Every country, including the United States of America has tried and continues to try to reduce income inequality. It was primarily about reducing income inequality that nationalities fought civil wars in Italy, France, Russia, China or evil individuals such as Hitler, Osama Bin Laden, etc. emerged as overnight liberators. Besides violent methods, nationalities also recommend literature, host seminars, and write books/articles in order to fine-tune the economic system.
And so in the US, economists and prominent personalities are recommending a series of proposals to address income inequality. Among the recommendations, Thomas Pekittey’s tax reform has become a hot topic. He observed that income inequality in America would continue as long as the US economic system was not reformed. Welcoming the idea of reform, Mr. David Brooks, a columnist of the New York Times, did ask if capitalism would become innovative as it did in 1787.
But before raising his hope that capitalism would become innovative, Mr. Brooks stated that not every country is plagued by economic woes during this 21st Century. In his article called "The Big Debate," he stated that autocratic governments (I think he meant countries that receive dividends as shareholders from lucrative assets) are more progressive than democratic governments (I think he meant countries that receive taxes, but zero dividends from lucrative assets). Quoting from a book called “Fourth Revolution,” written by John Micklethwait and Adrian Wooldridge, he said the Western Model of economy has failed. China, Singapore, etc., even though they are corrupt, are not only perceived as being progressive, but they have better schools, effective pension programs as well as the practice of long range planning.
A case in point, with state-owned entities remitting huge dividends to Chinese coffers, China has not only accumulated two trillion dollars in cash reserves, but it is also undertaking gigantic projects. For example, the socialistic country is contemplating building a railroad between the Chukotha Peninsula in Russia and the Seward Peninsula in Alaska, U.S. (Washington Post, May 19, 2014). Also, China has promised to invest into the construction of the Nicaragua Canal in Central America. Besides practicing the idea of long range planning, socialistic countries are innovative, Mr. Brooks added.
How? This is because technocratic elites design economic life in autocratic states, Mr. Brooks continued. But in democratic countries, owners of lucrative assets or private capitalists determine the economic life of both big business and the community, an economic arrangement that usually favors the highest political contributors.
Wait a minute, is Mr. Brooks implying that Chinese smartness enables them to have accumulated $2 trillion dollar excess cash reserves? Or is it because the Chinese state-owned entities usually remit huge dividends to government coffer? Also, is the long range planning a result of Chinese ingenuity? Or rather, is the long-range planning happening because China's excess cash reserves reduce the fear of the unknown? For example, less concerned about how much money it might lose from investing into long-range projects, China continues to spend billions of dollars into gigantic projects in third world countries, where corruption is rampant. Further, is Mr. Brooks implying that the US cannot finance pension, education, etc., because America’s ineptness?
Certainly, not. A country that is inept can’t be the home of many of the economic laureates, best inventors, etc. Besides that, America, as a country, has more wealth than any other country. America is not investing in long-range projects because non-governmental capitalists have and continue to accumulate huge wealth, while the would-be “Entrepreneur State” or state-capitalist receive minimal share of the dividends of America’s $17 trillion dollars of productivity.
Mr. Brook concluded by asking if Democracy will champion innovation as it did in 1787. Mr. Brooks’ question presupposes that America will become innovative even when capitalists (i.e., private owners of lucrative assets) relocate from America to another country; America will become prosperous while big business continues to downsize employees and manipulate mortgages that ordinary residents are now expensing about 50% of their disposable income on housing; America will become competitive even though private capitalists are monopolizing to the extend, for example, that four airline-United, Delta, American and Southwest-control 71 percent of the market.
If there is nothing that stifles competition, Monopoly does, argued Eduardo Porter in his article called “concentrated Markets Take a Big Too On Economy.” He stated that a monopolistic economy hurts competition because it increases prices. More so, quality and innovation suffer as well. Why? This is because “Successful incumbents are often tempted to acquire start ups that begin to pose disruptive threat rather than face them down the road,” Professor Carl Shapiro, a former member of President Obama’s Council Economic Adviser said.
It wouldn’t matter much if corporations did acquire start-ups, but if they promoted innovation or increase spending in research and development. Unfortunately, corporations do not invest in research and development, according to Martin Wolf the chief economic communicator of the Financial Times. Why? This is because’ “Corporations today often spend surplus cash on share buybacks rather than on fundamental innovation.” Ms. Teresa Tritch in her NY Time Editorial called “America’s Underappreciated Entrepreneur,” said Mr. Wolf made the statement in support of his view about the idea of an “Entrepreneur State.”
Predictably, Mr. Thomas Piketty’s proposed tax reform, or proposals from the would-be David Brooks Committee might not save capitalism from its excessive greed or reduce the adverse effects of corporate shortcomings. Rather, according to Ms. Teresa Tritch, America should consider Mariana Masucato’s advice detailed in his book called “The Entrepreneur State.” Mr. Masucato, an economist at the University of Sussex, who has specialized in innovation, stated that government and private capitalists take risks together, it wouldn’t just share in the dividends, but, as a shareholder, might prevent big business from relocating, downsizing, buying up competitors, manipulating interest rates of student loans, etc.
In fact, government has always being a partner in economic activities except when it comes to sharing in the rewards (dividends) argued Professor Mazzucato. He stated that the government, for example, "participated in 'all the technologies which make the iPhone smart,' including the Internet, wireless systems, etc. Without government, the technological revolution that has allowed iProducts to exist would not have happened," he stated.
More so, he argued, "The private sector never has been and never will be up to the tasks like that. Even in the bygone heyday of Bell Labs, corporate investment was alongside, not in place of, government investment. Today, the scope, duration and cost of breakthrough research are either beyond the private sector’s corporate and philanthropic resources or outside its profit model."
Most importantly, it has always been the philosophy that those activities that benefit majority of the community shouldn't be left in the hands of individuals. Therefore, let the government become an entrepreneur for those economic activities in order to prevent unscrupulous investors from creating adverse conditions, such as relocating firm from America to another country, monopolizing, downsizing, etc.