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Capitalism with American characteristics

Fri, Jan 9th, 2009
Posted in Commentary

When Deng Xiao Peng emerged from exile after the Cultural Revolution in 1978 and started espousing economic reforms for communist China, he talked about "capitalism with Chinese characteristics."

Over the last 20 years, China's economy has seen phenomenal growth, with near double digit annual GNP, which has increased the standard of living for millions of people. What China couldn't accomplish with a centralized command economy, with government the main provider of goods and services, it was able to do by embracing market forces.

America finds itself on the opposite end of the capitalism paradigm. Unrestricted economic activity, including easy credit for home mortgages, has led to chaos in the banking system and a loss of consumer confidence.

President Bush's bailouts of Fanny Mae, Freddy Mac, the banking industry and Detroit automakers are recent attempts to back up free market entities for fear of a greater collapse of the economy. This economic nationalism, where the government takes an investment stake in private enterprise, is not unprecedented (remember the bailout of Chrysler in the early '80's where government backed bonds were used to keep the automaker afloat). But the scale in which government is pumping money into private industry to shore up key sectors of the economy is reminiscent of the depression-era 1930's.

In her book The Forgotten Man, Amity Shlaes, documents the successes and failures of Franklin Roosevelt's New Deal to create jobs through public works programs.

One example of how President Roosevelt used government to provide solutions was the electrification of America. Shlaes writes that Roosevelt had four goals:

"The first was to provide electricity to homes and farms - many farms were still without. The second was to increase the use of electricity in all homes, providing Americans with a better standard of living. The third was to reduce the cost of electricity to the average consumer. And there was a fourth...that through the electricity industry the New Deal might create a new and more prosperous form of society."

Roosevelt accomplished electrification through government investment in building dams (public works) and by taking on private utility companies by creating the Tennessee Valley Authority (cooperative utilities).

In addition to putting people to work, Roosevelt created new social programs like Social Security and reformed the banking system by creating the Federal Reserve. These programs helped restore public confidence in government, and eventually the economy.

Some economists say our present recession is so deep that our greater fear is that the economy could sink into a depression.

There is much talk about a trillion dollar stimulus package that will be implemented when Barack Obama is sworn in as president on January 20. It is expected that this will include tax cuts to the middle class, public infrastructure projects to put people to work, and other programs aimed at stimulating the economy.

Energy may be for Obama what electricity was for Roosevelt as the president-elect tries to re-tool America away from fossil fuels and toward renewable energy.

National Health Care may be for Obama what Social Security was for Roosevelt; since World War II businesses have been the primary provider of health care benefits - this will change as business finds ways to cut costs.

And regulation of the banking industry and Wall Street may be for Obama what the Federal Reserve Act of 1935 was for Roosevelt in restoring public confidence in our economic system.

In a recent article in Newsweek entitled, "Can Obama Save Capitalism?" Fareed Zakaria writes that Obama has three tasks ahead of him:

• Restore public confidence.Consumer spending which drives much of our economy has fallen off as job losses and worries about the economy have reduced consumer confidence.

• Give people a sense that the financial system is stable and predictable. Markets need certainty and predictability to work in order to attract investment.

• Reform the system itself. By changing the rules and regulations, and in essence the American economy, it will restore world-wide confidence in the American system.

If Obama is successful in turning the economic tide, what will emerge out of the recession will be a more regulated American economy. Call it a new capitalism - one with American characteristics.

John Torgrimson is the editor of the Fillmore County Journal. He can be reached at editor@fillmorecountyjournal.com

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