Lodge

The Need for Ideological

Consciousness
George Lodge

The author has been writing about the consequences

of political ideology for well over a generation now.
As America faces a changed world, he believes it fails
to recognize the pull and push of its own ideological
tendencies. Unless it begins to understand the power
of ideology, it will not be able to cope with the
changed world, he argues.

E
very so often in American history, a crisis comes along that requires
us to inspect cherished assumptions and to act in a way that
many find ideologically repulsive. Although our leaders insist
that such actions are pragmatic—the only sensible way to deal with the
crisis—those pragmatic acts evoke or imply an ideology that obstructs
their implementation. Furthermore, if, in the name of pragmatism,
the ideological aspects of the actions are ignored or suppressed, the
full implications of the actions may not be seen.
I am talking about such ideas as the role of government: do we be-
lieve in the active planning state or the limited state—the least of it the
better? How do we define the good community? Is it by competition
among self-interested business managers to satisfy consumer desires,
or is it necessary for the community itself to define its needs and to
regulate business so that they are fulfilled?

George Lodge is professor emeritus at Harvard Business School, having been on the HBS faculty
since 1963. Before joining the Harvard faculty, he was assistant secretary of labor for international
affairs in the Eisenhower and Kennedy administrations.

Challenge, vol. 53, no. 2, March/April 2010, pp. 76–89.

© 2010 M.E. Sharpe, Inc. All rights reserved.
ISSN 0577–5132 / 2010 $9.50 + 0.00.
76  Challenge/March–April 2010 DOI: 10.2753/0577–5132530205
 The Need for Ideological Consciousness

A Historical Review–The Economy

Treasury Secretary Alexander Hamilton, confronting the enormous
debt owed by the states to foreigners at the end of the American Revo-
lution, adopted a policy under which the federal government assumed
the debt and sold it quite successfully in the form of bonds. He also
favored a governmental industrial policy, infrastructure development,
and protective tariffs. Thomas Jefferson and his supporters bitterly
opposed Hamilton, calling him every name in the book, largely for
ideological reasons: Hamilton viewed the role of the federal govern-
ment to be that of a problem-solver. For Jefferson, whose idea of
America was a land of individualistic yeomen, government—especially
the federal government—was a necessary evil that should be kept as
small as possible. It must be said that Jefferson was nothing if not
flexible. A few years later, as president, his view of the role of gov-
ernment had obviously expanded when he negotiated the Louisiana
Purchase with France, the biggest land grab in history. He was also a
staunch advocate of government regulations over the sale and price
of property.
Lincoln fought the Civil War to destroy once and for all the cher-
ished ideas that states had a right to secede from the union and that
slave-holding was protected by property rights. He was, of course, vili-
fied as a tyrant who had abrogated to the federal executive unheard-of
powers.
In the 1930s, Franklin Roosevelt, like Barack Obama, inherited a
sea of economic problems. In 1933, the Dow Jones was down to the
50s from a high of 381 in 1929, and 25 percent of the American work
force were unemployed.1 The government set out to stimulate as well
as regulate the economy. The Banking Act of 1933, otherwise known
as Glass-Steagall, created the Federal Deposit Insurance Corporation
(FDIC) to protect bank depositors and force the separation of com-
mercial banking from investment banking, thereby reducing bankers’
ability to speculate with “other people’s money,” as FDR called it.2
In the same year the Securities Act required all companies issuing
new stocks and bonds to disclose hitherto secret information. It was
followed in 1934 by the Securities Exchange Act, which created the

Challenge/March–April 2010  77
Lodge

Securities and Exchange Commission (SEC) to enforce the new laws

and to regulate the stock market. The ideological message of these
actions was that the free market did not work by itself. Competition
to satisfy consumer desires in the marketplace did not automatically
ensure community need. FDR was branded a socialist and an abuser
of presidential power.
Between 1933 and 1980, Harvard Business School historian Thomas
McCraw tells us, the U.S. economy enjoyed largely stable growth,
free of financial disasters. Then an ideological countercurrent set in.
Promising to “get government off our backs” and restore “the free
market,” President Reagan, aided and abetted by many of the country’s
leading economists, began thirty years of deregulation. One scandal
followed another: the savings and loan debacle of the late 1980s; the
collapse of Long Term Capital Management in 1998 followed by a
government orchestrated bailout; the failure of Enron in 2001; the
unregulated growth of the real-estate bubble; the invention of increas-
ingly complex and unregulated derivatives—mortgage securities and
credit default swaps; the Bernard Madoff affair, directly attributable
to an antiregulatory climate in the SEC; and, finally, the meltdown
of the entire financial system in 2008.
In his inaugural address Reagan had set the climate: “Government
is not the solution to our problem; government is the problem.” Even
in the Clinton administration, the Glass-Steagall Act was repealed,
and in 2000 credit-default swaps were exempted from any regulatory
oversight at all.
“While all this deregulation was going on,” says McCraw, “the
financial services industry had found even more ways to circumvent
transparency. An unregulated shadow banking system arose, through
hedge funds, private-equity funds, off-balance-sheet operations, off-
shore tax havens, and the widespread trading by money managers in
completely opaque instruments, especially credit default swaps.”3
In 2009 we find ourselves in an economic depression not seen
since the 1930s, with a badly crippled financial industry and in debt
to foreign governments for $4 trillion. Shouts about greed and irre-
sponsibility cannot hide the fact that the cause of the crisis is more

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 The Need for Ideological Consciousness

systemic, involving fundamental ideas about the roles of government

and markets. Federal appeals court judge and law professor Rich-
ard Posner, described by the New York Times as the nation’s “most
independent-minded public intellectual,”4 put it well: “The mistakes
were systemic—the product of the nature of the banking business in
an environment shaped by low interest rates and deregulation rather
than the antics of crooks and fools. . . . We are learning that we need
a more active and intelligent government to keep our model of a
capitalist economy from running off the rails.”5
The debate is not so much about what the roles of government and
markets should be as it is about what the real world is forcing them to
be. A new ideological lurch is at hand. One can sense it in the reforms
proposed by President Obama, drafted in part by my HBS colleague
David Moss.6 They include new and comprehensive oversight of all
firms that pose a “systemic risk” to the economy—that are too big to
fail. The majority of financial firms whose failure poses no systemic
risk would be regulated lightly to encourage them to innovate and
experiment.

Industrial and Environmental Policy

Before going on to look more closely at these contrasting ideolo-
gies, we should recognize from history how noneconomic crises have
also forced ideological change, especially in how we view the roles
of government and markets. In the early 1960s after the Soviets had
launched Sputnik into space, the United States was surprised to find
itself technologically behind. President Kennedy created the Defense
Advanced Research Projects Agency (DARPA) to make sure we were
never surprised again. Working closely with American companies
such as IBM and AT&T, as well as the electronics, aerospace, and
venture capital industries, DARPA kept the country on the frontier of
electronics and communication technology for thirty years. Among
other things, it invented the Internet.
When the cold war ended, DARPA languished. “Industrial policy,”
by which government determined the critical technologies and manu-

Challenge/March–April 2010  79
Lodge

facturing capabilities that should be kept in the United States, became

ideologically unacceptable to the Reagan and subsequent Republican
administrations. The free market was supposed to determine such
questions.
The environmental crisis, which emerged in the late 1960s after the
publication of Rachel Carson’s Silent Spring (1962), resulted in another
form of government planning and the creation of the Environmental
Protection Agency to carry it out. President Reagan tried unsuccess-
fully to stamp it out.

Ideology Versus the Truth

The pattern is obvious. The United States has a preferred ideology,
which I shall call individualism. It first came to America in the eigh-
teenth century, having been set down in seventeenth-century England
by John Locke, among others. The ideas found fertile soil in the vast
underpopulated wilderness of America. Although individualism has
been buffeted, eroded, and in many ways replaced by communitarian
practices, particularly in times of crisis, the ideas continue as a kind
of religion. In the words of the late Samuel Huntington, “They are
at the very core of our national identity. Americans cannot abandon
them without ceasing to be American in the most meaningful sense
of the word—without in short becoming un-American.”7
So we face a problem: We do not practice what we preach, and we
find it awkward to preach what we practice. I encountered this diffi-
culty many years ago when I was a lad of thirty-two doing government
work in India. It was 1959, the height of the cold war, in which India
was a perennial battleground. I found myself on a radio program with
Ashok Mehta, the distinguished leader of India’s socialist party.
As we drove through Delhi’s crowded streets to the radio station, I
asked my embassy guide what I was supposed to talk about. He said
the subject was “the American economic system.” Having majored
in history and literature at Harvard College, I knew nothing about
economics. So we made a quick detour and stopped by the embassy
to get me some briefing material, which I perused as we bounced

80  Challenge/March–April 2010

 The Need for Ideological Consciousness

along. The American economic system, said the embassy brief, was
capitalist, characterized by staunch adherence to the principles of free
trade, free markets, and private enterprise. It was based on respect for
the individual and self-reliance. The familiar echoes of Ralph Waldo
Emerson comforted me, so I proceeded confidently to the confronta-
tion with Mr. Mehta.
Asked to describe the American economic system, I spoke with
gusto, parroting the briefing sheet. Mr. Mehta, a kindly old man with
a short beard and penetrating eyes, then proceeded to question me.
Why had I not mentioned social security, minimum wage, the Ten-
nessee Valley Authority, the vast U.S. agricultural subsidies and trade
restrictions, rural electrification, or unemployment insurance? Were
these somehow un-American? Good point, I allowed. Do you know,
he asked me, what percentage of the gross national product is dis-
posed of by government in the United States? I had only the vaguest
notion of what he was talking about and no idea what the answer to
his question might be. Twenty-one percent, he said, and then with a
smile he asked me what percentage of India’s gross national product
was disposed of by government. I was on the ropes. Twelve percent,
he told me, following up with: “Now you are the capitalist country.
Right?” “Right,” said I. “And we are the socialist country. Right?” I
was silent.
“My point is this,” he said. “You in the United States call yourselves
capitalist, not realizing that most everyone listening to this program
identifies capitalism with the loan shark, the money lender, the im-
perialist, the racist. In short, with everything bad. For them socialism
means only a system in which government cares about the welfare
of the people. In fact, of course, you are more socialist than we are.
That’s why I love America.”

Two Ideological Prototypes

Shortly after I became a professor at Harvard Business School forty
years ago, I wrote an article for Fortune magazine called “Why an
Outmoded Ideology Thwarts the New Business Conscience.” It was

Challenge/March–April 2010  81
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reprinted in the Har vard Business Review under the title “Top Pri-
ority: Renovating Our Ideology.”8 I listed the five components of
our preferred ideology—individualism—and the five counterparts
toward which we were inevitably drifting—communitarianism. Here
is individualism:
1. Individualism. This is the atomistic notion that the community
is no more than the sum of the individuals in it. Fulfillment lies in an
essentially lonely struggle in what amounts to a wilderness where the
fit survive—and where, if you don’t survive, you are somehow unfit.
The idea of equality as in equality of opportunity is closely tied to
individualism, as is the idea of contract, the inviolate device by which
individuals are connected to one another as employers and employees,
buyers and sellers, and in the old days husbands and wives. In the U.S.
political order, interest-group pluralism evolved out of individualism
to become the preferred means of directing society.
2. Property rights. Traditionally, the best guarantee of individual
rights lay in the sanctity of property rights. By virtue of this concept,
the individual—and the corporation as well—were assured freedom
from the predatory powers of the sovereign, and from this notion,
the corporate manager derived the authority to manage. From it also
came the purpose of the corporation: to satisfy the owners, i.e., the
shareholders.
3. Marketplace competition. Adam Smith most eloquently articulated
the idea that the uses of property are best controlled by each individual
proprietor competing in an open market to satisfy consumer desires.
It is explicit in U.S. antitrust law and practice.
4. Limited state. In reaction to the powerful hierarchies of the me-
dieval world, the conviction grew that the least government was best.
Americans in general are concerned about the ever-growing size and
influence of government, but they are even more antagonistic to the
idea of government planning even though planning may be the only
way to reduce its size and influence, not to mention enhance its ef-
ficiency. We like to keep it checked and balanced. Let it be responsive
to crisis, but do not let it look over the desk edge and see what’s com-
ing next. Let it be responsive to interest groups: whoever pays the

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 The Need for Ideological Consciousness

price can call the tune. Says Huntington: “Because of the inherently
antigovernment character of the American Creed, government that is
strong is illegitimate; government that is legitimate is weak.”9
5. Scientific specialization. This is the corruption of Newtonian
mechanics, which says that if we attend to the parts, as experts,
specialists—and academics—the whole will take care of itself.
From its inception as a nation, America has departed from these
ideas to cope with reality—wars, depressions, competing global sys-
tems, urban concentration, ecological disasters, and, more recently,
terrorism. Nevertheless, the old ideas have great resilience. They con-
stitute indeed what most people mean by capitalism. This means that
departures from them are retarded by the taint of illegitimacy. And
yet departures occur. Corporations and government have radically
departed from the old ideas in the name of efficiency, economies of
scale, productivity, human rights and welfare, the environment, and
national security, but the ideology that justifies the new ways has been
left unstated, obscure, and unpopular. I call it communitarianism. Its
five components are:
1. The community is more than the sum of the individuals in it. It
has special and urgent needs as a community. The survival and self-
respect of individuals in it depends on the recognition of those needs.
If the community, be it the workplace, the neighborhood, the nation,
or the world, is well designed, its members will have a sense of identity
with it. They will be able to make maximum use of their capacities.
If it is poorly designed, they will be alienated and frustrated.
Some forty years ago Congress found that the old idea of equality of
opportunity was not working satisfactorily. “Affirmative action” was
required to produce equality of results. I remember well the concern
and confusion when this idea hit AT&T, which at the time was the
nation’s largest employer. The company, proud of its personnel poli-
cies, was shocked to be told it was guilty of “systemic discrimination”
because it had all women telephone operators, men vice presidents,
and minority group members at the bottom of the pay scale. It told
the government: Women like to be telephone operators. Men like to
be vice presidents. And minorities are happy to have any job at all.

Challenge/March–April 2010  83
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The government replied it had no interest in what individuals might

like. It wanted to see a different overall company profile: men tele-
phone operators, women vice presidents, and minorities spread up and
down the pay scale in proportion to their numbers in the surrounding
community—which was the United States.
Contracts, of course, still exist, but in many relationships, such as
buyers and sellers, employers and employees, and even husbands and
wives, the idea of consensus has become a more efficient and reliable
way of proceeding. Labor relations are but one example with workers,
including unions, participating in management as never before; e.g., a
United Auto Workers representative sits on General Motors’ board.
2. Property rights, of course, continue to exist, but they have lost
their sacred status, becoming one of a number of rights of membership—
rights, for example, to income, health, and a job, which for many
are more important than what they may own. Escalating rights have
strained the ability of government to pay for them and emphasized the
fact that if the community ensures rights, it must impose duties. If I
smoke, why should you pay for my cancer? The welfare mother must
work. We sense the controversy. Who decides an individual’s duty?
In Asian countries, traditional ideology dictates that the community
impose10 duties and that they generally weigh more heavily than rights.
In the West, “liberals” and “conservatives” alike generally have been
inclined to leave the definition of duty to the individual, but the in-
exorabilities of global competition are forcing a more communitarian
drift. And if the duties of the poor and the weak are to be made more
explicit, it seems likely that those of the rich and powerful—corporate
executives, for example—will need to be clarified.
It is not only the proliferation of rights of membership that has
weakened property rights; it is also ecological pressures and short-
ages of resources such as water. And the corporation itself, which has
derived its legitimacy from property rights, is finding it a thin reed on
which to lean. If the corporation is property, the shareholders must be
the owners, but what does ownership mean? Control, responsibility,
direction? If so, shareholders are not really owners at all. They are
not, and furthermore in most cases they do not want to be. They are

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 The Need for Ideological Consciousness

investors pure and simple, and if returns are not what they expect,
they leave.Theoretically, the shareholders select the management, but
in most cases this is far from the reality. Management picks the board
of directors, and the board blesses the management. The procedure
works quite well, but it is of questionable legitimacy, and issues of
corporate governance are becoming more controversial. What, after
all, is the purpose of business? To satisfy shareholders is the old idea,
but is that valid in the real world of today when corporations are
expected to fulfill a variety of community needs?
3. Community need. The old idea was that competition to satisfy
consumer desires among self-interested proprietors would produce
the good community, but unfortunately the sum of consumer desires
may not equal community needs. The United States today finds itself
imperiled by unsustainable foreign debt, much of which comes from
borrowing to buy what we cannot afford. Furthermore, consumer
desires in the marketplace do not ensure clean air, pure water, or
energy independence. So we have come to see that government must
pay more attention to the definition of community needs and the
enactment of policies that achieve them.
Here arises the question of what is the relevant community for the
consideration of needs. It may be Detroit or Michigan or the nation
as a whole. Increasingly, however, it is the world. Consider the govern-
ment’s bailout of General Motors and Chrysler. Part of the reason for
the rescue was the maintenance of America’s eroding manufacturing
base. But where is that base? Much of it is in Japan, South Korea,
China, Mexico, and Canada. If it is in our national interest to expand
our manufacturing base—and I believe fervently that it is—we must ask
two questions: First, what sort of a manufacturing base are we talking
about? The technologies of tomorrow or of yesterday? The United
States requires an industrial policy and a DARPA-type agency to imple-
ment it. In the 1980s we were behind the Japanese in semiconductor
design and manufacturing capability. Under DARPA’s leadership, a
coordinated effort by business and government provided the boost
required to create many of the technological breakthroughs of the
past thirty years and to provide good jobs at high wages for millions.

Challenge/March–April 2010  85
Lodge

We need the same today to make the United States competitive in

electric battery and solar energy technology.
And the second question is: how do we make such a program,
designed to promote the interests of the United States, acceptable in
a world in which poverty reduction is a crying need? As in the past,
national economic systems will compete with one another, and mar-
kets will determine the winner. The most competitive—those with the
lowest costs and the highest education, productivity, and efficiency—
will prosper. But such competition is not without rules. The World
Trade Organization, embattled as it may be, is designed to define world
community needs and ensure that national competitive strategies are
fair. The WTO deserves all the support we can give it.
4. The active, planning state. Eventually, perhaps, we will have
world government, but in the meantime it is the task of the national
government to think coherently about community needs and to plan
for their fulfillment, leaving to the marketplace all those decisions
that it can do best.
This is not a partisan question. In spite of their rhetoric, the Re-
publican presidents of the last thirty years have regularly every year
increased the power, reach, and cost of government. In the first three
years of the Bush administration, for example, federal spending in-
creased 21 percent. The old ideology has tended to make this an ad hoc
affair, offering the promise that when normality returns, thankfully
government can be reduced. Also, there has been steadfast opposition
to the idea of government planning, an odious phrase. The result has
been lots of government intervention but little planning, a recipe for
incoherence and visionless flailing.
When President Truman declared in 1947 that every American has
“a right to the best possible health care,” we ignored the ideological
implications. Inevitably government would need to intervene. The
old individualistic doctor-patient relationship would not die easily.
Delay in seeing the new reality would be costly.
5. Holism. Finally, and perhaps most fundamentally, the old idea of
scientific specialization that has been the bedrock of our educational
establishment has given way to a new consciousness of the interrelat-

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 The Need for Ideological Consciousness

edness of all things. Humpty Dumpty on the wall is more than the
sum of the molecules left after he falls. Economists are beginning to
see that the intensity of their specialization may have blinded them to
reality. The old disciplines—experts finding ways to talk to one another
in the face of a new reality—are breaking down. While experts are
essential, wise managers are finding that to understand reality, they
must look at their environment as a whole, seeing the interrelation-
ships between the economic, political, social, cultural, and other old
categories within which we compartmentalized knowledge.

Concluding Thoughts
Old ideologies do not die. Individualism will live forever, but as his-
tory shows, it has been merged—often reluctantly–with a communi-
tarian amalgam. The crises we now face reflect a failure to manage
the transition.
No ideology has a monopoly on virtue. The two ideological pro-
totypes described here have justified both good and evil. Slavery
rested on property rights for legitimacy, and while Mother Teresa was
a communitarian, so was Hitler. This is why ideological conscious-
ness is important. We must know what we are doing. Ironically, to be
truly pragmatic, we must realize the ideological implications of what
we are doing. Communitarian rights, which are politically noncon-
troversial, entail communitarian duties, the imposition of which is
often highly controversial. And we do not want to throw out the baby
with the bathwater: government intervention threatens the efficiency
of the marketplace.
Ideological consciousness helps us to be realistic, to see more clearly.
Old words such as “liberal,” “conservative,” “left,” and “right” and
old names such as “capitalism,” “socialism,” and “communism” lose
their meaning. As institutions like government and business depart
from an old ideology, there is a legitimacy gap. People sing the old
hymns and have trouble coming up with new ones to justify what is
actually happening. China today is a particularly good example of
this phenomenon. Whatever the Chinese economic system is, it is

Challenge/March–April 2010  87
Lodge

certainly not communist—but neither is it capitalist. The words have

lost their meaning. To understand reality, we must look precisely at
what is happening and derive an ideology accordingly.
I believe that all of the world’s varied ideologies are becoming dif-
ferent manifestations of communitarianism. If true, this is important,
because it means that convergence and thus consensus is possible.
We know the variables with which we have to work as we tackle the
challenges of climate change, financial and economic relationships,
and violent conflict. We know what may someday become the basis
for global rules respected by everyone.
Our symbiotic if precarious relationship with China is a good ex-
ample of why global consensus is urgent. In the first quarter of 2009,
China held $2.5 trillion in its reserves. It was our largest creditor. We
depended on China to finance not only our $1.7 trillion government
annual deficit but also our $680 billion 2009 trade deficit. If China
were to decide to put its dollars elsewhere, the value of the dollar
would plunge. We would have to raise interest rates. Depression and
inflation would follow. Happily, our collapse is not in China’s inter-
est. China wants us to recover, maintain the value of the dollar, of
which they hold so many, and import her products. And the prime
minister has been generous with advice: the U.S. government should
improve its supervision of the financial sector. Here is a nice example
of convergence around a common communitarian idea.
We should be thankful that we have a president in the White House
who understands all this better than most.

Notes
1. Thomas K. McCraw, “Regulate, Baby, Regulate,” New Republic, March 18,
2009, 1.
2. Ibid.
3. Ibid., 3.
4. Jonathan Rauch, “Capitalism’s Fault Lines,” New York Times Book Review,
June 19, 2009, 11.
5. Richard A. Posner, A Failure of Capitalism: The Crisis of ’08 and the Descent
into Depression (Cambridge: Harvard University Press, 2009).
6. David Moss, “An Ounce of Prevention: The Power of Public Risk Manage-

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 The Need for Ideological Consciousness

ment in Stabilizing the Financial System” (Harvard Business School, working paper
09–087, January 5, 2009).
7. Samuel Huntington, American Politics: The Promise of Disharmony (Cambridge:
Harvard University Press, 1981), 63.
8. George C. Lodge, “Why an Outmoded Ideology Thwarts the New Business
Conscience,” Fortune (October 1970); reprinted as “Top Priority: Renovating Our
Ideology,” Harvard Business Review (September–October 1970).
9. Huntington, American Politics, 63.
10. Posner, A Failure of Capitalism.

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Challenge/March–April 2010  89