Does Capitalism Work For The Middle Class?

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I believe in capitalism. Having started four companies and created hundreds of jobs, our economic system is at the heart of what I do for a living. But I don’t think you can look at the data and say that capitalism is working well today – especially for the middle class.

The fall presidential election could hinge on this issue and it is a debate well overdue and worth having. We simply cannot sustain a system where all the gains flow to a very few at the top and the majority of the population stagnates. And while there are companies that are doing good work and the non-profit sector is helping as best it can, the problem with the system dwarfs our respective contributions. Consider:

• Median income for middle-class families is down after a decade of trillion-dollar tax cuts
• Cumulative productivity gains by the U.S. labor force for the last 10 years have been north of 60 percent and virtually none of that gain has gone to the bottom 90 percent
• Business profits are now at a record level of 14 percent of GDP while wages are at a record low, at 45 percent. These trends have been underway for years
• U.S. social mobility is now one of the lowest in the developed world. It’s getting more difficult to move out of the lower class and, conversely, to fall from the top. We are, in effect, creating a permanent aristocracy
• The top 1 percent of wage earners own almost 40 percent of the country's assets and this has been growing over time
• Schools in low- to middle-income communities have lower tax bases and so are significantly under-financed relative to schools in affluent communities whose tax bases have not fallen much after the housing bubble burst
• The cost of higher education continues to grow well above inflation of median wage growth, which means more and more families are priced out of the only realistic means of advancement
• College graduates from even top colleges are having a difficult time finding employment
• Research and development investment as a percent of gross domestic product (aka the future) has been falling for decades

The list goes on and on. Something isn't right. We have now reached a point where the very vibrancy of the system is at risk. If middle-class citizens can't get decent paying jobs then they can't become decent paying customers. And unless the middle class gets a pay raise or their employment increases, the picture doesn’t look very promising.

Worse, the system has become increasingly short-term focused. Again and again we see the long term sacrificed for the short term. Jeff Immelt, CEO of GE talks eloquently about how we have had a 40 year decline in R&D as a percent of GDP. A few years ago Hewlett Packard had a CEO who got accolades for hitting the cover off the ball in quarterly earnings. One of the main ways he did this was he slashed the R&D budget over and over to goose short term results. And if it starved the product pipeline no worries, that CEO is now long gone after getting out-sized bonus rewards. 

China’s  brand of capitalism thinks long term. Just look at the huge investment they are making in clean technology. We need to be that way too. Of course, there were  howls of protest  because the federal government made a number of clean tech bets and one called Solyndra went bust while many others are doing fine (note: professional venture capitalists have this kind of track record, too).

What’s the solution? Tax cuts are not the answer. I don’t need lower marginal tax rates. I need more customers. I don’t need estate taxes to go to zero so my kids can live off dividend checks. I need a better educated workforce. In fact, I'm more than glad to pay more if the money goes to making longer term investments in infrastructure so our wireless broadband is the best in the world (it is decidedly not). I need good k-12 schools so the next generation hits the labor force with the right skills. I need our local universities to continue to access government R&D dollars so they can fund innovative thinking. I need college kids to come out of college without back-breaking loans.  None of this is happening.

What we—what I need as a job creator -- is a kind of progressive capitalism that implicitly says: we're all in this together even if the rewards are different based on our own abilities.