October 7th, 2010 // 4:00 am @ Oliver DeMille
Blame is easier than leadership.
It’s been long enough since the announcement of the “Great Recession” that a shelf of books are now out—each outlining the “real” causes of the recession and its unsettling impact on the American psyche and economy.
Unfortunately, most of these books are essays on blame.
The two major political parties predictably blame each other for America’s economic woes.
Democrats say that Republicans caused the recession, while Republicans say that Democratic policies (from the stimulus to health care and beyond) have made the recession worse, increased unemployment, and slowed a recovery.
Since most recovery numbers are based on government spending rather than private sector growth, many on the Right dispute that the publicized recovery is real.
To a large extent, the media has joined with one side or the other in this debate.
Weekly talk shows pit conservatives against liberals, volleying the two partisan views of past and present economic challenges. Magazines and national newspapers echo this argument.
A Dearth of Solution Thinking
Usually books take a deeper look at the issues than other media, understandably using the longer format to give readers more depth and analysis on whatever topics they address.
Likewise, the arc of economic-political-societal commentary in books usually includes a significant section outlining important, needed and under-utilized solutions.
But right now such solution-oriented commentaries are noticeably few—and strikingly similar. Many repeat partisan views in chapters so short they would make newspaper editors proud.
There are three main themes in this genre:
- Republicans Blew It and Big Banks/Corporations are Greedy and Evil,
- Democrats are Blowing It and turning into Scheming Socialists
- Big Institutions in Washington, Wall Street, Main Street, Hollywood, Silicon Valley and anywhere else where Big Institutions lurk are Ruining America
A fourth (though minor) theme is that the recession was a global reality tied to the increasingly interconnected world economy and that American citizens and leaders had little power in the whole thing.
In all four of these themes the focus is blame, and therefore the solution is to “throw the bums out.”
The Right wants to “take back” America in the 2010 congressional elections, while the Left wants to hold their own in the elections and keep offering regulatory solutions.
Activists are increasingly determined to push both sides further to the extremes.
In short: where blame is the main point, solutions are seemingly simple.
Unfortunately, such “solutions” are unlikely to accomplish very much. One side will win, and the blame game will increase right along with the problems.
The worst-case scenario for the 2010 elections is lots of press, lots of emotions, and little change.
I’m not saying that the elections don’t matter; they do. Nor am I suggesting that this debate isn’t important. It is.
My point is simply that there is more to it than many politicians and journalists are admitting.
Unless we get past the blame game and engage a true national discussion about solutions, we are unlikely to see things really improve—no matter who is in office.
One book, The Great Reset by Richard Florida, develops the ideas that a crisis is a terrible thing to waste, and another, The Battle by Arthur Brooks, takes readers inside the Obama West Wing and the inner workings of the President’s choices in 2009-2010.
Both are worth reading closely—regardless of your political views. Another recent book, Capitalism 4.0 by Anatole Kaletsky, gets serious about suggesting some solutions.
None of these books are free from the blame game, and Kaletsky’s attack on the Bush Administration is one of the worst blame-focused rants in all the books now coming out on the topic.
But for readers who can look past his angry tirades, Kaletsky’s work is worth studying because at least part of his analysis gets past blame and helps us understand the recession in its broad historical and international context.
The History of Capitalism
In contrast with the four popularized themes listed above, Kaletsky suggests that the global recession grew out of the historical trends of our time.
He argues that capitalism will continue to grow because of its proven ability to adapt. Such adaptation follows a pattern:
- A crisis exposes the weaknesses in the latest adaptation of capitalism
- Society and government respond to the crisis and alter the details of how capitalism is applied
- The changes evolve until they succeed in re-establishing prosperity and growth
- The new adaptation allows economies to flourish
- Weaknesses in the new adaptation eventually cause another crises and the pattern repeats
Over time, according to Kaletsky, this has created at least four adaptations of capitalism.
Capitalism 1.0 grew out of the crises of the Napoleonic era and was characterized by the Laissez-Faire type of capitalism. This was defined by the separation of economics and governments, and its strengths allowed great growth of wealth and powerful economies.
Eventually the weaknesses of 1.0 led to the Great Depression in America and Western Europe.
The response was what Kaletsky calls Capitalism 2.0, an era of major government involvement in the economy—not full socialistic control of the economy, but much higher levels of regulation and government intervention.
This started in the New Deal and grew through the 1940s-1970s.
The eventual negative result was the inflation and stagnancy of the late 1970s, which was followed by a transformation to Reaganomics: a focus on big-government spending for international projects combined with lower taxes on the wealthy and big corporations.
The idea behind Capitalism 3.0 was that if those with money were incentivized to spend more, this would create more jobs and increase business and personal opportunity.
In each of these periods, the economy responded to the positive features of the given adaptation of capitalism. On the downside, the negatives of each adaptation led to the next inevitable crisis.
The Great Recession of 2008 and 2009 was caused not mainly by greedy bankers or weak housing loans, according to Kaletsky, but rather by two successes of Capitalism 3.0:
- the spread of capitalism and therefore market interconnections globally
- bank and government success in controlling inflation worldwide
These strengths led to weaknesses: when some places saw economic downturn, it quickly spread to the other areas around the world, and governments which allowed their big banks to fail pulled the brunt of world capital struggles down on top of themselves.
The Emergence of a New Economy
The result, just now emerging, is Kaletsky’s Capitalism 4.0. In this adaptation of capitalism, we will likely witness a new relationship between markets, economies, and governments.
Where 1.0 showed the pros and cons of nearly total government isolation from the economy, 2.0 exposed the strengths and weaknesses of major government intervention in the economy.
In 3.0 we started mixing market and government roles by having government intervene in what it considered “vital” sectors (like military and transportation), while mostly staying out of the rest of the economy.
According to Kaletsky, 4.0 will follow a different mixing guideline by increasing the government intervention in some areas and lessening its role in others.
The specifics will be determined, in this scenario, by which things respond better to free markets versus those which respond more positively to significant government involvement.
For example, Kalentsky thinks government must get deeper into financial regulations and management but leave education and health care more to the free market.
Clearly the Obama Administration is not following Kalentsky’s suggestions, no matter how much he agrees with them in blaming Republicans for our problems.
But any leader—in business or government—should consider Kalentsky’s analysis. I disagreed (and also agreed) with a number of things in his book, but his suggestions exceed the tired, old two-party talking points and deserve consideration.
So, The Election . . .
We clearly live in a time where both government and business involvement and changes are needed to re-establish a truly flourishing free-market approach to American prosperity.
Neither extreme—a total government pullout from the economy nor increasingly socialistic levels of regulation and micromanagement of nearly every sector of our economy—is desirable.
We need the government to take wise and effective action to boost the economy—at times increasing regulations that work and also consistently reducing and repealing the numerous regulations and government interventions that are slowing and hurting the economy.
The regulatory load on investors and entrepreneurs is especially bad for economic growth.
Government simply must find ways to do less, or the economy will continue to sputter and struggle.
Yet there are certain things that government can and should do best—like keep the free-market playing field even and open for all potential investors and entrepreneurs.
Perhaps the proper role of academics, journalists and authors is to analyze, to suggest—and even to blame. But as long Washington is caught in the blame game, far too little effort is given to leadership.
Our elected officials need to stop pointing fingers and give more attention to solving our economic challenges.
The first step is to free up small business entrepreneurs and investors who provide most of the jobs and growth in the economy.
A second step is to make investment in American businesses once again highly attractive to world investors.
Both of these are roles for those we elect, and if it is “the economy, stupid,” these are the real issues of the 2010 election.
Whoever wins at the voting booths this coming November, and whatever the experts say that night as the networks and cable channels cover the election like a major sports tournament, the real future of America depends on whether or not the people select leaders who will free up the economy.
A free economy, within the bounds of wise and effective laws, is a prosperous economy. An increasingly regulated economy is an economy headed for less prosperity and decreased opportunity.
Whatever your politics, less prosperity and decreased opportunity are simply not acceptable goals for the upcoming elections.
Yet unless we accomplish more than simply voting, these are the results we will probably see in the years after the election.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.