The Great Depression shattered the myth that capitalism—a for-profit market economy—constituted a fail-safe, efficient system of economic organization. Before the Great Crash and the free fall of the world economies (excepting the Soviet Union), orthodoxy insisted that the marketplace was a rational, self-correcting mechanism, that markets might stumble, but in the long run they would deliver the most efficient distribution of goods and services.
But the dramatically steep and persistent decline of the capitalist economy during the 1930s challenged this myth. As a result, Marx’s theory of capitalism’s essential irrationality and inefficiency earned a grudging respect and a broad following. Only the public funding of war preparation and war-making pulled worldwide capitalism from its decline. Before the recovery, government initiatives — publicly funded enterprises and projects — like the Tennessee Valley Authority, the Works Project Administration, the Civilian Conservation Corps, and the National Recovery Administration, provided the economic stimulus to sustain the economy in the face of a dormant private sector.
The lessons of this experience were clear: private endeavors, what apologists call “free enterprise,” can grow a modern market economy as long as there is a dollar to be made. However, making dollars is not the same as fulfilling human needs. When trade-offs between human development, nourishment, and even survival conflict with the profit motive, the market always falls on the side of the dollar. That is the celebrated “efficiency” of capitalist economies.
But memories of the Great Crash have dimmed and the cheerleaders for capitalism have done much to restore the myth of the infallibility of markets and the profit motive. The demise of the Soviet Union, the first planned, not-for-profit economy, has further encouraged this view. But the occasional bubble burst like the stock market collapse of March 2000 leaves many mainstream economists whistling past the graveyard.
The never-ending drive for privatization of publicly owned resources — whether they be utilities, social programs (such as Social Security), services, or public lands — draws sustenance from the myth that private effort is always more “efficient” than public endeavor. The truth is that “efficiency” is a value-laden term. We must always ask, “Efficient for whom?” The notion that efficiency is an objective, class-neutral concept evaporates when we look at actual examples of market-measured, profit-driven “efficiency”.
Production of athletic shoes, for example, is always much more cost-efficient when desperate workers are employed who will work under near slave-labor conditions for just enough compensation to survive and work another day. The market always selects this over the “inefficiency” of well-paid workers with humane benefits and strong unions. But is this “efficient” for the workers?
Allotting public funds to wealthy sports team owners or corporations threatening to leave a community is claimed to be a more profit-effective use of resources than funding cash-strapped public transportation, which generates no profit. How do the economic gurus know this? The all-mighty market speaks and says that paying tribute to the wealthy protects jobs and economic activity while public transportation is a “luxury” and an inefficient use of economic resources. But is it efficient for the seniors, the working poor, and the disabled that find their travel hindered? How can making human life easier be “inefficient?”
One cannot escape the daily accounts of corruption, cost overrun, and rigged bidding that count against the vaunted private sector efficiency — an enormous squandering of public resources destined for the coffers at Boeing, Halliburton, and other corporate giants.
The fraud of capitalist efficiency — the idea that private activity is always less costly than public works — springs from hiding the source of the savings. Inevitably, the cost savings claimed comes at the expense of worker’s safety, wages, benefits, the environment or some other human value.
The myth of market efficiency stands as an article of faith. Anyone that questions the primacy of profit and markets becomes a heretic in the eyes of the high priests of economics. But we must protect and expand socially useful public institutions and not worship profit-enabling “efficiency.”