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Building a Strong and Prosperous Society
Professor Rebecca Henderson, Photo credit: Susan Young
Rebecca Henderson is worried about the current state of capitalism in America. The noted economist says that increasing global crises and challenges to democracy are posing some of the greatest threats to free-market capitalism. In her new book, Reimagining Capitalism in a World on Fire, Henderson says that we have failed to reenvision capitalism. It must be not only an engine of prosperity, she offers, but also a system that is in harmony with environmental realities, striving for social justice and the demands of truly democratic institutions—and that this failure has put capitalism itself at risk. In this conversation, Henderson, the John and Natty McArthur University Professor, discusses the need for an honest, capable, and transparent government, and the role business can play in ensuring its success.
Given the fractious political climate in the United States today, do you think that democracy is in jeopardy?
Rebecca Henderson: Yes, I think democracy is in trouble, and there are two key indicators. One is that in the United States, according to a 2019 NBC News/Wall Street Journal poll, more than 70 percent of the population thinks that democracy is broken, the system is rigged, their votes don’t count, and the only people who have sway are those with money and power. The idea that “nobody is paying attention to me and government is against me” is a view held by both the left and the right, and it’s very dangerous.
A second piece of data from a 2017 edition of Journal of Democracy is that when you ask people if democracy is essential, of those who grew up or fought during the Second World War, nearly 75 percent of them say democracy is absolutely essential. But if you ask people under 25, the number drops to less than 25 percent.
Part of the problem is polarization. We’ve talked ourselves into thinking that the other party wants to destroy what’s good about America, instead of thinking of it as “His Majesty’s loyal opposition” as they say in the UK. I’ve always liked that phrase. It communicates the idea that yes, we disagree, but we have bought into the common enterprise of trying to build a free and prosperous society.
Has business been supportive of government and the democratic system in the United States? How has the pandemic changed things?
RH: In the 1980s, a large fraction of the business community came to believe that government was the problem, that if we could minimize its role, it would be better for society. You saw waves of deregulation and some serious pullback by the government in its involvement in the economy. Some of that was very helpful, but then it didn’t stop. It was as if business said, “It’s not really my job to think about the health of society or the planet. My job is to put my head down and run a profitable business.”
Now we’re at a moment where many of us look around at the federal government and say, “Excuse me, we have a major pandemic, can you help?” And suddenly we see how important government is. We need that $2 trillion stimulus package, but we also need, and do not have, a viable safety net. A strong democratically elected, transparent, and responsive government is vital to free-market capitalism because it not only provides the public goods on which the free market relies, but also ensures that the rules of the game are such that prosperity is widely shared and that problems like climate change are adequately addressed.
How does democracy affect the power balance that enables free markets to thrive?
RH: Free markets are one of the greatest inventions of the human race because they are so efficient and, as a result, generate enormous prosperity. Moreover, real competition is a powerful driver of innovation. It’s not surprising that nearly every developing country is trying hard to get the free market into place.
But the very success of free markets tends to pull societies toward what political scientists and development economists call extraction since they tend to concentrate wealth in the hands of a few. In an extractive state a few people are in charge and take most of the economic surplus as a result. In the long run they are a disaster for business! Economic growth rates are much more stable and social welfare much higher under inclusive regimes: societies in which the free market is balanced by a democratically elected, capable government and a strong civil society.
How can business demonstrate its ability to be an instrument for good in society and ensure that democracy is fair and inclusive for all?
RH: I think the most important thing in the short term—and I see some firms beginning to do this—is to talk about government and democracy in a different way, to acknowledge that the free market needs free politics and a healthy society. Words drive change. As the idea becomes more generally accepted, it will be a step toward a private sector that will be willing to help rebuild democracy.
More specifically, I believe that every businessperson should be lobbying to get money out of politics—an idea that is widely supported by both the left and the right. No one wants politics to be corrupted. It’s also critical for business to push back against gerrymandering and voter suppression. An increasing number of firms are giving their employees time off to vote, which is also very helpful. Unfortunately, the United States has one of the lowest voter participation rates of any major democracy.
Are you optimistic about business and government working together in support of democracy?
RH: I’m not optimistic, but I am hopeful. I think the decline of democracy is a mortal threat to the legitimacy and health of capitalism—and that business leaders are increasingly recognizing this. Of course, we as citizens also have to decide that we want to fix the system. WiIl we do it? I hope so. There is so much energy and goodwill in America, and I think the pandemic has made us very much aware that we are all dependent on each other in a way that could drive fundamental change. If we’re lucky we’ll see business partnering with government to rebalance our system in ways that will make everyone better off. There are no guarantees, of course, but I think it’s entirely possible.
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