April 22, 2010
Reality Check on the Record of Big, Bad CapitalismBy David R. Nathaniel
President Obama's core economic tenet is fairness; the unfairness of our economic system needs remedy in his view. Equality of outcome rather than equality of opportunity is the root principle. A forced redistribution of wealth will act as an equalizer for the past sins of capitalism.
The administration, the congressional majority, and an agreeable media are systematically dismantling free-market mechanisms and installing a centrally regulated command economy, all for the sake of fairness. Evidence over the last fifteen months is overwhelming: government takeovers of major industries and individual companies; massive ramp-up of government regulations on industry; tax changes to force re-distribution of wealth; and lectures on behavior by our Grand Arbiter of Fairness, the president. The consequences for all 330 million Americans are enormous.
But where is the clear, unemotional evidence of either how bad it's been under capitalism or how many more people will benefit under the new system? What is the alternative system? Where is it working today? All we have seen are a string of anecdotes and a parade of victims. Wall street bonuses are bad; out-of-work people are victim; millionaires don't deserve their wealth; change will make it better.
Facts are rarely useful in debates with ideologues and religious zealots. Yet we cannot allow partisans to make unchallenged, generalized claims about the free-market system with such consequential implications. Using comparative data over the long term, we can find objective conclusions on the comparison of free-market capitalism to more regulated economies. The last twenty-five years, virtually a generational view on economies, gives us a broad perspective of market performance during a relatively stable period.
Let's compare countries side-by-side, answer claims of economic unfairness with facts, and decide which economy we would like for our children. Data source: OECD
Our economy has been weak for the last decade. Our problems have only been covered up by deficit spending and cheap credit.
The U.S. has outperformed all other economies over a twenty-year period, outproducing goods and services, worker for worker. In terms of annual growth rates, our free-market system has more extreme highs and lows, but it has climbed out of recessions faster and provided more sustained growth periods.
Rising tides lift all boats. Economic growth of goods and services means more jobs, higher wages, and more opportunities for all citizens.
Yes, but the U.S. uses more than its fair share of resources. Our rampant consumerism is unsustainable.
This is not a zero-sum game. If the U.S. produces less, Canada and Indonesia do not automatically get more. More importantly, our economic growth benefits workers across the world. Our economic engine creates opportunities for progress for individuals in poor countries and developed countries alike.
We continue to ship jobs overseas to China. The economy is not producing new jobs. There are no new opportunities for young people coming out of school. The government needs to create jobs opportunities because private industry isn't getting it done.
For a generation, we have had the lowest unemployment rates of any developed country other than Japan. (Note: Every 1% of U.S. unemployment equals approximately 1.5 million workers.) Free-market capitalism is more dynamic than any other system. Industries and job opportunities change more frequently, forcing people to change, but the jobs are there.
France and Germany have been experiencing our current "high unemployment" levels since 2003. Germany has approximately 2.5 million permanently unemployed workers on the federal "dole," not counted in the numbers. That is out of a total population of 82 million people.
Our unemployment may be lower than other countries', but the quality of jobs created is decreasing, wages are lower, and factory jobs are being replaced with fast food jobs. We are failing to help workers train and adapt to new jobs, thereby falling behind other countries. Corporations retain larger profits while the workers lose salaries and benefits.
We have maintained the highest hourly wage rates, and they continue to increase, not decrease. Over most of the last decade, the U.S. has maintained the highest median incomes in the developed world. Again, job types are constantly changing, but overall, the wages are increasing.
(Note: "Median" means 50% above / 50% below the number.)
Our workers are also very productive compared to other developed countries', averaging 2.2% labor productivity growth per year over the last twenty years and out-growing other developed Western countries eight out of the last ten years.
The tax structure must change. The government must raise taxes to provide the programs for job creation and support those that are out of work and in need of benefits.
Taxes simply take money out of the market, consuming economic value. Governments taking money away from the wage-earner hurts everyone in the economic food chain and reduces the worker's lifestyle. Could there be a clearer connection between higher growth, growing wages, lower unemployment, and better productivity and punishing tax rates than the results of the last twenty years?
Winston Churchill wrote, "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries."
Virtually every individual and family experiences economic hardships over a lifetime -- job losses, companies going out of business, bad luck, loss of a primary wage-earner, bad financial decisions, starting over. But that's not symptomatic of the economic system. That's called life.
There is no perfect system. People get left behind. Many will earn more than you will. We have been spoiled by a generation of economic success. Prosperity allows us the intellectual leisure to imagine a perfect world where no one is stressed and everyone succeeds. Our government is currently run by self-proclaimed intellectuals who foolishly believe that they can actively manage the incredible complexities of our economic system. While they experiment, all citizens pay the price of lost opportunity and individual pain.
Yet it is indisputable that sustained economic growth and prosperity benefit all citizens. Free-market capitalism has proven to help the most people achieve personal fulfillment, creates the most opportunities, hires the most people, and provides the economic engine for life, liberty, and the pursuit of happiness.
That's a fact.
David Nathaniel holds a masters degree in business from The Ohio State University. He has spent the last twenty years in international business.