James Dimon and Ray Dalio are among the most successful capitalists in the U.S. today. So when they worry aloud about the future of capitalism, it’s worth listening.
“I believe that all good things taken to an extreme become self-destructive and that everything must evolve or die. This is now true for capitalism,” Mr. Dalio, founder of hedge-fund manager Bridgewater Associates, writes on LinkedIn.
Mr. Dimon, chief executive of JPMorgan Chase & Co., writes in his annual letter to shareholders: “In many ways and without ill intent, many companies were able to avoid—almost literally drive by—many of society’s problems.”
Captains of industry have always opined on the issues of the day. Still, these latest missives are noteworthy for three reasons.
- First, the authors: Mr. Dalio anticipated the financial crisis; his systematic management and investment style has made Bridgewater the world’s largest hedge-fund manager. Mr. Dimon is arguably the country’s most successful banker, having steered J.P. Morgan clear of the subprime mortgage disaster to become the country’s most valuable financial institution.
- Second, the timing: They are speaking out at a time when the free-market capitalism that has served them so well is questioned by many Americans, including prominent Democrats.
- Third, the content. Mr. Dalio and Mr. Dimon love capitalism and aren’t apologizing for it. But they recognize the system isn’t working for everyone, and they have ideas for fixing it, some of which might require rich people like themselves to pay more tax. Yet they fear the federal government is hamstrung by intensifying partisanship. So they are putting their money and reputations where their mouths are by speaking out, backing local initiatives and hoping like-minded business leaders join them. In effect, they are breathing life into the shrinking nonpartisan center.
In an interview, Mr. Dalio says many business leaders “don’t want to get into the argument. I can understand that. I say to myself, Should I get in? I do think if everyone keeps quiet, we’re going to continue to behave as we’re behaving, and it’s going to tear us apart.”
Mr. Dalio’s essay was inspired by a longstanding interest in the parallels between the 1930s and the present:
- the growth of debt and
- the relative impotence of central banks, the
- widening of inequality and the
- rise of populism.
Capitalism, he says, is now in a “self-reinforcing feedback loop”:
- companies develop labor-saving technologies that enrich their owners while displacing workers.
- The haves spend more on child care and education, widening their lead over the have-nots,
- whose predicament is compounded by underperforming schools,
- the decline of two-parent families, and
- rising incarceration.
Mr. Dalio thinks inequality has fueled populism and ideological extremism, which he fears means capitalism will be either abandoned or left unreformed.
But, like Mr. Dalio, he worries partisanship has crippled the country’s ability to enact basic reforms that elevate economic growth and strengthen the safety net, such as
- improving high schools and community colleges’ provision of useful skills,
- more cost-effective health care,
- faster infrastructure approval,
- more skilled immigrants coupled with legalizing illegal immigrants, and
- requiring fewer licenses to start a small businesses.
“Can you imagine me saying, I can do a better job for the Chase customer if I don’t get involved in details, the products, the services, the prices, how we treat people, how call centers work?” Mr. Dimon asks in an interview. “Policy has too often become disconnected from the analytics; we got slogans instead. It’s driving people apart.”
There’s a chicken-and-egg problem with these well-intentioned calls for nonpartisan problem solving: It requires a level of nonpartisanship that doesn’t exist; otherwise the problems would, presumably, have been solved.
If business leaders can’t persuade with words, they may by example. Mr. Dalio and his wife, Barbara, have donated $100 million to the state of Connecticut, to be matched by the state and other philanthropists, to create a $300 million partnership devoted to reducing dropout rates and promoting entrepreneurship in underserved schools and communities.
For its part, J.P. Morgan has under Mr. Dimon combined commercial and philanthropic resources to finance affordable housing, small business and infrastructure and job training in Detroit, announced $600 million in workforce development grants since 2013, and boosted salaries for lower-end employees. Mr. Dimon, in his shareholder letter, called on fellow CEOs to “take positions on public policy that they think are good for the country.”
It doesn’t always work. The Business Roundtable, which Mr. Dimon chairs, successfully pressed Congress and President Trump for lower business taxes, but unsuccessfully for more infrastructure and legalizing illegal immigrants. Says Mr. Dimon: “We should give it the best shot we’ve got.”
Why do people have such divergent perspectives on the Mueller Report, ranging from Trump being completely exonerated to Trump being guilty of obstruction of justice and impeachable?
Why you still don’t understand the Green New Deal
Political news coverage tends to focus on strategy over substance, and that’s making it less likely that the public will agree on big policy ideas when we need them the most.
The Green New Deal is an ambitious proposal that outlines how the U.S. might begin transitioning towards a green economy over the next ten years. It includes steps like upgrading our power grid and renovating our transportation infrastructure. But most people watching news coverage likely don’t know what’s in the Green New Deal. And that’s because political news coverage tends to focus on strategy over substance, fixating on a bill’s political ramifications rather than its ability to solve a problem. That approach to news coverage is known as “tactical framing,” and research shows it makes audiences at home more cynical and less informed about big policy debates. The result is a cycle of partisanship, where solutions to big problems like climate change are judged on their political popularity rather than their merit.
Our politics fails us, so here’s what to do
We can re-engineer the system to create a new political centre, says Charles Wheelan of Dartmouth College and a former candidate for Congress
Strikingly, data from Beyond Conflict, an NGO that promotes reconciliation in conflict areas, show that Americans feel “dehumanised” by the opposing party—a sentiment often associated with political violence—at roughly the same level as Israelis and Palestinians viewed each other during the Gaza War in 2014.
Moreover democracy is being asked to deal with policy challenges that have longer time horizons and more complexity than in the past. So the urgency to fix problems can seem less apparent: it is more like termites in the basement than a collapsing roof. Complexity also opens up a space for demagoguery. Beating back Hitler was no easy feat—but the need to do so was easier to explain than why universal health care requires a health insurance mandate.
Many voters are convinced that politicians are selling them out. They have a point. When I ran for Congress in 2009 as a Democratic candidate in Illinois, I went hat-in-hand to rich donors, as all candidates must. After one meeting with a group of private-equity types, one of them pulled me aside and asked how I felt about the “taxation of carried interest”—an arcane policy that lets major investors pay less tax on their earnings.
I told the fellow that income was income, and that “carried interest” ought to be taxed the same way as everyone else’s paycheck, and not as capital gains.
“That’s too bad,” he said, and walked away. He did not write me a cheque. I lost the race.
.. It did not matter that I was taught by economists at the University of Chicago and took classes from three Nobel Prize winners. Political issues devolve into protecting one’s niche perks. In this case, some of the wealthiest people in the country cared about one issue: whether they could pay a lower tax rate than the people who make their lattes and mow their lawns. More cunning candidates tolerate this to get into office.
The constant need for fundraising also drives partisanship. Emails with subject-lines like “Help me strike a compromise to bring down the deficit” are certain to remain unopened. But drop into an inbox “The Republicans will end Medicare” or “The Democrats are killing babies” and the contributions will flow, helping to make the partisanship ever more toxic.
In this environment, the biggest threat to a candidate is not from an opposition party with a different set of policies but from the extremist end of his or her own party. Hence the rise of the word “primary” as a verb, as in “The Democrats may primary him.” The optimal strategy is ideological purity, even if it means getting nothing done as a legislator.
Now for the really dangerous part: changing demographics have made the electoral college and the Senate increasingly out of sync, as population grows in blue states and wanes in red ones. By 2040 it is possible that roughly 70% of Senate seats will be controlled by 30% of the population. If we are looking for something that can ignite the current partisan tinder, this is it: a prolonged period in which the political will of the majority is thwarted by a minority opposition.
There are lots of ways to do this but the two boldest ideas are to create an independent group of centrist legislators to act as the “king makers” to pass legislation, and to implement something called “ranked-choice” voting that would make it harder for candidates on the political extremes to win election. Consider both in turn.
First, the legislators. It is easy to imagine that a bipartisan group of prominent politicians could step aside from their parties, band together, and create a new movement of the centre. I called this the “fulcrum strategy” in my book “The Centrist Manifesto” in 2013, and it is similar to the recent moves by Labour MPs in Britain, now joined by a few Conservatives.
Just a small handful of defections would go a long way to changing America’s political dynamic. It could provide a pragmatic center of gravity, restore a shared political narrative, rebuild the connective tissue between the parties, and place a healthy check on the Trump administration and whoever comes after, in a way that is less partisan than the Democrats today.
Could it happen? Absolutely. Here is what Jeff Flake, a former Republican senator from Arizona said at a conference this month at Harvard’s Kennedy School of Government: “With three or four Rs and three or four Dems, if they come together now, or just about any time—the Senate rarely has more than a three-, four-, five- or six-person majority on either side—you could really change that place. You could create a completely different power structure. And that would be very healthy right now.”
Joel Searby, a political consultant working to rebuild the centre ground of American politics, says there is “high interest” in doing something like this. Mr Searby has met with chiefs of staff for a handful of senators, both Republicans and Democrats, to pitch the fulcrum idea. “They’re taking meetings with me in their Senate offices, and they know exactly what I’m there to talk about,” he says.
Moreover the Senate just got a new member who is less beholden to the political establishment than most: Mitt Romney, the Republican presidential candidate in 2012 who is also a former governor of Massachusetts, one of the most liberal states in the country. He has been a critic of the president from his own party. Will Mr Romney be the guy to change American politics forever? Or could it be the senator for Maine, Susan Collins? Or West Virginia’s Joe Manchin, a Democrat in a red state? It will only take a few.
The same fulcrum strategy could work at the state level. For all the talk of “red” and “blue” states, the fact is that many state legislatures are as narrowly divided as the Senate, meaning that a mere handful of centrists could band together to restore sanity.
In fact, in Alaska this just happened. After the mid-term election in 2018, a single Republican lawmaker refused to be the 21st vote that would give his party control of the 40-person legislature. Instead, he negotiated a governing coalition of eight Republicans, 15 Democrats and two independents. Committee chairs will be shared across parties and there is an independent speaker of the house.
The public seems receptive to this. After all, the two most popular governors are Republicans in blue states: Larry Hogan in Maryland and Charlie Baker in Massachusetts. This suggests that there are politicians able to cross the partisan divide and that voters will embrace them.
Politics needs to evolve with the times like everything else. The Republican Party emerged to deal with the thorny issue of slavery. Emmanuel Macron built a new party in France and captured a parliamentary majority. If economists can count almost 5,000 breakfast cereals in America, why should its citizens settle for just two political parties?
Precedents exist, such as Israel’s centrist Yesh Atid party that emerged in 2012. There are also examples of tiny factions that exert outsized influence, such as small, religious parties in Israel and Japan. A centrist faction can play the same role in America.
Then there is the issue of voting. There is a powerful change that would be a force for moderation: replace the primary system with a “top four, ranked choice” voting system. Yes, it needs a better name. But it’s the best way to hold elections with multiple candidates.
It works like this: In the first round of voting, the four top vote-getters advance. In the second round, voters rank those four candidates.
If no candidate wins an outright majority, then the candidate with the fewest votes is eliminated. Those who voted for that candidate get their second choice instead. And this process of counting the next-best-candidate continues until one person gets a majority.
This system has three huge advantages. First, it minimises partisanship. Candidates would no longer compete to attract support from the most ideological members of their party but from all voters, which would have a moderating influence.
Second, this would create space for new political competition since independents and third parties would no longer present a “spoiler problem”. For example, Ralph Nader would have been eliminated in 2000 after the first round; most of his votes would probably have gone to Al Gore, who then would have become president.
Third, ranked-choice voting also creates an incentive for candidates to behave more civilly because it is important to be many voters’ “second choice”. Maligning other candidates—and all the other nasty tactics of modern elections—would carry a higher price.
.. The political landscape could change quickly. Reforms like the “fulcrum strategy” and “ranked voting” will make it easier for independents and members of new parties to get elected. Public support for both parties is in secular decline. And much of the partisanship is negative partisanship, meaning that party identification is driven mostly by loathing for the other side. A solid majority of Americans say that the country needs a third major political party.
.. Indeed, the data from Beyond Conflict found that voters believe that members of the other party think worse of them than they actually do. It turns out that we have not dehumanised each other to the same degree as the Palestinians and the Israelis; it only feels that way.
.. There are four faces on America’s Mount Rushmore monument: Washington, Jefferson, Lincoln, and Theodore Roosevelt. With democracy under siege, it is worth thinking about each of them.
George Washington was an independent and warned about political “factions” in his farewell address. Thomas Jefferson said the greatest evil was “a Division of the Republic into two great Parties.” Abraham Lincoln was part of the new Republican Party that arose when the two extant parties could not manage the issue of slavery. Teddy Roosevelt made a third run for president with his own “Bull Moose Party.”
What the four leaders carved in stone share is an unease with partisanship, a willingness to challenge political orthodoxy, and an unwavering belief in democracy. Those are the right principles to bear in mind as we look to strengthen the foundations of our system.