Why capitalism in America now needs its defenders

Back in 2015, before Bernie Sanders began drawing big crowds and long before a Green New Deal was generating buzz among Democrats, Larry Kudlow gave a talk in which he emphasized a simple message to fellow conservatives: “You and I must fight” if the virtues of free markets are to be preserved.

“They are not going to give it to us on a silver platter,” the champion of conservative economics said at Hillsdale College in Michigan, referring to his concerns that advocates of bigger government will erode the nation’s ability to generate prosperity.

The sense that capitalism isn’t delivering on its promises in the new millennium actually goes back further. First came a widening gap between haves and have-nots. Then came the 2007 financial crisis and Great Recession, which spurred the discouraged young people staging the 2011 Occupy Wall Street protests. And it was evident in the guffaws when 2012 presidential candidate Mitt Romney asserted that “corporations are people.”

Well, here we are in 2019. The U.S. unemployment rate has plunged to 3.8 percent, wages are rising, and Americans have gotten a tax cut. Yet the questions about capitalism haven’t gone away.

A rising star among House Democrats, Alexandria Ocasio-Cortez, embraces the socialist label and recently called capitalism an “irredeemable” system because of the concentration of capital and the goal of maximizing profits. Some Democrats in the 2020 presidential race are making similar critiques.

Capitalism, it appears, still needs defenders, and some are rising to the task, including Mr. Kudlow, who is now the top economic adviser to President Donald Trump. Despite all the attention lately on socialism, either as a promise or a menace, the question for the U.S. is less about replacing private enterprise than about whether the system requires some new rules in an era of high concern about social fairness, inequality, and younger generations falling behind on dreams like homeownership.

Where some capitalists are asserting the need for reforms, Mr. Kudlow remains in the “fight” camp. At a Monitor Breakfast for reporters Wednesday, he offered a forceful defense of free-market traditions. He didn’t give an inch on policies aimed at addressing inequality.

“The issue of the Democratic Party tilting toward socialism is a very significant political development and one which I believe would do great damage to the economy,” he said. Instead of redistribution, he said “it’s much more important to grow the economy, to expand the economic pie. And to exercise one’s God-given talents.”

His comments reflect widely held strains of thought among conservatives and many business leaders. But there’s also a contrasting view among other defenders of capitalism: that the best way to save it is to reform it – or even that capitalism’s fullest promise can be realized only by improving the system.

And for many in the business community, capitalism’s shortcomings transcend partisan politics. For them, the concern isn’t just that the nation’s politics are roiled by populism or discouragement among low-paid workers. For many it’s also about their long-term business prospects. Social mobility has declined in the United States even as rich-poor income gaps have widened. The stock market has surged since the recession, yet by one analysis the richest 10 percent of Americans own about 84 percent of all stock. And while jobs are abundant, two-thirds of workers, according to Gallup surveys, are either disengaged or “not engaged … not cognitively and emotionally connected to their work and workplace.”

“We need to respond,” says Rajendra Sisodia, a business professor at Babson College in Wellesley, Massachusetts. “We need to celebrate [capitalism], but we also need to elevate capitalism.”

He says a movement to do just that is gaining momentum, symbolized by the rise of so-called social benefit corporations (“B Corps”) and the arrival of investors seeking social impact as well as profit. An effort he leads, called “conscious capitalism,” now has 50 chapters (in 18 countries) and is on the way to doubling that, he says.

Professor Sisodia is as much a true believer in capitalism as Mr. Kudlow is. As he sees it, the ideas of property rights and free markets enabled people to tap the potential of technological innovation, powering a shift in the human experience from poverty toward opportunity since the Industrial Revolution.

He calls capitalism fundamentally ethical because it’s based on voluntary exchange of labor, money, and goods.

But he also sees a hole to fill, notably spreading the benefits more widely. The system should work better “for the billions, not just the billionaires.” Citing the percentage of young people in the U.S. who are turned off by capitalism, he says “It’s an extremely dangerous thing because we know socialism is not the answer.”

He’s far from alone in being an evangelist for a new style of capitalism. A number of prominent investors, including BlackRock CEO Larry Fink, have begun promoting the idea that corporations and the economy within which they operate will be healthier when firms identify a mission to have a positive impact in the world.

For one thing, that kind of mission can help attract talent by tapping worker aspirations for meaningful careers.

The mantra of profit maximization as the essential goal of corporations, drilled in at many business schools, remains a powerful force. It’s seen by many executives as their fiduciary duty. But increasingly discussion has shifted to whether purpose goes hand in hand with profit rather than diverting from that goal.

Meanwhile, the political debates over capitalism are bound to continue as the 2020 election campaign heats up. Among Democratic presidential candidates, there’s to-and-froing over whether to align themselves with capitalism.

Sen. Elizabeth Warren, D-Mass., who says capitalism is good with the right safeguards in place, has proposed an “Accountable Capitalism Act” that, among other things, would give workers a significant voice on corporate boards. And she and others are proposing plans aimed at building greater economic security by ensuring access to things like health care and child care.

To Mr. Kudlow, the need is not to reform capitalism but to defend against changes that might slash economic growth. He tallies up proposals from Democrats on health care benefits, ending the use of fossil fuels, and “financing people who are not working or don’t wish to work” and says, “I don’t think the opposition party has been honest about this.”

“The idea that you’re going to raise the top tax rate to 70 percent or 80 percent or whatever wouldn’t even remotely finance [all that],” he said. “It’s going to be economic decimation.”