Is it a case of murder, or has the Western economy attempted suicide and nearly succeeded? John Maynard Keynes was not just talking about defunct economists when he wrote that the world is commonly ruled by dead ideas, its leaders the slaves of the past.  “Indeed the world is ruled by little else,” he said. If Keynes were alive today he could add management consultants and business gurus to the list of those responsible for our economic crisis.

As 2011 begins, people still talk about the crisis of the Western economy as though we were the victims of natural disaster. No one is held responsible--certainly not the business leaders who insisted that markets know best, or the political leaders who empowered them.

Once the Western nations professed belief in a stakeholder capitalism, which was supposed to benefit nations as a whole, and whose principal actors—managers, employees, labor force, bankers, and customers—were regarded as a community possessing common interests.

That was the “enlightened capitalism” of the post-World War II years in the United States and Western Europe. It was the product of progressive businessmen in the United States, influenced by the two Roosevelt presidencies—Theodore Roosevelt and the progressive movement early in the twentieth century, and FDR’s New Deal; by enlightened unionism in the United States, wartime Labour Party and Fabian thinking in Britain, and Social Democrats and Christian Democrats on the Continent.

It bestowed upon Americans and Western Europeans thirty postwar years that are now looked on as a golden age of individual prosperity, universal education, and social achievement.

Many conservatives in Western countries might concede the economic and social accomplishments of the West during those years. After all, that democratic social order defeated Communism. The so-called socialist system installed in Eastern Europe and the Soviet Union at the same time could not withstand comparison with the system achieved in the West, and collapsed.

Many factors since then have contributed to the destruction of the Western version of capitalism, but the most important for the U.S. was the theoreticians’ rejection of manufacturing—in its fundamental meaning, the making of things. In the 1960s it became common to argue that manufacturing with its associated physical labor and consumption of raw materials was inappropriate to a modern society, whose distinctive advantage was having and using knowledge along with its capacity to innovate.

The new theory held that an advanced economy should supply thought, innovation, and largely intellectual services to the world economy, leaving manufacturing to more backward societies, which then would exploit the resources of primitive economies. That also eliminated the onerous demand to pay wages to American workers.

Part of the transformation of that period was the acquired conviction—influenced by the example of despotism in wartime societies—that the state should divest itself of direct economic intervention. Economies should be privatized; the alternative would be the road to serfdom. When the channel tunnel between the Continent and Britain was controversial, Margaret Thatcher supposedly said that if business felt the need for such a tunnel, business would build it.

That denial of state infrastructure responsibilities can be seen today in the dilapidation of infrastructure in both Britain and the United States. The unspoken (because absurd) assumption has been that if business needs bridges, highways, airports to meet expanding traffic, enhanced national power systems, etc., business can be relied on to build them (even when, as would seem self-evident, the amortization of national infrastructure investment vastly exceeds the time-frame in which business corporations function).

That is one element in the attempted national suicide. Another is the theory of the virtual corporation, which encouraged the improvisation of ephemeral management entities to exploit business opportunities individually or collectively. Despite its opportunistic advantages, that practice deconstructed the national economy.

Today the United States suffers from weak consumer consumption. The lack of consumption is the result of exporting quality manufacturing employment that used to drive consumption. Germany and France experimented with that but drew back. Theirs remain heavily industrial economies making high-value goods sold worldwide. The United States makes weapons, mostly for its own use.

The United States continues to innovate, but the result is exploited by low-cost foreign labor, which then buys consumer goods. No surprise there, yet the effects of a virtual economy were not foreseen. That’s one reason national and state governments have run out of money.

Think of offshore investment funds and similar financial innovations, which generate great wealth for an elite few—and practically no employment for the rest of the population. Boeing nearly destroyed itself through outsourcing.

Corporations pay almost no federal taxes because the profits of the new U.S. economy are banked abroad in tax havens, and spent abroad for investment. Corporations are now demanding a rate cut to 5 percent in place of the 35 percent they’d pay if they repatriated profits. For practical purposes, it seems they don’t want to be American. They’d rather impoverish both the government and its people.

© Copyright 2011 by Tribune Media Services International. All Rights Reserved.

Related: A Crisis Wasted, by Charles R. Morris