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The pandemic shows it’s time for an alternative to American capitalism.
The COVID-19 pandemic has revealed the inherent flaws of American capitalism, a profit-driven system of winners and losers that is unprepared to respond to a national emergency and ill-equipped to address the basic needs of society. While the coronavirus has created an historic economic crisis, a dire emergency of economic inequality and injustice in this country long predated the outbreak. Capitalism must undergo structural change. The nation has an opportunity to take advantage of this transformative event and pursue an alternative to the current system.
The failures and shortcomings of American capitalism have made the country particularly vulnerable to a plague. Over 47 million people—more than 1 in 4 U.S. workers—have filed for unemployment since mid-March. According to the Congressional Budget Office, the pandemic is projected to cost the U.S. economy nearly $8 trillion in real GDP through 2030, prompting calls for more federal assistance to states and businesses to stave off permanent job loss. The coronavirus killed all jobs created since the Great Recession, and the economic environment rivals the Great Depression in severity of unemployment. Research suggests many of these jobs will never return. The newly unemployed now form mile-long bread lines as farmers destroy crops and euthanize herds.
The pandemic has exposed a U.S. economy lacking resilience, and a social welfare system which has been gutted and lacks robustness thanks to corporate lobbying and Reagan-era conditioning that government is part of the problem. Although other countries have suffered greatly, the U.S. was uniquely positioned for disaster as the only wealthy nation without universal healthcare, and because of the perilous decision by its political leadership to choose massive unemployment with little relief beyond a one-time stimulus payment, much less a plan for recovery. In contrast, European nations and Canada are offering monthly government payments, providing as much as 90 percent of workers’ salaries for the duration of the pandemic.
Under American capitalism, which operates on competition and individualism rather than collective action and social uplift, the U.S. is not protecting the health and economic security of its citizens. The wealthiest nation in the world has failed to provide adequate testing, contact tracing, ventilators, and masks during the pandemic—because this is not profitable. In a mad rush to reopen, state governments and big business are forcing workers to make a choice: Return to work and risk their lives, or stay home, lose their unemployment benefits, and go hungry. And while Wall Street enjoys bailouts and billionaires profiteer during the pandemic, poor and working people are suffering from years of widening inequality, with no relief in sight. The U.S. economic system was not designed for this moment.
These times demand a reinvention of the corporation. A concept that has gained ground of late is stakeholder capitalism or moral capitalism—the notion that business requires moral leadership and cannot solely concern itself with the corporate world, because all areas of society are interconnected. Whereas the business world is driven by the supremacy of company shareholders and increasing the return on their investment, stakeholder capitalism dictates that members of the greater community are just as important as those who own stock in the company.
Last year, the Business Roundtable issued a statement from 181 CEOs “who commit to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities and shareholders,” and redefine the purpose of a corporation to promote “an economy that serves all Americans.” Arguing the “American dream is alive, but fraying” and advocating the free market as the best system for job creation, economic opportunity, innovation, and the environment, the group declares “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity.”
But the free market has been anything but free, as the private sector has long depended on government intervention, and workers are left to fend for themselves. Corporations were rewarded with bailouts during the 2008 financial crisis and exorbitant tax cuts in 2017 that benefited the few, and were funneled into stock buybacks to give more money back to shareholders rather than workers, who still face more layoffs amid rising profits. Now the coronavirus has exposed the precariousness of workers, as worker bargaining power has declined over the past decades and given rise to the gig economy. According to a 2018 Federal Reserve survey, almost 40 percent of Americans were unprepared for a $400 emergency, and a quarter skipped necessary medical care because they couldn’t afford it. Amid wage stagnation, working people have depended on credit cards to survive.
While the business sector can and should do better, labor advocates argue that employers cannot rely on CEO morality to save them, as employer benevolence comes only through labor unions and organizing, and even the most enlightened corporations are motivated foremost by profit and the market. Capitalism is failing workers, they argue, pointing to companies’ union-busting activities and the firing of labor organizers who seek protections for workers that threaten to eat into corporate profits. Democratic control of corporations through worker buyouts, employee ownership, and worker cooperatives would fuel a more equitable distribution of wealth through good wages and benefits and an equal share of company profits, center the needs of workers and the community, and address greed and corruption at a time when many companies are failing to provide a living wage.
COVID-19 has ushered in a new reality that makes going back to normal impossible and more state action in the economy inevitable. Under a system of “managed capitalism,” the government would regulate the business sector more robustly; tax corporations to pay for infrastructure, education, and other social goods; and implement industrial policy in the mold of many East Asian nations such as Japan, China, and South Korea. Industrial policy involves aggressive and heavy-handed government intervention in the economy that incentivizes private production of goods, subsidies to industries, protection of certain sectors from foreign competition, and other measures, with coordinated, long-term goals.
A sustainable and equitable capitalism would mean lower pay for CEOs, particularly of, but not limited to, companies receiving government bailouts; higher taxes for corporations; and, like Belgium, Norway, Spain, and Switzerland, a wealth tax that would raise trillions of dollars in revenue, tackle endemic inequality, and redistribute wealth downward. Former presidential candidate Elizabeth Warren proposed taxing a family’s wealth over $50 million at 2 percent annually and at 3 percent on wealth over $1 billion, while Bernie Sanders proposed a tax on extreme wealth for people worth above $32 million. Such a tax could pay for universal childcare and healthcare, affordable housing, and other social programs.
Rethinking American capitalism means overcoming an addiction to infinite economic growth that is plundering the planet and imposing unbearable environmental and societal costs. The country requires a planned de-growth of the economy that, unlike austerity and disaster capitalism, favors human well-being, including a cut in unnecessary consumption, a shorter workweek, a low-carbon, less industrialized society to deal with climate change, and a universal basic income. Other countries with a more robust social safety net have not experienced the inequality, economic turmoil, and dislocation Americans have faced in the so-called “land of opportunity.”
Transforming the American economy requires a rethinking of the political system. According to a 2017 report from the Harvard Business School, the U.S. political system is the primary impediment to solving the country’s major challenges, a factor that has undermined U.S. competitiveness and public trust in the federal government. Further, the authors argue that the system is not broken, but rather is delivering based on how it was designed. “The real problem is that our political system is no longer designed to serve the public interest, and has been slowly reconfigured to benefit the private interests of gain-seeking organizations: our major political parties and their industry allies,” the authors wrote, recommending a restructuring of the election process and system of governing, and diminishing the influence of money in politics.
American capitalism cannot return to normal, because a system thriving on inequality, greed, and abject cruelty rather than the common good is inherently flawed and unsustainable. Throughout history, wars, pandemics, and other crises have acted as agents for social change. Rather than seek incremental reforms, the U.S. must shift course as it is compelled to do, and pursue nothing short of an overhaul to avert economic devastation and social unrest.