The Rational Optimist (13 page)

A century later, the gradual dismantling of apartheid and segregation was helped by commercialisation, too. The American civil rights movement drew its strength partly from a great economic migration. More African-Americans left the South between 1940 and 1970 than Poles, Jews, Italians or Irish had arrived in America as immigrants during their great migrations. Lured by better jobs or displaced by mechanical cotton pickers, black share-croppers came to the cities of the industrial North and began to discover their economic and political voice. They then began to challenge the system of prejudice and discrimination they had left behind. The first victory along that road was an exercise in consumer power – the Montgomery bus boycott of 1955–6.

The sexual and political liberation of women in the 1960s followed directly their domestic liberation from the kitchen by labour-saving electrical machinery. Lower-class women had always worked for wages – tilling in fields, sewing in sweatshops, serving in parlours. Among the upper-middle classes, though, it was a badge of rank, handed down from the feudal past, to be or to have a non-working (or at least housekeeping) wife. In the 1950s many suburban men, returning from war, found they too could afford such an accessory, and many women were pressured into giving their battleship-welding jobs back to men. In the absence of economic change, that is probably how it would have stayed, but soon the opportunities to work outside the home grew as the time spent on increasingly mechanised housework dwindled, and it was this, as much as any political awakening, that enabled the feminist movement to gain traction in the 1960s.

The lesson of the last two centuries is that liberty and welfare march hand in hand with prosperity and trade. Countries that lose their liberty to tyrants today, through military coups, are generally experiencing falling per capita income at an average rate of 1.4 per cent at the time – just as it was falling per capita income that helped turn Russia, Germany and Japan into dictatorships between the two world wars. One of the great puzzles of history is why this did not happen in America in the 1930s, where on the whole pluralism and tolerance not only survived the severe economic shocks of the 1930s, but thrived. Perhaps it nearly did happen: Father Coughlin tried, and had Roosevelt been more ambitious or the constitution weaker, who knows where the New Deal might have led? Perhaps some democracies were just strong enough for their values to survive. Today there is much argument about whether democracy is necessary for growth, China seeming to prove that it is not. But there can be little doubt that China would – indeed may yet – see either more revolution or more repression if its growth rate were to fall to nothing.

I am happy to cheer, with Deirdre McCloskey: ‘Hurrah for late twentieth-century enrichment and democratisation. Hurrah for birth control and the civil rights movement. Arise ye wretched of the earth’. Interdependence through the market made these things possible. Politically, as Brink Lindsey has diagnosed, the coincidence of wealth with toleration has led to the bizarre paradox of a conservative movement that embraces economic change but hates its social consequences and a liberal movement that loves the social consequences but hates the economic source from which they come. ‘One side denounced capitalism but gobbled up its fruits; the other cursed the fruits while defending the system that bore them.’

Contrary to the cartoon, it was commerce that freed people from narrow materialism, that gave them the chance to be different. Much as the intelligentsia continued to despise the suburbs, it was there that tolerance and community and voluntary organisation and peace between the classes flourished; it was there that the refugees from cramped tenements and tedious farms became rights-conscious consumers – and parents of hippies. For it was in the suburbs that the young, seizing their economic independence, did something other than meekly follow father and mother’s advice. By the late 1950s, teenagers were earning as much as whole families had in the early 1940s. It was this prosperity that made Presley, Ginsberg, Kerouac, Brando and Dean resonate. It was the mass affluence of the 1960s (and the trust funds it generated) that made possible the dream of free-love communes. Just as material progress subverts the economic order, so it also subverts the social order – ask Osama bin Laden, the ultimate spoilt rich kid.

The corporate monster

Yet for all the liberating effects of commerce, most modern commentators see a far greater threat to human freedom from the power of corporations that free markets inevitably throw up. The fashionable cultural critic sees himself or herself as David slinging stones at vast, corrupt and dehumanising Goliath-like corporations that punish, pollute and profiteer with impunity. To my knowledge, no large company has yet featured in a Hollywood movie without its boss embarking on a sinister plot to kill people (in the latest one I watched, Tilda Swinton somewhat predictably tried to kill George Clooney for exposing her company’s poisoning of people with pesticides). I hold no brief for large corporations, whose inefficiencies, complacencies and anti-competitive tendencies often drive me as crazy as the next man. Like Milton Friedman, I notice that ‘business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger.’ They are addicted to corporate welfare, they love regulations that erect barriers to entry to their small competitors, they yearn for monopoly and they grow flabby and inefficient with age.

But I detect that the criticism is increasingly out of date, and that large corporations are ever more vulnerable to their nimbler competitors in the modern world – or would be if they were not granted special privileges by the state. Most big firms are actually becoming frail, fragile and frightened – of the press, of pressure groups, of government, of their customers. So they should be. Given how frequently they vanish – by take-over or bankruptcy – this is hardly surprising. Coca-Cola may wish its customers were ‘serfs under feudal brandlords’, in the words of one critic, but look what happened to New Coke. Shell may have tried to dump an oil-storage device in the deep sea in 1995, but a whiff of consumer boycott and it changed its mind. Exxon may have famously stood out from the consensus by funding scepticism of climate change (while Enron funded climate alarmism) – but by 2008 it had been bullied into recanting.

Companies have a far shorter half-life than government agencies. Half of the biggest American companies of 1980 have now disappeared by take-over or bankruptcy; half of today’s biggest companies did not even exist in 1980. The same is not true of government monopolies: the Internal Revenue Service and the National Health Service will not die, however much incompetence they might display. Yet most anti-corporate activists have faith in the good will of the leviathans that can force you to do business with them, but are suspicious of the behemoths that have to beg for your business. I find that odd.

Moreover, for all their eventual sins, entrepreneurial corporations can do enormous good while they are young and growing. Consider the case of discount retailing. The burst of increasing productivity that countries like America and Britain rather unexpectedly experienced in the 1990s at first puzzled many economists. They wanted to credit computers, but as the economist Robert Solow had quipped in 1987, ‘you can see the computer everywhere but in the productivity statistics’, and those of us who experienced how easy it was to waste time using a computer in those days agreed. A study by McKinsey concluded that the 1990s surge in the United States was caused by (drum roll of excitement) logistical changes in business (groan of disappointment), especially in the retail business and especially in just one firm – Wal-Mart. Efficient ordering, ruthless negotiating, hyper-punctual time keeping (suppliers must sometimes hit a thirty-second window for deliveries), merciless cost control and ingenious responses to customers’ preferences had given Wal-Mart a 40 per cent efficiency advantage over its competitors by the early 1990s. Wal-Mart’s competitors rapidly followed suit, raising their own productivity by 28 per cent in the later 1990s, but Wal-Mart had not stood still, gaining another 22 per cent in the same time, even as it opened an average of seven new three-acre supercentres a month for a decade. According to Eric Beinhocker of McKinsey, these ‘social-technology’ innovations in the retail sector alone accounted for fully a quarter of all United States productivity growth. Tesco probably had a similar effect in Britain.

Sam Walton’s determination in 1950s Arkansas to sell everyday items for less than his competitors was hardly a new idea. It is difficult to describe it as an innovation, although things like ‘cross-docking’ where goods go from suppliers’ trucks to distributor’s trucks without spending time in warehouses in between were indeed new. Yet the way in which he pursued and resolutely stuck to that simple idea ended up delivering a huge boost to American living standards. Like corrugated iron and container shipping, discount merchandising is among the most unsophisticated yet enriching innovations of the twentieth century. A single, routine, minuscule Wal-Mart decision in the 1990s – not to sell deodorant in cardboard boxes – saved America $50 million a year, half of which was passed on to customers. Charles Fishman writes: ‘Whole forests have not fallen in part because of a decision made in the Wal-Mart home office ... to eliminate the [deodorant] box.’

On average, when it lands in a town, Wal-Mart causes a 13 per cent drop in its competitors’ prices and saves its customers nationally $200 billion a year. Yet critics of corporate giants, who normally complain about profiteering, still disapprove of Wal-Mart, saying the low prices are a bad thing because smaller businesses can’t compete or that Wal-Mart is ‘the world’s largest sweat shop’ for paying low wages even though Wal-Mart pays twice the minimum wage (and as I was writing this announced $2 billion in bonuses to staff, despite the recession, because of record sales). It is true that the growth of Wal-Mart in the 1990s, just like the opening of a new Wal-Mart in a certain town, created turmoil. Competitors went bust or were forced into humiliating mergers. Suppliers found themselves driven to new practices. Unions lost their leverage over retailing workforces. Cardboard box makers went to the wall. Consumers changed their habits. Innovation, whether in the form of new technology or new ways of organising the world, can destroy as well as create. A Wal-Mart store drives small general retailers out of business as surely as the computer drove the typewriter out of business. But against this must be balanced the enormous benefits that (especially the poorest) customers reap in terms of cheaper, more varied and better goods.

It was Joseph Schumpeter who pointed out that the competition which keeps a businessman awake at night is not that from his rivals cutting prices, but that of entrepreneurs making his product obsolete. As Kodak and Fuji slugged it out for dominance in the 35mm film industry in the 1990s, digital photography began to extinguish the entire market for analogue film – as analogue records and analogue video cassettes had gone before. Creative destruction, Schumpeter called it. His point was that there is just as much creation going on as destruction – that the growth of digital photography would create as many jobs in the long run as were lost in analogue, or that the savings pocketed by a Wal-Mart customer are soon spent on other things, leading to the opening of new stores to service those new demands. In America, roughly 15 per cent of jobs are destroyed every year; and roughly 15 per cent created.

Commerce and creativity

This turnover in itself ensures a steady improvement in working conditions. From Josiah Wedgwood, proud of conditions in his Etruria pottery factory, via Henry Ford, doubling the wages of his employees in 1914 to reduce staff turnover, to Larry Page, idealistically designing the Googleplex, each generation of entrepreneurs often tries to make work a better experience for their employees. In the early days of the internet, eBay was just one of many online auction companies. It succeeded where its competitors failed because it realised that a sense of shared community, not a competitive auction process, was key. ‘This isn’t about auctions,’ said Meg Whitman, the chief executive of eBay, ‘in fact it’s not about economic warfare. It’s the opposite.’ It was survival of the nicest.

The turnover of firms is accelerating so much that most criticism of corporations is out of date already. Large companies not only fall more often these days – the disappearance in a month in 2008 of many banking names is merely an accelerated case in a particular industry – but increasingly they fragment and decentralise, too. As islands of top-down planning in a bottom-up sea, big companies have less and less of a future (the smaller the scale, the better planning works). AIG and General Motors may have been kept alive by taxpayers, but they are in corporate comas. The stars of the modern market economy are as different from the giants of industrial capitalism, eBay from Exxon, as capitalism is from socialism. Nike, born in 1972, grew into a huge company merely by contracting between factories in Asia and shops in America from a relatively small head office. Wikipedia has a paid staff of fewer than thirty and makes no profit. Whereas the typical firm was once a team of workers, hierarchically arranged and housed on a single site, increasingly it is a nebulous and ephemeral coming together of creative and marketing talent to transmit the efforts of contracting individuals towards the satisfying of consumer preferences.

In that sense ‘capitalism’ is dying, and fast. The size of the average American company is down from twenty-five employees to ten in just twenty-five years. The market economy is evolving a new form in which even to speak about the power of corporations is to miss the point. Tomorrow’s largely self-employed workers, clocking on to work online in bursts for different clients when and where it suits them, will surely look back on the days of bosses and foremen, of meetings and appraisals, of time sheets and trade unions, with amusement. I repeat: firms are temporary aggregations of people to help them do their producing in such a way as to help others do their consuming.