Capitalism vs. Free Enterprise
October 10th, 2011 // 11:18 am @ Oliver DeMille
The New Culture War
During the Cold War, people came to equate the three ideas of democracy, capitalism and free enterprise.
This made sense at some level, since the whole world seemed inescapably divided into authoritarian, totalitarian, socialist and communist nations on the one hand and democratic, capitalistic and free enterprise nations on the other.
In the decades since the Berlin Wall fell, as CNN’s Fareed Zakaria has pointed out, there has been a growing divide between the nations emphasizing democracy and those focused on capitalism.
The differences between these two groups are both interesting and significant to world events.
But an even more nuanced and impactful division is the difference between capitalism and free enterprise.
I wrote about this in my book FreedomShift, but it is a point of great magnitude in our current society and bears repeating.
Unfortunately, very few people have considered the differences.
Most still equate capitalism and free enterprise, even in the post-Cold War era.
This is a weighty mistake with a high potential for negative ramifications in the 21st Century.
A simple defining of terms points out the crucial importance of the distinction between these two brands of economics.
To summarize: capitalism gives special government-supported benefits to capital and those with capital (wealthy individuals, families and business entities).
This is the opposite of socialism, which promotes special government-supported benefits to those without capital—the proletariat, as Karl Marx put it.
In contrast to both capitalism and socialism, free enterprise establishes good laws and government policies that treat the rich, middle and poor the same.
Some people may believe that this is the system we live under in the United States today—that the law treats all the same.
Such an assumption is incorrect.
The U.S. commercial code has numerous laws which are written specifically to treat people differently based on their wealth.
For example, it is illegal for those with less than a certain amount of wealth to be offered many of the best investment opportunities.
Only those with a high net worth (the levels and amounts are set by law) are able to invest in such offerings.
This naturally benefits the wealthy to the detriment of wage earners.
This system is called capitalism, and it is a bad system—better than socialism or communism, to be sure, but not nearly as good as free enterprise.
In a free enterprise system, the law would allow all people to take part in any investments.
The law would be the same for all.
If this seems abstract, try starting a business in your local area.
In fact, start two.
Let the local zoning commissions, city council and other regulating agencies know that you are starting a business, that it will employ you and nine employees, and then keep track of what fees you must pay and how many hoops you must jump through.
Have your agent announce to the same agencies that a separate company, a big corporation, is bringing in a large enterprise that will employ 4,000 people (or, in a more urban setting, 24,000 people)—all of whom will pay taxes to the local area and bring growth and prestige.
Then simply sit back and watch how the two businesses are treated.
In most places in the United States, one will face an amazing amount of red tape, meetings, filings and obstacles—the other will likely be courted and given waivers, tax breaks, benefits and publicity.
Add up the cost to government of each, and two things will likely surprise you: 1) how much you will have to spend to set up a small business, and 2) how much the government will be willing to spend to court the large business.
Of course, I don’t really suggest that anyone announce such a fake business.
But imagine, theoretically, what would happen if you did.
Our current mentality in government is to treat big business better than small business.
This is the natural model in a capitalist system.
Capital gets special benefits.
In free enterprise, in contrast, the costs and obstacles would be identical for the two businesses.
In free enterprise, the operative words are “free” and “enterprise.”
Note that American business and ownership stayed mostly small—with most people owning family farms or small businesses—until the 1960s.
It was debt (often promoted by government) which wiped out the farming culture that dominated the South and Midwest, and the rise of big corporations over family-owned businesses came after the U.S. commercial code was changed by law to a capitalist rather than a free enterprise model.
If we altered today’s laws at all levels so that government entities treated all businesses and citizens the same, regardless of their level of capital, the natural result would be the spread of more small businesses.
Note that nearly all major growth in America’s economy since 1985 has come from small business.
Today, small businesses are struggling under a veritable “mountain” of regulatory red tape—the result is economic downturn.
And, while some in government hold an anti-business attitude, even many of those ostensibly promoting pro-business policies are more aligned with Wall Street corporations than the needs of small business.
Capitalism, sometimes called “Corporatism”, is not the same thing as free enterprise.
Both are certainly preferable to socialism or communism, but free enterprise is considerably more conducive to freedom and widespread prosperity than capitalism.
History has proven the following: 1) Under capitalism, the divide between rich and poor naturally increases; 2) In a free enterprise system, the prosperity, freedom and dignity of nearly everyone in the society inevitably rises.
Alexander Solzhenitsyn pointed out that while modern American capitalism was clearly better than Russia’s twentieth-century communism or Europe’s contemporary attempts at socialism, the U.S. implementation of capitalism left much to be desired.
For example, he noted, under American capitalism the question of, “is it right?” became less important to many people and companies than, “is it legal?”
Likewise, the culture of capitalism frequently asks, “is it profitable?” before (or instead of) asking, “is it good?”
American capitalism, Solzhenitsyn said, created a nation more materialistic than spiritual, more interested in superficial success than genuine human progress.
Note that Solzhenitsyn was adamantly anti-communist and anti-socialist.
But he also found capitalism lacking.
In every particular, however, Solzhenitsyn’s criticisms of capitalism don’t apply to the free enterprise model of economics. When the law treats all people and businesses the same—regardless of their size, connections, power or wealth—an interesting consequence occurs.
Put succinctly:
- In socialism the government ignores, downplays and literally abuses prosperity and freedom to the point that both are lost for nearly everyone.
- Under capitalism, the laws promote the wealth and license of a few above the freedom and prosperity of all, with the cultural result of valuing attainment of wealth above almost everything—including virtue, compassion, and the liberty of all.
- In free enterprise, the laws treat everyone the same, thereby incentivizing freedom, prosperity and enterprise (as long as such enterprise doesn’t violate the inalienable rights of others). The application of this model is rare in human history, but the results when it has been applied are nothing less than spectacular (see Ancient Israel, Athens, the vales period of Switzerland, the Saracens, the Anglo-Saxons, and the United States—which by 1944 had 6% of the world’s population and produced over half of its goods and services).
The lesson?
Freedom works.
Enterprise works.
And the outcome when the two are combined is breathtaking.
We are capable of so much more than we’ve accomplished so far, and free enterprise is the most powerful economic system yet to be tried by mankind.
Isn’t it time for an end to the outdated debate about socialism versus capitalism and a national return to the free enterprise system which made America great?
During its first century-and-a-half of application, free enterprise brought us major wealth, a standard of living for most citizens that rivals or surpasses the lifestyles of history’s royals, world power, major technological and medical advancements, and the end of slavery.
It also brought the repudiation of racism, male dominance, religious persecution and a host of other ills that have existed for millennia.
With all these areas of progress, imagine what we could do if we re-adopted the free enterprise values and culture in our time.
Laws that give special benefits to wealth and capital while withholding such opportunities from the rest can never bring the progress, advances, freedom and prosperity that free enterprise will.
It’s time for a change, and the first step is for all of us to start using the phrase “free enterprise” a lot more.
We need to study it, think about it, discuss and debate its various applications, and make it a household topic rather than an obscure economic reference.
The future of America is inextricably linked with the future of free enterprise.
We will sink or swim exactly as it does, whether we realize it or not.
Isn’t it time to admit this reality and make it the leading topic in our national dialogue?
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Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.
He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.
Category : Business &Community &Culture &Current Events &Economics &Entrepreneurship &Featured &Government &History
A U.S. GRAND POLICY
October 10th, 2011 // 10:54 am @ Oliver DeMille
The Jobs Plan We Need
In the furor over the national debt, deficits, stimulus programs, the Obama Administration’s proposed jobs plan and the Republican responses, we are missing a simple reality.
America right now is in desperate need of a clear, simple, overarching Grand Policy.
The Grand Policy would look something like this:
- Every new proposal in government that in any way impacts business and/or the economy will be measured by its likelihood of incentivizing economic growth, increased investment, and higher levels of quality employment. Only proposals which effectively encourage these things will become law or policy. Period. No exceptions.
- That’s Phase I. Phase II is to comb through all regulations that were adopted during the last ten years that affect business or the economy and apply the same standard. Any laws and policies that don’t incentivize economic growth, increased investment and higher private-sector hiring will be revoked.
- Phase III will carefully analyze each of the cancelled policies and determine if any are validly good for the nation. Those that meet this test will be reconsidered by Congress.
Some might argue that such a re-evaluation of our economic and business policies would be unwieldy, costly and time-consuming.
But this line of reasoning actually supports the need for this Grand Policy.
The reason this re-evaluation would certainly be unwieldy, costly and time-consuming is that far too many regulations have been adopted during the past decade.
This fact is a major cause of our national economic problems.
To reiterate the point, implementing such a Grand Policy would definitely be unwieldy, costly and time-consuming, but not nearly as unwieldy, costly and time-consuming as leaving such policies in place and seeing increased economic downturn, continually high unemployment, lessened investment, and most likely an inflation problem in the near future.
As to the question of who will do this work, what could be a better use of Congress’s time than to reboot economic growth by encouraging investment, growth and the resulting jobs?
Until these things are addressed, do we really want Congress working on other things?
We’re going to pay their salaries and those of their staff anyway, so why not put them on productive projects like revitalizing the economy.
In short, we need a Grand Policy that incentivizes economic growth, increased investment and more private-sector hiring.
Every policy affecting business and the economy must encourage these things.
It really is that simple.
If government policy discourages growth, investment and hiring, the result is less growth, investment and hiring.
This is where we are right now.
America is at a fork in the road, so to speak. If we take the road that continues to de-incentivize growth, investment and hiring, we’ll get less growth, investment and hiring.
I apologize for using such repetitive and basic language, but for some reason Washington doesn’t seem to grasp this reality.
For example, increasing regulations and taxes on small businesses and small-business owners—America’s proven job creators—is going to discourage growth.
Obviously, the three phases listed above are too simplistic—there is more complexity to such a change than is outlined here.
But it’s a good place to start.
Whatever the intricacies and difficulties of change, we simply must take on a national project of incentivizing business growth, investment and private-sector hiring.
If not, our economic problems are just beginning.
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Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.
He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.
Category : Business &Current Events &Economics &Featured &Government
An Old Joke
July 13th, 2011 // 9:01 am @ Oliver DeMille
Just One Wish
A society without adequate entrepreneurship will see little, if any, progress.
Disney’s Aladdin & the Genie
The old Cold War-era joke is told of an American, a Frenchman, and a Russian, lost in the wilderness, who find a lamp and rub it.
Out comes a Genie.
He offers them each one wish, for a total of three.
The American pictures the large ranch owned by the richest people in the valley where he grew up, and wishes for a ranch ten times its size, with flowing streams and meadows full of horses and cattle.
His wish is granted and he is transported home to his new life.
The Frenchman pictures the farm and cattle of the largest estate from his home province, and pictures one just like it.
Again, his wish is granted.
Finally, the Russian pictures the land and herds of the rich family in the steppes where he grew up, and wishes that a drought kill the cattle, dry up the grass, and bankrupt the aristocratic family.
This play on old stereotypes isn’t really very funny, though it brings big laughs with audiences of producers.
They get it.
The Frenchman, thinking like an entrepreneur, wants the good things that life provides, and is willing to go to work to produce them.
The American, who thinks like an entrepreneur and an investor, is willing to go to work also, but wants to see his assets create more value.
The Frenchman wants value, the American plans for value, increased market share and perpetual growth.
In contrast, the stereotypical-punchline “Russian” in this parable can only think of one thing—getting even with those who seem to have more than him.
This is the same as Steve Farber’s lament about the sad state of our modern employee mentality—where “burn your boss” is a slogan of millions of workers who see their employer as the enemy.
Even Washington sometimes likes to join the blame game by pointing fingers at Wall Street, Main Street and everyone in business.
Initiative, vision, effective planning, the wise use of risk, quality execution—all are the contributions of entrepreneurs and investors.
Without them, any society will decline and fall.
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Oliver DeMille is a co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.
He is the co-author of the New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.
Category : Blog &Business &Culture &Economics &Entrepreneurship &Mini-Factories &Producers &Prosperity
The American Caste System
July 5th, 2011 // 6:57 am @ Oliver DeMille
The American framers overcame domination by an elite upper class by establishing a new system where every person was treated equally before the law. This led to nearly two centuries of increasing freedoms for all social classes, both genders and all citizens—whatever their race, religion, health, etc.
During the Industrial Age this system changed in at least two major ways.
First, the U.S. commercial code was changed to put limits on who can invest in what. Rather than simply protecting all investors (rich or poor) against fraud or other criminal activity, in the name of “protecting the unsophisticated,” laws were passed that only allow the highest level of the middle class and the upper classes to invest in the investments with the highest returns.
This created a European-style model where only the rich own the most profitable companies and get richer while the middle and lower classes are stuck where they are.
Second, the schools at all levels were reformed to emphasize job training rather than quality leadership education. Today great leadership education is still the staple at many elite private schools, but the middle and lower classes are expected to forego the “luxury” of opportunity-affording, deep leadership education and instead just seek the more “practical” and “relevant” one-size-fits-all job training. This perpetuates the class system.
This is further exacerbated by the reality that public schools in middle class zip-codes typically perform much higher than lower-class neighborhood schools. Private elite schools train most of our future upper class and leaders, middle class public schools train our managerial class and most professionals, and lower-class public schools train our hourly wage workers. Notable exceptions notwithstanding, the rule still is what it is.
Government reinforces the class system by the way it runs public education, and big business supports it through the investment legal code. With these two biggest institutions in society promoting the class divide, lower and middle classes have limited power to change things.
The wooden stake that overcomes the vampire of an inelastic class system is entrepreneurial success. Becoming a producer and successfully creating new value in society helps the entrepreneur surpass the current class-system matrix and also weakens the overall caste system itself.
In short, if America is to turn the Information Age into an era of increased freedom and widespread economic opportunity, we need more producers.
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Oliver DeMille is a co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.
He is the co-author of the New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.
Category : Aristocracy &Blog &Business &Culture &Economics &Entrepreneurship &Featured &Generations &Liberty &Mini-Factories &Mission &Producers &Prosperity
A Battle Ahead
June 18th, 2011 // 11:16 am @ Oliver DeMille
A review of The Origins of Political Order: From Prehuman Times to the French Revolution by Francis Fukuyama
Francis Fukuyama’s recent book is an excellent commentary on the history of politics and the underpinnings of our current political systems. Readers may find things to disagree with in a book that covers so many periods of history, but this well-researched work sparks a lot of deep thinking about important and timely topics.
Three Major Advancements
Ultimately, Fukuyama sees the development of political society from tribal through modern times as the result of three major advancements. The future, he suggests, belongs to societies that maintain and effectively institutionalize all three of these organizational advantages. This view flies in the face of some widespread views, but Fukuyama’s arguments are compelling.
Consider, for example, the following likely characteristics of the decades immediately ahead:
1. The invention of centralized governments which allowed societies to grow beyond families and small tribes
The industrial age created an expectation (especially in the British and American worlds) of “sustained intensive economic growth.” Today we feel entitled to unending economic expansion. Any downturn in the economy is seen as a reason to blame our political leaders. We seem to believe that a high level of consistent economic growth is our birthright.
This is a significant development. Never has a generation in the past held such expectations. No longer are citizens content with the up-and-down economic cycle that has characterized all of history. Whether this new expectation can be maintained remains to be seen, but this is our expectation now, and we’ll continue to punish any government official who doesn’t both promise and deliver sustained economic growth.
If it turns out that constant growth is unrealistic, that there really is a natural economic cycle of ups and downs, we’ll consistently elect and then dump every politician from every party—the voters will never be satisfied. With such feelings of entitlement, we’re destined to be perpetually angry at and disappointed with our government.
Globalization has created a world of independent international elites and locally-dependent middle and lower classes.
“In the days when most wealth was held in the form of land, states could exercise leverage on wealthy elites; today, that wealth can easily flee to offshore bank accounts.”
2. The establishment of “uniform laws that apply to all citizens
This is a world-altering event in human history. The advent of widespread human freedom and prosperity came as a result of uniform laws that applied to all citizens—regardless of status, wealth, race, gender, ability or religion. Globalization trumps all this, allowing a global upper class to operate largely above the law while the masses are required to follow the laws of their local nations.
The economic benefit of being in the upper class under such an arrangement is huge—the gap between rich and poor will drastically increase as this reality grows.
Hardin Tibbs wrote:
“The proportion of people in cities is growing rapidly, and the numbers of people left in the countryside are falling. The sprawling urban megacity—somewhere like Sao Paulo, where you’ve got densely populated shantytowns right next to the enclaves of the super-rich—is a growing phenomenon around the world.” (EnlightenNext, Issue 47, 2011, pp 29-41)
3. The creation of governments which are “accountable to their constituents
Two groups will be the winners in the new system: mostly the mobile global upper class, and secondarily the masses in nations where the government is truly accountable to the people. This will impact nations around the globe, as we are already witnessing in the Arabic world.
For China, this is either good news or really bad news. If China’s government remains unaccountable to the people, its economic and military strength will at some point become a weakness. If, on the other hand, the Chinese government reforms and becomes accountable to the people, China may well become the great superpower many have predicted.
According to Fukuyama, the centralized structure of an authoritarian system can seem to “run rings around a liberal democratic one” for a time, because the leaders face little opposition from checks, balances, or other obstacles to their decisions. But this is a frailty if ever the leaders make bad decisions.
A few bad leaders or choices can bring down such a system very quickly. Societies with effective checks and balances on the centers of power are more resilient and less prone to huge decline in a single generation or even decade.
As for the United States and Europe, they must reverse the decades-old trend of centralizing power away from the people.
In short, we are seeing the rise of a global class system with increasing divisions between the haves and the have-nots. Major characteristics of this new reality include the unrealistic expectation of constant economic growth, a global upper class that is increasingly above the laws of nations, the growth of drastically divided cities, and governments that are widely controlled by the wealthy.
One great battle of the 21st Century will likely be about who controls government, the wealthy class or the people as a whole. As Fukuyama shows, through history the nations where government was accountable to the people ultimately achieved the most social success, freedom and prosperity.
The Origins of Political Order is the first of a two-volume set, and hopefully the second volume will tell us more about how the people can win this coming battle.
As the mathematical cosmologist Brian Swimme wrote: “the universe is not a place, it’s a story…” (EnlightenNext, Issue 47, 2011, pp. 52-63) The same can be said of the 21st Century, and our story will likely hinge on whether government is ultimately accountable to the people or to a small group of elites.
This is an old battle, but this is the first time it is global in scale. The challenges are thus increased and the stakes are high.
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Oliver DeMille is a co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.
He is the co-author of the New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.
Category : Aristocracy &Blog &Book Reviews &Business &Community &Economics &Tribes
