News & Politics  
comments_image Comments

Frame the Issue!

It's a myth that conservatives support free markets and progressives want government solutions.
 
 
Share
 
 
 
 

What's the difference between conservatives and progressives? Conservatives support free markets, whereas progressives support government solutions to social problems, right? Wrong. Conservatives like the government every bit as much as progressives do, they just don't advertise this fact. In actuality, conservatives want the government to shape markets in ways that provide profits to corporations and high incomes to rich people, instead of using it to ensure a decent standard of living for everyone.

For example, with regard to airwaves and patents, conservatives expect the government to grant them exclusive rights and arrest competitors. Even in the recent battles over Social Security, conservatives have not been pushing a market solution -- rather they advocate a policy of government-mandated saving, which would put citizens' savings under the control of the financial industry. In all of these instances, conservatives are not pushing for a market solution. Their desired policies require large-scale government intervention in the market. Conservatives conceal this fact in their rhetoric, implying that they simply want the market to be left alone.

Unfortunately, progressives have generally been willing to accept the right's characterization of them. When the free market is depicted as the conservative solution and government as the progressive solution, the ideological conflicts are cloaked in misrepresentation. Progressives must expose the deceptions underlying the conservative position and clearly set out their agenda as simply an alternative form of government intervention.

It is worth examining specific cases where the right has demanded government intervention and depicted this as the "natural" or "free market" solution. A close look at these cases clarifies the way these government interventions take place.

The Airwaves

The airwaves provide the clearest case study of this problem. When radio airwaves were first commercialized in the 1930s, the government assigned frequencies to corporations for their exclusive use. It continued this pattern with the assignment of television frequencies in the 1940s.

The logic of assigning a frequency for exclusive use is difficult to contest -- if more than one broadcaster used the same frequency in the same place, then neither could be heard (or seen) by listeners or viewers. But there was no reason that the airwaves had to be parceled out in this manner. For example, they could have been made available for set intervals (e.g. hour-long blocks) parceled out through a lottery. Or they could have been auctioned off for set periods, either by the hour or by the year. If one considers the lost income from an auction of this asset, the government intervention on behalf of broadcasters runs to the tens of billions of dollars every year. (Earlier this year, an auction of frequencies in Germany, which were to be used for wireless communications, raised over $30 billion.)

Remarkably, this huge gift from the government to the broadcasting industry is seen as a free market arrangement. When the public demands that conditions be attached to broadcast frequencies -- such as designating time for children's programming or for political candidates to present their agendas -- this is treated as interference with the market.

Neither progressives nor conservatives would want the resulting anarchy if the government withdrew its regulation of the airwaves. Yet, progressives have let the right's preferred solution appear as a market solution.

Intellectual Property "Rights"

A similar situation exists with patent and copyright protection. Such protection is an explicit form of government intervention in the market. The government guarantees a patent or copyright holder a monopoly on a specific product (or process) for a designated period of time. It is clear that these interventions serve a purpose -- they provide incentives for innovation and creative work -- but they are nonetheless forms of intervention. In the absence of government intervention, anyone could sell copies of Microsoft software or Viagra, without getting permission from, or paying royalties to, Microsoft or Pfizer. By failing to recognize that patents and copyrights are interventions in the market -- and not the free market itself -- progressives give these forms of intervention a degree of legitimacy they do not deserve.

In fact, when patents and copyrights are discussed in public debate, they usually are referred to as "intellectual property rights." This would be comparable to having a debate over national health care being framed as a debate over how to best meet the "right to health care." Conservatives would never accept this language as the basis of the debate; yet progressives essentially concede the argument by accepting the way the issue is framed.

In the case of patents and copyrights, the language of intellectual property rights not only weakens progressives' political grounding, it seriously muddles thinking about the issue. The policy question that needs to be addressed is straightforward: what is the best way(s) to provide incentives for innovative and creative work? Patents and copyrights are one possible mechanism, but not the only mechanism. An enormous amount of innovative work takes place by scientists employed by universities, foundations or the government, where the hope of windfalls from patents would be close to zero. Similarly, a large amount of creative work -- including recorded music, writing, and the video production -- is supported by foundations, universities or other institutions. The earnings from having copyright protection for most of this work are trivial. There is literally no economic evidence to support the case that patents and copyrights are the most efficient means to support innovation and creative work. In other words, this massive government intervention into the market cannot be justified on the basis of any body of economic research.

While conservative and mainstream economists are angered over tariffs that can raise the price of goods 10 to 20 percent, progressive economists have allowed patent and copyright protection to pass unchallenged, even though these forms of protectionism often raise the price of prescription drugs by several hundred percent. All the economic arguments concerning the inefficiencies created by tariffs apply equally to patents and copyrights -- but the size of distortions is far greater in the case of patents and copyrights.

Questioning patents and copyrights does not raise an issue about whether individuals should be rewarded for their creativity. This can be done under other systems. Nor does it raise a question about public or private control. Properly posed, the question is simply one of finding the most efficient way to support innovative work. Fuzzy thinking by progressives has not only given conservatives a rhetorical advantage on this point, it has prevented us from even posing the question in a coherent way.

Hampering the Trade Debate

The same sort of confusion hampers progressive views of trade as well. Conservatives (and some liberals) have characterized their agenda as "free trade," leaving progressives scrambling for justifications to prevent the downward pressure on wages and environmental standards that result from recent trade agreements. But there is no inherent connection between the ends pursued in these trade agreements and anything that can be called "free trade." The major thrust of most of these agreements has been to standardize the laws governing investment in order to facilitate U.S. investment in developing nations. The obvious and intended effect of this foreign investment is to place U.S. workers in direct competition with the lowest-paid labor anywhere in the world.

A "free trade" agreement could just as easily be written to standardize education and licensing standards for professionals. Such an agreement would then put U.S. doctors, lawyers, and accountants in direct competition with the lowest paid professionals throughout the world. Instead of investing to build factories in Mexico or China, hospital chains might pay to support medical education in these countries, with the graduates coming to work in the United States. Since U.S. professionals are paid far higher salaries than professionals even in OECD nations (doctors in the United States earn more than twice the average for doctors in other OECD nations), free-trade pacts of this sort would have the potential for enormous economic gains for the United States, as well as developing nations.

However, trade agreements have done little or nothing to increase the ability of foreign professionals to sell their services in the United States. This is because doctors, lawyers and other professionals have powerful lobbying groups that can prevent this sort of competition.

Progressives have played along with this charade by accepting the conservatives' framing of the debate. By accepting their definition of trade but then seeking to attach labor or environmental standards, progressives act as if trade agreements will somehow be made into good policy with a few add-ons. This, of course, overlooks the fact that the main outcome of trade agreements will be depressing wages and environmental regulations. While such labor or environmental standards may ameliorate the harm from trade pacts, they are unlikely to change the fact that these agreements will still lead to downward pressure on the living standards of the majority of the population.

A more logical approach would insist that free trade should mean first and foremost real free trade in professional services. Let our doctors and lawyers enjoy the same benefits from global competition that auto workers, steel workers, and textile workers already experience. And free trade definitely should not mean extending patent and copyright protection to developing nations. These forms of protectionism will impose enormous costs on developing nations and will hamper their growth by draining away billions of dollars in royalties and licensing fees. Furthermore, international patent protection can literally lead to millions of deaths, since it will price many life-saving drugs out of the reach of people in developing nations.

Protecting Social Security

Social Security provides another clear example where progressives have accepted rhetoric undermining their position. This is most obvious in the phrase "privatization." No one in this debate is actually advocating the privatization of Social Security. This would literally mean that the administrative structure that operates the existing system would be sold off and operated as a private company. Nor is anyone seriously advocating a system with no old-age security, where we just tell workers that they are on their own.

Instead, conservatives are advocating a system of government-mandated savings, where the government forces individuals to invest in some types of funds for their retirement. While this can be done through a centralized system, where the funds would be collected by the government, most proponents of individual accounts envision a system of decentralized accounts, where the government will effectively be requiring workers to place a fixed percentage of their wages on deposit with the financial industry. It is also worth noting that almost every serious proponent of this system also advocates extensive government regulation of these accounts, restricting them to relatively low risk investments. The accounts therefore require a government role even in control of the money.

This system would hand the financial industry tens of billions of taxpayers' dollars in administrative fees each year. It has absolutely nothing to do with a free market. If progressives let the right pretend that it is proposing a market solution for Social Security, they have given away the debate. Both conservatives and progressives are proposing systems in which the government ensures that workers are guaranteed a minimum level of retirement income. The real question is which system does it more effectively.

The Federal Reserve Board

One last example worth mentioning is the stock market. In the 1987 crash, and on other occasions, the Federal Reserve Board acted to prop up the stock market. This is not a neutral intervention solely for the good of the economy. Stock holdings are heavily concentrated among the nation's richest families. The richest one percent own nearly 50 percent of stock shares and the richest 10 percent own more than 80 percent of individually held shares. When the Federal Reserve Board makes a decision to prop up the market, it is making a decision to transfer wealth from the rest of the nation to a minority of rich people.

Most progressives fail to recognize this relatively straightforward point. Some even seem to believe that a rise in the stock market is a gain to economy as a whole, because many middle income and working class people hold stocks as well. An analogy may make the issue more clear. Consider an across-the-board cut in the progressive income tax, such as Reagan's 1981 tax cut or President Bush's recent tax cut. While many middle class families may get a small amount of money from these cuts, the vast majority of benefits go to the richest segment of the population. The missing revenue is, of course, a loss to the entire population, which must ultimately be made up by cutting spending or raising other taxes.

The exact same logic applies to the stock market. The value of individual stock holdings are, in effect, claims against the nation's wealth. The greater the value of these holdings, the larger the portion of the nation's wealth is controlled by those who have stock holdings. The concrete manifestations of this wealth are felt most immediately in the prices of goods that are in relatively fixed supply: most obviously, housing. Tens of millions of families are paying more for homes or rent because the stock market has given a small segment of the population more money to bid up home prices. The effect of the increased wealth of the rich, from the stock market, on the standard of living of typical families will be felt in other ways as well, although the specific instances may be less dramatic.

The amount of wealth that has been transferred through the run-up in the stock market over the last decade is truly staggering. If today's price-to-earnings ratios were to fall to their historic levels, it would destroy approximately $7 trillion of wealth, an amount equal to approximately 500 times what the federal government is currently spending on welfare. The Federal Reserve Board's policies over the last 20 years -- most notably the propping up of the market in the wake of the 1987 crash -- have helped to engineer this transfer from the rest of the nation to the wealthy. The fact that many progressives have even applauded the market run-up shows how completely disoriented our rhetoric has left us.

It is likely that the stock market bubble will ultimately burst, and this run-up will be reversed. It remains to be seen how the actual dynamic of the crash will unfold, and who will end up as the big losers. It's reasonable to believe that many of the wealthiest investors will have gotten much of their money out of the market near the peaks, allowing pension funds and less affluent families to enjoy the losses.

The Inevitability of the Natural Approach

There are many examples of situations in which corporate profits or high labor incomes are fundamentally dependent on government interventions into the market. In fact, there are probably few, if any, cases where this is not true. But, in virtually every case, the preferred approach of the right is to try to define away this intervention as somehow natural or inevitable. When progressives accept this characterization of the debate it puts us at a major disadvantage.

Instead, progressives should expose the government's role in the right's preferred solutions. Progressives should always ask whether government intervention can be structured in a way that better serves the majority. Finally, and most importantly, progressives must stop arguing from a script drafted by the right.

Dean Baker is co-director of the Center for Economic and Policy Research.