I don’t want to exaggerate the consequences of this stalemate. A strategy of doing nothing and letting globalization run its course won’t result in the imminent collapse of the U.S. economy. America’s GDP remains larger than China’s and India’s combined. For now, at least, U.S.-based companies continue to hold an edge in such knowledge-based sectors as software design and pharmaceutical research, and our network of universities and colleges remains the envy of the world.
But over the long term, doing nothing probably means an America very different from the one most of us grew up in. It will mean a nation even more stratified economically and socially than it currently is: one in which an increasingly prosperous knowledge class, living in exclusive enclaves, will be able to purchase whatever they want on the marketplace — private schools, private health care, private security, and private jets — while a growing number of their fellow citizens are consigned to low-paying service jobs, vulnerable to dislocation, pressed to work longer hours, dependent on an underfunded, overburdened, and underperforming public sector for their health care, their retirement, and their children’s educations.
It will mean an America in which we continue to mortgage our assets to foreign lenders and expose ourselves to the whims of oil producers; an America in which we underinvest in the basic scientific research and workforce training that will determine our long-term economic prospects and neglect potential environmental crises. It will mean an America that’s more politically polarized and more politically unstable, as economic frustration boils over and leads people to turn on each other.
Worst of all, it will mean fewer opportunities for younger Americans, a decline in the upward mobility that’s been at the heart of this country’s promise since its founding.
That’s not the America we want for ourselves or our children. And I’m confident that we have the talent and the resources to create a better future, a future in which the economy grows and prosperity is shared. What’s preventing us from shaping that future isn’t the absence of good ideas. It’s the absence of a national commitment to take the tough steps necessary to make America more competitive — and the absence of a new consensus around the appropriate role of government in the marketplace.
TO BUILD THAT consensus, we need to take a look at how our market system has evolved over time. Calvin Coolidge once said that “the chief business of the American people is business,” and indeed, it would be hard to find a country on earth that’s been more consistently hospitable to the logic of the marketplace. Our Constitution places the ownership of private property at the very heart of our system of liberty. Our religious traditions celebrate the value of hard work and express the conviction that a virtuous life will result in material reward. Rather than vilify the rich, we hold them up as role models, and our mythology is steeped in stories of men on the make — the immigrant who comes to this country with nothing and strikes it big, the young man who heads West in search of his fortune. As Ted Turner famously said, in America money is how we keep score.
The result of this business culture has been a prosperity that’s unmatched in human history. It takes a trip overseas to fully appreciate just how good Americans have it; even our poor take for granted goods and services — electricity, clean water, indoor plumbing, telephones, televisions, and household appliances — that are still unattainable for most of the world. America may have been blessed with some of the planet’s best real estate, but clearly it’s not just our natural resources that account for our economic success. Our greatest asset has been our system of social organization, a system that for generations has encouraged constant innovation, individual initiative, and the efficient allocation of resources.
It should come as no surprise, then, that we have a tendency to take our free-market system as a given, to assume that it flows naturally from the laws of supply and demand and Adam Smith’s invisible hand. And from this assumption, it’s not much of a leap to assume that any government intrusion into the magical workings of the market — whether through taxation, regulation, lawsuits, tariffs, labor protections, or spending on entitlements — necessarily undermines private enterprise and inhibits economic growth. The bankruptcy of communism and socialism as alternative means of economic organization has only reinforced this assumption. In our standard economics textbooks and in our modern political debates, laissez-faire is the default rule; anyone who would challenge it swims against the prevailing tide.
It’s useful to remind ourselves, then, that our free-market system is the result neither of natural law nor of divine providence. Rather, it emerged through a painful process of trial and error, a series of difficult choices between efficiency and fairness, stability and change. And although the benefits of our free-market system have mostly derived from the individual efforts of generations of men and women pursuing their own vision of happiness, in each and every period of great economic upheaval and transition we’ve depended on government action to open up opportunity, encourage competition, and make the market work better.
In broad outline, government action has taken three forms. First, government has been called upon throughout our history to build the infrastructure, train the workforce, and otherwise lay the foundations necessary for economic growth. All the Founding Fathers recognized the connection between private property and liberty, but it was Alexander Hamilton who also recognized the vast potential of a national economy — one based not on America’s agrarian past but on a commercial and industrial future. To realize this potential, Hamilton argued, America needed a strong and active national government, and as America’s first Treasury secretary he set about putting his ideas to work. He nationalized the Revolutionary War debt, which not only stitched together the economies of the individual states but helped spur a national system of credit and fluid capital markets. He promoted policies — from strong patent laws to high tariffs — to encourage American manufacturing, and proposed investment in roads and bridges needed to move products to market.
Hamilton encountered fierce resistance from Thomas Jefferson, who feared that a strong national government tied to wealthy commercial interests would undermine his vision of an egalitarian democracy tied to the land. But Hamilton understood that only through the liberation of capital from local landed interests could America tap into its most powerful resource — namely the energy and enterprise of the American people. This idea of social mobility constituted one of the great early bargains of American capitalism; industrial and commercial capitalism might lead to greater instability, but it would be a dynamic system in which anyone with enough energy and talent could rise to the top. And on this point, at least, Jefferson agreed — it was based on his belief in a meritocracy, rather than a hereditary aristocracy, that Jefferson would champion the creation of a national, government-financed university that could educate and train talent across the new nation, and that he considered the founding of the University of Virginia to be one of his greatest achievements.