The Great Transformation Part 3: Neoliberalism Before It Got Its New Name
Previous posts in this series:
The Great Transformation: Mainstream Economics and an Introduction to a New Series
The Great Transformation Part 1: The Market
The Great Transformation Part 2: More on Markets
The text for this post is Chapter 12 of The Great Transformation, which begins:
Economic liberalism was the organizing principle of society engaged in creating a market system. Born as a mere penchant for nonbureaucratic methods, it evolved into a veritable faith in man’s secular salvation through a self-regulating market. Such fanaticism was the result of the sudden aggravation of the task it found itself committed to: the magnitude of the sufferings that had to be inflicted on innocent persons as well as the vast scope of the interlocking changes involved in the establishment of the new order. The liberal creed assumed its evangelical fervor only in response to the needs of a fully deployed market economy. P. 141
In Chapters 7-9, Polanyi gives a description of the grim state of the working people of England prior to 1832. Forcing people to change from peasants into reliable industrial workers was brutal, but at least most people were able to eat thanks to the Speenhamland system of poor relief. The economic liberals of the day argued against these laws, on the grounds that the best way to force people to become good little robots was starvation. Polanyi discusses at length Joseph Townsend’s 1786 Dissertation on the Poor Laws, which reads like the comments of your average jackass Republican congressional or hack economist at the Cato Institute:
But in this day it often happens that the industrious firmer [I think this is the equivalent of a small businessman] is oprest with poverty. He rises early, and it is late before he can retire to his rest; he works hard and fares hard; yet with all his labour and his care he can scarce provide subsistence for his numerous family. He would feed them better, but the prodigal must first be fed. He would purchase warmer cloathing for them, but the children of the prostitute must first be cloathed. The little which remains after the profligate have been cloathed and fed, is all that he can give to those, who in nature have the first claims upon a father.
The only way to insure that this terrible event does not occur is to starve the beneficiaries of the Poor Laws.
In general it is only hunger which can spur and goad [the poor] on to labour; yet our laws have said, they shall never hunger. The laws, it must be confessed, have likewise said that they shall be compelled to work. But then legal constraint is attended with too much trouble, violence, and noise; creates ill will, and never can be productive of good and acceptable service: whereas hunger is not only a peaceable, silent, unremitted pressure, but, as the most natural motive to industry and labour, it calls forth the most powerful exertions; and, when satisfied by the free bounty of another, lays a lasting and sure foundation for good will and gratitude.
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… The wisest legislator will never be able to devise a more equitable, a more effectual, or in any respect a more suitable punishment, than hunger is for a disobedient servant. Hunger will tame the fiercest animals, it will teach decency and civility, obedience and subjection, to the most brutish, the most obstinate, and the most perverse.
Hunger was a tool to make the poor work for survival for the benefit of the more delicate members of society, like the English Country Squire or the capitalists behind the cotton mills. This theory was taken up by the utilitarian Jeremy Bentham.
Bentham believed that poverty was part of plenty. “In the highest stage of social prosperity,” he said, “the great mass of the citizens will most probably possess few other resources than their daily labour, and consequently will always be near to indigence.…” Hence he recommended that “a regular contribution should be established for the wants of indigence,” though thereby “in theory want is decreased and thus industry hit,” as he regretfully added, since from the utilitarian point of view the task of the government was to increase want in order to make the physical sanction of hunger effective. P. 122-3.
These views were much appreciated by the voters, which at that time included none of those poor people, only people of property, owners of manufacturing, merchants and country squires, along with the aristocracy. When these believers triumphed in the elections of 1832, they abolished the entire structure of poor laws, and loosed the miseries of the self-regulating market on those people who depended for their lives on their ability to sell their labor.
But this free market in labor is just one leg of the liberal economic project. The other two legs, the fiercely enforced gold standard, and the absolute commitment to free international trade, had to be forced into existence at the same time, or, as Polanyi explains, the entire project would collapse. And so it came to pass. England bound itself to the gold standard, and used its military to enforce free trade, especially in grain. That meant the end of England’s ability to feed itself, and meant that international fluctuations in the price of gold influenced the starvation wages paid to workers.
The upheaval of these massive social changes was immense, and was thoroughly justified by the liberal economists of the day, including the Englishman William Stanley Jevons, writing in the 1870s, who based his theories on Bentham’s calculus of pain and pleasure. Those theories are still the driving force of mainstream economists. It’s an article of faith that free trade is just the best, that a sound currency is just the best, that the self-regulating market is just the best, all things on which today’s neoliberal economists would agree.
But those same myths affect even today’s “liberal” economists. They too supported NAFTA, especially Paul Krugman, on grounds that would be familiar to Bentham. Krugman was sure NAFTA would bring benefits to the US. Here’s William Greider writing in The Nation on free trade deals:
_ Like Krugman, governing elites dismissed critics and simply stated that free trade will be good for America because US energies and endless creativity are sure to prevail, as they always have in the past. Opponents like organized labor were typically ridiculed as backward Luddites, promoting what Krugman called “disguised protectionism.”
Compare that with Polanyi’s description of the economists of the 1840s on trade:
… the English nation would face the prospects of continuous industrial dislocations in the firm belief in its superior inventive and productive ability. However, it was believed that if only the grain of all the world could flow freely to Britain, then her factories would be able to undersell all the world. P. 144.
England slashed its agriculture sector, and when the First World War started, it was importing 80% of its wheat and 40% of its meat. After German U-boats started their campaign against merchant vessels, the government forced land into grain production, enabling the country to survive with the help of rationing. In the wake of the war, the elites tried to reinstate the pre-war golden age, by reestablishing free trade, the gold standard and self-regulating markets. The Great Depression followed hard on the heels of the crash of financial markets. Regulations piled up on those self-regulating markets. Nations left the gold standard, But free trade was untouchable. At the start of WWII, England was importing “… more than 50% of its meat, 70% of its cheese and sugar, nearly 80% of fruits and about 70% of cereals and fats”, and Germany again tried to destroy shipping. The war ended in May, 1945, but rationing was not suspended until 1954.
NAFTA didn’t bring benefits either to US or Mexican workers, but it was great for stockholders of multinational corporations.
Both Polanyi and John Maynard Keynes predicted the end of this kind of liberalism in economic thinking. Both have been proven wrong. We just fight the same old battles under new names. This time it’s neoliberalism. In each case, the result is the enrichment of the rich.
Oh dear,Oh dear!
Well I don’t really know where to start with this amazing narrative of how, in order to create “neoliberal”economists in the USA in the 1980-2015 period, the people of Northern England & Southern Scotland in the 1760-1815 or 1760-1830 period [depending on which school of economic history you want to follow] “invented” the Industrial Revolution [really learnt how to inject productivity into the industries that make things & move things–& nothing more] & turned Great Britain [really just England,Scotland & Wales,Ireland never really joined in, either before 1921 or afterwards] into the world’s 1st “industrialized” nation,with 50% or more of the population living in a town or city [the USA reached that target in 1922 I understand–& the world as a whole was 2005???]
To save a great deal of time I am going to suggest -as an example only-
just 1 or 2 two corrections ,
then I am going to recommend anyone who is interested read just 1 or 2 “Books for further reading”
& then I am going finally ask all USA based readers to remember the basic constitutional truth about both Britain [following a monarchy as the form of government] & the Swiss Confederation [using the republican form of government]
Correction suggested #1: Yes the 1832 Reform Act did produce a redistricting of the members of the House of Commons away from the southern agricultural lands of England [the political center of gravity in England since Roman times] towards the newly industrialized cities & counties of Lancashire & Yorkshire,
Yes, it is true that “Repeal of the Corn Laws” [repeal of the legal protectionism for the Corn growers (Corn=Wheat in Europe;Maize in USA) was the the rallying cry of many of the movements organized through Manchester & Leeds & Birmingham WITH AN INTENT TO REDUCE THE PRICE OF BREAD for blue collar/working class families.
NO it is NOT true that the repeal of the Corn Laws in 1846 reduced the price of grain & bread significantly until AT LEAST the 1870’s with two factors prominent in causing the price reduction in the 1870s: a) the rise of the Co-operative Wholesale Society/the cooperative movement founded in 1843 in Greater Manchester[making wholesome foods available at wholesale prices to blue collar families] & b) the expansion of wheat farming in North America & beef cattle herding in Argentina & across North America,shipped by railroads & steam ships across the oceans with all market places price interlinked by submarine telegraph circuits globally.
Correction suggested #2: Because England & Wales’s population was 50% town & city dwelling by 1851 any “rural relief scheme” [the Poor Law] was by definition of no interest to the city dwellers.Indeed a number of the great Northern [England] cities histories record how “the Poor Law commissioners” deliberately used the Poor Law taxes to fund “Charity” hospitals & insane asylums because the expanse of obtaining “a private Act of Parliament” to authorize these newly formed institutions was just too large.Some historians have labeled such practices as “municipal socialism” others have used the phrase of “municipal boosterism.Finally the Speenhamland poor law “reforms”, while much written about, only applied in the meanest/most malicious of rural districts.
For 2 excellent books:
a) Eric Hobsbawm The Age of Capital 1848-1875 & also The Age of Empire 1875-1914
b) Elizabeth Cleghorn Gaskill North & South
And finally a gentle reminder about the major constitutional differences implicitly understood by US readers v practiced by the populations of Great Britain & also Switzerland.
Unlike the USA where,upon the death of George Washington in 1799, the “Jacobin-Slaveowner” faction [Jefferson& Madison & Munroe] came to power & used their newly found power to cause many of the Instruments of Governance
of the USA to abandon much of the Governmental morality of a Constitutional Sovereignty of Christendom——-the British [Constitutional Sovereignty of Christendom since June 1215] & Swiss populations [since 1290] have consistently turned away from their countries all 3 of the “amoral” theories of Governance be it Jacobin or Marxist/Leninist or National Socialist that have arisen amongst a European-heritage society since the 1750’s.
Consequently such European societies are HIGHLY UNLIKELY to have engaged in the Manichaen approach that the writer offers as an explanation for the rich oppressing the poor IN ONE OF THOSE COUNTRIES.
Your historical quarrel is with Karl Polanyi’s reading of the history of the industrial revolution in the UK, unless you disagree with the numbers related to UK food imports on the eve of world wars, in which case your historical quarrel is is with the linked article.
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Polanyi says that the repeal of the Corn Laws in 1846 was driven the demands of manufacturers for a free market in grains, because that set the subsistence level which the manufacturers had to pay. Do you disagree with that observation? Here’s a quote
The point, then, is not that the law affected the price of grains immediately, the point is that free trade in food was an essential part of the liberal program. Do you disagree with that? Because that is the point of this post. The unmitigated value of free trade is an article of faith with the economic liberals of the 19th C. just as it is with the neoliberals of today, and with mainstream liberal economists of today. And it wasn’t true then, and it isn’t true now.
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The point of the termination of the Poor Laws was to drive the last of the unemployed workers and their wives and children out of the countryside and into the Dark Satanic Mills, and to insure that none of those trapped in Manchester and Leeds could return to the countryside for a breath of fresh air and a chance at a decent life. I will look at his views on what happened in the 1870s next. The short answer is that there was a gradual effort to deal with the desperation of the poor.
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As to your constitutional concerns, I admire your faith in the beneficience of the aristocracy and the rich and powerful. Let me add another quote from Townsend to support your views.
I’m unable to reconcile the use of NAFTA as an epitome of evil policy as anything other than a tangible symbol. The years post-NAFTA have indeed been not good for American labor, or for that matter for American jobs in all sectors. But that’s hardly attributable to NAFTA unless the loss of the American manufacturing base to principally the People’s Republic of China is inherent or covered by that trade treaty.
For the purposes of this post, NAFTA is just an illustration of the general rule that even so-called liberal economists like Krugman unhesitatingly line up behind anything labeled a free trade deal, and seem utterly indifferent to the damage that follows in their wake. The fact is that NAFTA did nothing to benefit US workers, who saw their jobs moved to Maquilladoras just south of the Mexican border. That was Ross Perot’s giant sucking sounds. Little or nothing useful was done to help the displaced workers. There was some benefit to some US citizens, who got somewhat cheaper goods. There was a lot of benefit to giant multinationals, who used the off-shoring both to cut wages and raise profits, and as to avoid US and state and local taxation. There was little benefit to Mexico, as farmers were displaced into sweatshop labor or into penury, and drugs became an increasingly important business. Of course, in the US, we don’t consider the impact on the Mexicans.
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All of this was predicted by regular people not infected with the disease of mainstream economics. And even today, Krugman says he is only mildly opposed to the TPP. The disease is incurable.
According to Wikipedia, the trade deal cost the U.S. 700,000 jobs since 1994. Since the economy of the 21st century requires creation of 261,000 jobs per month as a prerequisite for evenly balancing the number of new workers added, that’s a pretty small number. By comparison, China has incrementally taken much of our industrial sector, and that of other countries, and become the “world’s factory” while the U.S. manufacturing base has pretty much crumbled, and is reputed to have taken more than 3 million U.S. jobs just since 2001.
So any notion that NAFTA is anything more than a symbolic word for the larger practice of globalization is pretty unprovable. That was all I was trying to say.
As for globalization having been very very bad for American workers and the economy as a whole, that one is pretty easy to document, as is the agreement with that policy by all the people you mention when it was going on and right through the dot com bust all the way until the writing on the wall was impossible to ignore in 2008.
On the Trade Agreement, did Ricardo’s “comparative advantage” theory kick in?
On a personal level, would you rate Krugman as a good journalist?
You say:
Polanyi says that the repeal of the Corn Laws in 1846 was driven [by] the demands of manufacturers for a free market in grains, because that set the subsistence level which the manufacturers had to pay. Do you disagree with that observation?
I SAY:
a) I have never seen any immediate connection between the price of grain & the wages paid in either Lancashire cotton mills or Welsh mining towns–& I have seen both wage & price series.I AM AWARE of immediate wage REDUCTIONS in the aftermath of the “Depressions” [nowadays referred to as Recessions] of 1830’s & 1840’s where Lancashire cotton mill owners, facing for the 1st time in mankind’s history, a totally unexplained giant reduction in demand of their product NOT related to a failure in the harvest realized that in their own industry the changeover from “roaring demand” to “no-orders-at-all-for-the-next-few-months-with-many-employers-going-bankrupt” could easily be a period as short as 5 months.Indeed Alfred Marshall [at Cambridge Univ] did not explain the theory of “the trade cycle” until the 1890s.Interestingly while you make much of Jevons as an economist you never mention Marshall, who was far more prominent & by trying to bridge the gap between Firms practice & Macro Theory was more widely viewed in Britain as a credible analyst than Jevons
b)I AM AWARE that Mrs Gaskill, writing her story as the novel “North & South” revolving around the Manchester cotton [workers] strike of 1844 had not heard any suggestion,when she was based in Manchester from 1846 onwards that the price of bread or grain had any connection with either employers or employees
attitudes to the issues of the strike & wages,merely a long delayed strike started at the very moment when customers demand collapsed leaving both sides very bitter
c)I AM ALSO AWARE that BOTH the Lancashire cotton mill owners AND the Welsh coal miners had a well deserved reputation stretching over centuries for completely MIS-understanding how they made their own profits.They always claimed that low employees wages were the key to success.There was a MINORITY opinion starting in the 1890s [in Lancashire] that,just like every other manufacturing industry in the world, NEW EQUIPMENT was the key to success.The FINAL PROOF that the mill-owners had been WRONG all those years did NOT arise until 1947 when the Indian subcontinent was divided between West Pakistan & India.The Fabian Socialism of Mr Gandhi,who Winston Churchill rightly described as a “fake fakir”, led the Republic of India to insist that Cotton Mills in India “support the local equipment industry” by “buying Indian” & erecting a barricade of “too expensive to bribe them all” civil servants to enforce the politicians desires.By the mid-1950s the Indian cotton mill industry had to be transferred to the “sick industry” [Indian English is different than American political English”] Ministry
By comparison the West Pakistan(now Pakistan) cotton spinning & weaving industry was created from scratch after 1947 & rather than expensive civil servants enforcing a “Buy India”policy a “pay-Mr-10%-to-corrupt-politicians” practice was created,new, more productive machinery was bought, & by 2000 the Pakistani cotton weaving & EXPORTING industry is routinely listed as upto 25% of the world’s exported cotton.Lancashire & India are nowhere on such a list.
SO TO SUMMARIZE:
a) What manufacturers had to pay as wages had no connection with the price of bread or grain.POLYANI got it WRONG
b)The long held belief that the repeal of the Corn Laws was overwhelmingly a POLITICAL ACT by the newly ascendant Northern counties of England & the (southern) Lowlands section of Scotland against the agricultural( & southern) counties of England was the view that was widely expressed at the time by the people involved & repeated ever since.
POLYANI got it WRONG by claiming solely a wage reduction purpose
c)It is known that the post-1870 eating habits of “all-but-the-poorest-20%-of-the-population” increased in size/calories/volumes from 1870s onwards with “The British Breakfast” being a nationally known institution of 3 courses (2 hot,1 cold)
c)The very process of Industrialization, in England & elsewhere is known to lead to higher volumes of material things.
What mankind does with those increased material things is, in England & Switzerland at least, is often heavily influenced by the clergy of various Christian denominations.
The Industrial Revolution in England,at least, is known to have lead to the decline of the Church of England/(USA=Episcopalian Church)”in the Industrial districts” & the rise of both “broad-minded” Catholicism & Methodism.Both strands of Christianity emphasize the need to organize institutions to Act on the Works of Mercy [Matthew 25:34-40] of feeding the hungry,clothing the naked,visit the sick & in prison etc etc.
I DO NOT SEE A NEED TO SUGGEST A PURELY SELFISH OR ECONOMIC REASON [as Townsend seems to suggest] FOR THE KNOWN RISE OF “ACTIVIST/Do SOMETHING ABOUT IT”[if you will] CHRISTIAN DENOMINATIONS IN THE INDUSTRIAL AREAS OF GREAT BRITAIN–
I merely draw your attention to 2 opinions polls covering the British population,one in May 1897 the other in April 2013[the 60th year of the reign of Victoria I & Queen Elizabeth II] when asked “Should Britain continue to have an Established Church”-the majority said YES & the most insistent were the most openly observant adherents–in 1897 Roman Catholics & Methodists–in 2013 Roman Catholics & Muslims.
The ADVANTAGE of an Established Church has always been to act as a MORAL CHECK & BALANCE UPON THE PRACTICES OF THE INSTRUMENTS OF GOVERNANCE–to remind the population that “Man does not live by bread alone”
& to put a stop to the tendency of mankind encouraged to search for Earthly Messiahs strongly encouraged by Jacobins[Slave-owners or otherwise] & Marxist/Leninist & National Socialists
I merely ask US based readers to remember that all 3 of the great ‘anti-western”/unlimited sovereignty (because “amoral”) theories [Jacobin;Marxist-Leninist/National Socialist] were rejected by the populations of both Great Britain & the Swiss Confederation & that the Jacobin Slave-owners PRACTICES [Jefferson:Madison & Munroe NOT George Washington or John Adams] were tolerated AND HAVE NEVER BEEN OVERTURNED by the American population
FINALLY:
Where YOU ARE CORRECT is your statement that “the advantages of Free Trade” is a matter of faith/opinion.
The EU Commission [in Brussels] has noted that when the question “Does Free Trade [in products & services] bring NET benefits to your country or NET costs?”
The British,the Dutch & the German populations repeatedly answer with a strong YES IT IS A NET BENEFIT because I can export product/services to foreigners & employ my compatriots while being paid by foreigners
When the French & Italian populations are asked they ALWAYS say the reverse BECAUSE I will have to import products/services & my compatriots will be unemployed
FREE TRADE IN PRODUCT & SERVICES IS BOTH A BENEFIT & A COST–it is a glass half-full v a glass half-empty argument.
As HAARMEYER [above] correctly argued, using NAFTA, as the sole explanation for US job losses is silly,the Chinese economy & Canadian economy have more of an impact on the ACTUAL US economy
ED WALKER had said:
For the purposes of this post, NAFTA is just an illustration of the general rule that even so-called liberal economists like Krugman unhesitatingly line up behind anything labeled a free trade deal, and seem utterly indifferent to the damage that follows in their wake
I SAY:
Can I draw your attention to an Oct 15 2015 interview given to the Financial Times [Ft.com] by the French Ambassador to the USA based in Washington:
With the return of the City of London/the City/the One Square Mile/the financing district based in London to its role it last unquestionably held in the 1870-1914 period of The WORLD’s FINANCING CENTER the FT is important as the Wall St Journal was in the 1945-2002 period:
HEADLINE:
Gérard Araud, the French ambassador ruffling feathers in Washington DC
……..Araud says he tries to provoke at such events[meetings at the Ambassador’s residence] as he does on Twitter. “What is striking is that in this city, [Washington DC] there is a conformism. A lot of people are thinking the same. It’s very easy to destabilise them with a small hand grenade,” he says. “I think the strength of this country — and here I have to tiptoe — is its extraordinary unity. You don’t have the sense they are trying to contest the roots of society. Everyone is thinking inside the box. The box is that ‘We’re the greatest country in the world and our system is the best’. Period. There are no metaphysical doubts.”
I suspect that “made in America by Americans” problem [of extreme insularity in the face of all external evidence] is the root of a lot of the confusion about the advantages & disadvantages of Free Trade in products & services & the free movement of capital
Ricardo implies that trade between two nations normally raises the real income of both.
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Any thoughts that trade agreements can be a neutral force?
I think Krugman is a good writer, and I respect the way he uses his training and his vast experience to call out the stupid in neoliberal economics on its own terms. The basis of his career is the economics of trade, and he has never moved far from the mainstream theory that trade is good.
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No doubt in the earliest days, trade could be more or less neutral. Today trade is based on the free movement of capital, so that manufacturing can go where the cheapest workers are, That means that the vast bulk of US manufacturing and other workers, who are generally paid reasonably well, won’t benefit from trade. Assuming they find another job, it likely will pay less, and any benefits from cheaper goods will not make up for the lost income.
In the discussions of NAFTA above, estimates of lost US jobs run to about 700,000 or so, and those jobs went to Mexico. Supposedly this benefited all of us, including those fired workers, with lower prices for washing machines and such. But what happened to those 700,000 people, and the local businesses they supported, like gas stations and restaurants? What happened in Mexico, as the traditional farmers moved off the farms, overwhelmed by the low prices of partially subsidized US corn?
I don’t think trade is neutral with respect to individuals or society. And I despise Bentham’s utilitarian theory. I much prefer the more humanistic ideas of Polanyi, and the ideas of John Rawls, for whatever that’s worth.
Thanks for the info
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Michigan got hit hard.
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The 682,900 jobs displaced as of 2010 were distributed across all 50 states, the District of Columbia, and Puerto Rico. The 10 hardest-hit states (i.e., jobs displaced as a share of total state employment) were Michigan (43,600 jobs lost, 1.0%), Indiana (24,400, 0.8%), Kentucky (12,100, 0.6%), Ohio (34,900, 0.6%), Tennessee (16,400, 0.6%), New Hampshire (4,000, 0.6%), Illinois (34,700, 0.6%), Alabama (11,100, 0.6%), Massachusetts (17,100, 0.5%),
and Texas (55,600, 0.5%).
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I know each job is important but should those numbers be averaged over 17 years?
Your replies are really helpful. Polanyi wrote in 1944, and much has been learned about his factual claims. Some hold up well, others not so much. I won’t repeat his claims so blithely, and thanks. In future posts in this series, I will be careful about Polanyi’s factual claims.
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I have not seen much criticism of Polanyi’s views of the economic liberals thinkers, including Bentham and Jevons. The principal point of this series and the other posts I have put up in the last few years has been to undercut the foundational assumptions and theories of neoliberal economic discourse that dominate the views of the elites, and leak out to the rest of the population through their control over the media, and their ability to set the agenda and the constraints on acceptable topics for discussion. The motivation is something Keynes said: that if people knew where these economic ideas came from, they’d reject them out of hand. I’m less confident than he was, but I hope for the best.
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I think we probably agree with each other and with Haarmeyer that the impact of NAFTA on US workets was comparatively small. To me this seems like a bigger deal than sheer numbers, though, because it represents the utter indifference of the elites to the suffering they inflict in their mad rush to put their theories into practice.
ED WALKER SAID:
The principal point of this series and the other posts I have put up in the last few years has been to undercut the foundational assumptions and theories of neoliberal economic discourse………………….
I SAY:
DONT DESPAIR!
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Even the most influential of “Economists” has made fundamental errors of implicit assumptions, failed to remember that much of “Economics” is just a branch of logic & that when the logic is complete it is ALWAYS wise to look at the ACTUAL world,then check back to what the “chain-of-logic” says—-& then start all over again if necessary.
It is what the physics people do—BUT not all “economics” people do—many [not all,but many] are merely trying to be politicians.
I like to remind myself of “the laity’s version” of the famous story about LIGHTHOUSES–as told by Economists v as told by Civil Engineers
CIVIL ENGINEERS tell the story about the world’s 1st CIVIL engineer,John Smeaton who [in 1755-1759] designed & oversaw the construction of the Eddystone lighthouse,pioneered the invention of “hydraulic lime”(mortar that can set/harden while under water), was the inspiration for the invention of “Portland cement” which,to this day, is used to make concrete [Portland itself is on the English south coast],was a founder [1771] of what is now called the [British] Institute of Civil Engineers [the ICE]–with the world’s largest library [in 2015] dedicated to all matters of civil engineers—a truly iconic figure in the global history of Civil Engineers.
ECONOMISTS like to tell the story of LIGHTHOUSES:—of how [in 1776] ADAM SMITH himself!,—-a farm boy from lowland Scotland mentioned specifically that one of the things that would always be funded by the taxpayers were lighthouses
By 1848 another giant of economics & political philosopher JOHN STUART MILLS himself! [book 5,Chapter 11]also specifically mentioned Lighthouses.All emphasized that from the viewpoint of “lighthouses”owners/managers/ no billing mechanism could exist that could not be very easily evaded–and so pointed out that no rational private sector entity would ever be involved because they could never make a profit.
The civil engineers said–we will build lighthouses as long as someone pays the design & supervisor fees we charge–& they did–between 1760 & 1820 England & Wales had 46 lighthouses built by civil engineers-34 of them organized by private sector entities–11 of them solely by the government agency involved.
In 1976 [exactly 200 years after Adam Smith personally had said that lighthouses would always be paid for by the taxpayer] a Londoner,Ronald Coase[pronounced koze it seems] an economist then with the Univ of Chicago looked at the ACTUAL history of English lighthouses-realized that if 34 of 46 lighthouses were built by private sector entities it must be because the 34/46 of customers/users/shipowners were willing to “volunteer” to pay “their share” of the total running costs of light AND CLOSE THEIR MIND TO THE ARGUMENT MADE BY ADAM SMITH & JOHN STUART MILLS THAT MOST OF THE BENEFICIARIES OF LIGHTHOUSES WERE FOREIGN SHIPS WHO WOULD NEVER PAY THEIR “FAIR SHARE”OF BILLS—BUT THEIR OWN “RETURN ON INVESTMENT(ROI) WOULD BE SO HIGH THAT THEY “COULD AFFORD TO LOSE 98% OF THE BENEFITS [of the lighthouse] TO FOREIGNERS & OTHERS NOT FROM THEIR NEIGHBOURHOOD”
Coase had [in 1991] received the Nobel Prize in Economics for this style of insight that:…….
i) Smith & Mills had ASSUMED that mankind was COMPLETELY RATIONAL–despite all the evidence to the contrary around them &
……..ii) the shipowners paying “their fair share” of monies to the lighthouse owner/manager realized the “lost monies caused by the non-payment of “their” fair share” was strictly A PERCEPTION PROBLEM–a way of looking at the world
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In the USA in 2015 I would suggest you consider the US computer hardware & [some elements of the] software industries–all competing BUT also paying their dues TO AND MODIFYING THEIR PRODUCT/SERVICES for the standards created by such bodies as the IEEE[Institute of Electrical & Electronic Engineers] EVEN THOUGH THE MAIN BENEFIT OF SUCH STANDARDS ARE OTHER COMPANIES.
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The “fly in the ointment” in both the English lighthouse & the USA computer hardware industry is: a) the shipowner who CANNOT overcome the fear they have of “subsidizing” their competitors and so will not pay their bills & b) Microsoft Corporation, with a well deserved reputation worldwide for believing that i) the money that is in their bank account is theirs and ii) the money that is in their users bank account is theirs also.
As the USA abandons any intent to enforce anti-trust law & practice 1980-2015 the EU & Korea &…….have all stepped forward—-with MICROSOFT being the loser in all cases worldwide so far.
So again I would urge all DO NOT DESPAIR–don’t hesitate to check against the ACTUAL WORLD, the REAL WORLD–even if it means looking at non-US histories & industries & people
REFERENCES::
Ronald Harry Coase (/ˈkoʊz/; 29 December 1910 – 2 September 2013)
Coase, R. H. (1974). “The Lighthouse in Economics”. Journal of Law and Economics 17 (2): 357–376. doi:10.1086/466796.