America’s economic system is a mix of free-market capitalism with government actions and controls. It evolved along with our nation. Many of us came to believe this system rewarded hard work and was fair. Globalization and technological change challenged this belief.
Increasing economic rewards to “knowledge workers” — people who work with their minds, not their hands — unintentionally weakened it further. Emphasis on efficiency and competition, untempered by our values and a long-term view, has undermined trust in the system’s fairness and rewards. The result is that a large number of Americans now see their economic system as unfair; they see opportunity declining, and income inequality significant and growing.
Globalization and technology can unleash capitalism’s creative destruction. The disruptive impact it has on people’s lives must be mitigated. Our education system should respond to the need and offer paths to more competitive job skills. Areas hit hard by global competition or technology obsolescence need and deserve assistance in adapting.
Concentration of wealth and political power in corporations and a new “aristocracy” has advantaged some, but has reduced opportunity and made our economic system less fair for many. Granting corporations the same rights as people facilitated this concentration. So did this “aristocracy” composed of financial, information and knowledge workers who rose to success by talent and merit. Working with and for corporations they engineered changes to the rules by which our economy runs. The result is a system that richly rewards financial transactions and values short-term competition and 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 become too big.
We Americans consume too much. We know we will be better off if we save more and invest those savings in the future. It is up to us to self-discipline and own the consequences of our over-consumptive behavior. Neither markets nor government can do that for us.
The inability of our government to address the flaws within our economic system is, in part, because of the influence of Americans who believe that smaller government is always better for the country. They champion ideal free-market capitalism. While spotlighting the risks of overactive government, they discount the need for those functions that bring order to our huge, complex economy. Supply-side economics asserts that minimal regulation and taxation will create a rising tide that boosts prosperity. It has been an ally of those favoring 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. As a result of these influences, government action to reform our economic system gets labeled as “welfare state socialism” that threatens “free-market capitalism.” This false characterization further polarizes and incapacitates us.
In the short term, we must attack income inequality by:
- increasing the minimum wage;
- making substantial investments in our infrastructure — transportation, water, sewage treatment, energy and telecommunications systems, education and worker retraining; and
- increasing taxes on affluent Americans to help pay for these desperately needed infrastructure investments.
These three actions will not fix all the causes of income inequality and other defects in our economic system, but they will begin moving 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 required.
For the long term, we need a broad, comprehensive approach. We will have to invest in economic education and advocacy for a more balanced system as a foundation for that approach. One path is creation of permanent “Free-Market,” “Government Role” and “Private-Sector Role” Commissions at each land grant university. The “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 impacts of the public institutions that play a significant role in the American economy. They should include everything from the Federal Reserve to local zoning authorities. The “Private-Sector Role Commissions” would evaluate major business sectors, their contributions to economic activity, current and future vitality.
While sharing their work nationwide, the three commissions in each state should combine at a frequency of their choice to develop assessments of state and regional economies and recommendations for change.
Such commissions will not fix things overnight. They are a long-term investment in our ability to manage our economy with more transparency and forethought. They can generate ideas for our government leaders and improve economic system literacy. They should also develop more lawyers, financial and business people who can advocate for the interests of ordinary citizens and our mutually held responsibilities. We need more experts in financial and legal engineering who champion American values of honesty, fairness and generosity in the nuts and bolts of how our economic system works. They can provide an opposing force that pushes back on the influence of corporations, our new and future “aristocracies.”