In 2019, the U.S. unemployment rate reached record lows while the stock market hit record highs. But not everyone has benefitted. According to a recent report by the Pew Research Center, most Americans believe the economy is helping the rich, while hurting the middle class and poor. What does this mean for the future of U.S. capitalism?
Our system of free-market capitalism has generated the world’s greatest economic growth, lifted millions of people out of poverty, and achieved the highest standards of living. But for many Americans, their economic condition is less than optimal.
For example, 44% of all U.S. workers ages 18 to 64 hold low-wage jobs with median hourly wages of $10.22, says the Brookings Institution. That’s a total of 53 million people struggling to make ends meet. What’s more, 15% to 20% of men ages 25 to 54 are absent from the workforce.
In addition, labor’s share of national income, the amount paid out in wages, salaries and benefits, has been declining since the 1980s, according to the McKinsey Global Institute. This has contributed to income inequality that is now greater in the United States than in other advanced economies, notes the Pew Research Center.
Making matters worse, after decades of increases, American life expectancy has begun to decline in the last few years primarily due to drug overdoses, alcohol abuse and suicides, reports the American Medical Association. Depression and despair primarily associated with economic hardship is suspected as the principal cause.
The impact of these problems, combined with perceptions that the current American economic system is unfair, is reflected in recent surveys. For example, in a November 2019 Gallup poll, only half of 18- to 39-year-olds viewed capitalism positively, down from 66% in 2010. Since then, young adults’ opinion of capitalism has deteriorated to the point where socialism is tied in popularity.
Last October, a survey conducted by the Victims of Communism Memorial Foundation revealed a more urgent concern: that 70% of millennials —who represent the largest generational segment of the U.S. population at 75 million people —were likely to vote for a socialist candidate. And the percentage who said they were extremely likely to do so doubled from 2018 to 2019.
American free-market capitalism is the greatest economic system ever devised. Nevertheless, its flaws need to be fixed. If not, an increasing number of Americans who feel they have been left behind are likely to embrace socialism, which has repeatedly failed.
Some of the biggest beneficiaries of our capitalist system have begun to speak out and recommend solutions to ensure we don’t kill the goose that lays the golden egg.
In his 2019 article, “Why and how capitalism needs to be reformed,” Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund with $160 billion in assets, explained that most capitalists don’t know how to divide the economic pie very well and most socialists don’t know how to grow it.
Dalio said capitalism is currently not working for the majority of Americans and warned we are at a critical juncture where people of different ideologies will either work together to re-engineer the system so the pie is both divided and grown well or we’ll have a great conflict that will shrink the pie and hurt most everyone.
Last year, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., said the American dream is alive but fraying, explained that our shortcomings have failed many over the past two decades, and called upon other chief executives to help design solutions.
In 2019, while serving as chairman of Business Roundtable (BRT), an association of America’s leading companies with $7 trillion in annual revenues and 15 million employees, Dimon and the BRT issued a statement that redefined the purpose of a corporation as to promote “an economy that serves all Americans.”
The statement, which goes well beyond the previous corporate focus of maximizing profits and share prices, includes compensating employees fairly, dealing ethically with suppliers, supporting communities, and protecting the environment. It was signed by 181 chief executives of America’s largest corporations.
The best run companies do more than work to generate profits and return value to shareholders, said Tricia Griffith, president and CEO of Progressive Corporation. “They put the customer first and invest in their employees and communities.” Let’s hope all American companies heed her advice, which in the long run will benefit all parties —even the companies themselves through improved performance.
Let’s also hope more Americans, especially millennials, comprehend the failures of the former Soviet Union and its Eastern European satellite states. Or, for a current example of socialism not delivering, just look at what’s happening in Venezuela, which has been reduced from one of South America’s wealthiest countries to one of its poorest. Today, shortages of basic supplies such as flour and rice, along with rapidly rising prices, have led to riots and chaos.
To save American free-market capitalism in the 2020s, many business and government leaders have begun to call attention to our system’s flaws. It’s time to work together to improve the system, not abandon it.
John Manzella, founder of the ManzellaReport.com, is a speaker, author and nationally syndicated columnist on global business and economic trends. Contact him at JohnManzella.com.