Potemkin Capitalism (and a few Asia thoughts)

In last week’s Book Selection(s) of the Month entry, I mentioned the comic book character Octobriana, ostensibly created by underground Soviet artists as a bit of anarchist subversion but really created by one hoaxing Czech writer. In a similarly complex case of a fake-fake, it’s possible that the original story of “Potemkin villages” — fake villages created by minister Potemkin to exaggerate the extent of Catherine the Great’s new conquests — may be apocryphal.

Nonetheless, like Octobriana, the idea of Potemkin villages is a valuable one, and I can’t help thinking that the U.S. (like the fascists before us, if I can say that without alarming everyone) often practices a sort of Potemkin capitalism. That is, we have the outward forms (or conventionally-assumed forms) of capitalism — the business suits, the logos, the money — while government redistribution tends always to artificially move money up the social ladder (not downward, even in times less strange than these), regulation stymies innovation and creativity by mandating that familiar patterns be followed, and bailouts and subsidies perpetuate failed business models while making things more difficult for less well-connected newcomers without teams of lawyers and lobbyists.

But that’s not all: The really perverse part that has worried me for many years — long before the current bailout madness — is that if you live in a half-government-run economy that maintains the outward forms of capitalism, it is nearly inevitable that when things go badly, people will notice and blame those outward forms before looking at the deeper systemic problems. To take a case far simpler and more familiar than recent stock shenanigans: if regulations cause prices to rise, people will get angry at the local seller of bread long before they ever stop to read up on farm subsidies and get angry at Congress.

(People are much more short-term in their thinking than even the most crass political campaign consultants normally recognize, I think: They’ll passively accept doubled taxes while getting angry at a new tollbooth simply because the tollbooth is more visible, more easily targeted with focused ire — it’s instinct.)

And Congress (both parties) loves it that people blame business first. Who doesn’t want to deflect blame and look like the savior instead of the source of problems? That’s the very essence of politics. Government is always the ostensible cure, and as long as economic problems (of course) manifest themselves in economic forms — layoffs, business failures, higher prices — the private sector will always be the ostensible disease, right up until there isn’t any private sector anymore. And as the Soviet experience shows, you can go right on blaming the capitalists even after the private sector has been destroyed. Leftist activists and intellectuals will certainly play along, with pride, when the time comes.

I remember being lectured by East German students when I arrived at Brown about how superior their country’s economic system — particularly its socialized healthcare system — was to the U.S.’s, a mere two years before their superior country ceased to exist. That level of arrogance and error — and that denouement — are worth keeping in mind as the likes of Paul Krugman and Barack Obama tell the world’s governments to spend their way out of current economic woes.

In barely-related news, I just want to note that I think it’s amusing that the Council on Foreign Relations’ Asia expert is named Elizabeth Economy and want to note that this month sees the twentieth-anniversary re-release of a novel about the Viet Nam War experience by Richard Currey called Fatal Light, if you’re in the mood for a reminder that government manages things badly but aren’t ready to apply that important lesson to economic matters just yet.