The Secret of Our Success

By Charles Krauthammer

It is fitting that during Inauguration week, the stock market should have recovered nearly to its level of Black Monday, the day of the 1987 crash. Fitting, because an Inauguration is more than just a transfer of power. It is a ritual re-enactment of the resilience, the suppleness of American life.

Every four years Americans remind themselves that, as Reagan loved to say (Tom Paine too), "We have it in our power to start the world over again." Reagan was exaggerating, as usual. But, as usual, he was on to something: capitalism's genius for what Joseph Schumpeter called "creative destruction," the often painful process by which old structures and techniques are destroyed and then renewed by the dynamism of capitalism. The resulting suppleness and adaptability is capitalism's greatest source of strength.

Even Marxists have now come to that realization. Marx's confident prediction of the collapse of capitalism presupposed its rigidity. He assumed that trends of the early 19th century would continue and lead to the immiserization of the working class, which would then lead to revolution. None of this has happened in advanced industrial societies.

As Andrei Kozyrev, a deputy chief in the Soviet Foreign Ministry, recently admitted, capitalism has evolved a "mutually accepted legal framework," such that "class conflicts largely take place through the achievement of compromise." By adapting, capitalism disarmed the dialectic. The Soviets are now obsessed with adaptation. They recognize that the West's capacity for adaptation is the key to its success -- and the Soviets' incapacity for it is the cause of their decline.

Harvard's Samuel Huntington confirms this Soviet intuition in the current Foreign Affairs. The real cause of the decline of nations, he argues, is not the now fashionable notion of "imperial overstretch" but the phenomenon of creeping inflexibility, what might be called industrial sclerosis -- precisely the loss of that ability to change and adapt.

^ Another decline theorist, Mancur Olson, laid out the case in his 1982 classic The Rise and Decline of Nations. Olson showed that mature societies start to decline when layers of powerful special-interest groups -- inefficient producers, inflexible unions, governmental bureaucracies -- succeed in impeding the normal "creative destruction" of capitalism. In order to hold on to what they have, they stave off change. But in the end, the whole society pays for the accumulated obsolescences and inefficiencies. The result is decline.

One example is Britain, with its rigid class structure, its powerful unions, its state-owned industrial dinosaurs, its enormous governmental bureaucracy. Its precipitous postwar decline took place precisely as it was shedding its empire. Thatcher engineered Britain's dramatic renewal in the 1980s, when it had one of the fastest growth rates in Europe, by going after not defense spending but the sclerosis that had set into the system: authoritarian unions, failing state-owned industries, a paternalistic bureaucracy and, by example and rhetoric, the British class system itself.

Of course the true basket case is the Soviet Union. (Its decline does not settle the argument between the overstretch and the sclerosis schools, since the Soviets are experts at both.) Gorbachev faces a society whose entire political and economic structure is ossified.

But that may not prove Gorbachev's greatest problem. His ultimate obstacle may be the inculcated habits of mind -- the loss of initiative, the abhorrence of risk, the envy of success -- that underlie and justify these frozen structures. (Which is why Gorbachev so insists on glasnost; without it, perestroika is impossible.) After 70 years of submission, the Soviet people have lost the habit of innovation and renewal.

Take recent Soviet gropings toward democracy. Two weeks ago, Boris Yeltsin, the maverick former Moscow party chief, was nominated for the new Soviet parliament by a raucous public meeting. But when competing candidates got up to speak, they were shouted off the stage. And when the vote was taken and three hands went up for Yeltsin's opponent, the crowd shouted, "Publish their names." These people have something to learn about democracy. And that something, for a people schooled in Stalinism, may be unlearnable. When the collective mind has lost all suppleness, even structural reform will fail.

In the U.S., on the other hand, the continuing fluidity of society is its ) greatest asset and its primary defense against the doleful prophecies of American declinists. True, in the 1980s the U.S. has allowed the world's financial center of gravity to shift from New York City to Tokyo. But this is largely the cause not of sclerotic thinking or sclerotic structures but of screwy policy. And policy, like cutting taxes without reducing spending, can be reversed.

It might be argued, however, that underlying that policy is a structural defect, that the American political system is growing rigid. It gives great power to special-interest, hold-what-we-have PACs. It almost guarantees re- election for obedient incumbents. It has so fractured political power that nothing ever gets done. (Or as George Shultz once said in exasperation, "Nothing ever gets settled in this town.") As a result, it is becoming increasingly difficult for the necessary dynamic and painful hard choices -- balancing the budget, for example -- ever to be made.

Has the U.S. too grown sclerotic? Perhaps, but don't count on it. Not this week anyway. The genius of democracy is that about twice a decade it produces a new President. Political equations can be rewritten. Policies can be reversed. Structures can be remade. Will that happen this time? We don't know yet. But the American blessing is to have invented a system that reopens that question -- and allows us to reimagine the world -- every four years.