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Wednesday, December 11, 2019

“Common Good Capitalism” Is No Substitute for Free Enterprise

Promoting economic freedom should be our policy priority.

Image Credit: Flickr-Gage Skidmore | CC BY 2.0 (

The notion that, left unguided, without any sort of of policy involvement, the market will solve our problems will not restore a balance between the obligations and rights of the private sector and working Americans.

Senator Marco Rubio, Nov. 5, 2019

Senator Marco Rubio and his common good capitalism advocates may mean well. But as Milton Friedman tells us, we don’t judge policy based on intentions but consequences. In a recent speech, the senator attempted to articulate the nebulous notion of common good capitalism, suggesting that what some call unfettered capitalism is harming workers, causing despair, undermining religious observance, and ultimately corroding civic institutions.

Far from Unfettered Capitalism

Anyone who thinks we have “unfettered capitalism” has not recently seen printed volumes of the Code of Federal Regulations and Internal Revenue Code. America’s corporations are subject to a confusing web of federal, state, and local laws, regulations and taxes.

Writing in the New York Post, Senator Rubio declared:

I don’t propose we give up on capitalism. I propose we examine the public policies our nation has in place which shape the type of capitalism we have.

We welcome this opportunity to discuss free enterprise and economic freedom, a much-needed conversation during a time when capitalism’s favorability among millennials and Gen Z, who comprise a significant portion of the electorate, stands at alarmingly low levels.

During Sen. Rubio’s speech, he noted that, 

Capitalism has lifted millions of people out of poverty, more than any other economic system in human history.

Despite acknowledging the liberating power of free-market capitalism, he pivots to a call for governmental interventions into the market. He writes that, 

businesses also have an obligation to reinvest…profits productively for the benefit of the workers and the society that made it possible.

Conflating Moral Questions with Legal Imperatives

Although this may sound benign, Rubio errs in conflating potentially moral and ethical questions with legal and contractual imperatives. Common good capitalism casts shade at free enterprise, suggesting that the federal government ought to police business investments and corporate decisions to ensure favored outcomes as defined by the federal government.

Sen. Rubio declares that public problems require public solutions. We would argue that before we opt for a broad, one-size-fits-all federal regulation in response to a problem, we should ask if it can be dealt with more efficiently and respectfully by private action; through individuals and civic organizations. It’s a bit surprising that Sen. Rubio, while highlighting his faith in both his speech and writing, seems to abandon the Catholic doctrine of “subsidiarity,” a principle that teaches that problems should be dealt with at the most local, decentralized manner feasible.

Senators like Rubio are in a poor position to tell American corporations how best to make strategic decisions to innovate and grow. 

In keeping with this principle of subsidiarity, we don’t believe federal policies can deal with challenges like deaths of despair and family dissolution as effectively or compassionately as private, voluntary action by caring individuals, family members, local churches, and charities.

Despite his moral appeals, Sen. Rubio fixates on mundane corporate stock buy-backs. While he voices concerns about the tax treatment of how corporations return capital to shareholders through stock buy-backs, his underlying concern seems to be that corporations are not spending as much on research and development as he deems appropriate. As we have written before, senators like Rubio are in a poor position to tell American corporations how best to make strategic capital expenditure decisions to innovate, grow their profits, and maximize profits for the owners of the corporations (i.e., shareholders).

Do Businesses Have a “Common Good” Duty? 

The reality is, the senator doesn’t approve of the decisions American corporations make with their money. For instance, he calls on businesses to fulfill their “common good” duty (presumably defined by newly created government regulations) to ”creat[e] new jobs or higher wages.” This, at a time when the United States is currently experiencing the lowest unemployment rate in 50 years.

And if his push for higher wages sounds vaguely familiar, it’s because it taps into the same interventionist appeals made by many progressive politicians that call for raising the minimum wage. As we see time and again, any sort of wage regulation harms workers by incentivizing corporations to cut payrolls, automate, or outsource jobs overseas.

Outsourcing jobs to China is a particular concern of Sen. Rubio’s. To be sure, trade competition with China has disrupted jobs and caused marginal factories to be shuttered. And we recognize that trade with China presents thorny issues involving national security and intellectual property misappropriation. However, as trade expert Scott Lincicome has written,

We can’t blame all of the struggles of the working class on “China Shock” (resulting from the establishment of permanent normal trade relations with China).

Lincicome continues,

The relatively steady decline in manufacturing jobs as a share of the U.S. workforce shows only a modest change before and after PNTR passed and China entered the WTO.

We think Sen. Rubio overstates his case when he says that “other nations are taking the leading role in the manufacturing of high-value goods.” Products aren’t just made in one town anymore. Global manufacturing now involves internationally integrated supply chains with products containing parts made and assembled across the globe. Plus, America still manufactures many high-tech products and equipment. In fact, American manufacturing productivity has increased over the past three decades thanks to technological innovation and automation.

Good Intentions Do Not Equal Good Results

Furthermore, competition isn’t merely global. Cities and states compete for companies and skilled workers. Rust Belt states with high taxes and regulations failed to adapt to trade competition, while states like Texas and North Carolina attracted investment, companies, jobs, and families. This interstate migration has occurred since our nation’s earliest years. Instead of resorting to a national industrial policy, struggling states and cities should examine how to improve their local business climate to attract more manufacturers, as well as high-tech industries and jobs with tomorrow’s labor market in mind.

Common good capitalism may be based on good intentions. But once a policy is declared to achieve the “common good,” the moderating principles that limit government intrusion into our lives and economic affairs begin to take a backseat.

So, no. We should not cede our economic freedoms when so many states and cities have failed to adapt their laws and regulations for a competitive local economy and our public schools across the country have failed to equip students with skills they need for the future of work. Before we invite more regulations, taxes, and restrictions, we must take an honest look at the ways we have failed to adequately prepare Americans for this shift in the labor market.

Rather than surrendering our economic freedom, we should insist on a principle that favors free-market and market-oriented policy solutions.

Perhaps the government should not have pushed for universal college attendance while dismissing the benefits of trade school. Maybe state and local governments shouldn’t have caved to NIMBY calls for zoning restrictions that marginalized the poor and blue-collar workers looking for affordable housing. Does the government share any of the blame when it comes to price controls, skyrocketing health care costs, and the student loan quagmire?

Rather than surrendering our economic freedom, we should insist on a principle that favors free-market and market-oriented policy solutions. When legitimate issues of national concern are identified, federal lawmakers would be wise to assess whether an onerous government policy contributed to the problem. In already highly-regulated industries, we should prioritize market mechanisms to redesign existing regulatory regimes and make our industries more competitive and transparent, while combating cronyism and regulatory capture.

Once lawmakers have done all they can to lift the burden of regulations and undo the unintended consequences of poorly designed policies, any new policies should be limited to narrowly-tailored rules that ensure fair, transparent operations of markets. Doing so would unleash greater economic growth, fuel job creation, and allow Americans to seek the good for themselves and their families.

  • Brooke Medina serves as director of communications for Civitas Institute, a state-based public policy organization dedicated to the ideas of limited government and liberty. She sits on the board of ReCity Network, a non-profit committed to helping social entrepreneurs and community organizations tackle issues related to poverty. Brooke’s writing has been published in outlets such as The Hill, Entrepreneur, Washington Examiner, Daily Signal, FEE, and Intellectual Takeout.

  • Doug McCullough is a corporate attorney at the Texas law firm, McCullough Sudan, and is a director of the Lone Star Policy Institute. Doug is a co-host of The Urbane Cowboys, a podcast on policy, society, and innovation. He is a National Review Institute Regional Fellow and Better Cities Project Fellow. He is a regular contributor to Foundation for Economic Education, and has been published in Entrepreneur, The Hill, Washington Examiner, Arc Digital, Houston Chronicle, and San Antonio Express.