4/28/2019 Can American capitalism survive? Steven Pearlstein on the perils of neoliberalism.

- Vox

Is capitalism worth saving?

A debate with economics writer Steven Pearlstein.
By Sean Illing @seanilling sean.illing@vox.com Updated Feb 26, 2019, 9:37am EST

A view of the brass Wall Street bull statue in New York City’s financial district. | Robert Nickelsberg/Getty Images

A decade ago, 80 percent of Americans believed that a free market economy was the best
economic system. Today, that number is 60 percent. Another recent poll shows that only
42 percent of millennials support capitalism.

So what happened? Why have so many people, both in the US and abroad, lost faith in
capitalism?

Steven Pearlstein, a columnist for the Washington Post and public affairs professor at
George Mason University, has a few answers. The primary reason is that the system has
become too unstable: Wages are largely stagnant, and the income gap is so wide that the
rich and the poor effectively live in different worlds. No surprise, then, that people are
unhappy with the status quo.

Pearlstein’s new book, Can American Capitalism Survive?, chronicles the excesses of
capitalism and shows how its ethical foundations have been shattered by a radical free

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market ideology — often referred to as “neoliberalism.” Capitalism isn’t dead, Pearlstein

argues, but it has to be saved from itself before it’s too late.

I spoke to him about how we might do that, whether capitalism is even worth salvaging at
this point, and why he thinks America needs a new social contract between business and
society.

A lightly edited transcript of our conversation follows.

Sean Illing

Why have so many people lost faith in capitalism?

Steven Pearlstein

The most obvious answer is that capitalism has left a lot of people behind in the last 30
years. Everyone can see that the top 1 percent, the top 10 percent, the top 20 percent,
have captured most of the benefits of economic growth over the last 30 years, and the rest
of the population has been marginalized.

Now, we all know this, but I wrote the book because I think there is a feeling even among
those of us who didn’t get left behind that this system has become too unfair, too ruthless,
and rewards too many of the things we think of as bad. The system offends the moral
sensibilities even of people who are benefiting from it.

Sean Illing

I’m not so sure that the people at the top are starting to see it that way, but we’ll come
back to that. First, tell me what went wrong in the 1970s and ’80s, when you say capitalism
really started to go sideways.

Steven Pearlstein

Two things happened during the ’70s and ’80s. First, the American industrial economy lost
its competitiveness. Neoliberal policies of global free trade and unregulated markets were
embraced, and the US was suddenly facing competition from all over the globe.

So American companies, which had been so dominant in our own market and in foreign
markets, started to lose their dominance, and they had to get leaner and meaner. They
started behaving in different ways. They started sharing less profits with their employees
and with shareholders and customers.

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Eventually, that produced a revolt from shareholders, and in the mid-’80s we had the first
of what were called “hostile takeovers,” in which people would come in and buy up large
chunks of companies and threaten to take them over or out the executives if they didn’t
put shareholders above all else.

The result of all this was that companies changed how they did business and completely
embraced the idea that companies should be run to maximize shareholder value and
nothing else. Obviously, that meant more money for executives and shareholders and less
money for employees and customers.

This is the mentality that led us to the place we’re in now.

“THIS IS NOT A SUSTAINABLE SYSTEM, AND IF IT KEEPS GETTING

WORSE, WE RUN THE RISK OF A REVOLUTION”

Sean Illing

I want to push you on what I think is an excessively sanguine view of capitalism. In the book,
you imply that capitalism has gone off the rails, but I disagree. I’d argue that capitalism has
evolved in precisely the way we should have expected it to evolve. The culture of norms
and values that were supposed to check the excesses of capitalism has (predictably) been
eroded by capitalism itself, and now it’s propelled entirely by greed.

You seem to think that capitalism can be saved from itself. What do you say to people who
think it’s not salvageable, not morally legitimate, and in any case not worth salvaging?

Steven Pearlstein

The question is, is all of that endemic to capitalism? I don’t think so, because we see
different kinds of capitalism in countries in, say, Northern Europe and in Germany. Some of
that has to do with the rules and laws under which they operate, but a lot of it has to do
with the norms of behavior. So capitalism doesn’t have to reach the point of ruthlessness
like it has here and other places.

And one of the good things about capitalism is that it has self-correcting mechanisms, just
as democracy has self-correcting mechanisms. The truth is that the outcome we have
now, all of this tremendous inequality, is bad morally and economically. This is not a
sustainable system, and if it keeps getting worse, we run the risk of a revolution.

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So I don’t think capitalism is an inherently moral system or an inherently self-defeating

system, but we have to ensure that it adapts when it veers too far into corruption and
inequality. And that’s basically what I’m calling for in this book.

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St. Martin’s Press

Sean Illing

Well, yes, capitalist systems are extremely adaptable (that’s definitely one thing Karl Marx
got really, really wrong), but the problem is that our system isn’t adapting, or not adapting
fast enough. And we live in a media culture in which nearly half the population is fed
propaganda that convinces them that immigrants and regulations are what are holding
them back, not greedy corporations.

How do we course-correct in the face of all this confusion?

Steven Pearlstein

We do it by changing norms, and by talking about it and discussing it. That’s how a
democracy goes about it. Now one of the questions you might ask is, how do norms
change? And the answer is, I don’t know.

But in the #MeToo movement, we see a very good example of how norms can change very
quickly. What was acceptable five years ago is really not acceptable anymore. And it’s
because enough people got morally outraged and things changed. That’s how norms shift
and the culture evolves.

Sean Illing

I’ll circle back to the #MeToo comparison because I think it’s a bad one, but there are also
legal and structural impediments here. We have a political system fueled by private money,
which means that wealth translates to political influence, which in turn means the laws are
increasingly rigged to benefit the people on top.

Steven Pearlstein

You make a very good point, and in the book I say the No. 1 thing we have to do is get
money out of politics — and that will probably require a constitutional amendment. But
you’re right: We can’t reform our economic system if we don’t reform our political financing
system.

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As it is now, we’re stuck in a vicious cycle in which concentration of wealth leads to

concentration of political power, which leads to yet more concentration of wealth. And we
know how this plays out in the long run — it leads to revolution. But we don’t have to get
anywhere near that if we can make the changes we need to make now.

The Democratic Party will have to lead the way, and if they really want to do that, they need
to put this at the top of their agenda and run on it. People out there are angry, and this will
help them win. It’s a slam-dunk issue, really. People are as disgusted by what they’re seeing
as you and I are.

Sean Illing

I want to quote something interesting from your book: “Liberal critics never miss an
opportunity to complain about the level of inequality, but they’ve rarely been willing to say
what level, or what kinds, of inequality would be morally acceptable.” I have my own answer
to this, but I’m curious what you think the acceptable level of inequality is.

Steven Pearlstein

My answer has to do with something called social capital, which is a social science term
that generally refers to the amount of trust that we all have in each other and in our
institutions. And when things get so unfair that that trust becomes eroded, that’s when
you know you’ve gone too far. That’s when you know that things have become too unequal.
Another way that you would know it is when you see class mobility, intergenerational class
mobility, start to decline.

Now, we’ve only been in this neoliberal paradigm for 40 years, so it’s a little too early to
know what the intergenerational data will look like, but we can already see the gross
inequalities and the erosion of social capital. That, to me, is enough of a warning sign. We
know enough to know we have to course-correct or risk disaster.

“THE SYSTEM OFFENDS THE MORAL SENSIBILITIES EVEN OF PEOPLE

WHO ARE BENEFITING FROM IT”

Sean Illing

In the book, you catalogue all of these solutions to the problem — more income
redistribution, better tax reform, something like a universal basic income, a new social
contract between business and society, more access to higher education, etc. — and I

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agree with most of it. But I’m not confident we have the political will to get these things
done.

If I’m right about that, what do you think is going to happen in the short to medium term?

Steven Pearlstein

First, let me just say that it will be easier to do these sorts of things than it will be to go full
socialist. If we lack the political will to fix the kind of capitalism we have, then there’s surely
a higher political barrier to the full socialist model of national health insurance, free college
for everybody, and guaranteed income for every individual, whether they work or not.

So if you’re saying that things have to get worse before they get better, you may be right.
However, if you look at public opinion polls, if you look at the recent election, I think the will
may be already there. Again, I see the success of the #MeToo movement as a great
example of what’s possible.

Sean Illing

The #MeToo movement is a misguided comparison. We’re talking about broad changes in
our political and economic system, changes that directly threaten the most entrenched
financial interests in this country. I think you’re right about public sentiment, but I’m not at
all convinced that the financial class is prepared to relinquish anything.

In fact, we’ve seen the big banks essentially go right back to the sorts of behaviors that
produced the financial crash in 2008, and we just saw Republicans pass an egregious
tax cut that will deepen the very inequalities we’re talking about here.

Steven Pearlstein

Well, it’s worth remembering that social norms change before policy changes, not the
other way around. But yes, I agree that the GOP tax cut was enormously irresponsible and
unfair. These are the sorts of things that can cause the public to say, “Enough is enough.”

My view is that we’re at a tipping point now and things are about to change. You and I may
disagree about what, exactly, we need to do, or how far we need to go, but I think there are
enough positive signs in public opinion that suggest we’re at a tipping point.

We’ll just have to see what happens next.

This conversation was originally published on January 2, 2019.

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