The beauty of the creation of a relatively stable global economic system is that market forces reach almost every nation on the globe, and allows stakeholders with an understanding of the value of interconnection to participate. As nations gain increased access, they have the capacity to test functional solutions and develop best practices for industries; once a common market language is adopted, sellers can access buyers from across the world. Determinations are made whether markets are weak or strong based on precedent and performance. And more now than ever, multi and metanational organizations can now compete on the scale of nation states. Size is no longer an effective indicator of state vs non-state actors on a global scale.
Throughout this expansion, two themes has become clear: the American economy is the most powerful economic driver in the western world. And it’s increasingly hampered by it’s own internal private interests. The recent burst of populism is indicative of that fact that the two thirds of Americans who feel their economy, increasingly anchored by the weight of non-competitiveness, is rigged in the favour of shady dealings, are correct – though it is less a case of individuals in back rooms and more of colluding corporate interests.
As life has grown more difficult for the American worker, it has grown more profitable for the American firm. As the top 0.01% of Americans have seen their share of total US income increase from 3.2% to 4.9% from 2003-2013 (indicative of a larger theme of systemic income inequality), aggregate ROE for American firms is 40% higher domestically than abroad. Businesses are thriving, but not workers or consumers. But if America, the temple of modern capitalism, succeeds and it fails to directly benefit the people working hard to create company-level wealth, then who benefits?
American firms have a wicked habit of maintaining their market leadership by hoarding excess cash to drive up valuations without reinvesting capital to lower prices or raise employee salaries. A recent study found that if American organizations cut prices at home to allow their profits to be at historically average levels, consumer’s household bills would be 2% lower. History suggests that this problem may eventually solve itself – a new age of disruption may well sweep through industry and wash away the monopolies of decades past. That assumption is being challenged by incumbents using available capital to simply acquire their growing competition and firmly plant their feet.
If the game is truly rigged, what then is the solution? The first step may be the creation of an environment where small businesses and entrepreneurs can thrive. This involves both increasing anti-trust regulations to take aim at the entrenched and slicing regulations on small businesses. M&A’s need to be better policed and tech tycoons closely monitored. Wall Street must be kept under stronger surveillance as well – a few well-intentioned fund managers can do untold damage to a growing economy.
Further, the anger of Middle America and the Tea Party cannot be dismissed. The Affordable Health Care Act, minimum wage increases and the new rules restricting banking have had a negative impact upon small businesses capacity for growth. A blast of disruption and the removal of cumbersome regulations can be prescribed to address issues of stagnation.
Many prescribed solutions, such as increasing taxes and protectionism, would serve to decrease hiring and investment while further protecting larger firms from more nimble competition. Instead, America’s vision for it’s future should take it’s cue from the global market and seek to create opportunities so any and all stakeholders looking to compete have the capacity to do so.
A market where private interests promote profitability over the needs of workers and families simply does not mesh with the idea of American exceptionalism. A free market must truly be one of possibility for all who fail to let fear of success stand in their way. Otherwise – how free a market can it really be?