The worst there Is, except for all the others
Winston Churchill’s famous comment on democracy as a political system applies equally to free enterprise capitalism as an economic system. No other economic form provides the incentives to economic innovation and creativity, relates the desires of the consumer to the efforts of the producer, encourages the voluntary savings and investment necessary for economic growth and so effectively motivates and channels the skills, talents and energies of the public.
At its best, free enterprise capitalism can provide unparalleled well-being. At its worst, it can be a dog-eat-dog, winner-take-all system that leads to turmoil and social upheaval. America’s historic well-being and prosperity have reflected the effective working of this economic form. Today, yellow lights are flashing and capitalism is under question and even attack.
In recent years, especially since the 2008 economic debacle, much of the American public has lost confidence in both the competence and the fairness of their political leaders and of their business establishment, sensing a loss of transparency and accountability. They increasingly fear that the institutions of government can no longer protect them in an age of mind-boggling high-tech innovation, globalization and the changing nature of work. As incomes stagnate or decline for so many, and dreams of upward mobility diminish, the huge new fortunes of the few at the top stimulate the loss of faith in American-style capitalism itself.
Astute business leaders are increasingly pointing out to colleagues the need to effect necessary reforms in order to preserve the system. Jamie Dimon of JPMorgan Chase, Ray Dalio of Bridgewater, Howard Schultz of Starbucks and Larry Fink of BlackRock are among those calling for higher taxes on the wealthy and a change of heart on the subject of short-term “share-holder value” as a company’s goal. Jamie Dimon is explicit in declaring that acting responsibly toward a company’s employees, customers and the community in which it operates is in the investors’ longer-term interests.
Open public discussion and reasoned debate on these issues by our political leaders will help educate a bewildered public to understand how free enterprise can work for them. Today more than half of Americans between the ages of 18 and 29 claim to prefer what they believe is socialism.
The confused (and confusing) comments about socialism by left-wing demagogues deliberately muddy the waters of economic discussion, precisely when we desperately need clear thinking on the subject. Taxes on the rich and benefits for the poor are NOT socialism, nor are government expenditures for the public good.
Socialism — a system by which the government owns the means of production and allocates the products — is what Castro’s Cuba, Mao’s China and Stalin’s Russia imposed on their suffering publics. Under socialism, central planning rather than consumer choice dictates production and distribution.
The Nordic countries today, admired by those on the left, are proud of the high productivity of their free market economies, with the proceeds prudently apportioned among their societies’ varied stakeholders. They are NOT examples of socialism but of enlightened, 21st century capitalism at its best.
The challenge today to America’s leaders — its political office holders, its business establishment, its public intellectuals — is to regain public trust and confidence by prudent steps to encourage the market to work better for the benefit of all.
Opinions will differ on what specific steps toward reform are indicated, but a thoughtful public will demand that national leadership give reasoned, evidence-based consideration to nine fundamental problem areas:
- No society can live beyond its means indefinitely. At some point (sooner rather than later) national expenditures cannot continue to exceed the national income, and national indebtedness (which should be a subject of continuing public scrutiny and discussion) must reflect intergenerational fairness.
- Future-mindedness, not obsession with short-term results, must dominate thinking. The crucial factors in hopes for continuing long-term economic growth and well-being — such as the creation and encouragement of an educated and skilled labor force, the production and maintenance of appropriate physical infrastructure and continuing support for fruitful scientific research — must be acknowledged as continuing pressing concerns. Research today determines production tomorrow.
- Fair competition — not the “crony capitalism” of well-connected insiders — must be (and be seen to be) the aim of public policy and government regulations that seek to stimulate innovation and creativity and to encourage the formation of new business. Public transparency is the best stimulant to fair and open competition.
- Not “big government” or “small government” but “smart government” must be the goal, with a dollar’s worth of value received for every public dollar spent. As a general rule, state expenditures tend to be more efficient than federal, and local more so than state.
- Efficient, cost-effective healthcare (which is being achieved today by every other advanced nation) must also become a carefully-considered, fairly-administered practice. The U.S. today has higher per capita healthcare costs with less effective results than every European country.
- A sustainable Social Security program, reflecting the increasing longevity of the population, must have appropriately re-considered charges and benefits. Adding two years to the age at which donors contribute and at which recipients benefit and raising the income level of donors subject to social security tax would strengthen the program dramatically, making it permanently self-sustaining (as it was originally planned to be).
- Political campaign finance reform and re-examined permissible lobbying practices would do much to restore public confidence and to dissipate widespread cynicism about “hidden government” and “shadow elites.” With business contributions to political campaigns now in the many billions, the concepts of “free speech” and “bribery” need discussion.
- Thoughtful reform of our immigration policies and practices is long overdue. The terms and conditions relating to those we permit to cross our borders, and how we deal with those now here illegally merit mature discussion and long-term consideration rather than frenetic polemic.
- Tax reform is a must! The experience of all other advanced nations demonstrate that taxes on consumption (“value-added” or sales taxes) are more efficient than taxes on income or wealth, which are more easily evaded and are sometimes counter-productive. V.A.T. will not be regressive if necessities (food, shelter, medicine) are exempted and if luxuries (furs, jewelry, yachts) are surtaxed. (And some economies — Hong Kong and Singapore are examples — have modest taxes on financial transactions, which we may wish to consider, as an effective and relatively painless source of revenue.)
Profit-seeking business in a competitive free-market economy, prudently regulated within a wisely-devised legal system overseen by an honest and competent judiciary — this is the most effective economic vehicle we know for providing a society with the wherewithal to finance the well-being of all.
Experience has shown that this is most likely to be achieved in a democratic society with effective scrutiny of the governing process, with a free press demanding answers to questions of legitimate concern and, above all, with public trust and confidence in the competence and integrity of the national leadership.
Daniel Rose is a real estate developer, Chairman of Rose Associates, Inc., who has pursued a broad range of professional, civic and non-profit activities over the past seven decades. Professionally, he has developed such properties as the award-winning Pentagon City complex in Arlington, VA and the One Financial Center office tower in Boston, MA. A volume of his talks, Making A Living, Making A Life, was designated by Kirkus Reviews as a Best Book of 2015.