ECONOMISTS have told us a great deal about the economic process that is supposed to govern the productive uses of wealth in the United States. The basic mechanism is exchange: two parties undertake voluntarily to exchange goods or services in the expectation of mutual benefit.
If, however, we examine the list of the nation's current problems - unemployment, inflation, bureaucracy, the energy crisis, environmental degradation, urban decay - we discover that they are not taken into account in the conventional market exchange mechanism. In the parlance of conventional economics, they are all regarded as "externalities," factors which have no role in the voluntary, mutually beneficial, private process of exchange. All of these problems affect the individual not through an exchange relationship with another individual partner, but through society as a whole. Thus, the basic mechanism that is supposed to govern the operation of the U.S. economic system excludes from consideration precisely those social effects that constitute the nation's greatest problems.
All this is to make the relatively simple point that, although the avowed purpose of the U.S. economic system - to meet its people's needs - is social, social purpose is excluded from its governance. This is to say, of course, that the U.S. economy is almsot entirely governed by private decisions, made by those who own and control the capital needed to establilsh a production enterprise. It is, after all, a private enterprise, capitalist system.
Social needs have not been entirely ignored. Especially since the New Deal, social institutions have been created to amelborate the various social ills, the lamentable externalities that have emanated from our otherwise successful economic system. But these institutions have not solved the problems which they were created to deal with. The numerous welfare agencies have not, after all, eliminated unemployment, poverty and inadequate medical care. Indeed, these remedial efforts have now themselves become a problem - the onerous economic and political burden of a growing bureaucracy. Why?
BUREAUCRATIC efforts to deal with unemployment, inflation, the energy problem and environmental degradation seem so often to fail becuause they intervene at a point far removed from the site at which the damage is done.
Consider the unemployment problem. Nearly half of the U.S. unemployment problem is due to the continued reduction in the number of workers needed to produce a unit of output, that is, the vaunted rise in labor productivity. Thus, the problem originates at that point where a decision is made to introduce new production machinery or processes that reduce labor input.
But the remedial action only takes place long after the problem has been created and people are, in fact, already unemployed. Then, society intervenes. The unemployed person is directed into an elaborate and expensive bureaucracy: interviews are conducted; forms are filled out; computer cards are punched; data processed. Finally, the person receives an unemployment check and the social goal - that even if unemployed, no one should starve or otherwise suffer serious deprivation - is achieved.
How much simpler it would be if there were, in fact, a job available. For this to happen would require that the social signal represented by rising unemployment be fed back into the system so as to stimulate the creation of jobs at the point where that decision is made - the design of the means of production. like the present system of unemployment insurance, this process would also involve social intervention. But now the intervention would be designed to remedy the fault at its source, rather than merely attempting to remedy its effects by adding a costly and burdensome bureaucracy.
If social governance were exerted at the point where the problem is created - at the decision-making point in the production system - unemployment would become, in effect, a self-correcting problem that would lessen with time. Under the present arrangements, social intervention is exerted in such a way that it has no effect on the causes of unemployment, but can only ameliorate the symptoms. As long as the governance of the production system remains largely impervious to a meaningful, operational social response, unemployment will continue unabated and the resultant bureaucracy will proliferate.
THE SAME situation exists in connection with environmental degradion. It is now clear that the locus of the cause of pollution is in the design of the means of production: smog is the inevitable outcome of the post-war shift to high compression auto engines; radiaiton hazards derive from the introduction of nuclear technology into the production of electricity - and weapons; chemical diaster - such as Kepone in Virginia, PBB (polybrombiphenyl) in Michigan, dioxin in Italy - are a result of the huge growth of the petrochemical industry, which displaces natural products.
But we have ignored these origins of pollution and have only attempted to correct the symptoms: Exhaust devices are mandated for autos; nuclar power plants are enveloped in expensive controls and regulations; chemical products are subjected to elaborate new tests. As a result, huge new bureaucracies - EPA, OSHA, FEA, FDA - are now involved in the hopeless and expensive process of patching up environmental damage - after it has occurred, when much of the damage may be irreversible and all of it costly.
Often enough the impact of new production technologies is so great that after-the-fact remedies are indeed impossible. For example, as a result of the decision taken more than 30 years ago to produce PCB (polychlorbiphenyl) for a variety of industrial uses, these highly toxic materials have been irreversibly disseminated into the environment, with effects that no one can foresee or control. Only now have manufacturers been persuaded to abandon PCB production.
How much better it would have been if this decision had been made 30 years ago, when it was discovered that nearly all of the workers in the first PCB plant were suffering from serious systemic poisoning. If the workers could have participated in the managerial decision to produce a substance as toxic as PCB in the first place, production might have ended long ago.
These examples illustrate the advantages of social intervention that governs rather than regulates - that participates in the deciisons which determine the design of the means of production: what kinds of energy sources and productive machines are used, what kinds of energy sources and productive machines are used, what kinds of goods are produced.If we fail to meet this new imperative, problems of unemployment, inflation, resource depletion, environmental degradation and urban decay will persist. Efforts to ameliorate rather than solve these problems will only add to our burdens the final insult of growing bureacracy.
If we are to solve the knot of intractable problems, we must now confront a basic, overriding issue. This issue is how to establish, consistent with our unshakeable devotion to political freedom, processes that will enable society to govern rather than "regulate" the system which produces the nation's wealth."