The Magazine

Saving Capitalism

Feb 17, 2014, Vol. 19, No. 22 • By IRWIN M. STELZER
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Competing with these models of the future was a depression-ridden America, with millions out of work and out of luck, banks failing, and hotel clerks asking people who requested accommodation on high floors whether the rooms were for sleeping or leaping—or so my father, who nevertheless despised FDR’s support for trade unions, told me. By many traditional measures, the New Deal was a failure, with double-digit unemployment eliminated only by stepped up war production. Roosevelt’s farm program repealed the law of supply and demand in agriculture markets, his labor policies allowed workers to collude against employers when setting wages, his National Industrial Recovery Act involved central planning that was more Karl Marx than Adam Smith. But what those and other programs (some of which were certainly ill-conceived) did do was provide hope and change, hope that things would get better, and change that seemed to put government and reformed market capitalism on the side of the people. FDR might have been a traitor to his class, as his enemies proclaimed him, but he proved to be the savior of the very capitalists who failed to hear the tumbrils rumbling in the distance. Some traitor, some class, to paraphrase Winston Churchill’s “some chicken, some neck” speech in Canada.

Then it was reforming liberals who saved capitalism. Now it is conservatives’ turn to restore faith in market capitalism. True, the threat is not as great today: Fascism, National Socialism, and communism have been consigned to the scrapheap of history. But a recent challenger remains a contestant for economic model-to-be-emulated. Bloomberg Businessweek reports the emergence of a “Beijing Consensus” in Southeast Asia, as nations “have shifted their development strategy from one based on free markets to one based on semi-free markets and an illiberal political system,” in the words of Indonesian scholar Ignatius Wibowo. True, this model of repressive state-run mercantilism suffers its own strains: Banks are stuffed with uncollectible IOUs from regime cronies, the masses are resentful of the massive inequalities and the conspicuous consumption of billionaire party favorites who stow their capital in New York and London while per capita income, as measured by the World Bank, languishes at the level of Tunisia, Albania, and Bosnia, three of the 91 countries China has yet to overtake. But to many Asians bad banks, inequality, conspicuous consumption, and cronyism seem as much American as Chinese problems these days. And a 7-plus-percent growth rate—to which American businesses contribute—sure beats 2 percent.

What conservatives must do is persuade the nation’s capitalists that preservation of the system by which they have done so well, and widespread international acceptance of our economic model, must be factored into what to them seem ordinary profit-and-loss, costs-and-benefits business decisions. If you think fostering such a broadening of visions, or as some might call it, personal restraint, is an easy chore, consider this.

A few weeks ago three exemplars of the best that corporate America produces gathered in solemn convocation to consider just how much Jamie Dimon’s toil in 2013 was worth to the shareholders of the company he leads as CEO and chairman of the board, JPMorgan Chase. Lee Raymond, former chairman and chief executive of ExxonMobil (whose retirement package came to $400 million); Stephen Burke, CEO of NBCUniversal; and William Weldon, former chairman and chief executive of Johnson & Johnson, had no easy task. JPMorgan Chase was coming off a year in which it had paid some $20 billion in fines for management miscues that led to violations of a variety of statutes and regulations, but in which its shares rose almost 40 percent and its customers expressed satisfaction with their dealings with the bank. That three-man compensation committee had to consider the red-hot market for corporate talent, and that Goldman Sachs’s Lloyd Blankfein had received about $23 million for running a much smaller bank, part of his reward for laying off thousands of staff, reducing the compensation of several of the bank’s employees, and navigating Goldman through the maze of new regulations that are forcing it to make drastic changes to its business model. It also had to keep in mind the need to continue the long hunt for the Holy Grail of pay-for-performance in order to keep Dimon in hot pursuit of shareholder value: Much of his compensation will depend on the value of JPMorgan Chase shares in years to come.

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