David Rothkopf, the chief executive and editor-at-large of Foreign Policy magazine, has a smart new book out, entitled “Power, Inc.,” about the epic rivalry between big business and government that captures, in many ways, what the 2012 election should be about, whether it will be shaped in the United States or somewhere else.
Rothkopf argues that while for much of the 20th century the great struggle on the world stage was between capitalism and communism, which capitalism won, the great struggle in the 21st century will be about which version of capitalism will win, which one will prove the most effective at generating growth and become the most emulated.
“Will it be Beijing’s capitalism with Chinese characteristics?” asks Rothkopf. “Will it be the democratic development capitalism of India and Brazil? Will it be entrepreneurial small-state capitalism of Singapore and Israel? Will it be European safety-net capitalism? Or will it be American capitalism?”
Which raises another question: What is American capitalism today, and what will enable it to thrive in the 21st century?
Rothkopf’s view, which I share, is that the thing others have most admired and tried to emulate about American capitalism is precisely what we’ve been ignoring: The United States’ success for more than 200 years was largely due to its healthy, balanced public-private partnership—where government provided the institutions, rules, safety nets, education, research and infrastructure to empower the private sector to innovate, invest and take the risks that promote growth and jobs.
When the private sector overwhelms the public, you get the 2008 subprime crisis. When the public overwhelms the private, you get choking regulations. You need a balance, which is why we have to get past this cartoonish “argument that the choice is either all government or all the market,” argues Rothkopf.
For that reason, the ideal 2012 election would be one that offered the public competing conservative and liberal versions of the key grand bargains, the key balances that the U.S. needs to forge to adapt its capitalism to this century.
The first is a grand bargain to fix our long-term structural deficit by phasing in $1 in tax increases, via tax reform, for every $3 to $4 in cuts to entitlements and defense over the next decade. Capitalism can’t work without safety nets or fiscal prudence.
As part of this, we will need an intergenerational grand bargain. We need a proper balance between government spending on nursing homes and nursery schools—on the last six months of life and the first six months of life.
Another grand bargain we need is between the environmental community and the oil and gas industry over how to safely exploit the United States’ newfound riches in natural gas, while simultaneously building a bridge to a low-carbon energy economy, with greater emphasis on energy efficiency.
Another grand bargain we need is on infrastructure. We have more than a $2 trillion deficit in bridges, roads, airports, ports and bandwidth, and the government doesn’t have the money to make it up. We need a bargain that enables the government to both enlist and partner with the private sector to unleash private investments in infrastructure that will serve the public and offer investors appropriate returns.
Within both education and health care, we need grand bargains that better allocate resources between remediation and prevention. In both health and education, we spend more than anyone else in the world—without better outcomes.
We also need a grand bargain between employers, employees and government—a la Germany—where government provides the incentives for employers to hire, train and retrain labor.
Capitalism and political systems—like companies—must constantly evolve to stay vital. People are watching how we evolve and whether our version of democratic capitalism can continue to thrive. A lot is at stake here.
But if “we continue to treat politics as a reality show played for cheap theatrics,” argues Rothkopf, “we increase the likelihood that the next chapter in the ongoing story of capitalism is going to be written somewhere else.”•
Friedman is a New York Times columnist. Send comments on this column to [email protected].