There are many instances in the history of economic thought where economists did not use what today has become the concept of ‘national competitiveness’ but nonetheless wrote about things that look eerily familiar when viewed through the lens of the modern-day Competitiveness Agenda. Veblen’s 1904 Theory of Business Enterprise contains many important passages of this nature. Business leaders, he noted, had become remarkably successful at presenting themselves as the selfless foot soldiers in a national struggle for international economic pre-eminence. Yet for Veblen this was all a carefully constructed smokescreen. They could hardly be seen as guardians of the national interest, he argued, because they enacted significant damage on the economy’s social provisioning capacity in the self-serving desire to protect the social inequalities from which they benefited so handsomely. This latest post for Fools’ Gold by Matthew Watson captures the essence of Veblen’s original argument, while drawing out its implications for understanding the modern-day Competitiveness Agenda.
Thorstein Veblen: The Thinker Who Saw Through the Competitiveness Agenda
By Prof. Matthew Watson
Thorstein Veblen’s Theory of Business Enterprise can be read as an anti-competitiveness manifesto long before the Competitiveness Agenda first saw the light of day.
[Veblen’s Theory of Business Enterprise] might very well be described as one of economics’ most important forgotten books.
But just as the Competitiveness Agenda often continues to fly under the radar even now, so too does the Theory of Business Enterprise. It might very well be described as one of their subject field’s most important forgotten books, because it raises barely a stir in the collective consciousness of contemporary economists. Veblen had written an earlier (1899) bestseller, the Theory of the Leisure Class, in which he mercilessly lampooned the lifestyles of the status-seeking nouveaux riches in the United States at the turn of the twentieth century. That book, which made his name, is still much more famous today than the ones that followed. Even here, though, economists find Veblen’s work all too easy to ignore: so a few introductory words are in order.
Members of the leisure class, Veblen wrote, were the self-anointed arbiters of taste, with their displays of excess all designed as a signal that they had acquired a social status founded on the ability to break the link between consumption and work. They consumed ‘conspicuously’, seeking other people’s regard for the wealth that they could put on display, but they were equally conspicuously non-labourers. Within a society in which ownership of the means of production was concentrated in so few hands, the wealth that underpinned the leisure class’s consumption-for-show was built on the back of someone else’s hard work. The Theory of the Leisure Class is packed full of astute social observations that continue to delight for the contempt that they pour on consumption-for-show. But in Veblen’s mind it was merely a scene-setter: it was used to pave the way for a devastating critique of the distortions that private ownership introduced into the economy. Leisure class activities were ripe for ridicule on their own terms, he believed, but their real importance lay in the recognition that they were merely the manifestation of the social dysfunctionality of private ownership within what he called “the predatory phase of culture”.
There must be a political mechanism in play that stops the majority’s wishes from winning out over the minority’s. Veblen identified that mechanism in the private owners’ successful appropriation of the discourse of nationalism. The more business leaders can appropriate the image of an economic struggle between nations, the more they can position their actions as engaging that struggle on behalf of the country as a whole.
At the time that Veblen was putting pen to paper for the Theory of Business Enterprise, neoclassical economists were trying their utmost to systematise their own approach into a trans-historical and trans-contextual economic theory. He was as rude about these efforts as he was the activities of the leisure class. It remains the case today that neoclassical agents are supposedly always able to identify and then bring about the utility-maximising alternative: in this way they might act upon their own self-interest but they also serve the public interest by helping to impose allocative efficiency on the market environment. The assumption of efficiency continues to be taken as given, but as a description of actual economic conditions Veblen believed that it was pathologically inept.
Sabotaging competition, while paying lip service to it
The sharp-eyed critic of modern society could only ever see inefficiency wherever he looked. The private owners of the means of production might well pay lip-service in public to the competition that drove neoclassical economists’ models to an efficient solution. But in practice they exploited the privilege of ownership to ensure that actual competition was kept from their door. In the neoclassical economists’ models competition ensures that firms can only make ‘normal’ profits. Indeed, the perfectly competitive model treats even that as a market inefficiency that will be eliminated to leave a zero rate of profit in equilibrium. Yet the private owners will only ever settle for what the models euphemistically call ‘super-normal’ profits.
Veblen wanted nothing less than to re-think the basic structure of ownership within the economy. He was concerned that concentrating ownership of the means of production in so few hands led to a competitiveness game that was played out solely between those owners and a nominal structure of profit maximisation. Moreover, he believed that this basic problem would persist for as long as the structure of private property rights thwarted the introduction of common ownership. No amount of legal tinkering by competition authorities would ever be enough to change the underlying nature of the competitiveness game as it was understood by private owners. As a consequence, there would always be a clash of interests between how the private owners wanted the economic system to run and what would have been best for society as a whole. Veblen argued that the private owners would deliberately restrict how much their factories produced because they could not maximise profits unless some societal needs were left unmet.
“The business man’s place in the economy”, he wrote, “is to ‘make money’, not to produce goods … [H]is efforts are directed, not to maintaining the permanent efficiency of the industrial equipment, but to influencing the tone of the market for the time being.”
Private ownership, boomed Veblen, “confers a legal right of sabotage”.
This game against a nominal structure of profit maximisation therefore translates into something rather more sinister. From the perspective of the private owners, it is a game that has to be played directly against society. The development of the leisure class, Veblen thought, was a logical implication of what followed. It would have been prevented from using its way of life as a social signalling mechanism had every social provisioning need been met. Its social status rested on how far out of reach its lifestyle was for the vast majority of people and, therefore, on how far the private owners would go in colluding to restrict the mass production of cheap goods that would raise living standards throughout society. Private ownership, boomed Veblen, “confers a legal right of sabotage”. That is, the waste that is endemic to private property is realised as unfulfilled human need.
Proponents of today’s Competitiveness Agenda might often appear on first hearing to have just spoken the language of ‘industry’ by suggesting that gains in competitiveness act as a public good to be shared by everyone, but in almost all instances this will ultimately turn out to have been the much more self-serving language of ‘business’.
Veblen’s theory always revolves like this around the entwinement of the economic and the social. Unlike for the neoclassical economists against whom he set himself so fervently, in his mind there could never be anything approaching an autonomous economic realm to be studied in isolation from broader social dynamics. This is neatly captured in what is almost certainly Veblen’s most intriguing conceptual distinction, that between the two apparently similar economic categories of ‘industry’ and ‘business’. However, the former is something to cherish in Veblen’s theoretical account of the world, the latter something to set suspicions jangling, and so far from being similar they could not actually be more different. It was their radically opposed social implications that account for this difference. The former should generate broad-based societal support, Veblen argued, for it leads to the harnessing of technological change to satisfy the provisioning needs of as many people as possible. By contrast, the latter marginalises egalitarian instincts so that narrow sectional interests within the economy’s ownership structure will always prevail. Proponents of today’s Competitiveness Agenda might often appear on first hearing to have just spoken the language of ‘industry’ by suggesting that gains in competitiveness act as a public good to be shared by everyone, but in almost all instances this will ultimately turn out to have been the much more self-serving language of ‘business’.
According to Veblen, it is an affront to consider the purpose of a functioning economic system to be anything other than meeting the needs of society. The decision to tolerate private ownership is immediately questionable, then, because the ultimate goal of business is not to make life more bearable for large sections of the population, but to capture markets so that private owners are free to choose whatever factory settings make them the most money. Private owners have shown themselves throughout the ages to be far from averse to acting in tandem in this regard to ensure that collective restrictive practices benefit each of them individually. As soon as business interests are allowed to determine the structure of economic organisation, production will come to serve fundamentally non-economic ends, including the struggle to demonstrate social status and power so beloved of the leisure class. Collusion to keep social provisioning low and profits high is all in the name of the game.
The conflicted position that workers occupy in this dual-purposed economy quickly becomes apparent. It is the factory’s workforce that produces the goods that in turn help to fund the private owners’ support of leisure class lifestyle. But nobody has more direct experience of the degree to which the full productive capacity of the economy is frustrated than the workforce that is told to turn down the settings on the plant and machinery they operate. Workers’ day-to-day engagement with advanced productive technology enables them to see through private owners’ protestations that they serve the general interest. Instead, they have a front-row seat of industrial sabotage in action. Indeed, rather poignantly, industrial sabotage is enacted through their hands, because it is they who receive the orders to turn down the settings on the machines at which they spend their working lives. Attending to their own livelihood needs means that they are powerless to prevent the suppression of the full potential of the available technology. Instead, the technology becomes a servant to the reproduction of the existing economic hierarchies of society. Should any private owner step out of line then the ensuing settlement would be more difficult to maintain, which is where collusion becomes so significant. Veblen’s work therefore offers a powerful endorsement of Adam Smith’s observation, made well over a century earlier, that:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
Importantly, this form of technological suppression takes place in the full knowledge of those who would benefit the most were the potential embedded in the technology allowed to run free. There must, therefore, be a political mechanism in play that stops the majority’s wishes from winning out over the minority’s. Veblen identified that mechanism in the private owners’ successful appropriation of the discourse of nationalism in all of its many variations. The more that business leaders are able to appropriate the image of an economic struggle played out between nations, the more that they can position their actions as engaging that struggle on behalf of the country as a whole. The social losses resulting from strategies of profit maximisation are thus relegated to the background of public consciousness, as the self-interested decisions taken by business leaders are transformed into supposedly patriotic actions that enrich ‘our’ nation at other nations’ expense.
Today, nationalist accounts of the Competitiveness Agenda work in much the same way as the self-interested appropriation of economic nationalism that Veblen decried at the turn of the twentieth century. Trickle-down dynamics from embracing tax competition are said to benefit everyone who is fortunate enough to live in the ensuing ultra-competitive environment. However, this is another instance in which the saboteur’s real agenda should be fully transparent. The business interest in bartering down corporation tax payments is realised only at great cost to the living standards and economic potential of society as a whole. Veblen’s often overlooked Theory of Business Enterprise spells out such dynamics in great detail. As such, it is still very much worth a read today. It provides us with multiple reasons to call the bluff of the self-appointed tax competitiveness gurus, as well as with insightful conceptual distinctions through which to highlight the social damage they cause.