As a part of the Future of Capitalism Project at the Council on Foreign Relations (CFR), Roger W. Ferguson Jr. is inviting a diverse range of participants from academia, private sector, and government to contribute to a new series of blog posts to provide perspectives on the different types of capitalism in practice around the world, the challenges these systems face, and their future in the twenty-first century. The first post in the series comes from Robert E. Rubin, the United States’ seventieth secretary of the treasury.
Every successful post-World War II economy has had at least a baseline commitment to markets. (This includes India and China, which began to succeed economically when they embraced market reforms, though the situation in China today is more complex.)
The United States has a deeply ingrained market-based system and many strengths that should enable us to succeed over the long-run: flexible labor and capital markets; a dynamic, entrepreneurial culture; world-class universities; the rule of law; vast natural resources; and comparatively favorable age demographics. But there are many critical challenges that markets, by their nature, will not address. In this sense, the future of American capitalism thus depends on the future of American politics.
I put these policy challenges in three categories: public investment, including in basic research and other areas that are key to technological progress; sound fiscal policy; and structural reform in areas ranging from education to immigration to climate change. And the objectives of policy, I believe, should be growth, widely-shared economic well-being, and reduced inequality.
To meet these challenges and achieve our economic objectives, we need strong and effective government. The prerequisites for effective government are: willingness to engage in the give and take of principled compromise; grounding decisions in facts and analysis approached with intellectual integrity, while recognizing politics will always be involved; and the willingness to make politically difficult decisions.
By the time I joined the White House in the 1990s, the United States’ government’s capacity to function effectively had deteriorated considerably. But there were still multiple bipartisan legislative accomplishments. Today, with rare exceptions — such as the 2021 infrastructure bill — major legislation has only been passed in response to crises or accomplished by one-party vote.
Almost everyone I know who is involved in politics is deeply concerned. We are caught in a vicious cycle: struggling Americans are drawn to populist rhetoric rather than sound policy, and when government fails to deliver — as it inevitably will without sound policy — support for populism grows.
Another complexity is that too many in our political system fail to recognize the interdependence of our economic objectives. Accomplishing the progressives’ objective of widespread economic well-being requires growth to create jobs, tight labor markets, and fiscal resources for public investment. But too often progressives oppose growth-promoting policies like flexible labor and capital markets, a cost/benefit framework for regulations, and trade liberalization.
Similarly, growth over time requires widespread economic well-being — to generate demand, enable workers to access life’s necessities, reduce social friction, and, critically, attract popular support for growth-oriented policies. But too often those who are focused on growth do not adequately weigh distributional effects.
The path to political recovery is highly uncertain. But there are also reasons to be hopeful. Politics can change rapidly in the United States and we have a history of political resilience and a dynamic society.