phase to be passed through before therevolution could occur," it was falselyreasoned, "why not let the Nazis intopower? They would then come to wrackand ruin all the sooner!" Karl Radek,who later paid for his foresight with hislife, is said to have remarked to a Ger-man Communist while pointing to Sta-lin's office in the Kremlin: "There sitthose who bear the guilt for Hitler's vic-tory."

ChallengingCorporateEfficiencyOur Overloaded EconomyBy Wallace C. PetersonM.E. Sharpe.240 pp. $14.50.

Reviewed byRobert Lekachman

A LONELY LmERAL voice in the intrac-tably conservative state of Nebraska,Wallace C. Peterson writes in the hon-orable tradition of American Institu-tionalism. The school's founder wasThorstein Veblen, and his most influ-ential disciples-John R. Commonsand Selig Perlman-flourished duringthe 1920s and' 30s under the patronageof the LaFollettes in the hospitable en-vironment of the University of Wiscon-sin. Institutionalists differ from con-ventional economists in numerousways. They start with salutary skep-ticism about the wonders of allegedlycompetitive markets, the very staff ofintellectual life in our graduate schools.Focusing upon corporate power andthe judicial system that sanctions itsexercise, they are inclined to criticizeinequalities of income and wealth ongrounds of efficiency as well as equity.

Institutionalist influence upon pub-lic policy in the past, if not the present,has been substantial. Two of the endur-ing New Deal innovations, the SocialSecurity Act and the National LaborRelations Act, were based on Wiscon-sin models shaped by the state's resi-dent Institutionalists.

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Like his predecessors, Peterson thinksof economics as above all a guide topublic policy. In clear and cogent lan-guage, he advances a diagnosis of eco-nomic malaise and a set of sensible pres-criptions for its alleviation. The diag-nosis hinges upon a well-argued con-nection between the worsening wage-price spiral of the last two decades andthe linked phenomena of corporate con-centration and gross maldistributionof income and wealth. Although as Pe-terson concedes, the statistical correla-tion between corporate elephantiasisand escalating inflation is less thancompelling, concentration of marketpower contributes to inflation in waysthat elude quantitative measurement.

In the automobile industry, to choosea glaring example, General Motors-the dominant firm-has stubbornly re-fused to cut prices after three calami-tous sales years. Further, where two orthree large enterprises dominate theirindustry, they more frequently resisttechnological progress than promoteit-as in the case of steel. In disdaininginnovation, they slow the productivityimprovements out of which rising livingstandards emerge.

At the same time, corporate market-ing and advertising strategies engenderpublic demand for all sorts of dubioustoys, trinkets, beauty aids, guides tohealth, and clothing fads. And becauseincome is so unevenly distributed, or-dinary wage slaves press for gains thatthe inefficient corporate sector cannotgrant without inflationary price hikes.These in turn generate new wage de-mands, a second round of price rises,and so on.

Corporate power is in fact hostile toefficiency. The culture it has spawnedhas generated human yearnings thatcannot be fulfilled in part because thefinancial resources to gratify them arepoorly divided among Americans. Ag-gravating the problem is the Fortune500's interest in intricate financial ma-neuvers, excessive executive emolumentsand inventive product promotions,rather than the research and devel-opment essential to sustained growth.

What should be done? Peterson en-dorses permanent price controls over

industries where market power is con-centrated-a specification met by mostof manufacturing and much of the fi-nancial sector. On ethical, political andeconomic grounds, he eloquently setsout the case for diminished inequality,citing Kenneth Arrow, Stanford's No-bel laureate, to the effect that "a re-distribution of income, to the extentthat it reduces the freedom of the rich[which it does], equally increases that ofthe poor." Never, it need scarcely besaid, have money and political powerembraced themselves more affection-ately than in the Reagan era.

A decent society offers its citizensuseful work. Peterson demonstrates ac-curately that the private economy hasutterly failed to hit the target of highemployment rhetorically proclaimed bythe 1946 Employment Act and the 1978Humphrey-Hawkins Full Employmentand Balanced Growth Act. The moralis inescapable that public employmentis a continuing necessity. Peterson ap-provingly quotes Michael Harrington'sdemand for "redefinition of the insti-tutionallimits of the public and privatesectors." Like a great many others, hewants to junk our baroque tax code andsubstitute, as the financing source ofpublic employment, a Credit IncomeTax. Its central elements are a flat ratetax on income from all sources and a taxcredit adjusted to family size.

If! have any serious reservation aboutPeterson's reform agenda, it is that hestops short of its full implications. Toadvocate full employment, egalitar-ian redistribution and public restraintupon our rapacious corporations is im-plicitly to endorse some variety of dem-ocratic planning. On the crucial issueof public control of the corporate sec-tor, though, he is disappointingly vagueand general. I wish he had taken thenext step and uttered the subversivewords.

There really will be life after Reagan.With luck, voices like Peterson's will beheard as soon as a dazed and frightenedpublic wakes up to the existence of gen-uine alternatives to supply-side snakeoil. In the meanwhile, I recommend thishighly intelligent guide to a fairer andmore efficient American economy.

The New Leader