Innovation is the key to American capitalism and its survival | So Good News
The key to US economic growth and job creation lies in our ability to introduce new products and services and bring them to the world’s nearly 8 billion consumers. This requires tax policies that encourage entrepreneurs to take risks and pro-globalization legislation that provides access to foreign markets.
Reasonable tax rates and economic policies that allow entrepreneurs to keep more of their winnings are key drivers in creating new companies, hiring new employees, and introducing new products. Most importantly, secure access to the world’s nearly 8 billion consumers through free trade agreements gives our manufacturers far greater economies of scale than selling to America’s 333 million consumers.
These factors have been primarily responsible for our high standard of living and the great achievements of our free market capitalist system. But globalization is like fire: it cooks your food, warms you, or burns your house down. This benefited the United States greatly. But it did not affect all of us equally.
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Emerging and undying globalization has greatly benefited highly skilled workers engaged in lifelong learning and companies producing goods and services that are highly productive or rich in intellectual property. However, it created new challenges for workers with limited skills and less competitive firms.
This leads to another important point. In addition to favorable tax rates to encourage entrepreneurs to take risks, we must generate enough tax revenue to subsidize health care, education, and other areas critical to rebuilding the middle class. Unfortunately, the American middle class has been shrinking since the 1970s, in part because housing, health care, and education costs have grown faster than middle-class incomes. The middle class has recently been hit hard by the onslaught of Covid-19.
Moreover, labor’s share of U.S. national income, the amount paid in wages, salaries, and benefits, has been declining since 1980, according to a McKinsey Global Institute report. This has contributed to greater income inequality in the US than in other developed economies, the Pew Research Center notes.
Declining union membership in the United States certainly plays a role. According to the Bureau of Labor Statistics, in 2021, union members of private sector employees accounted for 6.1%, and among public sector employees, 33.9%. That’s down significantly from 1950, when 1 in 3 private-sector workers belonged to a union, according to the Brookings Institution.
The current American economic system is not working for all Americans, according to various polls. For example, in a November 2019 Gallup poll, only half of 18-39 year olds had a positive view of capitalism, down from 66% in 2010. And from 2010 to 2019, the general opinion of young people about capitalism deteriorated sharply. socialism was popular there. A December 2021 Gallup poll found that only 60% of Americans of all ages have a favorable view of capitalism and 38% have a favorable view of socialism.
If the erosion of the middle class continues and more Americans feel the system is rigged or preventing them from moving up the economic ladder, they are more likely to support populists: politicians who believe that ordinary voters have ignored their concerns. institution. This textbook definition of populist sounds appealing. In reality, however, populists manipulate disillusioned voters by attributing inequality to various groups, including elites, immigrants, and foreigners, in order to gain influence and support. But that’s not all.
Historically, populists on the left tend to implement socialist policies that encourage entrepreneurs to take risks and lead to lower economic growth and lower living standards. On the other hand, right-wing populists tend to gift economic benefits to their allies, which ultimately leads to an unstable system of pseudo-capitalism. A growing perception that the US system no longer works, along with more support for populists, could threaten our system of free-market capitalism.
The importance of a strong middle class is not a new concept. The Greek philosopher Aristotle detailed why a strong middle class was essential to a functioning democracy 2,400 years ago. He concluded that if the middle class is destroyed, democracy will be destroyed with it.
Overall, we need to take a balanced perspective so that we don’t kill the goose that lays the golden egg by over-taxing businesses. But on the other hand, we need to generate enough tax revenue to subsidize programs that strengthen the middle class and thus strengthen American capitalism.
John Manzella is a speaker, author of several books, and international commentator on global business, trade policy, labor, and recent economic trends. Contact him at JohnManzella.com.