiding. Now one argument, of course,
this does lead to an argument for a very minimal state, which
I think, unfortunately has, other problems, that the
inequality that arise in– and even inefficiencies
that arise out of an unregulated capitalism. Also, involve–
create another set of problems that are different
from the corruption problems. I think maybe it was Professor
Cohen in his direct remarks suggested there’s– there are always–
it’s not a question of saying that you
will avoid problems. It’s a question of saying, we
try to minimize the tensions. Indeed, one can argue that
if you have no problems, you have no progress,
either, by the way, so that the tensions
can be fruitful. All I was pointing out in
Italy, it was– one thing, it was not useful, and that was
the only thing I was saying, that it affected the
democratic system– it affected the performance of
the democratic system I think is what you’re saying,
not– it did not affect the democratic structure. And this is, of course,
a problem can occur in vote buying of all sorts. One typical example
in the United States– it’s not anything
threatening to democracy, but it’s a complication– is military expenditures
as local goods, as providing an income
and local goods. The most extreme version
is we have bases. These bases typically
develop a relationship to the local economy
or thought of– probably not even correctly,
but they’re thought of as supporting the economy. Anytime you try– the Defense
Department is perfectly willing to have these bases closed. They have no interest
in many of them. It’s not even– it’s
not even a question of a military
industrial complex. The military don’t care. In fact, they’d like the
money, but they want it for other purposes. But then you always
have local senators, congressmen and so forth
protecting their interests. So as soon as you
have– and that’s an example where there’s
some economic power operating in some locality,
and therefore generates local things. And the Texas oil
millionaires and the– all of these– the
continuous buying of special tax provisions,
which is notorious, all of these are examples of when as soon as
the state has economic power, it’s likely to lead to an
attempt to buy that power. And you point out– it’s quite
correct that I’m sure that the [INAUDIBLE] and any
involve themselves in– I mean, I don’t know the– I’ll take your word for
the facts, but it’s– logically I see no argument
against your position that they– once you have these powers, that
you will– they will be used, yes. And the only hope
would be to create competition and
other things which would make this unsustainable. JOSHUA COHEN: In the back. AUDIENCE: Hi. This is kind of for
anybody on the panel. I’ve heard it said that it’s a
good thing that the people who avail themselves most
of government services are also the people
who vote the least. And you see that to some extent
evidenced by the 50% turnout that we see even in presidential
elections in this country. I’m wondering to what extent
you think that economic power is able to buy political
power and discourage people who might otherwise
participate from not– into not participating,
how you think that might be able to be
reversed, and what you think might happen to America
if there was 90% turnout in terms of political and
economic distribution. ROBERT SOLOW: Well, I’ll leave
that last part of the question to Suzanne or anybody
else, but I’m not sure that it’s a very good– that it’s really quite
right to say that in the US, for instance, those who
use the government the most vote the least. I belong to one class of people
which directly controverts that, namely the old. KENNETH ARROW: Retired. [LAUGHTER] ROBERT SOLOW: Kenneth
wants me to say retired. That’s an organizational
statement. I think that the– I’m not sure how good
that correlation would be. Middle class people in
the US who are generally the ones who vote get a lot
of benefits from government. They don’t much like paying
the taxes that support them, but they don’t mind the
benefits, and they vote. I think what governs
turnout in elections is much more
complicated than simply how much of my annual
budget comes from checks signed by the Treasury. But maybe Suzanne has
more to say about that. SUZANNE BERGER: There’s
an enormous literature in political science on
who votes and who does not, but what I think
is very striking is how high the abstention
rate is in the United States compared to most other
advanced industrial countries. And I think there, we have
to go back to the point that Mr. Falcone
made that there are other factors that
really determine the quality of our democracy. What is the quality of the
choices that people are offered in the electoral system? What are the possibilities
for participating in various other– in
various levels of government? So I think that there
is a lot at stake here and there is a puzzle
that’s entered, doesn’t depend uniquely
on the economic system. JOSHUA COHEN: Just on– just one– on the
empirics of this, it is true that lower
income citizens vote at smaller rates than
higher income citizens, but people who’ve
actually looked at the distribution
of political opinion among voters and nonvoters
conclude that there really isn’t that large a difference
in the distribution of political opinion. So in order to think that
a large increase in turnout would produce a
substantial difference in electoral outcomes,
what you’d have to do is make a bet– not that
this is an unsafe bet, but it’s the bet
you’d have to make. You’d have to make a large bet
that the political opinions of nonvoters would be shifted
by the way they were mobilized by people who got them to vote. But if you look
statically, so to speak, the opinions of the
population as a whole are very much like the opinions
of the subset that votes. ROBERT SOLOW:
That’s interesting, because that isn’t the answer to
the last part of the question. JOSHUA COHEN: That’s
why I said it. [LAUGHTER] Yes, go ahead. Right here in the– we need a microphone here. Oh, there’s a microphone. AUDIENCE: My question
is for Professor Berger. You mentioned that about when
you were talking about rules must be decided not by
and for Formula 1 drivers, but by all people. What sort of
institutions do you think would be necessary
for that to happen? For example, Dani Rodrik
at the Kennedy School, he advocates the conflict
management institutions when she mentions democracy
and social safety nets, et cetera, education levels. What, in your opinion, would
be the critical institutions necessary for full participation
and coverage as well? SUZANNE BERGER: I wish I
could give you an answer. And I think that the
hardest part of the answer is that the institutions
we would need would have to be more than
national institutions. The widespread sense that the
IMF, the World Bank are somehow determining the
fortunes of societies and yet citizens have
no way of effecting the decisions of the WTO or
the IMF or the World Bank, the question is, how do we– how do we provide some
measure of accountability of those institutions? Why is it that that– I mean, we do have
representatives of our own national governments
sitting on those bodies, and yet it seems to most people
to be far too indirect linkage to the bodies that
apparently are making direct decisions
about our social and economic welfare. So the problem that
we have to solve here is not simply how we change
our own national institutions, but how we could link– how we could link
national governments to these international bodies. That’s what I think is
really the tough part here. ROBERT SOLOW: Could
I say something? I have a question about a
part of Suzanne’s argument. I’m not sure it’s so
clear that globalization in the sense of large volume
of international trade, or even perhaps– although I’m a little
more doubtful about this– a large volume of
international capital movements creates such a
drastic limitation on the ability of
national governments to regulate the things
that really matter. I think the reason why
in many poor countries the national
government does not do the things that the people
like us in this room would wish they would do is
not because they’re exporting and importing, or even in
large part, and even often not because they’re dependent
on foreign capital, it’s because they are
either unwise or corrupt, or in any case,
unsatisfactory governments on national grounds. There is– globalization
has very little to do with the
tax system of even a fairly small country, which
can do more or less what it wants. The trouble is that
they don’t want to do– I shouldn’t put it that
way, because it’s not clear whose volition is involved
here, but I don’t think it’s mainly globalization. Globalization provides
a nice scapegoat for a government or a party or
an institution that does not want to do something that it
might for one reason or another does not want to do. JOSHUA COHEN: I have– and then back there. Yeah, go ahead. AUDIENCE: Pursuing this
question about limitations, I’d like to ask if any
of you have reactions to the Danish decision
about 10 days ago not to join the euro
area, because at least according to the
American newspapers, the reason was that they feared
that they would have to– they couldn’t maintain
their own safety net and active government to deal
with the distribution of income and power that you’ve
been talking about. Now Denmark is the classic
small open economy of economics, has been involved in
international trade very heavily for the
past century at least. And here, they voted against
joining a single currency area. And so I’m wondering whether
that’s a critical limitation or whether this is
just the opportunity to opt out of globalization or
whether something else entirely is going on in the relationship
between economic policy and the ability
of the government to effect its own decisions. SUZANNE BERGER: Professor
Peter Temin, whose question concerned Denmark, is the person
from whom I’ve learned most about the operation
of the gold standard and the way in which
government’s credibility depended in the 19th century
and parts of the 20th on government’s
willingness to inflict the burden of adjustment
on its own population. And I think that that’s really– that in some respects,
that’s the political dilemma that we’re looking
at again today. That remaining in an open
market, a market which is– in a market which is open to
capital flows and short-term capital flows as well as direct
foreign direct investment, puts governments in the position
that the Asian economies were in 1997-1998 of fearing
that unless they, in fact, impose the full weight of
the adjustment on their own populations, they
would not risk– they would not be able to– they would not continue
to receive capital from the outside world. I think– I’m no expert
on Danish politics, but it seems to be a
judgment of the Danes that they would be giving
up some valuable measure of political control over the
conditions of everyday life. ROBERT SOLOW:
Peter, something is rotten in the state
of Denmark here, because what I don’t know– the argument that you’ve
described as having been given doesn’t make a lot of sense. What the Danes voted against
was the European Monetary Union. It has little or nothing to do
with their ability to maintain their own social safety net. The problem with social
services and social assistance is the European Union itself,
which proposes eventually to have– to harmonize, as the
phrase goes, social policy across the members. I’m not– I think– what– myself– the
Danes were on about is that they understand that
the monetary union is not an economic thing at all,
it’s a political gesture. It’s a gesture that amounts to
some kind of semi-commitment– commitment is much too
strong, but as a step toward a political
union in Europe. And a small country
living on a little neck of land right near
Germany might not care much for a political union
in Europe, and I think myself, the vote against the EMU
was a vote against that. It certainly doesn’t
make sense to suppose that it would really
limit their capacity to maintain social policy. JOSHUA COHEN: All
the way in the back. AUDIENCE: This question is
addressed to Professor Berger. One of the very strong
point in your presentation, the argument was that
the national governments were doing– providing the institutional
framework in which people still within the capitalism, if
there were certain disparities or whatever, but they felt
that they had the reach and they can make
the basic choices. And the challenge is that
that’s not happening now because of the globalization. And then there’s a connection
in your argument saying, well, this can be seen by the fact
that the people never voted against capitalism, never
wanted to turn down the property rights. But if that’s the connection,
and if I followed that correctly, to me, I
pose to you, of course, drawing from the
experiences of India, that people are not
voting against government, which are also allowing the
globalization to take place. So this argument is
that the peoples not voting against capitalist modes
of production– capitalism and the connection of
democracy and goodness about it within the
nationalist boundary, it was evident because of people
not turning it upside-down. People are not
turning upside-down to globalization process. And their national
governments, elected by people, are taking decisions to
move into globalization and integrate it well. So, I mean, how do we see
this, too, which may appear– I mean, why would– then there
will be a worry about this people’s helplessness about
choices and not being able to– I mean, are the worried about
being overrun by the Formula 1 car, where apparently,
by this logic, they are asking the
governments to do that and put them in that situation. SUZANNE BERGER: I guess we have
to ask whether people actually believe that in voting
for the governments they’ve chosen in
India or wherever, that they’re actually
voting for globalization. In fact, parties,
elections, choices have been structured around
very different lines. And what I think is one of
the most fascinating changes over the last two
or three years is, that globalization is emerging
as an issue which people see at stake in political contests,
but it would be very difficult for me to think that
the rulers we chose or that Indians chose in
the 1980s and the 1990s, that people thought
that by their choices, they were choosing the
kind of globalized world that we have moved into. Elections weren’t fought
out over those issues. What people will
think once they think about politics in
those terms, that seems to me a different point. KENNETH ARROW: That’s
an observation the– it strikes me as interesting
that there are issues– and I think globalization is– I will say in the United
States and that vote from NAFTA or WTO, that are– where the
elite, the political elite are different. Differ from the
country as a whole. Here we have two presidential
candidates firmly in favor of globalization. There’s no way of voting for it. In both cases, we know
that significant members of the party– in fact, in
the case of the Democrats, a majority of the party has
voted against the proposals which are espoused by
Vise President Gore, and certainly within
the Republican Party, while it’s slightly
different there, there’s a large number who would
probably follow Pat Buchanan– if they could
otherwise stand him– on this issue. And the same thing is true– the discussion about
capital punishment raises very much the
same issues in Europe. Polls suggest that
the majority of people are in favor of
capital punishment, and yet no country in Europe
has capital punishment. So there are situations in
which the political elite take stands. Now presumably if the people
felt strongly enough about it, if that became the
big issue, then– that it would overturn the
other issues and people would vote for it. But when there’s obviously a
certain permissive attitude on the part of the
broad electorate, I find this issue
very interesting, and most these cases,
to be perfectly frank, I think their leader’s right
and the people are wrong. [LAUGHTER] JOSHUA COHEN: Back here. AUDIENCE: I’d like to address
this question to the panel. And it’s a very
general question, I hope it makes sense. And I think generally,
it has to do with the– what might be called
the globalization of ideas, which is an old idea, and
the interaction of ideas with cultures. And I’d rather shout, if I
may, can everybody hear me? AUDIENCE: It’s being recorded. There you go. AUDIENCE: OK. My question, then, is
the original question of the relationship between
democracy and capitalism. I hear on one part it’s an
historical accident because it grew out of the same
media, and that you would expect certain
commonalities of values and commonalities. However, the way it evolves
has to do with the way people respond to things like the
application of brute force and the application of ideas
that spread across boundaries. And I think of this in
terms of Southeast Asia very often, because the
Southeast Asian revolts and revolutions, if you go
back to the Philippines, the Philippines became a
model for the Burmese revolt in 1988, which became a model
for the Chinese revolt in 1989, which was in a country
that was a curious mix of Chinese traditional values
and European ideas on politics. And I’m thinking that
things tend to spread, and that the apparent
correlation that remains between
capitalism and democracy is a sort of convergence. That in fact,
what’s happening is you’re getting a spread
of ideas in their own way, and you’re also
getting people who want to develop economically,
and that there’s no real necessary
correlation between the two. Thank you. ROBERT SOLOW: I wish a simple
yes or no would suffice. KENNETH ARROW: Well, let
me take a stab at it. There is– of course,
diffusion of ideas is very old. One of the examples
I always like is the diffusion of
foods from the new world after its discovery. Think Italian cuisine
without tomatoes. The– or Szechuan. Take something really remote
without chili peppers. These are all New World
products, so they all– all these, quote, “great
traditions” are all very recent and spread out. However, it’s quite clear that
different places picked up different parts of that. To say the student revolt of
the late ’60s is another example of something that gets spread
very rapidly from the United States and Europe– imitation. But it took different forms,
had a different consequence. The culture, the– or the
needs of the particular haven’t played a
big selective role, and the fact is that
some of these things fizzle out and do not remain
permanent, some catch on and there is a– it’s a
little more complicated than saying this
is simply fadism or imitation in a crude sense. There has got to be a select– it’s like evolution. I mean, there’s a
slight analogous to, it’s not identical to it. So there’s a selection–
there’s a mutation element– in this case, an imitation
element which is– we don’t have in biology, but
it’s also a selection element, and the selection
element may be the more permanent and important
parts of the phenomena. Journalism may depend
on fads, history may depend on selection. SUZANNE BERGER: I think the
question that Julian Wheatley has posed is really an
interesting one, because I think we really do have mental
maps that link together things that might have no
necessarily relation in– necessary mechanical relation,
and that a particular kind of economic system and
a particular conceptions of political freedom have
become joined together in people’s understanding
of how the world works. This is something
like what I guess Gramsci meant when he talked
about the hegemony of ideas, people’s understanding that
certain ways of organizing society are necessary to a good
and decent and well-functioning society. So I think that even if we
could demonstrate that there are no necessary links between
these economic– features of the economic system
and particular features of the political system,
that you’re absolutely right, that these have now
become joined in a way where people feel that
they do, in fact, have to sign on for
the whole package, that these are not available,
that you can’t sign on for one item on the
list, but it is– that they are in some way
joined as human possibility. ROBERT SOLOW: But then it
ought to be really very important to piece
out what is true and what is false
about the capacity to separate the parts of the
package– salesman, of course, are always trying to sell
you the whole package. And I suppose part of
the wisdom of shopping is to pick out only
the part that you want. I think the problem that’s
being circled around here is just that everything
that happens, so to speak, in the political,
social, economic realm is a mixture of
general principles and local peculiarities. The local peculiarities
are sometimes historical and sometimes arise
in some other way. But the same set of
principles applied in a place with one
kind of institutions will generate something
so different from what it would generate if
the institutions were a little otherwise. AUDIENCE: I’ve got a question
for Professor Berger. It’s essentially an
objection to this argument that people don’t vote
against capitalism. And in my opinion, what
happens that you can buy easily media coverage– for
instance, the two major party participated debate and another
was not represented there. And what happened
in [INAUDIBLE] was that just two people
with liberalism ideas were facing each
other with somewhat the same global program. So, I mean, no socialist
idea were discussed there, no promise about union
rights or worker rights or stuff like that. So my opinion, it’s
easy for capitalists to buy consensus among
people by agreement. It’s easy to somewhat
get agreement from non-educated people
and keep them non-educated as was in the feudalist. And isn’t what the same now here
in the US because good schools are not easily accessible by
poor people that can afford tuition and stuff like that. So my question is
that, it’s not just capitalists buying
his own agreement, his own place in society
and in democracies? SUZANNE BERGER:
Well, I mean, I think that it is possible to
buy something in politics, and I think everyone
on the panel has acknowledged
how much in politics and how much an
electoral campaign does seem to depend on money. But if you look not
at the United States, but let’s say
Europe, you’ll find large anti-capitalist
social movements, large anti-capitalist political
parties, communist parties, Catholic parties that
were anti-capitalist and that did receive significant
numbers of votes in elections. I didn’t say that nobody voted
for anti-capitalist parties, it’s that a majority of
the electorate in none of these societies has ever
been able to get itself together on an anti-capitalist
alternative. And even in societies
in which there are strong anti-capitalists
alternatives, the majority of the electorate
has not made this choice. AUDIENCE: Actually if I– actually, three years ago in– sorry, a few years ago, that’s
four years ago in Italy, the leftists wing go to
the power, so it happened. SUZANNE BERGER: Ah, but I
guess I would say that’s the– it’s examples like that that
sort of would prove my point. Because what had
happened to the left before they could
win this election was the left itself
had been transformed. We had the former
communist prime minister of Italy, Massimo D’Alema,
here at MIT explaining to us his profound commitment to all
of the principles of the market economy, capitalism, and
there was nothing in what he said that, in fact, any– virtually almost any
Republican might not have been able to sign onto. ROBERT SOLOW: You should keep
in mind that the United Kingdom today is governed by what is
nominally a socialist party. AUDIENCE: Could
you please comment on the tensions between
globalization and individuality and self-sufficiency? SUZANNE BERGER: Josh. [LAUGHTER] KENNETH ARROW: Well, let me
start by getting this off for both of us. Certainly when it
comes to individuality if you’re meaning individuality
really on an individual basis, one could say that
human beings are never more complete than
when they’re in contact with other human beings. I do not think having a
greater variety group opposed to a greater variety of
ideas, opposed to a greater variety of choices of ways– examples of ways
of life and as well as economic
alternative commodities is anything but an
increase in individuality. Now perhaps you mean
individual cultures. This is what the
people talk about. It was a French hero– true, he got three
months in jail, but still is regarded as a hero
for burning down a McDonald’s. Now it’s interesting– who
goes to McDonald’s in France? It’s not tourists. They don’t go to– it’s Frenchmen who go there. And now is this– this– it could be–
it could be regarded and is regarded, of course,
by some people as something– a deprivation of
the right of France to have its own cultural things. And these examples
usually in conflict turn out to be some kind
of local economic interest, like protecting farmers
or something like that. Well, I think you have to
ask yourself– certainly about its self-sufficiency,
of course. International trade is a
branch of self-sufficiency. And that– we can go into the
argument as to whether you want self-sufficiency. I think it’s a bad idea
for every point of view, but that is a conceivable thing. But it’s certainly–
the idea that most of this attachment
to the Japanese growing your own rice or
something like that, that’s not self-sufficiency for
the individual, by the way, that self-sufficiency
to Japan, but it’s no way improving
self-sufficiency of any individual. An urban Tokyo– a
Tokyo persons is as much the victim of the
Japanese farmer as he would be of a
Thai or American farmer. Well, the– for example,
that’s an extreme case cause the Japanese actually
ordinarily exclude foreign rice completely. And one of the fears, according
to my Japanese friends, is they will find that
American rice is superior. And there’s some evidence
for that, by the way. [LAUGHTER] JOSHUA COHEN: There you go. AUDIENCE: A comment
that Professor Berger can respond to, but I have a
question for Professor Solow. The comment is the race– the race car driver
analogy to me fails because there’s
a kind of race where– I know one or two examples,
the drivers walk away unscathed and all the
spectators get killed and pit crew gets killed next. I know a few drivers on
beaches who are unscathed. So that’s– I don’t think that
analogy works in globalization. The question I have
for Professor Solow is, of the three remedies
you mentioned, and everybody who’s been
talking about buying of power, you didn’t discuss the
campaign finance reform issues that have been so prominent. I’m just wondering whether
that’s because it’s so obvious, or specifically I’d like to ask
whether the extreme of making it a publicly-financed
system would not be a good solution,
oh whether that’s not realistic to want that. ROBERT SOLOW: Well, you
guessed right, I did not– I didn’t mention campaign
finance reform because it seems to me, as I suppose it seems
to everybody in this room, that it’s a desperately-needed
thing and would be an improvement or
our political system, so I didn’t think I needed to
make a plea for trying as best we can to diminish– probably never possible–
to exclude the role of big time money in politics. I would think– it’s a difficult
legal problem, I guess. One way– and it would be– God knows would be better for
all of us, especially students, people who have to read and
work and things like that is to shorten the damn
political campaign and have less time for
the spending of money, but it’s difficult
to see how that can be done without violating
individual rights, rights of free speech and so on. But I think that– I don’t want to take
too long about this– an extremely important
advantage that we could create for ourselves
is either to go over to public financing
of political campaigns or to do some quite
drastic limitation on what can be spent. JOSHUA COHEN: Let me
go to you on the aisle. Yeah. AUDIENCE: My question
is, as everybody– you all agree that
globalization is necessarily– JOSHUA COHEN: Can you
talk into microphone? AUDIENCE: I said you all
agree that globalization is necessary. But what I’m asking
is that when America wanted to industrialize, most
countries that industrialized late after Britain have
to close their borders in order to grow the economy,
to grow the new industrial stuff to become competitive
in the market. So what I’m asking, why couldn’t
the developing countries be allowed to do so? Because globalization
means opening the borders and competition
between young industries and advancing industries. So what I’m asking next is,
is globalization not a way for pushing all the polluting
industries to developing countries and making
benefit of it? If not, why can’t we
allow globalization to permit movement of labor? Not only capital and investment,
but movement of labor so that it is globalization. Why is globalization
against movement of labor? Thank you. ROBERT SOLOW: I’m afraid
I didn’t understand. KENNETH ARROW: One
aspect is we’re not permitting immigration along
with the rest of globalization. ROBERT SOLOW: Oh, oh, oh. KENNETH ARROW: And you’re right. Well, I don’t who
wants to tackle this. Is this as strong as– if I understand your question
correctly, I didn’t quite– you were saying
that globalization, because of free trade– so say
industries move from the United States or other advanced
countries into the less advanced world, and then you’re
worried about the– apparently you don’t regard
that as a good– I don’t know why you don’t
regard that as a good solution, by the way, since it enhances
the wealth of the world. You suggest that
instead of that, you’re going to have
migration of labor. AUDIENCE: No, no, no. My question is, why is it that
polluting industries migrate to developing countries? Well what is happening is
the race to the bottom line, not even race to the bottom. Industries that are highly
polluting– for example, recently America passed the
Africa Growth Opportunity Act. Under the– KENNETH ARROW: Speak
a little more slowly? I’m afraid– ROBERT SOLOW: We’re not
understanding you here. AUDIENCE: Do not understand me. OK, let me start off right. Why is it that when America
wanted to industrialize, it had to close its borders
so that young industries could grow and later become effective
to compete with Britain? As France did and Germany did. Why is it that in the period
of developing countries, they would not be
allowed to do so? And why is it that the
developing countries are not allowed to take the
responsibilities of polluting industries? Because there’s no the
race to the bottom line, not a race to the bottom. In this case, all the
polluting industries, the chemical industries,
textile industries are being shifted to
developing countries. And it is devastating the
environment of these areas. Now why can’t we
move– allow labor its way to move around
from developing countries to developed country? That’s my question. SUZANNE BERGER: I think what– you’re really asking
about two things. One, what’s the relationship
between globalization and the possibilities for
growth of today’s developing economies. If societies like
South Korea, Taiwan, Hong Kong were able to
grow to some extent– or Japan we’re able to grow–
in part, they did do that– behind closed borders, and one
of the possibilities, if we, in fact, imposed through WTO
or imposed through the IMF and the World Bank trade
openness on today’s developing economies, will we
hurt their growth? And I’ll leave this question to
my economist colleagues here, but I’d like to address the
second question that you asked, and that is, why don’t we
allow free migration of people across borders? And in fact, during the
first globalization, that globalization from the
middle of the 19th century until World War I,
there were far more massive migration of workers
across national borders than anything we see today. And the result of that
was that the price of– wages– wages fell
in the societies into which the immigrants moved,
and wages rose in the societies from which the
laborers departed. And I think that there
is a keen sense in– today– in our population
that the massive entry of new immigrants would be
bad for peoples– for the wages of the
existing population. And so this is politically
an extremely unpopular– it’s an extremely
unpopular political move. That’s why. Not that there is any
justice associated with it, it’s the luck of the draw
which side of a border you happen to live on. ROBERT SOLOW: Let me
just add one more point, not to this particular
issue, but to what I gather now you are asking about. If one of the
characteristics or one of the accompaniments of
what’s called globalization is the free movement of
capital from rich countries to poor countries,
then that is probably the single most
powerful force that is available for improving
the standard of living in poor countries. What distinguishes poor
countries from rich countries generally is that poor
countries are labor-rich and capital-poor, and rich
countries are capital-rich– not always labor-poor,
but relatively speaking, highly capital-intensive. That provides a
natural advantage both for capital-seeking profit,
which is what it tends to do, and for poor countries that find
themselves without the capital equipment that’s the absolute– absolutely necessary
basis for rising incomes per person– or rising
wages to put it bluntly. They should be welcoming
capital from abroad. There’s no reason to
allow foreign corporations to dominate the politics,
to dominate the culture, to do any of those bad
things, but the capital itself ought to be welcome. JOSHUA COHEN: I had– there and then there. Yeah, go ahead. AUDIENCE: Yes, this is
directed to Professor Berger, pretty much. We live in a ever increasingly
complicated feedback network in the world. Feedback networks are very well
understood, particularly here at MIT, but they’re also prone
to instability unless they’re designed very, very carefully. Could you comment on that in
the context of all of this? SUZANNE BERGER:
Could you say more? [LAUGHTER] ROBERT SOLOW:
Could– well, I’ll– I think that it’s
a sort of poetry to say that we live
in a feedback network and feedback networks are– have the kinds of
characteristics that you mentioned,
instabilities and whatnot, unless they’re
carefully designed. But I called it
poetry because I think the direct applicability
of that sort of formulation to the kinds of problems
we are discussing here is small, very small. And the reason is
that the elements of the network that
you’re talking about are human beings, corporations,
whole societies, governments, legislatures, terrorists,
God knows what. And we know very little about
the responses of those elements to simple shocks, to
simple disturbances. We don’t know their operating
characteristics very well. And the notion that
you could think of a whole society, the society
we live in as a feedback network we live in, is
perhaps a good metaphor, but I don’t think
at the moment– or for the next long
period of time– it’s going to be a metaphor
that we can translate into diagrams and equations. JOSHUA COHEN: Yeah. AUDIENCE: OK, should I start– JOSHUA COHEN:
Microphone’s coming. AUDIENCE: All right. I think Sweden has been
mentioned a couple of times here, so I might just
as well say something, because I come from Sweden and
I’ve been here for six weeks. And one thing that strikes– strokes– strick? No? Strikes me as how many
more choices Americans have to make individual– individualists choices for
insurance and where to– how to invest your pensions
and what telephone company or whatever you have to– you want to choose. And this is something that
your less-regulated capitalism forces upon you, I guess, if
I could put it in that way. And I wonder, do you
think that this– all these choices in the US,
are they good for democracy? Do they make people feel
more empowered in order to participate in democratic
activity or equality things? Or is it negative
because it takes so much space of the information
flow with commercials and so– or is it irrelevant
for democracy? ROBERT SOLOW: Well,
I think it’s probably accurate to say that the
availability of those choices is, in the American culture and
the American level of income, welcomed. Very few– I have
occasionally tried the experiment of walking
into a drugstore and saying, I’d like some toothpaste. [LAUGHTER] And the salesperson says, what
kind of toothpaste do you want? And I said, I don’t care, I
just want some toothpaste. And there’s a– JOSHUA COHEN: And they
say, where are you from? ROBERT SOLOW: Yeah, no– [LAUGHTER] There’s an– you’d think that a
good drugstore proprietor would know what brand of toothpaste
his margin is 8/10 of 1% bigger on, and would
thrust a large tube of that into my hand. But no, no, no, I can’t tell
you what toothpaste to have, you have to say what
toothpaste you want. I’ve even sometimes gone so
far to say, they’re all alike, and– no, no, no. But the– it’s a
funny experiment, but the point is I think valid,
this is a cultural– cultural economic thing, but choice is
generally regarded favorably. Now we all agree, by the
way, that political choice is a good thing. One could say yes,
but you don’t have to choose your portfolio
for your pension fund, and probably a lot
of people who do choose it would be better
off if somebody else chose it for them. But who? They’d have to
choose that person. In any case, I don’t know how
Swedes feel about restricted choice, if they feel
themselves as being hemmed in and having choices made for
them that they would rather make for themselves. But on the whole,
it sells in the US to widen choices
that are available. KENNETH ARROW: You’re
a multi-party system. So apparently when it comes to
the booths, the polling booth, you obviously have more
choice than the Americans. So– and this doesn’t seem to
disconcert anybody in Sweden, right? JOSHUA COHEN: Last question. AUDIENCE: I don’t
know that I need it. I have a simple question,
and that is we’ve talked to everything
in a steady state, and the world population
explosion is in front of us. And it seems to me the biggest
thing that’s facing us, and you haven’t mentioned
what effect that will have on capitalism and democracy. ROBERT SOLOW: Well, Dr.
Baranick is certainly right that population growth is a
very, very large phenomenon and almost certainly a
problem for the world. What its effects on democracy
will be very hard to say. As the world gets
more crowded, there will be more pressure
to move across borders, and this may have influences
on the way we live or our political lives. If increasing population should
in large parts of the world– not in all– force down standards of
living, that would certainly affect both the way we
organize our economies and the way we organize
our political life. KENNETH ARROW: To pick
up on this a little bit, we notice that the
population growth is concentrated in the countries
where the democracy is least well-established. And this, I think, is the
thing– in other words, the average degree of democracy
is going down for statistical, so to speak, just for–
on a pure counting basis. In fact, the countries
of Western Europe are showing remarkable–
and actually, almost incredible degrees
of population decline. Now of course, one
of the things– and this links back to the– links back to an
earlier observation– is that you’re getting
vacuums into which immigration is induced to flow. It’s true that, as
Professor Berger said, that immigration flows are
not what they were in the– around the turn of the century– the last century
ended years ago– but the– but they are– there are large– I mean, Italy
was a country of emigration, it’s now a country
of immigration. And it changes– there are lots
of problems in assimilation connected with
immigration, which– they are transitory, but
as your question hints, transition may be a
long period, and we’ve got to worry about what
happens in the transition. But the real problems
it seems to me is the growth in
countries with low– with relatively low
democratic experience. And this– certainly if
you think of the idea, which has been suggested in
questions about international institutions and the idea of
responsibility of international institutions, it seems to me
this is an increasing block– a block to the
democratization of– and it is striking
that these institutions are what somebody once called– what [? Calabrese ?] once called
it, aresponsible agencies. They’re not literally
aresponsible, but the links are they’re
autonomous and they’re– the European Central
Bank is incredible. There’s no political
counterpoint. Here you have a central
bank running on money with no political counterpart. And in the short-run, there
are perfectly good reasons why that happens. And I’m sure it’ll run
very well for a while. However, you worry
about the long-run of– what the long-run is. And I think the attempt to– the
idea of discharging, increasing the role of international
institutions, which there are obviously
a lot of pluses, is going to be held back by
the demographic imbalance. Democratic countries
are not going to be prepared to give
up their sovereignty to such organizations. JOSHUA COHEN: It’s an
instance of our theme here, that when you make
an agreement with speakers, you give– there’s a kind of
contract you enter, and they get a
certain privilege, which is the privilege that you
end at the time you promised them, to end that even when
most of the people in the room will have their hands up
would like to keep going. So I’d like to
thank the speakers. [APPLAUSE] I thank all of you for
a wonderful session, and it’s time to end these
two days that I thought were spectacular. Thank you very much. [APPLAUSE]

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