Larry Summers’ keynote at the centennial business summit argues that business leaders must change their thinking to consider the threats against capitalism.
The final plenary session of the Centennial Business Summit surfaced ideas that many of the participants were thinking throughout the conference: How will the form of capitalism we all know and love transform in the future, particularly in the face of the market turmoil and government interventions experienced in recent days, weeks, and months?
University Professor and former President of Harvard University, Larry Summers tackled this question head on. While he offered three issues we must consider, namely “the challenge of maintaining stable prosperity and economic growth, the challenge of making sure that that prosperity is widely and legitimately shared, and the challenge of building a global system that works for the citizens of all nations,” his message was really one about dealing with the many backlashes that capitalism, and the business leaders who benefit most from it, are likely to face in the future.
The current situation in the economy, Summers submitted, “is unlike anything most of us have ever seen. In the face of such a crisis, there is no substitute for firm, decisive action.” Indeed, the current presidential election is a “uniquely important” one in which the choices made will profoundly shape the future.
Regardless of the decisions and choices that the next President makes or the rescue packages that congress has already enacted, we “need a fundamental set of reflections on a financial system.” Recounting the crises faced in the last two decades, Summers exclaimed: “20 years. 7 major crises. 1 major crisis every 3 years. I would suggest to you, that that is not good enough.” The focus of regulation must therefore shift from the traditional focus on individual institutions to a broader concern for the system as a whole.
As we reflect upon the broader system, we must also reflect upon the winners and losers that the current economic architecture has spawned. Summers elaborated on this by citing three facts.
First, the changes in income distribution since 1979 and today have seen the top one percent gaining about $600 billion and the bottom 80 percent losing about $600 billion. This amounts to a gain of $500 thousand for each person in the top one percent and a loss of $8,000 for each person in the bottom 80 percent. “Think about this number: 600 billion dollars. It is immense compared to any discussion of changing the tax system, any adjustment assistance program.”
Second, 25 years ago, the difference in life expectancy of those more fortunate Americans to those less fortunate Americans was two years. Today it is four years. “Two years may not seem like a lot. But if we eliminated all cancer and the possibility of all cancer for everyone in this room, it would raise life expectancies by only about two years.” The gap in health outcomes between more fortunate and less fortunate has widened by an amount comparable to the elimination of all cancer.
Third, for the first time in American history, the life prospects of children in America are diminishing relative to the prospects their parents had when they were young.
“Whether you are or you are not a believer in redistribution. Whatever your broad approach to public policy,” Summers argued, “I would suggest to you that this represents a critical problem of legitimacy.”
It presents a devastating two step syllogism that confronts too many of our citizens. Step one: competition from workers all over the world results in no alternatives for workers, making them more vulnerable, and depressing their income growth. Step two: the government can do less to help citizens cope than it used to be able to do before, because “if it tries, if it seeks to tax those who are wealthy so as to help you [and] in this new era of globalization, they are much likely to move overseas than ever before, so we have to tax you more and tax those more fortunate less. That two part syllogism is understandably unacceptable to a large part of our society.”
To overcome the lack of legitimacy brewing in American society, we are going to need new and more creative approaches to ensure that the distribution of opportunity is more equitable.
Compounding the challenges we face at home are situations abroad. Only a decade ago the US was renowned not only for its hard power, but also for its role as a moral beacon in the world. But after failures in Iraq and Afghanistan, and after Guantanamo, Abu Ghraib and Katrina, the position of America as a source of both hard and soft power “is not what it once was.”
What these three issues have in common is that they are making people from all walks of life who once felt secure, no longer feel secure. The enormous challenge we face, Summer concluded, is to “save capitalism from itself.” Within that challenge lies “an immense opportunity because, as the enormous array of people from so many different places in this room attests, in a much smaller world than we have had before, there is also more opportunity to create more prosperity and more better lives for more people than at any time in human history.”