New, quick effect regulations shake confidence, undermining investment and devastating growth

The thing that is crucial to recognize is that we, society as a whole, are extremely dependent on the actions of investors because of what has been called the "privileged position of business" (Llndblom, 1977). Adam Przeworski (1985) describes the dilemma particularly well. Consider, he says, the perspective of a democratically elected left-wing government. The fundamental problem of which, and the main reason why progressive reform is consistently so hard to achieve, is the problem of investment. To see why this is so recall that left governments lend to get elected by a broad coalition of unionized workers, students, retirees, the unemployed, and others on a range of promises to increase wages and pensions, improve workplace and environmental regulations, and so on. However, these policy reforms inevitably bite into profit margins. So as soon as the government starts implementing its promises, private profits start falling (because, for example, business owners become forced to pay higher minimum wages, grant maternity leave, clean up their pollution, pay higher taxes, etc.). This reduces their incentive to invest (why would one go through the effort of investing if one were unlikely to profit from it?). If the government changes are drastic enough, and business confidence becomes seriously shaken, investment rates can plummet. Companies lay off their workers, cut back their activity, and stop buying products from other firms, which makes those downstream firms lay off workers too. So the amount of taxable revenue going to government starts to shrink, resulting in less money to fund the social programs that the government promised. Recall that there can only be social programs like welfare if there is sufficient investment and productive activity happening to tax to pay for it. Wealth has to be produced before it can be redistributed. So those who want welfare find that they have a direct interest in making sure production happens steadily. This means that, given private control of investment, even the most radical welfare-rights organizations, for all their anti-capitalist rhetoric, are still dependent on business proceeding basically as usual. So with mass layoffs on one side, and deep cuts to social programs on the other, the average person may well conclude that she was better off under the former conservative government—at least then she had a job. If the investment crisis continues, the population comes face-to-face with a stark choice: be progressive and starve or reactionary and eat. The investment crisis swells into an economic crisis which fractures political coalitions, leaving left-wing governments facing a crumbling economy, mass unrest, and even a right-wing coup (Chile under Allende is a classic example of this). This, then, is the paradox: the very capacity of left governments to intervene in the economy depends on the profits of the businesses which bear the intervention. Przeworskl (1985) puts it this way, "This is the structural barrier which cannot be broken: the limit of any policy is that investment and thus profits must be protected in the long run" (p. 42). Another way to see this "paradox of investment dependence," as I call it, is to recognize that, on the one hand, employees and employers usually have opposing interests: lower wages = higher profits. On a deeper level, however, employees are dependent on their employers being happy, because if they are not, if profits are falling and confidence is shaken, then investment slows and everyone suffers. Employees thus find themselves in the paradoxical situation of having to care about the happiness of their bosses, and mitigate their own demands for improvements, because they are dependent on their employers continuing to invest. This means that what is good for the employer is usually bad for the employee, but, and this is the paradox, what is bad for the employer is usually worse for the employee. So the private control of investment means that workers find themselves in a structural straightjacket, unable to protest the inequities of their circumstances too vehemently without risking making themselves even worse off. This is what l.indblom (1982) meant when he called the market a "prison." So in normal limes, the stability and growth of the economy depend largely on the profit levels and the confidence of business owners who are making investment decisions. Profit-seeking private investment is the engine of economic growth. This means that government policy is ultimately constrained, and popular sovereignty ultimately undermined, to the extent that the government cannot risk overly undermining business profits or confidence. This is why governments, even progressive ones, find it so difficult to make important social justice advances, like redistributing wealth—because what would happen if they tried? Any attempt to engage in substantial redistribution would be less likely to generate actual equality as it would be to lead to investment slowdown and economic recession. As long as investment decisions remain predominantly in private hands, we would get collapse and depression far before we would get equality.