Free mar­kets more moral than Big Gov­ern­ment

The Washington Times Weekly - - Commentary - By Brett M. Decker

Steve Forbes is chair­man and ed­i­tor-in-chief of Forbes Me­dia. The flag­ship Forbes mag­a­zine, long re­garded as Amer­ica’s best busi­ness pe­ri­od­i­cal. Au­thor of five books, his lat­est, with El­iz­a­beth Ames, is, “Free­dom Man­i­festo” (Crown Busi­ness, 2012). You can find out more about Mr. Forbes and his com­pany at: Forbes.com. Decker: The sub­ti­tle of your new book is, “Why Free Mar­kets Are Moral and Big Gov­ern­ment Isn’t.” What is the moral­ity of the mar­ket­place and how does it work? How is the free-en­ter­prise sys­tem bet­ter and health­ier for the masses than a gov­ern­ment safety net? Forbes: Free mar­kets are moral be­cause they’re fun­da­men­tally about meet­ing the real-world needs and wants of oth­ers. In a free-mar­ket trans­ac­tion, two par­ties — in­di­vid­u­als or com­pa­nies — come to­gether vol­un­tar­ily to make a re­cip­ro­cal ex­change that pro­vides mu­tual ben­e­fit. The vol­un­tary na­ture of open mar­kets, most of the time, en­cour­ages moral, eth­i­cal be­hav­ior. You have to treat peo­ple well enough so that they’ll choose to do busi­ness with you.

You may not al­ways get ex­actly what you want out of an ex­change — you may think, for ex­am­ple, your rent may be too high. But crit­ics of mar­kets are wrong when they in­sist that mar­kets are driven by “greed.” There are greedy peo­ple in our so­ci­ety, but greed doesn’t drive mar­kets. Free en­ter­prise and free mar­kets are about trust and co­op­er­a­tion. Peo­ple from all backgrounds and be­liefs learn to work to­gether and co­op­er­ate in the mar­ket­place or the work­place. Free mar­kets en­able in­di­vid­u­als to dis­cover and de­velop their in­di­vid­ual tal­ents to the fullest. That’s why in­no­va­tion blos­soms in a freeen­ter­prise sys­tem.

Eco­nomic free­dom is also moral be­cause it is the world’s most pow­er­ful engine of pros­per­ity. Free en­ter­prise has done more than any other sys­tem to serve the com­mon good by lift­ing bil­lions of peo­ple out of poverty. Af­ter Ron­ald Rea­gan low­ered taxes across the board in 1981, real growth in the gross do­mes­tic prod­uct in this coun­try soared from 0.9 to 4.8 per­cent. Coun­tries that fol­lowed Rea­gan’s lead — free­ing up mar­kets by re­mov­ing reg­u­la­tory bar­ri­ers to en­ter­prise, low­er­ing tax­a­tion and al­low­ing peo­ple to make a profit — have seen their economies boom. Within the last 30 years, eco­nomic lib­er­al­iza­tion dra­mat­i­cally raised liv­ing stan­dards in In­dia, China, Latin Amer­ica as well as for­mer com­mu­nist nations in cen­tral and Eastern Europe.

Com­pare this to what we’ve seen un­der Pres­i­dent Obama. His great­est ever gov­ern­ment spend­ing since World War II was sup­posed to lift the econ­omy and cre­ate jobs. In­stead, we ended up with an ane­mic growth rate of 1.3 per­cent and still high un­em­ploy­ment.

Eco­nomic free­dom is moral be­cause it does the best job of any sys­tem in chan­nel­ing our self-in­ter­est into pos­i­tive, pro­duc­tive ac­tiv­i­ties that ben­e­fit all of so­ci­ety. It is the best an­swer to poverty. Decker: As you ex­plain, we re­ally are in a bat­tle for the soul of Amer­ica. Chap­ter 6 of “Free­dom Man­i­festo” is ti­tled, “The Spirit of Rea­gan or Obama?” What is this fun­da­men­tal choice all about? Forbes: “Free­dom Man­i­festo” ex­plores the moral con­trasts be­tween a free econ­omy and one dom­i­nated by overly large, bu­reau­cratic Big Gov­ern­ment. Chap­ter 6 ex­plores the cul­tural di­men­sion of this com­par­i­son. Free en­ter­prise is based on what we call “moral op­ti­mism.” Trade in a free mar­ket re­quires trust, the pos­i­tive ex­pec­ta­tion that other peo­ple will de­liver on their prom­ises. In­vest­ment, sim­i­larly, is based on faith. Peo­ple stake their cap­i­tal, time and rep­u­ta­tions on the be­lief that oth­ers’ cre­ativ­ity will pro­duce a pos­i­tive re­turn. Cap­i­tal­ism’s moral op­ti­mism en­cour­ages a cul­ture of en­ter­prise and self-re­liance, where peo­ple be­lieve they can solve prob­lems and get things done.

Big Gov­ern­ment and its sup­port­ers, by com­par­i­son, are driven by more pes­simistic as­sump­tions. Gov­ern­ment by its very na­ture is about pro­tect­ing peo­ple from the bad be­hav­ior of oth­ers — main­tain­ing or­der and min­i­miz­ing risk. The fo­cus there­fore is on what can go wrong — the baser side of hu­man na­ture. The prob­lem, as we ex­plain in our book, is that the en­tire world­view of Big Gov­ern­ment ad­vo­cates is col­ored by this neg­a­tive per­spec­tive. The prob­lem with Big Gov­ern­ment pes­simism is that it leads to over­re­ac­tion — poli­cies and pro­grams that end up dis­tort­ing mar­kets and mak­ing prob­lems worse. Few peo­ple re­al­ize that health care has long been one of the most highly reg­u­lated sec­tors of our econ­omy. Gov­ern­ment dis­tor­tion of the health care mar­kets cre­ated the “cri­sis” that sup­pos­edly re­quired Oba­macare. Decker: Left-wingers are try­ing to make the 2012 pres­i­den­tial race a ref­er­en­dum on cap­i­tal­ism, par­tic­u­larly in their pop­ulist at­tacks on Mitt Rom­ney’s ca­reer at Bain Cap­i­tal. What do to­day’s oc­cu­piers not un­der­stand about the great­ness and right­ness of the cap­i­tal­ist sys­tem? Forbes: Many peo­ple take our so­ci­ety’s stan­dard of liv­ing for granted. They don’t re­al­ize that free­dom is what cre­ated Amer­ica’s pros­per­ity. It is why we be­came the strong­est na­tion in the world. Oc­cupy Wall Street and oth­ers de­mo­nize fi­nance and risk-tak­ing. But “Wall Street,” with its vi­brant cap­i­tal mar­kets, has fi­nanced our great­est en­tre­pre­neur­ial in­no­va­tors — com­pa­nies like Mi­crosoft, Ap­ple and Sta­ples — that drive our pros­per­ity and cre­ate many thou­sands of jobs. With­out in­vest­ment from firms like Bain and oth­ers, these com­pa­nies would have never been able to achieve great­ness.

We ex­plain in “Free­dom Man­i­festo” that, with the ex­cep­tion of the United King­dom, Euro­pean nations do not have Amer­i­canstyle cap­i­tal mar­kets and our tradition of pri­vate eq­uity in­vest­ment. Promis­ing en­tre­pre­neur­ial com­pa­nies are of­ten forced to merge with big con­glom­er­ates or get fund­ing from risk-averse banks. This dis­cour­ages en­tre­pre­neur­ial risk-tak­ing, in­no­va­tion and job cre­ation. It is one rea­son why Europe in the last three decades be­fore the fi­nan­cial cri­sis grew at far slower rates than the United States and why it has never be­come a ma­jor force in high tech­nol­ogy.

Decker: As the son of an ex­ec­u­tive at one of Amer­ica’s 10 largest com­pa­nies, I grew up be­liev­ing that the busi­ness of Amer­ica is busi­ness. It now in­creas­ingly seems that gov­ern­ment is the se­nior part­ner in the pub­lic-pri­vate­sec­tor re­la­tion­ship. How is to­day’s out-of-con­trol bu­reau­cracy a drag on U.S. com­pet­i­tive­ness and the en­tre­pre­neur­ial spirit that made this coun­try great? Forbes: Out-of-con­trol Big Gov­ern­ment hurts our com­pet­i­tive­ness in var­i­ous ways. Ex­ces­sive reg­u­la­tion, for ex­am­ple, suf­fo­cates a mar­ket. En­trepreneurs are less able to get credit or loans as a re­sult of over­reach­ing laws like Dodd-Frank that are in­hibit­ing lend­ing and killing community banks. It be­comes harder for the Ap­ples and Mi­crosofts of to­mor­row to start up. Too much gov­ern­ment also re­sults in cap­i­talde­stroy­ing tax­a­tion. You get costin­flat­ing laws like Oba­macare, which harshly pe­nal­izes com­pa­nies and in­di­vid­u­als for not hav­ing health in­sur­ance. Com­pa­nies have less money to grow and hire peo­ple. It be­comes more dif­fi­cult to get trac­tion and suc­ceed in the mar­ket­place.

In a free mar­ket, peo­ple in­vest in tech­nolo­gies that ac­tu­ally work and have been shown to meet real world needs, like the auto or the per­sonal com­puter. But when Big Gov­ern­ment dom­i­nates an econ­omy, re­sources are al­lo­cated based on the in­ter­ests of politi­cians. Tax­payer money is poured into po­lit­i­cally pop­u­lar causes — like “green jobs.” The re­sult is fake innovations like the Chevy Volt, a car that was too ex­pen­sive and im­prac­ti­cal to ap­peal to con­sumers and ended up fail­ing in the mar­ket­place. Big Gov­ern­ment also en­cour­ages crony­ism. Po­lit­i­cally pow­er­ful cor­po­ra­tions and in­di­vid­u­als get pref­er­en­tial treat­ment. You end up with com­pa­nies like Solyn­dra. Decker: What do you think is the most im­mi­nent threat fac­ing the United States to­day, and what should be done to ad­dress the prob­lem? Forbes: Our most im­mi­nent threat is to­day’s over-ex­panded Big Gov­ern­ment, both at the fed­eral and state level. It’s not fi­nan­cially sus­tain­able and threat­ens our econ­omy and democ­racy. The so­cial un­rest in Greece is what you get when too much gov­ern­ment kills an econ­omy and cor­rupts a so­ci­ety.

Amer­ica to­day is like an over-ex­panded cor­po­ra­tion in need of re­struc­tur­ing. Con­trary to what the statists want you to be­lieve, it can be done with some com­mon-sense re­forms, with­out throw­ing granny or any­one else over a cliff.

A first step would be to re­peal Oba­macare. That alone would elim­i­nate more than 150 un­nec­es­sary bu­reau­cra­cies. The way to real health care “fair­ness” is not gov­ern­ment rules and ra­tioning, but a con­sumer-driven mar­ket where you, the pa­tient, make buy­ing de­ci­sions, not your in­surer or em­ployer. Then we have to re­form en­ti­tle­ments. We can re­struc­ture both Medi­care and So­cial Se­cu­rity. Amaz­ingly, we have enough wealth to pro­vide the ben­e­fits for those on these pro­grams, as well as those about to go on them. But pos­i­tive change is nec­es­sary for younger peo­ple. The bulk of their pay­roll taxes would go into per­sonal ac­counts with proper safe­guards. That way, we turn two li­a­bil­i­ties into cap­i­tal-cre­at­ing as­sets. Those pay­roll taxes would be in­vested in the real econ­omy rather than spent im­me­di­ately by Wash­ing­ton politi­cians. In­di­vid­u­als would be able to de­cide on their own health care plans and in­vest­ments.

A flat tax would re­duce taxes for many peo­ple. It would re­move the enor­mous hid­den tax of the com­pli­ance costs, free­ing up enor­mous hu­man and fi­nan­cial re­sources that can be in­vested in new jobs and busi­nesses.

Re­turn­ing to a gold stan­dard is an­other much-over­looked re­form. Most peo­ple to­day, in­clud­ing most politi­cians, fail to ap­pre­ci­ate how our cur­rent sys­tem of fluc­tu­at­ing cur­rency val­ues is a drag on the econ­omy.

Sup­port­ers of Big Gov­ern­ment keep in­sist­ing that the only so­lu­tions to to­day’s prob­lems are higher taxes and more gov­ern­ment.

But if more gov­ern­ment were the an­swer, we wouldn’t be see­ing un­rest in Europe to­day. And the Soviet Union and not the United States would have won the Cold War. Brett M. Decker is ed­i­to­rial page ed­i­tor of The Wash­ing­ton Times and coau­thor of “Bow­ing to Bei­jing” (Reg­n­ery, 2011).

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