Increasingly, the national conversation is focusing on capitalism and its track record. As part of this debate, critics are targeting the public faces of the free market: America’s CEOs. That’s a pity—and a serious potential loss for the nation.
America’s CEOs are among the most pragmatic, effective problem-solvers we have as a country. If business leaders sit on the sidelines in this turbulent time or offer weak or self-serving solutions, the U.S. will have lost a crucial source for some of its best potential ideas. America can only have a future even brighter than its storied past if business leaders take the risk of entering the public square to make the case for sound public policy in the nation’s interest. We have a responsibility to the country to engage, not retreat, in this political season.
It starts with an understanding that the free market has been the greatest engine for generating prosperity in history. Capitalism has raised living standards and lifted more people out of poverty than any other economic system. Like any system, it is not perfect. Capitalism is an organic system that must morph over time to adjust to societal changes and demands. Business leaders must lead the change so that societal frustration with its shortcomings does not overtake its powerful benefits. We can start by running our companies balancing the roles of multiple stakeholders in creating long-term value. We can remember these stakeholders by our title, CEO: Customers, Employees and Owners.
That’s only the beginning, though. Despite obvious personal and political differences among chief executives (we are human, after all), there are six issues we all can—and must—rally around and champion in the election season ahead:
Fight Crony Capitalism
From regulatory loopholes to tax carveouts to other preferential treatments, crony capitalism diminishes the performance, reputation and public image of our free-market system. CEOs must not practice but instead battle cronyism if capitalism is to survive.
For the economy to function at its best, business and government need to interact to craft policies for the nation’s best interest—for regulation, taxes and trade, especially. Free and open markets ideally yield the best outcomes. But sometimes it is necessary for government intervention to level the playing field and protect the participants. Such intervention may not evenly benefit every interest, but it must benefit society as a whole, and the benefits must outweigh the costs.
Crony capitalism is a government intervention or “deal” unjustified by a market failure and benefiting a narrow private interest. The federal government, for instance, shields domestic sugar producers from foreign competitors through import tariffs, quotas and other means. As a result, U.S. consumers and businesses that use sugar pay about twice the global price. Another example: Under the Jones Act, vessels transporting cargo between U.S. ports must be built in America and staffed by American crew. These rules insulate the maritime industry from international competition but, to society’s loss, increase costs and decrease commerce.
Such arrangements are not “pro-market” policies and are widespread. They inefficiently allocate society’s resources, which in turn yields less value and innovation. If enough participants in the global business community view America’s economic climate as skewed with favoritism, they will invest their capital elsewhere. The country’s competitive advantage will take a hit—and with it, the prosperity of businesses as well as that of consumers. And, most importantly, societal trust in capitalism will erode.
Business executives should explain why Washington must change its ways. Among other steps, they can push for further tax and regulatory reforms that diminish special interest power and allow the best ideas to prevail in a free marketplace. Business leaders also must lead by example and reject crony deals, making the case against favoritism so strongly that our society adopts an ingrained aversion to it.
Without a concerted effort by the business and policy communities, crony capitalism will continue being the rotten apple that spoils the entire bushel by turning people off of even legitimate free-market forces.
Increase Opportunity for All
Inequality is top of mind for many these days. Most solutions call for free everything paid for by enormous tax increases or redistribution of wealth.
Following World War II, the U.S. economy enjoyed a quarter century of extraordinary growth, which fed broad-based prosperity. The proverbial rising tide really did lift all boats. But since the 1970s, growth generally has slowed while inequality generally has grown. The 2008 financial crisis exacerbated the issue.
But let’s be careful. If inequality is defined by identical outcomes, then it leads to policies of redistribution. If inequality is defined by equal opportunity, then we can focus on policies to level the playing field while allowing for the dynamics of free market incentives to work. We need to incent people to work hard, to save, to invest capital and to take risk in order to drive innovation in society. The ability to benefit from the fruits of one’s labor is the engine of creativity, innovation and economic growth. It is what has created an economy in the U.S. that is the envy of the world.