Robert E. Rubin: The Challenges and Future of Capitalism in the United States

As part of the Council’s Future of Capitalism project on Foreign Relations (CFR), Roger W. Ferguson Jr. invites a a wide range of participants from academia, the private sector and government to contribute to a new series of blog posts to provide perspectives on the different types of capitalism in practice around the world, the challenges these systems are facing faced and their future in the 21st century. The first message in the series comes from Robert E. Rubin, the seventieth United States Treasury Secretary.

Every successful post-World War II economy has had at least a basic commitment to markets. (This includes India and China, which began to succeed economically when they enacted market reforms, although the situation in China today is more complex.)

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The United States has a deep-rooted market system and many strengths that should enable us to succeed in the long term: flexible labor and capital markets; a vibrant entrepreneurial culture; world-class universities; the rule of law; vast natural resources; and relatively favorable age demographics. But there are many critical challenges that markets, by their nature, will not be able to address. In this sense, the future of American capitalism therefore depends on the future of American politics.

I have categorized these policy challenges into three categories: public investment, including in basic research and other areas essential to technological progress; sound fiscal policy; and structural reform in areas ranging from education to immigration to climate change. And the policy goals, I believe, should be growth, broadly shared economic well-being, and the reduction of inequality.

To meet these challenges and achieve our economic goals, we need a strong and effective government. The prerequisites for effective government are: the willingness to engage in give and take of principled compromise; base decisions on facts and analysis discussed with intellectual integrity, while recognizing that politics will always be involved; and the willingness to make politically difficult decisions.

By the time I joined the White House in the 1990s, the ability of the United States government to function effectively had deteriorated significantly. But there were still multiple bipartisan legislative achievements. Today, with rare exceptions – such as the 2021 Infrastructure Bill – major laws have only been passed in response to crises or accomplished by one-party voting.

Almost everyone I know who is involved in politics is deeply concerned. We are caught in a vicious circle: struggling Americans are drawn to populist rhetoric rather than sound policy, and when the government fails to deliver on its promises – as it inevitably will without sound policy – ​​support for populism grows.

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Another complexity is that too many people in our political system fail to recognize the interdependence of our economic goals. Achieving the progressives’ goal of widespread economic well-being requires growth to create jobs, tight labor markets and fiscal resources for public investment. But too often, progressives oppose pro-growth policies such as flexible labor and capital markets, a cost/benefit framework for regulations, and trade liberalization.

Similarly, growth over time requires broad-based economic well-being – to generate demand, enable workers to access the necessities of life, reduce social friction and, most importantly, attract popular support for policies aimed at the growth. But too often, those who focus on growth fail to measure distributional effects correctly.

The path to political recovery is very uncertain. But there are also reasons for hope. Politics can change quickly in the United States, and we have a history of political resilience and a vibrant society.

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