Warriors for Opportunity
Financial capitalism – free markets powered by a robust financial system – is the dominant economic model in the world today. Yet many who have benefited from the system agree it's not working the way it ought to.
U.S. political discourse seems to be increasingly against capitalism. Democratic candidate Elizabeth Warren – representing one of many voices on the progressive left of American politics – has proposed an Accountable Capitalism Act and unleashed a broadside of policy proposals that would:
- break up big tech companies like Google and Facebook,
- abolish private health insurance,
- introduce a $2 trillion industrial policy built on economic patriotism,
- impose a 2% annual tax on accumulated wealth,
- mandate that workers elect at least 40% of members on company boards, and
- require corporations to apply for federal charters to operate their businesses.
During October's democratic presidential debate held in Ohio, Warren charged, "Giant multinational corporations ... have no loyalty to America. They have no loyalty to American workers. They have no loyalty to American consumers. They have no loyalty to American communities. They are only loyal to their own bottom line."
And it isn't just campaign-trail politicians questioning the system. Billionaire Salesforce founder & CEO Marc Benioff recently said in The New York Times that "Capitalism, as we know it, is dead."
Fewer than 50% of millennials have a positive view of capitalism, and their views have apparently darkened in the past five years.
Economist Thomas Piketty, who wrote Capital in the 21st Century, a highly influential book on inequality, is advocating for "participatory socialism," stating, "The time has come to exit this phase of making property sacred."
Even a recent cartoon in The New Yorker shows a college financial aid applicant being asked, "So where do you see yourself fitting into "late-stage capitalism?"
Are we in fact witnessing the twilight years of capitalism?
After the past 50 years, during which capitalism has spread across developed and developing countries around the globe and arguably helped to lift more than two billion people out of extreme poverty?
Even as capitalism has powered one of the longest and most sustained economic recoveries, as well as one of the most durable bull markets in our lifetimes, with the S&P 500 trading near all-time highs?
Economically speaking, the past 50 years have been as good a period in human history as has existed in human history. The so-called "Misery Index" – the sum of the unemployment rate and the inflation rate (developed by Arthur Okun, a head chairman of the Council of Economic Advisers under President Johnson) – is lower at any time since the 1950s.
But you wouldn't know it from much of what you read, watch and hear today.
So What's Going On?
If we dial down the animosity, overheated rhetoric and political partisanship, then these headlines and sound bites reflect one of the important debates we could be having: What societal goals do we want our free-market economic system to support?
It's not a new conversation. But it's been evolving and getting more intense in the 21st century. We can't seem to make up our minds about what we want.
Going into the financial crisis of 2008 – 2009, society was sending signals suggesting we wanted growth at any and all costs. Leverage was the tool used to jack up what had been sustainable growth to unsustainable levels.
Then after the world stepped back from the brink of financial collapse, we started introducing modifiers in front of the word capitalism – moral capitalism, inclusive capitalism, fiduciary capitalism, sustainable capitalism – modifiers signaling we didn't want growth that:
- blows the system up every 10 years,
- degrades the environment,
- creates extreme disparities in wealth and income, or
- bankrupts our children and grandchildren.
These modifiers seemed to convey a desire for growth balanced with economic stability, sustainability, equality and intergenerational equity.
Then along came Donald Trump, who promised in 2016 to deliver better standards of living for the middle class – people on the bottom 60% of the economic ladder who haven't had real (i.e., inflation-adjusted) income growth since 1980 – through his own version of "Ayn Rand capitalism," powered by a $1 trillion tax cut and one of the most sweeping across-the-board deregulatory initiatives we have ever seen.
Unfortunately, the design of the tax cuts, combined with low interest rates, has supercharged the wealth of the top 1%, whose outsized share of financial assets is now worth more than the bottom 99% combined.
At the same time, so-called "oligarchic drift" – the ability of corporate and individual actors to tilt the playing field in their favor and influence the writing of the rules of the economic game to their advantage – has become more and more pronounced.
These developments have energized many groups, including the progressive and more extreme political left, who are now calling to replace capitalism outright with "socialism."
Throwing the Baby Out With the Bathwater?
So, is it time to abandon the most successful economic system the world has ever seen?
In my opinion, that would be a huge mistake.
But we need to acknowledge that capitalism, as it exists today, is increasingly seen as failing to serve a broad-enough segment of society's needs.
An insightful analysis of how capitalism is falling short was recently offered by billionaire hedge fund manager Ray Dalio. In an article titled "Why and How Capitalism Needs To Be Reformed," Dalio proposed a critique of capitalism focused on inequality of opportunity:
"I have also seen capitalism evolve in a way that is not working well for the majority of Americans because it's producing self-reinforcing spirals up for the haves and downs for the have nots. ... This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic ... conflicts [that] are weakening America's condition."
Among the many data points offered by Dalio is the fact that Americans whose fathers were in the bottom income quartile have a 40% chance of staying there. This fact is supported by The Economist's recent "Special Report – Poverty in America," which noted "child poverty often leads to adult poverty and all of its problems" and "where you grow up affects the trajectory of your life."
As participants in and beneficiaries of the most effective economic system the world has ever invented, we all need to help reframe the conversation about capitalism to balance negative narratives being amplified through the megaphone of the current presidential campaign.
Some of this is already happening. This summer, the Business Roundtable (a collection of more than 100 CEOs of the largest American corporations) issued a landmark statement endorsing a new definition of corporate purpose.
Corporations, the group stated, need to commit to delivering value to all stakeholders, including not just shareholders but employees, customers and clients, suppliers and host communities – as well as to "an economy that serves all Americans."
An important first step. But I think advocates of capitalism need to go further.
Our discussion should focus on the challenge of inequality of opportunity raised by Dalio. Opportunity is, after all, a core element of the American Dream, enshrined in our Declaration of Independence through the iconic clause, "life, liberty and the pursuit of happiness." Opportunity is the reason so many people come to America.
One of the most inspiring cases for capitalism is the Netflix documentary The Pursuit, which features Arthur Brooks, former President of the American Enterprise Institute.
In the documentary, Brooks describes capitalism as "an aspirationally based system." An ardent supporter of free markets, he calls himself a "warrior for opportunity."
Capitalism, he says, needs to start with "a want to lift people up." He also says, "Capitalism alone can't fix society. ... Morals have to come first ... based on the sense of social solidarity ... a sense that we are, in fact, our brother's keeper."
That's ultimately what will underpin capitalism's legitimacy: to be an engine of opportunity.
In that way, we all need to become warriors for opportunity.