The American economic system is a mixture of free market capitalism with government actions and controls. It has evolved with our nation. Many of us have come to believe that this system rewards hard work and is fair. Globalization and technological change have challenged this belief.
The increased economic rewards for “knowledge workers” – people who work with their minds, not their hands – unwittingly weakened her further. The emphasis on efficiency and competition, not tempered by our values and a long-term view, has undermined confidence in the fairness and rewards of the system. The result is that a large number of Americans now view their economic system as unfair; they see opportunities declining and income inequalities large and growing.
Globalization and technology can trigger the creative destruction of capitalism. The disruptive impact it has on people’s lives must be mitigated. Our education system must respond to needs and provide pathways to more competitive professional skills. Areas hard hit by global competition or technological obsolescence need and deserve help to adapt.
The concentration of wealth and political power in business and a new “aristocracy” have benefited some, but have reduced opportunities and made our economic system less fair for many. Granting companies the same rights as people has facilitated this concentration. The same is true of this “aristocracy” of finance, information and knowledge workers who have succeeded on talent and merit. By working with and for business, they have changed the rules by which our economy works. The result is a system that largely rewards financial transactions and values competition and short-term efficiency. It ignores the long-term risks and costs such as the relocation of workers. This allowed the influence of a few, concerned only with short-term financial gain, to grow too great.
We Americans consume too much. We know we will be better off if we save more and invest those savings in the future. It’s up to us to discipline ourselves and take responsibility for the consequences of our over-consuming behavior. Neither the markets nor the government can do it for us.
Our government’s inability to correct the flaws in our economic system is, in part, due to the influence of Americans who believe that a smaller government is always better for the country. They defend the ideal of free market capitalism. While highlighting the risks of overly active government, they overlook the need for those functions that bring order to our huge and complex economy. The supply-side economy asserts that minimal regulation and taxation will create a rising tide that will boost prosperity. He has been an ally of the supporters of a minimalist government.
Additionally, many of us have become “hyper-individualized” by information technology that gives everyone a voice and choices like never before. This undermines the responsibility and accountability for shared needs. Because of these influences, government action to reform our economic system is referred to as “welfare state socialism” which threatens “free market capitalism”. This false characterization polarizes us and handicaps us further.
In the short term, we need to tackle income inequalities by:
- increase the minimum wage;
- make substantial investments in our infrastructure – transport, water, wastewater treatment, energy and telecommunications systems, education and retraining of workers; and
- raise taxes on wealthy Americans to help pay for these desperately needed infrastructure investments.
These three actions will not solve all the causes of income inequality and other flaws in our economic system, but they will start to point us in that direction. Tax reform, more effective regulation of the financial sector, changes in corporate governance, the reduction of the market power of our over-concentrated industries and much more will be needed.
For the long term, we need a broad and holistic approach. We will need to invest in economic education and advocacy for a more balanced system as the foundation for this approach. One path is the creation of permanent “free market”, “role of government” and “role of the private sector” commissions in each land granting university. The “Free Market Commissions” would identify and assess the laws and activities that define our free market. Examples are property rights and contract law. The “Government Role Commissions” would assess the impacts of public institutions that play an important role in the US economy. They should include everything from the Federal Reserve to local zoning authorities. The “Private Sector Role Commissions” would assess the major sectors of activity, their contributions to economic activity, their current and future vitality.
While sharing their work nationally, the three commissions from each state should combine at a frequency of their choosing to develop assessments of national and regional economies and recommendations for change.
Such commissions will not settle things overnight. They represent a long-term investment in our ability to manage our economy with greater transparency and foresight. They can generate ideas for our government leaders and improve knowledge of the economic system. They should also train more lawyers, financiers and businessmen capable of defending the interests of ordinary citizens and our mutual responsibilities. We need more financial and legal engineering experts who stand up for America’s values of honesty, fairness and generosity in the workings of our economic system. They can provide an opposing force that pushes back the influence of corporations, our new and future “aristocracies”.
Today, resource-rich corporations and rich vested interests overwhelm our government and its processes. It will take time and skill to unravel and realign the things they’ve done that are harmful. The activities of these commissions could also inspire structural changes within government as we seek to make more visible and clear the efforts devoted to the management of our economic system.
Scottish philosopher Adam Smith identified the “invisible hand” of rational self-interest and its role in the economic success of nations. The “idea that America is” requires an “invisible hand” of common sense, shared values, and a commitment to community. This hand must guide the political, economic and other systems that have a profound impact on our lives. Ordinary US citizens provide this hand based on how they live and work together. If our idea is to survive, they must strengthen its hold.
John J. Grossenbacher retired in 2003 as Vice Admiral of the United States Navy and Commander of the Submarine Forces of the United States Navy, after a 33-year naval career. He also headed the U.S. Department of Energy’s Idaho National Laboratory for 10 years, overseeing scientific and technical research in nuclear and other energy resources, the environment, and homeland security.