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.
Rising economic rewards for “knowledge workers” – people who work with their minds, not their hands – have unwittingly weakened it further. The emphasis on efficiency and competition, untempered 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 see their economic system as unfair; they see opportunities diminishing 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 should respond to the need and provide pathways to more competitive job skills. Regions hard hit by global competition or technological obsolescence need and deserve help to adapt.
The concentration of wealth and political power in corporations and a new “aristocracy” has benefited some, but has reduced opportunity and made our economic system less fair for many. Granting companies the same rights as people facilitated this concentration. So it was with that “aristocracy” of finance, information, and knowledge workers who achieved success through talent and merit. Working with and for businesses, they engineered changes to the rules that govern our economy. The result is a system that largely rewards financial transactions and values competition and short-term efficiency. It ignores long-term risks and costs such as worker dislocation. It 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 face the consequences of our overconsumption behavior. Neither the markets nor the government can do it for us.
Our government’s inability to fix the flaws in our economic system is partly due to the influence of Americans who believe that a smaller government is always better for the country. They defend the ideal free market capitalism. While highlighting the risks of an overactive government, they ignore the need for these functions that bring order to our huge and complex economy. Supply side economy argues that minimal regulation and taxation will create a rising tide that will boost prosperity. He has been an ally of those who favor 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 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 mischaracterization polarizes us further and renders us incapable.
In the short term, we need to tackle income inequality by:
- increasing the minimum wage;
- make substantial investments in our infrastructure — transportation, water, wastewater treatment, energy and telecommunications systems, education and retraining of workers; and
- raise taxes on well-to-do Americans to help pay for these desperately needed infrastructure investments.
These three actions won’t fix all the causes of income inequality and other flaws in our economic system, but they will start to move us in that direction. Tax reform, more effective regulation of the financial sector, changes in corporate governance, reducing the market power of our over-concentrated industries and much more will be needed.
In the long term, we need a broad and comprehensive approach. We will need to invest in economic education and advocacy for a more balanced system as the foundation of this approach. One avenue is to create standing commissions on the “free market,” the “role of government,” and the “role of the private sector” at each land-grant university. “Free Market Commissions” would identify and assess the laws and activities that define our free market. Property rights and contract law are examples. 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 “Commissions on the role of the private sector” would assess the main sectors of activity, their contributions to economic activity, their current and future vitality.
While sharing their work nationally, each state’s three commissions should combine as often as they choose to develop assessments of national and regional economies and recommendations for change.
Such commissions will not solve things overnight. They are 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 develop more lawyers, financiers and business people who can defend the interests of ordinary citizens and our mutual responsibilities. We need more financial and legal engineering experts who uphold American values of honesty, fairness, and generosity in the workings of our economic system. They can provide an opposing force that repels corporate influence, our new and future “aristocracies”.
Today, well-endowed corporations and wealthy special interests overwhelm our government and its processes. It will take time and skill to untangle and realign the things they have done that are harmful. The activities of these commissions could also inspire structural changes in government as we seek to make the efforts needed to manage our economic system more visible and clear.
scottish philosopher Adam Smith famously identified the “invisible hand” of rational self-interest and its role in enabling nations to achieve economic success. The “idea that is America” requires an “invisible hand” of common sense, shared values and commitment to community. This hand must guide the political, economic and other systems that have a profound impact on our lives. Ordinary American citizens provide this hand based on how they live and work together. If our idea is to survive, they must strengthen its grip.
John J. Grossenbacher retired in 2003 as US Navy Vice Admiral and Commander, US Navy Submarine Forces, after a 33-year naval career. He also directed the U.S. Department of Energy’s Idaho National Laboratory for 10 years, overseeing scientific and technical research on nuclear and other energy resources, the environment, and homeland security.