A Myth of Capitalism

One of the more persistent myths of our modern era on the right is the idea that for industry and trade to flourish, you just need government to step out of the way. Government should just go and stay out of all of it and let the private sector do its thing. It has been some time since I listened to the right-wing TV talk shows I used to listen to regularly many years ago, but this claim was made again and again, and I still see some people making it in other contexts today. It is a persistent idea in libertarian and right leaning circles. Just cut regulations and people will build a better economy and better opportunities than any government investment could ever create.

The problem with this view is how easy it is to prove wrong, or at least overly simplistic, by just reading how nations began to truly flourish economically. When you read the actual histories you will see that government investment in infrastructure, industry and other capital endeavours was vital for the success of many nations.

For instance, this example, from A History of France by William Stearn Davis, which shows how Jean-Baptiste Colbert, one of the ministers of Louis the 14^th’s reign, helped build towards modern France an lay the foundation for a flourishing economy in that Ancient Regime:

“His real achievement was in developing the manufactures of France in a way which made her a great industrial power – a position from which she has never permanently declined. He took up the lines of development dropped too long since the days of Henry IV. Thus he put the energies of the Government behind the older industries which already existed – cloths, tapestries, and silks; and then went on to introduce and promote industries hitherto almost unknown in France, such as glass, porcelain, laces, and iron-work. It is from his day that dates, for example, the steady output of admirable silks from Lyons, porcelain from Sèvres, lace from Chantilly, etc. – articles or objects of elegance which made the name of France honorably famous wherever there were persons of taste. Colbert secured this progress partly by means of large money prizes to successful artisans, partly by granting privileges to foreign craftsmen who would settle in France, but especially by advancing funds for the purchase of raw material and for the erection of factories of a size remarkable for that age. In place of the "family work-room" where a master-craftsman and a few apprentices labored on a very small scale, there were developed really large manufacturing plants such as are familiar to the present age. Thus certain of Colbert's industrial foundations employed hundreds of workers each, and at least one – a cloth-works at Abbéville, in Picardy – employed sixty-five hundred "hands" – a number not unworthy to be ranked with the largest type of factories of the present day. Colbert was, therefore, not remotely, one of the fathers of the modern factory system.”[1]

This French political minister was largely responsible for the wealth that France came to enjoy under the Sun King’s reign. Because of his good governance. And this is the key, it is true that government can get in the way of industry and commerce, but it can also advance it. In fact, the myth of America succeeding purely because of its capitalistic enterprise to become the leader of the world’s economies is just that, a myth. Yes that nation encouraged commerce and independent enterprise, but it shot ahead of the rest of the world because none of its factories were bombed in World War 2 and almost every other major developed nation had to rebuild their entire industry bases. That is one sure example of government intervention, because many of those bombs that destroyed American competitors in industry in the war were made in America and shipped to the old world. You can read historians who suggest that this is what FDR wanted to happen, either way, American capital flourished because of deliberate policy choices of the ruling power in the United States to support war in Europe. 

You can go back to the early years of Australia as a nation when our car manufacturing industry took off, because the Australian government invested in it to help Holden, a company founded in Australia and General Motors, an American company, combine to create a solid base for car manufacturing in Australia. Government money was smartly applied in a valuable way that created an industry that flourished for decades. That same industry died when the government stopped subsidizing it, something which most powerful nations do for their current car industries, because they understand how important they are for their economies and their national security.

So, the myth that government should just get out of the way, is just that, a myth. The question is really how is the government intervening and is it helping or hurting? You can show historical examples of both positive and negative impacts of government investment. Which is why Michael Hudson's distinction between Industrial Capitalism, where government helps build the infrastructure and invests in its nation's industry (like modern China, modern Russia, and America a couple of generations ago), and financial capitalism, where the economy is driven by the stock market and stock trading, is important. The modern right has been trained to defend a highly financialized society which cannibalizes every other aspect of the economy and call this capitalism, and to condemn any government investment as "socialism". But socialism did not even exist when Colbert was using government wealth to increase the wealth of the French nation. We need to re-examine our categories. 

Anyway, the next time you hear someone repeat this erroneous dogma that government should just stay out of the way, you will be able to question them, and ask them how they know that to be true, and then provide examples of why it is a false assumption. Government serves an important service purpose in society, including helping to bolster industry. The problem is that it often forgets its real purpose is to serve its society and gets overtaken by all sorts of wicked agendas and goals, and decline sets in. But when society is getting things right, the government is also getting behind its industry to make its nation great. May those days return to this land. 

List of References

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[1] Davis, William Stearns. A History of France from the Earliest Times to the Treaty of Versailles (pp. 140-141). Lecturable. Kindle Edition.