Robert Reich explain how the wealthy and corporations receive billions in corporate welfare.
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.”
Today, American Democrats have a more positive view of socialism than capitalism, and less than half of young adults have a positive view of capitalism. But the debate isn’t merely between left-wing socialists and right-wing capitalists. Even President Trump argues that capitalism generates prosperity abroad at the expense of American workers. Years of wage stagnation and diminished economic prospects have soured many Americans on the system that made the U.S. the world’s largest economy.
Compared with faster-growing economies in the developing world, America feels older, and not only because the elderly will soon outnumber children. Important parts of the economy, from smartphones and cellular carriers to airlines, resemble sluggish oligopolies more than dynamic marketplaces. Ever more sectors of the economy look like heavily regulated utilities that are at reduced risk of disruption or innovation. In health care, hospitals, physician groups and insurance companies are getting bigger and in some cases driving out competitors.
The problem isn’t market dynamics, but the increased government intervention in the economy that discourages competition. Rather than relying on innovation, many companies often now seek to exploit licensing arbitrage opportunities and engage in other rent-seeking behaviors. They try to beat competitors through regulatory capture and crony capitalism rather than making better products for less.
In which society is it easiest to get rich? Contrary to common belief, it is not countries like the US or the UK that create the highest number of rich people per capita, but Nordic social democracies like Norway and Sweden. Counter intuitive as it may sound, high taxes, generous welfare states and strong unions makes a better environment for the people who wants to earn huge amounts of money, than free markets, low taxes, and minimal government intervention.
Harald Eia is a trained sociologist who works in television with comedy and documentaries.