Page 164 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
ket economy in which individuals are assumed to maximize their own
private interests (utility), and business corporations are expected to
maximize profits. The American model, like the neoclassical model,
rests on the assumption that markets are competitive and that, where
they are not competitive, competition should be promoted through
antitrust and other policies. Almost any economic activity is permit-
ted unless explicitly forbidden, and the economy is assumed to be
open to the outside world unless specifically closed. Emphasis on con-
sumerism and wealth creation results in a powerful proconsumption
bias and insensitivity, at least when compared with the Japanese and
German models, to the social welfare impact of economic activities.
Although Americans pride themselves on their pragmatism, the Amer-
ican economy is based upon the abstract theory of economic science
to a greater degree than is any other economy. 4
At the same time, however, the American economy is appropriately
5
characterized as a system of managerial capitalism. As Adolf Berle
and Gardner Means pointed out in their classic study of American
corporations, the economy was profoundly transformed by the late-
nineteenth-century emergence of huge corporations and the accompa-
nying shift from a proprietary capitalism to one dominated by large,
6
oligopolistic corporations. Management was separated from owner-
ship, and the corporate elite virtually became a law unto itself. Subse-
quently, with the New Deal of the 1930s, the power balance shifted
noticeably away from big business when a strong regulatory bureau-
cracy was established and organized labor was empowered; in effect,
the neoclassical laissez-faire ideal was diluted by the notion that the
federal government had a responsibility to promote economic equity
and social welfare. The economic ideal of a self-regulating economy
was further undermined by passage of the Full Employment Act of
1946 and the subsequent acceptance of the Keynesian idea that the
federal government has a responsibility to maintain full employment
through use of macroeconomic (fiscal and monetary) policies. Al-

4
Excellent studies of the American political economy include John L. Campbell, J.
Rogers Hollingsworth, and Leon N. Lindberg, eds., Governance of the American Econ-
omy (New York: Cambridge University Press, 1991); Frederic L. Pryor, Economic Evo-
lution and Structure: The Impact of Complexity on the U.S. Economic System (New
York: Cambridge University Press, 1996); and James E. Alt and K. Alec Crystall, Politi-
cal Economics (Berkeley: University of California Press, 1983).
5
This characterization of the American economy is based on William Lazonick,
Business Organization and the Myth of the Market Economy (New York: Cambridge
University Press, 1991).
6
Adolf A. Berle and Gardner C. Means, The Modern Corporation and Private Prop-
erty (New York: Macmillan, 1932).
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