What is the Meaning of American Capitalism?*

What is the Meaning of American Capitalism?

Americans believe in freedom, independence, democracy … and the value of their capitalist system. America attained its stature and became the powerhouse of the 20th Century because it integrated those frontier values into its culture … and allowed them to thrive. It was the American brand of laissez-faire capitalism, what Europeans often have referred to as “vulture capitalism,” that over the long-term (and with multiple expansions and contractions) made America the most successful economy in history with the world’s most innovative industries and its most powerful military. The reason for America’s success has been straightforward. Americans and their businesses have cared more about making profits than any other nation or culture. Americans have cared more about providing for themselves, individually, and for their families than in providing for the community as a whole – what Adam Smith referred to as benevolent self-interest – although they’ve also cared more for their communities than citizens of any other country (Americans give ~3{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} of their collective income to charity, the highest percentage in the world). America also has been the most generous country in doling out foreign aid which, because of America’s firm economic grounding, also serves its capitalist-mercantilist goals (the Marshall Plan being perhaps America’s most conspicuous success). Americans have trusted their own judgment more than they’ve trusted the judgment of their government. And for these reasons therefore have competed harder than citizens of other countries for the largest possible slice of the global economic pie. Americans accordingly share in a disproportionate slice of that pie. They’ve been the most successful competitors in the Darwinian race for resources, wealth … and survival.

That’s now changing. America’s hard philosophical, capitalist edge is softening.

That capitalist edge was perhaps best articulated by Milton Friedman who, in a 1970 essay, wrote that a capitalist business has no social responsibility, either to the public or its workers or to society in general. Its sole responsibility is to its owners: “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires…. [T]he key point is that [the] corporate executive … is the agent of the individuals who own the corporation … and his primary responsibility is to them.” This has been labeled “the shareholder theory” … and it has as many detractors (those who believe in a broader “stakeholder theory”) as supporters.

The most recent dissenter detractor may be the Business Roundtable, America’s most influential group of corporate leaders (there are currently 181 CEO-members). Before this week, its guiding principle was that “[t]he paramount duty of management and of boards of directors is to the corporation’s stockholders” — its owners. On August 19th, the Business Roundtable issued a new “Statement of Purpose of a Corporation,” committing its members to lead their companies “for the benefit of all stakeholders,” newly-defined as “customers, employees, suppliers, communities and shareholders.” Corporations hereafter will have a broad responsibility to society, one that apparently exceeds pure profit (a concept unlikely to be embraced by the shareholder-investor public).

There is no question but that the current politically-charged atmosphere motivated the Business Roundtable’s change-of-rhetoric course – from shareholder-centric to arguably-superficial stakeholder-centric. Fair and ethical corporate leaders who invest in their employees, deal equitably with their suppliers, and care for the community and the environment clearly are better than greedy Wall Street CEO-plutocrats. There also is a great deal to be said for providing American workers with livable wages, resetting executive compensation so that there is a balanced ratio with entry-level employees, and providing local communities with leadership and support. And yet, it’s impossible to argue successfully that the vulture capitalist ethos of America has led CEOs and the American economy astray. To the contrary, the American economy has raised the standard and quality of living to heretofore unimagined heights – and not only for America and Americans.

An August 20th editorial in the New York Times by Tom Wilson, the CEO of Allstate, sought to clarify what may be the underlying message of the Business Roundtable. “[Members of the Business Roundtable] need to focus on doing more than making profit…. The United States Chamber of Commerce, which represents three million businesses, revised its purpose last year to focus on job creation…. Businesses are serving customers well and making good profits. But there is not enough focus on creating jobs that provide a living wage…. This need is going to increase over the next decade as automation and artificial intelligence affect every job in America…. Let’s create more high-paying jobs and restore faith in capitalism.”

What Mr. Wilson espoused in the NYT editorial is laudable … and excellent PR … as well as precisely what American businesses need to be doing – growing their operations to create greater profit-making opportunities that will enable them to grow those operations, using their profits to hire more workers and pay them higher wages so that they can grow even more. That’s precisely what American businesses have been doing for the past 200+ years. It’s the right long-term approach and the cornerstone of American capitalism. The question is whether “the next decade [of] automation and artificial intelligence” will enable American business to deliver on the Business Roundtable’s promise … in the shorter-, politically-charged term. It’s unwise to make promises that are out of one’s control to deliver. American business should be careful not to create unrealistic expectations. It’s all well and good to run a positive public relations campaign, but there is an ever-growing risk of backlash.


*┬® Copyright 2019 by William Natbony. All rights reserved.

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