There’s no such thing as free enterprise

My younger daughter was in Edinburgh earlier this week and visited the grave of Adam Smith. That’s a little weird, right? For a 20-year-old?

Anyway, I learned more from this experience than just that my daughter is a little weird, which, to be honest, I already knew. I also learned that Adam Smith is still dead — which wouldn’t be noteworthy except that here in the United States we seem to be on the verge of having a national referendum on the future of capitalism.

The Republican’s presumptive nominee, Mitt Romney, last night offered a victory speech following the New Hampshire primary in which he essentially made the differences in his views on capitalism and those of the president the dividing-line issue in the upcoming presidential campaign. Romney asserted that President Obama seeks "to put free enterprise on trial."

On Sunday, President Obama’s chief campaign guru, David Axelrod, said that Mitt Romney was a "corporate raider, not a job creator." In so doing, he helped sketch out the different approaches to this central issue. Romney will try to position himself as a "turnaround artist" who understands what makes American business great and can restore vitality. Obama will try to position the former Bain Capital boss as representative of the greedy, indulgent 1 percent who blew up the economy in 2008 and will do so again if unchecked by wise government.

The intensity of this debate has been heightened recently by the attacks of some of Romney’s Republican competitors like Newt Gingrich and Rick Perry who, reeking of sour grapes, are going after Romney as being a representative of "bad" capitalism, the rapacious kind practiced by private-equity bandits, or "vultures" as Perry characterized them. There are manifold ironies and hypocrisies here, given that both are members of the U.S. political party most closely associated with big business views and that, for example, Gingrich’s anti-Romney onslaught is being funded by a fat cat named Sheldon Adelson who made his millions in the gaming business. So Gingrich is attacking Romney for playing in the Wall Street casino with dollars made from actual casinos and attacking Romney for hurting workers by seeking profits that were too big (that actually often went to fund the pensions of average Americans), with dollars that came from praying on those poor suckers whose understanding of arithmetic was so lousy that they actually thought they could profit from gambling.

Debating the future of American capitalism is a good idea. The past several years have clearly shown the system is broken. Inequality is skyrocketing. Social mobility is plummeting. Median incomes have been hammered. Too-big-to-fail financial institutions have gotten a free ride while Main Street Americans continue to drown in underwater mortgages. Whether or not we should have bailed those banks out or whether we should have helped the auto industry or how much regulation is the right amount or whether we should have an active industrial policy to support key U.S. industries are all legitimate questions to debate. The fact is that while we once were the example for capitalists the world over to follow, there are now a variety of brands of capitalism emerging that use different formulas and are gaining legitimacy due to their own successes and/or the obvious defects in the "leave it to the markets" approach of Anglo-U.S. capitalism. There is the more state-centric "capitalism with Chinese characteristics" being practiced in the world’s fastest-growing major economy. There is the "democratic development capitalism" of Brazil or India. There is the "small-state entrepreneurial capitalism" of countries like Singapore, the UAE, Israel, or Chile. And there is Eurocapitalism which, despite the problems in Europe that are so frequently (far too frequently) cited by Romney, has produced some of the nations (mostly in Northern Europe) that have the best balance between fiscal responsibility, growth, and quality-of-life measures anywhere in the world.

We’ve gone from celebrating the end of history in which America’s free market theology triumphed over godless communism to realizing that our victory dance was premature and that we’ve entered a new world of competing capitalisms. Further, given our problems, others are gaining sway as the world votes for alternative models with the policies they adopt. It’s also worth noting that all the other alternatives gaining traction worldwide have a much bigger role for government in their public-private sector mix than does the U.S. model — Republican attacks on "big government" aside.

This being a U.S. election cycle, however, rest assured both sides will overstate their cases. Romney will offer a message about free enterprise that will resonate with many and win him the broad support of the business community. But he will make the usual case that government ought to roll back regulations and taxes to the point that those left behind by markets are uncared for, costs associated with abuses pile up, and the biggest and most powerful gain influence at the expense of everyone else. (Citizens United — the Supreme Court case that equated spending money on campaigns with protected free speech — is perhaps the greatest domestic threat to democracy since the Civil War. It says those with the most money have the most say in American democracy. It reveals the essential flaw with the "less government is more" argument — the absence of government creates a void that is seldom filled by the liberty of average Americans but is rather occupied, if you will, by Wall Street and those able to write the biggest checks.) There’s no such thing as truly "free" enterprise — never has been, never should be. There have always been regulations and laws that ensure that businesses serve society and not the other way around — as it sometimes has felt here in the United States during the past several years.

Meanwhile, Obama & Co. will likely go after business too hard, forgetting the axiom of my former boss, the best Commerce Secretary America ever had — indeed, one of the few relevant ones — Ron Brown. Ron regularly observed, "You can’t be for jobs and against the people who create them." The American people believe in the fundamental merits of our system. What they want is fairness and balance and genuine opportunity, all things that overpandering to moneyed interests in Washington have undercut in recent years.

Nonetheless, inevitable overstatements aside, it’s a good debate to have at this point in U.S. history — an essential one. I don’t just say this because I have a book coming out on the subject in a month (Power, Inc. from Farrar, Straus & Giroux; order your advance copy now online), though that’s a good capitalist reason to think so. Rather I say it because how our views on capitalism evolve and how our system is adapted to evolve along with them will determine not just whether the United States succeeds in the decades ahead but who in the United States succeeds and how. It will also go a long way in determining how influential we are in a world of alternative models that are gaining adherents all the time, often for very good reasons.