.................................................................... DRAFT PAPER IN PROGRESS .................................................................... The War On Liberty: How Our Capitalists Can Save Us Walter McClure ......................................................................................................................... The rapacious superrich are destroying America. The honorable superrich can save it. They are the only ones. A roadmap. centerforpolicy.org Final (?) draft McClure, ~ 74,000 words 6/04/20 The War On Liberty: How Our Capitalists Can Save Us Walter McClure Center for Policy Design The rapacious superrich are destroying America. The honorable superrich can save it. They are the only ones. A roadmap. Preface and Purpose Quietly below the radar of most Americans there is presently a massive war on liberty that, if continued, will shortly ... a few decades ... de facto overthrow the Constitutional government of the United States, reduce the nation to despotism, the few over the many, and spell the death of democracy and freedom. The most perilous issue facing the nation, it seems almost unknown. Oddly, it is a war the majority of whose most powerful participants ... large corporations and the superrich ... seem unaware that they are in it, and that they are the main cause of it. Their aims, which they regard wholly legitimate, are too short-range and preoccupied with their own advan- tage to grasp what their actions in concert add up to for the nation. Yes, some of these leaders are rapacious, and many uncaring, but many are totally honorable and love their country. Yet most seem unthinking and unaware, too caught up in their own immediate agenda. How does one recognize this escalating war? Most Americans are aware of our high inequality, much higher than all other developed democracies. But inequality is not our problem. Our problem is runaway inequality! The structure and incentives of our present economy are flawed and, unless redesigned, will drive inequality relentlessly upward without limit, concentrating ever more of the nation’s wealth and financial power in ever fewer hands. Now note, a successful society does require a certain optimal level of inequality to provide incentives and rewards for risk and effort; unduly egalitarian societies all fail economically and politically. And we can rationally argue what that optimal level should be. But runaway inequa- lity brooks no argument. As the concentration of wealth becomes sufficiently extreme, unlimited runaway inequality will increasingly give way to tyranny: a small, de facto hereditary, financial aristocracy at the top controlling the nation for their own advantage at the expense of the general welfare and liberty, with government of the people, by the people and for the people long since perished. Page 1 of 146 It is not inequality per se, not free enterprise, not wealth, not making a fortune, that threaten liberty. In a sound economy these can all serve the general welfare and liberty. It is the ever more extreme concentration of financial power driven by runaway inequality. Constraint on runaway inequality will require redesign of the economy and of other necessary institutions with new mechanisms which prevent this excessive concentration. This essay will first set out the powerful forces driving runaway inequality in our flawed economy. This comprises sections I, II, and III. There will be no cure unless we understand and neutralize these forces. It will then propose a two-part strategy for redesign of the present flawed economy into a sound capitalist market economy that will tame runaway inequality, reshape capitalism, and, thereby, end the threat of tyranny. The first part of the strategy is the technical plan for the redesigned economy, the second and even more difficult part is the political strategy to implement the technical plan. It will not be enough merely to regulate present capitalism; it must be reshaped. Wise capitalists are beginning to realize that current capitalism based on the so-called ‘shareholder model’ ... the model where maximizing investor returns takes precedence over all else ... has been a disaster to the nation and business alike, unsustainable, and moreover, less profitable in the long run than the older ‘stakeholder model’. In a ‘strong’ stakeholder model, an enterprise is responsible not just for the health of the enter- prise but also for the needs and interests of all stakeholders in that enterprise ... consumers; workers; communities; government and the nation; the environment and the planet ... as well as for ample, fair and just returns to entrepreneurs and investors. Most importantly the strong model meets our Constitutional obligation to protect and promote the general welfare and liberty ... the welfare and liberty of all rather than the few at the top. A ‘mild’ stakeholder capitalism prevailed in this country from WWII to the 1980s. There was a general business climate for broader social responsibility beyond just the bottom line. Many enterprises acted responsibly toward most stakeholders. But also many were less conscientious, and there were considerable problems around the nation with consumer rights, worker health and safety, discrimination, and the environment. But even this mild model was much superior to the highly socially irresponsible shareholder capitalism and runaway inequality that suddenly superseded it in the ‘80s and prevails today. For the good of the nation and liberty, capitalism needs reshaped toward a strong stakeholder model. Unfortunately, any move to reshape capitalism into a strong stakeholder model faces an immense obstacle: there are rapacious as well as honorable capitalists. Powerful rapacious capitalists could not care less about the long-term prospects of any enterprise, nor of the long- or short-term interests of consumers, workers, the nation or the environment. For them, all interests are subservient to their immediate lust for more wealth and power. Whenever in their interest to do so, they haven’t the least scruple to pursue their overweening avarice at the expense ... even great permanent harm ... to all other people and interests. Rapacious capitalism is the enemy of our Constitution. The rapacious will not voluntarily alter their ways to adopt stakeholder capitalism. Indeed, the most powerful social engineering in the country, now gathering escalating and alarming success, is a massive covert effort over the past couple decades by rapacious capitalists to control and emasculate government of any power to restrain rapacious capitalism. Page 2 of 146 Thus stakeholder capitalism cannot succeed on a voluntary basis firm by firm. If it could, stake- holder firms would have beat out shareholder firms long ago. The rapacious will resist with all their great talent and financial power. They will leverage their substantial short-term advantage ... amassing profit, capital, and acquisitions by ‘financial engineering ‘at the expense of others, coupled with financial markets fixated on current rate of return ... to undermine stakeholder capitalism. Public-spirited capitalists adopting the stakeholder model for their own firms in no way stops the rapacious from pursuing their lucrative exploitive enterprises. As long as the flawed present economy continues to reward runaway concentration of wealth, which the rapac- ious will pursue with a vengeance, any voluntary approach to shareholder capitalism hasn’t much chance long-term, as stakeholder firms gradually succumb to acquisition by the rapacious. Hence to achieve enduring stakeholder capitalism will require a redesign of the economy that makes strong stakeholder capitalism no longer voluntary but the only way to prosper. The economy must be redesigned with new structure and incentives that not only halt runaway inequality and reward stakeholder capitalism, but also structurally inhibit and make rapacious capitalism unprofitable. Then even the rapacious will have to take care of all stakeholders because they cannot prosper otherwise. We cannot change human nature, but by shrewd design we can make our major societal arrangements reward desired behavior and disincent undesired behavior no matter how noble or ignoble the motives of the participants. To put this in a larger perspective, in addition to our paramount runaway inequality crisis, the United States has a health care crisis, an education crisis, a poverty crisis, a drug crisis, a racism crisis, a criminal justice crisis, a finance industry crisis, an infrastructure crisis … and these are just the most major. And many dedicated people are working separately on each of these huge technically and politically complex problems. But underlying all these crises is this even more fundamental crisis, a flawed economy that ruthlessly and ever more disproportionately funnels ever more of the nation’s wealth away from its lowest and median income workers to its top executives and investors. This creates enormous hardship and adverse social consequences for the millions of Americans at the low end, aggravating all these other huge problems. Thus these problems are in great part symptoms of this deeper underlying problem …the flawed present economy … and they cannot be satisfactorily resolved until it is addressed and corrected by redesign. You cannot cure the symptoms until you address the diagnosis. In other words, the United States appears at present ineluctably headed back toward a feudal- like economy, where the lords of the manor are at the top and in