We can save our broken economic system from itself.
Despite the lowest unemployment rates since the late 1960s, the American economy is failing its citizens. Some 90 percent have seen their incomes stagnate or decline in the past 30 years. This is not surprising, given that the United States has the highest level of inequality among the advanced countries and one of the lowest levels of opportunity — with the fortunes of young Americans more dependent on the income and education of their parents than elsewhere.
But things don’t have to be that way. There is an alternative: progressive capitalism. Progressive capitalism is not an oxymoron; we can indeed channel the power of the market to serve society.
In the 1980s, Ronald Reagan’s regulatory “reforms,” which reduced the ability of government to curb the excesses of the market, were sold as great energizers of the economy. But just the opposite happened: Growth slowed, and weirder still, this happened in the innovation capital of the world.
The sugar rush produced by President Trump’s largess to corporations in the 2017 tax law didn’t deal with any of these long-run problems, and is already fading. Growth is expected to be a little under 2 percent next year.
This is where we’ve descended to, but not where we have to stay. A progressive capitalism based on an understanding of what gives rise to growth and societal well-being gives us a way out of this quagmire and a way up for our living standards.
Standards of living began to improve in the late 18th century for two reasons:
- the development of science (we learned how to learn about nature and used that knowledge to increase productivity and longevity) and
- developments in social organization (as a society, we learned how to work together, through institutions like the rule of law, and democracies with checks and balances).
Key to both were systems of assessing and verifying the truth. The real and long-lasting danger of the Trump presidency is the risk it poses to these pillars of our economy and society, its attack on the very idea of knowledge and expertise, and its hostility to institutions that help us discover and assess the truth.
There is a broader social compact that allows a society to work and prosper together, and that, too, has been fraying. America created the first truly middle-class society; now, a middle-class life is increasingly out of reach for its citizens.
America arrived at this sorry state of affairs because we forgot that the true source of the wealth of a nation is the creativity and innovation of its people. One can get rich either by adding to the nation’s economic pie or by grabbing a larger share of the pie by exploiting others — abusing, for instance, market power or informational advantages. We confused the hard work of wealth creation with wealth-grabbing (or, as economists call it, rent-seeking), and too many of our talented young people followed the siren call of getting rich quickly.
Beginning with the Reagan era, economic policy played a key role in this dystopia: Just as forces of globalization and technological change were contributing to growing inequality, we adopted policies that worsened societal inequities. Even as economic theories like information economics (dealing with the ever-present situation where information is imperfect), behavioral economics and game theory arose to explain why markets on their own are often not efficient, fair, stable or seemingly rational, we relied more on markets and scaled back social protections.
We are now in a vicious cycle: Greater economic inequality is leading, in our money-driven political system, to more political inequality, with weaker rules and deregulation causing still more economic inequality.
If we don’t change course matters will likely grow worse, as machines (artificial intelligence and robots) replace an increasing fraction of routine labor, including many of the jobs of the several million Americans making their living by driving.
The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.
If we had curbed exploitation in all of its forms and encouraged wealth creation, we would have had a more dynamic economy with less inequality. We might have curbed the opioid crisis and avoided the 2008 financial crisis. If we had done more to blunt the power of oligopolies and strengthen the power of workers, and if we had held our banks accountable, the sense of powerlessness might not be so pervasive and Americans might have greater trust in our institutions.
The neoliberal fantasy that unfettered markets will deliver prosperity to everyone should be put to rest. It is as fatally flawed as the notion after the fall of the Iron Curtain that we were seeing “the end of history” and that we would all soon be liberal democracies with capitalist economies.
Most important, our exploitive capitalism has shaped who we are as individuals and as a society. The rampant dishonesty we’ve seen from Wells Fargo and Volkswagen or from members of the Sackler family as they promoted drugs they knew were addictive — this is what is to be expected in a society that lauds the pursuit of profits as leading, to quote Adam Smith, “as if by an invisible hand,” to the well-being of society, with no regard to whether those profits derive from exploitation or wealth creation.
The heart of the Accountable Capitalism Act is a requirement that companies with more than $1 billion in revenue obtain a corporate charter at the federal level, rather than basing themselves in the most loosely regulated state they can find. (Sorry, Delaware.)
This new charter is meant to address an epidemic of bad corporate behavior, especially the tendency of top executives to value profits over wider well-being. It would obligate executives to consider the interests of all corporate stakeholders — including employees, customers and communities — not just shareholders. It would require that at least 40 percent of company board members be elected by employees, an idea known as co-determination. The bill also contains provisions curbing stock buybacks, which tend to benefit only shareholders, and unilateral political expenditures.
.. it’s a distinct break from the neoliberal capitalism of the recent Democratic Party.
In the 1980s, Milton Friedman enshrined the idea of shareholder value maximization, which told businesses that their sole purpose was to maximize profit for their owners. Rather than pushing back against this obviously selfish, wealth-favoring theory, Democrats got on board. Sure, this framing might need a tweak here, a bit of regulation there, or the carrot of a tax break or two. But super-efficient big businesses would keep the broader economy chugging along for everyone — self-interest would mean we’d all win.
.. some 80 percent of stock market value is owned by 10 percent of the population, little of that benefit trickles down to the rest.
.. All that said, the Accountable Capitalism Act still relies on a fundamental belief that capitalism is good, even as a new generation of Democrats wants to upend that system altogether. On the left, winner-take-all competition — which Warren professes to “love,” by the way — is more and more seen as the root of our country’s ills, not something to preserve. A new wave of socialist candidates are loudly making that case.
.. But Warren isn’t out to get capitalism. She’s out to save it. The senator clearly believes that markets can create wealth.
A federal appeals-court panel split in 2014 over a case involving a grisly theme-park death, ruling 2-1 that the Labor Department was on sound footing when it sanctioned SeaWorld Entertainment Inc. for safety violations after a trainer was attacked by a killer whale.
The two judges upholding the sanction said that while whale-training is a dangerous occupation, SeaWorld could have taken steps to reduce the hazard. One of those judges was Merrick Garland, the Obama Supreme Court nominee whom Senate Republicans declined to consider after Justice Antonin Scalia died in 2016.
In dissent was Judge Brett Kavanaugh, President Donald Trump’s current nominee for the high court. Judge Kavanaugh said the case raised the question of “when should we as a society paternalistically decide” whether people who choose to work in risky sports and entertainment fields “must be protected from themselves.”