Why America Is Working

Saturday, October 30, 1999

How to make sense of the dizzying economic news—the 11,000 Dow and the fluttering euro, devaluations in Thailand and Brazil, recession in Japan, and collapse in Russia? To put them in perspective, go back to the 1830s, when two young French aristocrats left Paris for journeys to distant lands. Both hated the French Revolution and feared its effects; both had grandfathers who were guillotined. Each was surprised by the country he visited, one pleasantly, the other unpleasantly; and each wrote a book that became a classic. Alexis de Tocqueville’s Democracy in America depicted an egalitarian, individualistic, decentralized, religious, property-loving, lightly governed America. Astolphe de Custine’s Empire of the Czar described a Russia in which one autocrat dominated the government, the economy, the church, the entire society by the use of force and universal fear.

At the end of his first volume, Tocqueville famously predicted that, in the twentieth century, America and Russia would dominate the world. Today the struggle between Tocqueville’s America and Custine’s Russia is over; America has won. But there remains another competition, between the Tocquevillian model and the model set by the city that was Tocqueville’s and Custine’s point of reference—Paris. In Paris, power was centralized—this was the point of Tocqueville’s ancien régime and the French Revolution—and wielded by expert bureaucrats set above the rest of society, only vaguely subject to political control. Tocquevillian societies depend on markets, checks and balances, on religion and appeals to morality; Paris-run societies depend on bureaucracy, command and control, administrative regularity, and cynical manipulation.

In the early 1990s, pundits were quick to declare that Japan and other Asian countries had found the secret of self-sustaining growth—central planning, targeted investment, conglomerates guaranteeing lifetime employment. Oops.

The news of the 1980s was that Tocqueville’s society beat Custine’s. The news of the 1990s is that the Tocquevillian model is coursing ahead of the Parisian one.

Centralized mistakes. Look first at East Asia. In the early 1990s, talented writers argued in much-noticed books that Japan and other East Asian countries, governed by Paris-style mandarinates, had found the secret of self-sustaining growth—central planning, targeted investment, conglomerates guaranteeing lifetime employment. Oops. Japan hasn’t grown for nearly a decade. In Thailand, South Korea, and Indonesia, crony capitalism produced severe recession. Mandarins, it turns out, can’t deliver growth or social cohesion. America’s decentralized capitalism, in contrast, enables innovative upstarts to shove aside flabby giants.

Or look at Europe. Just months ago Europe seemed to be growing smartly: center-left prime ministers in France, Italy, and Germany seemed to be soaring to popularity as high as Tony Blair’s in Britain; the euro was going to give most of the Common Market (but not Britain) a strong common currency. Now the trends have reversed. Growth is falling toward zero; the center-left’s poll numbers are declining; the euro has lost 10 percent of its value since it was introduced January 1. Europe’s elites are doing nothing to address its fundamental problems. High taxes and mandatory employee benefits mean that job creation is around zero. A declining workforce is faced with the task of financing lavish benefits for a growing body of retirees. Immigrants are treated with much greater hostility than in the United States.

The news is different elsewhere. For a dozen years Latin America has been moving toward market economics, democratic government, and strong religious faiths that provide personal discipline; after 170 years of Yanqui-bashing, Latin America is moving in Tocqueville’s direction. Progress has continued despite devaluations in Mexico in 1995 and Brazil in January. East Asian countries that have adopted Tocquevillian reforms, notably South Korea and Taiwan, have recovered smartly from the 1997 financial crisis. Optimistic China watchers argue that local elections as well as free markets are gradually but surely eroding the power of the centralized communist mandarins. India has turned away from the socialism and autarky of the Nehru family to take better advantage of its commercial traditions and its historic decentralization. Alas, Russia has not developed the Tocquevillian mediating institutions—reliable courts, banks, and capital markets—to accompany its brave attempts at democracy; it is still in many ways Custine’s empire.

What can the United States do to encourage others to move in a Tocquevillian direction? We can encourage electoral democracy, market capitalism, and—more than we have—the necessary institutional underpinnings. But there are limits to how much we can change other countries or should. The best thing we can do is to keep setting a good example, to realize that the great gains of the 1980s and 1990s—the flowering of new businesses, the sharp drop in crime and welfare dependency, the accumulation of significant wealth by ordinary people—are the product not of centralized mandarins but of the actions and decisions of decentralized individuals.