Greater Capitalism: How the pandemic is currently reshaping America’s economic system for the better

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ForbesRandall Lane | May 26, 2020

greater capitalism - Greater Capitalism:  How the pandemic is currently reshaping America's economic system for the betterIn a matter of weeks, Covid-19 spurred seismic shifts in how we work, learn and transact, and it helped usher in a new era that is smarter and fairer.

The surreal year 2020 produces a personal Groundhog Day effect. The clock moves at one-quarter speed as the time-numbing diversions and necessities of a century ago, from jigsaw puzzles to yeast, fly off the virtual shelves. Simultaneously, though, the world is transforming at a pace unlike any experienced since World War II. In a matter of weeks, seismic, permanent shifts have occurred in how we work, learn and transact. The most significant shift is taking place in our economic system itself.

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Capitalism, the greatest engine for prosperity and innovation ever created, was already under strain before the coronavirus pandemic. Despite a decade of impressive economic growth and job creation, a plurality of Americans still reported feeling as though the system was rigged, that hard work and playing by the rules no longer ensured success.

“It is scary when you had the lowest unemployment, the lowest African-American unemployment, the lowest Hispanic unemployment, the lowest women’s unemployment,” says Michael Milken, who has sat in the middle of several of these cycles, “and that’s how people felt.”

Those feelings have only accelerated this spring, particularly among the young. At the end of February, during the last week of the pre-Covid era, Forbes surveyed 1,000 American adults under age 30 about capitalism and socialism. Half approved of the former; 43% regarded the latter positively. Ten weeks, 80,000 deaths and 20 million unemployment claims later, we repeated the exercise, and those already dismal results had flipped: 47% now approve of socialism, 46% of capitalism. You can see those changing sentiments playing out in public, as ideas such as universal basic income, rent amnesties and job guarantees move rapidly from the fringe to the mainstream.

Amid the chaos and the disorienting paradigm shifts, though, something profound is also happening: The Invisible Hand is operating on itself with dispatch.

As one of the patron saints of capitalism, Joseph Schumpeter, could tell you, the creation of a new system requires the destruction of the old. So count Milton Friedman’s legacy as another coronavirus casualty. It was already on life support; even the fusty Business Roundtable declared last summer that Friedman’s shareholder-first dogma no longer held sway over its members. The funeral rites can now be witnessed at any grocery store or aboard any UPS truck, where the low-paid heroes previously termed “unskilled workers” are now known, with respect, as essential. Pity the CEO who argues for paying them as little as possible in order to protect the quarterly dividend.

The Too Big to Fail playbook from the last meltdown has proven archaic as well. From crowdfunding to cryptocurrency, the economic action became decidedly more bottom-up during the 2010s, and a pandemic taking particularly cruel aim at the entrepreneurs running businesses like restaurants and barbershops has many sharpening their pitchforks. Shake Shack founder Danny Meyer never embraced Milton Friedman—his customers, employees, neighbors and investors mostly worship him. But when his large, well-capitalized, publicly traded hamburger empire had the temerity to take a federal Paycheck Protection Program (PPP) loan, the public outcry could have melted chocolate custard, prompting Meyer to quickly return the check.

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Finally, we’ve ended the era of economic incrementalism. Slow and slight improvements don’t cut it right now; “as good as” isn’t good enough. The times demand systemic solutions greater than what we had before. Greater Capitalism.

If Friedmanism worshiped profits above all, this Greater Capitalism measures return on investment in all facets. Yes, it incorporates a large dose of the stakeholder economy that has slowly made headway over the past few years. But its roots lie not in big companies but in small businesses and entrepreneurs who ask for little more than a fair chance and a level playing field. If practiced correctly, Greater Capitalism will encourage the kind of smart, long-term, accretive actions that create permanent solutions.

Three binary formulas, “greater thans” all, encapsulate what’s been emerging over the past few weeks. History is unspooling in real time.

 

Ray Dalio

As the pandemic hit, Ray Dalio, whose Bridgewater Associates is both the largest and most hyper-rational hedge fund in the country, noticed something: As the kids of his native Connecticut were dispatched to attend school from home, the economically disadvantaged were doomed to fall further behind. Many were food-deprived, living amid density that both deprived them of private space and increased their likelihood of getting sick. And 22% did not have access to any home computer, much less one of their own, or reliable connectivity.

“I saw a real tragedy,” Dalio says. “And I saw a bunch of people pull together to say, ‘This must not happen.’ ”

Lubricated by an earlier $100 million pledge from Dalio, matched by the state of Connecticut, that “bunch of people”—including Bill Gates and Microsoft, Michael Dell and Dell Computer, and the legislative and educational leaders of the Nutmeg State—got 60,000 fully loaded computers delivered to low-income students.

For Dalio, who Forbes estimates is worth $18 billion, that decision was a no-brainer: an ROI-driven result at the heart of a Greater Capitalism. It’s also a harbinger of where philanthropy is going right now.

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Ray Dalio - Greater Capitalism:  How the pandemic is currently reshaping America's economic system for the better

A subset of intellectuals have been railing against philanthropy of late, arguing for confiscatory tax rates to prevent the richest from having such societal influence. It’s lousy economic policy—while most billionaires have already girded for some kind of tax increase no matter who wins the 2020 election, Beatles-style rates would suppress growth more than generate revenue.

It’s also lousy public policy. Democracy is structurally poor at long-term outcomes. The cost of imprisoning a person—financially, much less socially—is many multiples of what it would have cost to educate and nurture him properly. But good luck persuading politicians to invest in 20-year outcomes when they’re simultaneously tempted by the sugar high of immediate action. Philanthropy can serve as risk capital for problems, proving concepts and making the mistakes that governments don’t dare.

But philanthropy, as currently practiced, has invited such scrutiny. Despite large subsidies in the form of upfront tax breaks, some $4 trillion mostly sits around perpetually waiting for the problems of tomorrow to arrive rather than systematically attacking the problems of today. By law, charitable foundations must put at least 5% of their assets to work every year—and for most of them, that 5% floor is also a ceiling. Meanwhile, the 730,000 trendy donor-advised fund accounts have managed to score the same tax breaks without any annual minimum outlay whatsoever.

The pandemic has highlighted this problem. At no point in our lifetimes has the public need been greater—and yet, because endowments have fallen in tandem with the market, the amount of philanthropic activity is likely decreasing.

And so key players are using this moment to morph philanthropy with an emphasis on transparency and a “give while you live” philosophy.

Exhibit A: 43-year-old Twitter and Square cofounder Jack Dorsey, who recently made headlines for pledging $1 billion toward the coronavirus crisis and related problems—and has been logging his donations one by one in a public Google Doc.

In May, a group of more than 275 philanthropists and professionals, led by the $100 million Wallace Global Fund, formally called on Congress to double the minimum outlay for foundations and donor-advised funds, for the next three years, to 10%—a move that would put another $200 billion to work. “It’s not about being a financial headstone that forever marks your coffin,” says Abigail Disney, one of the signatories.

“This should be about what the world needs, not how people remember you.”

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Meanwhile, according to insiders, various signatories of the Giving Pledge have been holding discussions regarding whether to move past the group’s famous agnosticism about when and where to give (other than at least half their fortune before or when they die). Ideas include a pooled response fund to tackle Covid-related issues and efforts to encourage the give-while-you-live ethos. (No decisions have yet been made.)

The stakes right now couldn’t be higher. Economic tumult emboldens the fringes. During the Great Depression, communism, isolationism and nativism all surged—and that was before social media. Instead, a decade after the Depression, American businesses were the envy of the world, and American workers achieved a quality of life their parents and grandparents couldn’t have fathomed.We’re at that same crossroads right now: toward a Greater Capitalism, or a continued societal fraying, and the sobering alternative that this would all be for naught.

“We will have a revolution of one type or another,” Dalio says. “Either it’s going to be bad. Or we can do this thoughtfully, together.”

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