Nearly five years after the fall of Lehman Brothers, global free market capitalism is still struggling.
Europe is mired in recession and a debt crisis; some of its countries are in depression. The UK has entered a “triple-dip” recession. Once-hot emerging markets like Brazil are treading water, and even China’ growth is slowing dramatically.
The U.S. economy looks good only in comparison. But our economy has never really recovered from the housing boom and bust. Indeed, it’s never been the same since the dot.com crash of 2000. Consider:
- Nearly six million manufacturing jobs were lost in the 2000s.
“From 2000 to 2010, median income in the U.S. declined 7% after adjusting for inflation,” The Wall Street Journal reported, calling it “the worst 10-year performance in records going back to 1967.” And the spread between the wealthiest Americans and the rest of us has widened considerably .
- As of March, the total number of unemployed, underemployed and those who had stopped seeking work was 22 million, 13.8% of the labor force, about twice the number of those officially unemployed.
Even more worrisome, the belief in upward mobility—the core of the American Dream—is eroding among the middle class, a recent National Journal survey indicated, as reported by MarketWatch:
“People are not really asking the Ronald Reagan question anymore — Are you better off than you were for years ago? — because they don’t expect to be,” said Ronald Brownstein, editorial director for National Journal…“Not falling through the floor is the new getting ahead.”
So, is the U.S. economy no longer able to “deliver the goods” for a growing number of Americans? Has free-market capitalism itself reached its limits?
I would say yes to the first question but no to the second.
Despite its many flaws, free-market capitalism is still the best path to prosperity and well-being the world has ever seen. It has brought hundreds of millions of people out of poverty, improved health and raised living standards dramatically.
But capitalism, as Joseph Schumpeter observed, is a dynamic system given to wrenching changes. As its process of “creative destruction” unfolds, it supplants industries, regions, whole populations, while creating new opportunities for others. Unquestionably some people get left behind, but historically it has helped many, many more than it has destroyed.
In a recent book, the UCLA historian Joyce Appleby called capitalism “the relentless revolution.” Far from inevitable, capitalism was, Appleby wrote, “a startling departure from the norms that had prevailed for 4,000 years.”
Capitalism first took root among the Dutch merchant class and transformed the 17th Century Netherlands into a global trading and naval power. That wealth created Amsterdam’s Golden Age of art and tolerance for Jews and other refugees.
Capitalism really picked up steam in England, whose industrial revolution upended the bucolic countryside and drove displaced farmers into England’s “dark satanic mills,” in William Blake’s memorable phrase. But it made Great Britain the dominant power for more than a century.
It has reached its apotheosis in America, whose individualist culture and Constitution were an ideal fit. The innovation and ingenuity of American capitalism let us surpass Britain, gave opportunities to millions of immigrants, and helped defeat imperial Japan, Nazi Germany, and Soviet communism.
But now, our production and job-creation engine has stalled. Why?
America enjoyed a monopoly from 1945 to 1973. Germany and Japan were destroyed, and France and the UK were on their backs. The Cold War military build-up and the construction of the interstate highway system created the greatest middle-class consumer society in history.
But foreign competition emerged in the 1970s, as Germany and Japan came back strongly. Computer technology gave companies new tools to measure and enhance efficiency. Meanwhile, the shareholder revolution of the 1980s made managements focus almost exclusively on profitability. That broke the “social compact” of previous generations.
Eventually, China became the manufacturing capital of the world (although higher costs there are now driving production elsewhere). In the past three decades, nearly 700 million Chinese have emerged from poverty and into the working and middle class, probably the greatest transformation of its kind in human history. It’s also happening in other Asian nations and starting in Africa.
So, to some degree, Americans are paying the price for the prosperity that capitalism is bringing everyone else.
Many opportunities remain here, but not the kind that existed in “Leave it to Beaver” America. We all need to work harder, keep up with emerging technologies, and innovate in our careers as well as in business. 30-years-and-a-gold-watch is gone for good.
The new environment requires flexibility and entrepreneurship, plus a willingness to keep learning and growing. Smart public policy would help, too, but I can’t be optimistic about that, given the poisonous polarization in Washington.
“Change or die” has been capitalism’s motto since it emerged from the Dutch herring trade four centuries ago. It’s a good motto for us all now. Welcome to the New Normal.