SUSTAINING CAPITALISM Bipartisan Solutions to Restore Trust and Prosperity Steve Odland Joseph J. Minarik Committee for Economic Development a division of The Conference Board, Inc. 1530 Wilson Blvd, Suite 400, Arlington, VA 22209 © 2017 by The Conference Board, Inc. 845 Third Avenue, New York, NY 10022 All rights reserved First printing 2017 This book is printed on acid-free paper. Manufactured in the United States of America Library of Congress Cataloging-in-Publication Data <to be provided> ISBN 978-0-692-76970-6 CONTENTS Acknowledgments xi Introduction 1 The Challenge and Opportunity of Sustaining Capitalism 1 The Structural Threats to Capitalism— And the Structure of a Solution 15 2 Crony Capitalism 29 3 Focusing on Long-Term Value: Reversing Business Short-Termism 43 4 Reform Education 61 5 Making Washington Work 75 6 A Prescription for Fiscal Health 87 7 Regulation to Build Trust in Capitalism 119 8 Sustainable Capitalism and the Global Economy 139 Conclusion 151 The Path Forward to Renewed Prosperity Notes 165 Detailed CED Policy Statements 187 Index 189 About CED right ABOUT CED THE COMMITTEE FOR ECONOMIC DEVELOPMENT of The Conference Board (CED) is a nonprofit, nonpartisan, business-led public policy organization that delivers well-researched analysis and reasoned solutions to our nation’s most critical issues. Since its inception in 1942, CED has addressed national priorities to promote sustained economic growth and development to benefit all Americans. CED’s work in those first few years led to great policy accomplishments, including the Marshall Plan, the economic develop- ment program that helped rebuild Europe and maintain the peace; and the Bretton Woods Agreement that established the new global financial system, and both the World Bank and International Monetary Fund. Today, CED continues to play an important role through its trusted research and advocacy. Comprised of leading business executives, CED lends its voice and expertise on pressing policy issues. In recent decades, CED has made significant contributions across a broad port- folio, including: pre-K education importance and funding, bipartisan campaign reform, corporate governance reform, U.S. fiscal health, aca- demic standards in K-12 education, post-secondary education access and achievement, importance of STEM education, immigration, free trade, foreign assistance, women on corporate boards, Medicare and broader healthcare reform, crony capitalism, inequality, judicial selection reform, child care, the role of business in promoting educational attainment, digital learning, teacher compensation and quality, corporate short-ter- mism, federal tax reform, social security, innovation and growth, reduc- ing global poverty, welfare reform, and more. vii viii ABOUT CED CED’s work is based on seven core principles: sustainable capitalism, long-term economic growth, efficient fiscal and regulatory policy, com- petitive and open markets, a globally competitive workforce, equal eco- nomic opportunity, and nonpartisanship in the nation’s interest. CED’s research findings are disseminated widely, achieving tangible impact at the local, state, and national levels. www.ced.org #CEDUpdate Acknowledgments Acknowledgments ACKNOWLEDGMENTS THIS BOOK is truly the work of all of the dedicated Members and staff of the Committee for Economic Development of The Conference Board (CED). CED was founded in 1942 by business leaders who sought to advance the nation’s interest through nonpartisan public-policy research. Their selfless efforts helped to give the United States and the world the Marshall Plan, the Bretton Woods monetary agreement, the Employment Act of 1946, and confidence in their collective economic future. Walking in their footsteps, today’s CED Members sought in this book both to commemorate the 75th anniversary of the CED and to map the way to a new confident future through their own public-policy insights, rooted in their business experience and expertise. We thank them for their dedication to developing reasoned solutions in the nation’s interest. We thank especially Joseph E. Kasputys, a long-time CED Member and former co-chair of the CED board, who contributed generously with his passion, time, insights, and financial support to make this project possible. A small group of CED Members, including Michael G. Archbold, Paul Atkins, Bernard C. Bailey, W. Bowman Cutter, Patrick Gross, Hollis Hart, Bruce K. MacLaury, and Lenny Mendonca, devoted considerable time reading the manuscript and providing insight. We’d like to recognize Monica Herk and Diane Lim, who contributed to CED policy statements that underlie some chapters in this book. Courtney Baird and Alison Snyder provided research assistance. Joseph DiBlasi managed the logistics of the book. Other CED staff members, including Mike Petro, Mindy Berry, Cindy Cisneros, Caroline DeLancey, Sean Hicks, and Amanda Turner supported the production of this book. ix x ACKNOWLedGMENTS Anthony J. Corrado, Jr. of Colby College directed past CED projects on campaign-finance and judicial selection reform on which portions of this book were based. Thomas Kiely, Lori Cavanaugh, Matt Rees, and Kathleen Mercandetti provided editorial and graphical assistance. Michael Bass took the book through the final production process. Mark Fortier provided promotional guidance. This project also was made possible in part by generous support from the Ford Foundation, to finance the gathering of working groups of outside experts to critique selected segments of the book. At the end of the day the authors accept all responsibility for any errors of commission or omission. — Steve Odland and Joe Minarik Sustaining Capitalism Introduction INTRODUCTION The Challenge and Opportunity of Sustaining Capitalism THE UNITED STATES historically has been and continues to be the most prosperous nation in the world. It is the leader in geopolitics and the standard-setter in virtually every aspect of modern life world- wide. This “land of opportunity” has been a haven for innovators and tinkerers—where poor children could become steel magnates and col- lege dropouts could create global technology powerhouses, where “cre- ative destruction” provided opportunity for both individual workers and their companies to reinvent themselves time and again. Yet, in this tradi- tional home of pioneering spirit and entrepreneurial passion, the funda- mental economic system that unleashed this unprecedented prosperity is under question and even under attack. Millions of Americans are seeing their incomes stagnate or decline. They are losing faith in the American dream of upward mobility and in 1 2 SUSTAINING CAPITALISM American-style capitalism itself. Trust in established businesses, banks, and more broadly in the institutions of government is at historic lows. Too many of the latest generation of Americans to enter the workforce, the “millennials,” see an economy that seems to fail their parents or themselves. Thus, they see no reason to support that economic system. More than half of Americans between the ages of 18 and 29 say they do not support capitalism.1 Other surveys suggest that those millennials have come to prefer socialism, perhaps using a very broad interpretation of the term, or lacking experience with its history of failure in practice. Unfortunately, for our economy as a whole, failure breeds failure. Risk-taking and initiative, the building blocks of economic growth and prosperity, require confidence. Potential innovators who see weak busi- nesses and hesitant consumers hold back, which hinders growth and progress. Thus, such stagnation is self-reinforcing. Although the torpid economy is troubling, the loss of societal trust is perhaps most painful. For decades, Americans generally believed that their public institutions, including government, would ultimately do the “right thing” in the broadest terms.2 At the very least, even when peo- ple disagreed with their fellow citizens, they accepted that those with whom they disagreed had the nation’s best interest at heart. Now, the public dialog has coarsened and questioning the motives and loyalties of political opponents is routine. Our political rules and institutions, which are predicated on maintaining the status quo (absent some measure of bipartisan consensus to take action), are gridlocked on many of the most urgent public issues. Historically, a key contributor to the success of U.S. capitalism has been its remarkable public support (which has been nurtured, of course, by robust economic performance). The erosion of public support today is thus a matter of considerable concern. Business leaders have a respon- sibility as well as a self-interest in showing the way toward harmonizing individual interests with the common good. To date, business’s voice and example have been generally characterized as ineffectual. New York Times columnist David Brooks has written, “Business leaders have been inept when writers, intellectuals and politicians attacked capitalism.”3 INTRODUCTION 3 Business must do more to help restore U.S. prosperity, which will require difficult choices and leadership. Business leaders must make their case for the free-enterprise system, and for its contribution to the nation’s standard of living as well as its standard of transparency and accountabil- ity. And they must engage in the public debate—both as listeners and as contributors of their experience and expertise—about policies and reforms to restore economic growth and trust in our national community. ■ ■ ■ In the wake