The Free Market is what made this country great...
Who gets the credit for success?
By Jack Barkstrom
The tried-and-true election theme...
Without fail, in every election, the speaker is likely to say something like - "I believe in the free market," or "I have faith in capitalism," or "I believe in the free enterprise system." Another variation is "...the private sector can handle this better than some government bureaucrat," or "I have experience in the private sector - I've had to meet a payroll."
Free market success stories tend to highlight the individual's perseverance against long odds - given the overwhelming forces arrayed against them, how could they possibly succeed? Yet, in the case of the leading free market economies, perhaps it might be more appropriate to ask - given all their advantages, how could they possibly lose?
It takes a lot of skill and perseverance to win, or even to come in second, in an auto race. The winners earn a lot, either as prize money, or from endorsements. Yet, auto racing is one sport almost totally based on technology. As fast as runners can run, in a 100 meter race or a marathon, it is unlikely they will ever achieve speeds of 150 or 180 miles an hour routinely accomplished by the high-performance racing vehicle. It is also unlikely that the racing car will ever achieve the same fame as the driver, although auto manufacturers nevertheless want their names associated with the winners on the racing circuit. Car buyers occasionally do make an association with the car in the auto lot and the company that won a major race.
In the world of business, successful people rarely have to acknowledge or credit any of their surroundings or circumstances. If automotive technology is easily overlooked in an arena where it plays such a prominent role, the part played by business operations in individual success stories seems to totally disappear. Most successful business people are simply known for the fact that they are successful; finding out what they were successful at, or what businesses they have been involved in, oftentimes takes a lot of research.
The Secret of My Success
Andrew Carnegie is remembered almost more for the libraries he funded than for the steel industry he built. John D. Rockefeller is probably remembered for his association with Standard Oil. Both Carnegie and Rockefeller had an interest in cost reduction, and they attributed part of their success to their obsession with efficiency. Yet the success of their business also came at a time when new discoveries were being made. Rockefeller got into the oil refining business during the Civil War, only a few years after the first oil well had been drilled in 1859. Andrew Carnegie got into the steel business at a time not long after the Bessemer process had been developed, in 1856. [1] Carnegie would first observe its operation when he visited a steel plant in Sheffield, England in 1872, and began incorporating the process into his own operations. [2] He also benefited from Pittsburgh's proximity to the coal beds around Connellsville, Pennsylvania, about thirty miles to the southwest. It was some of the best coking coal available, which meant that when the coal was heated to turn into coke, it could be used to in steel-making.[3] Henry Clay Frick, who would enter into a partnership with Carnegie, had himself recognized the potential of the Connellsville fields, when he founded his coke empire. It was not just that Frick's coking coal came on the market just when the Bessemer process would create a demand, it also came at a time when new high-quality iron ore discoveries were being made. The Vermilion iron range of Minnesota would be discovered in the 1870s. It would be followed by the discovery of another Minnesota reserve, the Mesabi range in 1890. If the iron discoveries were not conveniently located near Pittsburgh, they were at least conveniently located near the Great Lakes, which did allow for transport by water, followed, once they were unloaded at their destination port, by transport by rail.
If Carnegie and Rockefeller could be described as self-made men, they certainly had a lot of help. So where was the balance between the innovative contribution entrepreneurs made and the favorable circumstances in which they found themselves? Cecil Rhodes had certainly worked hard to become rich, but it would be hard to overlook the part diamonds and the Kimberley diamond fields of South Africa played in his success. How much of the success of Richard Arkwright's water-powered spinning frame in 1771, was due to the invention and how much was due to the power supplied by the rivers which ran by the factories was hard to say. Friedrich Engels' great grandfather had been part of the start of the industrial revolution in Germany, but had decided on the Wupper River to start his yarn business because of its lime-free waters, which made it suitable for linen yarn bleaching.[4]
A Universal Economic Model?
The fact that successful people received help from time to time, or were a product of the times or circumstances in which they were born, did not seem to diminish their remarkable stories, or the continuing favorable reviews of the entrepreneurial spirit. The sheer number of success stories, and their popularity, suggested there had to be something of substance beneath the surface. That idea was bolstered with the fall of the Berlin Wall in 1989, quickly followed by the collapse of communism, and the triumph of free-market capitalism.[5] It received something of a setback with the 2008 financial collapse, but then seemed to make a comeback.
The success stories suggested a successful economic model. In addition, there was, with the collapse of the Soviet Union, no alternative model for comparison. China had not collapsed and was still there, but, in spite of its continued support of communism, seemed to be embracing free market ideas, if not embracing capitalism.[6] And yet, attempts to apply the capitalist model to economies outside the U.S. and Europe had not necessarily proven successful. Argentina had imposed austerity measures in an attempt to become competitive and maintain the value of the peso, only to see its currency and its economy collapse in 2001.[7] Russia, shortly after the collapse of the Soviet Union had embraced privatization, selling off its flagship companies to private individuals. The Oligarchs made a killing, individual Russians struggled, the Russian state had to resume control.
So which came first - the economic model or the economy?
So what went wrong? Was the problem one of implementation? Had the advocates of the capitalist model emphasized the wrong aspects of the theory, focusing too much on governmental budget cutting, austerity, and privatization? Had they pushed too hard for immediate results, when long-term structural changes were needed? Or, was it possible that the economic model was not a universal model which would work or be successful in every country or situation? Perhaps the capitalist model was not as universal a panacea for all economic ills as some believed.
Perhaps the problem was not that there weren't successes, but that the success stories which emerged from the free market economies seemed to be limited to a few countries. It might have been just a coincidence, but most of the real capitalist success stories, of the titans of industry, came out of the U.S. and Europe. If it was true that Andrew Carnegie and John D. Rockefeller had struggled against long odds, the advantages they had started with - incredibly abundant natural resource reserves, low transport barriers, and lucrative market demand - were incredibly high.
In a fascination with the stories of successful individuals, it was easy to discount or overlook the role played by outside factors. Had the economic models taken any of these factors into account when they were developed? Failure might have been due to the fact that the models were not fully implemented or not given enough time to work. But there was also the possibility that they were faulty to begin with; they would never work, or would only work in the countries which were already successful. More to the point, were they real working models designed to bring about change? - or was the capitalist model just an excuse to take credit for someone or something else's efforts? Had the free market really created the successful economies, or was the model just an after-the-fact invention, intended more to explain or justify a role in an already completed project, something just stumbled upon by accident? The capitalist model was successful for economies which were already successful; it didn't seem to work, or didn't apply to, economies which were poor.
It has sometimes been said, in the context of job hunting, that a resume is no place to be modest. While there is a cautionary note about not exaggerating, when it comes to accomplishments, it is also said that it is necessary to both list accomplishments and to paint them in a positive light. In the world of economic theory, there is the 'chicken or the egg,' - which came first - question. Did capitalism and the free market create the models for modern economies their advocates boast so much about, or did those economies develop on their own, in response to, or as adaptations of, the economic environment in which they found themselves? Were market economies the real model, in-and-of-themselves, for the theoretical capitalist model, which sought to explain their operation - more of an imaginary invention - which justified individual success almost as much as it explained economic operations.
Footnotes
(1) John Steele Gordon, "An Empire of Wealth: The Epi History of American Economic Power," (New York:Harper Perennial, 2004),p. 241.
(2) Gordon, ibid, p. 242.
(3) Gordon, ibid, p. 246.
(4) Tristam Hunt, "Marx's General: The Revolutionary Life of Friedrich Engels," (New York:Holt Paperbacks, Henry Holt and Company, LLC, 2009), p. 12.
(5) Yanis Varoufakis, "Adults in the Room: My Battle with the European and American Deep Establishment," (New York:Farrar, Straus and Giroux, 2017), p. 28.
(6) Ellen Schrecker, Ed.,"Cold War Triumphalism: The Misuse of History After the Fall of Communism," (The New Press: New York) (2004), p. 5.
(7) Varoufakis, op.cit., p. 33.