The ART Of Business

The Election, Capitalism, and Democracy

With the political conventions finally over and the stances of the candidates as clear as they’ll probably ever get, it seems that the 2012 election will be all about the economy.

As we are each capitalists and democrats, it seems fitting to look at some compelling notions surrounding how capitalism and democracy work -- or don’t work so well -- with each other.

This semester the required text for all of my courses is Schumpeter’s classic Capitalism, Socialism, and Democracy.

Many of his ideas surrounding innovation, entrepreneurship, and the process of creative destruction have survived the test of 70 years.

While not as elegant an insight as Darwin’s, for example, creative destruction does give us tremendous understanding about how capitalism spurs human progress.

Of course, as Schumpeter points out, capitalism is far from a perfect system, and it causes adverse effects, leaving many folks behind.

Recently, Brink Lindsey’s Human Capitalism: How Economic Growth Has Made Us Smarter – and More Unequal speaks to how the increased complexity of modern society, driven largely by creative destruction, has put more and more pressure on the individual’s capacity to manage it.

Lindsey, a Senior Scholar at the Kaufman Foundation, makes a strong case that “today the primary determinant of socioeconomic status is the ability to handle the demands of a complex social environment. If you can do it, you’ll likely have a career with interesting, challenging, and rewarding work. But if you can’t, you’ll probably be relegated to a marginal role in the great social enterprise.”

The identification of a more unequal society is nothing new, of course.

What is new, according to Luigi Zingales in A Capitalism for the People: Capturing the Lost Genius of American Prosperity, is the rise of a Southern European-style crony-capitalism that is squelching competition and eroding our faith in free markets.

Zingales eloquently argues that the elite in America have betrayed the principles that helped get them rich in the first place.

He calls for the end of monopolistic and politically powerful businesses that have, along with their intrusive and corrupt friends in government, altered unfairly the American free market system. The solution is what Zingales, a finance professor at the University of Chicago, calls “A Promarket Populist Agenda”.

An equally compelling look comes from Edward Conard in Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong.

A former managing director of Bain Capital, yes, that Bain Capital, the one of Mitt Romney fame, Conard explores how the performance of the U.S. economy over the two decades prior to the 2008 Financial Crisis was much stronger than commonly perceived. And, that it was primarily bad public policy that set the stage for the recent tough times.

All three books, while coming from very different points of view, are bullish on capitalism in America, if we can get the democracy part right.

Lindsey and Conard speak to getting more of America’s talent involved in innovation and fostering the next round of creative destruction. When this happens, more prosperity can be shared amongst more of our citizens.

This can only occur if, as Zingales observes, government levels the playing field and quits playing favorites; allowing the true meritocracy and competition that has historically defined our country to be unleashed once again.

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