As I wrote in my last piece, the Obama and Romney campaigns seem more than happy to turn this election into an ideological contest between socialism and capitalism. Yet while such a confrontation is a convenient device to add excitement to a relatively dull election season, another, real debate, is finally receiving the attention it deserves:
What exactly is American-style capitalism today?
In the traditional view, capitalism remains the unimpeded liberty of the free market, unbound by government regulation or restrictions. And such view has value. In a (mostly) wonderful essay penned by libertarian scholar Charles Murray this past weekend, the author argues that the virtues of capitalism have lifted untold millions out of poverty, and have provided consumers with the goods and services that make their lives easier and more fulfilling. This of course is a view that both liberals and conservatives would roundly applaud.
Yet American capitalism today is not such a rosy panacea, nor can it be so simply defined. Rather, it is multidimensional, and there exists within it two pairs of diametrically opposed constituencies.
In the first competing set of capitalists, there are, for want of better terms, the "floats all boats" capitalists in one corner, and the "zero-sum gamers" in the other. The first camp consists of the builders, manufacturers, and service providers -- brick and mortar or e-businesses that hire employees, pay salaries, and sell actual products and services. Most small businesses, which together are responsible for the vast majority of private sector employment, fall into this category.
In contrast to these goods and service providers, we have the other set of capitalists: those that deal primarily with money. While some members of this economy do provide real value -- providing insurance, or helping to allocate savings towards the funding of business -- a large part of this world exists to extract as much as it can from the limited pool of capital that flows through the investment arena. Quantitative and computerized high-speed trading, the bundling of securities, and leveraged buyouts are all, for the most part, designed to skim profits and fees from the wealth that has been created by others.
The next pair of competing capitalists relates to government. Whereas small businesses fight to comply with a variety of state and federal regulations, wealthier corporations can not only more easily cope with them, but more importantly have the access and wealth to influence their formulation.
The importance of this power cannot be overstated. Firms that condemn red tape and excessive regulation themselves spend millions lobbying the government for handouts (e.g. ethanol producers or the homebuilders lobby) or to protect their monopoly powers (e.g. large wireless companies, who are currently seeking rules and suing the government to prevent greater competition).
In this contest, the winners are undoubtedly those with government access, while the losers are those without economic or political clout.
The worst, of course, at least from the perspective of consumers, are the zero-sum capitalists who wield outsized political influence. Can anyone really argue that these "capitalists" were not to blame (at least in part) for much of the financial meltdown over the past few years? Is it really a coincidence that financial-industry lobbying was peaking in the run-up to and during the financial crisis? Why do studies continue to reveal the positive return on investment from lobbying and political donations?
I am by no means trying to pick on the financial sector here. Venture capitalists, investment banks, insurers, and money managers serve valuable functions in our society. Yet at the moment, parts of these industries are emblematic of the quadrant of capitalism that is both zero-sum and overly reliant on influencing government policy.
The most astounding thing, however, is that this quadrant of capitalism has managed to find allies among the rest of the capitalist community.
The contractors and suppliers that are outsourced into oblivion; the companies that are taken private and then loaded with debt; the small businesses that are unable to compete on an even playing field with their lobbying and politically contributing competitors: All of these capitalists should, in theory, abhor the practices of the minority among them that is actively working against their own long-term interests. Yet by and large, they remain political allies.
There is an ongoing fight for the soul and definition of capitalism, and those who are winning are consequently destroying the positive virtues of capitalism to which they purportedly adhere. In the zero-sum, winner-takes-all style of capitalism, their methods make perfect sense (and are in fact encouraged by return-seeking investors). Yet from the perspective of capitalists from the other three quadrants, this minority is destroying the public understanding of capitalism itself.
The capitalist vs. socialist rhetoric of the presidential campaign has actually served the interests of the politically active zero-sum gamers, as it has forced other business interests into their camp. Yet they shouldn't for a moment think that such an alliance is anything more than an enemy-of-my-enemy relationship.
The real lesson of the past half decade is that capitalism itself remains in crisis. But the danger is not from government or liberal politicians. Rather, it is from the self-styled capitalists themselves, who use regulation and government to further their own interests at the expense of both consumers and the greater capitalist community.