Date:   7/15/2003 2:12:37 PM ( 21 y ago)
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Editorial: Capitalism's new enemies

They're not the usual suspects. The threat comes from within.

By Register Editorial Board

07/14/2003
The Declaration of Independence isn't the only history-changing document published in 1776. That same year, Adam Smith's treatise "The Wealth of Nations" was published.

The ideas of democracy and free-market economics developed side-by-side almost from the beginning. So it is appropriate that, just after reflecting on the Fourth of July and democracy, we also take stock of the other great idea that shaped America's success - free-market capitalism.

The Economist magazine devoted much of its 160th anniversary issue (June 28-July 4) to the state of free markets and found them facing some serious threats - but not from the usual suspects.

It's not a rival economic system or hostile government regulators that pose the greatest dangers. Rather, opined The Economist, the dangers are from excessive executive compensation and the too-cozy connections between business and government.

With CEOs of top American companies now making about 1,000 times more than the ordinary workers in their companies, a backlash is possible. Complaints about executive pay are sometimes dismissed as the "politics of envy," but The Economist said the emotion is not envy so much as astonishment.

No one minds people being well paid for genius or hard work, but the lavish compensation of some CEOs results not from their worth to their companies but from their abuse of power. That undermines faith in the system and invites new laws that will interfere with economic freedom.

Cozy ties between business and government get in the way of economic freedom, too. When governments intervene on behalf of various businesses, give welfare to corporations or adopt supposedly business-friendly policies, it skews the market. Business and government must maintain an arm's-length relationship for both business and democracy to function correctly, argues The Economist. When business lobbyists dominate government, public policy is inevitably twisted into the service of private greed.

Things might be even worse than The Economist allows.

It is often theorized that democracy poses a threat to capitalism because the poor might use their greater numbers to vote themselves an undeserved share of the pie. In practice, the opposite appears to be happening. Although small in number, the elite use their money and power to influence policies in ways that enlarge their share of the pie even further.

A widening disparity in incomes is the most worrisome trend in America today. Democracy flourishes only when there is a broad middle class. Extremes of wealth and poverty threaten to undermine democracy and ultimately capitalism, too.

History has discredited capitalism's rival economic systems of socialism and communism, but now capitalism faces new threats - from some capitalists themselves. Tempering their greed and abuses of power is essential to its preservation.
 

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