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Capitalism Under Siege: What CEOs Are Up Against

Is capitalism being threatened? One might think so listening to recent presidential candidates banging on about “vulture” capitalism and “asset stripping” private equity companies. And these are the Republicans talking! But let’s step back. What’s really going on?

Is capitalism under threat? One might think so listening to recent presidential candidates banging on about “vulture” capitalism and “asset stripping” private equity companies. And these are the Republicans talking! But let’s step back.

What we are witnessing is a cultural struggle between two competing visions of America’s future. In one case people see America as a unique and exceptional nation organized around the principle of free enterprise. The competing vision sees America moving toward a more egalitarian European-style statism, where notions of “fairness” trumps opportunity and expanding bureaucracies, increasing income redistribution and government-controlled corporations dominate.

In a speech made before the Manhattan Institute in June, 2010, Arthur Brooks, president of the American enterprise Institute, said it best. “This is battle is not over the minutiae of budget deficits or differences of opinion about marginal tax rates. These two competing visions are not reconcilable. We must choose.” Over the last three years we have heard President Obama say he wants “to spread the wealth around.” The problem is no one seems to talk about where the source of this wealth comes from. Historically, people didn’t have to dwell on it very much because the system generally seemed to right itself even after downturns. But the unprecedented economic downturn of the so-called Great Recession has introduced panic not seen since the 1930s. Unfortunately, panic distorts our thinking and allows the statist forces a pretext to introduce their competing vision through sweeping reforms such as Obamacare and Dodd-Frank.

But it’s not just a matter of laws. Laws theoretically can be repealed or modified. Deeply rooted in the statist view is a competing vision that holds that free enterprise is morally suspect. This is very important because free enterprise is deeply rooted in American culture from its earliest days. Benjamin Franklin was the country’s most famous entrepreneur and self-made businessman.

Most jobs flow from the efforts of like-minded entrepreneurs to seek their goal of creating a successful enterprise. Yet consider what Senator Harry Reid said on the floor of the U.S. Senate last December that millionaires as job creators are “fictitious.” He said that “like unicorns, they’re impossible to find and don’t exist.” Evidently he is unaware of Steve Jobs, Mark Zuckerberg or even Steve Wynn, the owner of Harrah’s who operates a highly successful group of gaming hotels in Reid’s home state of Nevada. Is Reid being willfully obtuse? Not likely. More likely he is attempting to drive a psychological edge to separate in the public’s mind, the job creator from the job.

The redistributionists have made impressive inroads. They would have us all believe that income equality is equivalent to equality in other areas, such as justice and politics. The word they like to use most is fairness. According to IRS data the top 10 percent of income earners in 1986 paid 55 percent of the income taxes in The U.S. while the bottom 90 percent paid 45 percent. 20 years later the top 10 percent paid 71 percent of income taxes while the bottom 90 percent paid 29 percent. In addition, the percentage of people paying nothing in income taxes is also rising.

In 2009, before President Obama’s stimulus package became law, 38 percent of Americans were estimated to have zero or negative federal income tax liability. After the budget stimulus and tax changes, this proportion increased to almost 47 percent. Simply, fewer and fewer people will have any skin in the game at all. Curiously, two thirds of people surveyed by Gallup agree with the idea that everyone should pay something; even it’s just a pro forma contribution so that they remember it isn’t free.

What should business leaders do in the face of this cultural struggle? For starters, stop referencing arguments based upon “efficiency” and material well-being. Free enterprise should be understood as a moral system where human beings can flourish and pursue happiness. It embodies key principles such as equality of opportunity, not equality of result. People flourish when they earn their own success. More than any other system, free enterprise enables people to earn their success and thereby achieve happiness.

About JP Donlon

JP Donlon is the Editor-in-Chief of Chief Executive magazine.