People who ought to know better sometimes say things that are so silly you wonder what they've been doing all their lives. The Right Honorable Edward Heath -- prime minister of Great Britain from 1970 to 1974 and someone who ought to know better -- recently authored a short essay in The New York Times that deserves such scorn. In it, he advertises the urgent need for a global economic miracle worker. We pounce on his suggestion because it's perversely useful. It provides a short lesson in how not to think about the world's ills.
Heath's confusion is common. He reasons that because there are economic problems, there must be economic solutions -- if there are solutions at all. "The world is confronted by five economic factors that it has never before had to face at the same time: high inflation, high unemployment, high interest rates, stagnant production and the continuous increase in the price of the raw material on which all industry is based, namely oil." And so, he concludes, the world "desperately" needs intelligent economists to unravel the mess.
But what Heath calls economic problems are really the economic results of deeper political and social struggles. This is not just a matter of semantics. If we think we can find an economic mechanic to fix things, we are likely to be disappointed continually. We won't have understood our predicament and, without understanding, will have diminished our prospects for mastering it.
We are caught today in the contradiction between capitalistic and democratic ideals. For all its flaws, capitalism has been the world's greatest engine of economic growth. But it thrives on individual risk-taking and unequal rewards to the players. Democracy, as it has evolved in the 20th century, implicitly promises a vague equality.
There is no great economic mystery to the ailments of which Heath complains. They all reflect this basic tension. The developing countries insist on applying our democratic ideals to global politics. Oil is only their most conspicuous weapon to achieve equality. Persistently high inflation stems from this and from widespread expectations for preserved and improved living standards, as much as a matter of right as reward.
Business and government try to maintain the loyalties of their constituencies by keeping incomes increasing in line with past inflation through rising wages and benefits. But because total wealth is rising only slowly or not at all, increased incomes yield little or no gain in living standards. But they perpetuate inflation, which breeds uncertainty and the half-hearted anti-inflation policies that foster stagnation.
Economists cannot make these real conflicts disappear miraculously. Nations everywhere are struggling with the same basic issue: how to manage the tension between increasing production and sharing the results in a politically acceptable fashion. Communist countries increasingly experiment with decentralized planning intended to duplicate capitalism's flexibility. In Chinese factories, workers argue endlessly over who deserves higher wages, according to The New York Times.
The choices facing Western democracies seem particulary unsettling because they involve conflicting ideals that separately probably appeal to most people. On paper, of course, democracy wonderfully complements capitalism. Freedom encourages diversity: the room for success to succeed and failure to fail. But this democracy is little more than the absence of government tyranny.
We abandoned this one-dimensional notion long ago; it implied tolerance of almost any social consequence of economic change. People wouldn't accept that, and now they expect government to protect them against many inequalities of unfettered economic life. This doubtlessly has created public support for capitalism. People buy the system not only because it produces material gain but also because they have political redress to economic grievance.
Therein lies the contradiction. We expect politicians to preserve public confidence in democratic institutions by responding to constituent demands. But their very responsiveness may so overload the system with obligations and exaggerated expectations that everyone ends up disappointed. The struggle to create equality and economic security may corrupt capitalism's vitality. High taxes and pervasive regulation make it more difficult for strivers to succeed; government protection shields failures from failing.
We may discredit both democracy and capitalism. Neither will be seen to be doing its job, and the temptation to tamper with both will increase. At the extreme, economic chaos breeds authoritarian reaction: Chile and Argentina, to give two examples. The response in places such as the United States may be sloppy experiments that enhance neither our economic performance nor our democratic satisfaction. Wage-price controls, which curtail freedom and hamper economic flexibility, represent only the most obvious sort of self-defeating possibility.
Today's need is not for Heath's economic Houdini, but for political leadership. We need to redefine the obligations of the state and the private sector, firms and individuals, in ways that preserve faith in the first and the strength of the second. This is a tall order and may be impossible. But economic realities -- limited natural resources and slow growth -- will compel the effort.
They have already. Almost everywhere governments are withdrawing past promises painfully. Margaret Thatcher is doing it most conspicuously and bombastically in Great Britain, but France and Scandinavia also are beginning to pare welfare programs. Strains are unavoidable. What appear to be compelling economic realities to national leadership don't necessarily make sense to affected constituencies or command their support. The recent general strike in Sweden -- triggered by the same issues of economic adjustment -- attests to the dangers.
In the United States, no major political figure speaks to these issues with clarity. We need that. If people better understand what's happening to them, just possibly they will be more accepting of change. It's, what the art of politics, as opposed to the craft of electioneering, is all about.