THE SHIELD OF ACHILLES (112 page)

Labor relations under this model are confrontational as well as sectoral—a new experience for market-states such as China that have not previously permitted voluntary and competitive labor organizations. Because wages are low and because the relocation of investment is entirely unfettered, labor unions are weak. Job creation is achieved at the cost of job security. Local industries are largely unprotected from foreign competition, which tends to make the firms that survive hardy, agile, and attractive to foreign capital. Interest rates are maintained at a relatively high level in order to encourage foreign investment and to suppress inflation. Considerable income disparities are tolerated on the grounds that everyone is richer owing to the booming economy that such freewheeling competition can provide, and it is certainly true that, in terms of personal consumption and standard of living, the entrepreneurial market-states outperform all comparable states (that is, they exceed the improvement in consumer standards of living achieved by states that began with comparable levels of development).

Immigration is robust under the Entrepreneurial Model because it freely imports highly paid talent as well as low-wage workers, which tends to suppress labor costs and keep capital from going abroad. By contrast the Mercantile Model shuns immigration; indeed cultural homogeneity is almost a prerequisite for its successful operation. The Managerial Model is ambivalent: open to “guest workers” but hostile to new citizens. The Entrepreneurial Model tends to loosen the identification that citizens feel with the larger polity: autonomy and individual achievement are so prized and the consumption of particular goods so meaningful an act of self-definition that the citizens of these states “invent” their citizenships, identifying themselves with those subgroups within the state with whom they share a consumption pattern. This exacerbates the problems of social cohesion that every market-state faces. These effects are acutely felt in the entrepreneurial states that have all-volunteer military forces, federal political structures, strictly meritocratic promotion ladders, and multicultural media. Both the mercantile and managerial states, by contrast, retain conscription for military service (though with force levels vastly reduced from those of the twentieth century), affirmative action for certain social groups, and varying degrees of state control of the media.

The basic ethos of the Entrepreneurial Model is libertarian: the conviction that it is the role of society to set individuals free to make their own decisions. This ethos counsels minimal intervention in the economy as well as in the private lives of its citizens. Privatized health care, housing, pensions, and education as well as low taxes and low welfare benefits all characterize such states. Regulation on behalf of special interests is discouraged. Indeed, responsibility for regulation of any kind is largely abdicated in favor of policing by the market, which responds with extensive information to the consumer, who is expected to look out for himself. That doesn't necessarily mean that the environment is not protected or that labor is exploited: companies soon discover that they will be rewarded for “green” policies and penalized if they are discovered to have engaged in exploitative labor practices. It simply means that the role of government in protecting the public has to some extent been taken over by the media and by private groups acting on the information from, and in concert with, the media.

This model relies upon a strong central government to protect national industries, subsidize crucial research and development, and steer certain important enterprises toward success. Artificially low prices are set for export goods and artificially low interest rates are maintained that depress currency values. This would lead to capital flight except that capital flows are also regulated by governments and forced savings are extracted from all incomes. Under the Mercantile Model, the opportunities available to the consumer, which have been exalted under the Entrepreneurial Model, are sacrificed to the long-term opportunities of the society. These societies are able to maintain social cohesion—to a far greater degree than entrepreneurial market-states—in part because income disparities are suppressed, variations in take-home pay between manufacturing workers and service workers are rationalized, and elaborate social welfare subsidy systems, including public housing and access to education, are put in place for those—this must be emphasized—who are eager to work. It is important for the states that follow this model to monitor the collusion between the large corporate structures endemic to this model and their bureaucratic allies. Otherwise, the predictability sought and prized by this model will also bring potentially crippling inefficiencies and even corruption. Educational curricula must be tempered by some sense of the demands of the market; otherwise far too few persons will emerge from the educational system with the skills that fit them for employment (a problem that plagues
he Managerial Model as well, though the latter's difficulties stem not from a refusal to give technical training so much as a willingness to underwrite costly studies with no professional future).

Mercantile market-states have achieved impressive growth rates: Singapore and Hong Kong have higher living standards than the United Kingdom. But this has not been accomplished through the efficient use of scarce resources. In terms of sheer efficiency, Taiwan, South Korea, and Hong Kong are in about the same productivity class as Egypt, Greece, Syria, and Cameroon. Rather, the mercantile states have succeeded by mobilizing the labor of the total society, and by encouraging very high accumulations of capital. Investment is subsidized and promoted in these states, and although exports generate considerable revenue for investment, it is savings by individuals, corporations, and governments that account for the high levels of investment in Taiwan, South Korea, Singapore, and Japan. Thus although this model may attract adherents because of its historic record of high growth, there is a limit to the performance a state can wring from increased inputs of capital and labor without increased efficiency.

There are several challenges that face this model wherever it has been adopted: opening up domestic markets to foreign competition; reforming the banking sector to bring greater scrutiny to credit transactions; allowing access to cheaper credit for smaller firms that are usually restricted to rela-tively high priced domestic finance and letting the cost of capital to the few dominant firms rise.

All of these challenges confront the inefficiencies of concentrated economic power that is a notable feature of the Mercantile Model. For example, the Korean version is characterized by the concentration of power in four great companies (Samsung, Hyundai, Lucky-Goldstar, and Daewoo) that together account for over half of that country's exports and a third of its sales. These companies are both the instruments of and the beneficiaries of government policy. Yet between 50 percent and 60 percent of the equity of the top thirty companies in Korea is held by the founding families. In Japan, the largest six great companies account for over half the total assets of all listed enterprises. Furthermore, some three-quarters of all shares are mutually held between companies and their financial institutions.

This form of the market-state (often called the
Soziale Marktwirtschaft
) consists of three basic elements: free and open markets within a regional trading framework, a government that provides a social safety net and
manages a stringent monetary policy, and a socially cohesive society. Private property and private enterprise are valued, but their constitutional status is dependent upon their contribution to the public good. Labor relations are broad and participatory. Workers sit on corporate boards. Strong national unions negotiate contracts across whole sectors of the economy rather than by individual company or factory. They bargain with all-encompassing owner federations that are empowered by law to hold their member companies to the terms of the deals that are struck, overriding shareholder objections. Multinational corporations are required to share their strategic plans with elected workers' councils. Regulations require companies to consult labor on all major decisions. This tends to pacify workers who in other societies have rebelled when low-wage jobs were exported because workers expect that the profits from offshore production will eventually be repatriated to finance high-wage jobs at home, making exports more competitive.

The “stakeholder company,” a key concept in this model, seeks to reflect the priorities of workers, managers, communities, vendors, and environmentalists on something like parity with the interests of shareholders. Corporate ownership is closely held in the largest and most important industries, usually through a centralized commercial bank. As the largest holder of both equity and debt in such a company, the bank can exercise a close scrutiny over corporate decisions and can afford to take a long view of corporate strategies, in contrast to those companies that raise money in the equity markets. This enables corporations operating within this model to garner the so-called patient capital necessary for long-range success. Publicly financed institutions promote the transfer of technology from defense research and development to the private sector. Technology diffusion is further encouraged within the regional trading organizations on which this model greatly depends.

If the object of the mercantile state is to ensure social stability, the goal of the managerial state is to achieve social equality. The class divisions that wracked the state-nations of Europe and gave birth to fascism and communism within the nation-state are suppressed by every legal instrument that can be brought to bear by this form of the market-state. Private and sectarian schools are often outlawed; estate taxes at death approach the confiscatory; modern versions of the eighteenth century “window tax” are reintroduced to discourage opulence.

Government intervention in the economy under the Managerial Model tends to occur on the labor side to a greater extent than on the capital side, in contrast to the Mercantile Model. Training and retraining programs often take as much as 2 percent of GDP (as compared with .25 percent under the Entrepreneurial Model).

Taxes for such states are high, sometimes peaking at over 70 percent of GDP (40 percent payroll taxes were not uncommon), and there are sizable value-added taxes (VAT) and consumption taxes, though these vary considerably. Not many of the world's states can afford generous welfare provisions, although it should be pointed out that, just as mercantilism is not confined to Asian societies, managerialism is not confined to the wealthy continent of Europe. India—whose subcontinent has the largest concentration of poverty and illiteracy in the world—is attempting a decisive move toward the Managerial Model of the market-state. A complex system of entitlements, including free rural electricity, subsidized fertilizers, cheap water irrigation schemes, subsidized university education, and cheap food, as well as a bewilderingly complex system of ethnic and class preferences on behalf of certain minorities and lower castes, all incline India toward this model. Turkey and Egypt may also be considered candidates for this model that lie outside the central zone of European prosperity.

To a far greater degree than the other two models of the market-state, managerialism uses legal regulation to enforce standards of conduct, including the use of potentially heavy fines. Liability rules, as well as the social safety net levels of the late twentieth century, are difficult for the managerial market-state to modify. Interest groups, such as pensioners, consumers, lawyers, and advocates for the beneficiaries of welfare subsidies, make any ratcheting down of these benefits hard to achieve. As a result, innovation is slowed—even in areas, like Europe, where technological innovation ought to be at its greatest.

Advocates of the Managerial Model are not economically naïve. Rather they recognize that all-out economic competition tends to leave some persons behind and that this alienation from the economic system breeds crime, family breakdown, alcoholism and drug addiction, even illness on the job. These advocates calculate that it is cheaper to prevent the costs of these maladies than to try to compensate for them after they have manifested themselves. This attitude of giving priority to social cohesion is shared by those who favor mercantilism but with this difference: while mercantile states try to guarantee a job for every person (or at least every male) and provide little in the way of welfare programs, managerial states provide jobs only for the most productive workers—at good pay—and generous welfare for the rest.

Thus, even though the United States has been more successful at creating new jobs (maintaining an unemployment rate at about half that of the E.U.), this has been achieved at the expense of real wage levels. Accordingly,
each model must contend with its own sort of alienation: the lowest paid workers in the United States are vastly worse off than high wage earners, while the unemployed in Europe can get by on welfare benefits alone but have little prospect of a job. By contrast, the Mercantile Model maintains artificially high employment rates, at wages that reflect far less disparity between the highest and lowest paid. The unavoidable cost is in productivity and efficiency, which sets the stage for a new kind of alienation, that of the young from the old.

With its appeal to universal hedonism, the Entrepreneurial Model appears almost acultural, particularly in contrast to the family-oriented, hierarchy-honoring Mercantile Model, and even in contrast to the larger, transnational bureaucratic zones of the Managerial Model that prize human rights to a greater degree. The Entrepreneurial Model claims to be pluralistic, nonjudgmental, and open to many cultural forms, and indeed states as diverse as Thailand and Peru are pursuing this model. But it does hold that every such state must guarantee human rights—by which it means the opportunity to express essentially individual values—a free press, an unfettered political opposition, even the secret ballot (which may perhaps be said to be a Protestant, that is, individualist, form of confes-ssion). Adherents to mercantilism maintain that its human rights are communitarian rather than individualistic; that its political system seeks harmony rather than division—that respect and reverence are a truer expression of its cultural values—and therefore these states attempt to minimize the public expression of opposition.

At the beginning of the twenty-first century, it is to be hoped that informal private networks that cross international lines—for example, the large multinational corporations developed in the twentieth century, or the extensive social networks developed by overseas Chinese in East Asia and the United States, or global nongovernmental organizations—will supply the links necessary to prevent the growing divergence of the three models of the market-state. Because divergence is principally a function of domestic politics, it tends to accelerate, however, when national leaders take unpopular steps in order to enhance international cooperation or when they blame competing models for “keeping interest rates high” (the Managerial Model) or “failing to get control of consumption and thus exporting inflation” (the Entrepreneurial Model) or “exploiting foreign markets while closing their own” (the Mercantile Model).

Each of these versions of the market-state claims to be the unique and final expression of the constitutional archetype of the market-state. In this way, these claims are reminiscent of the three ideological forms of the nation-state (parliamentarianism, communism, and fascism) that competed during the Long War. For just this reason, leaders ought to be wary
of domestic conflicts that threaten to become crises of legitimation. At present these conflicts chiefly arise from the debate surrounding globalization. As with the twentieth century, such domestic crises can move the champions of each form to seek a universal international adherence.

The Long War ended in 1990. Like the other great epochal wars whose true identity and shape only became apparent in retrospect, the Long War followed a period of constitutional stability in the relations among the various states of the great powers. A single constitutional archetype dominated that stable period, the form of the imperial, patriotic state-nation. This was the constitutional model of Napoleon no less than of Castlereagh, and of George Washington no less than of Tsar Alexander III. Axiomatic legitimacy accrued to any state that followed this model. But when a new archetype arose—the nation-state of Lincoln, Bismarck, and Cavour—constitutional conflicts within all states began to arise, culminating in the seventy-six-year struggle I have called the Long War. Like other epochal wars, even those that antedate the modern state like the Augustan War, the Long War was a struggle that determined what form of constitutional government would succeed to the legitimacy of the dying archetype. The Charter of Paris in 1990, signed by the United States, the United Kingdom, France, Germany, and the Soviet Union, and obligating the signatories to maintain democratic, representative institutions, marked the beginning of the peace that the Treaty of Versailles had been unable to deliver.

This Charter also obligated its signatories to adopt market methods of allocation and thus this international constitution contained within it the seeds of a new international order.

The strategic innovations that won the Long War and culminated in the Peace of Paris have set in motion constitutional changes that will move states away from the archetypal form of the nation-state that emerged in the second half of the nineteenth century toward the market-state that is today emerging in the United States, the European Union, East Asia, and elsewhere. This new archetype will manifest itself in several actual forms, none of which is yet fully realized. Following the pattern of the earlier periods chronicled in Part II, we want to ask: Can we study the strategic innovations that won the Long War (nuclear weapons, international communications, and electronic computation) in order to gauge their effect on the constitutional development of this new society of states? Or, to put it in broader terms, how will developments in weapons technology, the globalization of culture, and the liberalization of trade and finance challenge the society of market-states?